Weekly Round-up
Remember this Tweet from last week?
On the surface, SBF is saving crypto, but when we look into the details of the deal, it’s not as glamorous as it may seem.
This week we cover:
- FTX BlockFi Bail-out
- Goldman buying Celsius’s assets
- Bancor collapse
- CBDCs on the horizon
- DyDx launching their own chain
Let’s dive into it!
Sam Saves the Day?
Sam’s two firms, FTX and Alameda, have offered credit lines $250 million and $500 million to both BlockFi and Voyager, respectively. Both deals have different terms, but look like they’re positioning Sam to takeover both once the storm has cleared.
Why is this worth it for Sam?
This would wipe off all other current equity holders, including prominent names like Anthony Pompliano and Mark Yusko of Morgan Creek Capital.
This is likely more of a strategic userbase acquisition than anything else. For the price of just $250 million, FTX can acquire BlockFi’s reported 500,000 customers. For comparison, FTX US was last reported to have 1.2 million users earlier this year.
For Voyager, the deal will mostly cover the roughly $650 million loss the company took from lending to 3AC, who as we discussed last week, is now insolvent.
Alameda owned 11.6% of Voyager shares prior to the loan, as of now it does not appear that Alameda has any equity options in place as was the case with BlockFi, but more details will likely be revealed in the coming weeks.
Goldman Enters the Fray
This is far less than Celsius’ reported $12 billion in assets they managed as of May, but hey it’s better than zero.
Of course getting in touch with Celsius CEO, Alex Machinsky, may be a bit difficult at the moment as he may or may not have been detained yesterday while attempting to flee the United States.
We hear Hollywood screenwriters are frantically preparing their scripts as we speak.
From the Mafia
Listen on Spotify or Apple Podcasts, or watch on YouTube:
Chart Chat: After 1 week we’ve rebranded Markets with the Mob to Chart Chat. The structure is still a work in progress — we cover set-ups for Bitcoin, alt coins, and trading advice.
Markets overview:
As we stated last week:
We’ve since been consolidating in the 18K – 21K area, and a local bottom may be on the table in the short term.
Nothing has really changed on our end. Still thinking that we’re in a range until proven otherwise.
On the higher timeframe we’ve lost a channel that we’ve been in for nearly 300 days and have still yet to reclaim a key order block.
Covered in our TA series, a push up to ~23K could give us enough momentum to see further downside.
If you want to check out our analysis more in-depth, we cover our outlook for the week in our weekly TA video.
Bancor’s Impermanent Loss Becomes Permanent
What is Impermanent Loss (IL)? It’s too complex a concept to explain in one paragraph, but here’s our three bullet summary:
- DEXs need liquidity in order for users to be able to trade
- Most commonly Liquidity Providers (LPs) in exchange for a fee will provide liquidity into a pool, ETH-USDC for example, by providing both ETH and USDC so traders can swap for either
- If there’s lots of demand for one side and less of the other, LPs will automatically sell off more of the rising side and buy more of the dropping side to keep it balanced, often leading to an overall loss which is called Impermanent Loss
Side note: IL is a great example of a DeFi concept that many have a surface level knowledge of, but lack a deeper understanding. When people lack a deeper understanding protocols like Bancor are able to fool users into thinking they’ve come with a magic solution.
This is why we are currently developing an advanced DeFi Guides program that will be completely free. We hope to have it out within the next month, stay tuned!
So what did Bancor do that was “unique”?
They offered LPs the ability to ‘single side stake’ meaning instead of needing to provide ETH and USDC, referring to the example above, they could provide only one of the tokens instead.
In order to make up for the IL, they would pay out users the difference in their BNT token. Of course a method like this can only last so long, and in high volatility environments like we currently face, IL is tremendously high as well.
In order to compensate LPs for all of the IL they were facing they had to print more and more BNT, which most LPs would then immediately dumped to cover losses. This sent the BNT token into an inflationary death spiral and forced the Bancor team to pause the IL protection to prevent BNT from pulling a LUNA.
U.S. CBDC Proposal
TLDR of why this is bad:
- CBDC = Digital dollar, this would likely increase anti-Bitcoin regulatory pressure
- U.S. government would gain a massive amount of power over civilians, being able to monitor all financials and dictate how people use their money
- Fewer checks and balances — Increased influence by congress over monetary policy, making money printing and spending even more political
- American freedom is comprised
Congressman Tom Emmer made a statement in January stating that CBDCs would put us on a:
“path akin to China’s digital authoritarianism”
While still in its nascent stage, the fight against CBDCs will become increasingly important as blockchain adoption continues to grow. China’s digital Yuan has been a disaster.
If the U.S. was to launch it’s own version of this, there’s nothing stopping a dystopian world spawning where everything we do is monitored, controlled, and regulated by a central entity.
Financial freedom is core to human rights. CBDCs clearly infringe upon this, and is a larger concern the industry must put at the forefront to ensure the longevity of why crypto was created in the first place.
DyDx launching their own chain
This move was prompted by the team for a push towards ‘full decentralization’. They also go on to state that their move from Ethereum was due to throughput needs.
But is that truly the reason for the move?
Ethereum scaling solutions are hitting their adoption phase, and with protocol investigations like Rari that we covered last week emerging, this move could be the start of a trend we begin to see in the coming months.
One of the larger concerns DeFi protocols face is the ‘Howey Test’.
This is a guideline around whether something can be deemed a security by the SEC outlined below:
- It is an investment of money
- There is an expectation of profits from the investment
- The investment of money is in a common enterprise
- Any profit comes from the efforts of a promoter or third party
DeFi protocol tokens, DyDx included, offer their token holders a share of the revenue from the trading platform.
Under the Howey guidelines, this clearly deems them a security.
Switching to an Appchain allows them to somewhat bypass this, it would make the token act similarly to Ethereum itself (which is deemed a commodity under US law), because DYDX token would now need to be staked to ensure network security, and DyDx would be able to offer staking rewards rather than a revenue share.
The move is interesting to say the least, and something to watch out for as we could start to see a migration of dApps to Cosmos and other appchain infrastructures such as Avalanche Subnets and Polygon Supernets to bypass this regulation.
Top News Stories:
- Solana is launching a Mobile Phone
- Uniswap acquires NFT Aggregator Genie
- Harmony gets hacked for $100M (There was that much $ over there..?)
Feature of the Week: @Jubrlee
It’s one of the better pieces we’ve read in that it both gives great explanations of complex topics but keeps things light and approachable.
Do you know what price windows, continuous token models, or bonding curves are?
If not, you should. And this article breaks these concepts down beautifully.
Wrap-up
This week we covered:
- FTX BlockFi Bail-out
- Goldman buying Celsius’s assets
- Bancor’s collapse
- CBDCs on the horizon
- DyDx launching their own chain
Things to look out for this week:
- FTX acquisitions
- Goldman updates
- Developments on 3AC
As always, if you enjoyed the content make sure to check us out on our other channels, and we always appreciate any shares on Twitter!
See you next week.
