Mafia Mondays #4: Narratives to Follow

Aave stablecoin, privacy narrative, and Alt-L1 szn round 2?

Builders are building. This week had multiple new launches that will likely all play a notable part in the next bull cycle.

This week we cover:

Aave launches their new Stablecoin: GHO
Aztec Connect Mainnet goes live
SudoSwap’s NFT AMM launches
The next wave of alt-L1s are (almost) here

Let’s dive into it!

Aave Launches a New Stablecoin

Aave @AaveAave

1/ Calling all GHOsts 👻 We have created an ARC for a new decentralized, collateral-backed stablecoin, native to the Aave ecosystem, known as GHO. Read more below and discuss your thoughts for the snapshot (coming soon)!👇 governance.aave.com/t/introducing-…Introducing: GHOSummary Aave Companies is proposing to the DAO the introduction of a native decentralized, collateral-backed stablecoin, GHO, pegged to USD. With community support, GHO can be launched on the Aave Protocol, allowing users to mint GHO against their supplied collaterals. GHO would be backed by a dive…governance.aave.com

TL;DR

Aave is launching an over-collateralized stablecoin called GHO
It will be backed by deposited collateral on Aave, and restricted to specific safety thresholds (no minting new coins without the collateral to back it)
Fully decentralized, unlike Circle’s USDC

Analyst Note:

Frankly, this was an obvious move for Aave, and one we had discussed ourselves on our podcast as something that we foresaw Aave doing at some point.

Stablecoins have gone through a horrible few months of reputational damage, and for good reason. However, they aren’t going anywhere and will only be more prolific in the coming years. If anything the collapses and depeggings have shown exactly why thoughtfulness is crucial to stablecoin design, and smart protocols like Aave are exactly that, thoughtful.

This gives Aave more flexibility and an improved offering for users. With GHO they will be able to offer discounted borrow rates within their ecosystem creating additional incentive to attract users, as well as throw their hat in the stablecoin market with one that’s fully collateralized and issued by ‘blue chip’ protocol DeFi users trust.

With this launch, GHO quickly becomes a differentiated and attractive choice for DeFi users. The reasoning is quite simple, if we look at the top 5 stablecoins by marketcap currently we’ve got: USDT, USDC, BUSD, DAI, and FRAX.

Let’s breakdown the Pro’s and Con’s of each:

USDC – Considered safest by most, but has legitimate centralization concerns.

USDT – Largest, but questions around transparency, also centralized

BUSD – Binance’s stablecoin, similar concerns to USDC

DAI & FRAX – Both are decentralized, but use significant amounts of USDC as backing

This leaves GHO as the only decentralized stable, with fully transparent backing, and potentially low to moderate amounts of USDC used as collateral. A solid position to be in, we will be watching how its adoption develops.

Aztec Connect Mainnet Goes Live

Aztec @aztecnetwork

Aztec Connect is live on mainnet! Private DeFi comes to Ethereum for the first time ever, enabled by Aztec’s private zkRollup:

TL;DR

Ethereum smart contracts can interface with Aztec’s Rollup enabling built-in privacy and cheaper fees to dApps
Whitelisted bluechip DeFi Protocols will soon implement direct front-end integration allowing users to opt-in to using Aztec’s Rollup
Liquidity fragmentation is no longer an issue
Aztec Connect is the pre-cursor to Aztec 3 which will host Aztec’s native dApps utilizing the Noir coding language

Analyst Note:

The Aztec Connect launch is just the start of what their rollup solution could unlock in the future.

First, it’s important to understand that Aztec Connect is not just a privacy payment, bridge, or front end solution. There is an infinite amount of blockchain innovations that can be created utilizing their network, and with the coming launch of Aztec3 (native Aztec privacy dApps), the true privacy layer of Ethereum is uniquely positioned to capitalize on user, developer, and native dApp integrations. Their first launch and payments solution zk.money was a major success, and we expect the Aztec Connect launch and execution to follow suit giving them a solid user base to work with leading up to Aztec 3.

So, a couple concluding points on the Aztec Connect launch:

Privacy has been a narrative for several years with no clear winner

Aztec’s SDK could be implemented across other L1s in the future
Aztec 3 is coming

Point one forces us to consider the privacy sector as whole. If Aztec does become the default privacy layer for Ethereum, privacy alt-L1s could lose staying power.

Aztec is the first Ethereum Layer 2 privacy solution utilizing ZKRs that solve the liquidity fragmentation issue. Transparency of blockchains has been a major bottleneck withholding larger entities to play with DeFi and Aztec could unlock sidelined players into the game.

Point two raises broader outlooks on alt-L1s specifically that host the majority of their TVL from bluechip DeFi protocols. If I can have cheaper fees, privacy by default, and better liquidity, why would I use X protocol on Y alt chain?

Aztec 3 is still extremely early in development, so not much to touch on besides watching for developments as they come out. Main thing to consider is if and when they launch their own chain, what will be the best way to position for a potential airdrop?

Best guess would be based off of historical airdrops and Optimism’s:

Shielding funds on zk.money
Transacting on various whitelisted DeFi applications
Early user on Aztec3

SudoSwap Finally Launches

sudoswap @sudoswap

Announcing the public release of sudoAMM! sudoAMM is a new marketplace protocol that changes the way we think about NFT liquidity and trading. It is highly flexible, gas-efficient, and fully on-chain.

After months of delay, SudoSwap finally launches SudoAMM, their much anticipated NFT AMM platform. What does that mean and what’s unique about SudoSwap vs other traditional NFT marketplaces like OpenSea? Let’s break it down:

First and foremost, it allows for market making of NFTs, something not yet possible until now
They operate using liquidity pools similar to how a DEX like Uniswap would with tokens
Users can create LPs or provide liquidity to existing ones
Buyers can set limit orders to purchase multiple NFTs at a given price
Sellers are now able to exit positions more quickly due to instant liquidity being available vs having to list at or below floor on OpenSea
Only a 0.5% fee to allow for tighter order books
Overall a big leap in market efficiency that is much needed for NFTs

Of course, had this launched during the NFT mania earlier this year we would have gotten a real chance to see SudoSwap performing with high volumes, with the current state of the market it will be a slow process to gain adoption.

From the Mafia

DeFi Mafia Podcast: This week we’ll be hosting the team from Aztec Network and Cytus Protocol. Stay tuned

Listen on Spotify or Apple Podcasts, or watch on YouTube:

Feature of the Week

This week’s feature of the week is actually a double-feature with two separate threads that give high level overviews of new Move based alt-L1s, Sui and Aptos.

As we endure this bear market, one of our primary goals is to identify and understand what the narratives of next cycle might be, one possible narrative could be around Solana-like blockchains that utilized parallelization for scaling. The two front runners are currently Sui and Aptos.

Both chains are similar in many ways. They both use parallelization, they both use the Move programming language, and both are currently in testnet with no tokens launched yet. We’re early 🙂

We’ll have our own in-house reserach deep dives on these protocols in the future, but for now to understand the basics, here are threads by @tracecrypto1 and @state_xyz on Sui and Aptos, respectively.