Things I'm Reading
Some cool tidbits from the week
Things I’m Reading
In case you’ve been living under a rock, this tweet perfectly summarises some of the pure insanity going on in crypto/DeFi at the moment. Knowing that 0xSifu was the co-founder of an exchange that rug pulled has probably been a bigger wakeup call than most of us could imagine. I think the scrutiny on anon devs is probably going to be much higher compared to what it is right now. The other crazy part of this whole incident is seeing the MIM Curve pool dry up to be imbalanced (90% mim, 10% 3crv) and shrink to be a sub $100m pool from $3b+. I found it interesting because it goes to show that liquidity providers, especially the large ones are highly active and will move their money in an instant if you give them cold feet.
This thread gives some great articulation around the hardest problems in DeFi and what we need to push the next wave of innovation forward in the industry. The TLDR of it is that credit scoring enables much more liquidity per dollar of capital and reputation unlocks new avenues of applications that weren’t possible before. Of course I’m a little biased here but it’s great to see the conversation around these problems become more apparent and heard. Give this a read for sure.
Solid thread from Jason about the state of “Crypto VCs” (which means absolutely nothing anymore). A lot of the dynamics I’ve been thinking about were confirmed in this thread. The major problem right now with insider investors is that the actual product doesn’t really matter. It’s all about comparing valuations and using paper profits to justify profits without considering the price of illiquidity. If you want a deep dive on how primary versus secondary markets work right now, this tweet storm is gold.
Many people think that over-collateralised stablecoins are always 100% safe because the collateral backing the stablecoin exceeds the circulating supply. If there’s one thing that we’ve seen through stablecoins, OHM/forks, Nexus Mutual and many more projects is that book value/backing is irrelevant if there’s no redemption mechanisms supporting it. If you don’t really understand what that means then do give this a read for sure
Didn’t realise this tweet would relate to the above but here we are — another example of how entities that hold underlying assets without redemption mechanics create weird dynamics. In this case we have a DAO with $30m+ worth of assets and then a rogue community member putting a proposal to dissolve the DAO which got traction but also caused the price of the token to go up. It gets better though. One of the co-founders then rugs the liquidity making the price become very volatile but also constraining the market from being able to acquire a piece of the liquidated assets. The thread touches on the problems of DAOs and why the lack of redemption mechanics can always create uncertain outcomes for those playing that game.
Another one on primary vs secondary markets but this time with an insight on how it all might change. To cut a long story short, the way you make primary be in-line with secondary is by making illiquid investments more liquid (sounds obvious). I’m not sure how the actual mechanics of the mentioned project work to enable this to happen, but I do think it’d be a healthy step in ensuring that we get true price discovery across all stages of the market.
As part of the markets melting down, we had a scenario where MakerDAO has a vault owner called “7 siblings” who was almost about to be fully liquidated to the tune of $600m and probably tanking the market with him/her. Fascinating to see it happen but also kinda crazy that a protocol’s risk is concentrated so heavily in a single vault with no ability to converse with the owner. I think the future of DeFi holds something more technologically advanced ;)
Luna has been the talk of many recently, are the concerns valid or just FUD? I’m not super deep into all of this but from what I can tell it seems like the free money reserves are being drained at an increasingly faster pace and the only thing to save it is more free money otherwise some very ugly things start to take place. Usually this isn’t a big deal but when there’s $10b+ of consequences then things take a different shape/form. Another reason I liked this read is it helps you understand value flows and the gates that can be controlled which mask certain illusions. Very fascinating read.
