This Week Part 1: Ponzinomics, UST, Near, Identity/Reputation, Fundraising & DeFi
A summary of the dominant narratives and how this market is shifting and evolving
Another week of madness and insanity that is fascinating to watch. In terms of the dominant narratives coming up this week, here’s my rating of them from my curation system:
Ponzinomics = 9 Points
Fundraising = 7 Points
Identity & Reputation = 5 Points
UST = 4 Points
Near = 3 Points
Adoption = 4 Points
DeFi = 4 Points
Curve Wars = 2 Points
Stablecoins = 2 Points
To summarise a lot of what happened last/this week:
We had tons of ponzi games come up. The predominant one was the whole UST/Curve play with now Near and USN potentially joining the race as well. In addition we had ICHI do some pretty crazy stuff with Uni v3 liquidity management that didn’t end well. Identity/reputation was a strong counter-narrative to ponzinomics and feels like the need and growth of the narrative picked up traction this week in response. The remainder of this post is focused around fundraising, DeFi and some general DAO related things.
Let’s get started.
Not a week goes by these days without talk about UST, Terra and Do. This tweet storm is particularly great as it shows what’s really going on behind the scenes. For those of you that don’t know, Terra is basically trying to sell as much Terra possible without tanking the price and in a very convoluted way that doesn’t make people think that they’re actually selling Terra. Amazing ponzinomics as long as you’re not the one getting rekt (Curve LPs lol). It feels like CRV is the place you go as an LP if you want to be exit liquidity for the latest ponzi in town.
To better understand what I mean by Curve LPs are exit liquidity in this entire game I recommend reading this thread of how this complex financial game is being played out in front of our eyes. Remember, the more steps and places you place your tokens the less you probably understand and the higher the probability you’re being rugged. Read this thread if you want a 101 in ponzinomics.
Just in case you want another thread about the mechanics of how this is all playing out. TFL labs is trying to off-load the Terra on their balance sheet without tanking the price and maximising the amount of liquidity it can extract from the market.
So what’s the point of all this cash? To force initial growth? The only problem is that it won’t last since the capital is highly mercenary and will leave at the next chance they get to do so? Regardless of what it is, for the first time retail will probably be making solid money off VCs paying them high yield for as long as it lasts. I can’t wait for proper financial modeling to be done around these schemes to show how terribly ineffective they are and how hundreds of millions of dollars are being wasted as we speak.
Gear up for the next few weeks of Alt-L1 native yield-bearing stablecoin season. If there’s one prediction I’ll make it’s the fact that we’re entering a huge stablecoin run coming up in the next few months fuelled by risk-averse money looking to be parked in the highest ROI place. To lead into this I present to you the next player in this game... Near.
Near raises a fresh new round of money led by Tiger Global, which on the surface sounds pretty “normal.” But what’s more interesting to think about: where is this money going to be deployed? Cue our latest new ponzi, $USN. A native yield bearing stablecoin for the Near ecosystem with a rumoured 20% APY stablecoin. This sounds all so... familiar?
The sad part about the space right now is that no one actually knows the answer anymore. Capital is abundant, places to park it are limited. If you can deploy $100m+ in size into something and it has a somewhat decent chance of mooning do you really even care about the fundamentals anymore? Probably not. Pump it.
The answer that we’re already starting to see is that people start unwinding on Terra, rotate money to NEAR and juice the yields until they run-dry, which they won’t because the influx of new money will prop the valuation up that makes the game go on longer than before. It’s all so predictable. Oh well, let’s keep the rotation up y’all while we’re in this crab market lol.
Interesting thought experiment. If you have a high risk stablecoin that your debt is denominated in, then if said stablecoin blows up or goes below peg significantly you get to repay your debt for cheap. This is actually a really nice strategy that as the market learns about more could mean higher borrow rates for algo-stables relative to other stables. Different borrow rates mean more interest rate arbs open up.
The fragility option should be a central part of stablecoin borrowing decisions Not all algostables are sustainable. Ceteris paribus, borrowing the one more likely to end up insolvent gives you a free discount upon event realizationBorrowing algo stablecoins gives you the fragility option The fragility option is the scenario where the stablecoin depegs Depegs mean you can pay your debt back cheaper This option comes free of cost to the borrower
0xHamZ @0xHamzOlympusDAO is still alive and kicking. Couple with stablecoin season coming up and the team is continuing to ship there’s a good chance we’ll see their come-back sooner than most realise.
If you want some more ponzi tricks, this is a particularly great one. You have this project called ICHI that created a pretty elaborate financial game that I won’t get into the full details of. But what they did do is concentrate the liquidity right below the current price and then whenever the price moved up re-concentrate the liquidity at a new point. Rinse repeat. People thought that “the wall” would save them from number go down — until it didn’t.
So much of this week has been around complex financial games that are quite frankly a bit disappointing to see given as crypto natives we pride ourselves on pushing the envelopes of innovation. I agree with this tweet that by late 22/early 23 we’ll see some really cool things come up. ARCx will play a role here for sure ;)
On the back of a lot of the ponzinomics we saw come out this week/last week was the rising counter-narrative that identity and reputation will really help solve the issues we’re facing. The crypto system only rewards short, complex financial game players. The system can’t reward long term orientated users who do the right thing at the moment. Without identity/reputation we’re stuck in ponzinomic hell.
Paid subscribers, please check out Part 2 :)