3 narratives I’m watching

July 13, 2023July 16, 2023 Stan

The big thing on Crypto Twitter now isn’t Twitter. Instagram just launched its new app, Threads. Zuck copied Twitter and pretty much started a blood feud against Elon. Now it makes sense why they wanted to fight last week.

I’m already posting there, so download the app and give me a follow! The vibe there is pretty calm. Feels a lot more personable than Twitter.

Here’s what we got today:

What’s on my radar? Three trends I’m watching.
How risky is Ethereum staking? Vitalik doesn’t stake most of his ETH.
Around the Web. Options Liquidity Mining, Pendle Expands to BNB Chain and more.

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham

Narratives

Trends on My Radar

Despite BTC and ETH hitting yearly highs, most people have mentally checked out of Crypto.

I can’t blame them – it has been a long bear market. However, it doesn’t mean nothing’s happening.

I will share three inflection points we should all be paying attention to.

(I’m going to ignore some of the smaller narratives. Smaller narratives have a short shelf life when there’s not much retail interest/liquidity entering the system.)

Trend #1: BTC ETFs

ETF stands for Exchange-Traded Fund. The Spot Bitcoin ETF will track the Bitcoin price on traditional exchanges.

This will make it easier for traditional investors to invest in Bitcoin. They won’t have to manage Crypto directly. Just buy the ETF on the stock exchange. This will make it easier for people to shift 401k and retirement allocation to Crypto.

So, getting the ETF approved is a game changer. Here are the leading contenders.

1. BlackRock

We have already talked about BlackRock’s BTC ETF filing. Last week, the SEC said that their proposals were inadequate. BlackRock hadn’t specified the name of the underlying market in so-called “surveillance-sharing agreements.”

BlackRock has refiled its ETF. And they’ve included Coinbase as the market that will be monitored in the “surveillance-sharing agreement.”

2. Fidelity

Fidelity Investments is another gigantic asset management company like BlackRock. They have over $4.3 trillion in Assets Under Management.

They were also trying to get their own BTC spot ETF. BlackRock’s filing has given them renewed hope. They also listed Coinbase as the surveillance partner for their ETF.

3. ARK Invest

It’s an asset management company founded by Cathie Wood. They also amended their filings to include a surveillance-sharing agreement.

Since they had applied before BlackRock, their application might be approved first.

These aren’t the only players. Grayscale is suing the SEC to convert its Bitcoin Trust into an ETF. Players like WisdomTree, Valkyrie, and Galaxy/Invesco are also on the scene.

So basically, getting BTC ETFs approved should pave the way for more institutional money to flow into Crypto. Also, a Bitcoin ETF is the trojan horse. If approved, that should make it easier for Ethereum and other ETFs to flow in.

And they’re going to love the ~6% ETH staking rate.

I believe there’s a strong chance that the ETF will be approved this year.

Trend #2: The LSDfi newcomers

LSDfi is a combination of two terms: LSD & finance. They’re financial innovations built on LSDs and ETH’s staking rate.

Here’s an example of one that has been killing it this year.

On Jan 1st, PENDLE was only 0.045. By Jul 3rd, the price had reached $1.21. That is almost 27x.

Source: coingecko

What’s going on? Well… there are many reasons. But here are three important ones.

LSDfi narrative. They’re going to expand to BNB Chain. And Binance is listing them in their innovation zone. On Jul 3rd, Binance announced spot trading pairs for PENDLE.

LSD-backed Stablecoins

There’s a new class of Stablecoins that are backed by LSDs. Remember, most stablecoins have been fiat-backed, crypto-backed, or algorithmic. LSDs open up a new category.

1) Lybra Finance

USD from Libra is an interest-bearing stablecoin. You can hold USD in your wallet, and interest will be paid directly to your wallet. They claim they can give around 8% APY.

2) Raft

$R from Raft is a stablecoin based on Collateral Debt Position, just like $DAI. Only that they use LSDs as collateral. And has two unique features.

Flash mint. You can create $R without any collateral and have to pay it back in the same transaction.
One-step leverage. Get up to 6x leverage on your staking rewards.

OG protocols aren’t sitting idly.

MakerDAO allows LSDs as collateral for $DAI.
You can mint crvUSD from Curve Finance using LSDs.

LSD indexes

In Tradfi, index funds invest in a variety of companies. LSD indexes are a way to stake your ETH and automatically diversify it among the top LSD protocols. It easily spreads out your risk. A few protocols include:

Yield boosters – deposit your staked ETH for additional yield.

There are many more LSDfi protocols. You can see a long list on this dashboard.

Trend #3: Upcoming Layers 2

In 2021, Alt layer 1s were all the rage. Chains like Solana, Luna, Avax, and others caught much attention.

Arbitrum / Optimism were the first major Layer 2s, and now we’re starting to see more coming. Some feature new technologies like ZK.

Among them, FraxChain is something that specifically caught my attention. It’ll be a hybrid rollup. It’ll be built on Optimistic rollup architecture but with zk-proofs integrated. All Frax products will be integrated into the chain as well.

Here’s the exciting part: Instead of ETH, they’ll use frxETH as the gas token. It’ll have several benefits:

More yield for staked frxETH.
Increasing the monetary premium for frxETH.

We don’t have many details. But Frax has a history of introducing innovative products and dominating the market.

These are just three trends that I found interesting. There are many more that I excluded, like Real-World Assets. What are the trends that interest you? Reply and let me know.

Revelo Intel: Your Defi Companion

It’s hard to keep up with Crypto.

Even if you’re grinding 12+ hrs daily, keeping up with the latest protocols, podcasts, and information is painful.

Wouldn’t it be awesome if you had a DeFi research team? They’re kinda expensive, but there is a hack.

Revelo Intel is exactly that – it’s a compass that will guide you in Crypto.

Here’s a quick breakdown of what they’re offering:

📝 #1 Notes (the 80/20 of Podcasts)

Why is every DeFi podcast 2 hours long? I don’t want to listen to something for 2 hrs to extract 5 minutes’ worth of alpha.

Their team listens to podcasts / AMAs and takes notes on them. The notes are good, and it’s the feature that I find myself using most often.

I love hearing Gigabrains talk on podcasts, but man, can it get boring. Thank God there are notes.

🔍 #2 Breakdowns

Details about crypto projects are distributed across project docs, whitepapers, articles, podcasts, videos, Discord, and Twitter. Collecting and synthesizing those is a skillful and time-intensive activity.

Project Breakdowns give you everything you need to know about a project. These are dense reports averaging around 12k words per breakdown.

📸 #3 Project Snapshots

Project Snapshots gives you a summary of a protocol’s performance over 30 days. It aggregates data, charts, and key events for a few protocols.

🧠 #4 Analyst Insights

In the other areas, Revelo analysts do their best to remain neutral. In “insights,” they share their opinions on the protocols as investments: the pros and the cons.

Revelo also comes with access to its private Discord channel.

The Downsides:

There are a lot of different products. I struggle to remember the difference between insights, snapshots, and breakdowns.
Most protocols covered are more well-known, such as Aave, GMX, Curve, and Lido. And I wish there were more protocols covered. (Keep in mind that this product’s only a few months old. Coverage will expand.)
I don’t know who writes the articles. Trusting some insights is hard for me if I don’t know whose opinion it belongs to (skin in the game).

Regardless of these downsides, I think it’s a good product with potential.

Sign up for a free Revelo account to sample some of their content.

There is a premium upgrade that unlocks more research reports.

Check out Revelo Intel

(The link above will give you 10% off )

Note: We’ll earn a small affiliate commission if you purchase through this link. The article is my honest opinion.

Discussion

The Staking Debate: Is It Worth It?

Vitalik said that he only takes a small fraction of his ETH.

This was surprising for many. Staked Ether seems like a much better option.

Staked Ether = Ether + Yield. Why give up free money?

In Vitalik’s words,

“Because if you stake your ETH, the keys that access it have to be public on an online subsystem. For safety, it has to be a multisig. Multisig for staking is still fairly difficult to set up; it gets complicated in a bunch of ways.”

To put it plainly, secure solo staking was too hard for Vitalik. It is kind of ironic. The techno-king of Ethereum is not staking because of technical difficulties.

What is solo staking? It refers to staking Ethereum from your own home. You’ll run a node using your hardware.

Solo-Staking Struggles

Slashing risks. If you break the rules, you will lose part of your ETH.
Capital intensive. You’ll need to lock up 32 ETH, which is a lot of money.
Loss of liquidity. You won’t be able to use the locked-up ETH. This has opportunity costs.
Technical challenges. You’ll probably need a dedicated machine for staking and actively managing it.

Liquid staking protocols remove all of these problems except slashing risk. However, they have new risks.

Liquid Staking Risks

Depeg risks. The value of your LSD may go below 1 ETH.
Slashing risks. The node operators of the protocol can get slashed.
Smart Contract risks. The code might have some bugs, and the protocol can get hacked.

Edgy’s take:

I prefer liquid staking for the extra yield. I stake 75% of my ETH via Lido, and the rest sits in cold wallets. Why Lido? It’s the largest and most battle-tested.

Some other great options include Frax, Rocketpool, and Coinbase.

We could see ETH being worth 5-figures one day each. Using some of these minor protocols to chase additional yield doesn’t make sense due to higher risks.

🚀 DeFi Catalysts

Pendle was listed in the Binance Innovation Zone. Three new spot trading pairs were introduced for Pendle.

Gravita Protocol announced that redemptions for their $GRAI stablecoin will be live on Jul 18th. It will establish a hard lower bound for the stablecoin.

ApeCoin, Aptos, & Optimism await large token unlocks in July. 15.6 M $APE tokens on Jul 17th. On Jul 12th, 4.5 M $APT. And 24.2 M $OP on Jul 30th.

PancakeSwap is going live on Polygon zkEVM. This will expand the user base and trading volume of PancakeSwap.

Revolut, a crypto-friendly neo-bank, is delisting ADA, MATIC, and SOL for US customers. The company said this move was due to regulatory concerns regarding these tokens.

Celsius, the bankrupt lender, might begin selling their altcoin positions. The judge gave their approval. Major holdings include MATIC, ADA, LINK, DOT, and SOL, among others.

Vesta Finance accepted the proposal for Vesta V2 called “Hearth Upgrade.” There are many changes, including new staking infrastructure and new interest rates.

Camelot DEX submitted a proposal on Arbitrum governance requesting 12M $ARB over six months. This will be used to fund liquidity incentives for Arbitrum-focused projects on Camelot.

Yearn Finance started the bootstrapping phase of yETH. yETH is a basket of LSTs designed to give you the best risk-adjusted Eth staking yield in a single token.

Aave holders are voting on a governance proposal to convert $3 million worth of ether (ETH) to wstETH and rETH. If passed, the protocol will be able to earn extra revenue.

GND introduces zGND, an option for staking GND, earning ETH, while remaining liquid in the markets:

Frax accepted the proposal to accelerate FXS buybacks when the price is lower:

🌎What’s Happening?

📰 Industry News

Bond Protocol introduced Options for Liquidity Mining. This mechanism better aligns the interests of liquidity providers and protocol.

Binance’s Euros banking partner, Paysafe Payment Solutions, will stop supporting the crypto exchange after Sept 25th. They’ll switch to another provider.

Coinbase filed a motion to dismiss the SEC’s lawsuit against itself. They suggested that the agency was reaching beyond its legal authority.

Warner Music partnered with Polygon Labs for the Web3 music accelerator program. It is designed to accelerate the next generation of music devs building.

Ledger, the crypto-security firm, launched a new trading platform for institutions called Tradelink. It’ll enable custodial trading via select exchanges and custodial partners.

Compound founder Robert Leshner founded “Superstate.” It’s a short-term government bond fund using the Ethereum blockchain as a secondary record-keeping tool.

Worldcoin has launched in Germany and integrated with Okta’s Auth0 platform, one of the largest authentication and authorization platforms.

EigenLayer is increasing the capacity for restaking, both LST and Native restaking. The capacity will be available after the 10-day timelock after the multi-sig transaction.

Ethereum Name Service has updated its roadmap. It now includes layer2 interoperability with ENS domains.

Belarus plans to issue legislation banning peer-to-peer (P2P) crypto transactions. The stated intent of the legislation is to reduce fraud.