A key to winning in markets
Digital Assets

A key to winning in markets

Stan
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Rejoice! Jerome Powell, aka mister money printer, go brrrrrr just raised interest rates by .25%.

Powell said that inflation is coming down and believes the U.S. will avoid a recession this year. The markets reacted positively.​

Here’s what we got today:

  • Intro to EigenLayer. A new protocol to scale Ethereum trust to the internet.
  • Keynesian Beauty Contests. The secret to winning in markets.
  • Canto: The alt L1 that’s rocketing in price.
  • Around the web. Amazon is into NFTs, rDPX V2 from Dopex is out, and more.​

Estimated reading time: ~10 minutes​

Here’s your edge!

📉 THE MARKETS

weekly markets

Sources: Coingecko, DefiLlama, & Alternative.me

“It is impossible to produce superior performance unless you do something different from the majority.” – John Templeton

​EigenLayer: a Marketplace for Restaking

EigenLayer Ethereum

EigenLayer is the talk of the town in Ethereum.

It is interesting for several reasons:

  • Earn more money from your staked Ether.
  • This technology will impact the tokenomics of many future projects.
  • EigenLayer doesn’t have a token yet. When they release, it might get even bigger than $ENS. Using this might help you qualify for that airdrop.

So, what is EigenLayer?

The 80/20: EigenLayer is a market between protocols and restakers. Protocols need trustless actors. And restakers will provide that for yield.​

Problem: Broken Incentive Mechanisms​​

Different types of distributed apps will want different kinds of services. They need a “mechanism” to ensure their service providers are not defecting. They need “trust”.​

The only way to do this is by aligning crypto-economic incentives.​

Currently, only a limited set of protocols can incentivize service-providers reliably. (On Ethereum, only application-level protocols can make sure the service providers don’t defect.)​

Proper incentive systems will include both the carrot and stick. Let us look at an example.​

For Ethereum security, Ethereum has a PoS system. In that, staking rewards are the carrots, and slashing is the stick. If you validate properly, you will get staking rewards. If you don’t, you’ll get slashed.​

Key point: While a few protocols were able to set up good incentive mechanisms, it isn’t possible for many others.​

Current Whacky Solution: Ponzinomics

Many protocols follow some version of the following model.

→ Tokens are airdropped to mercenary degens.

→ Creates ponzinomic structures to simulate the value of the token.

→ In order to be a service-provider, degens are asked to stake these tokens.

→ In return for providing service, huge amounts of tokens are distributed as rewards.

To be fair, calling them ponzi is kinda clickbait (but not really). Essentially, they are building trust networks from the ground up, just like how Ethereum and Bitcoin built trust networks from the ground up.​

Needless to say, this model is highly inefficient.

  • You are forced to distribute tokens to mercenary degens.
  • You have to release a lot of tokens into the market constantly. This will create downward pressure on prices.
  • To counteract the inflation, you have to announce a staking service for your token. Now, you are forced to distribute protocol revenue among these new stakers.​

EigenLayer offers a new possibility.

The Savior: Restaking​​

Eigenlayer is a marketplace between protocols and restakers.​

(Kinda like how AirBNB is a marketplace between homes and people who need a place to stay)​

Restaking means taking staked Ethereum and re-staking it on some other protocol. This restaked Ether can be slashed. On EigenLayer, restakers will be able to choose from many different protocols.​

Different protocols will have different agreements with restakers. The agreements will have roughly the following structure:

  • The restaker agrees to do X.
  • The protocol will give Y in return.
  • If the restaker fails to do X, he’ll be slashed.

This is a custom carrot-and-stick generator for protocols. Stick will be the slashing of restaked Ether.​

(For the Newbies: Slashing refers to EigenLayer taking a piece of your staked Eth)​

Both X and Y can be anything. A data storage protocol can ask a restaker for some storage and give anything in return. It could be $DAI, $ETH, or its own governance token.
​
While committing to provide some service, the restaker might have to download some software to provide that service. In the case of storage protocol, a software to handle the downloading and storing of data.​

eigenlayer restaking

​Source: Inevitableeth.com​

Why Restaking?

For many protocols, this will be a much better system than current ponzinomics. They don’t have to set up their own trust network, aka ponzi. Instead, they can buy specific services at a rate determined by the market.​

This doesn’t mean your project cannot have its own staking model. Once you’ve distributed enough tokens to the community via $ETH restaking, you can have your own staking system. You can have both systems in parallel as well. This will give projects more flexibility in designing tokenomics.​

What’s in it for the restaker? He has already staked his Ether. He doesn’t have to put in any more capital. He will get more yield just by fulfilling the conditions the protocol asks. There’s a risk of slashing, but only if you break the rules. And you have a variety of conditions to choose from.​

How Ethereum Benefits. Previously, each project had to create its security network. This meant that each project was competing with other projects. Now, they can just use Ethereum security. This further aligns with the interests of Ethereum L1 and other protocols. Since we are reusing staked Ether, this has much more capital efficiency.​

EigenDA: These aren’t just theoretical speculations. We already have applications running on top of EigenLayer. EigenDA is the first protocol built on EigenLayer. It is a Data Availability layer that uses a restaking mechanism to incentivize users to contribute.​

The Road Ahead​​

Even though we are optimistic about EigenLayer, we shouldn’t be blinded by it.​

In this article, Cookies raise some cons.

  • Single point of failure. EigenLayer has control over restaked Ether. An attack on EigenLayer will have disastrous consequences.
  • Systemic security risks. If large amounts of restaked $ETH were slashed, it might create some risks for collective security.
  • Risk of false slashing. There can be edge cases where underserved stakers are getting slashed. Smart contract bugs can cause this.
  • Protocol competition & mercenary restakers. Some protocols may still not be able to attract restaking. Mercenary restakers could move from protocol to protocol.​

While these are valid concerns, we are sure these challenges will be solved.

This is a foundational technology. It will enable a ton of innovations. Anybody on the internet can now access trustless service-providers.

​EigenLayer is scaling Ethereum trust to the internet.​

Since we are very early, there are very few good resources on the topic. If you want to go down the rabbit hole, start with Inevitable Ethereum.

And there are talks from the founder, Sreeram Kannan

TOGETHER WITH

Metronome’s Partnership with Vesper Finance

metronome x vesper

Welcome back to week three with Metronome’s new synthetic asset protocol!​

Let’s get you up to speed:

  • Metronome is building a next-gen DeFi ecosystem, starting with their first synthetic protocol, Synth.
  • Their beta launch was on January 10th. Since then, they’ve amassed over $1.6M in collateral TVL + secured integrations with FRAX and Vesper Finance.
  • A few of their standout features are multi-asset collateral, multi-synthetic minting, and the use of productive (yield-bearing) assets as collateral.​

This week, we’re focused on their latest partnership with Vesper Finance!​

The partnership is centered around composability and synth-enabled looping, broken down into a three-part strategy:

  1. Deposit an asset (like FRAX, USDC, or ETH) into Vesper’s Grow Pool to earn automated returns of up to 9% APY from DeFi’s leading yield sources.
  2. Use the tokenized receipt of your yield-bearing position as collateral to mint synthetic assets on Metronome.
  3. Using a DEX, swap your synth position into the original asset and start again from step #1. Loop until satisfied for boosted yield well above 9%. 😎

​Be sure to monitor the health factor of this looping strategy – leveraged positions can be risky!​

TL;DR – Earn double-digit APYs on-chain with the Metronome x Vesper partnership. DeFi composability at its best! Stay tuned for even more primitives currently brewing between Metronome and Vesper. 🔥

Interested? Start looping now through Metronome’s beta launch!

What Beauty Contests Can Teach You About Investing

A key to winning in markets

In the early 1900s, newspapers created a popular game. Readers selected who they believed were the 6 prettiest faces. The reader whose choices most closely matched the 6 most selected women would win a prize.

Which Strategy Would You Use?

Different readers used different strategies of varying depths. Below are the three main ones.

  1. The Naive Strategy: You choose the 6 faces that YOU think are the prettiest. The problem? What if you think big noses are hot, but most people don’t? You’d lose the game because your choices aren’t popular.​
  2. The Sophisticated Strategy: You realize it is a popularity contest and adapt. “I’m going to pick the faces I think everyone else will pick!” Smart. This can work if everyone else is using a naive strategy. But…​
  3. The Infinite Loop: But what if other people think the same thing and apply the same strategy too?

“We have reached the third degree where we devote our intelligence to anticipating what average opinion expects the average opinion to be” – Keynes.

Parallel in Markets​​

I’ve heard my friend complaining multiple times: “Why isn’t the price going up? The fundamentals are so good. But people want to spend their money on stupid meme coins and metaverse tokens.“​

This is because markets are popularity contests.

Prices only go up when others buy. ​​

Retail doesn’t care about flywheels in a bull market. What fundamentals did Dogecoin or Metaverse tokens have before they skyrocketed in the last bull run? Emotions and narratives drive the market.​

The Power of Story​​

Humans are wired for stories. And as Crypto becomes more complex, simple stories sell.​

The stories must be simple enough to understand and compelling enough to act.

Below are some examples:

  • MetisDao pumped last year because Vitalik’s mom is on the team.
  • Real Yield Narrative. I was bullish over the summer because the story made sense. “Stop investing in unsustainable ponzis, and invest in tokens that generate revenue.”

Here are some potential stories:

  1. Real World Assets – an actual use case + has the same energy as the “real yield” movement.
  2. Crypto A.I. – Anything A.I. related now is a money grab. But it’s looking to be the next “metaverse” play where we’re piggybacking off of hype.​

Now what?​​

However, this doesn’t mean everything is JUST a popularity contest. Without solid fundamentals, a project won’t be sustainable.

This is why I find Crypto fascinating. It combines game theory, psychology, economics, technology, tribal warfare, and more.

Here’s my solution:

  1. Portion of portfolio for long-term investments.
  2. Another portion for hype-based trades where I look for pumpnomics.

You can’t completely predict the market. Even Isaac Newton lost his fortune in investing. Afterward, he remarked: “I can calculate the motion of heavenly bodies but not the madness of people.”

📊 Canto’s Pumping

TVL Growth for Top Cosmos Chains

​Source: OurNetwork​

This chart shows the TVL growth rate for top cosmos chains from September 2022 to January 2023. From December 2022 onwards, all of them are negative except Canto.​

Canto TVL has been growing by around 20% for the past few weeks. And the price has gone up 600% in the past 30 days.​

What is Canto? It is a new Cosmos chain launched in September 2022. It is based on the idea that the core DeFi primitives should exist as Free Public Infrastructure.

Why the Pump? Even though there aren’t any groundbreaking technological innovations, it has some socio-economic differentiators. There are no VCs or pre-sales. There are quite a few people on Crypto People shilling it.​

What makes it different? They have included DEX, Lending Market, & decentralized unit of account as core primitives of the L1. These would function as public infrastructure in service of everyone.​

They are implementing a novel mechanism called Contract Secured Revenue. It is an opt-in fee splitting model. Part of the fee generated when people interact with dApp can be directed to the developer.​

However, many people are skeptical of Canto’s pump. Basically, they feel it’s a coordinated pump. Be careful.

🌍 What’s Happening?

📰 Industry News​​

Amazon is launching a digital assets enterprise. An NFT initiative is expected in the spring. This would mark a huge milestone in the NFT adoption story.​

Binance admits to temporarily mixing collateral and customer funds. They said they mistakenly kept both funds in the same wallet.​

Do Kwon, the disgraced founder of Terra, is plotting his comeback. He is said to be working on several new products. And he is on a hiring spree for his engineering department.​

Solana Mobile has released details of the dApp store for Saga phones. It will be using Arweave and, therefore, censorship resistant—also, no more 30% fee.​

ImmutableX is releasing Immutable Passport. It will be a 3-in-1 package, non-custodial wallet, gamer profile, and authentication solution. Gaming studios will be able to onboard users to web3 easily.

🍿 DeFi Bites

IndexCoop launched the Diversified Staked ETH Index. The initial composition includes LSDs from RocketPool, Lido Finance, and StakeWise.​

OlympusDAO has voted to deposit 77M $DAI into MakerDAO’s DAI Savings Rate (DSR) Module. The DSR was increased to 1% in November.​

Aave V3 is live on Ethereum mainnet. It has several improvements and features: Isolation mode, high-efficiency mode for capital efficiency, and Gas optimizations.​

Gains Network hit an all-time high in the last week. This was on top of their Arbitrum launch in December and the recent crypto rally.​

Dopex introduced rDPX V2. It will allow $rDPX to mint synthetic pegged assets known as Dopex Synthetic Coins. These synthetics will be integrated into Dopex platform over time.

Maple Finance launched the Real-World Receivables Pool. This pool aims to generate 10% on USDC for lenders. It is a relatively low-risk TradFi instrument uncorrelated with the crypto market.​

Worldcoin released the details of the Hardware system (Orb) they use for their digital identity system. Worldcoin had caused an uproar since they were capturing biometric data.

🧠 Twitter Alpha

​

😂 Meme

wife's crypto

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