#32 Turbulent Markets Favor Resilient Projects. LUNA’s death spiral
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Turbulent Markets Favor Resilient Projects
By now, you most definitely are aware of the downtrend Crypto has been in. BTC fell to 27600 USD, ETH to 1800 USD, and LUNA essentially fell on its face (Razvan covers that in his piece below). Traditional stock markets are not doing any better:
I’m sure we can all agree things are bad. However, most of us look at the markets through the lens of personal investment (or speculation, let’s face it) and, hopefully, do not depend on the capital at stake and might even be thankful for a better opportunity to dollar-cost-average (... right?). However, there are a lot of startups and private companies out there that operate with a runway - that is, the number of months they can afford to pay salaries & invoices until they raise new money - and even a lot more teams trying to get off the ground through a seed/series A funding event.
It’s safe to say that times are very tough for them. The team at Dragonfly shared the message they sent to all their portfolio companies, telling them essentially to quickly finish any ongoing deals, trim the fat and focus on executing in order to have a chance at surviving. Looking back, this has happened before:
For even more, read Sequoia’s RIP Good Times deck from 2008. Times were really bad. And then they got better. And now they are worse again. This goes to show that the market experiences cycles. Sometimes we are all euphoric, valuations are crazy high leading to crazy perks, salaries, and - let’s not forget - bonuses. Other times the outlook is grim and everybody gets laser-focused on execution. History has shown that strong teams most of the time find a way to keep executing and come out strong out of a bear market. Focusing on efficiency allows them to take the upper hand on better-funded competitors that become sloppy. Think of this as a global curation period.
Looking forward to seeing who will make it.
Google’s cloud group forms Web3 team
During a week where the market is keeping us with our eyes glued to the charts and fear and uncertainty are at a peak for many, I find it incredibly important to highlight that building and adopting hasn’t stopped. Tech giants have started recruiting blockchain specialists and forming dedicated teams in order to capitalize on their blockchain aspirations.
The latest to announce such a move is Google. The tech giant’s cloud unit is forming a team tasked with developing services for enterprise clients seeking to leverage blockchain technology. The new Google team will be led by former Citigroup executive James Tromans. In an email to its employees, Amit Zavery, vice president at Google Cloud, told employees that the aim is to make the Google Cloud Platform the first choice for developers in the field.
Also highlighting the unstoppable adoption of the technology was Meta’s announcement that Instagram will support NFTs from Ethereum, Polygon, Solana, and Flow. Instagram intends to support widely used crypto wallets such as MetaMask. Plugging in their wallets, users will be able to prove NFT ownership, showcase them on their profiles, and tag the creators who made them, with users not being charged.
The decision will likely spell a rush of new cultural visibility for NFTs as Instagram has over one billion monthly active users, many of whom use the platform to promote and market their art.
In a Twitter thread posted by a Meta representative, the company said the compatible third-party wallets will be MetaMask, Rainbow, and TrustWallet. Instagram will initially support Ethereum-based NFTs, with integrations for Polygon, Solana, and Flow to be added at a later date, the post also confirmed. And for those still in doubt, blockchain is here to stay, and so is Stakeborg.
LUNA’s death spiral
The LUNA/UST downfall is a historical moment in crypto and DeFi evolution, reverberating echoes of George Soros and Black Wednesday.
Terra was a preacher of decentralized money. Do Kwon sees proper stablecoins as having three characteristics: decentralized, stability, and scalability. Algo stablecoins (like UST) have key properties related to decentralization (does not include centralized collateral) and scalability (as long as you have a non-zero quantity of LUNA then it can be burned and the system can scale). However, as opposed to centralized stablecoins like USDC and USDT, it has a different mechanism related to stability (USDC/USDT can theoretically absorb a 100% downfall in demand, while a “death spiral” might happen in the case of algo stablecoins). Do Kwon aimed to fix the latter through a mainly BTC-focused reserve (it amassed 80,000 BTC and aimed to grow it to $10bn) while also it aimed to create organic demand for UST - here, it was mostly due to Anchor’s high rewards. The whole “wild wild west” field is still in experimentation mode and fragile systems are unearthed in various, often painful ways. Do have the right intentions (key to give utility to UST), but mechanisms and infrastructure were in need of more improvement.
A death spiral implies a situation when UST is de-pegged from the dollar, with its value being less than $1 -> users want to exit UST, they go through Terra Station and swap 1 UST for $1 worth of LUNA (new LUNA is minted) -> LUNA’s supply would increase and would put downside pressure on its price -> more LUNA would need to be minted for the next UST swap -> more downside pressure -> spiraling effect.
In order to fully grasp the exact step-by-step of how the events unfolded, if there was an entity (or more) that started it exactly at one of the network’s most vulnerable moments when it was transitioning funds to its 4pool (we know it’s not Citadel or BlackRock, they have publicly denied it and it’s not worth the lie), how the BTC reserve was used (loaned or sold, how much, what were the steps taken), potential / failed rescue plans, other considered safety nets, etc. we would need to wait for the post-mortem.
However, a few things exacerbated the spiral. The en-masse withdrawal of funds from Anchor + the liquidations that happened on the platform (bonded assets would have needed to be liquidated in UST which put further pressure on the peg). Its TVL collapsed from $17.05bn on May 6th to $1.13bn on May 12th. Seems also that the time-based arb has been less utilized (given high spreads on Terra Station) while the fast arb opportunity amplified both the directional movement of LUNA’s sell-off and the widening of the swap spread.
As long as the price of UST stays below the peg, this creates an arbitrage opportunity for users to burn UST and mint LUNA. The key is to fix the peg.
This is probably not the end of the story for algorithmic stablecoins. There are multiple other pegging mechanisms used in the space, such as the user-owned collateral model (DAI) or protocol-owned collateral (FRAX), or other models (USN), which might prove to be longer-lasting and thrive under serious pressures. However, the Terra debacle has ignited (more fiercely) the regulators’ desire and need to regulate the stablecoin market. Expecting something from the US or the EU by EOY/early 2023.
The Improbable Otherside Metaverse
There is a bit of joy in today's market bloodbath, washing everything in the Biogenic Swamp. Or so the OthersideMeta is saying.
Yuga doesn't waste any time and keeps on building their version of the Metaverse, and today we got a sneak peek, and it looks great; not good, great!
Have a look:
If you go to the Otherside website, you'll also find The Voyager's Journey, specially created for the owners of the Otherdeeds. Cool name if you think that JRNY Crypto owns 100+ BAYC and got an Otherdeed airdrop for each of them.
"Welcome, Voyager. If you hold an Otherdeed, you hold the key to this evolving vision of Otherside — and to shaping what it becomes."
Remember that only half of the total of 200k Otherdeeds sold last week; the other half was kept for the people who are going to help build this community-driven metaverse marvel because, in all that has happened the previous days, the other deeds floor price kept steady, close to 3 ETH. That's a dedication for the holders, StakeborgDAO community, coordinated by MTK, included (the group from our community holds 4 Otherdeeds, 1 Koda included).
So, to get things clear, the Voyagers, meaning the Otherdeeds holders, will be able to move artifacts, Kodas, from their lands.
A marketplace will exist, where Voyagers come together to buy, sell, barter, and trade the resources that can be mined from their "lands," resources like anima (research), ore (metal), shard (stone), and root (wood).
Discover the five sediment types that the Otherdeeds are built upon, each for a different tier:
* Biogenic Swamp (tier 5)
* Chemical Goo (tier 4)
* Rainbow Atmos (tier 3)
* Cosmic Dream (tier 2)
* and Infinite Expanse (tier 1)
And all this will happen together with Improbable, which will build an open metaverse and create Otherside on the M² network.
You can read more by accessing the link in this tweet, bring some popcorn, and enjoy.
In my opinion, Yuga Labs' Otherside Metaverse has all the chances to become something great. What does that mean? We will see because we probably don't even begin to comprehend what things we can achieve inside … or … on the Otherside.
Keep Close, relax, enjoy and absorb the information. This, too, shall pass.
For more educational crypto content, check out the links below:
The Stakeborg DAO Talks on YouTube: https://www.youtube.com/playlist?list=PLOrFZZifNn4Nx4nSQL3WS52ALPXgrTSVG
Discord channel: https://discord.com/channels/901898461568442458/903006233584341052
StakeborgDAO Quarterly Reports: https://docs.stakeborgdao.com/reports/dao-quarterly-reports
Stakeborg Academy: https://academy.stakeborg.com/