The mountains have slipped into the sea, the oceans boil, and the only rose-colored tint to be found is when you’re drowning in blood. Just another day in crypto!
Jokes aside, I’m very much a child of 2008. For those who are uninitiated in this asset class’s notorious volatility, you have my sympathies — I’m intimately familiar with the abject human suffering and desperation that can come from seeing positive PnL evaporate. Don’t hesitate to seek help if you need it.
But for all the train-wreck price action during weeks like this, I still believe the meat of DeFi is in the fundamentals. These tools are meant to help liberate users from capricious and arbitrary losses resulting from opaque and unfair financial systems — even if at the moment DeFi seems like an especially capricious system itself. It’s a long game meant to be played with long term views and strategies.
As such we’re kicking off this week’s Finance Redefined with what I think is an especially exciting project update — always look to fundamentals in the froth, and there you’ll find some ballast.
Building tall and building wide
In a blog post on Tuesday, Synthetix co-founder and illustrious shitposter Kain Warwick unveiled a roadmap for a significant expansion of the synthetic asset project via three new ‘child’ protocols, each with their own, new governance token: options protocol Lyra, options and prediction market protocol Thales, and a fun, gadget-y decentralized fundraise/bootstrapping/VC thing called Aelin. Don’t ask me about the names; your guess is as good as mine.
A member of the “Spartan Council,” an organization in Synthetix’s multi-DAO governance framework that approves changes to the protocol, touted the mints on Twitter, saying that all current and former SNX stakers will “get rich” from the new drops.
Not everyone was as enthusiastic, with some wondering if printing a handful of new tokens could BRRRRRR some value away from the OG asset:
Despite the criticisms concerning the potentially dilutive mints, however, on many levels Synthetix’s strategy is a natural continuation of trends we’re seeing from other, similarly ambitious and growing teams.
1inch, for example, recently unveiled a rebrand to coincide with a significant protocol expansion. In addition to liquidity aggregation they now have their own AMM protocol, are live on multiple chains, and are looking to onboard other protocols as a way to expand both the internal ecosystem and the team.
Similarly, SushiSwap is getting aggressive about launching new products. The Miso IEO platform came out yesterday, the Kashi lending solution launched an early version a few weeks back, and there’s a shockingly long list of other products in the works — including my personal favorite and the first product launched on Miso, a collectible tokenized Sake bottle in the vein of Uniswap’s Unisocks and designed by a major (and likely absurdly expensive) architectural studio.
Gloriously over-the-top.
Finally, we have the example of Yearn. The protocol itself is using Coordinape, a clever tool for distributing grants, and a yTeams constrained delegation framework allowing for semi-autonomous teams to function effectively and independently. This expanding DAO tooling may also be setting the stage for an effort towards an Yearn ecosystem meta-token, where all of the protocols 'acquired’ late last year would function with the same governance and utility asset.
Collectively, the diversification, fractionalization, and decentralization of projects across chains, protocols, teams, and even DAOs in some instances points to a trend of sprawling, self-contained ecosystems — cells working to form a larger body, and bodies in turn operating in the wider DeFi space. This is in contrast to certain teams who focus exclusively on a single protocol on a single chain — thinking here of the elegance of Uniswap and the advancements in AMM tech v3 represents as a prime example.
So what’s best? A ‘tall’ protocol that focuses on one particular problem to great effect, or a ‘broad’ ecosystem of various component products? And if there’s greater efficiency and value to be had from broad organizational building, what layers are best decentralized? Multiple DAOs, a single DAO in a fractionalized framework, multiple DAOs for multiple products with multiple tokens? I only have rough theories, and I’m thankful that there’s so many experiments underway.
If it passes, SNX’s unprecedented triple-token print — money-grab or not, dilutive or not — will be a key case study which helps us to collectively understand how DeFi organizations should best raise, deploy, and manage their often-considerable treasuries. We’ll also learn more about how projects can operate more efficiently with discrete, decentralized units working in service of a larger whole, and what it looks like when governance participants hailing from a single root project take stewardship of (or ignore) their progeny — protocol and governance offspring theories that will inform the airdrops of the future.
My editor says I’m not allowed to link to outside material anymore but hopefully she’ll forgive me this one, a lovely review of a book on the baffling nature of fungal intelligence. Mycelium naturally tests, identifies, and routes towards optimal resource allocation through tremendously powerful and mysterious means that often lead observers to wax spiritual — divinity from the intelligent dirt.
The metaphor I’m gesturing towards here should be obvious; after all, mushrooms are the preferred drug of DeFi.
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Ballast in a storm
Bafflingly low effort celebrity NFTs; rappers and C-listers shilling scams; $CUMMIES, forks of $CUMMIES, $ASS, et all; the NYT running a profile of a “Dogecoin millionaire.” A bundle of fizzbang-wowie top signals that surely mark the denouement of this bullrun, right?
While I’ll cop to having a sizable yield-vaulted stablecoin bag just in case, there are some signs that there’s life in this old cycle yet.
Prior to yesterday’s diarrhetic price action, there were a handful of standout assets thriving amid the slow, bleeding drawdown of the majors. In addition to being highly concentrated in DeFi, they all shared a similarly rosy fundamental outlook.
AAVE, for instance, flirted with all-time highs amid the drawdown. The lending protocol caught headlines for the institutional pool leak, but also saw its total value locked numbers soar by multiples on the back of a successful liquidity mining program designed in collaboration with some beeg branes from ParaFi Capital.
Plus, just find a podcast and listen to Aave co-founder Stani Kulechov pronounce “Aave Protocol.”
How can you not bet on that? It’s borderline coital.
Other projects with clever tokeneconomic design, such as CRV held up well, and layer-ones with burgeoning metrics in terms of users and transaction data, like MATIC also seemed unstoppable. Until the slow bleed became a gory capitulation, sound DeFi projects were a safe haven.
As the market looks to rebound, one I’ll be keeping an eye on is SUSHI. As discussed above, the project is shipping new products and expanding to new chains at an impressive rate, but is also taking on a significant tokeneconomic overhaul.
Central to the effort will be the development of oSUSHI, a locked Sushi similar conceptually to veCRV. Projects that wish to IEO via Miso will have to purchase SUSHI and lock it as oSUSHI, a dynamic expected to have a favorable effect on supply/demand dynamics, while also decentralizing the Onsen incentivized IEO program — a task that had been taking up business development man hours for the team.
“The curve voting mechanism has always been ahead of the game and to see it utilised by sushi is truly exciting,” said noted Sushi investor Future Fund of the developments. “I believe oSushi is a very strong move. It really paves the way for a more DAO like structure for onsen.”
I also caught up with Gauntlet Network’s Nicholas Cannon, one of the architects of this initiative, for some thoughts on the design of the new Onsen program. Pro-tip: any time you can talk to one of the Gauntlet folks you should — they’re some of the absolute best and brightest in the space.
Cannon broke down the effort as an ongoing one intended to eventually make Onsen and oSUSHI surgical and precise in terms of incentive alignment and mutual benefit:
“Rewards drive liquidity, liquidity drives volume, and fees from volume ensure rewards for LPs. We’ve seen this be successful already for a few trading markets but to scale this out in a sustainable way, rewards need to be distributed carefully. Small changes in reward spend efficiency can create large changes in volume due to these flywheel effects.”
My personal hope is that Gauntlet, Delphi, ParaFi and other major funds with the resources to do so continue to help core teams transform some of these new financial verticals and incentive models from firehose reward experiments to more sustainable programs. (The time will come when we need to be more reflexively hostile to efforts from VCs to alter programs, but for the time being their contributions appear overwhelmingly positive.)
Based on how some of these projects with strong headwinds are trading, certain market participants certainly seem to think it’s possible. Keep an eye not just on who’s getting the bid, but also what they’re building and with who. It may be tokeneconomic overhaul szn.
Other major stories this week:
On the back of DeFi, crypto is now 2% of global money supply
Polygon cracks 75,000 users