There’s a lot of buzz around a project. No, it’s not the latest degen coin. The OG of Crypto, Bitcoin, is getting a glow-up with new initiatives.
Here’s what we got today:
- Dirty Moves. Iron Bank takes Alpha Homora’s user funds hostage.
- The Multicoin Disaster. Multicoin Capital lost 91.4% of its funds last year.
- The Bitcoin coverage. The BTC L2 narrative and Ordinal inscriptions.
- Around the Web. A free email course for you, Silvergate shuts down, and more.
Reading time: ~8 fun minutes
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Here’s your Edge!
📉 THE MARKETS
“I probably read 1-2 hours a day, and that puts me in the top .00001%. I think that alone accounts for any material success that I’ve had in my life and any intelligence that I might have.” – Naval
Where’s My Money? Iron Bank vs. Alpha Homora
Iron Bank took Alpha Homora’s user funds hostage and demanded repayment of a loan. This is worse than when you owe money to the Iron Bank of Braavos in Game of Thrones.
Let’s look at what exactly happened.
Who are these guys?
Iron Bank is a DeFi lending protocol specializing in protocol-to-protocol lending. Integrating with Iron Bank allows users of other protocols to borrow from the platform.
Alpha Homora is a lending and leveraged yield-farming protocol. They had opted for integration with Iron Bank.
So, what happened?
In February 2021, there was a flaw in Alpha Homora’s code. A hacker exploited Alpha Homora to steal over $37mm from Iron Bank (Remember, these two were integrated). Well, Iron Bank is out $37mm because of Alpha Homora’s negligence. So Alpha Homora has a $37mm debt to Iron Bank.
Not everyone has $37mm laying around, so they settled on a payment plan during the bull market.
However, these terms quickly became difficult when the market turned bearish. Even after updating their terms, they didn’t reach a working solution.
On March 1st, Iron Bank altered the code in its smart contracts so that Alpha Homora could no longer withdraw any of its assets deposited onto the platform.
They were now holding user funds hostage, demanding the loan be repaid.
Eventually, the Iron Bank lifted the withdrawal restrictions. Details of the new agreement haven’t been released yet.
Iron Bank’s actions are setting a really bad precedent in the world of DeFi.
- They unilaterally blocked user funds.
- User funds were used as a bargaining tactic.
Both of these protocols were supposedly “decentralized.” However, their actions were for sure 100x worse than TradFi’s shenanigans.
This should be a wake-up call for us and prompt us to do some real soul-searching. We must improve our governance systems. Counterparties should never be able to arbitrarily hold user funds hostage.
Removing those situations is the entire point of DeFi, after all!
The Multicoin Capital Disaster
Multicoin Capital was a thousand-pound gorilla. Huge bets in Solana and its ecosystem paid off hugely.
Kyle Samani, its managing partner, was featured as one of the top 10 people to watch in the Messari 2022 crypto thesis.
And yet, they lost 91.4% of their funds last year.
- 2022 market downtrend. To be fair, 2022 was a bad year for almost everyone in crypto. Most investors watched their portfolios diminish.
- Concentration risk with Solana. Multicoin was heavily invested in $SOL and had bet big on Solana ecosystem tokens such as Serum. And those coins were eaten alive by the bear market.
- FTX and Scam-Bankman fraud. The fund was also heavily invested in $FTT, the FTX coin. Furthermore, 10% of its assets had been allocated to FTX. When FTX imploded, all of these coins invariably became shitcoins.
Funds like Multicoin and 3AC were once considered guilds of ninja traders. It turns out they are degens as well. Despite all their advantages, they couldn’t stay afloat.
Pigs get fat. Hogs get slaughtered.
Analysis Apprentice: A Free Email Course
You’ve found an exciting project on your own, but…
• A newsletter is shilling you another protocol: “you’re so early.”
• An hour later, you read a thread where the guy claims another token is going 100x.
You feel overwhelmed.
If you don’t learn to analyze projects independently, You become other people’s exit liquidity.
You’re the mf’er that’s funding his Lamborghini.
So, what can you do about it?
Join Analysis Apprentice.
Analysis Apprentice is a free course designed to help you evaluate any project. Me and the squad spent the past month working on this, and we hope you’ll get a ton of value from it.
- Learn what makes a successful project
- Research more efficiently, using less time
- Understand how to identify and capitalize on trends
- Start creating your system to evaluate protocols
At the end of this challenge, you’ll have the confidence to start making your own calls.
Click the button below, and you’ll automatically be registered.
We’re making it free as a thank you. There are a lot of newsletters out there. So the fact that you tune into mine each week is something I’m grateful for.
The BTC L2s Narrative Explained
The OG of Crypto is making waves. For the longest time, Bitcoin’s had a “Store of Value” narrative for the longest time. Now that’s starting to change with Bitcoin Layer 2s.
Layer 2s are used to scale Layer 1 chains. In the case of Bitcoin, L2 is required to use smart contracts. Remember, Satoshi didn’t design Bitcoin with smart contracts in mind.
What are some example Bitcoin L2 projects?
- Stacks is a smart contract platform built on top of Bitcoin.
- Lightning Network is a payment protocol built on top of Bitcoin.
- Rootstock is another smart contract platform built on top of Bitcoin.
None of these projects are new. They have been around for some time now. The L2 narrative is really just a rebranding of these same projects.
Recently, there was an announcement from Rollkit. They have enabled the integration of Bitcoin as a data availability layer for sovereign rollups.
ETH maxis are pretty salty about this narrative. They claim that the BTC L2 narrative is an attempt to capitalize on the inherent brand value of Ethereum L2s. For them, true L2s should inherit the security guarantees of L1. The projects listed above do not fully inherit Bitcoin’s security guarantees.
Recently, we’ve seen a surge in new narratives surrounding Bitcoin. Ordinal inscriptions such as Bitcoin NFTs are one of those.
These narratives are a rehash of those already played out on smart contract platforms.
I’m more bullish on ETH, even as a store of value.
📊 Ordinals: NFTs for Bitcoin
This graph shows the percentage of fees paid to Bitcoin miners by Ordinals. It covers December 2022 through March 2023.
The Ordinals are currently paying a lot of money to Bitcoin miners. On February 12th, around 22% of total fees came from the Ordinals.
What are the Ordinals? They can essentially be seen as Bitcoin NFTs. But they don’t work like ERC-721. Instead, content is inscribed onto Satoshis (Sats), the atomic currency of the Bitcoin network. Those are unique, just like ERC-721.
Bitcoin transaction fees can be seen as tips from users to miners to complete their transactions as quickly as possible. In this case, the transaction is to get content inscribed on Bitcoin.
Why does this matter?
- Market opportunity. Some are projecting a $4.5B market cap by 2025.
- Bitcoin security. In the future, miners will be paid via transaction fees. Currently, transaction fees are relatively low. BTC Ordinals might drastically change that.
- Ecosystem development. BTC is notorious for not having many applications built on top of it. This could represent the seeds for change.
🌍 Around the Web
📰 Industry News
Coinbase introduced “Wallet as a Service“. This will allow companies to create and deploy fully customizable on-chain wallets.
Silvergate, a crypto-friendly bank, announced its voluntary liquidation. They are winding down the operations, and all deposits will be repaid in full.
Amazon is preparing to allow customers to buy NFTs tied to real-world assets delivered to their doorstep.
Polygon launched a web3 identification service using zero-knowledge proofs. Polygon ID can authenticate user credentials without revealing personal data.
Ethereum deployed ERC-4337. It is called account abstraction, and it’ll enable smart wallets. It’ll enable many features that’ll make Ethereum user-friendly.
🍿 DeFi Bites
Ethereum Shanghai Upgrade is pushed back to early April. Ethereum upgrades are always delayed, so this doesn’t come as a surprise. Rather safe than sorry!
Privacypools.com v0 is live on Optimism. It is an alternative to Tornado Cash. But in this dApp, users can prove their money isn’t mixed with dirty money.
Trader Joe has expanded to the BNB chain. They also introduced Liquidity Book V2, which has several improvements.
Fantom announced their latest upgrade, go-opera 1.1.2-rc.5. This includes several changes that were hyped up in Crypto Twitter.
Velodrome 2.0 will be released in 2023 Q1. It’ll have many improvements, from UI/UX improvements to concentrated liquidity.
MakerDAO is discussing a proposal to increase its US Treasury bond investments from $500 million to $1.25 billion.
Uniswap introduced its own mobile wallet. It is an open-source and completely self-custodial wallet. However, Apple hasn’t green-lighted the launch yet.
$PEN launch day is next Monday! The $PEN tokens are now transferable and will become tradeable first on the MEXC CEX Monday the 13th! This will be followed by a listing on the Zenlink DEX.
Thanks to Pendle for sponsoring this message.