Charlie Munger passed away on Nov 28th (He was Warren Buffett’s right-hand man). I don’t get too sad often when someone famous passes away, but Munger has greatly influenced my thinking since my 20s.
In honor of Charlie, I’m going to share 2 of my favorite quotes of his:
- “You don’t have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long time.“
- “When you know you have an edge, you should bet heavily. They don’t teach most people that in business school. It’s insane. Of course, you’ve got to bet heavily on your best bets.”
Rest in peace, Mr. Munger!
Here’s what we got today:
- The Cosmos Breakup. Cosmos co-founder leads a new hard fork.
- Is the bull market really here? Here’s what the data says
- When should we take profits on bluechips? My thoughts and strategies on the topic.
- Around the Web. Jito is launching its governance token, $TORN is delisted from Binance, and more.
Here’s your Edge 🗡️!
The Cosmos Breakup
Jae Kwon, Cosmos co-founder, is breaking up with Cosmos Hub. He’s going to be creating a hard fork.
What are hard forks? A blockchain is basically a database. For each blockchain, there’ll only ever be one true database. When a hard fork happens, blockchains are split in two. Then, there are two separate databases, one for each chain.
(Here’s the most famous example: In 2016, bad actors exploited a protocol on Ethereum. Ethereum decided “hard-fork” to restore the stolen funds. Ethereum is the fork we know and love, while the original is called Ethereum classic that no one really uses)
The term “Cosmos” tends to confuse people:
- First, there’s the Cosmos ecosystem. It is an ecosystem of different blockchains (Kujira, Thorchain, Terra, etc.) that follows a common standard.
- Then there’s Cosmos Hub. It is one of the blockchains in the Cosmos ecosystem.
Cosmos will split in two: The OG Cosmos Hub and a new AtomOne Hub. Jae Kwon is forking Cosmos Hub, a single blockchain. He’s not forking the entire Cosmos ecosystem, which wouldn’t be practical.
Why is he forking?
There has been political infighting in the Cosmos space for a while. The two groups held differing views on key aspects such as the mission, tokenomics, and security philosophy.
One group wanted the Cosmos chain to innovate and experiment with more features. The other group worried that excessive experimentation might compromise the security of the Cosmos ecosystem.
Jae Kwon is in the more conservative camp, which vetoed the ATOM 2.0 proposal in the fall of 2022.
On November 26th, 2023, Cosmos Hub passed the proposal to limit the maximum inflation rate of ATOM to 10%. This proposal was a close race: 41.1% in favor and 31.9% against.
This move was viewed as too risky by Jae Kwon. So, he announced a new fork, AtomOne.
What will the new chain look like?
AtomOne will focus on the security of the ecosystem. Its native token will be $ATOM1.
The new chain will influence the old Cosmos as well.
This will be achieved through a bonding mechanism. Users can bond $ATOM, the token of the old Cosmos, to the new chain and receive $phATOM in return. And the $ATOM tokens will be delegated to Cosmos validators aligned with AtomOne.
AtomOne has a native liquid staking token called “phATOM1.” The new LST will be the primary fee token.
There are complicated tokenomics implications for these changes – you can read more about all of it here. AtomOne is trying to be a secure system complementary to a more experimental Cosmos Hub.
What will be the impact of this fork?
- We’ll get two internally aligned chains instead of a single chain filled with infighting. The Cosmos chain will be the new center of experimentation, while AtomOne will be a secure base.
- An airdrop is certain. And it will probably go to $ATOM stakers. Those who voted against Cosmos experimentation, aka those more aligned with the AtomOne vision, will likely receive a larger share.
- L1s in the Cosmos ecosystem use the Inter Blockchain Communication (IBC) Protocol to communicate with one another. For L1s in the IBC ecosystem, the new chain will be just another chain. They can choose to integrate with it or choose not to.
- Assets on the Cosmos chain, which are backed by off-chain assets such as USDC, will have to choose one of the chains.
- Will $ATOM1 dilute the value of $ATOM? I don’t think so. Firstly, BTC and ETH forks such as Ethereum Classic, Bitcoin Cash, LiteCoin etc. are all still in the top 30 by market cap. AtomOne is a fork that responds to a genuine need in the Cosmos ecosystem. Jae Kwon is also discussing some integration of $ATOM with $ATOM1. But, the specifics aren’t clear yet.
Will AtomOne be successful? I don’t know. Historical results are mixed. The current Ethereum is a fork and has become successful. But Bitcoin Cash is a ghostchain.
I’ll say that having a co-founder fork the original protocol will gather attention.
We have assumed so far that the fork will happen. But it isn’t guaranteed that the fork will happen. There are always execution risks.
You can track the project at the following Github link.
Taking Profits on Blue Chips
“Edgy, $ETH and $BTC are the cornerstones of most crypto portfolios. How do I take profits on them?” – Question from a newsletter reader.
I can’t give a simple solution for everyone. Remember, everyone has different goals and time horizons. So I can tell you what I personally do and why.
I believe that BTC and ETH will keep appreciating against USD. They keep printing more money, inflation, etc. I see BTC hitting $100k and ETH hitting $10k within 5 or so years.
So, with that in mind, I view BTC and ETH as my end goal. At least for the next decade. Whatever profits I make through investing or trading it funnels into stablecoins or blue chips.
Next, I keep my living expenses as low as possible. I generate cashflow and income through this newsletter. This way I never have to sell my Crypto to fund my living expenses (Also, I’m in my mid 30’s, and I’ve had some financial success before entering this space)
I may cash out some if my Crypto portfolio grows too large compared to my TradFi assets like index funds. For example, I don’t want my Crypto assets to grow over 40% of my total portfolio. So if it grows larger, then I may have to sell some to rebalance.
There’s another method. It involves setting specific profit-taking targets, like 2x or 3x your initial investment.
For example, if you buy ETH at $1,000 and it climbs to $2,000, consider converting your initial $1k into stablecoins or cash.
But, at the of the day, there’s no one-size-fits-all. Your personal profit-taking strategy should primarily depend on your financial goals, risk tolerance, and investment horizon.
If you have any questions about DeFi investing, please reply to this email.
Is the Bull Market Really Here?
Many people don’t believe it yet.
BTC and ETH have been ranging for the past week. So, many are skeptical that the bull market is here.
So we wanted to share some charts and see what the data says. The above one tracks the net weekly flow of crypto assets. Bull markets are created by positive cash flow into crypto assets. And this chart paints a bullish picture:
- Around $345M flowed into crypto in the last week alone.
- We’ve had +ve inflow for nine consecutive weeks.
- Germany and Canada comprised 87% of those flows. Imagine if the US approves ETF.
Now, let’s take a look at the transaction data.
The chart above tracks eight chains’ daily transactions over the last six months.
We can see a notable rise in the number of transactions from November onwards. This indicates that more people are using blockchains. The beginning of the flywheel. Greater activity > more perceived fundamentals > increasing prices > and so on.
Now, let’s move on to our mainstay chart.
This chart shows the stablecoin market cap (blue line) and TVL in DeFi (orange line).
From August 2022, we’ve found ourselves in a consistent downward trend. But since October, the stablecoin market cap has been showing consistent growth.
Stablecoins are the dry powder getting ready to enter the DeFi game. Consistent growth indicates that people are getting their dry powder ready to fire.
The DeFi TVL has also been growing consistently. Although at a slower rate.
In conclusion, I do think that we’ve entered the early stages of a bull market. But don’t let the drawbacks here and there confuse you. If you’re a mid to long-term investor, they’re just noise.
🚀 DeFi Catalysts
Jito, Solana’s leading Liquid Staking Protocol, is launching its governance token, $JTO. The details of supply and distribution are revealed.
ApeCoin DAO is discussing the creation of a new ApeChain using OP Stack. If approved, another major community will be part of the Superchain.
Cosmos Hub will decrease the maximum inflation rate of $ATOM from 14% to 10%. The proposal was a close race, with 41.1% of votes for and 38.5% of votes against.
Tornado Cash‘s token, $TORN, was delisted from the Binance. The token prices also fell in reaction to the delisting.
StakeWise V3 is now live on mainnet. The v3 enables services including DVT and White-label liquid staking for custodians & wallets.
Orca is discussing directing 12% of trading fees from >0.30% pool fee tiers to DAO Treasury. Currently >97% of votes are in favor of the proposal.
Illuvium Arena PvP Beta 3 launched yesterday. In Beta 3, the team has introduced many new game features.
Trader Joe‘s JOE token has achieved its total supply of 500 million tokens. This will reduce the amount of supply entering the market.
Chainlink has upgraded its staking mechanism into Staking v0.2. The staking pool size has been increased to 45 million LINK, 8% of the circulating supply.
dYdX launched the trading rewards program. $20M of DYDX will be distributed over six months. Also, 150 M $DYDX will be unlocked in the coming week.
Timeswap‘s TIME Premine is live on Polygon. It is an AMM design that enables fixed-term and non-liquidatable loans for any fungible token.
📰 Industry News
Velodrome‘s and Aerodrome’s front ends were compromised. Smart contracts aren’t affected. And the decentralized front end at velo.drome.eth.limo is still up.
US Treasury Department has sanctioned Sinbad, a crypto mixing service the government claims is a key money-laundering tool for the Lazarus Group.
Vitalik proposed “d/acc” philosophy in his latest blog post. It is his take on the debate between e/acc (effective accelerationist) and decelerationists.
Near Protocol has overtaken Ethereum and Bitcoin in terms of active addresses and daily transactions. Games and payment apps are fueling this growth.
Jack Dorsey is backing a new BTC mining pool called Ocean. It claims to decentralize and reshape the process of Bitcoin mining.
🧠 Twitter Alpha
- Vitalik on AI risks.
- Institutions are flowing back in.
- Business is the sport. Investing is a skill.
- Macro: House Market prices keep crashing.
- For the fellow traders reading our newsletter.