This has been a massive week: Binance settled with US Gov. CZ is stepping down as Binance’s CEO. SEC sues Kraken again. A new ETH L2 enters the arena!
By the way, it’s Thanksgiving for those in America. I’m grateful to you for reading this newsletter. Trust and attention aren’t easily earned – I promise to keep operating in this space with the highest integrity.
Here’s what we got today:
- The Binance Deal. $4.3B fine and CZ’s exit.
- The L2 Blast. A new Ethereum L2 is on the scene.
- Opportunity Cost 101. Should I sell a token that’s 80% down from ATH?
- Around the Web. PancakeSwap veCAKE is approved, Kraken is sued again, KyberSwap hacked, and more.
Here’s your Edge 🗡️!
The Binance Deal
The final hammer has dropped.
Every Crypto “main character” seems to have been convicted of something, including Su Zhu, SBF, Do Kwon, and more. And some people felt that it was a matter of time until CZ, the founder of Binance, would also get in trouble.
This week, the U.S. convicted Binance of:
- Violating sanctions law.
- Operating an unlicensed money-transmitting business.
- Failing to maintain a proper anti-money laundering program.
They have since settled with an alphabet soup of federal agencies. And they have agreed to pay $4.3B, the 7th largest financial compliance fine in history.
Binance must appoint an independent compliance monitor for three years and report its compliance efforts to the U.S. government as part of the deal. This will likely significantly reduce Binance’s start-up-like agility.
What’s Happening to CZ: Founder Changpeng Zhao, aka CZ, has also pleaded guilty. He’s now banned from operating or managing Binance for three years. So, he stepped down from the CEO job. And he has to pay a $50M fine.
What’s CZ going to spend his time on?
Something that stood out to me is…
“I am happy that I will finally have more time to spend looking at DeFi.“
Richard Teng, Binance’s regional markets head and a former Abu Dhabi regulator, has now become the new CEO.
Edgy’s take: The Binance deal is generally considered bullish news for the crypto industry. The Binance collapse FUD constituted a major uncertainty in the market. Now, we can be sure that funds are safe. And since there will be close govt monitoring of Binance activities, it’ll probably be quite safe in the future as well.
The SEC has previously denied BTC spot ETFs because of potential manipulation. But monitoring one of the world’s largest crypto exchanges will help the government watch the crypto spot markets closely. So, this takes us one step closer to the ETFs.
So, really, this is a win-win-win. $4B for US government. For Binance, regulators are off their back. And greater peace of mind for the crypto industry.
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The L2 Blast
Blast, a new L2, has captured the attention of everyone on Crypto Twitter.
The numbers speak for themselves:
- Within 24 hrs, it had 23k+ users and $81M in TVL.
- Right now, it has ~$242 million+ in TVL.
- And it is the 9th largest L2 by TVL already.
For contrast, it took more than two months for friend.tech to reach that $50M. And many chains with superior tech have much lower TVL. Examples include StarkNet (~$147 m) and Polygon zkEVM (~$109m).
So, what’s Blast? It is supposed to be an EVM-compatible, optimistic rollup on Ethereum. Pacman, the founder of the Blur protocol, aka the top NFT marketplace on Ethereum, is developing it. And it is backed by Paradigm and many other famous influencers.
On top of the big names associated with the project, Blur has many features that attract degens. Here are those…
Mech #1: Native yield on $ETH and stablecoins
On the backend, whenever users deposit $ETH, this will be converted to stETH automatically. And when they deposit stablecoins, they’ll be converted to $DAI. $DAI will be staked in MakerDAO’s DSR to earn yield.
On the frontend, $sDAI will be shown as $USDB and $stETH will be shown as $ETH. Yield from the backend will be distributed proportionately to everyone automatically. This mechanism is known as auto-rebasing.
So, while other chains have to wait for protocols (such as Lido and Maker) to come to their chain and build liquidity for yield-bearing ETH and stables, Blast does it natively.
Mech #2: Airdrop promise to lure users
Blast has Blast points. These points will be redeemable for tokens in a Blast airdrop scheduled for May 2024. Points can be earned by bridging assets and inviting others to Blast.
This is a good strategy for luring new users into Blast because many users are now chasing this potential multi-million airdrop.
Many people have complained that these are essentially ponzi mechanics.
Mech #3: Incentives for the devs
Ultimately, L2s become successful because of the diverse ecosystem on top of them. And for that, you need to attract devs as well. Blast has nice incentives for them as well:
- 50% of the airdrop is reserved for devs.
- They promise to share L2 revenue with smart contract devs.
Alright… all of that sounds cool. But everything isn’t sunshine and rainbows.
What are the risks?
Firstly, there is no withdrawal. You are locking up your funds for a minimum of three months. And lockups are risky.
According to Dankrad, making assets natively yield-bearing is counter-productive. The risks associated with stETH and native ETH are radically different. stETH comes with a slashing risk, smart contract risk, etc. Blast removes users’ ability to choose between different types of risk exposure.
There’s also a huge reliance on Lido and MakerDao.
To make matters worse, Blast has no docs, no testnet, no nothing.
The current “bridge” contract used by Blast isn’t actually a rollup bridge. It’s a simple escrow contract guarded by a 3/5 MultiSig. So, degens are basically trusting three dudes with ~$250M.
And since it’s just a MultiSig, Gabriel Shapiro thinks it could be a legal nightmare as well.
Edgy’s take: This is an airdrop play. If you just want the yield from $ETH and stablecoins, you can choose to hold stETH and sDAI directly.
Transferring them to Blast multi-sig means you are taking on a lot more risk. And in return, you’re promised an airdrop of a brand-new L2.
Opportunity cost in investing
“I’m holding a few tokens down -80% from its all-time highs. I know I should’ve sold earlier, but what should I do now? Should I sell, or should I wait until the tokens gain more value?” – email from a reader
Alright, so you’re still holding some coins from 2021. You’re wondering if you should get rid of them or hope the tokens will make a comeback. Here are some thoughts…
Understanding sunk cost fallacy
So, your initial $1,000 token investment is now worth just $200. It’s a hard pill to swallow. There’s no need to dwell on the past unless you have a time machine.
But here’s where it gets tricky. Often, newbies think, “I’ll sell once the investment breaks even” or “I’ve already invested so much, I can’t give up now.”
This is the sunk cost fallacy in action. You’re valuing your investment based on what you’ve already put into it, not on its potential. I call these guys “break-even bag holders”
The hidden loss aka opportunity cost
Holding onto a losing token isn’t just about the loss in value. It’s also about what you’re missing out on. This is known as opportunity cost.
Instead of waiting for your token to recover, you can choose to invest your $200 in something more promising. Maybe there’s a new token that will perform better than the loser token.
It hurts, but here’s the key: don’t cling to the past. The $800 loss has already happened, whether you sell now or later. What matters is what this $200 can do for you moving forward.
Evaluate the future potential
So, what should you do with the $200 invested in your struggling token? Forget what you’ve lost. Focus on what this investment could do for you in the future.
Ask yourself, “Is this token going to pump now? Or are there better opportunities out there?” This question is at the heart of smart investing.
And the final question is “If you were to build a portfolio from scratch, would you include this token?” If the answer’s no, then sell it.
I tend to favor selling old bags because you cleanse yourself of the mental bandwidth. There’s so much hope and optimism in new tokens compared to looking at old tokens and feeling regret.
🚀 DeFi Catalysts
PancakeSwap has decided to launch the veCAKE Gauges System. veTokenomics is generally useful in generating demand sinks for the token.
Asymetrix V2 is now live. A central upgrade in V2 is the ASX token design. They introduced esASX, Boosts system, and Mini pools.
unshETH introduced “Liquid Blast ETH” (blETH). It is a liquid wrapper for ETH deposits into Blast.
Synapse Bridge added support for Solana. You can swap between ETH, USDC, SOL across Ethereum and Solana.
Vega Protocol introduced the perpetual futures markets. It’ll be permissionless. Members will vote on the specific assets to be included.
1inch Network released a portfolio tool. You can manage multiple wallets across various networks using the 1inch Portfolio.
Gondi v2 is now live on the mainnet. The v2 includes many additional features such as Buy Now Pay Later, Refinance lockups, Extend loans, etc.
Curve Finance‘s crvUSD might soon be added to Aave. This will add a new market for Aave and more utility for crvUSD.
Pyth Network Retrospective Airdrop is now live for claiming. PYTH tokens are created using the SPL standard. So, you’ll need a Solana wallet for claiming.
Beefy Finance has integrated Chainlink’s CCIP solution for their $BIFI token. $BIFI will be a cross-chain token powered by CCIP.
📰 Industry News
KyberSwap was hacked across multiple chains. The estimated loss is ~47 million.
Argentina‘s president-elect Javier Milei plans to use the dollar as their currency. He’s a BTC bull and his election is extremely bullish for crypto.
Kraken is accused of running an operating unregistered security exchange by SEC. They had alrady settled with SEC in another lawsuit for ~$30 million.
dYdX lost around 9 million from the insurance fund due to $YFI liquidations. It is said to be a targeted attack by manipulating $YFI market.
Aave Companies has rebranded to Avara. It’ll be the parent company for Aave, Lens, GHO, family, and others.
🧠 Twitter Alpha
- Lyn Alden Macro Update.
- Be aware of this type of scam.
- How to use your $PYTH Airdrop.
- Get up to speed with Solana ecosystem.
- The new Argentinian president is a fan of BTC.
😂 Meme
