A major L for the SEC

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By EdgyAugust 31, 2023

The SEC is starting to take more L’s than Logan Paul lately. Last month, Ripple won their case against the SEC. And now Grayscale scores a major victory.

We’re learning that the SEC is beatable. Just wait and see what happens if Coinbase wins. This is the time to pay attention and prepare for the bull run.

Here’s what we got today:

  • Grayscale wins. Can this victory over the SEC lead to a BTC ETF?
  • DAI Savings Rate 101. And how it can lead to the next Bull market.
  • Around the Web. Lybra v2 is here, Polygon releases their Chain Development Kit, And more.

Today’s email is brought to you by Stader.

Here’s your Edge 🗡️!


The SEC loses ANOTHER Crypto Lawsuit

People celebrating in courtroom.

The charts finally turned green again after two weeks of depressing price action (BTC price’s jumped by 7% in a day).

Two major things happened:

#1. Twitter (aka X) obtained the license to integrate crypto into its platform.

Now, the possibilities are endless. The platform has around 450 million active users. So, this is big news in terms of potential broader adoption.

The simplest use would be to enable tipping a post. Twitter takes a cut, and they could implement Dogecoin.

​​#2. Grayscale won its lawsuit against the SEC. Let’s dig into what happened.

What was the lawsuit about?

Grayscale, a digital-native asset manager, wanted to convert their Bitcoin Trust (GBTC) into a Spot Bitcoin ETF. However, the SEC denied their request. So, Grayscale went to court, claiming that the SEC was unfair.

What is GBTC? It’s a trust that holds Bitcoin on behalf of investors. GBTC shares represent fractional ownership of the Bitcoin held by the trust.​

A Spot Bitcoin Exchange-Traded Fund (ETF) would allow traders to gain exposure to BTC in the traditional stock market without buying BTC directly.

Uhhh…what’s the difference?

Redemption mechanism.

  • BTC ETF shares can be redeemed for BTC.
  • Grayscale’s GBTC can’t be redeemed for BTC.

This led to the undervaluation of GBTC and it being traded at a lower price than the value of the underlying Bitcoin it held.

GBTC trading at a discount
The undervaluation of GBTC compared to BTC

Why did the SEC reject Grayscale’s application?

The SEC claimed Grayscale’s ETF proposal wasn’t “designed to prevent fraudulent and manipulative acts and practices.”

What did the court say?

Basically, they called SEC’s bullsh*t. They invalidated the SEC’s reason for rejecting Grayscale’s application.

The SEC had previously approved market manipulation safeguards for other BTC futures. And Grayscale’s proposal had met those conditions. The court decided that those safeguards would be sufficient.

What can the SEC do now?

The SEC has a few options if they want to keep fighting.

  1. They can appeal the ruling within 45 days.
  2. They can deny the Grayscale Bitcoin ETF by citing a different reason (remember, the court didn’t order the approval of the ETF).
  3. They approve Grayscale’s Bitcoin ETF. This court order provides a semi-graceful way for the SEC to allow Spot BTC ETFs.

What does this mean for crypto?

  1. The space is one step closer to a spot BTC ETF. The SEC had cited this reason for rejecting many Spot BTC ETFs. That excuse isn’t available anymore.
  2. A mega bullish catalyst (maybe). This ruling may lead to the approval of a Spot BTC ETF. If this happens, millions from traditional markets will likely flow into crypto.
  3. A blow to the SEC. The court has accused the SEC of acting carelessly. This is very rare. Hopefully, the SEC will now learn to tone down its crypto hate.

Initial rulings for five Spot Bitcoin ETFs are due tomorrow. Let’s pray for some good news.

Together With Stader

Introducing rsETH: Stader Labs’s Liquid Restaked Token

We have talked about Stader Labs and their Liquid Staking Token, ETHx, in previous editions for a few weeks now.

In this edition, we have a special announcement – The Stader team has introduced rsETH, a Liquid Restaked Token!

rsETH is a synthetic token issued for restaked ETH, ETHx and other Liquid Staking Tokens.

Before we explain rsETH, let’s recap Stader Labs and ETHx:

  • Stader Labs is a non-custodial, multichain liquid staking platform with a presence on seven chains – including Ethereum, Polygon, BNB and Hedera
  • ETHx, Stader’s Ethereum Liquid Staking solution, launched on July 10th – currently $25.7M TVL

Back to rsETH, Stader Labs’ new DeFi primitive enables you to maximize rewards across the Ethereum ecosystem. Currently on testnet and undergoing audits, rsETH aims to be a single token for everything with instant liquidity for the restaked position.

But how will you mint rsETH? 🤔

Deposit any ETH LST currently eligible as collateral on EigenLayer i.e. stETH, rETH or cbETH.

​Check rsETH out on testnet!

While we wait for the mainnet launch. PowerUp your ETH with ETHx. Stake on Stader now!


DAI Savings Rate 101

A graph​​
Source: Makerburn.com/#/dsr

This chart shows the amount of DAI deposited in Dai Savings Rate.

What is the DAI Savings Rate (DSR)? DAI’s a decentralized stablecoin backed by other Cryptocurrencies like ETH, BTC, and USDC.

Users can deposit it into a smart contract and earn interest on it. This interest rate, called the DAI savings rate, is set by MakerDAO.

This is considered to be a risk-free rate standard in the DeFi.
(Ethereum staking rewards is another candidate. But ETH’s price is volatile. And many investors aren’t keen on that volatility.)

Why did DAI deposits moon? On August 6th, there were only around 340M DAI in DSR. Today, there’s roughly 1.3B DAI in DSR. Up until that point, DSR was around 3%. Then it rose to 8%, which led to the sudden increase in DSR deposits in this chart. (DSR was later reduced to 5%. We can see this in the chart as well.)

Where’s this Money Coming From? Short answer: stability fees. These are the fees paid by DAI minters to the MakerDAO. The fees are similar to the interest paid to a bank when you take out a loan.

Since only 24.7% of the total DAI is currently deposited into the module, the total cost of the DSR module sits at only around 65M. Maker makes way more than that.

The MakerDAO has also loaned out around 5B worth of DAI. Annually, it makes around 169M from these loans. And 94M out of 169M in revenue comes from a single sector: Real-World Assets.

Almost 50% of Maker loans are backed by Real-World Assets (RWA). Out of 5B circulating DAI, around 2.5B DAI is backed by RWAs.

MakerDAO also uses RWA loans to tap into the biggest arbitrage opportunity: the difference between the risk-free yield in TradFi and DeFi.

  • MakerDAO lends DAI to a third party.
  • The DAI is converted into USD and invested in T-bills.
  • The yield from T-bills is sent to Maker in the form of stability fees.

​In summary, Maker can pay out DSR by funneling T-Bill yields. Other protocols can also do this. Frax is setting up an infrastructure for this arbitrage.

But why should I care? Well … this might lead to the next bull market. For the complete argument, listen to Taeke Maeda:

​Here’s the 80/20 of the argument:

  • The current risk-free rate in TradFi is >5%.
  • By looping interest-bearing DAI, DeFi can offer a >10% APY.
  • This APY will likely attract liquidity into DAI (and similar stablecoins).
  • Increasing stablecoin liquidity leads to a bull market.

What does looping DAI mean? sDAI is a liquid token that represents interest-bearing DAI. You can use it as collateral to borrow more DAI. The additional DAI can, in turn, be staked to earn yield. And so on and on.

While looping might sound degen, we understand it pretty well. And relevant risks can quite easily be managed.

In conclusion, DeFi can trigger the next bull run by leveraging T-bills and RWA. Remember, a bull run can have many catalysts.


Is the Bull Market Here?

Stablecoin Marketcap chart.​​
Source: DeFiLlama

Seeing some green and thinking “bull market”?

Slow down! If you want to know whether a bull market is truly here, consult this go-to chart first. It tracks the stablecoin market cap.

The gigantic drop in May 2022 corresponds to the Terra-Luna crash. It kicked off this current bear market. Not surprisingly, the stablecoin market cap is also in a steady decline.

So basically, I’ll be moderating stablecoin inflows, central exchange inflows, and other data to see if the tide’s turning. And from there, I’ll deploy my stablecoins and be more risk on.

🚀 DeFi Catalysts

Polygon released their Polygon Chain Development Kit (CDK). Like OP Stack, anyone can launch their own ZK-powered L2 chain on Ethereum.

Lybra Finance will launch its v2 today (31st August). New features include Omnichain functionality, more collaterals, Lybra wars, etc.

PancakeSwap v3 expanded to the Linea mainnet. The dApp was already in Ethereum, BNB Chain, Aptos, Polygon zkEVM, zkSync Era and Arbitrum.

Gains Network officially launched the forum and Snapshot websites. This will increase the community engagement of the project.

Redacted Cartel is discussing a collaboration with Mantle Network. Mantle will allocate 50,000 ETH to pxETH and get access to Redacted Cartel’s services.

Boba Network, the first multi-chain L2 network, has announced the winding down of its chain on Avalanche.

Aerodrome, the friendly fork of Velodrome on the Base chain, went live. They also had an airdrop.

Pendle Finance is trying to tap into Real World Assets narrative. They have added support for sDAI from Spark Protocol & fUSDC from Flux Finance.

Coinbase and Optimism have finalized a strategic agreement. The Base will share 15% of profits or 2.5% of revenue with OP Collective.

AltLayer, a rollup-as-a-service provider, has integrated OP Stack into their Rollups suite. This will further increase OP Chains.

Shibarium Bridge is now fully functional. It had several problems at the time of launch. Token withdrawals are now live.

Aave is discussing the increase of the borrowing rate of GHO from 1.5% to 2.5%. This is to address the peg deviation of the coin.

📰 Industry News

According to Bloomberg, Tether uses privately-held Britannia Bank & Trust to process dollar transfers.

Balancer was exploited for around $900,000. This comes after it had revealed critical vulnerability affecting some of its boosted pools.

Num Finance has rolled out a Colombian peso-pegged token on the Polygon network. It has already issued stablecoins pegged to the Argentine and Peruvian local currencies.

Aave temporarily paused the minting of the new GHO stablecoins. This was to fix an integration issue. And no funds are at risk.

Ben Armstrong was removed from the BitBoy Crypto brand by its parent firm.

😂 Meme