This was quite the chaotic week: Cointelegraph announced that the SEC had approved a Spot BTC ETF.
The problem? It was fake news based on an unverified source in Telegram. Bitcoin’s price skyrocketed, and more than $100m was liquidated due to this incident.
Here’s a silver lining: the market’s reaction tells us that if the SEC does approve a Spot BTC ETF, it’ll drive some serious price action.
Here’s what we got today:
- The $UNI Rug? A new fee that prints money for the Uniswap team.
- Two Tokenomics Traps. Tokenomic mechanisms that’ll take your money.
- The Grant Effect. Studying the impact of ecosystem grants on the projects.
- Around the web. Scroll is live, Lido sunsets stETH, Racer Loans enable loans against Friend.tech keys, and more
Here’s your Edge 🗡️
The Uniswap Team’s Getting Paid
The day that Uniswap users feared has come….
The Uniswap team has switched on the fee switch. If you want to trade certain pairs on the Uniswap front-end, you’re now looking at a 0.15% fee.
Here’s the token list: ETH, USDC, WETH, USDT, DAI, WBTC, agEUR, GUSD, LUSD, EUROC, and XSGD.
Where’s the money going? The fee isn’t for the Uniswap DAO or the Uniswap holders. Nope, it’s for Uniswap Labs – the VCs and team. BlockResearch did the math: it’ll add up to ~42M in annual fees.
Quite a few $UNI token holders are pissed off:
- It cuts into the protocol fee potential, which is bad news for $UNI holders.
- $UNI was supposed to be a governance token. But where was the vote for this new fee set-up?
- Uni v4 can mandate KYC (Know Your Customer) checks for certain pools. So, people are generally paranoid about the direction of Uniswap.
On the flip side, the Uniswap team had its reasons:
- Being a US-based entity, routing the fee to token-holders would be a regulatory nightmare. Especially when the SEC’s out for blood.
- The fee ensures the sustainability of Uniswap Labs, allowing for continued development of the protocol.
- The fee only applies to Uniswap’s official interface. Remember, you can use alternative front ends. You can use aggregators like 1inch or LlamaSwap.
If this move is successful, we might see other protocols follow a similar strategy, especially those that differentiate between token and equity holders.
Two Tokenomic Traps
“Hey Edgy. What strategies were popular in the previous bull market that you think will no longer be popular in the next one?“
The “metagame” of DeFi is always changing. What worked in the previous cycle might not work in the next one.
Here are two things that I don’t think will be as popular.
#1 Insane APRs due to Token Printing
Yield farming, aka depositing token into DeFi protocols to earn high-interest rates, was one of the big drivers behind DeFi summer. It started with Compound Finance distributing $COMP to users who deposited assets into the protocol.
Soon, every protocol began offering insanely high APRs. The OHM style protocols even offered 100,000% APR.
Spoiler alert: these APRs weren’t sustainable because the protocols printed them at will, and it relied on new buyers coming in.
The high inflation attracted mercenary liquidity. And once the APR went down, they dumped their tokens. So, prices nosedived.
Real Yield became a popular narrative last year, where people prefer tokens with APY backed by sustainable revenue.
#2 Token locking
Lock your tokens up, and we’ll give you a higher APR!
Protocols introduced this mechanism to reduce selling pressure. Users are asked to lock up tokens in a smart contract for a predetermined time. In return, users receive greater voting power or yield.
Curve Finance is a good example. If you lock up CRV, you get yield and governance power. And the longer you lock up CRV, the greater the rewards.
Some DAOs and VCs have tangible benefits that come from locking. For example, Frax Finance needs Curve governance power to drive liquidity to its stablecoins.
However, locking isn’t worth it if you’re an individual investor.
Some people were forced to watch their locked tokens drop by -90% in the bear market. Think about the people who had their LUNA tokens locked while the protocol collapsed.
Don’t get seduced by yield; it’s a honey trap.
The Impact of Grants on Price Action
Ecosystem Grants are major catalysts.
Money flows into an ecosystem, which then gets distributed among various protocols. These protocols can use the grants to incentivize users to come.
The question is: do these grants impact a project’s price? We’re wondering about this because of Arbitrum’s $41.5m ecosystem program.
This week, we dig into how projects responded to the $ARB and Optimism ecosystem grants.
To correctly measure how grants impacted the overall action of the crypto projects, we had to combine data from multiple sources:
- The current analysis encompasses two time periods — Optimism Grant Season 1 and the 2023 Arbitrum Grants. While plenty of ecosystem grants are out there, we felt Optimism most closely with Arbitrum.
- ETH and BTC performance were averaged based on the two grant seasons.
- Some of the project’s “outliers” were not considered in this analysis. We skipped some abnormal protocol performances in favor of data consistency.
We have a couple of takeaways that we feel are important to share:
The following Analysis aims to provide opportunities we might have missed in the grant scheme.
Please remember: the percentage shown under the “ROI” in this section assumes the perfect “entry and exit” price.
- DEX (Decentralized Exchanges): leader with the highest number of projects (13) and has received massive grant funding worth approximately $15.9M.
The category returned a notable average ROI of 198.68%.
This suggests that DEXS are among the top-funded and well-rated protocols.
- Yield Protocols: this category is well funded, with ten projects and significant grants of around $17.9M.
Its average ROI is 127.44%, indicating steady performance.
- Lending Protocols: this category houses seven projects and has generated around $5.2M in grants.
Its ROI is 150.97%, demonstrating the potential of lending-based projects.
- Derivatives: comprises seven projects and the greatest grant amount across all categories of approximately $23.8M.
While this emphasizes much interest, it shows they might not be among the top performers. (Please refer to the chart above)
- Stablecoin Protocols: four projects were considered with an average ROI of 133.11%.
- Bridges: bridges stand out due to having the highest average grant amount.
Protocols such as Synapse and Stargate received $1M in funding.
- “Liquid Staking” had only one funded project (Rocket Pool, OP Grant Season 1) but demonstrated the highest ROI of 342.18%…
Below are three more takeaways from our analysis:
#1: Which category should you pick?
Your best chance of making a profit is betting on categories in which more protocols are being funded.
Be sure to look out for those categories in your next grant season.
Take DEXs, for example. Your “DEX Index” would have given you great returns.
What does that even mean?
Imagine you had to create an ETF of the most promising projects on Arb or Op during the grant season … this suggests starting with the DEXs.
#2: How are native tokens performing?
Should I buy the ARB or OP token instead?
|Protocol||Min Price||Max Price||BEST %ROI POSSIBLE (%)||Percentage Change during Grant Period (%)||Ecosystem|
Min Price and Max Price are to be considered for the scope of this research.
So, the data suggests that Optimism performed better during their Grant season (1 and 2).
Now, before you become a an Optimism maxi…
The Optimism Grant Season 1 didn’t have that many Layer 2s competition compared to the current Arbitrum Grant season.
So, it’s clear that the initial run for OP incentives was much crazier. And it might explain the outsized performance.
#3: Play the “social” game
Most of the time, being active in the community will give you an edge regarding this type of opportunity.
But you must be willing to take extra steps to see what others aren’t seeing yet.
Monitor social channels; their governance forum is also rich with alpha.
If you like these data-backed analyses, please let us know in the replies. We’ll then send out more of these in the future.
🚀 DeFi Catalysts
Diva, a new LST protocol that uses DVT, is showing success in its vampire attack against Lido.
Scroll mainnet is live. It is the latest contender in zkEVM rollup wars. The Total Value Locked has crossed $3.5 million.
Lido is sunsetting its staking service on Solana. Users can unstake stSOL using the Lido frontend until February 4, 2024.
Polygon CDK is gaining more traction. Dogechain has joined it. And Manta Network is also migrating to Polygon CDK.
Farcaster is now open for everyone. It is a leader in creating web3-native social media.
Racer Loans is now live. It allows people to take out loans against Friend.tech keys.
Binance said that it has burned over $450 million worth of BNB tokens as part of a planned token burn.
BNB Chain released the BNB Greenfield Mainnet. It is a decentralized data storage network.
LayerZero is now live on OpBNB. Projects that have integrated LayerZero can now easily access opBNB as well.
Radpie introduced $esRDNT. It is a new version of the $RDNT token, allowing Radpie users to claim rewards without any lockup period.
Sommelier launched the Turbo stETH vault. It’ll use leveraged staking, Uniswap V3 LPing, and stETH peg arbitrage strategies.
Hidden Hand now supports Liquis, a liquid governance wrapper for Bunni from Timeless Finance.
Raft v2 released the $WBTC vault. Users can generate $R using your WBTC for a minimum collateralization of 120% and a fixed interest rate of 3.00% APR.
📰 Industry News
SEC will not appeal the court ruling on the Grayscale spot Bitcoin ETF. This increases BTC ETF chances.
Reddit is shutting down Community Points – the blockchain-based reward program. Scaling difficulties & regulatory environment were listed as reasons.
Ethereum‘s validator queue became empty for the first time since the Shanghai upgrade. It indicates that $ETH staking is reaching equilibrium.
European Central Bank will begin a two-year development phase for the Digital Euro from November. The mechanics are still being sketched out.
ERC3643, a new token standard for real-world asset tokenization is gaining mindshare. It integrates digital identity & permissioned tokens.
🧠 Twitter Alpha
- The only feasible category of RWA.
- Tokenized Real World Assets thesis.
- What, when, and where does something break? Alf’s macro take.
- The market is cleaning out the unprofitable or less innovative projects.
- The State of Ethereum Staking in Q3 2023