Weekly DeFi/NFT News — December 27, 2021

Weekly DeFi/NFT news is a collection of major weekly events/announcements brought from the most trustworthy data sources, such as The Defiant, Spencer Noon, Week in Ethereum News etc. with comments and extra insight from the Bulldax DeFi labs.

Lightning Round Evaluation of Major Layer 1 Blockchains — Tascha Labs

• Tascha introduces a simple evaluation of layer 1s. “If you have trouble figuring out which layer 1 blockchains are investment worthy, it’s not your fault. Let’s go through major L1s one by one & assess prospect for each.”
• First let’s divide main L1s into 4 tiers according to how much traction they’ve got:

Tier 0: Ethereum the OG

Tier 1: Start to get network effect: Solana, Avalanche, Terra, Polygon

Tier 2: Solid team/tech/funding/etc but little traction: a lot of them

Tier WTF: As in “WTF, how does this thing get to such huge mkt cap?”

TIER 0: ETHEREUM

• All are signs of Eth still searching for a pivot in value prop, while alt L1s are growing bazillion times. Existing L2 deployments didn’t have much traction to show for. Expectation for upcoming zk rollup L2s is so high that it’s already hard for them to not disappoint.
• The truth is whatever Ethereum wants to be in future — sharding, security layer for L2s etc — newer chains are already delivering similar in more elegant ways, e.g. subnets of Avalanche, appchains of Near, zones of Cosmos. The world isn’t standing still & waiting for Eth to sort itself out. Hard to see a scenario where Ethereum would outgrow competing solutions.

TIER 1: Solana

• SoLunAvax became a meme b/c these 3 got most adoption among alt L1s & prices reflected that. Their growth curve has only begun. Next 1–2 yrs they may still offer among the best reward/risk tradeoffs in crypto.
• The chain that started current alt L1 wave & only torch holder for monolithic scaling against a sea of modular-architecture group thinks. Blessing b/c #1, nobody else serious is building scalable monolithic chain. For use cases that benefit from having a single state across platform & elegant full composability, Solana has the mkt by itself w/ clean value prop.
• #2, monolithic structure means SOL is the one & only platform token. No confusion as to where platform values accrue. Good for stability of community, compared to modular chains where value accrual is shared btw base chain token & its L2s/sub networks (Cosmos being Exhibit A).
• Curse b/c monolithic structure is less flexible & precludes Solana from competing in many potentially promising use cases, e.g. enterprise/private chains. Modular camp also has larger mindshare. More people working on them → learn from each other → faster improvement.
• But what’s concerning rn is there hasn’t been ultra successful apps coming out of Solana platform. Esp in DeFi. Although number of apps & TVL are growing, OG project Raydium, which is brilliant in neither idea nor execution, still has highest TVL share (15%) after almost 1 yr.

TIER 1: Avalanche

• Curse for Sol is blessing for Avax — subnet structure offers more flexibility, use cases & possibility for expansion, while EVM compatible C chain leverages Ethereum user base for ST growth. (my android/iOS analogy is not a joke.)
• There’re emerging signs of healthy & diversified ecosystem growth w/ native innovations. Strong growth in dev community & promising progress in subsets. DeFi industry on Avax has produced bigger winners than Solana despite a later start.

• So far Avax ticks a lot of boxes on my L1 investment checklist. Challenge is other chains w/ similar infra offer but slower start (e.g. Near, Algorand) may be catching up faster next yr. Tech in itself isn’t differentiated enough to be a sufficient moat.

TIER 1: TERRA/LUNA

• It’s fundamentally different from Sol & Avax in that it’s less of an ecosystem but more of a product suite. While the other two are proper networks w/ diversified projects on top, Luna’s growth is driven by 1–2 projects whose dominance is increasing over time.
• Anchor alone occupies over 40% of total TVL. If you take out Lido, which is simply a Luna staking service, Anchor’s share goes over 60%.

• It’s remarkable that UST stablecoin growth & a couple knockout projects carried Terra to top 10 in mkt cap, which speaks to the power of building products for the masses instead of targeting sm groups of crypto degen nerds.
• But there’s little abt Anchor or Mirror that’s not copiable, which raises question abt Terra’s growth momentum & defendability of moat.
• The setup is eerily similar to Korean economy, where 4 largest “projects” — Samsung, Hyundai, SK & LG — make up nearly half of GDP. Yes it’s a nimble & creative economy, but also w/ highly concentrated risks unlike larger ecosystems.
• “As such, my opinion on Terra is similar to that on S Korea — has a place in portfolio but not something to go all in on.”

For Polygon and Tier 2 protocols check the full article: https://taschalabs.com/lightning-round-evaluation-of-major-layer-1-blockchains/

Source: https://taschalabs.com/lightning-round-evaluation-of-major-layer-1-blockchains/

YFI — Reborn As A Black Hole With Proposed New Tokenomics — Ape Froman

• Yearn is likely to undergo massive tokenomics changes. YFI currently trades at a very low 11.82 P/E and 5.54 P/S. (As mentioned in our Convex piece, Silicon Valley FinTech VCs would literally knife each other to invest in projects at these prices).
• we see three main reasons as to why YFI has underperformed for the majority of this year.

1. While TVL has been building, the growth rate in revenue has been somewhat weak

2. Although Yearn has looked cheap on many Tradfi Metrics such as Price:Sales and Price:Earnings, a value accrual mechanism to token holders had remained elusive

3. Yearn likely suffered from the the effects of having a measurable product (an infinite valuation can be justified for a product which can’t be measued/does not exist (cough, Cardano, cough) and a lack of token incentives to attract YFI token buyers via mercenary farming capital.

Proposed tokenomics

• Under a current governance proposal which we expect to pass, 4 tokenomics revisions stages have been laid out.

• Yearn has already begun to use protocol fees accrued to the treasury to purchase YFI tokens from the market. These tokens will be used to reward YFI stakers under an xYFI model, which is stage 1 of the tokenomics revisions.
• Stage 2 introduces a Curve-esque vote escrow model, wherein YFI token holders are incentivized with rewards in exchange for locking their tokens, with rewards increasing with the amount of time that tokens are locked.
• Stage 3 introduces Vault Gauges. These gauges allocate rewards on a vote based system, and introduce the likelihood that veYFI token holders may earn external voting incentives, similar to how protocols are currently incentivizing vlCVX token holders through a platform like Votium, to vote for Curve Gauges of their choice.
• Stage 4 allows veYFI holders to earn even more rewards for “useful work” or contributing.

Source: https://medium.com/@portiadog/yfi-reborn-as-a-black-hole-db249b90ed5a

Strip Mall Icon RadioShack Resurrected as a DeFi Play With Token — The Defiant

• RadioShack, a 100 year-old consumer electronics retailer revived by internet entrepreneurs Tai Lopez and Alex Mehr as a DeFi protocol.
• The new RadioShack’s primary objective is to distribute blockchain technology, according to the project’s docs, which target “blue chip, large corporations” as adopters.
• Under the hood, RadioShack appears to be launching an exchange, which the project calls a “swap” in its docs. Indeed, the project cites Uniswap and SushiSwap, both decentralized exchanges (DEXs), as profitable protocols and cites a Jeff Bezos quote that reads, “Your margin is my opportunity.”
• RadioShack says their their competitive advantage stems from what the project’s docs call “symbiosis” between Atlas USV, which bills itself as a “DeFi base layer”, and Retail Ecommerce Ventures, a holding company that has acquired other bankrupt brick and mortar businesses like Pier 1 Imports and Modell’s.
• There will also be a RADIO token, which will be used as a bridge asset, according to Radioshack’s docs. So a USDT to DAI trade would actually be a USDT to RADIO to DAI trade under Radioshack’s design.

Source: https://thedefiant.io/radioshack-defi-brand-token/

Opyn to Unveil Squared ETH Token as DeFi Derivatives Race Heats Up — The Defiant

• Decentralized options protocol Opyn is readying to launch its Squared ETH or SQUEETH token, which is designed to hedge ETH-based liquidity provider (LP) positions on automated market maker (AMM) exchanges.
• In a Dec. 17 blog post, Opyn developer Joe Clark described SQUEETH as a “new DeFi primitive” that allows stablecoin/ETH liquidity providers to earn swap fees without being exposed to the impact of price fluctuations in Ethereum for the first time.
• SQUEETH was first articulated in an August research paper based on research from Opyn and Paradigm Research. SQUEETH was then described among other “power perpetuals” offering returns based on a price curve.
• Clark’s latest blog post states that SQUEETH is now being designed to overcome the impermanent loss associated with providing liquidity on an AMM. The developer describes SQUEETH as a “quadratic“ instrument that improves hedging against “non-linear positions” — instruments that perform according to a curve, such as AMM LP positions.
• The price of SQUEETH is designed to hedge against the impermanent loss, with the asset’s price expected to fluctuate proportionally to the impermanent loss caused by price volatility.

• SQUEETH offers two core utilities to stabecoin/ETH liquidity providers. Firstly, liquidity providers can purchase SQUEETH while holding their LP position to offset impermanent loss, allowing them to profit from Ether price gains while also earning swap fees.

Source: https://thedefiant.io/squeeth-eth-opyn-launch-defi/

Kraken Acquires Staked: Will Allow a New Way to Earn Crypto Rewards With Staked Acquisition

• “One of the largest deals in the history of crypto, this acquisition perfectly complements our existing custodial staking offering, enabling all of our clients to earn rewards on their crypto while retaining complete control over their digital assets.” Said Kraken in the announcement.

• “Kraken’s acquisition of Staked represents an exciting new chapter for us,” said Tim Ogilvie, CEO of Staked. “Kraken clearly shares our commitment to supporting proof-of-stake networks, having a security-first mindset, and unwavering focus on customer experience, which makes them an ideal partner.”
• The acquisition will allow to stake tokens while “now have more options on how they choose to manage their funds when staking with Kraken.”

Source: https://blog.kraken.com/post/12265/kraken-to-allow-a-new-way-to-earn-crypto-rewards-with-staked-acquisition/