It Takes Two to Tango
What a day! Elon’s recent social media posts have “indeed” started a cascade.
Further worsened by the CCP’s announcement of an institutional financial services ban on cryptocurrencies, and some expert gaming by a seasoned investor of a $200MM move on XVS, which has now turned the market upside down. At the time of writing, which should be noted is a long way off of todays lows, BTC is down 11%, ETH 19%, and BNB is down 25%.
There is no doubt things are looking grim for investors first getting into cryptocurrency.
As a FEED team member, I can’t help but open up the charts from time to time to see where the market is valuing us. Today is one of those days it appears the market does not like us at all. We fell from $0.22 to $0.09, that’s close to a 60% decline from a week ago. Ouch!
But has it really?
FEED-BNB LP technically values each FEED against BNB. Not USD. How does this really translate into a price quoted in USD?
Here is the rough math. Say 1 unit of BNB is worth $600, if the FEED-BNB LP exchange rates stand at 2,727 FEED per 1 $BNB, the price in USD is calculated as such
$600 / 2,727 = $0.22
…that‘s how FEED is quoted in USD.
Now assume the exchange rate between FEED and BNB doesn’t change, it remain at 2,727 FEED per 1 BNB. What happens when BNB falls in value say…to $300 per BNB?
$300 / 2,727 = $0.11
Now you see, under this scenario. FEED didn’t lose it’s value. BNB did, holding constant the exchange rate between FEED and BNB.
In reality markets don’t quite work like that. Why? Arbitrage.
Currently, there exist no FEED liquidity pool in stable coin that’s liquid enough for arbitrageurs to maintain a fair price across all liquidity pools.
Were there to be one, arbitrageurs would scoop up FEED on the FEED-BNB pool for ~$0.11 and start selling them for $0.22 at the FEED-USD LP until the two converge.
Take a look at the below:
The blue line, quoting FEED in BNB, shows that the FEED token has indeed lost value, but by something like 30% were it to be quoted in a stable counter pair. The USD effect of BNB’s value loss on the other hand, drove the “quoted” price in USD (shown by the white line) is down by twice that.
I’m bringing all of this up to point to two things:
The FEED token, despite massive (but typical crypto) market correction held up just fine. Staking pool tokens increased, rather than decreased, suggesting more buyers than sellers during the correction period.
The community may need to start thinking about sponsoring a stable coin liquidity pool. FEED-BUSD for instance. The implication though is splitting of the distribution. It will need to be voted on. But let’s just have a discussion about it first given this is not an easy subject to agree on.
