StakerDAO Scouts
April 2020
Governance:
Compound, the money markets protocol to supply and borrow crypto assets, is shifting control of governance to its token holders. As of today, token holders are largely represented by founders, investors and key ecosystem participants and represent half the token supply. Later this year, users of the platform will also receive tokens, which represent the other half of the supply. The most interesting development was the submission of two proposals: USDT support and an update to the DAI Interest Rate Model. Both proposals were submitted by token holders (Geoffrey Hayes and Dharma) and both passed with +90% in favor from the tokens which voted. The sole controversy was communicated by IDEO because the proposals occurred over a 72hr voting period. At StakerDAO, this is why we communicate that despite submission and approval of a proposal occuring over a one month period, discussions occur in the background across our forum and social media, potentially months in advance of a formal proposal. If one thing is clear, it’s that governance is secondary to many projects, leading to friction.
UMA, a project focused on the creation of financial contracts, decided to engage in an initial DEX offering on Uniswap, an automated market maker. The price of UMA tokens started at $0.26 or its seed round valuation, the price quickly climbed to ~$2.20 given liquidity constraints and has ultimately settled near $1.15. It was a controversial offering as no retail investor had an opportunity to participate at initial prices and likely purchased at multiples higher. If we look at the transactions, it seems like the first 30% of the 2mn tokens offered went to 4 addresses. Participants in Slack noted that what looked like scripts with no regard for slippage or gas fees. Given all the pushback, the team communicated its best efforts in structuring this offering, but the release of future tokens will now be iterated with community input through a working document.
Industry Growth:
We have seen solid growth in the DeFi ecosystem as well as in the general crypto space. In a very long tweet thread, we learn about ETH distribution, perhaps most notable noting the broad distribution of slightly over 50% of the supply across 10k addresses, which is on par with Bitcoin and better than most tokens. In the general crypto space, stablecoin issuance has more than doubled YTD to an outstanding supply of +$6.8bn. There are of course various use cases for stablecoins, but overall, we think the issuance of stablecoins is beneficial for inflows into crypto.
Unfortunately, while we see breakthrough speeds in innovation, the standards for security are sub par. One event revolves around the dForce platform, (an alleged Compound code copycat) which saw ~$25mn of its assets drained by a hacker, but subsequently recovered the assets as the hacker unintentionally released details about themselves.The other event is Hegic, an options platform, which lost $30k of ETH due to a typo in its smart contract. Hegic failed to undergo a proper audit and pushed forward with what feels like an accelerated deployment.
Derivatives:
Futures platforms are sprouting like weeds and over the last few weeks; we’ve seen coverage of Futureswap, Alpha5, and dYdX. Futureswap tested its alpha with 24hr trading volume of +$7mn. Alpha5 is planning on launching in June with new, exotic product offering and unique incentive structure (special shoutout to a fellow Polychain portfolio company!). dYdX also introduced a decentralized version of perpetual bitcoin futures (another PC port co!).
In relation to the derivatives space, Skew., primarily known for its analytics platform, raised $5mn in conjunction with the launch of its trade execution and electronic brokerage platform. Genesis Global Capital, a leading crypto lender, also saw loan issuance double from $1bn in Q4 2019 to $2bn in Q1 2020. This capital is likely borrowed by market makers and prop shops.
