87,643% rate is now normal and Elon Musk has some twitter fun.

Boy, crypto people sure like to pretend that they are not in the business of finance. The thinking here is: “look, we are really rewriting all these things you know from finance into a code on blockchain, so they stop being the things you know; there are no intermediaries, there are no banks and you cannot control us with rules from 100 years ago written for them.”

And they are, maybe, right? Like, you don’t go to a DeFi protocol for a mortgage. You go there to speculate.

Anyway, the 100-year-old-rules are sure coming. Here is a new report from U.S. President’s Working Group on Financial Markets about stablecoins. To put it simply, regulators think that entities like Tether or Circle should be banks because only banks should be able to issue stablecoins.

Oh, boy, sorry for doing this, but: stablecoins, i.e. cryptocurrencies that try to keep a stable value (say 1USDT is always $1) are really needed in the crypto world, actually. For one, it is very nice for a hedge fund that trades crypto to be able to quickly switch between multiple crypto exchanges, protocols and coins. This is not easy because blockchains don’t talk to each other. Converting crypto profits from one trade short-term to dollars in order to be able to inject them into another crypto trade would be very costly, lengthy and difficult because, you see, crypto and finance worlds don’t like each other.

Same thing applies to anyone else living in the crypto world. It is really nice to be able to have value parked in crypto, not having to go through the pain of taking it out in dollars, but not be exposed to a downside volatility.

A whole lot of DeFi is also based on stablecoins. DeFi projects often require that you put up stablecoin as a collateral to use their products. If you were to enter a derivative position on a DeFi platform (a bet against a counterparty that something would go up or down), you would put up collateral in a stablecoin like USDC, or risk volatility from both sides.

So, fine, stablecoins are good for the cryptoworld, but not easy to make because how do you achieve stable, or any, really, value with a cryptocurrency that you just created out of a thin air. The first stablecoins tried to achieve this by saying that they would hold dollars in the exact amount of coins minted, but then suspicions emerged because the largest stablecoin is managed by an Italian ex-plastic surgeon out of Puerto Rico, it doesn’t say where it holds its reserves and some of them are invested in Chinese debt and/or (possibly) bitcoin lenders, and that seems like risky for an asset that guarantees very many billion dollars to a large number of people?

Yeah, those days might be over. Circle (issuer of USDC) apparently wants to become a chartered bank. Then, there are other more pure crypto answers to regulatory catch-up. Ampleforth is a project that gives it an elegant spin, I think: the value is always $1 and if it isn’t (because the demand is too high or low), they rebase the number of $AMPL in all wallets, meaning they reduce the number of coins if the price falls and vice versa.

Lately though, the demand for $AMPL exploded, so the currency is constantly rebasing upward. This coincides with Ampleforth’s launch on Aave, which allows people to lend and borrow $AMPL. If you borrow $AMPL and there is an upward rebasing, you receive the new coins. Soon after launch, the pool of $AMPL got drained and it stayed that way ever since (all $AMPL got immediately taken out by borrowers). No one wanted to lend, everyone wanted to borrow. After Aave updated the rate algorithm to a non-linear curve (so that if $AMPL borrowed out from the pool is above 75%, the rates go parabolic), supply provided by lenders increased because a 87,643% rate is not too bad even for crypto.

Boy, I don’t know what could wrong here yet, but something will .. it’s crypto.

So Elon had some ideas over the weekend again. Musk held a poll on twitter asking his ˜65M followers whether he should sell his 10% stake in Tesla (worth $20B) to pay some in taxes. And it went Yes, with a 57.9% voting he should. The world watched big time, as you would expect. $TSLA stock held steady, but might drop after the market opens. Financial Times posted an article seconds after the poll ended.

A thing about Elon: he amassed a power, which is seductive and, surely, for him hard to say no to, and many are perplexed by how much his tweets move the crypto (or any) markets. Doge and Shiba Inu (no I won’t use their ticker symbols) are the offsprings of this weirdness. Matt Levine uses a lot his Elon Market Hypothesis, when “[..] things are valuable not based on their cash flows but on their proximity to Elon Musk,” but really, why is this surprising at all?

We live in an everything bubble, when people trade like its a casino. When something moved markets before (all the better in a form of a joke), chances are it will again, so everyone is watching it. Just please, no more pet coins.