Hello Bubble Riders!
Suppose, for a moment, that you had been hodl-ing $50k worth of BTC at its height of about $68k. As a Bitcoin maxi, you would continue to hold through the coming decline, and in a typical crypto winter, your portfolio would reach just slightly under $10k. At present we’re only partway there, as you’d be down below $25k.
Yet hodlers have historically made it all back and more in the next run. The reason this space exists, really, is that people can experience massive losses and yet, with patience, recuperate it all. And while professional investors use techniques more sophisticated than this, the point stands for them too.
In the aftermath of this past week, it has come to light that various, high-profile crypto funds were caught up in UST’s meltdown. Bloomberg reveals that some of those names include:
- Pantera Capital,
- Lightspeed Venture,
- Jump Crypto,
- Three Arrows Capital, and
- Galaxy Digital Holdings.
The last of those, Galaxy Digital, is the cryptoworld’s version of Berkshire Hathway (Warren Buffett’s company).
Future of Stable Coins- The Key
It’s not surprising, then, that there is robust discussion at present concerning the future of LUNA and UST. The proposal that Do Kwon supports aims to make all major stakeholders of the ecosystem a bit more whole. Incidentally, he sold no LUNA or UST during any of this. How much people receive will depend significantly on the time at which they take a blockchain snapshot, but here are the main points.
- Using what’s left of the $3b in BTC, Terraform Labs and the Luna Foundation Guard aim to disperse funds via USDC (?) to LUNA & UST holders (including aUST holders).
- 40% will go to LUNA holders (who were holding at the time of snapshot)
- 40% will go to UST holders (at snapshot time)
- The remaining amount will go to incentivizing developers to keep the system vibrant.
This newsletter is a bit unlike typical ones because it’s more like a state of the market report (which subscribers get on a bi-weekly basis). My main concern now is simple: what will change?
Crypto Landscape Changes
I don’t think the primary “game” in the crypto tech world has changed at all. Everyone understands that this is an evolving space and that LUNA will not prove to be the last large L1 project to die off. I’ve been writing for a while on Quora that the platform wars will result in just 3 to 5 main L1s out of what are now about 20 competing platforms.
I have favorite projects on that list, but I honestly don’t know if those will do better than the ones I dislike. Identifying new entrants into the top 10 is an exercise I expect to continue to do as new information emerges. That also explains why I am not much of a hodler (BTC and ETH appear safest).
The real changes as a result of this blow up concern a renewed urgency to regulate stablecoins. There are two main proposals at work:
- Proposal 1 (Biden Admin) – require all stable coins to pass the requirements needed to obtain Federal Deposit Insurance. This will make them banks, effectively.
- Proposal 2 (Toomey & crypto friendly politicians) – require all stable coin issuers to obtain a Federal Stable Coin license, which would ensure fair disclosure, independent audits, and the like.
Under Proposal 1, USDC, BUSD, GUSD and similar coins would require no changes at all. But USDT, USN, and like coins would have to change. I have no idea what the fate of DAI or FRAX would be.
Under Proposal 2, DAI, USDT, USN, FRAX, and even USDD would all be permitted to continue. They would just have fairer disclosures.
How the Future of Stable Coins Can Bring A Host Of Benefits
In many ways, proposal 2 is more favorable. And that makes sense. It’s the proposal that industry personnel have crafted because they understand how things work. Biden’s administration has shown little interest in understanding the crypto landscape beyond Bitcoin and Tether.
Yet, even under proposal 1, the situation is not so bad. Remember, at this point, the total market cap for cryptos is about half the market cap of Apple stock. If cryptos are ever going to grow to the size of an industry (and not that of a single stock) they’ll need institutional money. Requiring stablecoins to be FDIC insured would make yield farming a much easier sell to pensions and similarly risk-averse institutions.
My point in this analysis is a simple one: even under Biden’s proposal, we’ll still have DeFi, NFTs, GameFi, FitFi, CharityFi, and the Metaverse. It might even speed up institutional adoption.
It’s been remarked that cryptos are like cockroaches–they just don’t seem to die even when you think they would. Mt. Gox didn’t destroy BTC. The DAO hack didn’t stop Ethereum. LUNA’s collapse won’t stop DeFi, even if it will prove a catalyst for new regulation. And in our honest moments, we all knew that regulation was coming and we all know it’s needed for the space to grow.
These events do test the resolve of everyone involved. So far, in the crypto world, those who have stuck with the tech have been handsomely rewarded. The AOTB team continues to push ahead with improved projects and products too. We’ve reorganized the yield farming report into the crypto-maxi and non-maxi strategies. We’ve added daily change tickers for cryptos and stocks (see below for an example).
We’re always thankful for your support and remember that the team and community is here for you. Feel free to reach out if you have questions or thoughts or just need to chat.
This week I wrote a number of pieces that are related to this post, so you might want to have a look if you’ve missed them.
That’s it for this week. Remember to join us on Discord if you haven’t already.
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