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🟣 Vitalik’s DeFi Debate: What’s real value?
Dour moods even as long-term fundamentals and technicals look good
Macauley Peterson & Donovan Choy
August 26, 2024
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Welcome back to 0xResearch. Here's what we’ve got for you today:
Markets and Vitalik on DeFi
Stablecoin market cap
Governance: ICF under fire
CT: On Durov and free speech
Bitcoin took a solid leg up over the weekend; now sitting near its 200-day moving average at $63,430.
On Friday, inflows to the suite of US bitcoin ETFs registered their highest level in a month at $252 million, according to the latest data.
The move followed market reactions to comments by Fed Chair Jerome Powell, which buoyed equities, gold and crypto, sending the US dollar index (DXY) earlier this morning to its lowest point since July 2023.
CoinShares said today that across all digital asset investment products last week, the inflows totalled $533 million — the largest tally in five weeks.
All told, it looks like healthy consolidation supporting a further move higher so long as BTC doesn’t break down below the mid-$62k area.
Vitalik hates DeFi?
Vitalik Buterin, the Ethereum Foundation and an insider “cabal” of Ethereum folks have for too long discouraged DeFi on Ethereum. That was the claim made by Synthetix and Infinex founder Kain Warwick on a recent Steady Lads podcast.
It’s a spicy take that’s sparked an even spicier X discussion, with Vitalik emerging to clarify that his disdain is not a broad sweeping condemnation of DeFi per se, but just those kinds of DeFi where yield depends on a “temporary source” of sustainability — where yield is derived not from “something external,” but from “people trading crypto tokens” and the remaining “downstream of the existence of the ETH market.”
Off the top of my head, most wildly successful DeFi protocols this year would be lumped in this bucket.
For instance, Ethena’s yield is generated from an efficiency arbitrage between CEX and DEX perpetual funding rates.
Pendle would qualify since it serves users to take leveraged yield farming trades atop the dozens of ongoing DeFi points farming programs.
Aave would qualify, considering the large bulk of its revenues are derived from traders taking out loans on their crypto assets so as to go on and perform more hyper-financialized trades.
Lido would qualify considering that stETH’s 3-4% yield stems from the value of Ethereum’s blockchain, which in turn depends on the bulk of DeFi activity that happens on on top of it.
Tokenized real-world asset protocols and DePIN are fine, since yields are coming from real-estate that people are actually living in, or products and services that are actually improving the average person’s standard of living.
Look, I’m being facetious here. Obviously, Ethena also provides a useful and somewhat decentralized alternative to the centralized USDC/USDT, Aave is a boon for capital efficiency and Lido has been immeasurably great for decentralizing the Ethereum validator set.
If one is serious about exclusively encouraging “genuine” use cases of DeFi with only “real” yield, one has to embark on a kind of tedious litmus-testing exercise to figure out what has real value or not.
Maybe the alternative is to accept that Ethereum will inevitably be an archipelago of experiments. Many will create genuine social value for humanity, many more will sting your moral sensibilities. And that’s probably fine, because that’s what it means to build on a neutral and permissionless protocol layer.
— Donovan Choy (X: @donovanchoy | Farcaster: @donovan)
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Stablecoin market cap:
Stablecoin supply is one of the most closely-watched metrics by crypto venture and trader types trying to get a sense of “wen bull market?” In the last month, total stablecoin supply grew 3.44% to $168 billion, based on DeFiLlama data. This marks a stablecoin supply all-time high following a previous high of $167 billion in April 2022.
Tether’s USDT drove most of the gains with a $1.1 billion increase in the last seven days. Within the same time period, USDC saw a $0.4 billion increase, while DAI and USDe stayed the same.
— Donovan Choy
Cosmos Hub proposal 952, which moved onchain Friday, calls for a vote of no confidence in the Interchain Foundation (ICF) leadership. Concerns were cited over governance failures, a lack of transparency and breaches of fiduciary duty.
The proposal demands the ICF publish comprehensive annual reports for 2017-2023 within 60 days, with specific guidelines for content. It also outlines contingency measures including potential direct petitions to regulatory authorities for an audit if the ICF fails to comply. This action is seen as necessary to realign the ICF with its mission and restore stakeholder trust.
An evaluation by MetaLeX — the group behind the concept of Blockchain-Based Organizations (BORGs) as a way to build a better DAO — highlights the broader issues of accountability within crypto foundations like the ICF. It argues that in combating potential corruption and opacity, traditional audits may be insufficient.
To ensure transparency, MetaLeX suggests that crypto organizations adopt "cybernetic assurances." These include onchain transparency measures that cryptographically ensure proper fund usage and the use of BORGs designed to automatically enforce transparency and accountability.
This approach to combine technology with legal safeguards is proposed as a more reliable solution than a sole reliance on traditional governance structures.
The Cosmos vote runs until Sept. 6.
— Macauley Peterson
Polygon's AggLayer may be the catalyst the Polygon ecosystem needs to prove itself as a standout underdog.
The crypto-AI market appears overhyped in the short-term, but it will produce critically important products for society in the long run.
Blockworks Research is conducting a survey to gain insight into the institutional staking landscape. This data will help industry leaders adopt their strategies as the industry matures.
If you're an institutional staker, we want to hear from you (and if you’re new to Blockworks Research, get 20% off of our service while you’re at it!)
A war is being fought over blockchain mindshare by two of Wall Street’s largest operators.
A traditional finance veteran was tapped as the chief operating officer of a crypto asset management firm.
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The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.