Let’s recap what is, so far, a disastrous summer.
Among the myriad of stories, collapses, ambiguous actions, and near disaster(s), we have gathered the most interesting stories from the last two months.
As you know, this year (and particularly this last quarter) has not been kind to many commodities, with cryptocurrencies and assorted digital assets receiving a particularly heavy beating. Among the myriad of stories, collapses, ambiguous actions, and near disaster(s), we have gathered the most interesting stories from the last two months.
Some highlights
Terra crash lands back to Earth
May 2022 began with what can only be described as an astonishing collapse of the stablecoin UST by Terra’s blockchain network. Terra crash-landed from the upper echelons of the crypto world, affecting a plethora of big-name investors including Pantera Capital, Coinbase Ventures, Bain Capital, and many more.
In case you don’t know about UST, here’s a brief explanation: UST was meant to be a stablecoin, pegged 1:1 to the USD (at $1.00), with a secondary token, LUNA, intended to help buttress the UST price, among other things. So far so good? Ok well, it all crashed down to essentially nothing, leaving investors across the board holding the bag. The timeline? Since you asked:
Coinbase lightens the load; that load being 20% of staff
Coinbase recently laid off almost 20% of their staff (with 18% of full-time positions getting axed, about 1,100 people) amid a precipitous slide to the depths of capital markets irrelevancy…it seems those Super Bowl ads were not enough to bolster a stock that is inextricably linked to a bevy of risky assets.
These layoffs come hot on the heels of the company announcing a plan to add 2,000 jobs earlier this year. As well as an 85% collapse in share price (from all-time high), the Company saw a pronounced slump in its users last quarter, which is a problem since, you know, a top line dependent on transaction fees typically needs users to make the transactions (I’m not an expert though). Profits & share price aside, monthly active users (MAU) is a key metric for a business like Coinbase, who would have thought?
A week in Davos: the Metaverse, does anyone actually know what it is?
The closing weeks of May saw the World Economic Forum try to tackle the subject of the metaverse. Magic Leap CEO, Peggy Johnson, described the metaverse as “the digital infrastructure of the internet, a network of different (sometimes overlapping) virtual worlds that can be reached via a phone or computer”.
The prevailing belief at the conference seemed to be that the metaverse will be one of childlike whimsy, dominated by the gamification of just about anything. This, seemingly conveniently, ignores the advertising and practical use application of the metaverse (for better or for worse).
Interestingly, a poll was conducted to gauge public opinion on the metaverse, which found that respondents from Eastern Asia were much more excited about the possibilities the metaverse provides, compared to those from Western nations who seemed, at best, indifferent and, at worst, cautious. So what was the overall conclusion? It’s still early days and it is hard to judge how positive of an impact the digital realms will have on our lives (I know, very insightful).
Solend goes whale-hunting
Solend, the lending platform built on the Solana (SOL) blockchain, allows users to borrow and lend funds without a middleman (what could go wrong, right?). Recently, they noticed, and were alarmed by, the fact that a single whale happens to be sitting on an “extremely large margin position.” The obvious risk being that Solend could end up with bad debt if this whale defaults on their position, possibly causing chaos that would stretch across the entire Solana network.
This account had about 5.7 million SOL tokens (more than 95% of the pool’s deposits), but the real trouble was that they were leveraging those tokens to borrow $108 million in USDC and ether. If SOL was to fall below $22.30, 20% of the whale’s collateral would be at risk of that nightmarishly scary word…liquidation.
How do the ever-so-diligent team at Solend respond to this? Well, in an uncharacteristically un-DeFi response (and a move reminiscent of a dictatorship scrambling for power), Solend proposed granting itself emergency powers to take control of said account. This motion would allow the lender to liquidate the account’s assets via OTC transactions to hopefully avoid compounding liquidations.
When put to a vote, initially, users granted Solend said powers to mitigate liquidation risk (via the organization’s DAO). However, after public outcry, a second vote saw a whopping 99.8% of users vote against the proposal, stating that it violates the spirit of decentralization. Further opposition to the motion came after it was revealed that a single account (representing 1% of platform participants) cast more than 1 million “yes” votes.
Now, the company has been vague about its next steps, simply pledging to “work on a new proposal that does not involve emergency powers to take over an account”.
Essentially, there is no adult in the room…the same room where there is a $100 million nuclear button sitting there. Though incredibly dramatic, this is the kind of risk that those with an appetite for crypto must welcome; it is a consequence of the peer-to-peer system that seeks to circumvent the often loudly touted tyranny of any central banking mechanism (whether public or private). However, in an organization with a history of outages and downtime caused by on-chain liquidation…what is the right move?
Wow, what insightful content, where can I get more?
If you enjoyed this casual romp through the DeFi world (let’s be honest, how could you not?), I’d appreciate if you subscribed to the newsletter. New issues will be sent directly to your inbox bi-weekly so you can stay updated, learn something new, and yell at me if you disagree with something I say.
Thanks for reading,
Ru