“Don't call it a comeback, I been here for years.”
— LL Cool J
Lower for Longer?
In 2009, Microsoft traded on a price-to-earnings ratio of 8.7 on expectations that their Office franchise would lose out to SAAS, the new breed of software companies. When Microsoft itself turned out to be a SAAS company, it skyrocketed.
In 2013, Apple traded on 9.5 price-to-earnings on the consensus that Google’s cheaper Android option would cannibalize a good number of iPhone customers. Apple customers proved loyal, and Google now pays Apple $15 billion a year to access them.
In 2012, Facebook fell 50% from its IPO price on fears that everyone was ditching their desktop for mobile — as it turned out, Facebook made more money from mobile than desktop. Even after the recent weakness, the stock is still a 10-bagger from those lows.
In each case, a venerable brand was considered impaired for a perceived failure to keep up with the times.
And, in each case, the perceived negative turned out to be a real positive, setting the stage for an epic comeback.
Is the crypto asset class now old enough for comebacks?
The narrative has certainly changed this week, so it may be time to consider what we’ve been overlooking.
Making it Happen
The MakerDao token currently trades 70% below its all-time high and near all-time lows on price-to-sales (for whatever valuation metrics are worth in crypto).
This is in part because DeFi had seemingly passed Maker by: While LUNA skyrocketed and funds poured into UST, Maker doggedly insisted on overcollateralizing its stablecoin, DAI, and refused to pay-to-play in the Curve Wars.
With each new high in LUNA price and UST TVL, Maker appeared increasing curmudgeonly.
I’ve put “appeared” in past tense because everything changed this week: Could the collapse of LUNA/UST be the start of Maker’s comeback?
Maker, I’m sure, would object to the comeback label — they’ve been building for years.
But this could be the moment when their perceived shortcomings turn out to be real benefits and the market recognizes the value of what they’ve been working on.
The work hasn’t been fast enough for some: Maker has been perceived as the tortoise to Terra’s hare — slow, steady and boring.
But that’s just narrative. And the narrative changed this week.
The market will now reward everything that LUNA/UST was not, which makes Maker the most obvious beneficiary of their demise. Mint/burn mechanisms are out; overcollateralization is back in.
Maker is more than just anti-Luna, however — perceptions were due to change, anyway.
Consider the recently announced deal whereby MakerDao (via 6S Capital) provided a $7.8 million loan to finance a new repair and collision center for Tesla.
It doesn't get much more razzle-dazzle than using crypto to build real-world assets for Tesla.
More broadly, Maker could become the on-ramp for traditional institutions to finally enter decentralized finance in a significant way.
If Maker succeeds in bringing real-world assets (RWAs) on-chain, institutions will be able to pledge those RWAs as collateral in return for DAI — and then use DAI for their on-chain activity: lending, borrowing, staking and degen-ing.
This, to me, seems the fastest route to large-scale institutional participation in DeFi.
Which is a nice thing to contemplate in a tough week for crypto: We lost LUNA/UST this week, but institutional investors were never going to trust a purely crypto-native concept of that sort — tokenomics is too foreign an idea for traditional asset managers.
But Maker’s collateralized lending will make sense to them.
Less tokenomics and more collateral may turn out to be a long-term positive for crypto — it’ll be less flashy, but perhaps more constructive.
Luca Prosperi, a core team member of MakerDAO and author of a great substack, summed it all up in a tweet: “It is exciting to finally be able to build conservatively without being accused of stasis.”
Luna’s collapse will change crypto — most directly, I think, by invalidating the idea of purely algorithmic stablecoins.
What will DeFi look like without algo stablecoins?
I suspect it means lower prices for everything: Imagine what would happen to the stock market if the US abandoned fiat and returned to the gold standard.
It of course won’t be that bad…UST was not nearly as important to DeFi as USD is to TradFi.
But I expect that without an infinitely expandable supply of algo stablecoins, growth in DeFi will be slower than it otherwise would have been.
That’ll make it less exciting, but safer. Less promotional, but more constructive.
If so, it could be for the best: Lower and longer is more sustainable than higher and faster.
How Will UST Crash Impact Other Stablecoins? — Blockworks
Terra Turmoil Adds Fodder for Secretary Yellen’s Concerns Over Stablecoins — Blockworks
Terra Collapse Could Spell End for Algorithmic Stablecoins — Blockworks
VanEck, Wrong-footed by UST Collapse, Casts Doubt on Do Kwon’s Rescue Plan — Blockworks
New Version of Bancor Ups Ante With Crypto Market-making Rewards — Blockworks
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