From the rapid growth of crypto to the dramatic volatility of the asset class, governments around the world are responding through regulatory and legislative actions. Some jurisdictions have announced clear and accommodating frameworks in the hope to create the crypto hubs […]
“One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
— Milton Friedman
Thursday Wen Wen Wen Mailbag
Q: Wen Merge?
T-13 days now, according to wenmerge.com. Which, if correct, means we can all celebrate it together at DAS NYC.
We may have to move the after-party to Times Square for the final countdown. Maybe get Dick Clark to host. Or that new guy.
If nothing else, it’ll be worth celebrating that you can stop asking me wen every week.
Q: Should I sell my ETHPoW token immediately?
You should not interact with ETH proof-of-work unless you really, really know what you’re doing.
ETHPoW is currently trading at $50 on Poloniex, so not selling would be like forgoing a 3% dividend on any ETH you hold.
But if you try to sell your proof-of-work ETH on-chain, you risk losing your real ETH in a replay attack.
ETHPoW is for DeFi ninjas only.
Q: What’s a replay attack?
If miners don’t coordinate to establish a new chain ID for ETHPoWbefore the merge, any transaction on ETH PoW could be “replayed” on ETH PoS — which is to say, whoever takes your ETH PoW could take your ETH PoS, too, for no extra charge.
Q: Wen crypto risk-free rate?
The biggest change to crypto post-Merge might be that we will have something that resembles a risk-free lending rate.
It’s not really risk-free — stakers will take slashing and smart contract risk and you’ll have to wait your turn in line to unstake your ETH when you want to get out.
Perhaps more importantly, if, like most people, you think in dollar terms, you’ll have to pay to hedge ETH price risk — which will get very expensive if many people try to do it.
But, as discussed on the Bell Curve podcast this week and a Twitter Spaces this afternoon, ETH staking will be close enough to risk-free that DeFi builders can start building stuff on top of the yield the way investment bankers build structured products on top of Treasury yields.
That’ll create scope for some fun financial engineering, but it’ll also create a quasi-Fed Funds rate for the crypto economy.
Helpfully, staking yields should be anti-cyclical: Low in Crypto Winters and high in Crypto Summers.
In a bear market, when activity decreases, fewer fees will be collected and more ETH will be idle (and available for staking), so yields will fall.
In a bull market, more fees will be paid and less ETH will be available for staking, so yields will rise.
It’ll be like monetary policy on autopilot — Milton Friedman’s dream realized.
If the ETH staking yield gets to, say, 10 or 12% in the next bull market, I’m sure that will attract a lot of capital that would otherwise be degening into the next cycle’s LUNA or OHM.
What will it do on the way down? I’m not sure. When the Fed Funds rate goes to zero, it doesn’t do much other than inflate bubbles in SPACs, spec tech, and meme stocks.
But crypto might be more sensible than that: At the bear-market lows this June, people were pretty happy to sit in USDC yielding 0%. (Negative 9% in real terms!)
So, crypto’s decentralized monetary policy might work better than the Fed’s centralized policy.
That would be a surprise to everyone other than Milton Friedman.
Q: Wen Bored Apes firesale?
Looks like never, unfortunately.
There were about 12 Bored Apes that got liquidated on BendDAO, the NFT lender I wrote about last week, and the rest that were getting close to being margin-called were reclaimed by their owners.
It helped that the floor price bounced by about 10 ether. Or maybe that’s what caused the bounce. Or a bit of both, probably.
The last BAYC liquidation was on the 25th, none are in auction now, and the most-in-danger is about 12% away.
So it was much to do about not much. But still made for an interesting experiment.
One takeaway is that the demand for monkey JPEGs is solid: Those 12 liquidated Apes found buyers at a minimal discount to floor price, no firesale required.
Another takeaway is that there probably won’t be a large market for the financialization of NFTs. Partly because of the variable rates: You wouldn’t want an adjustable-rate mortgage that adjusts daily — especially if mortgage rates could go to 100% like the borrow on BendDAO did. And partly just because there are not a lot of high-value NFTs to borrow against.
And a final takeaway is that DeFi does what it says it will do: While the use case here is limited, the BendDAO mechanism worked as designed (the liquidations all happened before they changed the rules even), which I think is a testament to the anti-fragile nature of unregulated, decentralized finance.
And maybe something to build on.
Q: Wen TribeDAO unwind?
We don’t know yet, but the market seems to think soon.
TRIBE is trading at $0.26 — 12% below a likely payout of about $0.29.
That’s a tighter risk-arb spread than I’d have expected to see in TradFi given all the uncertainty. We don’t yet know when funds will be paid out or even what the exact terms of the payout will be — there’s still lots of bickering going on in the forums.
Given all that, 12% seems like a weirdly modest discount. In the equities market, there's an entire sub-industry of risk-arb funds tightening spreads on these types of trades. In crypto, there are zero risk-arb funds. So who's buying TRIBE for what might be a 3-cent profit that will get paid out we don’t know when?
These quirky crypto situations always attract more liquidity than I’d expect. I’m not sure where it comes from.
Q: What do you think of this morning’s Nvidia news?
Thanks for the TradFi question!
I think a couple of things: For one, I’d note that NVDA, despite the geopolitical risk and its worsening market position, still trades on 45x trailing P/E.
It’s a reminder that, while the Fed hogs most of our attention, mega-cap stocks with high multiples and wobbly fundamentals may be the bigger risk to markets: AMZN, MSFT, APPL, and GOOG also sport full multiples despite worsening outlooks for their end markets (consumers, advertising, web services).
And for two, I think the U.S. would be better advised to sell China all the chips they want: it would make China dependent on U.S. chip manufacturers, and it would help fund the US semiconductor industry, which needs all the help it can get (see: Intel).
China is instead being forced to build a home-grown, vertically integrated semiconductor industry and once it does, it’ll have one less reason not to invade Taiwan and cut the west off from TSMC.
I could be getting that all wrong, I’m hardly a geopolitical expert. But I do know this: TSMC is a single point of failure for the global economy. It accounts for something like 90% of the world’s production of advanced semiconductors — manufacturing of pretty much everything would come to a screeching halt without it.
Losing access to TSMC might be the single biggest tail risk to markets — certainly the biggest tail risk no one seems to talk about.
Binance Under Investigation Over Bank Secrecy Act: Report — Blockworks
MakerDAO Co-Founder Lays Timeline for Free Floating DAI — Blockworks
OpenSea Opts for Ethereum Proof-of-Stake Post Merge — Blockworks
Kyle Roche Moves To Withdraw From Multiple Lawsuits — Blockworks
The Days of Lucrative Bitcoin Mining at Home are Over — Blockworks
Snap’s Web3 Team Apparent Victim of 20% Downsize — Blockworks
Nifty Gateway Wants NFT Curators to Sell Art with ‘Publishers’ Pilot — Blockworks
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