🟣 Don’t get too ebullient, frens
Long-term trends look good, but mind the pitfalls
Macauley Peterson & Donovan Choy
July 29, 2024
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Welcome back to 0xResearch. Here's what we’ve got for you today:
Political pandering
Polymarket milestone
Compound attack
CT: Defining "reserves," "revenue," "fees" and Ethereum’s future
Read between the headlines.
Coming out of the Nashville Bitcoin conference featuring Donald Trump as a headliner, bitcoin had a strong close to the week. We heard a lot of promises — red meat to a Keto crowd — some of which, like commuting the sentence of Ross Ulbrich, are actually possible for a president to do alone.
Simple actions that are empirically testable and binary are few and far between, however.
For instance, while a Trump administration may well engineer an exit for Gary Gensler or remove him as SEC Chair, Trump can’t legally "fire Gensler on Day 1." He’d have to resign himself.
Sen. Lummis’ "strategic reserve" sounds like a boon to BTC holders, but there are significant, probably insurmountable, practical and political problems with the idea of the "US accumulating 5% of BTC supply," as some characterize it.
That’s why guys who actually bother to think carefully, like Ari Paul, are willing to give 10:1 odds against such a proposal being executed in the next four years.
Trump didn’t endorse the Lummis concept explicitly, but he did call for a moratorium on US government sales of seized bitcoin. One problem there is that around half of this bitcoin ultimately belongs to Bitfinex.
As Taylor Monahan says, "[Trump] makes a lot of promises he can't keep unless he forcibly upends the rule of law and all the checks and balances that are in place." And in that case, we have much bigger problems.
The legit good news is none of this likely matters. Bitcoin trades on technicals, and the high-timeframe charts indicate that BTC is ready to try for a breakout from its multi-month consolidation.
BTC’s June 5 daily closing high was at $71,111, so reclaiming there would be a good start.
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Polymarket hits a billy:
Crypto-based prediction market Polymarket has surpassed $1 billion in cumulative betting volume.
The parabolic growth comes as a record $325 million in volume was notched in July, which represents about a third of the total. That’s almost entirely due to political markets around the US election.
As election season continues, the figure looks poised to head much higher. The real test will come after November to see if the Polygon-based predictions venue will be able to sustain these numbers.
Meanwhile, others are building leveraged derivatives as a "cherry on top."
Compound under attack?
Compound, the fourth largest DeFi lending protocol by TVL, is apparently under a governance attack. Proposal 289, by an anon group known as the "Golden Boys," was narrowly passed by a 52% margin on Sunday to approve the transfer of 499,000 COMP ($24 million) to a third-party treasury.
The funds would be supposedly deployed toward a DeFi strategy where users deposit COMP for a liquid wrapped "goldCOMP" that would generate yield in a 99% goldCOMP:1% WETH Balancer pool.
What actually constitutes a governance attack is ultimately subjective, but there are a few damning facts contributing to this perception in Compound’s case. Firstly, yesterday’s proposal marks the third attempt by the Golden Boys to approve funds. The first two attempts, on May 6 (proposal 247) and July 19 (proposal 279), were unanimously shot down despite their far smaller ask of 92,000 COMP.
Secondly, yesterday’s approved proposal was largely thanks to a whale swing vote by Golden Boy de-facto leader "Humpy," who brazenly bought $4.5 million of COMP from ByBit 88 days ago.
Third, "expert" opinions matter. Back in May, OpenZeppelin had flagged the possibility of a "coordinated governance attack," while Wintermute had condemned the first proposal due to its lack of community engagement and feedback sourcing — the usual procedure in DAO culture before going straight to an onchain vote.
In the Golden Boys' defense, they seem to be engaging the community in good faith, having addressed many of the previous security concerns that were raised. Yet, it’s hard to shake the perception of an "attack" when Golden Boys’ own GOLD token is up 130% in the past day, while COMP has tumbled 6%.
In response, Compound governance is now rushing through a vote to introduce a two-day timelock delay on future governance fund approvals.
— Donovan Choy (X: @donovanchoy | Farcaster: @donovan)
Two proposals entered the Aave Governance forum this week, outlining several upgrades to the protocol and revised tokenomics. The Umbrella proposal redesigns the Aave Safety Module to implement aTokens as the slashing asset, eliminating the price impact and execution risks associated with selling AAVE to cover bad debts. The AAVEnomics update introduces a "Buy-and-Distribute" program where net excess revenues (operating profits) will be used to buy AAVE on the secondary market and return these tokens to stkAAVE holders.
Solana Mobile is a highly ambitious foray into the mobile consumer hardware market, seeking to open up a crypto-native distribution channel for mobile-first applications. The market for Solana Mobile devices has demonstrated a phenomenon whereby external market actors (e.g. Solana-native projects) continuously underwrite subsidies to Mobile consumers. The value of these subsidies, coming in the form of airdrops, trial programs and exclusive NFT mints, have consistently covered the cost of the phone and generated positive returns for consumers. Given this trend in subsidies, the unit economics in the market for Mobile devices, and the initial growth rate and trajectory of sales, it should be expected that Solana mobile can clear 1 million to 10 million units over the coming years. As more devices circulate amongst users, Solana Mobile presents a promising venue for the emergence of killer-applications uniquely enabled by this mobile-first, crypto-native distribution channel.
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Bitcoin is being tossed around as a potential US reserve asset, like gold and foreign currencies.
Plus, Galaxy Ventures unveils a new fund focused on early-stage crypto firms.
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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.
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