We look at a recent report from Protos that traces the issuance of USDT to the institutional players in the centralized crypto capital markets. The data reveals the market share of players like Alameda, Cumberland, Jump, and others in powering trading in exchanges. We try to contextualize this market structure with what exists both in (1) investment banking and (2) decentralized finance. The analogies are helpful to de-sensationalize the information and calculate some rough economics.
This week, we look at:
PwC estimating that $900 billion has been wasted on digital transformation projects for enterprise, meaning finance is vulnerable
Chime is worth $15 billion in the latest round of valuation, same as $200B+ depository bank Fifth Third, which is quite the achievement
Decentralized exchange Uniswap distributing 60% of its token to the community, flipping the ownership and value accrual model
As a thought experiment -- today, if you want to save for a house, you may create a financial plan in Betterment and wait for the portfolio to accrue. Tomorrow, you may bring cashflows to a housing protocol which intermediates property markets, and build your portfolio directly into your desired goal of buying a house. Your stated selection and articulation of that goal, by choosing the housing protocol, generates value on its own through rewards, participation, governance, and various interest rate products.
A few delicious morsels for us today, connecting ideas between the automation of the institutional art world, and the rise of non-fungible token art. We are surprised by how things are clicking.
We caught up recently with Lori Hotz of Lobus. Lori used to work in the wealth and investment management businesses of Wall Street (Lehman, Lazard) and comes to art with a background of asset allocation and investment assets. One core narrative in wealth management has of course been roboadvisors and digital wealth, and the automation of the financial advisor process. Whether you are doing client experience, CRM, financial planning, trading, or performance reporting, there are now lots of platforms for everyone from mass-retail to ultra-high-net-worth and family office advisors.
Decentralized finance is formulating new mechanisms to correct for the pitfalls of liquidity mining, yield farming, and other early token distribution approaches. This is happening both at the level of individual projects like Alchemix or Fei, and at the level of industry wide consolidation through Olympus DAO and Tokemak. We explore where this evolution is going, and potential outcomes. In this first part of the analysis, we look closely at Olympus DAO, the concept of Protocol Owned Liquidity, and whether the economics make sense.
I hope that you and yours are OK, socially distanced and stocked on essentials. Whether you feel it yet or not in daily life, the world is bracing for coronovirus impact. In this week's analysis, I look at the difficult trade-offs between health and economy, and try to quantify the impact of the likely slow-down. We look at some grim but useful concepts, like (1) the value of a statistical life, (2) what happened to the Soviet economy and life expectancy after perestroika, and (3) how our financial machines (NYSE, Robinhood, Maker DAO) are cracking at the edges. If you can do one thing -- be kind and gracious with each other as some things inevitably break.
The most popular AMM, Uniswap, is annualizing to $1 billion in fees. That’s a chunky amount of value for its users.
The team has just released the third version of its protocol, and it is an innovation in the structure of the AMM logic. Instead of providing liquidity across the entire price curve, users are now able to specify pricing ranges for which they are participating in the curve. This protects market makers from the extreme price fluctuations which they may prefer not to fund. Because most trading also happens in narrower price bands, it is possible that capital is much more actively used in those bands, and generates higher fee returns comparatively.
In this conversation, we talk with Patrick Berarducci of ConsenSys, about the valuations and multiples of capital markets protocols in Decentralized Finance on Ethereum, now making up over $60B in token value. Additionally, we explore the nuances of scaling Ethereum and its solutions, such as Metamask and the emerging Layer 2 protocols.
We also discuss law and regulation, including a fascinating story about Bernie Madoff from when Pat was a practicing attorney. This leads into a conversation about the embedded compliance nature of blockchain and crypto technology, the early days of ConsenSys, the path of crypto brokerages like Coinbase, and Metamask exhibiting emerging qualities of a neobank.
