Crypto Market Weekly Recap - May Week4

Wayne

The focus of this week is basically around two topics: stablecoins and "what should I do when a bear market comes". Does Crypto need an algorithmic stablecoin? Can Crypto's algorithmic stablecoin succeed?

Hello everyone, hope you enjoyed weekend.

The focus of this week is basically around two topics: stablecoins and "what should I do when a bear market comes". Today, I will mainly talk about stablecoins, especially the algorithmic stablecoin. Does Crypto need an algorithmic stablecoin? Can Crypto's algorithmic stablecoin succeed?

The "pure" algorithmic stablecoins that have appeared in the history of Crypto have basically failed without exception. The ones that are still active and have a certain scale are $FRAX and $FEI. $FRAX is a semi-algorithmic stablecoin, part of which is using $USDC as collateral, so it cannot be regarded as a pure algorithmic stablecoin. $FEI regulates the circulation of $FEI in the market through PCV, so as to achieve the purpose of stabilizing the price.

In fact, before talking about this topic, we need to clarify what the meaning of algorithmic stablecoin is, and what the point of algorithmic stablecoin is. It refers to tokens which use specific algorithms to stablize their prices at $1. All the algorithmic stablecoins ever existed have achieved the purpose of price stability through the market adjustment mechanism, giving the market the opportunity to arbitrage without risk. When the price of the target token is less than $1, market speculators can arbitrage at $1; when the price is greater than $1, they can arbitrage in a reversed way, minting more tokens into the market at $1.

The extent to which such an arbitrage mechanism can mature is the key to the success of the algorithmic stablecoin. For example, in the early Basis, the motive for arbitrage was another token, share or bond. The value of share and bond is otherwise completely dependent on whether the future price can be regressed and stabilized. $UST's arbitrage mechanism also comes from increasing the supply of $LUNA. Once the market cannot absorb enough $LUNA and $LUNA price drops rapidly, it will cause a death spiral.

The biggest problem with this kind of project that uses the market arbitrage mechanism to achieve price stability is that it cannot bear high risks and lacks a clearing/fallback mechanism. When the market goes in one direction, there is no mechanism that can buffer or hinder the vicious/benign acceleration.

In fact, when DeFi 2.0 was hot some time ago, there was a type of stablecoins that could actually be counted as algorithmic stablecoins. For example, $alUSD in ALCX is a stablecoin produced by mortgaging interest-bearing assets, and its value comes from the future cash flow of the mortgaged assets. Such projects have not had too many so-called depeg problems so far. Of course, one of the important reasons may be that the scale is too small.

Back to the question mentioned at the beginning, does Crypto need an algorithmic stablecoin? In fact, it is not necessary. Crypto only needs stablecoins, and it does not matter whether it is an algorithmic stablecoin or not. In fact, $DAI can also be counted as an algorithmic stablecoin, because it is also regulated by algorithmic + using $ETH as collateral.

People in the Crypto community have always been obsessed with the so-called being native. As long as there is no stablecoin that does not depend on the US dollar or other fiat currencies at all, there will always be people trying on this track. Attractive topics + the bubble in growth brought by the algorithmic mechanism can get huge attention in a short period of time. This is why this track, no matter how many people have failed there, will always be full of people trying.

In fact, I think Crypto already has its own native money. One of the core criteria for measuring the stability of a currency in the real world is the purchasing power. In the Crypto world, a real (algorithmic) stablecoin should have the same properties. Fortunately, we already have such money: $ETH.

Why NFTs are not priced in USD/stablecoins? Why are all NFT assets basically priced in $ETH? User habit? Platform support? This question seems simple, but it is actually not easy to answer. But we can see that the result is that $ETH is already the so-called money in the field of NFT assets.

This is also one of the important factors for the inward development of Crypto. If Crypto does not have much native stuff and does not have its own money, it will always revolve around token transactions. Without a perfect compliance framework, this trading market is bound to be highly volatile and full of bad behaviors such as inside trading. But if it is regulated to a very high level, isn't it the traditional financial marekt now?

Yes, that's right, the purpose of writing this article is still Long Live $ETH!

$ETH has realized what $BTC has not. It's a token that combines money and assets, and even utility. It can be used as gas fee or an investment asset, and it is also the money in circulation within one of Crypto's largest ecosystems.

Market Dynamics

Some of the major events in Crypto in the past few days.

  • Tether released its latest proof of reserves report showing that its consolidated assets exceed its liabilities. The report shows that Tether's consolidated assets are $82,424,821,101 and its consolidated liabilities are $82,262,430,079, of which $82,188,190,813 relates to the $USDT issued.
  • ApeCoin completed two community proposal votes. A proposal was passed to appoint Guy Oseary as ApeCoin's representative. I didn't find much personal information about this brother, but his tweet was followed by Coinbase NFT, which is quite influential in the community.
  • The South Korean tax authorities are planning to impose an additional $78 million in taxes on LFG. What comes around comes around, according to the Korean tax authorities, LFG is considered a Korean legal entity, and although it was established in Singapore, the actual management is still in Korea, so it will be taxed. Then Do Kwon is also potentially at risk of being taxed, as he once bought Bitcoins to give to LFG.
  • FTX US will launch stock trading feature. Personal speculation is that it may be trying to expand its market reach as well as influence, trying to follow the Robinhood model of development, though for now the feature is only open to a small number of users.
  • Ethereum core developers said the transition to proof-of-stake may happen in August this year. It's actually later than expected, but it's OK if it's done on time in August.
  • Chainalysis launched Web3 blockchain analytics tool Chainalysis Storyline, which is designed to visualize smart contract transactions including DeFi and NFT.
  • Terraform Labs legal team has left the company. General Counsel, Chief Corporate Counsel, and Chief Litigation and Regulatory Counsel all left shortly after the incident, and outside counsel is now handling the legal issues.
  • Robinhood is launching a crypto wallet to compete with non-custodial wallets such as MetaMask, and is beginning to move in the direction of exchanges such as Coinbase, which will have a place in the wallet market.
  • American actor SethGreen's NFT was hacked. The reason was because he clicked on a phishing link. And here TokenInsight reminds you again that you can avoid losing your money by being careful with phishing links.
  • a16z launched $600 million fund dedicated to gaming startups. a16z says gaming infrastructure and technology are key to building metaverse, so the fund will invest in a range of gaming services and apps, as well as companies building technology for the metaverse.
  • Twitter is committed to completing a deal with Musk at an agreed price. Previously Musk said there was no way for the deal to move forward unless Twitter proved that there were less than 5% fake accounts.
  • Changpeng Zhao said he would support the program that prioritizes compensation for small $UST holders. CZ said Binance will always put user protection first, and it's worth noting that Justin Sun also said he supports compensation and has put up 10 million $USDD to compensate users for small losses.
  • PeckShieldAlert: Stablecoin $DEI falls below $0.77, has seriously depegged. After $UST, another depegged stablecoin, the stablecoin section has been a bit unsettled recently, and we can see that the regulation of stablecoins will become stricter and stricter in the future.
  • Grayscale announced the launch of its first European ETF, called Grayscale Future of Finance UCITS ETF, which will be listed on European exchanges such as the London Stock Exchange.

This week's daily news roundup is here, in English and Chinese.

DeFi

Stablecoins

Ethereum

Wayne

I write about crypto and Web3, while trying to catch the wave of it shaping the future.