DeFi Weekly #48
Set crosses $1m AUM, Compound vs MakerDAO Flippening, Dharma Pivots, Stable Coins and more.
|Kerman Kohli||Sep 3, 2019|
Latest this week
Hey all, sorry for the delay in releasing DeFi Weekly. I’ve personally been swamped with stuff for Helis (helis.network). Running an early stage startup is never easy! This edition is going to be a bit of a catchup from the past weeks!
Massive congratulations to the Set team for crossing over $1m in assets under management. I’ve known the Set team for about a year now (just when they raised their seed in 2018) and have always liked their philosophy of working and most importantly how they treat people. I’m personally glad that they’ve able to find early semblances of product market fit. In particular the arc they’ve gone through is fascinating. When they first started out I used to describe Set as 5 tokens in 1. However the team quickly realised that ETF’s are still a bit too early for the market. Their next move was to launch rebalancing which essentially allowed someone to create an “intelligent” token that follows a set of rules at a certain trigger. Wrapped Bitcoin was a key focus in enabling that to work correctly however that only validated the technology itself, not the product. Launching sets based on trading indicators is where they managed to finally hit the jackpot. However this entire process took them close to 1.5 years to actually work through and belief to see it through the other side. I’d expect the next evolution to be more sophisticated strategies to be enabled by 3rd party developers and slowly an explosion of developer activity similar to what we see happening with Compound. Bet on the people not the product. Most people forget this in crypto especially (and no I’m not talking about irrelevant credentials such as ex-employers or education).
In response to Compound rapidly threatening MakerDAO’s position in the leaderboards we’re seeing an interesting dynamic form. To me it demonstrates the fact that people want cheaper credit and leverage and don’t necessarily care what the source is exactly (provided there’s no custodial risk). I put out a tweet that sparked a bit of debate around this and saying how eventually we’ll see fiat-backed stable coins flip synthetic over collateralised stable coins. Why? It all comes down to the cost of generating synthetic stable coins is impractical for most people. Depositing 150% the amount of collateral you have + paying 15% to mint the asset is highly ineffective. Only those who want extreme censorship resistant assets will choose this. In addition, centralised stable coins provide assurances that if anything goes wrong there’s an entity to go to at the end of the day. With DAI your money has quite literally gone into the Ether. Putting this in perspective, DAI only has $80m circulating supply while USDC crossed $1b a while ago and Tether rips up the entire market with over $4b circulating.
After dropping AUM from $40m to $7m, Dharma announced their new pivot to becoming a relayer for Compound. From protocol to application, it’s a particularly interesting move. Considering they raised a series A recently, there’s going to need to be a big push in order to reach the next stage as investors become less forgiving about metrics as the valuation goes up. However I think it marks a key trend happening in the space as a whole as we’re seeing value move up the stack rather than remaining in the base layer chains. Just like we saw in 2017 an onslaught of base layer chains competing with Etheruem, once the broader crypto community realises that early gains in base layers have dried up they’ll also move up the stack. I think this realisation is slowly happening but going to take a bit more time to finally realise. The main contenders these days seem to be Tezos, Dfinity, Polkadot, Near, Solana, Binance and Cosmos. Of these, I personally think only Binance and Cosmos have the best chance as they’ve already got some forms of early stage network effects. The rest are doomed as they only promise that they offer is scalability. Why is scalability not a big deal in my opinion? Well, as applications become more intelligent, on-chain transactions that haven’t been mined will work very similar to how banks work where pending transactions say they went through but just needs to be settled. In this case on-chain settlement will always be faster than most banking networks (and I’m not just talking payments but everything financial institutes do). That’s one of the major reasons why I’m personally so bullish on DeFi as it’s not dependent on scaling and higher transaction fees are irrelevant in comparison to the value of the transactions themselves (what’s $5 to lend $10,000).
On Chain Statistics
Total Locked in DeFi: $488M (although in terms of ETH it’s an ATH).
Biggest Gainer: Synthetix touching close to $40m locked up!
Interesting Stat: Augur has shrunk even more and currently only sits at $500k locked up. Let’t see if v2 fixes a lot of issues and encourages more people to create and participate in markets.
We announced Torque, the first borrowing platform featuring indefinite term fixed-rate loans. Torque allows users to borrow DAI by simply sending ETH to dai.tokenloans.eth using its unique ENS loan system. The system extends to any supported ERC20 including USDC, WBTC, ZRX, KNC, & REP. Torque also supports Metamask and other web3 wallets, allowing ERC20s to be used as collateral against loans.
Began evaluation of various swap protocols for our simple trading interface
Enjoyed connecting with many amazing teams at Berlin Blockchain Week
ETHBerlin winning project LSDai implemented MARKET Protocol to enable users to hedge variable interest rates on Compound, locking in a fixed interest rate for the length of a loan