Weekly Update: Can Stable Coins Solve the Debt Crisis?

+ What is Yield Meta?

Author

will stauner
June 20, 2024

THE PHENOM CRYPTO LETTER

GM,

Welcome to the weekly update. Markets have been pretty red week. If you are on crypto twitter you’d think the industry is over with Markets bleeding out. However, one great piece of news that stemmed the bloodshed on ETH is the SEC announcement that they are ending their investigation into ETH being a security. Looks like we are finally turning the tide on the regulatory attack on. crypto. Its exciting to see crypto becoming a huge political issue during this election year that may very well decide the election.

Thanks for reading and we hope you enjoy this weeks update.

 Here’s what we’ve got this week:

MARKET RUNDOWN

This week in the cryptocurrency markets, things have been down bad. Bitcoin is once again under pressure, dipping below $65,000 after JPMorgan issued a warning about the potential impacts of new ETF filings and general negative sentiments about the economy. Ethereum, meanwhile, continues to hover around the $3,500 mark, buoyed by ongoing interest in its upcoming spot ETFs and the SEC’s announcement that they are ending their investigation into ETH being a security.

Adding to the general sell pressure, the market is bracing for the release of approximately $740 million worth of tokens over the next 30 days. These unlocks include significant releases from projects like Arbitrum, Aptos, and Starknet, among others. This influx of liquidity is expected to put downward pressure on token prices as early investors and team members potentially offload their holdings.

Elsewhere in the market, Ripple has entered the stablecoin arena, launching a new USD-backed coin on the XRP Ledger. This move is part of a broader trend of traditional financial institutions and crypto projects alike trying to carve out a piece of the stablecoin pie, despite regulatory headwinds and ongoing legal battles.

All in all, the crypto market remains as volatile and unpredictable as ever, with token unlocks and regulatory developments continuing to drive short-term price movements and investor sentiment.

Fear and Greed index is back to neutral. If you plan to top up any of your long term positions this is most likely a good position.

Top Movers:

  • (-) Wormhole ($W) -32% Wormhole continues its dump

  • (-) Injective ($INJ) -30% Injective dumps amid whale dumps and overall negative market

  • (+) Lido ($LDO) +14% Lido pumps on SEC news as a highly correlated ETH Beta.

  • (+) Ethereum Name Service ($ENS) +25% ENS catches a bid after SEC announces ETH is not a security.

Evolution of Yield Meta in DeFi

Messari recently put out a long form report on yield meta. We’ve summarized the important aspects of it for you along with our take on it for you this week. Lets dive in.

Decentralized Finance (DeFi) has long thrived on the concept of a "Yield Meta" – opportunities that offer high Annual Percentage Yields (APYs) on a large scale. Despite the presence of numerous high APY opportunities, sustaining these yields with substantial capital inflows has proven challenging. Nevertheless, the Yield Meta remains a pivotal growth driver in DeFi, attracting capital and fueling the development of new protocols.

Notable Yield Metas in DeFi History

Several Yield Metas have significantly influenced the DeFi landscape:

  1. Liquidity Mining Incentives (2020 DeFi Summer): Liquidity providers were rewarded with protocol tokens, creating substantial yields.

  2. veTokens by Curve: Users lock tokens to receive voting power and yield boosts.

  3. Anchor’s 20% Yield on Stablecoins: Offered attractive returns on stablecoin deposits.

For a new Yield Meta to emerge, it must deliver yields above market rates (15-20%) and support large capital pools (upwards of $1 billion), a formidable challenge in today’s environment.

Framework for Evaluating New Yield Metas

Establishing a new Yield Meta will likely drive user behavior towards farming that meta or related protocols. However, it may not drastically alter the current market structure, as many existing protocols are already integral to the ecosystem. Innovations like Pendle's future yield speculation and Morpho and Gearbox's leveraged farming have saturated the market, leaving limited room for groundbreaking new developments. Future Yield Metas are expected to enhance existing protocols rather than introduce revolutionary changes.

Opportunities and Market Dynamics

Despite the potential lack of novel innovations, high participation rates among related protocols provide ample investment opportunities. For instance, Pendle has over 85% of its supply unlocked, and Gearbox has about 55% floating, allowing for accurate price discovery and comfortable capital allocation. Historical trends suggest a high likelihood of future Yield Metas, with Ethena or MakerDAO potentially spearheading the next wave.

Market Expectations and Valuations

Market valuations indicate a consensus on future Yield Metas. For example, Pendle and Gearbox trade at fully diluted valuation (FDV) to trailing annualized revenue multiples of 65x and 90x, respectively, slightly higher than other DeFi protocols. This suggests that the market is already pricing in the expected upside from new Yield Metas.

Tailwinds and Challenges

  • Points Meta: The shift towards a points-based system for yield opportunities, where users receive protocol tokens with significant upside, continues to drive the largest yields. Protocols with robust points programs and high expected initial FDVs are poised to become the next yield metas, attracting significant capital through farming incentives.

  • Low Float, High FDV Pushback: There is growing pushback against the low float, high FDV model. As protocols explore new strategies, such as larger and longer incentive programs, new farming opportunities may arise.

Headwinds: Limited Upside Potential

The main challenge for new Yield Metas is the perceived limited upside. Valuations of related protocols suggest that the potential for new Yield Metas is already factored into prices. Additionally, it is difficult to envision how a new yield meta can lead to groundbreaking innovation, further constraining upside opportunities.

Conclusion

While the future of Yield Metas in DeFi appears promising, it will likely revolve around enhancing existing protocols rather than introducing novel innovations. Investors should remain vigilant, focusing on protocols with strong fundamentals and robust participation to capitalize on emerging yield opportunities in the ever-evolving DeFi landscape.

READING CORNER

A collection of longer form content we are consuming this week 

What I Read This Week…

Powell wants inflation to come down further before considering rate cuts, Apple announces a system-wide integration with ChatGPT, and China is emerging as a scientific superpower.

substack.com/home/post/p-145715493

(3,3)

One overriding sentiment of the last year or so has been “the evil VCs have an unfair advantage, they are dumping on us”. Such sentiment became popular enough that it became an effective marketing and community building tool for crypto projects. You can hardly blame retail investors for resonating with this populist rhetoric. It feels a bit like the VCs have cheat codes. First, of course, the VCs get access to the best deals and making money is easy for them. And some VCs have a different cheat code — they are simply in the right place at the right time with the right amount of shame tolerance or audaciousness. Finally, the SEC gave all of them the greatest cheat code: they scared founders into only raising from professional investors.

cobie.substack.com/p/33

BLOCKBUZZ

Quick Hitters from the week

THE TWITTERVERSE

A collection of the most interesting stuff on Crypto Twitter this week

WAGMI

For the (crypto) Culture

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

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