❓What is the point of crypto❓

This is Shashank’s Newsletter, a newsletter with bite sized content on everything that happened in web3 over the past week.

Jun 20, 2022

With macro forecasts grim and crypto market blowing up yet again, many cynical people ask… what is the point of crypto?

It’s good to zoom out and revisit the bigger picture once in a while and this is probably a good time to do this exercise. Crypto as a core technology enables several unlocks in cohesion

Open source: Crypto strongly emphasizes building everything as open source. Imagine web3 tiktok/ twitter being open sourced without all the sneaky spyware problems they face.
Right to exit: Another added benefit of open source is the right to exit. Users own the data which is completely portable across apps and they can take their data to any service of their choice without having worry about lock in.
Economic incentives: Web3 flips the business models by enabling ownership through tokens and incentivizing early supporters/ adopters of platforms.
Payments: To complement the economic incentives, the powerful and simple payments technology built into blockchains make it ideal to pay anyone across the world. These payments are backed by strong cryptographic security.
Permissionless: Unable to receive financial services because of safety concerns, lack of infrastructure, or other discrimination? A crypto lender somewhere in the world could help you become financially secure. Anyone can participate from anywhere.

So, what’s my investment advice for this bear market?

Create good rules of portfolio exposure to crypto and stick to them. Rebalance whenever this rule breaks
Don’t day trade. Invest for the long term
At the end of the day, it’s all just numbers on a screen. Enjoy your life with family and friends and don’t obsess over numbers.

In short, I’m still convinced this is the next wave of the internet. It’ll take more than a 80% dip to change that.

✌🏼 Value for the day

Visualize Value @visualizevalue

Failure is the frame, not the picture.

In today’s email,

🌡️ Hedge funds meltdown

💪 Defi going strong

⚙️ Interesting startups building in bear market

🌯 Some cool beans

🌡️ Hedge funds meltdown

Celsius, a leading Centralized finance (aka Cefi) platform which managed over 3B in user funds is currently insolvent. Their service is almost like a hedge fund where they manage users funds with some risk. They grew rapidly during the bull market by taking user funds and promising them 6-10% interest rates and making risky bets in Defi.

How did they get here?

They took users USDC funds and invested it in UST anchor protocol. So they advertise 5% on USDC deposits, then swap that $USDC to make 20% on $UST, they can keep 15%. Unfortunately at the end of bull market, Terra completely blew up.
Similarly, they also took ETH and staked it on Lido finance for stETH which has seen immense liquidity issues during massive sell offs.
To add to these miseries, their leveraged positions in Defi protocols are being liquidated as market sees more sell offs.

They now owe a lot of money and don't have the reserves to pay them back.

How can they get off this? Their answers are either an external funding or an acquisition.

The larger point I see is that Defi unlocks a lot of financial value for retail users who didn’t have access to these primitives. We will see more players like Celsius emerge who will participate in Defi protocols and package it as an easy-to-use service. But they need to do it more responsibly and we will see more responsible players in the market.

💪 Defi going strong

One of the biggest failures from the above Celsius debacle was the inability to be transparent about users funds. This is the core difference between Cefi and Defi.

Defi provides security through transparency and not obscurity.

Despite the debacles in Cefi, many Defi applications are continuing to operate flawlessly. Most impressive are lending platforms like Maker, Aave, and Compound. The fact that none of them melted during a massive drawdown like this is nothing short of incredible. All the failures have been from CeFi organizations or “DeFi” products like Anchor/Luna that had a centralized authority manipulating them or hedge funds. But the DeFi protocols keep chugging along.

Very interesting food for thought from one of the creators of Aave:

stani.lens (🌿,👻) @StaniKulechov

Fed single-handedly decided to raise all your interest rates by 75 bps. Did you as a consumer had any weight on the decision making? 0. This is why decentralized finance is more fair finance

⚙️ Interesting startups building in bear market

David Hoffman, founder of Bankless put out a great thread on startups he has been watching and cheering for during the bear market. If you’re interested in checking out what builders are up to in the bear market or curious about opportunities in web3, recommend looking at this list

Blocknative provides the infrastructure to monitor and manage the complexity of the mempool — making it available to every builder and trader. Think of mempool like a cache of unconfirmed or pending transactions which every node keeps.
Euler.finance is a permissionless Defi lending and borrowing protocol where users can lend/ borrow any ERC20 token instead of a whitelisted list of tokens like the ones provided by Compound/ Aave. It also provides one of the most efficient money market protocols.
Aztec is a privacy first layer2 network for Ethereum. It is like a private VPN for L1 DeFi apps.
disco.xyz is the private data backpack for the metaverse. It enables users to enjoy nuanced web3 reputation associated to public identifiers across chains and web2, while maintaining privacy and user autonomy.