Delphi Office Hours Call (July 13th, 2022)

Below is the full recording and transcript of the Office Hours call our team did on Wednesday July 13th, 2022.

• Overview (00:35)
• Macro (01:30)
• Bitcoin & Chartbook (04:40)
• Curve Report (07:47)
• DeFi Options Vaults (11:39)
• DAO Digest (15:58)
• NFT Insights (20:40)
• Q&A (25:13)
  • Which L1 bounces back first? (25:13)
  • Should AMMs have dynamic fees?  (33:27)
  • What is the role of Cosmos (Atom) at maturity?  (39:10)
  • Future of decentralised stablecoins? (42:12)
  • Thoughts on protocol Mergers and Acquisitions? (48:09)
  • AAVE Fat Protocol Thesis? (50:08)
  • Thoughts on protocol Mergers and Acquisitions? #2 (52:10)
  • Corporatization of Maker and DAOs? (54:44)
  • Investing in Investment DAOS? (57:54)
  • New blockchain use-cases? (1:00:04)
    • Games on blockchain? (1:01:16)

Transcript

Nick (00:36)

All right, thank you everybody for joining. This is Delphi Pro’s Office Hours, and the date is July 13th, 2022. Let’s dive into what we’re going to talk about today. We’re going to begin with macro and monthly chart book. Then we’ll turn to a recently published Curve report and also some research that is actually still in the works around that. We’re going to switch to DeFi Option Vaults, DOVs. We’re going to get an update from our DAO Digest Master, Aaron, and then also finish with some NFT insights with Teng.

Nick (01:14)

As always, we’d love to get some more questions. We got a few ahead of time in the Typeform, but you’re always welcome to ask the questions in the chats. We’ll try our best to get to this at the end. Without further ado, I’m going to turn things over to Kev to talk a little bit about what’s happening in macroland. Kevin, what are you seeing?

Kevin (01:33)

Awesome. Thanks, Nick. It’s tough to talk about anything this morning aside from the CPI print. I’m sure everyone’s seen it at this point. 9.1% year over year came in ahead of just about every single analyst estimate to the upside, just to give you a sense of how big that beat was. We saw earlier the market reacting accordingly. This first chart shows a theme that we’ve been heading on for a while now, which is that high positive correlation, or I should say strong correlation, between crypto and conventional risk assets like US equities.

Kevin (02:06)

What the chart shows is when CPI, the print was released, you saw a pretty big sell off across both risk assets and crypto, BTC specifically here in this chart. A lot of the reason for that again is, taking a step back, some of those macro factors and headwinds we’ve been talking about for a while now are adversely impacting both conventional risk assets and crypto. It’s very similar for why macro’s in the driver’s seat for both.

Kevin (02:31)

If you want to go to that second chart, Nick, one of the things we dug into in the most recent chart book that I want to hit on—because it very much relates to this morning’s print—is when you look at why inflation matters, what we’re basically seeing is that consumption by a number of different measures, the growth in consumption peaked several months ago. What we’ve seen since is really a pick up in pricing pressures. Bottom line is everything is just getting more expensive.

Kevin (03:00)

What this chart looked at that we highlighted in the most recent chart book, which is looking at that higher cost of living for consumers, your average household. This is specifically focused on the US. This morning’s CPI print, what we saw was a continuation in some of these trends, unfortunately.

Kevin (03:15)

We have gasoline prices that are more than double what they were last year. The month over month price acceleration was still double digits, low double digits. Rent and shelter, so housing is still getting more and more prohibitively expensive, not just from a home price perspective, but also when you look at mortgage rates, the change in that. It’s really pricing out a lot of potential first-time home buyers. Home buyer affordability is really, really suffering right now.

Kevin (03:43)

Even just this morning, you saw the market, because of that high CPI print, that high beat price in at least another additional rate hike. If you think a rate hike is 25 basis points by the Fed, the market is now pricing another additional rate hike by year-end. The big picture trend that we’ve been talking about is, in the short to medium term, we think there could be still more pain ahead, especially as the financial and economic conditions deteriorate probably faster than a lot of people have been expecting, at least for the last couple of months.

Kevin (04:14)

But I guess if you’re trying to look for a silver lining, the takeaway here is that the quicker that we can go through this next economic downturn, the faster that we could potentially stage a recovery. But until we see that, we still think that the crypto market, by and large, is going to be pretty tethered to the macro backdrop and probably pretty tethered to the direction of conventional risk assets, at least again in the short to medium term.

Nick (04:40)

Awesome. Great color there. Thank you. I know, also, Jason, you’ve been taking a look at the Bitcoin side of things. What are you seeing on the market side of this?

Jason (04:50)

Thanks, Nick. I just want to reiterate one thing Kevin said during his macro section there, is that essentially that we’re going through what we call a macro bear market, and all risk assets are getting clobbered accordingly. Crypto just happens to be the furthest out on the risk curve, therefore it happens to be getting hit on the chin the hardest out of most risk assets. So what does that mean for Bitcoin, like Kevin was saying, in the shorter to medium term?

Jason (05:19)

Well, in the aftermath of the June nuke, which encompassed hotter-than-expected CPI prints like we just experienced, as well as the unwind of 3AC’s levered positions, we’ve seen Bitcoin range and consolidate sideways, as you’d expect. In the aftermath of large liquidation events, the order book dynamics are pretty prime for price to oscillate and find a new type of balance before determining whether or not it wants to continue its trend lower or maybe put in some kind of local reversal.

Jason (05:58)

But the big picture is ultimately, Bitcoin is just oscillating between macro events and new macro data. Price is meandering sideways until we get some new prints. What we just got over this week is unemployment numbers and CPI numbers, which has sent Bitcoin back to the lower end of the range that we’ve been looking at for the last two weeks.

Jason (06:19)

In the absence of any further economic deterioration over the next couple of weeks, Bitcoin will hopefully hold the support and maybe make some room into the range above or make a foray into the range above. At this point in time, though, it makes sense that all eyes are likely on the July 27th and 28th FOMC event and what the Fed will do as a result of these new economic numbers. But at the end of the day, risk correlations are extremely high.

Jason (06:50)

When you overlay a Bitcoin chart with the Nasdaq or even the SPY, it shows a pretty strong correlation, like Kevin was saying. It’s likely that there’s not going to be a longer-term crypto bottom until risk asset’s generally bottom. There won’t be a risk asset bottom until the Fed doesn’t have any more impact on the market, which likely isn’t going to be a thing in the long term, or they pivot in some kind of way. So we’re waiting for those things to happen before we call a wider range macro bottom of some sort.

Nick (07:33)

Awesome. That makes total sense. I also highly recommend, folks, check out the monthly chart book we just put out. We’ll drop a link. Actually, it looks like we have a link in the chat. Check that out at your leisure.

Nick (07:47)

Switching gears, we have Duncan here to talk a little bit about Curve and Curve V2. We just put out a report very recently, but Duncan’s been thinking about, I guess, more the nitty-gritty of Curve V2, some pieces that were not in the report. Duncan, what are you discovering here? Maybe just talk a little bit about what you dug up in the research last week.

Duncan (08:11)

Yeah, for sure. What we can see in the top-left here is Curve V2, their tricrypto pool. I’m just going to walk through the charts and why I think it’s really interesting. What Curve V2 has tried to do is basically replicate a traditional market maker but through the AMM. They do this with things like variable fee and dynamic liquidity concentration, all while having this in l