ETH Hashrate Declines, Liquity Stability Pool, GMX Grows

Chart of The Day: ETH Hashrate Declines

• The Ethereum hashrate is the processing power used by miners to secure the Ethereum Network.
• Since April, the Ethereum hashrate suffered a ~10% drawdown as the profitability of mining was affected tremendously.
• Over the past three months, the price of Ethereum has trended downwards from ~$3,500 to a low of ~$900. The drawdown in prices means that miners now earn less in dollar value. This is further exacerbated by the surge in energy prices due to the war, with the energy price index rising to a five-year high.
• Moreover, the difficulty bomb is delayed to mid-September, which is when the Merge is expected to happen. Once The Merge happens and Ethereum transitions to a Proof-of-Stake chain, the difficulty bomb will be applied, making it completely unprofitable as miners stop earning rewards.
• The triple whammy of reduced income, increased operating costs, and the impending Merge has caused some miners to stop their mining operations. Their exit has also resulted in the supply surge of GPUs on secondary markets.
• For more, Delphi members can read our Delphi Pro report about “The Merge” here.

Bootstrapping Yield, Liquidation Pools, Multichain Airdrops & Synthetic Fees

[Excerpt from a Delphi Insights Report]

Liquity LUSD Stability Pool

• Liquity is a decentralized borrowing protocol that allows users to draw interest-free loans against Ether used as collateral. Loans are paid out in LUSD (a USD pegged stablecoin) and need to maintain a minimum collateral ratio of 110%. In addition to the collateral, the loans are secured by a Stability Pool containing LUSD and by fellow borrowers collectively acting as guarantors of last resort. Liquity as a protocol is non-custodial, immutable and governance-free. Learn more about it here.
• Yield calculations can be found here. To access Ethereum, you’ll need to configure your MetaMask to run Ethereum’s Mainnet.
• Bridge: You can deposit and withdraw assets onto Ethereum using:
  • Synapse Bridge – Cross-Chain liquidity network
  • Bungee Exchange – Bridging Aggregator
  • StarGate – Multi-network bridge for Stablecoins
• Tokenomics:
  • Total Supply: 100M LQTY
  • 79% (79M LQTY) of the total supply is currently circulating
  • The remaining 21% (21M LQTY) can be earned by depositing LUSD into the Stability Pool and facilitating Stability Pool deposits through a Frontend
• Stability Pool:
  • The Stability Pool absorbs and cancels debt from liquidated Troves – similar to collateral auctions in MakerDAO
  • The Stability Pool replaces these auctions by allowing LUSD holders to commit capital upfront in order to “buy” liquidated ETH and offset the bad debt
  • In general, Stability Providers will receive more ETH (in $ terms) than LUSD burned which gives them discounted ETH
  • LQTY rewards are distributed pro rate to Stability Providers for the duration of their deposit:
    • The more LUSD a user has in the pool and the longer they keep it deposited, the more LQTY rewards they receive
• Risks:
  • By committing capital upfront to “buy” liquidated ETH, users are also committing to buying ETH during price drops:
  • This means that it’s possible for the ETH that users receive to be worth less shortly after receiving it due to a quick price drop.
• 7-Day Stability Pool APR:
  • Stability Rewards take into account both LQTY rewards and liquidation gains
  • In the past week due to volatile market conditions the LUSD Stability Pool APR an all-time high
    • You can find more details in their Dune dashboard here

• For more information, Delphi members can see the full Yield Insights here.

Re-Evaluating The Decentralized Derivatives Landscape

[Excerpt from a Delphi Pro Report]

• GMX offers spot swap and margin trading, allowing users to execute the full size of their trade with zero slippage by pricing assets using an oracle. GMX launched Sept. 1, 2021 on Arbitrum and Jan. 5, 2022 on Avalanche. It’s worth noting GMX doesn’t technically offer perps, but the integrated margin trading model reflects the simplicity of opening or closing a perp position. For this reason, we believe it’s a genuine competitor to the projects listed in this report.
• Users provide liquidity to GMX through GLP. GLP is a basket of assets that includes BTC, ETH, AVAX, UNI, LINK, and stablecoins. Unlike a traditional AMM, GLP does not incur the cost of finding or readjusting to prices as they change, it instead uses a fast oracle to borrow the “true price” from other trading venues. This allows GLP to be extremely capital-efficient, and doesn’t require it to maintain a certain ratio of one asset to another at all times, allowing it to handle large trades.

• GLP also gives traders the ability execute the full size of their trade at this “true price” within liquidity limits, making GMX one the most attractive places to execute spot swaps and margin trades on-chain. Given its superior pricing and ability to facilitate spot and margin trading, it allows GLP to generate an extremely high natural yield. Even with compressing yields across DeFi, GMX has been consistently returning ~30-40% to GLP since February. GLP is entitled to 70% of GMX trading fees, while the other 30% goes to GMX stakers.
• Even though these are some pretty incredible statistics, the GLP and oracle model are not without limitations. The oracle model can not support price discovery on its own. This is not an issue for BTC or ETH, but the limitation kicks in when you begin dealing with longer-tail, illiquid assets. Since in GMX’s current state the full size of the trade is executed with zero slippage, this could allow traders to buy or sell less liquid assets at a price cheaper or more expensive than the true cost.
• This can be addressed to a certain extent by GMX implementing some sort of synthetic slippage, but for now, this will likely limit the assets GMX can offer to only the most liquid of names.
• In GMX’s model, the counterparty to positions on the platform is always the GLP basket (i.e. LPs). If a user wishes to enter a levered long on ETH, it can be described as “renting out” the upside of ETH in GLP to the trader. If the trader wants 2 ETH of leverage, 2 ETH from GLP is “rented out” to give the trader their desired exposure. This means that “open interest” for margin positions on the platform is capped at the availability or utilization of each respective asset in the pool. Similarly, a 2 ETH short at $4,000 per ETH is akin to renting $8,000 worth of USDC/USDT exposure to the trader.
• When traders make a profit, GLP incurs a loss and has to payout. But when traders lose money, GLP benefits as the counterparty to traders’ positions. This can expose GMX to edge case scenarios that are very unfavorable (market is going down + traders on the platform are net short = GLP’s BTC/ETH are losing value while they pay out stablecoins to profitable traders).
• Although this is a genuine risk of the model, so far, traders on GMX have net lost money, meaning the GLP basket has significantly outperformed an index consisting of BTC, ETH and stablecoins with similar weightings.

• Overall, this sounds like a pretty good deal for passive LPs, but what about traders? It is also a pretty sweet deal for them too, allowing users to trade any asset within GLP with up to 30x leverage and zero slippage. On Arbitrum, this includes BTC, ETH, UNI, and LINK. On Avalanche, this includes BTC, ETH, and AVAX.
• For more information, Delphi members can see the full Pro Report here.

Notable Tweets

Uniswap acquires Genie

1/ The Uniswap Universe is expanding 🦄

In pursuit of our mission to unlock universal ownership and exchange, we’re excited to share that we’ve acquired @geniexyz — the first NFT marketplace aggregator — expanding our products to include both ERC-20s and NFTs 🧞‍♂️

—Uniswap Labs 🦄 @Uniswap) June 21, 2022

BlockFi borrows from FTX

1/ Today @BlockFi signed a term sheet with @FTX_Official to secure a $250M revolving credit facility providing us with access to capital that further bolsters our balance sheet and platform strength.

— Zac Prince (@BlockFiZac) June 21, 2022

Unlock schedule for 3AC’s holdings

We saw a lot of interest on the unlock schedule of the assets of 3 Arrows Capital, which is now in liquidity shortfall and might need to fire sell some of their holdings

Here a brief description of the vesting schedule of each one of the coins showed in the picture below
👇👇👇

— Unlocks Calendar (@UnlocksCalendar) June 20, 2022