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El Salvador gets one step closer to the construction of its Bitcoin City as a new bill to launch “Bitcoin bonds” was recently introduced. Elsewhere, Harvard publishes a paper on how Bitcoin can act as a hedge against financial sanctions.

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This is the Delphi Daily. Let’s dive in.

🚨 In Case You Missed It

El Salvador introduces a new bill to launch “Bitcoin bonds” that plan to raise $1B for the construction of a “Bitcoin city.”
Harvard University publishes a paper highlighting how central banks can use Bitcoin to hedge against financial sanctions.
New York becomes the first state in the U.S. to ban proof-of-work mining as Governor Hochul signs a mining moratorium into law.
Dutch court rules that Tornado Cash developer Alexsey Pertsev will remain detained at least until February 2023 as his trial was postponed.
Crypto exchange OKX announces the official launch of proof of reserves.

📊 GBTC And ETHE Trade at Record Discount to NAVs

Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE) are trading at the largest discount to net asset values ever with GBTC as well as ETHE trading at a -45% discount on Nov. 18, 2022.
This is the result of growing concern amid market participants regarding the solvency of Genesis, a crypto lender that has an exposure of $200M to FTX. Genesis had previously announced exposure of $1.2B to now-bankrupt 3AC in July 2022.
Genesis is the sister company of Grayscale with both entities owned by the Digital Currency Group (DCG). Despite a $140M equity infusion from DCG on Nov. 11, Genesis halted client withdrawals five days later. Now, the company is trying to raise $500M while hiring Moelis & Company as a restructuring advisor.
While DCG regularly bought back GBTC and ETHE shares, Genesis accepted them as collateral against loans. As large holders of these shares, market participants fear that they may be forced to dump them to raise liquidity.
Moreover, Grayscale has also refused to provide proof-of-reserves for crypto backing the assets held by the trusts, causing further concern among market participants. Instead, the company pointed to a letter from Coinbase confirming the accounting of tokens held by Coinbase Custody.
Currently, GBTC holds $10.2B of assets and ETHE holds $3.4B of assets. Grayscale charges an annual fee of 2% on GBTC and 2.5% on ETHE. This makes the company a cash cow for DCG with a combined estimated annualized fee revenue of $290M.

⚡ Liquity’s Chicken Bonds: Will They Fly?

Chicken bonds are a bonding mechanism that can be applied to yield-bearing tokens to bootstrap protocol-earned liquidity while boosting yields for bonders.
The enhanced yield on boosted tokens is derived from yield generated on liquidity owned by the protocol as well as liquidity from users bonding underlying tokens to newly issued boosted tokens.

Let’s illustrate the chicken bond mechanism with Liquity’s example. A user can create a LUSD chicken bond by depositing LUSD into the chicken bond system. After this, the bond position accrues a virtual balance of boosted LUSD tokens (bLUSD) over time.
bLUSD offers a boosted yield compared to LUSD deposited into the stability pool. The longer they bond, the more bLUSD accrues, according to a smooth plateauing curve up to a cap (defined here).
At any time, a user can choose to cancel their bond and get their initial LUSD principal back — an action called “chicken out.” Alternatively, the user can choose to claim the bLUSD they have accrued for LUSD which they will permanently give up — an action called “chicken in.”

There are two main yield sources for bLUSD: (i) Liquity’s stability pool where yield is earned from discounted ETH during liquidations and from LQTY rewards, and (ii) Curve LUSD/3CRV pool where yield is derived from trading fees and CRV rewards.
This yield is sourced through B.Protocol and the Yearn Curve vault, which are responsible for converting and auto-compounding yield farming gains back into LUSD.
To appreciate how this yield is acquired, we first have to understand how the LUSD deposited into chicken bonds is segmented into three different buckets.
Pending bucket (~$44.8M as of Nov. 22): This contains LUSD deposits from bondholders that the protocol has not acquired yet. Note that at this stage, owners of the LUSD deposits have not yet decided whether to chicken in or chicken out.
At any time, pending bonds can either be claimed by users (chicken in), moving LUSD from this bucket into the reserve and permanent buckets, or canceled (chicken out), returning principal LUSD from this bucket back to users.
Reserve bucket (~$3.2M): This contains a portion of the LUSD relinquished by bondholders who have decided to chicken in as well as the yield earned on the entire treasury.
LUSD in the reserve bucket backs the entire bLUSD supply. bLUSD can be redeemed for a proportional share of LUSD held in this bucket.
Permanent bucket (~$550k): This contains the other portion of LUSD acquired from bondholders who have chickened in. The LUSD in here is protocol-owned and not redeemable by bLUSD holders.

🐣 Notable Tweets

The FTX Fallout Simplified With Numbers

1/ The FTX fallout has the potential to impact crypto for years to come.

Today, new information brings confusion, speculation and the potential for another bankruptcy.

Here is the short 20 tweet version of events, simplified with numbers & data visualization: 👇🧵

– Delphi Digital (@Delphi_Digital) Nov 21, 2022

Curve’s Stablecoin Whitepaper Explained

Curve launched their stablecoin whitepaper today, called LLAMMA (lending-liquidating amm algorithm)

Been thinking about how lending markets are linked to fickle dex liquidity, LTV params are similar to option pricing

Both brilliant and simple, here’s a quick explainer: 🧵

-foobar (@0xfoobar) Nov 22, 2022