GBTC Discount Reaches Highest Mark Ever

🌅 Welcome!

A global celebrity is coming under SEC scrutiny for her involvement in promoting a crypto scam. This should catch the attention of celebrities and crypto influencers alike.

BitMEX is launching an exchange token, Grayscale’s GBTC discount hits a record high, while our Research team takes a look at the top 10 protocols by revenue.

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

🚨 In Case You Missed It

• Kim Kardashian is charged $1.26m in penalties for unlawfully promoting crypto securities.
• NYDIG raises $720m from 59 investors for an institutional BTC fund.
• BitMEX expects to launch an exchange token in 2022.
• Celsius founder, Alex Mashinsky, is suspected of withdrawing $10m ahead of the bankruptcy filing.
• CME Group files a proposal to offer derivatives trading directly to customers.

📊 GBTC Discount Reaches Highest Mark Ever

• GBTC is a financial instrument that functions as a pseudo-ETF for “paper” bitcoin. It was created to give investors exposure to BTC through traditional mediums, without the inherent risks of owning spot BTC such as self-custody, unclear regulation, and tax laws.
• After launching in 2013, GBTC has grown to become the largest BTC fund in existence. Today, the fund manages a staggering 3.3% of BTC’s circulating supply or 635,240 BTC (worth roughly $12b).
• Historically, GBTC has traded at an average premium of 20% over spot BTC prices since 2015. However, this premium has turned into an average discount of -19% over spot BTC prices over the past 19 months.
• As of Sept 29th, GBTC traded at the largest discount in its history with a mark of -36%. Some suggest that the increasing discount illustrates subsiding institutional interest in Bitcoin, while others point to a wider offering of ETFs or alternative vehicles for BTC investment.
• If the SEC approves Graycale’s request to turn the fund into an ETF, the discount could be erased rather quickly. As for now, it remains clear that investor interest in purchasing ~$12.5k BTC (priced with -36% discount through GBTC) remains at all-time lows.
• For more on market insights, Delphi members can read our latest Market Insights report here.

⚡ Do Fundamentals Matter In Crypto Markets?

• There are a number of crypto projects that generate revenue and simultaneously reward their users and token holders. Sometimes they use the revenue to create value accrual, and sometimes users or token holders are rewarded with emissions.
• For the uninitiated, you may have seen high APRs for staking a protocol’s token. You may have even thought it looks quite lucrative. More often than not, the APR being offered is unsustainable, largely because these yields are not a byproduct of the protocol’s revenue, but rather token emissions.
• Some of these protocols have revenue but do not use it to generate value for the token. Most protocols barely have any revenue at all, instead incentivizing token holders to stake their assets in order to receive emission-based rewards.
• Accounting for token emissions is crucial because token rewards often contribute to diluted supply for existing token holders, keeping liquidity constant. Using token incentives as the sole means of bootstrapping activity can quickly become a slippery slope.

• SushiSwap, Lido, Aave, and GMX have fared well over the last six months as global asset prices have cratered. While a commendable feat, there are other things to consider when analyzing a token’s footing in the market.
• While we’ve established certain protocols’ ability to generate revenue, some of this revenue is reliant on token emissions as incentives. But in the grand scheme of things, does any of this make an actual impact on market valuations?
• For more on protocol revenues, Delphi members can read our Delphi Pro report here.

🐣 Notable Tweets

Why Is Slashing Needed?

Why is slashing needed? Two existing formal models of blockchain trust are (a) byzantine models, and (b) game-theoretic models analyzing Nash-equilibrium. Is there a model in which slashing is required? For PoS or for @eigenlayer restaking?

— Sreeram Kannan (@sreeramkannan) Oct 02, 2022

Cosmos Ecosystem Updates and ATOM 2.0

It’s time to give an update on the @cosmos ecosystem.

The new whitepaper was released this week, with some important changes.

Let’s have a look at the Cosmos ecosystem and ATOM 2.0

/THREAD

— Route 2 FI (@Route2FI) Sept 30, 2022