L1s Underperform, DebtDAO, & Web3 Goes to Washington

MAR 01, 2022 • 6 Min Read

Joo Kian + 2 others

DISCLOSURE: DELPHI VENTURES HOLDS A POSITION IN BTC AND ETH, AND HAS INVESTED IN LUNA, AVAX , AND ALCX. DELPHI LABS INCUBATED AND HOLDS A POSITION MARS PROTOCOL. MEMBERS OF OUR TEAM HOLD ALGO, AVAX, SOL, DOT, BTRFLY, NEAR, RBN, AND FTM. THESE STATEMENTS ARE INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE ANY TOKEN. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.

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Chart of The Day: Some L1s Win, Some L1s Lose

  • Since the BTC bottom around Jan. 24th, most L1s have been underperforming BTC. With BTC recovering recently, most L1 tokens are still underwater even as BTC approaches +20% from its lows.
  • LUNA, AVAX, and ETH were the only exceptional ones, with LUNA soaring high over the past two weeks. LUNA’s price action was likely due to key announcements like Luna Foundation Guard raising $1B to form a BTC reserve for UST in addition to Mars Protocol’s Lockdrop event.
  • Surprisingly enough, AVAX seems to move with a higher correlation to BTC relative to other L1s.
  • FTM has been a surprise underperformer, especially considering the recent TVL spike following the launch of Solidly and Solidex. Solidly is an AMM that was created by Andre Conje, which allows for swaps at 0.001% Fee. Solidex was built on top of Solidly to acquire $SOLID, similar to what Convex is to Curve.
  • For more background on LUNA, Delphi members can revisit our Terra ecosystem overview.

[REDACTED] Gets a Credit Line, The Wonderland Ragequit

[Excerpt from our Feb. 28 DAO Insights]

  • Alchemix has voted to deploy their v2 in a guarded launch. The full parameters of the launch can be found here. V2 brings new features to Alchemix including yield token deposits and better control over the debt token peg. Various parameters are limited until such time as v2 is considered stable, at which point deposit caps and LTV will potentially be increased.
  • DeFI Kingdoms is increasing the voting power of Heroes. The community has decided that Heroes will have a voting power of 10x JEWEL, giving people who play the game, and own Heroes, more say in future governance.
  • [REDACTED] is allowing their Policy team to acquire strategic assets on behalf of their DAO. Assets will be acquired using non-governance token funds from the DAO treasury.
  • Ribbon Finance passed two proposals last week.
    • RGP-9: This proposal launches Ribbons Ribbonomics. This includes veRBN, gauges for RBN emissions, and the launch of their on-chain governance portal. The full proposal can be found here.
    • RGP-10: Ribbon has also voted to reimburse vault depositors who earned less than they should due to a bug in Ribbon’s auction front end.
  • To keep up to date on the latest DAO happenings, do read our weekly DAO Insights.
Forum Spotlight

  • Synopsis: Debt DAO, a new DAO currently focusing on providing uncollateralized loans to DAOs based on cashflows, has offered [REDACTED] a $5m credit line. [REDACTED]’s current non-governance token treasury mostly consists of ETH tied up in the ETH<>BTRFLY pool. Terms on the loan are as follows:
    • 6-month loan for up to $5M in FRAX.
    • 9% APR on drawn balance; 2% on committed but undrawn balance.
    • No upfront collateral.
    • Repayment of loan paid by farming fees from cvxCRV, cvxCRV/CRV LP, and vlCVX, paid in farmed tokens to Debt DAO directly.
  • Pro Arguments:  As most of the protocol’s non-governance token treasury is tied up in the ETH<>BTRFLY pool, [REDACTED] would struggle to make large purchases. Selling treasury ETH would require removing some protocol-owned liquidity, reducing future revenue, while selling treasury BTRFLY would require either brokering an OTC deal or selling through their own pool for ETH; the latter (i.e. selling through their own pool) could put downward pressure on the price. Additionally, they have stated they will not sell any treasury governance tokens. Debt DAO’s product allows the protocol to draw an unsecured loan for a reasonable 9%, bypassing all the aforementioned issues with spending their treasury. One potential use case for this additional capital is seed investments; the proposal outlines a real example of this, highlighting its $275k investment in Jones DAO, which at today’s prices, would imply an “unrealized profit of around $170,000 and an unreleased return of 162%” (although their allocation of JONES tokens have not currently vested). They go on to state that, if passed, “this loan from Debt DAO will allow Redacted greater liquidity for DAO expenses and the exploitation of other attractive investment and market opportunities as they arise.”
  • Con Arguments: Some participants in the forum have expressed concern that the 2/9 terms are high for a loan and that they should try to negotiate a lower rate. One of the biggest risks for the protocol is that they use the loan and fail to generate a return on that capital of at least 9% (annualized). This would likely require the DAO to take on some additional risk to ensure the use cases of the borrowed capital is profitable in order to ensure they’ll be able to payback the loan. However, this isn’t a new challenge, and many businesses face similar tradeoffs when trying to source capital to grow and scale. Given the size and composition of their treasury, paying 9% on a $5m unsecured loan is very feasible. This is why we believe DAO’s should consider using debt as a source of funds when appropriate, especially if the alternative is liquidating a portion of their treasuries in less-than-optimal circumstances.
  • Our Opinion: We believe this is a solid proposal. Loans based on cash flows opens up a huge new market for DAOs to borrow and invest in their future. It also allows them to bypass many of the issues that stem from having a treasury largely comprised of one’s own native governance token. If the protocol is generating enough revenue, they can access funds through this product without having to liquidate their assets. We are excited to see the maturation of DAO financing and how other DAOs are going to leverage this tool in the future.
  • For more, Delphi members can see our latest edition of DAO Insights here.

Matt West: The Scientist, Yearn Developer, and DeFi Degen Running for Congress

[Excerpt from The Delphi Podcast]

Matt West is a scientist, former Yearn developer, and now congressional candidate. We discuss why he’s running for the U.S. House, thoughts on the state of crypto regulation, and how he intends to improve regulation surrounding blockchain crypto, and the economy of the future. 

Resources: 

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Joo Kian + 2 others