🌅 Welcome!
A crypto lender is leaving the United States due to a lack of regulatory clarity and a decentralized lending protocol faces a $36M default on an uncollateralized loan.
Today, we take a look into Litecoin’s recent outperformance while our Research team provides some insight into token unlocks.
This is the Delphi Daily. Let’s dive in.
🚨 In Case You Missed It
- Crypto lender Nexo is moving its products and services outside of the United States.
- Orthogonal Trading defaults on $36 million of loans from Maple Finance.
- Circle terminates SPAC listing plan.
- Bybit is laying off 30% of its staff.
- Crypto derivatives exchange LedgerX is for sale.
📊 LTC Outperforms as the Halving Draws Closer
- Since FTX filed for bankruptcy, LTC has outperformed the market by gaining 57% as opposed to ETH up 12%, and BTC up 3%.
- The outperformance can likely be attributed to the upcoming LTC halving in mid-2023 when the block reward will be slashed from 12.5 LTC to 6.25 LTC.
- LTC rallied over 500% leading into its previous halving in August 2019. The rally lasted about 200 days, finding a top 2 months before the halving.
- A similar move from June’s bottom price of $53 could lead LTC price to $265 to an interim top.
- With a market starved for narrative, the LTC halving may capture the attention of market participants and could pull liquidity away from other tokens.
⚡ The Curious Case of Token Unlocks
- Tokens are a financial innovation that confer either ownership or decision-making power to their holders. Token economics refers to the distribution, value accrual mechanism, emission schedule, and sinks associated with a token.
- A well-designed token economy helps good projects compound their growth by enabling a flywheel to bootstrap usage. If successful, the value generated by the project can be passed on to token holders.
- While good token economics can complement good products, success really boils down to the product’s strength. Unsurprisingly, poorly designed token economies don’t help good projects, as they often serve as an added point of friction. Poor token economics with a poor product spells doomsday.
- In the case of a good project with bad token economics, the market is bound to take advantage of the situation. GCR is a well-known trader from the last cycle, noted for topping the FTX PNL leaderboard and making several accurate market predictions.
- Towards the end of the last cycle, GCR was focused on finding coins with massive upcoming unlocks and taking short positions on them to profit when investors sold their unlocked tokens.
- The increasing focus on token economics and, more specifically, token unlocks has been attributed to changes in token distributions. Despite the negative connotations, ICOs provided a level playing field where most participants invested in a project at the same cost.
- However, in the past couple of years, the environment has shifted to one where professional investors have a massive edge – from increased allocations to a significantly lower cost basis versus retail investors.
- Both market cycles had “fair” and VC-dominant token distributions, but the latter seems more pronounced nowadays. Solana ecosystem tokens were notorious for having low floats. But the low market cap, high FDV curse is prevalent even outside this ecosystem.
- The effects are not always the same, however. Sometimes tokens experience hefty corrections, and other times tokens are unaffected by the unlock. So how do we decipher which factors play a key role in determining the implications of a token unlock? Let’s look at an example.
- Oasis Network announced a $160M ecosystem fund two days before the supply was set to increase by 133% (1.471B ROSE). Investors accounted for ~51.6%, core contributors for ~20.3%, community and ecosystem for ~27.6%, and strategic partners/reserves for ~0.84%.
- Several projects announced an ecosystem fund during that period, resulting in the price appreciation of their tokens. Some projects took advantage of the narrative to create “exit liquidity” for potential sellers to reduce the price impact.
- In the case of Oasis, unsurprisingly, the price more than doubled leading into the unlock, only to halve in the following days.
- For more on token unlocks, Delphi members can read our Delphi Pro report here.
🐣 Notable Tweets
Orthogonal Trading Defaults
On December 3rd, Orthogonal Trading informed us that due to funds held on FTX, they incurred a much larger loss than previously disclosed to us, and will not be able to repay loans or uphold their obligations as a borrower. https://link.medium.com/6p58SPmQvvb 1/3
What Excites Vitalik?
What in the Ethereum application ecosystem excites me
– vitalik.eth (@VitalikButerin)
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