MIM's Inflection Point & A Glimpse Into Real NFT Activity

Trouble in Paradise

• MIM, the native stablecoin of Abracadabra, has been weathering a storm as of late. If you’re on crypto Twitter, this should come as no surprise for you. Last week it was revealed that 0xSifu, a close affiliate of Abracabadra founder Daniele Sesta, was the founder of the now defunct Quadriga exchange. Quadriga made headlines in 2019 following the controversial demise of its CEO who was alleged to have been funding his BitMEX addiction with customer funds.
• Naturally, this didn’t go down well with the community, and people began to lose confidence in the project. MIM briefly broke its peg but recovered quite quickly. However, the stablecoin’s main source of liquidity is Curve’s MIM-3CRV pool, which is now composed of 90.51% MIM and 9.49% 3CRV — hardly a healthy ratio. On Jan. 28, nearly $1.4B of MIM changed hands over Curve, most of which seems to have been holders selling into the Curve pool. Although MIM is an overcollateralized stablecoin, this next epoch will be important for MIM to prove it can hold its peg and restore confidence.

Concerns Around UST Overblown But Pertinent

• One of the main strategies within Abracadabra is called “Degenbox.” This strategy allows users to lever up on Anchor yields by depositing UST into Anchor, withdrawing aUST and using that as collateral to borrow MIM, selling MIM for UST and repeating the process. Degenbox allows UST depositors to generate a 100%+ APY, which has attracted nearly $1B of UST to Abracadabra. Last weeks fear around MIM and Degenbox unwinding sparked discussion across Twitter of a potential UST depeg. But is this warranted?
• Over the initial period of contagion, UST’s price never dropped below $0.995. If you look at the price history, the amplitude of price has decreased greatly in H2 2021, indicating a much stickier peg. UST may not be all that liquid on Ethereum (Curve, mainly) but it is on Terra’s native pools and CEXes like Binance and KuCoin. The point is UST has deep liquidity and lively arbitrageurs who can ensure the peg remains sticky, within reason.
• The real risk is if all of the farmers in Abracadabra offload their UST in a very short period, as it’s unlikely UST can withstand 1B of selling without putting pressure on the peg. Estimating how many will sell their UST is tough, but it’s unlikely we see all users dump as Degenbox is still providing high APYs to UST depositors. Having said that, we don’t believe this is the best way to generate sustainable demand for UST and acknowledge there are risks surrounding these strategies in the short to medium-term.

LooksRare’s Incentives Boost Volumes

• We’ve covered LooksRare and its tremendous initial traction over the last few weeks, but let’s take a deeper look at what’s going on versus the incumbent OpenSea.
• Since its launch, LooksRare has a roughly 70% volume share versus OpenSea. However, it has far fewer users, with OpenSea accounting for 97% of daily active addresses between the two. Between the launch of its native token and extreme liquidity mining rewards that favor wash trading, LooksRare has built an incentive mechanism that promotes artificial volumes to prop up its numbers.
• We highlighted the primary drivers of LooksRare’s trading volume in last week’s NFT Insights, of which >97% was attributed to trading in zero-royalty collections as traders farmed volume mining rewards on the platform; actual trading volumes pale in comparison (<$10M/day and <5% of OpenSeas’ volume).

Playing a Game of NFT Musical Chairs

• When it comes to real usage, one of the most useful proxies is average volume per user. From the table above, it’s clear that LooksRare is dominated by wash-trading whales moving NFTs with size. OpenSea’s numbers are far more realistic, and the lack of any native reward only makes their data more believable.
• All in all, LooksRare is taking advantage of OpenSea’s unwillingness to truly embrace crypto and incentive mechanisms. But when the music stops, LOOKS token holders could be caught off guard by the lack of organic activity on the platform. LOOKS’ price has fallen ~33% from its peak less than two weeks ago.

Notable Tweets

Over-collateralization isn’t the end-all solution to stablecoin pegs

It is not true to say that all overcollateralized CDP designs –> guaranteed to return to intended peg in long run (even in the absence of bad debt!). Here’s why 🧵

— Spreek (@spreekaway) January 30, 2022

The state of crypto VC

These violent delights…

VCs & the fundraising zeitgeist in crypto 👇

— Jason Choi (@mrjasonchoi) January 30, 2022

Why you should share ideas in public

“Where would we be without the intellectual generosity of our ancestors?

By sharing ideas in public, you honor the people who came before you and serve the people who will follow after you. You contribute to the chain of human knowledge.”@david_perell hits different pic.twitter.com/ZxmrpwOmrr

— Ryan in SG (🎮, 👾, 📊) (@0xRyze) January 31, 2022