FEB 22, 2022 • 5 Min Read
[Excerpt from our Year Ahead Pro report)
Stablecoins exploded in 2021, surpassing $150B in combined market capitalization. This surge is a testament to great product-market fit as one of crypto’s “killer apps,” with assets like USDC and USDT becoming almost ubiquitous across the entire crypto ecosystem. We strongly believe this trend will continue on the back of a few major catalysts that have paved their success thus far:
Ability for investors and traders to easily pair back risk exposure during risk-off periods with heightened volatility. Stablecoins have become dominant trading pairs across both CeFi and DeFi.
Stablecoins in DeFi offer high yield opportunities without the risk of a volatile underlying asset.
Transact permissionlessly with anyone in the world at any time, with near-instant settlement and none of the usual friction associated with the current financial system.
NARRATIVES TO WATCH IN 2022:
Decentralized Stablecoins: We have written extensively about LUNA and UST and if you believe in truly decentralized finance then there needs to be a decentralized stablecoin to support it. This can take the form of either an algorithmic stable (UST, FRAX) or an overcollateralized one (DAI, MIM).
If a regulatory crackdown begins on stablecoins, this could push marginal users and builders to use decentralized alternatives.
Curve (CRV) As Critical Infrastructure: It’s very difficult to talk about stablecoins, especially decentralized ones, without mentioning the “kingmaker” of stablecoins — Curve. Through gauge weights, Curve governance can direct CRV issuance to pools, directly resulting in higher liquidity mining rewards and thus increased TVL. Since liquidity for stablecoins is crucial, this makes Curve the most important piece of infrastructure for stablecoins. As we wrote about in our report on Convex, Convex controls roughly half of all Curve governance allowing it to vote in or be bribed to create the most liquid stablecoin pools in all of DeFi.
Convex’s (CVX) Governance Black Hole: Major stablecoin projects have realized Curve’s weekly gauge weight allocation is critical to keeping their liquidity high. Losing that vote means LPs’ yields drop, and capital may move elsewhere. Now, a so-called “war” has ensued, with various protocols openly bribing votes and rewarding veCRV holders with their native tokens. In April 2021, Convex pioneered this bribing game with a 1% airdrop in exchange for support from veCRV holders. Now, it has grown to have great sway on Curve’s valuable governance vote: 85% of Curve TVL is now routed and staked via Convex. And nearly half of all veCRV supply is owned by Convex. In short, Convex is a new model for protocol-controlled value (PCV), trailblazing the accumulation of power through governance.
[Excerpt from our latest Yield Insights]
Now Is The Time To Hire
1) Biggest takeaway from eth denver was that there are A LOT of teams building towards the same outcome
— Rob Sarrow (@rsarrow) February 21, 2022
ETH Denver Reflections
One takeaway from ETH Denver: there’s probably 1b in startup equity in DAO tooling for an ecosystem with <200 established DAOs
— carlcortright.eth (@carlcortright) February 20, 2022
New Delphi Podcast Series
Web3 is____. A new mini-series dedicated to exploring the world of Web3
— The Delphi Podcast 🗡 (@PodcastDelphi February 22, 2022