Good Morning — Kanye West It's earnings season babyyy! The first company of interest for us crypto geeks is Robinhood. The company released its Q2 figures yesterday, seeing its crypto trading revenues sink ~18% to ~$31M during the previous quarter. This was the second consecutive quarter of crypto revenue declines, mainly driven by trading fee cuts. But hey, Robinhood reached GAAP profitability for the first time as a public company, so shareholders have at least something to celebrate about. More interestingly, Coinbase will release its Q2 results after market close today. Retail trading activity is expected to have stayed relatively resilient, but revenue from the stablecoin USDC is likely to have declined. USDC has had a rough time in 2023 so far, depegging in March following a bank run on Silicon Valley Bank, which acted as a custodian for some of the cash reserves backing USDC. Following the depeg, USDC's supply has decreased quite steadily. From the start of the year, the stablecoin's market capitalization has shrunk from ~$44B to ~$26B, a ~42% decrease. This translates to a stablecoin market share of ~21%, which was ~32% at the beginning of 2023. Accordingly, Coinbase is expected to disclose an earnings loss of $0.76 per share, compared to a $0.34 loss in the first quarter. Some analysts are optimistic, though, stating that adjusted EBITDA could come in well ahead of consensus. If this were the case, the market is still not expected to massively pump since the company's remaining long-term upside is compressed at the moment. YTD, Coinbase's share price is up almost 170%, although the price has come down from this year's peak of ~$110, currently trading around the $90 mark. If shares drop massively this week, yours truly might have to scoop up some more (reminder; Brick gives no financial advice). TradFi markets overall have been sliding down this week. U.S. stocks experienced their largest one-day drop in months on Wednesday. This follows a surprise downgrade of the U.S. debt rating by Fitch, cutting the rating from triple A to double A plus. Moreover, job data came in stronger than expected, decreasing the implied probability of sooner rate cuts. The S&P 500 fell ~1.4% yesterday, while the Nasdaq Composite gave up ~2.2%. On the back of falling equity markets and fears around contagion within the DeFi ecosystem following the Curve Finance exploit, it's no surprise that BTC and ETH have also trended downwards. The two largest tokens saw some bids late on Tuesday after the U.S. debt rerating was announced, which theoretically makes sense as a lower rating implies a weaker dollar. However, both tokens quickly reverted on Wednesday, and within the past seven days, BTC is down ~1.4%, trading around $29,100, while the ETH price is ~$1,835, a decrease of ~2.2% during the same time period. How's that for some markets gibberish? Have a great Thursday, peeps! – Brick |
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Okay ladies and gents—Permissionless II is coming up in mid-September. We would love to see you all join the Blockworks family in Austin, TX, for the world's largest DeFi event of the year! Don't FOMO in before it's too late. FOMO in now. More information and tickets can be found here.
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Okok—by now, everyone is probably at least somewhat caught up with what happened during the Curve Finance exploit on Sunday. If not, we'd recommend reading this thread (excuse the mandatory self-shill). Nevertheless, following the hack, capital started quickly fleeing the project as there was a lot of uncertainty regarding Curve's overall safety. Luckily, however, it seems that no more pools have been exploited, and investor confidence is somewhat coming back. Prior to the hack, Curve's TVL was ~$3.8B, then went down to ~$2.1B, and currently sits at ~$2.8B. Things are still happening on the platform, nonetheless. Our good old friend, the 3pool—Curve's stablecoin pool that ideally contains equal amounts of DAI, USDC, and USDT—has started skewing once again. At the time of writing, the pool has ~$225M worth of stablecoins, of which ~62% is accounted for by USDT. The USDT share has been creeping up since the end of July when it made up ~35% of the pool. When a particular stablecoin's share in the 3pool increases, this usually indicates investors losing confidence in that stablecoin. The last time USDT's share in the pool was this high was in the middle of June, when there was a vast amount of speculation around the quality and liquidity of USDT collateral. Having said that, one possible explanation for USDT's recent increase in the 3pool doesn't involve investor confidence. Instead, as the Curve Finance founder, Michael Egorov, is paying down his loans, mainly in USDT, maybe users and crypto projects are immediately withdrawing this liquidity from lending platforms and depositing it into the 3pool. LPs want to get their hands on capital that is locked in lending pools since they are trying to avoid a situation where their positions are left covering bad debt. |
One protocol that Egorov has an open loan from is Abracadabra. The principal size is currently ~$12M, and due to the recent CRV-related events, the protocol's governance wants to start addressing the debt risk. Therefore, AIP #13.5 was introduced, which would have increased the 18% interest rate Egorov is paying on his principal to 200% charged directly on his collateral of ~47M CRV. This proposal was quickly rejected as governance felt that circumstances had changed enough to implement a smaller interest rate increase structure. AIP #13.6 was introduced, which would charge Egorov a 150% interest rate at his current principal size. The next proposed interest band is for $5M–$10M of principal, which would charge an 80% interest rate. An interest rate variable would also be implemented, which would decrease the rate if Egorov's collateral ratio is below 40% but increase the rate if the ratio grows above 50%. Lastly, the proposal includes an interest rate deduction depending on the amount of liquidity available in Curve's TriCRV crvUSD/ETH/CRV pool. I—that being Brick—oppose this proposal due to two reasons. First, it's extremely unfair to increase the interest rate arbitrarily. Imagine taking out a mortgage. One day your bank calls and tells you that your interest rate has been increased by 100% because they felt like it. The way I see it, it's ultimately the protocol's fault that a situation like this has come about, resulting from bad risk management in the first place. Second, I understand that the Abracadabra governance is trying to protect its platform's users by increasing rates. However, from a game theory perspective, more value is preserved in aggregate if Egorov doesn't default, and Abracadabra should therefore abstain from these actions, as this creates a PvP environment where other protocols are incentivized to jack up rates as well, AIP #13.6 currently has 11B yes votes, accounting for all of the cast votes. The proposal ends on August 6 and, if passed, likely causes vastly more strain on Egorov's ability to pay down his loans and thus potentially increases the likelihood of a cascading liquidation for CRV. |
MakerDAO is trying to find a balance between centralized and decentralized growth by accelerating RWA adoption while introducing Endgame—a plan to create the largest stablecoin project through an autonomous SubDAO economy. |
Vertex is a vertically integrated DEX on Arbitrum that supports cross-margined accounts across money, spot, and perps markets. The goal is to compete with CEXs by offering low latency and low fee trading for makers and takers by leveraging a hybrid-orderbook AMM architecture. |
SEC policy on crypto ETFs is "completely incoherent," VanEck's head of digital assets research tells Blockworks |
Robinhood executives asked for "additional regulatory clarity" in May |
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The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm's Financial Disclosures. |
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