- The Web3 Rewind
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- $BALD | BASE
A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.
Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:
BALD and BASE
Lyra V2
Lido dual token governance
BEAM - onchain venmo
Curve hack
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The Latest
One of the best developments in crypto in the past three years was the influx of artists into the space, ushered in by the emergence of non-fungible tokens (NFT) and their transformation of digital artifacts. A digital work of art could now have its provenance tethered to a blockchain, making it rare and collectible. I don’t want to tell tales out of school, but prior to that crypto was pretty fucking dorky. Brilliant people, don’t get me wrong, but not exactly folks you’d describe as the life of the party. The artistic influx has been good for industry diversity. But a closer look at the trenchant problems some of these cultural blockchain applications face shows how far there still is to go.
Take music. A blockchain does its best work, in my opinion, in small batches. It doesn’t scale well at all, so you were never going to see stock trading on the Big Board become blockchain-based. But if you want to swap shitcoins on a decectralized exchange where you’re interacting with a smart contract, you go right ahead! Are there like three people involved in that transaction, if that many? It’s like hanging out in your mom’s basement compared to tapping a keg at a high school house party.
That’s been the realization behind a growing movement in on-chain music that’s been called anti-scale. The tl;dr is fuck Spotify and the zillions of downloads needed to earn a musician a decent wage. Instead, it’s about going to your core audience, discovering how to use your flaws to appear human and thus engender community. And it’s about trying to speak to the new decentralized and disintermediating technology’s unique perks.
Our reporter MacEagon Voyce has done great work illuminating these on-chain music motifs, so let’s let him say it better than I ever could. Speaking about how NFTs can be customized in almost endless ways, known as composability, he wrote in the most recent The Beat newsletter, “Builders should be invoking that same composability, because our models and platforms and the ways in which we interact online require transformation. We can’t design decentralized, disintermediated systems and expect them to operate with the same economics.” (Subscribe to Keagon’s great newsletter.)
Maybe everyone looking for the moment web3 goes mainstream should be looking the other way. I honestly don’t see a path to mass adoption right now, there’s too much in the way. But for the passionate I do see powerful and successful projects that focus on small user groups. That could be a limited edition NFT drop from a famous digital artist or a band rewarding its most zealous fans with token gated access or intensely curated musicians on web3 music labels, that, like it or not, still need to make money. Small is beautiful, and for crypto maybe it’s the way. — Matthew Leising, editor in chief, Decential Media
What’s the definition of bald and shiny? dept.
Brian Armstrong’s Head Returns To The Spotlight
If you asked the big four consulting firms what is the best way to grow the user base or the best GTM strategy for a blockchain, the answers would be something along the lines of cool marketing events, a unique airdrop program, a holistic social media strategy or ecosystem developer relations and support.
It turns out the answer is quite different from that. The trick is to launch a token with the ticker $BALD, named after your chain’s CEO’s shiny head, add nearly $60M in liquidity, and then let the degens take over.
Sound a little too ridiculous for you? Well, that’s exactly what happened over the weekend with Coinbase’s L2, Base. An anonymous individual launched that exact token with the ticker $BALD, and if you got in early, you were up four million percent at one point. Yes, you read that right, 40,000x. No one knows who this mysterious individual is, but he’s the best GTM strategy the BASE team could have ever hoped for. It’s always funny when you think about crypto and what a unique culture and user base it currently has.
As a result of this token, bridge inflows quickly reached $50M, which is pretty impressive for a rollup that hasn’t even officially launched yet. The BASE sequencer made $700K profit in just three days, which equates to $85M annualized, not bad for one meme token. Imagine what this profit could look like when the chain officially launches. I don’t think tradfi analysts are pricing this in.
Of course, the story doesn’t end there. The token deployer then proceeded to remove his liquidity, causing the token to drop 99%. And then he added back some liquidity, resulting in an 8x off the lows. And then, the DEX that the token was deployed on was exploited. We don’t say this lightly, but that’s about as chaotic as it gets in crypto.
As Coinbase’s official L2, there have been some valid concerns around this event. It’s not exactly a great look to Gary Gensler if a public company’s blockchain is used extensively for launching memecoins and rugging “investors.” I’m sure there will be other official dApps that launch there, and eventually, there may even be some proper consumer products given Coinbase’s 110M verified users. But in the meantime, as basically the only public company out there with an L2, BASE will be under scrutiny both from regulators and crypto participants alike. — Joseph Cooper, Decential Media
Crypto charting
Here's a deeper look into the economics and mechanics of web3 and crypto courtesy of charts by Pyth Data Association. To see more Pyth research click here.
Key Trends in DeFi:
Synthetix ($SNX) and Kwenta were the leading derivatives (perps) volumes among DEXs. One point to note: both protocols are #PoweredByPyth on Optimism and the availability of low latency, reliable price feeds is instrumental to the growth of these protocols. (Source: DefiLlama)
Curve Liquidity Pools Hacked: $60 Million Loss and CRV Token Under Pressure
Several liquidity pools on Curve suffered a staggering hack, resulting in losses exceeding $60 million. Among the affected pools were three that contained tokens paired with Ethereum and Curve DAO's governance token, $CRV. As a consequence, the Pyth aggregate price of CRV experienced a sharp 30% decline, plummeting from approximately $0.74 to a low of $0.50. This drastic fall in value was exacerbated by widespread selling across both on- and off-chain platforms.
Apart from the hack, holders of the CRV token face another concerning issue. There are reports that Michael Egorov, the founder of Curve, has secured loans valued at approximately $100 million, with around 427.5 million CRV tokens as collateral (see Last but not least, below). The potential danger lies in the fact that if the price of CRV were to further dip, reaching around $0.37, it could trigger a liquidation event, prompting the loan to be called back and exerting further downward pressure on the token's price. This situation raises legitimate concerns for investors and the token's overall stability.
It was interesting to see two Move-based ecosystems slugging it out for Daily Price Updates from Pyth. We are very excited to see the maturing of DeFi in this new high throughput paradigm! Pyth is the only oracle to go live on both Aptos and Sui at launch and all 300+ low-latency price feeds are available for users on these blockchains.
Quick Bits
Lyra V2
Lyra, one of the most popular on-chain options protocols, is following in Aevo’s footsteps and launching its own rollup, built on the OP stack. Unlike Aevo, it will partially utilize its AMM liquidity pools to provide liquidity for the new exchange.
Lyra V2 will feature a decentralized margining and risk engine, along with an open-source order-matching engine. It remains to be seen what their strategy is to stand out amongst the likes of Aevo and Paradex.
Lido dual token governance
Lido token holders are currently pushing forward a discussion around a new governance model. In this new model, stETH holders will have the ability to veto any governance votes. However, they will not be able to vote on them.
This represents a new governance dynamic, as stETH holders are the real users of the protocol—sort of the difference between holding an iPhone and a share of Apple. However, it could be contentious for LDO holders as it decreases the “usefulness” of their token.
Beam
Onchain Venmo, it’s here. Beam is a simple self-custody P2P payments app, powered by account abstraction. You can send across multiple chains, save your wallet with a Twitter login, onboard instantly with a burner wallet, and send money via a link.
It utilizes a slew of new technology to improve the crypto UX, such as ERC-4337, burner signers, paymasters, and beam links. These are nascent technologies but very important for crypto’s eventual mass adoption.
And last but not least
Curve hack
That photo above is what Curve founder Michael Egorov bought by taking out a loan against CRV on various lending protocols such as AAVE and FraxLend. I’m not actually sure that is what he actually did with the money, but considering he borrowed nearly $100M, it’s highly likely. Why is this important? Over the weekend, Curve got exploited through a reentrancy attack, and more than $50M was extracted from various Curve pools. Obviously, a protocol getting exploited is pretty bad for the token price, especially if one of the exploited liquidity pools is the main liquidity pool for the protocol’s native token (CRV/ETH). As of right now, the exploit has more or less come to an end, although no one is really sure who the funds lie with, whether it’s blackhats, whitehats, or MEV bots.
Here’s where it gets slightly messy. As part of borrowing that $100M, Mich provided over 400M in CRV as collateral. Given current prices, that’s roughly $300M. Here’s the problem. If a borrower’s loan decreases below a certain health ratio, it gets liquidated. Liquidators will come in, repay the loan, and likely sell off the collateral to make a small profit. However, in CRV’s case, the token doesn’t have a huge amount of liquidity left onchain. In fact, if you sell $1M onchain right now, you get a slippage of 85.48%. If you sell $100M, you get a slippage of 99.18%. It suffices to say that liquidating this position is impossible, and if this position waattempted to be liquidated, these lending protocols would be left with a humungous amount of bad debt. In addition, given the number of protocols that use Curve to drive liquidity for their tokens, and the pivotal role that Curve plays across the DeFi ecosystem, the token going to quite literally $0 would have disastrous consequences. At the end of the day, we should have never really been in this position, and it just goes to show how important risk management, especially on a protocol level is and how widely interconnected DeFi is. — JC
Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.