Manipulate the Market With This One Simple Trick

Uniswap interface fee switch | Binance.US ToS change | dYdX public benefit corporation

Author

Decential Media
October 20, 2023

Decential Media
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:

  • BTC spot ETF fake news

  • Binance.US terms of service change

  • dYdX public benefit corporation

  • Lido sunsetting on Solana

  • Uniswap interface fee switch

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The Latest

Cointelegraph owns it’s BTC ETF blunder

All journalists make mistakes, it just so happens that a reporter’s blunder is usually done in public. It’s a terrible feeling to have a mistake in print because it means the checks and balances to ensure your reporting is accurate failed. There are minor mistakes like misspelling a name – I remember an early correction I had at Bloomberg News after I called the CFTC the Commodities Futures Trading Commission (it’s Commodity, singular) – or mixing up million and billion. Then there are bigger problems like misquoting a source or failing to get all sides to a story (hello, Michael Lewis!)

The crypto news source Cointelegraph had a bit of a doozy this week. This was in a different category, the one where wanting to be first to report something becomes more important than getting the story right. The publication put out a Tweet saying that the Securities and Exchange Commission had approved the first spot Bitcoin exchange-traded fund. Except it hadn’t. That didn’t stop Bitcoin from popping 7.5 percent on the fake news before retreating to its previous value.

The way Cointelegraph gathered its “scoop” is the most troubling part of this. A Telegram channel monitored by various crypto reporters posted an erroneous claim that the SEC approval had been granted. Cointelegraph’s social media team picked up on it and put it on Twitter without vetting it. Let me just say it as plainly as I can: an anonymous single source posting in an online forum is not something you base headlines on. That’s cause to get on the phone with the SEC press office, not to push send on a tweet.

I wanted to be more upset about this than I am, but the way Cointelegraph handled the situation is admirable. They quickly edited the tweet and posted a thorough examination of how the mistake was made. A boon for transparency. I can guarantee you The New York Times would never have done this, so Cointelegraph should be applauded for owning its blunder. I do take exception to their seeming separation of social media from reported work – there’s no distinction there anymore, as one of the Twitter hellscape’s remaining appeals is that news breaks on it on a regular basis. And be assured that “Employee 2,” as Cointelegraph labeled the poor bastard who made that mistake, has learned the value of getting it right before getting it first. – Matthew Leising, editor in chief, Decential Media

Fake news dept.

BTC fake out

If you’re wondering what that massive 7.5% god candle and subsequent retrace in the middle of the chart is, it’s simply the market thinking that a spot BTC ETF was approved based on a tweet from one of those Twitter news alert accounts that was further corroborated by Cointelegraph. I won’t harp on the complete media failure here, as we’ve already done that in the previous section. However, you could partially blame the market here too, which traded 7% on one tweet with zero sources.

The market is evidently ready for a spot BTC ETF. I imagine it would react similarly if the spot BTC ETF was actually approved by the SEC. However, I imagine traders would probably double-check the news headline the next time. Even the SEC themselves say, “Careful what you read on the Internet. The best source of information about the SEC is the SEC.” 

But if everyone was truly ready and already pricing in a spot BTC ETF approval, why did the market get caught so offside? Monday’s market move indicated how out of position the market may be for the actual announcement. If I put my mid-curve trader hat on, this unverified rumor resulted in a 7.5% pop. You would then think, when the verified news is announced, that might result in a 10+% pop, and you don’t want to be sidelined again going into that. So perhaps, to not get caught off-guard again, you slowly start accumulating BTC, which gets priced in through BTC price appreciation.

Given how the event played out, one could also reasonably expect that similar price action would occur if a spot ETH ETF were confirmed. My gut feeling is that a spot ETH ETF approval would result in a larger move than a spot BTC ETF approval due to its smaller market cap and how much institutional interest there has been in Ethereum.

One of the core tenets of a spot ETF approval is that the SEC doesn’t want the underlying asset to be manipulatable. We’ve tried to give them the data showing we have x amount of volume, y amount of liquidity, and price differences between exchanges are only z, which is all fair. But I don’t think the market trading up 7.5% off a single unverified tweet is helping our case here. If anything, we’re only proving that the spot market is manipulatable. It’s as simple as dropping a lead in a telegram channel where media company employees discover stories. — Joseph Cooper, Decential Media

Quick Bits

Binance.US terms of service change

  • In an update to its terms of service, Binance.US removed the language that stated that the FDIC insured deposits. In addition, Binance.US users may only withdraw from the exchange through stablecoins or other digital assets.

  • Binance.US continues to struggle, and the business is all but dead. On the other hand, Coinbase continues to grow with its L2, Base, and its new perpetual offerings with regulatory approval from the Bermuda Monetary Authority and its futures offering that just went live.

dYdX becomes a public benefit corporation

  • dYdX, one of the largest perps trading protocols, has updated its charter to become a Public Benefit Corporation. dYdX founder Antonio stated that they will not operate or generate trading fee revenue from dYdX V4. However, the company will remain for profit. This doesn’t add up to me, but ok.

  • The new charter states that the public benefit will be in building and supporting entities that will facilitate economic or technological advancement of the global community, including the democratization of access to financial opportunity. It reads like a word salad and is probably more social signaling than anything.

Lido sunsetting on Solana

  • After a governance vote, Lido, Ethereum’s largest liquid staking provider, has voted to sunset its operations on Solana. The reasons cited included high development and support costs.

  • Lido is also proposing to sunset its operations on Polygon, and it would appear as if Lido is solely focusing its operations on Ethereum, which is probably a smart move considering the network effects at play for liquid staking tokens.

And last but not least

Uniswap interface fee switch

On Monday, Uniswap’s founder, Hayden Adams, announced an interface fee switch for Uniswap. The fee switch, which went live on Tuesday, introduced a 0.15% fee for swaps originating from Uniswap frontends for tokens such as ETH, WETH, WBTC, USDC, and USDT. This means that if you’re swapping between any of these tokens, excluding stable to stable swaps, you would be paying an extra 0.15% on top of the existing swap fee. If you wanted an estimate of how much Uniswap’s trade volume is routed through its various front ends, including its web app and mobile wallet, an old Alastor report had the figure at roughly 13%. Had an interface fee switch been implemented, Uniswap Labs would have earned as much as $33.1M so far this year, according to Blockworks Research. This is undoubtedly a significant sum of money for Uniswap Labs.

Uniswap Labs estimates that users are willing to pay 0.15% for the convenience of typing in app.uniswap.org in their browser and using its interface. One would expect that a normal trader would use whichever platform gives the best price execution, and in DeFi, that superior execution undoubtedly comes from aggregators that source liquidity across multiple DEXs. The fact that 13% of Uniswap users still use Uniswap’s official front end despite strictly worse price execution means there’s a convenience factor and users are not as fee/price sensitive as some may believe.

There are a bunch of other factors to consider here. For one, why does Uniswap Labs need to fund itself through an interface fee switch? They previously raised $165M in October 2022, which surely can’t have run out that fast after a year. However, it’s important to note that to date, Uniswap Labs has made exactly $0 from the Uniswap protocol (unless they’ve secretly been selling your order flow), which means it is vastly unprofitable as a company. Ideally, as an investor, you want the company you invest in to be profitable, and so an interface fee switch may be a viable long-term path to achieve that. Note that I said investor. For most protocols, there are two types of investments one can make. In Uniswap’s case, if you invested in equity, you would hold shares in Uniswap Labs. However, if you invested in the UNI token, you would hold shares of a governance token with control over Uniswap DAO. However, Uniswap DAO has no ownership over IP, the domain, licenses, and the protocol other than a protocol fee switch that nobody has managed to turn on thus far. More often than not, value accrual is a zero-sum game. The same dollar of revenue can either go to token holders or equity investors, not both. Perhaps a token + equity dual structure was a mistake. Just make tokens programmable equity. — JC

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.