$1.8B Curve Risks & Michael Egorov's Debt

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Happy humpday 🐪

Somebody hacked the SEC’s Twitter (X) account, causing some liquidations because of a fake spot Bitcoin ETF approval tweet. The actual approval should happen today, with many predicting trading starts tomorrow.

This might be it, folks. 10 years in the making.

In Today's Email:

• What Matters: Curve’s rocky future 💸 

• Case Study: $100B inflows in 2024 📈 

• Governance & Features: SNX buyback & burn 🔥 

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WHAT MATTERS

Micahel Egorov Debt and Curve’s Future

Credit to @DeFi_Made_Here for the original thread.

State of play: The Curve ecosystem is facing challenges due to the rising debt of its founder, Michael Egorov, which now amounts to $1.7M monthly.

Additionally, an agreement to hold CRV with buyers in an OTC deal involving 231.6M $CRV is set to expire in February.

• Egorov held about half of $CRV's supply in August but couldn't sell due to low liquidity.

• After a Curve exploit and $CRV price drop, he was near liquidation and unable to keep repayment promises, leading to a liquidity crisis.

• Egorov tried to stabilize the situation by introducing a new Curve pool and selling $CRV OTC at a discount, temporarily calming the market.

However, lending protocols became cautious of $CRV exposure. After borrowing $62M in August, Egorov borrowed a further $75M in October.

• Egorov then borrowed $75M from Silo ($46.5M), Fraxlend ($15.1M), and others ($13.4M). The interest rates are as high as 30% (18.5M/year).

• To keep the borrowing rate lower and bring more liquidity, Egorov is incentivizing and bribing the Silo pool through Pendle.

• @0xSifu is a major liquidity provider to Egorov in Pendle and he is shorting $CRV, potentially putting more pressure on the price, Egorov, and lenders.

Why it matters: Curve is one of the most important DeFi building blocks, powering the movements of stablecoin transfer throughout the majority of the EVM-compatible ecosystem.

• A rocky future for Curve means a rocky future for stablecoin “stability” in DeFi.

For builders and investors: Be very careful about altcoins’ liquidity.

• There are many savvy financial engineering that can be done to tap into more liquidity, but there’s no such thing as a free lunch.

• Risks are usually transferred, and rarely removed.

CASE STUDY

$50-100B Bitcoin ETFs Inflows in 2024

State of play: Standard Chartered forecasts that, upon approval, spot bitcoin ETFs could draw between $50B to $100B in inflows in 2024.

• Standard Chartered likened the anticipated debut of spot bitcoin ETFs to the transformative impact of gold ETFs on investor access to the gold market.

• Comparing bitcoin's current $0.86T market cap to gold's $2.2T at GLD's 2004 launch, the bank forecasts a potential low inflow of $34B for bitcoin ETFs, with a high estimate reaching $130B.

• VanEck predicts $1B inflows in initial days and $2.4B in a quarter, Galaxy foresees $14B in the first year, and Bitwise projects a $72B market size within five years for bitcoin ETFs.

Standard Chartered also predicts that the price of bitcoin could rise to $200,000 by the end of 2025.

Several companies have also applied for spot Ethereum ETFs, with Standard Chartered anticipating approval in this year's second quarter.

• Standard Chartered suggests that studying gold and silver price trends around their ETF launches offers insights for Bitcoin and Ether.

• Gold prices rose post-ETF due to actual inflows, while silver, with a less liquid market, surged pre-ETF on expected inflows but later lost momentum post-launch.

• Standard Chartered noted that silver ETF flows are more volatile than gold's and comprise a larger share of annual flows.

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INSIGHTS

Top Crypto ETPs by AUM

Credit to 1kx and Diana Biggs for the original piece.

The combined AUM of the top 14 crypto ETPs is $9.5B, as shown in the table above. 9 of the top 14 crypto ETPs by assets are bitcoin trackers, 3 ETH, 1 SOL trackers, and 1 BNB trackers.

• The ProShares Bitcoin Strategy ETF, based in the US, is the largest crypto ETP with $1.68B in assets as of January 2, 2024.

• Four of the top 14 ETPs are ETFs (three spots and one futures), while eight ETPs are physical and two are synthetic.

• Among the 14 products, four are Swiss (21Shares), three Canadian, and two Jersey-based, with single entities in Germany, the US, and Liechtenstein.

FEATURES & GOVERNANCE UPDATE

SNX Buyback and Burn

The Andromeda Release in Synthetix features Core V3, Perps V3, USDC collateral, expansion to Base, and a buyback and burn mechanism for SNX tokens using Perps fees on Base as outlined in SIP-345.

• 40% of Base fees are allocated for SNX buyback and burn, executed through a Yearn-inspired contract.

• Andromeda Fee Allocation on Base: 20% to partners, 40% to LPs, and 40% for SNX Buyback and Burn.

• The buyback and burn strategy aims to decrease the overall SNX token supply.

Why it matters: Buyback and burn is a tried and true strategy to reduce token supply and potentially increase the underlying asset’s price.

SNX can do this because it’s a mature DeFi protocol that has largely found PMF relative to its competitors.

Other notable feature updates:

• Passage launches on Arbitrum.

• Goldstation goes live on Klaytn.

• Perennial launches Power perpetual.

• Parallel mainnet opens for developers.

QUICK BITES

• GBTC discount drops to 2021 levels.

• Bitwise tops the Bitcoin ETF low-fee table.

• Apple pulls crypto apps from India App Store.

• Nomura launches Libre tokenization protocol.

• Upbit Singapore wins a full license from MAS.

• Blockchain Association responds to Sen. Warren.

• 10 HK Assets Managers explore spot crypto ETFs.

• PayPal Stablecoin deployment on Aave sought by Paxos.

• Fox Corporation partners with Polygon Labs to verify media IP.

• CFTC advances recommendations urging a timely focus on DeFi.

• SEC’s X Account hacked; hacker posted fake Bitcoin ETF approval.

• Standard Chartered predicts $50-100B inflows for spot Bitcoin ETFs.

• Gensler issues crypto warning (again) ahead of Bitcoin ETF decision.

NOTEWORTHY READS & MEME

• Wei Dai’s read on trust minimization and horizontal scaling.

• Amanda Young’s read on consumer crypto’s breakout cycle.

• Rain&Coffee’s read on the cross-domain thesis part 3.1: ordering.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.