$1000 Trillion TradFi Market Comes to DeFi

Plus: DCG trouble update, BTC drops below 200 WMA

Happy Monday, folks 👋🏻 GM. Let’s start the week right. The market is slightly up with BTC and ETH breaking $17,000 and $1,300 respectively. Although many are suspicious of this rally 🤔— after all, there’s a lot of uncertainties still waiting to be flushed (read: DCG).

That said, BTC volatility is at an all-time low. Maybe let’s put some chips on the table? 🎰

In Today's Email:

  • What Matters: DCG investigated by US authorities 🏛️

  • Products: Voltz Labs, a DEX for interest rate swaps 💱

  • Charts: BTC fell below 200 WMA, 2023 crypto outlook trends 📉

WHAT MATTERS

DCG Investigated by US Authorities

State of play: The trouble at Digital Currency Group (DCG) continues. Over the weekend, we learned that US authorities, specifically the DOJ and SEC, is investigating DCG over internal transfers. Currently, there’s no official indictment against DCG, nor do we have further details from the US authorities. DCG also would not confirm the existence of any investigation.

The internal transfers in question are dealings between DCG’s own companies:

  • Genesis, DCG’s prime brokerage and crypto lending firm suffered heavy losses from 3 Arrows Capital’s bankruptcy.

  • DCG received $575M in loans from Genesis.

  • DCG also owes Genesis $1.1 billion in promissory notes (due in 2032) as it assumes Genesis’ liabilities over 3 Arrows Capital.

However, this $1.1 billion might be the weak link that can bring the entire DCG empire to its knees. In essence, if creditors such as Gemini (which Genesis owed $900M to) can force Genesis into chapter 11, DCG might also be dragged into it because of the nature of this promissory notes.

What’s next: It’s a waiting game. There are a lot that needs to play out to see how this will impact DCG. Technically, the $1.1B loan is legally not callable, but Genesis might have misrepresented the value, which opens up other possibilities in this legal battle.

Our take: The selling pressure that DCG will cause on the broader crypto market will depend on the outcome of this $1.1B loan. Pay close attention this week. Genesis deadline for the $900M that it owes Gemini Earn was January 8. Further action from Gemini, as well as other creditors, will determine the fate of the crypto market in the first half of 2023.

For builders: Contagion hasn’t stopped. Be prudent with your runway capital and try to reach profitability or breakeven ASAP. The only caveat is if you’re confident in your fundraising opportunity, or if you got daddy’s money. Operate like an indiepreneur.

For investors: Valuation for early stage companies are already down but it seems that we’ve a bit more room to go. A lot of liquid tokens prices are under their recent fundraising rounds, which potentially presents an opportunity for active investors. This is especially true in mature DeFi protocols with a properly functioning DAO governance.

PRODUCTS OF THE WEEK

Voltz Labs: AMM for Interest Rate Swaps

What is Voltz Labs: Voltz Labs is an automated market maker (AMM) for interest rate swaps. Basically, its a DEX that allows you to trade different sources of yield. Sounds complex?

Think about it as a way to “trade” your risks. You have a stable asset, but you want to take on more risks, or you have a risky asset, but you want a stable exposure. This is the market you go to without actually selling your assets 💸 — thus far, Voltz has done $4.5 billion in notional volume.

In TradFi, $1000 trillion in interest rate swaps is traded every year 🤯 — Voltz’s interest rate market unlocks enormous DeFi opportunities. Traders can better manage their risks, liquidity providers can deploy new strategies, and developer can build new products on top.

There are three components of the Voltz protocol ⚖️

  • Fix Takers: Users that swap variable rates for fixes rates of return. The users has an asset with a variable rate of return but wants to lock on their return for a certain amount of time.

  • Liquidity Providers: LPs provides the liquidity necessary to facilitate the trading activities between fix and variable takers. Voltz uses the concept of concentrated liquidity, which was pioneered by Uniswap v3. LPs receive fees from trading activities.

  • Variable Takers: Users that swap fixed rates for variable rates of return. The user is essentially taking on leverage, profiting handsomely if the rate increases and losing money if the rate decreases.

Other cool products:

  • Poof Payments, a web3 infrastructure for crypto and fiat movements.

  • ZokshPay, a web3 payments infrastructure layer.

  • CheapNFTart, an AI-generated NFT platform.

  • Cookbook, a one stop shop for all solidity contracts.

  • Enzyme, a smart contract marketplace.

  • LokiCode, a smart contract development platform.

  • Owl Link, a bio link that stays forever.

  • W3Design, a design pattern library of web3 products.

  • Multis, a web3 bank for web3 builders.

  • HEBRYS, a comprehensive NFT platform.

CHARTS OF THE WEEK

Bitcoin Drops Below Historic Price Floors

For the past five years, there’s a mantra that technical analysts have been spewing: buy when BTC price hits its 200 week moving average (WMA). This worked wonders. If you’ve done it for the past half-decade, you would’ve made millions. Moving forward, it might no longer be the case. For the first time since 2015, BTC closes below its 200 WMA consecutively for a few weeks.

Our take: In terms of price action, we’re in unknown territory ⚠️ — technical analysis has historically worked to an extend in the crypto market because many crypto assets are trading solely based on supply-demand, similar to commodities. We’re now in a different macroeconomic environment for the first time in more than a decade, destroying demand for BTC (and other risk-on assets) in the process. It’s better to let the price action plays out further.

To watch: Bitcoin needs to reclaim and hold above the $21,000 level before we can even entertain any possibility of a price reversal. The father of the crypto market is also highly correlated with macro assets, so it’s crucial to pay attention to Gold, NASDAQ, SPY, and DXY.

2023 Crypto Outlook Trends

In the past month, many entities both TradFi and crypto-native have published their 2023 outlook. In the chart above, we can see that everybody agrees on more regulation and asset tokenization. It’s interesting to see that the TradFi entities are much more bullish in calling the market bottom 🐂

State of Play: Oh the irony. We can clearly see the distinction in the chart above. TradFi entities commented more on the FTX contagion and Grayscale’s situation while crypto entities preach ZK-adoption, web3 gaming, and institutionalized DeFi. This clearly means that both parties have a clear bias. The truth is often somewhere in the middle 🤷

Our take: TradFi entities don’t have the obligation to predict crypto-native developments. It’s not surprising that they don’t cover web3 gaming or ZK adoption, but we think that they’re overlooking 3rd world adoption. The importance of emerging markets contribution towards crypto given the regulatory uncertainties in the US is unprecedented. It will take a whole essay to explain this. Which we might one day write ;)

QUICK BITES

  • Digital Currency Group investigated by US authorities (EDYN, SEC).

  • US authorities asked hedge funds about Binance.

  • Wyre limits withdrawals to 90% of funds.

  • US trustee objects FTX’s planned sales of LedgerX.

  • Justin Sun moves $100M to Huobi.

  • FTX leadership-Bahamas liquidators resolve most of their issues.

  • Mt.Gox pushed repayments timeline by 2 months.

  • US officials encouraged FTX fraud victims to come forward.

  • Kevin Rose signs with Hollywood’s UTA.

  • SuperRare cuts 30% of staff.

  • MEXC launched a crypto-card with Mastercard.

MEME & NOTEWORTHY READS

  • BitMEX’s report on crypto lending markets.

  • Mario Gabriele’s article on The Generalist 2023 predictions.

  • Dirty Bubble Media’s article on the Binance Scam Chain.

If you enjoy reading this issue, please consider subscribing. It takes 1 minute of your time but it would mean the world to us 🙇

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.