Binance's $1B Plan Fizzles Out
Lessons From 300+ Deals | Bitcoin Smart Contracts
Marco Manoppo & Karon Pangestu
October 11, 2023
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Good Morning,
Caroline Ellison has started her testimony. The courtroom was apparently packed, given that she was also SBF’s girlfriend, not just a lieutenant.
Fun fact, SBF also gave $400M to fund Modulo Capital, a crypto quant hedge fund (yes, an Alameda competitor), ran by *wait for it* another woman she dated named Xiaoyun Lily Zhang.
Come on.
In Today's Email:
What Matters: Binance $1B plan? đź’
Case Study: Lessons from 300+ deals đź“ť
Governance & Features: Morpho Blue lending 🤝
Narratives: Still nothing. Market is still trending downside without a clear pattern yet. Maybe you can try and short tokens with massive unlock in October.
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WHAT MATTERS
Binance Only Deploys $30M Out of $1 Billion
State of play: Binance's post-FTX Industry Recovery Initiative (IRI) raised more than $1B but only deployed less than $30M so far.
Binance allocated $1B in BUSD to IRI, with firms like Jump Crypto, DWF Labs, Animoca Brands, Aptos Labs, GSR, Kronos Research, Booker Group, and Polygon Labs contributing an additional $70M.
Only Aptos Labs fully invested their pledged funds out of the nine publicly named participants.
Binance itself only spent $15M, with $985M reallocated back to Binance’s treasury.
A Binance spokesperson told Bloomberg that the IRI financed 14 projects but declined to name them or disclose the received amounts.
IRI’s only public investment was a $15M investment in the South Korean exchange GOPAX.
Dana Hou of Binance Labs stated the limited number of projects meeting the IRI participants' criteria explains the low fund deployment.
Why it matters: This shows that although investors have dry power, they’re much more careful with the deployment process.
For builders and investors: Diligence, audit, and proper governance structure are to be set in stone first, unlike back in the peak of the bull market when SAFTs were signed on an hourly basis.
CASE STUDY
Five Insights on Crypto Fund Investing
Credit to @bennypjacobs for the original tweet.
State of play: Through Scenius Capital, Ben Jacobs has invested in 12 crypto funds and conducted diligence on over 300 blockchain venture funds and liquid token hedge funds.
Here are his key insights on crypto fund investing:
Crypto venture capital funds should also adeptly trade and mitigate risks like hedge funds.
LPs should cautiously approach funds raising excess capital for capacity-constrained strategies.
Large AUM VCs in early stages likely yield beta returns. Market-neutral/arb hedge funds, previously dependent on retail participation, struggle to generate returns due to current market conditions.
Long-biased hedge funds face challenges with high water marks and performance, while market-neutral funds are closing due to alpha decay and lack of investor interest.
Venture capitals that deployed rapidly in 2021-2022 will struggle to raise future funds due to minimal returns.
Fund structure matters as crypto is a unique asset that combines both venture and liquid strategies. Both GPs AND LPs need to understand how these structures benefit them.
The current state of the market is reminiscent of 2018-2019, where the risk-to-return potential is the highest.
What’s next: Raising and deploying capital in crypto as of this moment is non-consensus.
It’s extremely tough to do, but the investors that manage to do so will have the highest potential return.
Our take: Another important crypto investing takeaway is cap table management between the equity holders and token holders.
Without a clear structure, conflicts of interest will arise as it’s unclear where value will accrue to.
Take a peek at our referral reward at the bottom of this issue. Share this newsletter and receive our list of 100 smart crypto investors' wallet addresses 👇
INSIGHTS
BitVM: Bitcoin Smart Contracts Without Forking
ZeroSync co-founder Robin Linus has released a whitepaper for BitVM, designed to improve Bitcoin smart contract capabilities without needing a soft fork upgrade to the network’s consensus rules.
Reviewer Sam Parker notes that with BitVM, Bitcoin can achieve Turing completeness like other chains, allowing it to perform any computation with sufficient time and resources.
BitVM's potential applications include gaming, verifying validity proofs in Bitcoin contracts, bridging Bitcoin to other chains, building prediction markets, and emulating novel smart contract operations.
BitVM enhances Bitcoin's smart contract functionality by verifying off-chain computations, similar to optimistic rollups, using fraud proofs and the Taproot upgrade.
Why it matters: Bitcoin needs to discover a new economic model to maintain its network security with every single halving.
Without a significant price appreciation per BTC (a factor that can’t be controlled), miners’ income will decrease every four years. BitVM can be a starting point for Bitcoin to address this problem.
FEATURES & GOVERNANCE UPDATE
Morpho Labs Launches Morpho Blue
Morpho Labs launches Morpho Blue, a trustless lending primitive that will serve as a new base layer for decentralized lending.
Morpho Blue facilitates the creation of isolated lending markets, allowing the specification of loan assets, collateral assets, liquidation LTV (LLTV), oracles, and interest rate models.
Simply put, Morpoh Blue aims to reduce the protocol’s reliance on DAO participants to manage risk parameters such as LTV ratio.
Morpho Blue will adopt a strategy of isolating markets via individual asset vaults.
Why it matters: Figuring out new primitives to make DeFi lending more capital efficient might look “boring”, but it’s a key unlock to ensure the advancement of DeFi.
Other notable feature updates:
QUICK BITES
Ripple CFO exits the company.
Caroline Ellison started her testimony.
Paul Tudor Jones backs Bitcoin and Gold.
Bitstamp will end Canadian services in January.
Huobi, KuCoin added to UK FCA’s warning list.
WOO Network buys back shares from bankrupt 3AC.
Bitfinex offers $150M share buyback to hack victims.
SBF seeks to problem lawyers’ involvement in $200M loans.
JPMorgan launches blockchain-based settlement application.
Binance introduces a copy trading feature for futures markets.
Sam Altman said that the US Government is waging war on crypto.
Deribit to list XRP, SOL, and MATIC options; seeks a license in the EU.
NOTEWORTHY READS & MEME
Sam Bankman-Fried included this photo with Caroline Ellison in a document he sent me, noting that she “was wicked smart,” but “deeply insecure.” CAROLINE TESTIFIES AGAINST SBF IN COURT THIS WEEK.
— Tiffany Fong (@TiffanyFong_)
2:47 AM • Oct 10, 2023
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