⚠️ Lido’s $13 Billion Risks.. Is it Justified?
BTC Block Fullness | Sequoia-Backed Crypto Search
Marco Manoppo & Karon Pangestu
June 05, 2023
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Good Morning,
This is one of the slowest crypto market periods I’ve ever seen. The total crypto market cap remains stagnant at ~$1.1 trillion. Maybe it’s a blessing in disguise. Let’s put our heads down and continue building.
In Today's Email:
What Matters: Lido ETH staking dominance risks ⚠️
Products: Kaito, crypto AI search engine 🤖
Charts: BTC block fullness, memecoin volume hit ATH 📈
Narratives: Lookout for shorts narrative as events-based market movements approach key dates e.g. XRP decisions, RNDR apple metaverse.
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WHAT MATTERS
Lido’s ETH Staking Supremacy Risks
State of play: Lido is the DeFi’s largest protocol by TVL. It has $13 billion+ in staked ETH (6% of all ETH in existence), controlling more than 70% of the liquid staking market.
Discussion on whether Lido should self-limit its dominance has risen (again).
Vitalik suggested that no entity should control more than 15% of all validators.
Lido has ~116,000 depositors but only 54 node operators. This means that 30% of all PoS validators are controlled by these 54 entities.
32% of all validators are using Lido — if a single entity surpasses critical consensus thresholds, it can be used for added value extraction, block-timing manipulation, or censorship.
Since Lido can extract more value from the network they are able to give better rewards to stakers. Thus, stakers would be discouraged to stake somewhere else.
What’s next: Unsurprisingly, LDO tokenholders voted not to impose any self-limitation for the protocol.
interesting opinion
unfortunately, the opinion of people that dont hold any LDO are irrelevant
snapshot.org/#/lido-snapsho…
— 찌 G 跻 じ MBA, CFA, FRM, CFP, NGMI, HFSP, HENTAI 🛡️ (@DegenSpartan)
10:17 PM • May 31, 2023
According to @superphiz, when stake pools control more than 33% of validators (Lido currently controls 32%), it is considered an attack, and protocol developers should engage.
This is a correction to my previous interpretation, @VitalikButerin is asking pools to self limit to 15%, community action begins at 22%.
15% - pools throttle/ stop accepting deposits
22% - the community will take action
33% - is an attack and protocol devs engage— superphiz.eth 🦇🔊🛡️ (@superphiz)
2:13 PM • May 14, 2022
Our take: There are multiple market forces at play. To “limit” Lido, it is important for competitors to gain market share with a better product.
They need to offer a higher yield and more rehypothecation use cases.
“Safer and more decentralized” isn’t a real product for the majority of users.
For builders and investors: Nothing that will affect you directly unless you’re building a product on ETH staking or infrastructure layer.
Understand design optimization and what can be achieved by vertically integrating and using cross-protocol functionality.
Look at what Frax Finance is doing with its fxsETH liquid staking token and CVX gauge voting.
A mouthful, I know — tl;dr be creative and use cross-protocol composability.
But design optimization will almost always include more centralization for higher yields or reduce the fee.
Or you can be smart like Frax.
Combine other factors such as CVX gauge voting, and vertically integrate frxETH across the Frax’s ecosystem
— Marco Manoppo (@ManoppoMarco)
10:30 AM • Jun 1, 2023
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PRODUCTS OF THE WEEK
Kaito, AI-Powered On-chain Search Engine
AI-Powered on-chain search. Kaito is an on-chain search engine that utilizes AI to transform unstructured information into actionable insights for the crypto community.
Kaito aims to enable users to search across the entire social crypto landscape — aggregating sporadic information across various platforms such as Twitter, Discord, governance forums, and podcasts.
Kaito raised a $5.3M seed round in February 2023. Notable investors include Sequoia China, Jane Street, and Dragonfly Capital.
Kaito’s current product is only for institutional clients, with a retail version coming soon.
Other cool products:
Charmverse, a web3 communities manager.
UniLend Finance, a permissionless lending & borrowing protocol.
Nimbus, a personalized Web3 portfolio tool.
Dinara, a crypto-native banking platform for startups and VCs.
Builda, a Web3 project discovery platform.
CHARTS OF THE WEEK
Bitcoin Block Fullness and Market Tops
State of play: Bitcoin block fullness is shown to have a connection with crypto market tops.
Data shows that the block fullness has now reached the January 2021 level where the price of BTC dropped from ~$60,000 to ~$30,000.
Our take: The introduction of BRC-20 might have changed the dynamics of Bitcoin’s block fullness, as this time most of the blocks are filled with inscriptions rather than actual BTC transactions.
Memecoin Trading Volume Hit ATH
State of Play: Memecoin trading volume on DEXs hit an ATH in May 2023. Approximately 23% of trading volumes come from memecoin.
At its peak on May 5th, the percentage of memecoin volume across DEXs rose to 43%, which was primarily driven by PEPE.
Our take: A tale as old as time. Those selling shovels during a gold rush will always make money.
QUICK BITES
Binance hints at potential Zhao’s heir.
Coinbase debuts Institutional Bitcoin and Ethereum Futures.
Atomic Wallet is experiencing an exploit, $35M and counting.
US Draft Bill could set out crypto status to commodity.
Do Kwon got his bail approved by Montenegro.
JPM and 6 Indian Banks to settle Dollar trades on Onyx blockchain.
FTX Debtors object to Genesis's claims estimate of $0.
3AC claims over $1B against Genesis.
Russia's Rosbank to use crypto for cross-border transactions.
Lamina1, HTC, & Qualcomm to build open Metaverse
MEME & NOTEWORTHY READS
College textbooks were the best inflation hedge asset all along
— Trung Phan (@TrungTPhan)
10:06 PM • Jun 4, 2023
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