Rethinking Stablecoins & DeFi 💸

GM, folks 👋🏻 - Happy Monday.

What a weekend. "Black swan" is an understatement. 🤞 Fingers crossed that all who are impacted will receive clarity by EOD today. Let's get straight into today's issue 👇

In Today's Email:

• What Matters: USDC, bank runs, and stablecoins situation 💵

• Products: Meow, modern corporate treasury management 🐱

• Charts: DEX volume reached $25B, Bitcoin Ordinals growth 📈

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WHAT MATTERS

Stablecoin Stress Test

State of play: Over the weekend, Silicon Valley Bank (SVB) collapses. 50%+ of US-based VC-backed startups bank with SVB, including crypto stablecoin issuers, Circle. As a result, USDC de-pegged, hitting a low of $0.88, before recovering.

• Circle has $3.3B with SVB, out of its $40B in reserves.

• The US Government has since communicated that SVB depositors will be protected.

• Two other crypto-friendly banks, Signature and Silvergate, have also collapsed.

What’s next: Circle USDC withdrawals process will start today (Monday). There are reports saying SVB wires before 8 am PST last Friday will be honored. Circle's wire on Thursday should be processed.

• However, a significant amount of trust has been lost. If the floodgates are strong enough, Circle might end up being forced to halt withdrawals. The firm currently has ~$11B in Cash across 6 banks, of which 3 have failed.

Our take: This is not an extinction-level event for Circle. While there might be market panic, Circle is still invested in predominant 3-month US Treasury Bills, which is one of the most liquid markets in the whole world.

It might take some time, but everything will be fine.

• However, the de-pegging event will impact many DeFi protocols as they realize that all liquidity is correlated - and that perhaps, it might be a good time to re-think the entire DeFi infrastructure, further reducing dependencies on centralized stablecoins.

For builders: Make sure you know counterparty risks and implement numerous efforts to keep your treasury balance safe. This means banking with multiple providers, a combination of on-chain and off-chain solutions, and establishing payroll and custody solutions outside of the US, or whoever your team predominantly resides with.

For investors: Crypto is truly an interdisciplinary field. Times and times again we've seen tech-focused founders or investors in crypto get destroyed by financial incidents (duration mismatch), and finance-focused founders by technical incidents (exploits). Have both expertise on your team.

PRODUCTS OF THE WEEK

Meow: Corporate Treasury Management 🐱

What is Meow: Meow is a platform that offers regulated corporate treasury management, in both crypto and traditional markets. Meow banks with BNY Mellon Pershing, one of the oldest US banks with $2 trillion+ in assets.

• Meow raised $22M in Series A on July 2022.

• There’s no withdrawal, platform, or wiring fees. Users can participate in US Treasury Bills with auto-rolling feature. Meow has seen $1B+ in appetite amongst business for its US Treasury product.

• How it works. Users simply create an account with Meow in under 10 minutes. No paperwork, no commitment. The entire process is designed to be modern, and technology-first.

With the ongoing SVB issue, Meow is poised to take on more customers.

Other cool products:

• XMTP, a web3 open messaging protocol.

• NUVO, an open engagement & reputation framework for dApps.

• TrelisPay, a web3 recurring payments tool.

• OpenPool, a web3 wallet tracker.

• TigerTrade, a crypto futures trading platform.

• Awaken Tax, a web3 software tax tool.

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CHARTS OF THE WEEK

DEX Volume Reached $25B 🤯

The stablecoin panic fueled by TradFi bank runs over the weekend sparked massive volumes for DEXs as market participants hedge their risks, or rush to the exit. Collectively, DEXs reported $25B in 24h trading volume, the highest thus far in 2023 📈

Our take: Liquidity is correlated. When everybody rushes to the door, crypto gets sold first because its has zero friction. Over the weekend, smart contracts-based infrastructures worked fine under exceptional stress, with Uniswap and Curve contributed $21B+ in 24h trading volume.

To watch: Pay attention to how stablecoin dynamics will develop after this incident. Arthur Hayes made a very interesting observation on a podcast, arguing that USD-stablecoin growth will be limited by how much selling pressure that the 3-month US Treasury markets can absorb 🤔

Bitcoin Ordinals Growth Continues 📈

State of Play: The top 10 largest Bitcoin blocks in history were mined in 2023. This happened because of the Ordinals NFT, made possible by Taproot, which changed how data gets stored on the Bitcoin blockchain.

• There was a size limit to how data were encoded into BTC transactions.

• Taproot removed the limit, opening up possibilities for bigger proof sizes.

• The result: NFT on the Bitcoin blockchain 🖼️

Our take: 🧞The genie is out of the bottle. Whether or not you agree with the removal of the block space limit, the change has been opening up new opportunities for Bitcoin to become more than just digital gold - and thus far, it hasn’t tampered with the Bitcoin blockchain’s network health.

QUICK BITES

• USDC depegs, Coinbase halted USDC-USD conversion.

• Circle announces coverage of any asset shortfall, has $3.3B with SVB.

• Silicon Valley Bank shuttered, crypto VCs urged portcos to pull funds out.

• Signature Bank closed by regulators.

• Meta plans to build a decentralized, Twitter-like, social network.

• Brevan Howard takes over Dragonfly Capital’s liquid fund.

• MakerDAO proposes emergency limit to USDC exposure.

• Blockchain.com winds down asset management arm.

• Binance converts $1B in BUSD to BTC, ETH, and BNB.

• Euler Finance exploited for $175M.

MEME & NOTEWORTHY READS

• Our Network’s article on web3 social media.

• Delphi Digital’s thread on Silicon Valley Bank situation.

• Looksonchain’s thread on how funds responded to USDC de-peg.

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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.