All eyes on ETH next month
A.I.'s taking over the world. A.I.'s so powerful that it drove me to use Bing on purpose.
While I believe in A.I. technology, it'll take time for the tech to mature. In the meantime, I'm seeing a lot of Crypto projects trying to get attention by latching onto the A.I. narrative.
A.I. powered = +20% in price bump, but in reality, it's the dev using ChatGPT to help write the medium posts or something. Be careful out there!
Here’s what we got today:
- Shanghai Upgrade. Everything about Ethereum’s next hard fork.
- a16z vs. Wormhole. A governance battle fought through the Uniswap proposal.
- Umami Disaster. The CEO dumps all his tokens causing the price to crash.
- Around the Web. Binance pauses USD bank withdrawals. Lido introduces V2, MakerDAO defense fund, and more.
Here's your edge 🗡️
📉 THE MARKETS
Sources: Coingecko, DeFiLlama, Fear & Greed Index
“Trading doesn't just reveal your character; it also builds it if you stay in the game long enough.” - Yvan Byeajee
Shanghai: Ethereum’s Next Upgrade is Almost Here
$28 billion worth of Ethereum is locked up (and some of them have been locked up since 2020).
Next month’s upgrade is going to allow people to withdraw it slowly. This has people wondering, is everyone going to dump it?
What’s Shanghai Upgrade?
If you remember, Ethereum did its last hard fork in September with The Merge. It’s when Ethereum transitioned from Proof of Work -> Proof of Stake.
However, an important functionality wasn’t included: withdrawals.
The Shanghai upgrade enables the withdrawal of staked Ethereum. There's not a solid date yet, but everyone expects it next month.
Let's look at some data.
14.26% of Ether is locked up in staking contracts. That is around 17 million ETH, aka $28 billion USD. They can’t be sold now, but that changes with the Shanghai upgrade.
Many people are speculating about a price crash due to this sell pressure. However, things are not that simple.
- All staked Ether won't be unlocked at once. There is an exit queue. Only 16 withdrawals will be processed in one block (12 seconds). It'll take months for all staked Ether to enter the market effectively.
- Withdrawals will massively derisk Ethereum staking as well. This may attract institutional capital. Instruments such as cbETH from Coinbase will make this extremely attractive for institutional capital. ~4.5% apr in a low-risk asset is attractive.
- Most stakers are actually not profitable. Keep in mind that many people staked during the bull run when ETH was priced higher. Psychologically, most people aren't selling until they break even.
Comparing the staking ratio of Ethereum to other PoS networks indicates buy pressure, not sell pressure.
- Binance (97.51% staked)
- Solana (69.84%)
- Avalanche (63.72%)
In contrast, Ethereum's staking ratio is only 14%. A lot more $ETH can be expected to be staked.
In conclusion, arguments can be made for the pump and the dump.
What am I doing?
Here's how I see things playing out.
Post-Shanghai, there might be a small dip in the price. Its magnitude is going to be much smaller than what the bears are anticipating. 3-digit ETH will not happen unless some crazy Black Swan like World War 3 happens. The price is going to recover quickly. And ETH will be back on track with the rest of the cryptocurrency market.
There is another sector that is going to be impacted by Shanghai staking: Liquid Staking Derivatives.
Liquid Staking Derivatives (LSD)
Liquid Staking means you deposit your ETH with a 3rd party, and they give you an “IOU” version in return, like stETH. You can then use this stETH to play around in DeFi while earning staked returns.
Withdrawal is a bullish event for this sector as a whole. But different protocols will have different ramifications.
Withdrawals will seriously threaten Lido's monopoly. Lido controls 73% of staked Ether. This irks Ethereans, who value decentralization. Until now, once you stake through Lido, there wasn't an option to shift to RocketPool. Post-shanghai, you can shift. So, we can expect the Lido dominance to come down quite a bit.
Coinbase controls around 16% of the staked Ether. cbETH has a lot of potential to grow. Withdrawals will be a derisking event for institutions and normies. Coinbase has the sole position in capturing that demand. Keep in mind there are always risks with a centralized entity, especially around regulations.
RocketPool is the most decentralized LSD. It has over 2000 nodes. Therefore, this will be a favorite among DeFi-natives who value Ethereum decentralization.
Frax Finance's LSD, sfrxETH, earns the highest reward. It gives stakers around 7.62% APR. In contrast, the other protocols only give you around 4.5% APR. The growth of frxETH was explosive. They went from zero to 81k frxETH in three months. They are the favorites among degens who want to maximize yield.
I'm personally using Lido and Frax Finance. Lido because it's the most "Lindy" and Frax for the highest yields.
If you want to learn more about the impact of withdrawals on LSDs, read this article.
Shanghai marks an important milestone in the development of Ethereum. It is not as technically challenging as The Merge. But it is impactful in terms of its ramifications. This article must’ve given you the 80/20 of the event and its ramifications.
Staking and LSDs will be one of the biggest sectors in crypto. You should continue keeping an eye on this sector.
📷 I’m on Instagram!
I started a new account on Instagram!
Twitter's algorithm is weird, and it made me realize I should diversify my content outside of Twitter. I'm going to use this as an opportunity to explore different types of content.
What you can expect:
- Visualizing concepts
- Some of my best tweets
- And a few travel pics. I became a digital nomad 2 months ago. I’ll be traveling around Europe and Asia. So you guys can get to know me outside of DeFi if you care.
I promise no booty pics or gym selfies...that's for my future onlyfans 🤣.
Anyway, see you on Instagram!
📊 The Battle for Uniswap
This graph shows the voting on a Uniswap proposal over time.
What proposal? It asked whether the Uniswap V3 should be deployed on the BNB chain (Binance). This would be an amazing opportunity for Uniswap because BNB is the 3rd largest chain behind ETH and Tron.
Wormhole was selected as the bridge for deployment on the BNB Chain.
On February 3rd, 0xplasma.eth published the proposal on-chain.
It's in Uniswap's best interest to deploy on the BNB chain. If they don't, someone else is going to fork their V3 and essentially steal their hard work. (Their license expires in April 2023 - the license prevented others from forking.)
On February 5th, a16z voted against the deployment with their 15 million UNI.
Twitter drama broke out. a16z was accused of having centralized control over Uniswap.
- a16z had 41.5 M $UNI. It is 4% of the total supply.
- That is enough to pass the quorum. And low voting participation means it is enough to win the proposals.
- a16z is an investor in LayerZero. L0 was the bridging solution that was lost to Wormhole for the BNB deployment.
- So when a16z voted against BNB deployment that uses Wormhole, people accused them of controlling the Uniswap.
The a16z vote was a demonstration of the utility of governance tokens. The ability to control a critical protocol is an incredible power.
However, much of the accusation was exaggerated and later proved false.
- a16z had direct control over only 15M $UNI out of 41.5M $UNI (36%).
- They delegated the rest of the tokens to others. One of them even voted against the interests of a16z.
- The Twitter drama attracted attention and resulted in a massive increase in voter turnout. Most of them voted against 16z.
- As of now, a16z is losing the proposal. The voting will be finished by tomorrow.
The governance mechanism worked as it was intended. However, this showed the limitations of our governance systems. We can’t always depend on a Twitter outcry to reach the best decisions.
- Governance token actually has value 🤷♂️.
- Low voter participation is a major governance problem.
- Token voting is highly limited. Vitalik has been beating drums about it since forever.
The $UMAMI Situation
Umami Finance is in some trouble now.
- $UMAMI is down around 50% in 24 hours.
- Many are claiming that they can't withdraw funds from Umami U.I.
- The CEO of Umami Labs is dumping his tokens.
Let's back up for a bit.
What is Umami Finance?
They're a protocol that took off with a real-yield narrative over the summer. They used to offer a 20% delta-neutral yield on USDC via GMX vaults. This isn't available now.
Their vision is to create a series of investment products for institutions. Umami Advisors is a Registered Investment Advisor (RIA) affiliated with the protocol. They will attract the institutional capital invested in DeFi strategies via Umami Protocol.
What went wrong?
On January 31st, Umami Labs announced they'd stopped payouts from the treasury to Mariners (their stakers). They also said they'd first retained multiple top lawyers to review their compliance strategies.
This did not go well with the community because it went against their real-yield roots. Umami conducted a Twitter Spaces to address the concerns. However, this only added oil to the fire. Amidst this chaos, the CEO dumped his tokens, causing the price to crash by 50%.
The full picture is not clear yet. afirebrand from Umami Discord has some thoughts on what went wrong with this project.
The CEO's out, but the team wants to reorganize under a DAO structure.
Treasury funds are safe, and the code base is controlled by team multi-sig.
This happened a few hours ago and is a developing story.
🌎 What’s Happening?
📰 Industry News
Binance temporarily suspended USD bank transfers. They claim only 0.01% of monthly active users use USD bank transfers. Other methods of buying and selling aren’t affected.
Digital Currency Group and Gemini have reached a bankruptcy agreement to recover assets. If successful, this may avoid another wave of forced selling.
Federal Reserve banned member banks from holding cryptoassets as principal. This has further cemented the central bank’s wariness about crypto.
FTX Group claimed they’d asked politicians to return the money they got from Sam Bankman-Fried. This might start a fight over as much as $93 million.
StarkWare, the team behind StarkNet L2 solutions, announced plans to open-source their Starknet prover. This will increase collaboration within the community and among developers.
Tron wants to provide an AI-oriented decentralized payment framework for A.I. systems.
Tron was gaming focused a few years ago, then pivoted to stablecoins, and is now into A.I. It reminds me of these guys.
🍿 DeFi Bites
Lido Finance presented a proposal for Lido V2. It will allow anyone to develop on-ramps for new node operators. This might address centralization issues with Lido.
Mars Protocol is live on the Osmosis blockchain. They're aiming to be the money market of Osmosis.
BNB Greenfied’s whitepaper was released. It is a new decentralized data storage infrastructure project from BNB Chain. BNB will be a native token here as well.
Optimism proposes the Bedrock upgrade. This is a big milestone in creating the OP Stack. OP Stack aims to reach the ERC-20 standard for the Layer 2 chains.
Arbitrum introduced Stylus. It is a programming environment that allows writing smart contracts in languages such as C and C++. They will be executed on the Arbitrum.
Binance integrated the Binance-Peg BUSD on the Optimism Network. Users can now transfer BUSD between Optimism and other integrated networks such as Ethereum, Avalanche, etc.
MakerDAO approves the creation of a 5 million DAI defense fund. This will be used to reimburse legal defense expenses in case of regulatory actions against participants of the MakerDAO.
Blur is an NFT marketplace for Pro Traders. They've actually been able to take marketshare away from OpenSea. They're planning on launching an airdrop to its users on February 14th.
Pendulum is launching $PEN, their native token, before the end of February. Pendulum is a forex-optimized blockchain that made history when it won the Polkadot auction in just three minutes. Click here to learn more about the token.
* Thanks to Pendulum for sponsoring this message.