Crypto Spotlight #1
Elon has Competition
A new electric car is promising to hit the market soon. What will make this car standout from Elon Musk’s current hot rods? That’s right! It can mine crypto currency while it is parked. The best news is the Canadian company, Daymark, is now taking preorders for the car in Doge coin. “We envision a future where your highway tolls, your parking and your drive-thru order will be paid directly on the fly with crypto. Your online bills and your banking can be handled through the same software platform paid in crypto,” stated president of Daymak Aldo Baiocchi. The models range in price from $19,995 to $149,000. This is a great opportunity for investors who want to get into crypto mining and street racing.
Coinbase rescues a Doge
Coinbase announces it will now allow customers to deposit Dogecoin into Coinbase pro (presumably for trading). Dogecoin has tumbled to the #6 crypto by market cap worldwide since Elon Musk’s appearance on Saturday Night live. It has been surpassed by Binance Coin, Tether and Cardano stealing the number 3, 4 and 5 spots from the mighty Dogecoin. However, the coin has surpassed XRP in the last 24 hours taking the #6 spot after receiving a 32% pump coming out of Memorial Day weekend. This pump could be a reaction to the Coinbase pro listing. Note that regular Coinbase users will still not have access to buying Dogecoin.
Unicorns in the Outfield
No this is not a section about private equity. The unicorn here is a crypto currency decentralized application that allows users to become liquidity providers using an automatic market maker. Wow, that’s a lot to process… Uniswap, is a crypto currency exchange that has grown to handle $1.5 billion in trading volume daily. What sets Uniswap apart from centralized exchanges like Coinbase pro or Binance is it operates entirely with Ethereum smart contracts. This allows funds to remain in the custody of individual users at all times during trading (no sending funds to the website or logging in). Users can trade in and out of different crypto assets against other cryptos or stablecoins (that remain pegged to USD, EUR, etc..).
Another aspect that sets Uniswap apart is its governance token. This is a crypto currency similar to say a Dogecoin, except it allows holders to create and vote on proposals that can directly impact the Uniswap exchange. It is also now known that Harvard Law School holds a large stake in Uniswap governance. Recently, a governance proposal has been created that would put funds aside to fund lawyers, lobbyists and organizers to preempt regulatory and tax threats to the decentralized ecosystem. The tokens held by Harvard Law School have voted Yes to this proposal. The proposal still has further steps before it is passed by the uniswap community. At the current state of the vote, it looks likely to receive enough yes votes to pass. This could be the start of decentralized governance playing a direct role in our current political system.
Layer 2 Solutions
Many smaller investors have left Ethereum seeking out cheaper and faster transactions on side chains also known as Layer 2. This chart shows the total value locked in decentralized finance, DeFi. This total value locked represents the current dollar value of all cryptocurrencies on each network. The recent downturn in Bitcoin caused a market wide sell off in Defi. However, from the above image you can see that the long term trend of declining Ethereum Dominance is still intact. Another takeaway is the Polygon TVL seems to have stolen dominance from BSC (Binance Smart Chain) during the recent downturn. Polygon is now on the cusp of out pacing BSC growth.
A New Player Has Entered the Game
Arbitrum is the newest player to enter the hunt for Ethereum scaling solutions that will allow for cheap and fast transactions. Arbitrum One has launched as the mainnet for this new Ethereum Layer 2 chain, and 250 teams have already requested access to start building. Similar to the Polygon network, Arbitrum promises up to 50x reduction in fees compared to Ethereum. Arbitrum promises stronger security than Polygon and will use ETH as the base token in contrast to MATIC, which is used on the Polygon Network. Most of the fees on Arbitrum are used to pay for posting calldata on Ethereum. This means they end up going to Ethereum miners. In the current beta stage, the system will not be decentralized allowing the network to be paused or reset if there are any errors.
Maker or Breaker
The recent sell off in the crypto markets has brought a spotlight back to MarkerDAO, (DAO — Decentralized Autonomous Organization, e.g. Uniswap). MarkerDAO has created smart contracts that allow users to deposit crypto currencies and mint DAI (a stable coin pegged to USD). The system is built to incentivize players to maintain a 1 to 1 peg between DAI and the US Dollar. This peg was challenged in March 2020 when the underlying collateral lost 50% of its value over a day. Since then, MakerDAO has now allowed USDC (a stable coin pegged to the USD backed 1 to 1 by USD) to be used as collateral making it easier for DAI to maintain it’s peg during market volatility.
However, In the recent downturn USDC has become 40% of the collateral backing DAI. This has worried many that DAI is now becoming nothing more than USDC wrapped in another token. One way MakerDAO is planning to fix this issue is by creating pathways to bring in Real World Assets into its pool of collateral. This would reduce the correlation between each type of collateral and allow DAI to maintain it’s peg in a wider range of market conditions.
The company PandaCredit plans to use the above Centrifuge Model to add Supply Chain assets to the MarkerDAO vaults. This will allow them to mint DAI, essentially borrowing against these assets. The addition of Real World Assets based on the Centrifuge Model could make DAI a competitive currency as it would truly be the first non-fiat currency that holds a stable value relative to a basket of global goods. The centrifuge model does introduce new risk into the crypto markets as DAI now has human components backing it. For example, there are legal contracts with claims on the underlying collateral. MarkerDAO solves this using a direct liquidation model, yet this still has a human component to assess the risk of the underlying.
