9-Figure CRV Liquidation Risks

$2.6B Seed Round Returns | Lido Dual Governance

Marco Manoppo & Karon Pangestu
August 02, 2023

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Good Morning,

It has been a hell of a week. The news cycle in the past few days feel like an entire month’s worth of events being packed into 48 hours — and oh, its only Wednesday. Let’s hope there’s no more drama before the end of the week.

In Today's Email:

What Matters: Curve Founder’s liquidation risk ⚠️
Case Study: $2.6B seed round investments 🌱
Governance & Features: Lido dual governance 🤝

Narratives: Stay cautious and look out for new flows of money. Seems like Michael Saylor is going to issue $750M in MSTR equity to buy even more BTC.

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WHAT MATTERS

Michael Egorov’s Liquidation Risks

Iykyk

State of play: Curve, arguably one of the most important DeFi protocol, is experiencing a Vyper programing language reentrancy-related bug that has resulted in $70M+ being exploit.

As a result, CRV token price fell, possibly affecting Curve’s founder Michael Egorov’s $100M CRV-collateralized loan position on AAVE.

2/ On @AaveAave, Egorov has $305m CRV backing a 63.2m USDT loan.
At a liquidation threshold of 55%, his position is eligible for liquidation at 0.3767 CRV/USDT.
This would only require a ~33% drop in CRV price for this to occur. He is also paying ~4% APY for this loan.
— Delphi Digital (@Delphi_Digital)
1:31 AM • Aug 1, 2023

Why it matters: If Egorov gets liquidated, it will cause further contagion, rendering AAVE with bad debt and causing a cascade of bad things to other DeFi protocols.

Egorov is mitigating this risk by paying back some of his loans.
He has sold a total of close to 40M CRV tokens, receiving $15.8M in return.
- The buyers include: Machi Big Brother (Jeffrey Huang), DWF Labs, Cream Finance, Justin Sun, DCFGod, Andrew Kang (Mechanism Capital), and Sifu.
The deal is reportedly structured with a 6-month lock up.

For builders: Don’t… rely on extremely volatile & prone to security risk loan to capitalize a real-world purchase. Your token is a vote of confidence from the community. Once that trust is broken, its extremely hard to regain.

For investors: Many investors are purchasing CRV at a discounted rate from Egorov, this might be a good time for distressed debt investor in crypto.

CASE STUDY

$2.6B Seed Investments Results

Credits to Lattice Fund for the original blog post.

State of play: Lattice fund has written a report analyzing 780 crypto pre-seed and seed rounds from 2021 to determine the outcome of $2.6 billion invested.

Out of the 780 projects:

50% have launched a token
1/3 have raised a follow-on funding round
20% have stopped development
70% have shipped a product to mainnet
5% have found product-market fit.

Further takeaways:

Infrastructure type projects received the highest amount of product-market fit.
Consumer web3 received the highest amount of funding.
DeFi sectors released the most amount of tokens.
Ethereum ecosystem received the highest amount of funding.
Multichain products achieved the highest percentage of follow-on funding rounds.

Lattice’s takeaways: Teams will need to cut burn as funding slows down significantly. Expecting more teams to raise bridge rounds in H2 2023, as valuation is approximately 50% lower.

Our take: Crypto projects need to find ways to find product-market fit and get to revenue without the need to sell tokens.

Wear your commercial hat and put your tech advancement hat away for the next few quarters as we go through the depths of the bear market.

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

FTX International Restart?

@wassielawyer posted his analysis on the reorganization plan filed by FTX.

Here are the key takeaways:

FTX US and International recovery will come from separate pools
FTX may restarts FTX International for non-US customers
Crypto asset claims are going to be assessed in USD as of the Chapter 11 filing date

In essence, details are still lacking, especially around shortfall priority — it’s most likely that FTX International will get 4/15 out of the recovered funds, FTX US 1/15, and “other claimants” 10/15.

7/ which means essentially, the FTX Intl and FTX US shortfall will - to some degree - be recovered in priority to other claims.
Here is an illustration of how it would work.
Say FTX Intl shortfall is 8bn and FTX US is 2bn. 10bn in 'other' claims. Rest of assets are 10bn.
— wassielawyer （哇西律师） (@wassielawyer)
2:59 PM • Aug 1, 2023

FEATURES & GOVERNANCE UPDATE

Lido Dual Governance

Lido

Leading liquid staking protocol Lido passed its dual governance proposal to include both its LDO and stETH token in the process.

In short, stETH holders can apply a veto proposals passed by LDO token holders.
stETH holders can lock their token in a dedicated escrow contract.
The change is to mitigate potential adversarial governance move from LDO holders that might impact stETH holders (liquid stakers).

Why it matters: Lido is the most dominant Ethereum staking protocol with more than 31.7% of the entire staking market — the power balance controlling Lido is an important development to watch.

Other notable feature updates:

PancakeSwap launches revenue sharing pool.
Clearpool expands to Polygon zkEVM.
Liquidity LUSD expands to Polygon zkEVM
Connext introduces xERC20 token standard.
Shibarium L2 launches testnet bridge.
Celo approves L2 transition.
Parrot passed PRT token redemption.
Maker passed DSR enhancement to 8%.
Ribbon passed Aevo merger.

QUICK BITES

Tether reports $1B operating profit in Q2 2023
Federal Judge rejects Ripple ruling in Terra’s case.
SEC sues Richard Heart of Hex and Pulsechain.
FTX plans to restart exchange for international customers.
Nomura receives Dubai operational crypto license.
IRS updates ruling on staking rewards.
Binance (still) does $90 billion volume in China.
GameStop drops crypto wallet plan.
Michael Egorov sold more CRV.

MEME & NOTEWORTHY READS

Variant Fund’s read on DEXs resilience.
KPMG’s read on how Bitcoin benefits across an ESG framework.
Safary’s read on web3 growth tools.

— laurence (@functi0nZer0)
8:36 PM • Jul 31, 2023

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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.