Sushi has 1.5 Years of Runway Remaining - Trouble Awaits?

See how Sushi is increasing its runway.

December 07, 2022

GM👋🏻 - SBF isn't ready to testify, while CNBC reports that House Fin. Services Chair Water doesn't plan to subpoena SBF. She denounced the news. Also, Taylor Swift had talks with FTX for a $100M sponsorship deal but it fell apart. Women's intuition is scary.

In Today's Email:

What Matters: Alameda $5.2 billion venture investments 🤯
Case Study: Sushi governance woes 🍣
Features: Synthetix's atomic swaps 💱

WHAT MATTERS

Alameda $5.2 Billion Venture Investments

Launchy, FT

The Financial Times released Alameda's VC portfolio. Oh boy. At least they didn't buy a $50M boat with it 🛥️... oh wait, the former CEO did. Let's take a look at how Alameda spent (burned) $5.2 billion (h/t Larry Cermak for converting the data to a sheet):

$2.79 billion in equity investments (52.93%)
$1.13 billion in fund investments (21.55%)
$380M in token investments (7.21%)
The rest are split apart between multiple types of token, equity, and note deals.
The largest investment is in Genesis Digital Assets, a mining company, amounting to $1.15 billion.

This is fascinating. When news broke that FTX was $10 billion short, market participants were confused. How did they lose so much money? Now that we're slowly learning about this learn that spray-and-praying $5.2 billion combined with other losses and a few shady transactions here and there, the number $10 billion is starting to make sense.

Alameda also invests in many funds as LPs. Pretty much all of the big names you can think of are there: Sequoia, Paradigm, SkyBridge, and much more. The unique names are K5 and Modulo Capital, which got $300M and $400M respectively. K5 is owned by Michael Kives, who previously served as an aide to the Clintons, whereas there's not much information about Modulo Capital. Let's trace the money flow 🔄

Sequoia invested in FTX so FTX could lend money to Alameda so Alameda could invest in Voyager so Voyager could lend money to FTX so FTX could invest in Solana Foundation so Solana Foundation could invest in FTX so FTX could lend money to Nishad so Nishad could invest in Sequoia
— Doug Colkitt (🐊,🐊) (@0xdoug)
4:00 PM • Dec 7, 2022

Why it matters: FTX's bankruptcy proceedings will be one of the most complicated processes in the history of bankruptcy court. It spans millions of creditors across 50+ jurisdictions with different laws and types of entities. No one knows how long the process will take, or if it's even possible to claw back some of FTX's affiliate entities' investments.

What's next: More information will come to light as the FTX bankruptcy chief continues his work. It's wise to be extremely cautious when planning for the near future as web3 builders and investors. Liquidity will continue to be super dry and there will be a lot more protocols that got affected by FTX, that haven't announced their trouble.

CASE STUDY

Sushi Governance Woes

knowyourmeme

Oh, Sushi. At this point, the protocol might be cursed 🤦‍♂️. If you're a struggling graduate student working on crypto-governance, Sushi is a great case study of decentralized governance. You better start writing.

Anyway, Sushi is a protocol that has always been filled with controversies since its inception. Maybe “controversy” is too strong of a word, let’s stick with drama instead. Originally started as a fork of Uniswap, Sushi has gone through much drama, even in its early days, but it has since evolved into a full-fledged independent DeFi protocol with its own DAO governance and a various suite of products. So what's going on now? 🤔

State of play: Sushi is burning $5M per year. The protocol is nearing its full token supply distribution and might be in financial trouble in 1.5 years without new capital injection. As a result, Sushi is proposing to direct the entirety of the 0.05% cut from xSUSHI holders to the protocol's own treasury for one year, to help extend its runway. The change is meant to be temporary until Sushi releases its upcoming newly revamped tokenomics model.

What is xSUSHI: A yield-generating version of the SUSHI token. You have SUSHI, you stake it, and you get xSUSHI — as well as the percentage of the trading fee that Sushi charges users for using its platform.

0.05% out of the 0.3% trading fee goes to xSUSHI.
xSUSHI currently yields ~5% per year.
Sushi wants to direct this 0.05% to the protocol's treasury instead.

By the numbers: Data from Dune shows that Sushi did $183M in trading volume over the past week. Let's do some back-of-the-napkin math:

xSUSHI holders receive 0.05% of $183M, or $91,500 per week to be precise.
This roughly amounts to $4.7M per year.
Sufficient capital to extend SUSHI runway by one year.

Our take: Sushi is in a tough spot. It's understandable that as a growing project, probably equivalent to a Series B or C startup, for Sushi to not distribute any value back to its tokenholders. If investors (in this case tokenholders) truly believe in the long-term potential of Sushi, they would prefer that Sushi maximizes its revenue for growth. At the same time, xSUSHI is Sushi's unique value proposition. No other major AMMs are distributing value back to tokenholders. Without xSUSHI, the community's confidence will deteriorate. Thus, this move might help extend the runway for one year, but if the Sushi team fails to execute, it will be extremely detrimental to the protocol.

FEATURES OF THE WEEK

Synthetix Atomic Swaps V2

Derivatives liquidity protocol Synthetix launches the V2 of its Atomic Swaps. The feature enables traders to swap assets in a more efficient manner, preventing front-run risk and providing a better price. This is achievable by using synths (SNX-native assets) for price efficiency and a combination of chainlink and DEX oracles. As a result, Synthetix's trading volume has been increasing in the past few weeks.

Why it matters: As Synthetix gets integrated with the broader DeFi ecosystem, its trading volume should continue to increase, benefitting SNX tokenholders so long as the Synthetix team is able to execute.

Other notable feature updates:

mStable launches an ERC-4626 composable vault on 3Pool Convex and Curve.
Magic Eden launches a creator tool for projects to manager marketplace and royalty.
Kujira launches an AMM.
Rage Trade launches a delta neutral vault.
ApeCoin launches APE staking.
Chainlink launches LINK staking.
Tether launches Yuan-pegged stablecoin.
Euler launches EUL staking.

QUICK BITES

Amber Group rumoured trouble.
Ledger debuts new device by iPod inventor.
Orthogonal Trading defaults on Maple’s $36M loans.
Circle terminates SPAC.
Gate launches a $100M industry liquidity support fund.
FTC probes crypto firms over ads.
Nexo is leaving the US.
Grayscale sued by Fir Tree.
SBF hires El Chapo’s lawyer.
3AC subpoenas signed.

MEME & NOTEWORTHY READS

Foobar’s thread on practical privacy.
Molly White’s blog on FTX contagion.
Alliance DAO’s blog on PoPW.

Crazy how Taylor Swift conducted better due diligence on FTX than most of the big VC funds
— litquidity (@litcapital)
6:27 PM • Dec 7, 2022

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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.