The Delegate #002: Who bought $10B in Bitcoin?
Terra buys some BTC, Avalanche's wallet, more ve tokens
March 24th, 2022
Welcome to The Delegate, the newsletter unpacking top web3 headlines and, more importantly, how to understand them.
In this week’s update:
Terra: Why it’s buying a boatload of Bitcoin.
Avalanche Core: A new wallet in your pocket.
ve tokens: Two protocols join the ve trend.
We’re going to need a bigger fort
Terra, issuer of popular stablecoin UST is buying a whopping $10 billion of Bitcoin (nearly as much as UST itself is worth), to act as the digital gold to their digital dollar.
Square one: Stablecoins are tokens meant to be worth exactly $1 as a way to bridge the web3 and non-web3 worlds.
One step forward: "Collateralized stablecoins" store some asset (USD itself, BTC, etc.) to hold the stablecoin's value steady. Instead of collateral, "algorithmic stablecoins" expand/contract the coin's supply to move the value up or down as needed.
With that said: Terra is the most widely adopted algorithmic stablecoin to-date. Buying BTC as collateral is Terra’s partial admission the algorithmic model has a long way to go.
Defending against disaster
The move to collateralized pastures is a direct result of events from January 2022.
The summary: Terra worked closely with a prominent web3 developer, Daniele Sestagalli. In January, Sestagalli's anonymous business partner was outed as a well-known scammer. This triggered a massive sell-off of Sestagalli projects.
One project was a stablecoin (MIM) that, combined with Terra, allowed users to lever up to >8x and earn 160% a year on their cash - a rare opportunity.
The sell-off threw MIM (solidly) and UST (only briefly) off their pegs. Just two months later, Terra is announcing its billions-dollar Bitcoin reserve.
Algorithmic: an uphill battle
It's seeming impossible to nail a stable's value at $1 without collateral. With UST's move, every popular stablecoin is now at least partially backed by some asset.
Will the search continue? I hope so. An algorithmic stablecoin faces infinite potential if it can survive.
And if there's anything to bet on in web3, it's the spaces ability to absorb learnings and forge onwards.
The Delegate’s Notebook
This week is a perfect moment to share the second part of The Delegate: a standing reference that dives into trends, insights and project profiles with greater depth.
I’m calling it The Delegate’s Notebook.
This newsletter puts the week’s headlines in context. I’ll then send you to Notebook whenever a topic deserves more exploration or when the news links to a trend that we’ve been seen before.
I hope to keep these articles concise and focused on the insight, even if they go deeper.
Here are the first two:
Proto-danksharding: Ethereum founder Vitalik Buterin released a too-technical FAQ on a future roadmap item, signaling more thinking in how Ethereum will scale
Insurance on-chain: Insurance company Lemonade announced light-on-details plans to offer climate insurance for farmers on the blockchain
Sui/Aptos: Two teams of ex-Meta employees announce L1 blockchains Sui and Aptos, built on technology from shuttered stablecoin project Diem
It’s all mine: When LayerZero’s Stargate (mentioned last week) opened their auction for $25 million of their tokens, 2 wallets bought all of them in 25 seconds. Turns out it all belongs to trading firm Alameda.
Massive raise: Ex-DoJ, Coinbase board, a16z General Partner. Add a $1.5b crypto fund to Katie Haun’s resume.
Avalanche wants you to ditch MetaMask
MetaMask is like Salesforce: terrible experience for a wallet, but far and away the most popular. Nearly every “getting started” guide points the casual web3 user to it as the most convenient option.
Ethereum competitor Avalanche is the latest to throw its hat into wallets with Core, a wallet tailor-made for Avalanche, to challenge MetaMask and its glacially slow development.
It’s the latest in a firestorm of wallet upstarts: your MetaMask replacement options include Rabby, Coinbase Wallet, Rainbow, Argent and endless others. Chain-specific options include Phantom (Solana), Keplr (Cosmos/IBC) and now Core (Avalanche).
Why does Avalanche need its own wallet?
It probably doesn’t need one, but it’s an expression of what the Avalanche team thinks is missing from the wallet experience.
What’s new?: According to their announcement, Core will allow you to buy AVAX, bridge assets onto Avalanche, see all assets and NFTs in one view and swap between assets, all within the wallet.
Normally, these are entirely separate protocols that they’ve embedded into one place.
Avalanche might also be building this wallet defensively. They’re launching subnets (deserving of a separate article, but they’re a way to scale Avalanche up to many blockchains), which may result in a tedious experience if you use MetaMask on Avalanche.
Where are wallets going?
We don’t yet have a “home page” for web3, but the previously underdeveloped wallet is a ripe candidate.
A useful analog: In the early 2000s, the Yahoo home page collected diehard fans who loved seeing everything they wanted to know/do in one place: news, email, finance, games, weather, etc.
The current state: In web3, the most engaged users start their day with Discord or Twitter. Navigating to protocols requires bookmarks or your memory. You only use your wallet to sign in and use those protocols.
A potential future: Thinking out loud, wallets could be your:
“command center” of everything you own (assets, DeFi investments, NFTs, game items)
“discovery portal” for things you could be doing (opportunities to earn, games to play, new protocols)
“web3 messenger” where you can chat with other wallets
“DAO portal” to see all DAO activity, discussion and voting
Seeing this list, it’s clear that MetaMask hasn’t been keeping up, which is why I’m excited to see more teams invest more in wallet experiences.
I know you and your friends have talked about crypto before. You should send them this post! I do the thinking so you can all sound smart with each other the next time crypto comes up.
Stop dumping your tokens…please?
If you wanted crypto tokens in one chart, it’d probably look like the above. Just so we’re clear, whoever bought at the peak of $74 has now lost 83% of their money.
The Delegate is not about investments or token prices, but it is about interesting problems that web3 has to solve.
And since most of the crypto ecosystem’s value is derived from creating new tokens, how to sustain your token’s value is one problem worth exploring.
What are our options?
A basic model is to reward people with tokens for participating in your protocol. Naturally, people will sell your token to cash out those rewards. The price crashes (see above).
How do we convince tokenholders to not sell? Some ideas:
You could make money (ha!), so your tokens start behaving like stock.
You could give tokenholders “governance rights” - code for not-too-consequential voting power on the protocol’s operations. But they could still sell.
You could simply ask people to lock up the tokens for some time; in exchange, you give them voting power, decrease rewards if they don’t lock, etc.
veJOE, veBAL join the veCrew
This week, Trader Joe and Balancer (no need to focus on these protocols too much if you don’t know them already) announced their moves to this last idea, which they call “vote escrow”.
By locking up JOE or BAL, you receive veJOE and veBAL (the longer the lock, the more you get), which lets you vote on proposals and, most importantly, earn more rewards.
Interestingly for JOE, if you lock less than others, you earn less of the rewards pie - most versions of this model don’t make it zero-sum like that.
JOE and BAL are just the latest in a wave of protocols moving their tokens to the ve model as they search for ways to sustain value. Is this the “holy grail” as Balancer claims? Only time will tell.
I find questions relating to token emissions, the problem of valuation, “where does all the yield come from?”, other mechanisms to sustain token value, etc. all incredibly interesting. Stay tuned for a Notebook update about these: it’ll be a big one.
What’d you think of this week’s update?