The Weekly Roundup: Bitcoin Hits 3-Month Low, Robot Roosters Raise $40M, UST Slips Away from $USD
Market Movers
The majority of the largest coins were in the red for the week. The stock market fell as well due to the Fed’s ongoing rate hikes to combat record-high inflation
Algorand (ALGO) was our biggest mover of the week, rising just south of twenty-five percent
ALGO is a decentralized blockchain network that uses Pure Proof-of-Stake (PPoS), an adaptation of the classic Proof-of-Stake (PoS) algorithim, to provide a scalable and efficient network for its users (via CoinMarketCap)
ALGO is considered an Ethereum competitor due to its similar features but lower gas fees and quicker computation. The Ethereum network can do up to 13 TPS (transactions per second), whereas Algorand can currently process up to 1,300 TPS (via outlookIndia)
First Sip
If you’re already a crypto native, feel free to skip to “Table Talk.”
WHAT IS A FLASH LOAN?
Two weeks ago, we talked about the Beanstalk hack and how the hacker used a “flash loan” to attain enough capital to execute it. What is a flash loan, though, and why are they unique?
Flash loans are, as their name suggests, instantaneous loans that are both issued and repaid in the same transaction. They are unique to the web3 ecosystem as they are a completely trustless issuance of capital, and the amount can be massive. They are given through available liquidity pools (basically just crypto assets lying around in the protocol) of the “locked capital” in a protocol, and any borrower can hypothetically borrow the entire pool at any time. For example, these pools, if borrowing from services like Uniswap, can be in excess of $1B (via Imperial College London).
The idea is that if you want to actualize gains on a trade but don’t have the leverage yourself, you can get a flash loan, execute the trade, then sell the asset and repay the loan in the same smart contract execution. You never actually “hold” the flash loan assets—the transaction is just executed, and then the loan is attempted to be repaid virtually instantaneously. If the loan is not repaid during the transaction execution, it is simply voided, and it never takes place. There’s essentially no risk in issuing this kind of loan, which is what allows protocols to surrender their entire liquidity pools for this kind of transaction.
It’s powerful because it makes a process—accessing large amounts of leverage—accessible to anyone who’s willing to learn to code a smart contract, not just high net worth individuals. It also opens loopholes into cryptocurrency protocols that would seem far-fetched in a traditional environment, but as this is the frontier, allows for hacks like the Beanstalk hack. If any user can access billions of dollars worth of a cryptocurrency for an instant, they can bend smaller financial protocols that do not have safeguards against such actions to their will. As more unique financial instruments are created in the DeFi ecosystem, we’ll continue to see creative, malicious use cases.
Still, in principle, flash loans are incredible and should be treated as a hallmark of democratization of resources and greater access for all. Bullish.
Table Talk
BITCOIN FALLS TO 3-MONTH LOW
“Bitcoin is a scam” “Crypto is fake”
Sentiments like this have been swirling, in some circles, due to Bitcoin’s recent negative price movement, culminating in the coin hitting its 3-month low of $34.7K on Sunday.
Let's all take a breath and evaluate the facts.
In recent weeks, we have commented that Bitcoin, and most cryptocurrencies in general, often follow the general market’s movement. They seem to most closely mirror tech stocks.
For example, in times of a downturn, Bitcoin, labeled as a risk asset to most novice crypto investors who do not necessarily believe in the technology long term, tends to be sold to consolidate to a more “conservative” portfolio during volatile times.
This week was no different as the NASDAQ fell to its 52-week-low on Friday, $11,990.15, while Bitcoin only fell to its 3 month low (via Barrons). Inflation is at an all-time high as Wednesday saw the Fed raise the Federal Interest Rate by half a basis point to its now current range of 0.75%-1%, with future half-point raises on the horizon (via CNBC). Stocks and crypto reacted positively to the news before a major sell-off Thursday and the rest of the week.
Bottom line: Bitcoin is not dead nor dying and is not a scam (sorry Karen); it is simply experiencing some heavy volatility due to the general market getting hammered.
@WuBlockchain had an intriguing tweet that further emphasized the behavior of short-term holders, who label BTC as a risk asset in times of volatility:
Life is all about perspective. Bitcoin’s trajectory is no different. Some people pray for drops like this and see them as opportunities, and some completely exit.
NFT Buzz
ROBOT CHICKENS YIELD $40M INVESTMENT
This past Friday, reports surfaced that Blockchain gaming company Irreverent Labs raised $40M in a recent funding round in large part due to their upcoming MechaFightClub project. The company raised $5M in its November round.
In the looming project, people will have the opportunity to mint one of the 6,969 “EGG” NFTs that, soon after, will “hatch” into robotic roosters. Once evolved, users will then be able to fight against one another using their NFTs in the MechaFightClub’s Metaverse, more specifically, the Cocktagon. Welcome to 2022.
via MechaFightClub’a Discord
Irreverent Labs’ Co-Founder Rahul Sood stated in a recent podcast the project’s goal is to, “build an emotional attachment between the characters and their birds, sort of like a Tamagotchi on crack” (via CoinDesk).
The project’s selling point is simple: “Compete in the biggest fight club in the metaverse as the owner of a one-of-a-kind, artificially intelligent mechabot” (via MechaFightClub.com).
Although a lot of the terminology surrounding the project is definitely humorous, as acknowledged on the company’s website, the $40M raised is not.
DeFi Demographic
UST STOPS TRACKING DOLLAR, BRIEFLY
The Terra Dollar Stablecoin (UST), which is supposed to algorithmically hold the value of a single U.S. Dollar, slipped to $0.987 (via CoinDesk). The 1.3-cent slip may not seem like much, but it presents a significant arbitrage opportunity as its entire purpose is to rebalance to $1.00. Investors who bought UST at the discount could then trade their UST once it rebalanced for an essentially guaranteed profit assuming that the UST protocol would eventually return to its stated value. As UST is the largest algorithmic stablecoin with approximately $18.6B in issuance, this was a pretty safe bet (via CoinMarketCap).
We’ve talked about algorithmic stablecoins in the “First Sip” section of the newsletter, and it’s clear that the dynamics of algorithmic stablecoins are, well, unstable as Terra CEO Kwon commented that UST unpegged from the dollar for the 69th time (via CoinDesk). Eventually, the bugs will be worked out, but for now, they represent opportunities for alpha at scale.
Final Cup
Bitcoin fell to its 3-month low on Sunday. We are a glass-half-full type of newsletter. Do your due diligence and make the best investment decision that suits you
MechaFightClub raised $40M in a recent funding round to help support their upcoming NFT/metaverse-based play-to-earn game. We will definitely be keeping an eye out on the robotic roosters
UST slipped away from the $1.00 value it’s supposed to constantly hold, presenting an arbitrage opportunity before correcting. Algorithmic stablecoins demonstrate slight volatility while bugs in the algorithm exist.
Meme of the Week (via Reddit)
Pat + Ari ✌️
Disclaimer: None of this is investment advice, financial advice, or trading advice. CRYPTOPONG does not endorse any of the cryptocurrencies, DeFi applications, or NFT collections mentioned in this article. Perform your own due diligence and/or consult a financial advisor before investing.