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Stablecoin Trinity Unlocked – Curve Finance as example

The Stablecoin Trinity: A New Framework for Stable Asset Success

Introduction to Frameworks

The stablecoin space has long been analyzed through the Stablecoin Trilemma framework, which examines their fundamental challenges.

In this text, I propose a new framework—the Stablecoin Trinity —to understand what makes successful stablecoins thrive. This Trinity encompasses three essential monetary functions of stablecoins: means of speculation, medium of exchange, and store of value. The fourth function—medium of account—comes naturally to vanilla stablecoins as they mirror existing fiat currencies. The Trinity framework focuses instead on the positive monetary properties that make stablecoins successful in the long term.

DeFi Innovation and the Trinity

DeFi's innovation lies in how CDP (Collateralized Debt Position) stablecoins can craft unique economic models to achieve this Trinity, while fully fiat-backed stablecoins cannot serve as means of speculation themselves. Curve Finance's crvUSD exemplifies this through having crvUSD as means of speculation and medium of exchange and savings crvUSD (scrvUSD) as store of value.

The Three Pillars of crvUSD

Means of Speculation

Users can mint crvUSD against collateral to leverage crypto assets up to 9x. Curve Finance's soft liquidation mechanism generates premium fees from this speculation, earning higher interest rate than other stablecoins. This speculative aspect is crucial for generating the excess fees to reward savings crvUSD holders. Unlike fully-backed fiat stablecoins, CDP stablecoins like crvUSD can integrate speculation directly into their economic model, creating value for all participants. While most early-stage CDP stablecoins function as a means of speculation by rewarding holders with project tokens that are sold on the market and farmed extensively, Curve Finance stands apart. Its unique position comes from generating native cashflow through minting fees, rather than relying on subsidies from the CRV token.

Medium of Exchange

crvUSD serves as a reliable medium of exchange across numerous Curve pools, facilitating efficient trading and liquidity provision. Its stability and deep liquidity make it an effective trading pair for various crypto assets, enabling smooth market operations within the DeFi ecosystem. The reliable peg maintenance, combined with widespread integration across DeFi protocols, establishes crvUSD as a trusted medium of exchange.

Store of Value

Through the savings crvUSD (scrvUSD) mechanism, conservative holders can earn yields generated from the system's speculative activities. These yields, derived from minting fees, transform crvUSD holdings into a productive store of value, rewarding long-term holders while maintaining stability. This creates a unique proposition where the most risk-averse users benefit from the system's speculative activities without directly participating in them.

The Virtuous Cycle

This virtuous cycle completes the Trinity: speculation generates fees, fees reward conservative holders through scrvUSD, and the base token maintains its role in exchange. Without crvUSD's speculative properties, this system would be less efficient, as there would be no excess fees to sustain scrvUSD holders. The Trinity framework demonstrates how these three monetary functions can reinforce each other, creating a sustainable economic model for stablecoins in DeFi.

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Aave/Morpho: A clash of different worldviews. Both design have their pros and cons.

Aave as an entity manages all the risk and also covers any loss. Aave needs deep expertise on all coins and the dynamic of their corresponding markets. You trust the brand, Aave, and they did a very good job of shielding users from risk.

Does it scale?

It has limits, as many different assets, crypto native and non crypto native ones come into existence. It's a jungle, and how should one entity have deep expertise about all assets?

Aave chose their risk parameters always on the safe side, and if they don't have the expertise, they don't list assets. Having risk parameters on the safe side also lowers the capital efficiency.

Morpho has dedicated, independent risk managers, which manage metamorpho vault and and create or attached markets to it, if it fits their risk profile. Risk managers can be specialized in markets and if you know markets well, you can choose more risky parameters for your markets, which makes it more capital efficient.

The pure Morpho way, would be that they only manage the protocol, maybe with a costume white label front end, where the risk managers use the infrastructure, but any hiccups do not affect the Morpho brand.

Now Morphos brand suffers from spill over of quality issues from one of the risk managers.

Does it scale?

It may scale better than Aave, but has reputation risk for Morpho, even if they are not risk manager. And: In an easy markets, users may flock to the risk manager who takes more risk, the same risk manager who are whipped out if the markets are in turmoil.

What out of questions: Aave and Morpho are both highly professional teams, Aave is battle tested over more than one cycle, while Morpho and risk managers on Morpho are still in the learning phase.

Curve has a lending market too, but Curve has always chosen the path to try to solve issues with technical solutions.

The benefit of soft-liquidation for users allows us to set conservative LTV values, because we don't compete to be the most capital efficient markets, but compensate users with the benefits of soft-liquidation which helps save their position in rough markets.

As tweet:
https://twitter.com/martinkrung/status/1783092537353248972

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The forever cyclic nature of crypto

A nice version of this with some memes:

https://twitter.com/martinkrung/status/1746284429750730799

Or just as a wall of text:

The base of crypto is tokenization of for profit projects, in fact very early stage ventures, some are only ideas put on a sheet called whitepaper.

In a normal economy this kind of ventures never have tradable shares in the public. Most don't have investors at the stage, and if, only fools, friends and family.
In addition most tokens of these ventures don't have a use-case in that project, the token is only a virtual share of that project, in a sense like a NFT collection.

BUT: As the tokens have no fundamentals, no tokenomics and no use-case they are a perfect place for everyone's projections of how successful that venture will be.

Tokens are the perfect vehicle for speculation, where the mere narrative of a possible success is enough for others to buy and invest.

If the cycle is started, every player in this market: founders, teams, investors and early token buyers fuel the hype by telling the outsiders how their venture is changing the world and how big the potential will be.

Normies have close to zero chance to value this venture rationaly, they invest left and right, attracted by the gains early token buyers have made and brag around.

We all know how crazy these bull markets are, it's a form of collective euphoria and my bet will be for this cycle that the craze will be the same or maybe even bigger than all we have seen until now.

My personal top: if I start believing that this time everything will be different and numbers will never go down again, at that time I feel an urge to call all my friends and tell them they should invest and everyone will be a millionaire with me. This is the time myself and maybe you should sell everything, but it's so damn hard to do.

Then the wave breaks, first the multi-cyclers start to sell, the latecomers still filled with greed and hope for the next 10x.

BAM: suddenly it's 4 o'clock in the morning, the music stops and somebody turns on the light. At this point, even the most stupid participants in that cycle understands that the whitepepper he did read from that copy cat of a copy cat is worthless bullshit and the next bera with bloody infights and people losing the last shirt and more, has started. As the pile of bullshit is so big, it takes a long time to get rid of it.

To end the forever cycle tokenization of early stage projects would have to be banned, which will never happen and is impossible.

May be the zupercycle with you!

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Introducing ‘Means of Speculation’ as a Core Characteristic of Early Stage Stablecoins

Tweet here, to comment: https://x.com/martinkrung/status/1706655567589101926?s=20

The Unique Characteristic of Stablecoins

Stablecoins possess a property that traditional cash doesn’t: they can serve as a means of speculation.

Traditional Cash and Commodities

Traditional cash acts as both a medium of exchange and a store of value. While gold primarily serves as a store of value, cash performs a dual role. Although various commodities such as food, oil, or art can also serve as both a medium of exchange and a store of value, cash is superior due to its relatively stable value, which erodes gradually, depending on the inflationary environment.

Stablecoins as Means of Speculation

In crypto, cash isn’t limited to being a store of value or a medium of exchange; it can also be used as a means of speculation, a characteristic not typically associated with traditional cash.

In the crypto world, equivalents to cash are represented as stablecoins, typically pegged in various ways to the USD. These stablecoins are in competition with each other for market dominance.

Speculative Asset and User Behavior

When viewed as a speculative asset, on-chain cash is neither a store of value nor a medium of exchange but rather serves as a means of speculation. Users often hold stablecoins primarily for the rewards they offer; once these rewards diminish or cease, users typically opt for a different stablecoin.

Adoption Trajectory and Ultimate Goal of Stablecoins

The adoption trajectory for on-chain stablecoins typically progresses from a means of speculation to a medium of exchange, and finally, to a store of value. The ultimate goal for any stablecoin is to achieve recognition as the preeminent store of value, as this represents the ultimate demand sink. While acting as a medium of exchange does create a demand sink, it is inherently more volatile. Stablecoins used primarily as a means of speculation risk becoming obsolete as soon as the rewards cease.

Current Stablecoin Market

Currently, in the crypto space, many stablecoins are primarily used for speculation, albeit exhibiting some characteristics of a medium of exchange. Progressing from these initial stages to attain recognition as a reliable store of value represents the top for most, if not all stablecoins.

What do you think about this view? Which stablecoin in the market has which state and which one have a chance to be store of value?

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Crypto has slow innovation cycles. Here’s why:

Discuss here: https://twitter.com/martinkrung/status/1700040547698643342?s=20

Complexity of Technology

Given that every project is build on cryptography, fast iterations are challenging. Cryptography doesn't allow incremental adjustments easely. You can't have a semi-functional blockchain or smart contract – it either operates as intended, or it doesn't.

This contrasts with other software types, which can be improved upon incrementally while in use. For instance, if you're developing blogging software, you can release initial versions within days and refine it during users using it. In crypto just migration from one version to another is a major undertaking.

Misleading Signals in Product Usage

Crypto represents the merger of code and money. It's an industry standard to monetarily reward users. For instance, when you mine Bitcoin, you're often driven by the financial incentive rather than bitcoin beeing of use for you.

Many crypto projects heavily compensate their users. This leads to wrong data about the usage of the product. Users may engage with a product primarily for the payout, not its utility. Consequently, many projects never truly achieve a product-market fit, and those that do find it challenging to iterate swiftly due to the underlying technology.

Regulatory Hurdles

The fusion of code and money in crypto brings it into the arena of financial regulations, many of which are ill-suited for this new technology.

This misalignment often diverts innovation as projects modify their approaches to navigate these regulatory waters. A significant portion of the industry's energy goes into lobbying for regulatory adjustments. Traditional financial institutions leverage these regulations to protect their interests.

While older fields like AI aren't burdened by such legacy regulations, they have more influnce in crafting new ones. If you view crypto from a monetary business perspective, it operates within one of the world's oldest industries.

Limited Public Funding

Blockchain technology is one of the few fields where government public funding hasn't invested millions. In contrast, AI research, which spans more than 50 years, has benefited from extensive publicly funded research. Billions have been poured into AI over the past half-century. This hasn't been the case for crypto, with most successful projects being privately financed.

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Crypto Tax in Swizerland

Switzerland dos not have captial gains tax for private persons. Selling tokens crypto to fiat or to a different token this is not a taxable event.

This is a collection with links talking about How to tax crypto holdings and revenues in Switzerland:

https://www.finews.ch/news/finanzplatz/49391-crypto-tax-steuern-estv-ico-token#:~:text=Sogenannte%20Airdrops%2C%20also%20den%20Erhalt,der%20Einkommenssteuer%2C%20mahnen%20die%20Steuereintreiber.

https://www.estv.admin.ch/estv/de/home/direkte-bundessteuer/fachinformationen-dbst/kryptowaehrungen.html

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“Vampire Attack” 1 year anniversary

Intro

First, I talk about the new stuff I'm working on: I start a new project, called GenesisDao, it's about NFT, fractalized NFT, scarcity, trust and art and will run at least over the next 13 years, follow here: https://twitter.com/genesisDA0

Currently, I'm also involved in bootstrapping Aladdindao (https://twitter.com/aladdindao)

Now back to the Vampire Attack

One year ago, I published my article about the vampire attack, at this time a theoretical issue.

As I wrote this idea down, in parallel the sushi chef already started coding in real life, inspired by a tweet from Larry Cermak.

I hit a spot, and the merit was that the name "vampire attack" stuck for this kind of attack. https://twitter.com/martinkrung/status/1298363320270032897

If you read this backround article, migration mining article carefully, then you see that the vampire attack in fact is even more aggressive, more than what sushi did. Until today, we did not see such an attack in the wild. As blockchains are going to be faster and the capacity to move liquidity higher, I guess we will see more aggressive version of vampire attacks in the future.

The base of the vampire attack is that in crypto short-term liquidity has mostly the same price as long-term liquidity, which leads to mercenary liquidity. I name it here here as opportunistic liquidity:

https://www.cryptonative.ch/pricing-long-term-liquidity-at-the-same-value-as-short-term-liquidity-results-in-opportunistic-liquidity/

Mercenary liquidity is still big issue in crypto, to my knowledge, only bancor has fixed this with their 100 day impermanent loss insurance, and they also found a way to limit the liquidity of BNT further by making a voting vBNT which you can generate from BNT in one of the pools.

Sushi swap was an instant success, people deposited their uniswap liquidity provider token to farm sushi. But then sushichef was unable to stand the heat in the kitchen and run taking thetreasury with him. This was a major blow. After some days the guy returned the treasury and appointed sam to take over the migration. Sam took lead and the forming sushi community did a superb job with the migration. Today sushi is one of the corner stone of DeFi and is still driven by a loyal community. Sushi has been able to ship constantly new products and grown into a DeFi power house.

Some month later, uniswap made a token too, and did airdrop 400 UNI to every one who used uniswap more than once. Going public this way was a clear response to sushis vampire attack.

Sadly, uniswap failed to be a community driven project and the governance is in a bad shape. With the V3 it's clear that uniswap is going b2b regarding liquidity providing, quite a different approach then sushiswap.

I'm sure these days we will see a lot articles about the sushiswap saga!

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A new metric to measure permanent loss/win in AAM protocols

Discussion about Impermanent Loss (IL) is one of the biggest topic surrounding AMM protocols and different design exist to offset or try to limit IL.

What's astonishing for me is that nobody until now is try to measure permanent loss/win, resulting if you withdraw liquidity as a liquidity provider (LP).

This info is available on-chain and can be calculated for every LP on withdraw and for every pool.

My suspicion is that the result will be devastating and show that most pools and most LP lose money.

How to use this new Metrics?

  • Show LP on withdraw if they are going to be in permanent loss and if yes, how long they have to wait until enough fees are earned which possible offset the impermanent loss. (Thanks for 0xMaki for this idea)
  • Allow LP provider to limit permanent loss by auto-withdraw like a stop-loss order
  • Allow LP provider to maximize permanent win by auto-withdraw like a take profit order
  • Show LP Permanent Loss/Win of pools pre supply

How to measure Permanent Loss/Win for one LP

  1. On withdraw of liquidity
    Withdraw Value: save the token ratio and total value in ETH or $

  2. Look for the supply transaction
    Supply Value: save the token ratio back then and the value in ETH or $ back then

  3. Calculate Permanent Loss/Win
    Calculate Permanent Loss/Win = Supply Value - Withdraw Value

  4. Do some kind of normalization to make the it comparable to others LP

  5. Variation would be to calculate the Supply Value with the present value to compare it to Hodl

How to measure Permanent Loss/Win for a pool

  1. Sum up all Permanent Loss/Win from the start of the pool

How to measure virtual Permanent Loss/Win for a pool

  1. Sum up all Permanent Loss/Win from the start of the pool
  2. Sum up all Impermanent Loss/Win from the start of the pool until now
  3. Add these two Sum

How to measure Permanent Loss/Win and Impermanent Loss/Win for a LP

  1. Look for every AMM Protocol used
  2. Calculate Permanent Loss/Win
  3. Calculate Impermanent Loss/Win
  4. Sum up all PL/W and IL/Win for a LP
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Yam 3 – a supply elastic money with a treasury

More Info

Dap: https://yam.finance/
Medium: https://medium.com/@yamfinance
Twitter: https://twitter.com/YamFinance
Discord: https://discord.com/invite/nKKhBbk

Addresses

YAM 3 token address:

https://etherscan.io/token/0x0aacfbec6a24756c20d41914f2caba817c0d8521

yUSD token tracker:

yUSD is also named yyCRV or YAM-yyDAI+yUSDC+yUSDT+yTUSD

yUSD: https://etherscan.io/token/0x5dbcf33d8c2e976c6b560249878e6f1491bca25c

yUSD token adress:

yUSD is also named yyCRV or YAM-yyDAI+yUSDC+yUSDT+yTUSD

yUSD: https://etherscan.io/address/0x5dbcf33d8c2e976c6b560249878e6f1491bca25c

Uniswap Pool YAM - yUSD:

https://etherscan.io/address/0xb93cc05334093c6b3b8bfd29933bb8d5c031cabc

Analytic:

https://uniswap.info/pair/0xb93cc05334093c6b3b8bfd29933bb8d5c031cabc

Other Pools with YAM Pairs:
https://uniswap.info/token/0x0aacfbec6a24756c20d41914f2caba817c0d8521

Buy or sell on Uniswap

https://app.uniswap.org/#/swap?inputCurrency=0x0aacfbec6a24756c20d41914f2caba817c0d8521&outputCurrency=0x5dbcf33d8c2e976c6b560249878e6f1491bca25c

Add liquidty

https://app.uniswap.org/#/add/0x0aacfbec6a24756c20d41914f2caba817c0d8521/0x5dbcf33d8c2e976c6b560249878e6f1491bca25c

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Insurance streaming is the way to go

First

I'm a long-term member of Nexus Mutual for around one year and this is pretty long for crypto these days. I'm not involved in the governance/community and things I describe may be underway.

The creation of yInsureNFT from yearn and the possibility to buy/sell cover on an open market is a development in the right direction.

I also do write this with yieldfarming.insure in mind because they are fresh and want to move forward. I do not hold or farm $safe right now.

To stream money, not send, is the nature of crypto.

The idea of sending money in large chunks is outdated. I assume that in the future money is not sent, but continuously streamed. I strongly see blockchain technology itself as a medium and every medium has some sort of natural properties and will eventually diverge to this properties. The natural way for the medium blockchain is that money is streamed, not sent.

Nexus Mutual cover model is not cryptonized

So if you look at Nexus Mutual, you have to buy a cover for a certain time, and when you don't need the cover anymore because you decide to move one, you just have to keep it. At least everyone can make a claim holding an insurance for a protocol. If you make a claim no proof having actual money in the protocol is required.

Yinsure.finance did change that: With yNFT you can sell the claim if you don't use it anymore.

Money streamed leads to insurance streamed

But we want a stream insurance model anyway, that's what the costumer in me wants. I'm imaging the following product:

If I have the need for a cover for a protocol, I give the insurance trusted access to my account, and they just stream the needed payment to them. If my risk level changes on that protocol the stream is adjusted the payment accordingly. Depending on my risk tolerate level and my funding I can set a percent of cover and adjust this anytime.

Final goal is to auto-balancing insurance cover for all my holdings

If this works, it's effortless to create the product I really want: A auto-balancing cover for all the protocols and values on my ethereum address which I can manually adjust anytime without to make any payment, just streamed.

Disscuss here

https://twitter.com/martinkrung/status/1305900781724471296?s=20

Links:

Nexus Mutual https://nexusmutual.io
yNFT: https://yinsure.finance/
yNFT Stats: https://stats.finance/yinsure
Farming $safe: https://yieldfarming.insure