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Hey friends 👋
It's been a busy month since we last spoke. We've seen quite a few things happen: multiple bank runs, massive airdrops, and even a senator from Massachusetts amassing an anti-crypto army. We've also seen influencers on Bankless ranting and raving about the US dollar collapsing and Bitcoin rallying all the way to $1 million. However, in my opinion, those events were just about the least interesting things that happened in March.
So, let's catch up!
(Un)Stable Coins
March saw a slew of bank failures that triggered a ton of market volatility and near-endless FUD¹ about the future relevance of the US dollar. On March 11, the world's most popular regulated stablecoin, USDC, broke from its peg, triggered by the collapse of Silicon Valley Bank (SVB), its main custodial partner at the time. Since this took place on the weekend, Circle, USDC's parent company, had no recourse until banking hours recommenced on Monday morning, and thus the value of the token hinged entirely on the market. Panic selling and opportunistic buying ensued.
¹ FUD
abbreviation, used as a noun
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fear, uncertainty, doubt
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Information spread by malicious actors hoping to benefit from crypto or stock volatility.
Buyers made out like kings, with the token returning to its peg pretty soon after trading recommenced, but it still made a lot of people rethink their allegiance to the blue coin. After all, a token so deeply aligned with the current banking system is not so different from it, for better or for worse.
During the depeg and since, there has been a lot of debate about what the ideal stablecoin design should be. Liquity's LUSD, backed exclusively by Ether, maintained its peg throughout the tumult, as did the (somewhat sketchy) offshore stablecoin USDT.
The biggest losers were coins backed by other stables, US dollars in bank accounts, or those which are undercollateralized by design like FRAX. It reminded me of when Terra's UST collapsed in some ways, and I found myself revisiting my article on stablecoins and thinking of ways I could revise it. In many ways, it's still quite solid, but I know it will be due for an update soon, in part because there are many new and interesting stablecoins being developed.
For those who are interested, here are the stablecoins I'm keeping my eye on...
NOTE: nothing that preceded or follows is financial advice
LUSD
Liquity USD is a stablecoin backed solely by Ether at a minimum collateral ratio of just 110%. The protocol charges no interest to borrow LUSD against ETH, but otherwise functions similarly to the original single collateral DAI, with automated liquidations by so-called stability providers. It is, in the opinion of many, the perfect design for a decentralized stablecoin.
RAI
RAI, from Reflexer, is reportedly Vitalik Buterin's favorite stablecoin, and yet, it differs from what one would typically think of when they hear "stablecoin". RAI is not pegged to the US dollar, but it functions similarly to the US dollar in that it retains its own price stability via a floating regime. Backed solely by ETH, and with a governance-minimized design, RAI could one day be run entirely autonomously by code executed by smart contracts.
GHO
From the team at Aave comes a uniquely…well… Aave stablecoin, GHO. Backed by deposits in DeFi's most popular protocol, users can mint GHO while still earning interest on their collateral. GHO aims to be DeFi's most popular stablecoin, and they're pulling out all the stops, with a mascot, memes, and of course, tons of utility. Expect GHO to be natively integrated into Aave's social network, Lens Protocol.
GLO
Do you understand how USDC works? No really, do you? In essence, users mint their USDC by depositing US dollars into Centre, an open-source technology from Goldman Sachs-backed Circle and Coinbase, and those dollars are used as collateral for the stablecoin. A common misconception is that these dollars are held 1:1, ready to withdraw at any given moment. In fact, there's a whole other business model at play. You see, more than 1/3 of the USDC's backing is held in profitable, relatively liquid assets like short-term treasury bills and corporate bonds. These assets earned Circle and Coinbase the better part of a billion dollars in profit last year.
GLO follows this same design but functions as a non-profit organization. The revenue generated from those treasury bills, explained transparently (unlike USDC), is provided to non-profits like GiveDirectly with the stated mission of ending global poverty. Maybe it’s the collectivist side of me but I greatly prefer this model.
AMPL/SPOT
I've previously talked about Ampleforth (AMPL) and my curiosity about this non-stable stablecoin. AMPL uses a novel elastic supply mechanism that literally changes the number of coins in existence (including in your wallet) to autonomously approach a price target of $1 USD at the 2019 valuation. This unique approach leads to two key features unique to Ampleforth:
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AMPL is very stable long-term, and very volatile short-term. In fact, because it doesn't follow the US dollar, it avoids inflation and, comparatively, gains value over time in fiat terms.
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AMPL has no backing and does not require one. It also does not require liquidators. It can suffer extreme short-term volatility, but over long periods, it has always remained flat, powered exclusively by math and automation.
However, while AMPL aims to target long-term price stability, users continue to need short-term stability for everyday spending. That's why Ampleforth created SPOT, a floating stablecoin, not unlike RAI but issued as a perpetual derivative backed by AMPL. While it is not yet live and thus subject to design alterations, it is expected to target $1 USD at the 2019 valuation like AMPL but without the supply volatility.
DLLR
I'll be honest. I’m not a fan of Bitcoin. It's built on Austrian economic theory (which I'm not entirely sold on), it's too transparent and too slow to be money, it's too volatile to be a store of value, and it's become too perverted and cult-like to be an inspiration. It is relegated thus to the role of a first draft, greatly improved upon since, and rendered more-or-less irrelevant in modern contexts.
However, many people disagree with me on that. Amongst them, a small selection recognizes Bitcoin's inutility for day-to-day transactions, but they avoid stablecoins on other, more robust chains on an ideological basis. They have sought to create something similar on Bitcoin sidechains. Interestingly, on one such sidechain called Rootstock, a DeFi protocol called Sovryn has created a stablecoin very similar to LUSD but backed by Bitcoin instead of Ether. So, for those of you who are all in on BTC and yet, for some reason, read my newsletter, this one's for you!
Speaking of Bitcoin
When banks started failing and USD-backed tokens depegged, the "doomers"... err Bitcoiners rejoiced. They declared that this was a testament to how broken the system is. And in some ways, they were right. Despite my distance from the culture (emphasis on cult) of Bitcoin, we share a common view: centralized power + finance = corruption.
In 2021, as a relatively fresh author in the crypto space, I wrote a deep dive on Bitcoin. It was the most positive thing I had ever written about the currency. Recently, as I began revising old articles, I considered deleting it altogether. But upon rereading it, I realized something: I love this piece. I'm proud of it. And I want people to read it.
However, it needed a rather massive revision. I clarified my understanding of the subject matter, improved the grammar and flow, and added a section that I want every person interested in Bitcoin to read. That section is about Zcash, which I believe is the Bitcoin that Satoshi wanted.
I'm not alone in this theory. One of the founders of the project, Zooko Wilcox, who was the author of the first-ever blog post on Bitcoin that Satoshi themself linked to, and who was present through the early days of the cypherpunks, regularly points to old posts from Satoshi claiming that Bitcoin was intended to be private and was merely held back by the technology.
For this reason, I believe that Zcash, a fork of Bitcoin which retains its monetary policy but adds in robust privacy features, is the best iteration of Bitcoin. I actually have a recommendation at the end of this newsletter where someone really unexpected says exactly the same thing. But for now, check out my updated post about Bitcoin with its brand new lots of AI prompts + lots of photo editing cover image ⬇️
Heads up: it’s loooooong.
L2 ‘23
Before I got sidetracked talking about stablecoins, I was trying to update you on the happenings of the last month. And how can we talk about the last month without talking about airdrops?
After last months lackluster Collabland airdrop, there was a small one for users ZigZag Exchange, a DEX on zksync. Then there was a massive one for Arbitrum users. After well over a year of speculation, the ARB governance token was finally launched, and many folks, myself included chose to cash out.
Why? Because I don’t see myself governing Arbitrum. I earned my airdrop for being an early adopter and an explorer. That’s what I’m interested in, exploring. If I’m going to govern something it’s because I believe strongly in it. In that sense, I’m more likely to choose to govern Optimism, since there’s more of a vision there that’s rooted in governance experimentation and long term goals.
Even More Optimism
With that mention of Optimism, I’m reminded that I have some pretty big news to share with you all: the results of Optimism’s Retroactive Public Goods Funding Round 2 (RPGF2) are in, and I was lucky enough to be awarded funding under the category of Education.
I'm so grateful for the support I received in RPGF2. Although it wasn't a life-changing amount, it meant a lot to see people vote for me. It's like when people mint my patronage NFT on Zora. Even though I'm not halfway to breaking even on that project, it still makes me happy every time someone mints.
I want to clear up a bit of a misconception about RPGF2. It's not a grants program. I was told that it's about rewarding previous contributions to the space, not about expectations going forward. My posts on Mirror, my newsletters, and my many tweets about Optimism, public goods, open source, Ethereum, and Layer 2s all played a role in me being considered. And you could be a recipient in a future round too! So, keep doing what you're doing.
To sum it up, in March, I was rewarded for my belief in and use of two optimistic rollups. And right near the end of the month, L2 '23 received another pleasant surprise: the launch of two zk rollups with Ethereum Virtual Machine equivalent code compatibility, aka...
zkEVMs
After many months of teasing, both Polygon and zkSync launched their new zkEVM rollups, claiming to be the forebears of a coming generation of Ethereum scaling solutions. So far, in my experince, they’re both slow and expensive 🙊 But I’m optimistic as always that the technology will improve quickly.
As of yet, no word on airdrops, so if anything, you may as well keep on keeping on, or rather…
And in the meantime, it’s time for the best part of the newsletter…
Recommendations
After everything I've said above about stablecoins, I think most people will still agree that USDC is one of the safest assets on the planet. It's unlikely to face regulation as it's essentially a proxy of the US dollar, and since the failure of SVB, the custodian for USDC is now BNY Mellon, a Systemically Important Financial Institution (SIFI), meaning it's too big to fail. Therefore, many will still prefer to hold at least a portion of their assets in this token.
And what's the best place to store your USDC? PoolTogether, of course! And now, there's a really interesting partnership coming from PoolTogether and Juno Finance. Learn all about it in my new article ⬇️
Speaking of PoolTogether, a community-built project that includes a prize-savings pool of staked Ether is gaining popularity. The prizes are split between depositors and charity. Currently, over 156 stETH have been deposited, and a new charitable partner has been added. Learn more ⬇️
Near the top, I mentioned an unexpected ZEC evangelist. In the OP Radio Podcast interview, the project lead at Taho, an open-source Ethereum browser wallet, somewhat off-the-cuff, states that Bitcoin and Ethereum's overly transparent approach is a flaw. If it were possible at the time, Bitcoin would look a lot more like Zcash, and DeFi as a whole would be very different. Obviously this something I agree with.
That’s it for today friends. And by the way, in case you haven’t already, go do your taxes! If you live in Canada or the US, you can use CryptoTaxCalculator for a smooth experience, that’s the best I’ve personally experienced.
Thanks again to CryptoTaxCalculator for sponsoring this issue.
Until next time,
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