💣 Stars Arena Explodes Like A Supernova

A weekly recap of the largest crypto events and narratives, with an extra dose of insight.

Here’s what we have for you:

• Stars Arena implodes

• Bond markets melt down

• dydx doesn’t like the US

• Tokenised assets on Base

• Frax V3

• Metis moving back to Ethereum

Gm, new week, new me. I’m just kidding. Human’s don’t really change, and neither does the amount of developer effort put in when forking a protocol. Yes, I’m talking about Stars Arena. The faster they rise, the faster they fall. Stars Arena, a friend.tech fork in the conceptual sense, quickly garnered almost $3M in TVL on Avalanche, with many CT “infleuncers” shilling it. However, on Saturday, it was hit with a security breach that left the entire protocol drained. This came after an earlier scare mid last week which exposed another vulnerability. All that to say, be careful aping into new forks.

In other news, Solana released its 1.16 update last week. Included in the update is better support for ZK proofs, and confidential transfers, which only show sender and recipient addresses, but keeps the transfer amount and address balances confidential. How cool is that? In addition, VanEck put out a pretty ridiculous recap blog that estimates that Solana could eventually bring in as much transaction revenue as Ethereum. Now that would be truly crazy.

Lastly, Thorswap has chosen to pause its front end for cross-chain swaps. This was likely done as a response to North Korea apparently using Thorswap liberally to launder exploited funds. As a result, transaction volume on ThorChain hit a record high of $355M a few days ago. And as a dev, you don’t really want to be helping North Korea fund its nuclear program. This is a contentious issue that will likely come up again and again, and I’m not really sure what the correct solution is. We want permissionless immutable smart contracts, but we also can’t be helping fund nuclear programs.

-RektRadar

And they say crypto is volatile? Today, we’re going to be talking about macro stuff. It’s getting too important to ignore. You know those portfolio allocation rules that say you should have your age in bonds? Yea, you probably aren’t doing so well.

TLT, an ETF that tracks 20 year US treasuries, is down 50% from its peak during Covid. Yes, US treasuries, what should theoretically be the most risk-free asset in the world, is down 50%. And they make fun of us in crypto for volatility lol.

This is very much due to rising interest rates, which have increased from 0% to the current 5.5% in response to punishing inflation that hit the widespread US economy. As interest rates increase, existing bonds with a lower interest rate become less attractive. This causes their price to go down. To put some numbers to this example, you are an investor, you bought a treasury bond in 2020 that was paying 1%. Now the treasury is issuing bonds that are paying out 5%. Suddenly, the 1% bond you hold is pretty garbage, so you sell it to buy the 5% bond.

That happened across the entire bond market as the treasury continues to hike interest rates, and the recent move has been exacerbated by a super strong job report. In September, nonfarm payroll was 336K, much much higher than the 170K that was expected. That means nearly double the jobs was created than we thought and that the labour market is much hotter than we thought, leaving more room for interest rates to hike even further before the economy takes a hit.

Ripple gets a digital payment token service license

• Last week, Ripple received its Major Payments Institution license from the Monetary Authority of Singapore. Singapore has been making large strides on the regulatory front, providing a similar license to Coinbase.

• This means that Ripple can now enable digital payment token services, allowing businesses, financial institutions, and more to use crypto for various use cases such as cross-border payments, crypto liquidity, and more.

US bad says dydx

• I guess the regulatory pressure is too stronk. dydx founder Antonio, tweeted out that the dYdX chain will not have validators or other infrastructure based in the US and will also not be available to users

• US degens keep winning. In this case, Antonio says that they don’t have control over the validators as that is up to staking, but essentially they will provide zero support to US based validators.

Tokenised assets go brrr

• Tokenised treasuries aren’t anything sexy, but there’s already $700M of them issued onchain, and this shows no signs of slowing down anytime soon. Joining the party is Backed’s tokenised short-term US treasury bond ETF on Base.

• As like many other tokenised securities, these are only sold directly to qualified investors and licensed resellers, meaning that they are very much permissioned. Hopefully in due time, we get permissionless access to these tokenised securities.

Frax Finance finally launched its V3 docs. There is a huge amount of alpha in here so stick around for this one.

With the V3 upgrade, users will be able to stake FRAX for sFRAX, similar to how users were able to stake frxETH for sfrxETH. The goal of sFRAX is to deliver returns that track the interest on reserve balances of the United States Federal Reserve, or more simply put, the existing federal interest rate.

Essentially, this is a way for onchain degens to tap into real-world yield through Frax’s new real-world entity, FinresPBC. Importantly, this should bring increased revenue to the protocol, with the revenue first being used to increase the FRAX’s collateral ratio to 100%. Once achieved, excess revenue may be distributed to veFXS holders or used to buy back FXS.

With V3, Frax will also be launching FraxBonds (FXBs), which are zero-coupon bonds that converts to FRAX on maturity. This means that you can essentially buy these bonds at a discount to par value, to “lock in” your interest rate.

These are all really cool mechanisms that I trust Frax will execute well on, and ultimately, it should drive increased profitability to the protocol and positive demand for the FXS token.

Metis moves transaction data to Ethereum

Metis recently launched a $5M DeFi incentive program a month ago called The Metis Journey. The campaign will kick-start by allocating 100K METIS tokens to Aave, and other DeFi protocols will soon receive these incentives in due course. However, that’s not the only move that Metis has been making.

The community has voted to return to storing all transaction data on Ethereum mainnet. What does that mean? It means that Metis has improved its security and decentralisation, but will be slightly more costly.

Is that a big problem? Not really. Transactions on Ethereum L2s have historically been an order of magnitude cheaper than mainnet anyway, so a small increase isn’t the end of the world.

However, what is important here is the “Ethereum alignment”. For example, you saw something similar with Celo a while back when it proposed transitioning to an Ethereum L2. Over the coming months, I think that we’ll see an increasing amount of apps and networks who tried to do their own thing migrate back to the Ethereum ecosystem, as the infrastructure, network effects, and liquidity are just too strong to ignore if you want to build a successful protocol.

If you love our newsletter, then your friends will love it too.

Refer a friend today by clicking on the button below.