Welcome to this 32nd issue of the Chain Reaction newsletter published on the 22nd June 2022.
What you can expect in this newsletter
In the News
What we're reading/watching
Editor's Note (from Captain DeFi)
The Celsius collapse continues to unravel as do the prices continue to fall for the majority of other cryptocurrencies as we see continued fear driving markets lower. Whilst it's important to zoom out and look at the long term we are seeing current a lot of people suffer who were over leveraged and they're feeling the pain. To top it off, we're also seeing issues now with Solend (a DeFi protocol on Solana) as they appear to be doing anti-DeFi things in order to avoid liquidity issues.
It makes us think of how fast this space rose with high yields and returns leading to FOMO of investors and corporates and VCs. They continued the mantra of over leverage and returns driven only by more people piling in. Whats being witnessed now is a clearing our so let's hope that those who are keen to build and create utility and sustainability can survive the market forces.
Anyway, let's all watch together as the majority of media continues to rally against crypto but paint it all with one broad brush stroke. It's deserved though of some areas but not all. What's being witnessed now is a clearing out so let's hope that those who are keen to build and create utility and sustainability can survive the market forces.
Over and out for now.
In the news
The following comes from BetaShares weekly crypto focused newsletter - check it out in full over here for more data analysis and other insights: https://www.betashares.com.au/insights/crypto-blood-in-the-streets/
Also check out Justin's latest article on Livewire here:
Crypto platform Celsius pauses withdrawals and transfers
Adding to crypto volatility, lending and trading platform Celsius Network announced it was “pausing all withdrawals, swaps, and transfers between accounts”, citing extreme market conditions. The firm reportedly had about $12 billion in customer assets as of May across 1.7 million users, as reported by the Financial Times. Celsius’ issues seem to be stemming from a combination of illiquidity and leverage. A portion of the assets’ illiquidity on its platform stems from ETH 2.0 staking. In a note to clients, Celsius stated: “Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals…We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations.”
Coinbase to cut staff by about 18%
After expanding to about 5000 employees, Coinbase has announced that it will cut staff by about 18%. In a letter to employees, CEO Brian Armstrong wrote: “As we operate in this highly uncertain period in the world, we want to ensure we can successfully navigate a prolonged downturn…Our employee costs are too high to effectively manage this uncertain market. The actions we are taking today will allow us to more confidently manage through this period even if it is severely prolonged.” Coinbase isn’t the only crypto company to downsize due to macroeconomic conditions. Other firms include BlockFi, laying off 20% of its 850 employees. Additionally, Crypto.com, Robinhood, and Gemini have revealed downsizing plans in recent months of roughly 5%, 9%, and 10% respectively.
Microstrategy leads crypto-related stocks lower
One of the biggest losing crypto equities last Monday was MicroStrategy, which saw its stock fall 25.18% before recovering slightly through the week. The company currently owns 129,218 BTC across two corporate entities. At a price of $22,960, MicroStrategy would be down more than $1 billion on its bitcoin bet. A bitcoin price of $21,000 had been talked about as a point at which the company could face a margin call, but CEO Michael Saylor explained in a tweet that “MicroStrategy has a $205M term loan and needs to maintain $410M as collateral. Microstrategy has 115,109 BTC that it can pledge. If the price of BTC falls below $3,562 the company could post some other collateral.”
This week we are looking at Jubi DAO which is also going to feature at our upcoming June 29th meetup event (see link here: https://www.meetup.com/australian-defi-association/events/286252628/). This DeFi project provides a no-code solution which creates smart contracts to manage your web3 project administration from pre-sale/SAFT fundraising through to token launch, allowing you to focus on what makes your project unique.
More details on how it works below and check out their website here https://www.jubidao.io/
Jubi DAO brings all token admin on chain via our system of smart contracts. All configured and deployed via our dapp - no devs needed We were sick of spending time deploying smart contracts to manage token allocation and vesting for team/advisor/pre-sale/SAFT or (often worse) not bothering and managing it all via spreadsheets.
Jubi DAO’s system of smart contract services brings the management and accounting of this process on chain, transparently storing all the rights, obligations and needs across founders, community and investors
The system aims to provide a solid foundation by exposing policy settings, allowing founders to control key aspects of the process whilst encoding best in breed governance and mechanics to remove the cognitive load for all participants. Bootstrap your product, not your admin, reach out to us on the Jubi Telegram https://t.me/+nHI8fTOSGiZjOThl
This week we asked our community the following question:
given the collapse of prices right now across crypto - does it affect your belief in this space, the projects, the ideals of blockchain, DeFi, web3?
Here's some of the responses from our Discord
It is sad to see some of our fellow crypto investors get burnt in this bear market. My core belief of what web3, blockchain and defi stands for is not shaken. The underlying principle is to give independence to people, decentralize and to be trustless. It’s a web for the people but then we all know it is far from being that. What is failing is the greed and the money grab that was happening. In a way this shake up is good, will rid us off the copy paste, cocky(Luna) and greedy projects(celsius). What will stand out will only be those which have strong community and governance and those which are good, original ideas.
From Lunar 'Lander
Too right, Mate. While it's certainly rough times, and we'll see many projects wither during this Winter, the good projects will play the smart cards, building community, fostering cross-project collaboration and delivering Utility. Those Defi projects that bring platforms / solutions to market, especially those that drive non-trading volume for their tokens, are poised to go ballistic come the next thaw.
I agree, every crash in crypto history has lead to new innovation, and also killed off projects that are hype without substance. Sad when some substance projects also go down in the mess though. Future of crypto is not in another meme coin, it's in the projects impacting and bridging with meatspace, new protocol innovations etc. that make web3 easier to use instead of the current SaaS etc., projects that provide function and utility (yes, that utility can be a community, and yes, that could result in a meme coin, but the meme coin isn't the raison d'etre)
I think Blockchain (Web3 in general) is clearly still the technology of the future. The current crash was caused by basically external factors -- interest rates/inflation -- which have affected all asset classes. Because Crypto is such a nascent asset class, it's more volatile and investors are abit more jumpy when dealing with it. A bear market does not change the fundamental fact that Web3 allows for disintermediated, trustless, transactions with strangers, that it allows for people to create together across borders (regulatory, cultural, or national), and that it is simply better for things such as finance.
I agree with most of it apart from the crypto crash being driven only by external factors. Many tokens are highly leveraged and other tokens have no utility meaning they have no real support. If they had intrinsic utility and less leverage, we would perhaps not been in a total crash due to external factors. We must learn, improve and evolve.... next time will def be better
response from NewTullius
True! -- Crypto has lots of poorly designed protocols and coins that are essentially ponzi schemes, which were always bound to fail at some point. And supply-limited, over-leveraged token economies also are inherently unstable. But (and maybe this is abit macabre) -- the fact that the rest of the world is hurting too gives me some hope -- good assets in all classes are being hit. The good projects in crypto are still good. Many of them will recover. And yes! We must learn from these crashes.
This topic kept going but you can see more in the Discord here - https://discord.gg/adyGUSaHFQ
Data as at 21s May 2022 - 9:50pm
Market Moves (from CoinGecko)
NFT Moves (from CoinGecko)
What we've been watching/listening to
[Video] Weekly wrap up from the Bankless team as we entered a proper bear market - https://www.youtube.com/watch?v=lCb5XNN9IrA&ab_channel=Bankless
[Video] Digging into Celsius and Three Arrows Capital and the continued issues with so-called DeFi products and risk management. Robin from The Defiant chats with Bobby Ong from CoinGecko and c-squared from IndexCoop - https://www.youtube.com/watch?v=Fu3pI6dUQWs&ab_channel=DeFi%2CNFT%26Web3Insights-TheDefiant
[Video] A discusison here of the differences between decentralised and centralised exchanges with Ethan McMahon from Chainalysis (who ran their LINKS event on Tuesday 21st June) - https://www.ausbiz.com.au/media/centralised-vs-decentralised-exchanges?videoId=22214
Get in touch
If you would like to dig deeper into why and how is the blockchain relevant to international matters and to get more insights on regulations and Defi knowledge, join us on our Discord: https://discord.com/invite/ZRCTDdsVEF