In this episode of Bell Curve, Mike, Jason, Vance, and Michael discuss the implications of the SEC shutting down Kraken's US staking operations, a16z’s impact on Uniswap governance, and more!
Read our notes below to learn more.
Operation Choke Point: Kraken's staking service shutters
There may be more pain to come in the regulatory space for crypto, as evidenced by the recent actions taken against Kraken's staking service and rumors of a potential crackdown on retail staking by the SEC.
The market is reacting negatively to these developments, and it's unclear what the long-term impact will be on the industry.
Additionally, there are concerns about on-ramps to crypto being blocked by credit card companies and other financial institutions, which could slow the adoption of the technology.
However, it's important to note that the crypto industry has weathered regulatory challenges in the past, and there are solutions in place, such as stablecoins, that can help mitigate the impact of these actions.
The SEC's enforcement has taken action against Kraken over its staking program.
The SEC has said that intermediaries offering investment contracts in exchange for investors' tokens need to provide the proper disclosures and safeguards required by securities laws.
Staking is different from lending and it is important to ensure that retail investors have the right safeguards and disclosures to protect them.
There are no clear rules or laws that can guide the development of new products in the crypto industry, which creates uncertainty and confusion for entrepreneurs.
The SEC's action against Kraken could have a chilling effect on innovation in the crypto industry, and call for more clarity and transparency from regulators.
However, the news could be positive for liquid staking providers such as Lido or Rocket Pool, which are more decentralized than exchanges like Kraken.
Money transmitter licenses have pushed companies to develop non-custodial wallets, which may have positive externalities for the industry.
However, there is still a need for companies to provide security and customer support to maintain and own the customer relationship.
Does not believe that this will lead to immediate sell or withdrawal pressure for ETH staking, as the price points are currently underwater for most stakers.
Genesis reaches an agreement with DCG and key creditors
The recent news regarding the settlement between DCG and creditors representing $2 billion worth of claims against its bankrupt Genesis Lending division, including Gemini, is a positive development.
The agreement includes DCG restructuring around $1.7 billion of debt and other obligations owed to Genesis, with DCG contributing an equity interest in another unit, Genesis Global Trading, to the bankrupt lending arm.
However, it's important to note that this deal doesn't mean creditors will receive their money back entirely, but it provides some closure and removes significant risk from the market.
While there may still be lawsuits, it's an essential step towards salvaging more value from the assets.
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Uniswap governance whale games
In December 2021, Uniswap proposed to deploy onto Binance Smart Chain (BSC) by using either Layer Zero or Wormhole as the bridge.
After a temperature check, a majority voted for Wormhole.
However, Andreessen Horowitz (a16z), who had not participated in the temperature check, later voted against Wormhole.
Many people were upset by the outcome and accused a16z of voting too much.
However, others pointed out that this is how governance tokens work, and the system is working as intended.
Different governance models are being tested in other protocols, such as representative democracy and two-chamber voting mechanisms.
It's worth noting that Uniswap is trying to expand onto other chains because their business license is expiring in April, and they want to get ahead of it.
Uniswap decided to choose Wormhole Network as its preferred Layer 2 scaling solution.
The decision was made through a community vote, in which A16z, a venture capital firm, had a significant say.
This shows the challenges of governance in decentralized organizations, the responsibilities of the community in governance, and the need for representative democracy in token governance discussions.
Stargate reissues their token supply
Interesting to see the Stargate situation play out, where there are discussions around reissuing the token supply due to Alameda owning 10% of the total supply from the community sale and not being able to control those wallets anymore.
While some see the rationale behind this proposal, others believe it sets a dangerous precedent for changing the token model and supply.
This shows the need for rules and regulations around token releases to ensure security in capital markets.
Alameda was able to become a kingmaker in the crypto space and projects were willing to take Alameda’s money despite concerns.
Super apps and what's never coming back
Spark is a new chain that Maker is releasing in April 2023.
Spark is a new lending protocol.
The main advantage of Spark is that it has a line of credit from Macro called DAI Direct Deposit Module (D3M), and they do not need to pay liquidity providers.
The other unique thing about Spark is that it integrates with Element Finance, which is a protocol that strips out variable versus fixed lending rates, allowing borrowers to borrow at a fixed rate.
There is a convergence of business models of some of these big DeFi protocols, and founders need to be more nimble and scrappy, moving away from building for the market that existed in the past and shifting their focus toward the future.
DeFi is coming back, but the long-tail froth of people thinking that the Tams are unbounded and that everyone can participate in it is not coming back.
There will be large winners in some categories, but it will not be as large as in the past.
The need for conviction and a clear plan for success is important when pitching to investors.
MakerDAO is an innovative company that has successfully put real-world assets on the blockchain, despite its endgame being unclear.
The importance of being the number one player in a category in order to be a viable investment is also emphasized.
Infinity pools, Google's $100B mistake, and AI value accrual
While large companies like Google, Microsoft, and Baidu may have an advantage in developing the most powerful AI engines, there may still be opportunities for startups to build on top of these engines and create valuable applications with unique UI or user experiences.
However, it's possible that AI may not live up to its hype and simply lead to incremental improvements to existing products, rather than entirely new and revolutionary applications.
As for the potential for AI to take over governance in decentralized organizations, it's an intriguing possibility that could have significant implications for how these organizations operate and make decisions.
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