GM, this is your Daily Bolt briefing.
In today’s note of the day, learn more about the narratives, pros, and cons around the Ethereum Shapella upgrade, and what issues ETH, L2s, and alt L1s have in common.
But first, as promised, we’ve brought you some key points and segments included in our latest breakdown on Chronos Finance. All accounts with FREE memberships are able to view this breakdown in it’s entirety.
Over and out.
Breaking Down Chronos
Brief Overview: Chronos is a decentralized community-driven liquidity layer and ve(3,3) AMM on Arbitrum.
Here are some key takeaways:
Liquidity pools
Users that provide liquidity to Chronos receive LP tokens that represent their shares in a given liquidity pool.
These LP tokens can be staked on the platform to make users eligible for CHR emissions, with the base emission rates being determined by the votes on Chronos gauges by veCHR holders.
Chronos utilizes an upgraded Masterchef contract (the contract developed by Sushi that many DeFi protocols used to implement staking) called the Reliquary, created by the Byte Masons.
This mechanism allows liquidity providers to earn boosted rewards from emissions over time.
This way, the longer the liquidity remains staked in the protocol, the higher the CHR percentages per epoch those LPs will get.
Upon staking LP tokens on Chronos, users receive a maNFT (maturity-adjusted NFT) that tracks the amount of tokens that have been provided as well as the amount of time that they have been staked.
Economics
Finding a sweetspot for fees that generates protocol revenue while still maintaining a great execution price for traders will lead to an increase in both locking and token incentives for liquidity providers.
Fees include: vAMM fee: 0.2% & sAMM fee: 0.01%.
The transaction fees on protocol pools can be used strategically to capture maximum revenues for veCHR voters.
Tokens
CHR is the utility token of the platform and is used to incentivize users to add liquidity and stake their LP tokens on the platform in order to earn revenue from token emissions.
There will be 50M CHR tokens available at launch and more will be emitted into circulation over time.
Business Model
Under the Solidly model, loyalty is expressed in the consistent accumulation of the native token and the locking into veTokens.
Liquidity providers earn CHR emissions, where the distributed amount is proportional to the allocation of voting power on an epoch basis.
veCHR holders vote on which liquidity pools should receive CHR emissions and earn trading fees from the pools they vote for. Fees are distributed in the form of pool tokens; these rewards are streamed and can be claimed at any time.
External protocols can bribe veCHR holders to vote for their pools.
theNFT stakers earn revenue from higher trading volume.
Since token inflation is necessary for the system to work, the revenue growth would have to either match or exceed the inflation rate to be a good long-term investment and be considered a profitable business.
Empire - ETH's Shapella Upgrade : Bull vs Bear Roundup
In this episode of Empire, Santiago, and Jason discuss the bull vs bear case for ETH's Shapella upgrade. Shapella is here, and ETH is unlocked for the first time! Does this mean a giant supply of ETH sell pressure will hit the market? They also discuss the NFT killer use case, Multicoin's L2 thesis, and if the bear market has ended!
Read our notes below to learn more.
NFT NYC and the NFT Killer Use Case
NFT NYC is booming, with events and conversations focused on topics like L2s, scaling, and other use cases for NFTs beyond art.
Digital fashion and loyalty programs are two popular use cases for NFTs that people are excited about.
The use of ETH as the primary currency for NFT transactions presents a psychological barrier for some consumers but also reinforces the use case for holding ETH.
Utility, rather than scarcity, may ultimately drive the value of NFTs, with Ethereum seen as a promising platform for this.
Shapella is Here
Shapella is the collective name for Shanghai and Capella upgrades on Ethereum that allow unstaking for the first time since ETH staking was introduced in December 2020.
Shapella officially transitions Ethereum to Proof of Stake and enables the end-to-end unstaking flow.
The big bear case on ETH was that there was going to be a huge unstaking event that would be a big liquidity event for the market, but this turned out to be a "nothing burger" event.
There is a withdrawal queue, which is currently limited, and people who stake ETH probably like ETH and are not likely to sell it.
Other key performance indicators to watch include the shift from centralized staking players to decentralized options like Lido and Rocketpool and what that does to the staking rate and yield.
There may be tax liabilities on staking rewards, which may lead to some selling pressure on the rewards themselves, and a range of derivative products around staking rewards may emerge over the next few years.
Multicoin’s Thesis: Solana, L2s & Speed vs Security
The Multi-Coin episode is coming out on Tuesday with Kyle Samani and Tushar where they spoke publicly about FTX, Solana, and their fund, which got crushed.
Santi was one of the first investors in the Multi-Coin fund in 2018 or 2019 and believes in their contrarian investment strategy.
Being a contrarian for the sake of it does not make sense, and investors need to think fundamentally and understand non-consensus trends to make money.
L2s are hot right now, but he thinks that any L2 with its own token and decentralized governance will eventually vote to become an L1 because token holders are greedy, and L1s get a significant valuation premium.
Santi had intellectual discussions with people who were not bullish on L2 solutions like DeFi.
They believed that L2 eventually faces the same architectural issues as L1, which may bottleneck scalability.
Santi partly agrees with this perspective and thinks that decentralizing the sequencer is difficult and time-consuming.
The regulation may force people to decentralize the sequencer faster than they realize.
Santi is more bullish on Solana than Jason.
Santi likes Solana's advantage of being able to learn from Ethereum's mistakes and try new things, like the Solana phone.
Santi has historically invested in Ethereum-based projects but has also invested in Solana-based projects.
Crypto-native people need to push different solutions for the space to progress.
Moving fast and breaking things in crypto is different from Web 2.0 and can have more severe consequences.
Is the Bear Market Over?
Bitcoin is over 30k and ETH is over 2K. Bitcoin is up nine percent in the last week and ETH is up eight percent.
Santi believes that crypto markets have bottomed out and there is a higher chance of seeing 40K Bitcoin and 3K ETH.
He is excited about the development happening in the Bitcoin and Ethereum camps, such as exploring L2 scenarios and lightning payment transfers.
The market is still correlated with the general market and any macro blow-up or bank run will impact the asset class.
Inflation is cooling, and it's tough for the Fed to raise rates, so stocks are up, and central banks are buying more gold than ever.
He feels bullish on the current state of crypto.