What Could Bank Runs Mean For Crypto?
Flash Loan & Price Manipulation Attacks | Optimism Grant Proposals | Rainbow Wallet | DAO VC Investing | nftperp
GM Intels, this is your Daily Bolt briefing.
This morning saw CPI inflation metrics meet expectations.
And in response…
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Key Discussions Happening Today
1/ Moremoney Twitter Space - Flash Loan & Price Manipulation Attacks
Preview: Sirmoremoney from Moremoney discusses the flash node attacks and security in the DeFi space with references to the Platypus and Mango Finance exploits. Click here to listen to the full episode.
Length: 55 mins | OUR NOTE: 3 mins
Flash loan attacks involve taking advantage of the ability to borrow funds without collateral for a very short period of time to manipulate prices or steal funds.
The Platypus attack was used as an example to illustrate an attack involving a bug in the contract.
Price manipulation attacks involve manipulating the price of a token on a decentralized exchange (DEX) to borrow more funds than the collateral actually represents.
The Mango and Lodestar attacks were used to illustrate an attack that involves the manipulation of collateral prices.
2/ Subli Twitter Space - Alluo Founder on Optimism Grant Proposals
Preview: 0xtuytuy.eth from Alluo DAO joins to discuss the recent grant proposals on Optimism and new integrations into the Optimism chain. Click here to listen to the full episode.
Length: 55 mins | OUR NOTE: 4 mins
Here are some key takeaways:
OpGrants is a grant program initiated by the Optimism team to bootstrap the ecosystem on the Optimism mainnet
0xtuytuy.eth applied for a grant to fund his project, which involves running a campaign to increase the visibility of the Optimism blockchain.
However, due to a strict no-sale rule, he had to change his proposal to incentivize engagement with the Optimism ecosystem through a series of quests that would be run through a protocol called Tied Protocol.
3/ OP Radio #19: Vivian, Mike and Mack discuss Rainbow Web3 Wallet
Preview: The host Mack, a content strategist at OP Labs, together with Vivian who works at Optimism, and Mike, the co-founder of Rainbow Wallet, discussed the Rainbow Web3 Wallet. Click here to listen to the full episode.
Length: 43 mins | OUR NOTE: 2 mins
Here are some key takeaways:
It’s (Web3 wallet) a key pair. It's a prerequisite to have a wallet in order to interact with any of the awesome fun projects in Web3.
Rainbow applied to Optimism governance for 420,069 OP tokens to give away to Rainbow users.
Rainbow is about to become a wholesale replacement for Metamask.
4/ Blockcrunch Ep. 232 - Seed Club Ventures Investing $20M into DAOs
Preview: Anthony and Timour, Investors in Seed Club Ventures join Jason to share their opinion on decentralized autonomous organizations (DAOs). Click here to listen to the full episode.
Length: 50 mins | OUR NOTE: 4 mins
Here are some key takeaways:
Cabin DAO is building a network city which is essentially a collection of properties around the world tied with a shared culture, community, economy, and governance system.
3 things that Timour and others want to focus on; they want to be sourcing the best possible deals, running due diligence, evaluating them, making investments, lastly is to support the portfolio.
DAOs and Cryptos are speed-running experiments, economics, and governance because it is happening so fast.
5/ blocmates - Latest Updates from nftperp
Preview: Jedi from blocmates invites Jose, the founder of nftperp to discuss the latest updates from the protocol including the latest events, future roadmap, product features. Click here to listen to the full episode.
Length: 40 mins | OUR NOTE: 4 mins
Here are some key takeaways:
nftperp is a platform that allows users to trade NFTs through perpetual swaps, which are derivative contracts that allow traders to speculate on the price of an underlying asset without owning it.
The platform is currently running the third trading competition season.
The partnership with Sodium Finance allows users to tap into their protocol liquidity, and lenders can use nftperp as a hedging tool when underwriting loans.
On the Revelo Intel platform, we’ve summarized these 5 episodes and in total, would have saved you: 3 hours and 46 minutes!
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Note of the Day
Blockbytes - Across the Chains Ep. 24
In this episode, Austin Rampt and Clay Kilgo are joined by Nick Drakon, Justin Silver and Mark Jeffrey to discuss Silicon Valley Bank collapse, Ethereum, digital assets and more.
Read our notes below to learn more.
Major Banks Lose Billions
The 4 biggest banks in the U.S. lost $52B in value on Thursday.
JP Morgan lost $22B, Bank of America lost $16B, Wells Fargo lost $10B and Citigroup lost $4B.
The Silicon Valley Bank has been officially closed by California regulators.
Banks needed to have a certain percentage of equity in their books compared to how much assets they were managing.
Banks needed to put their assets into safe investments which are treasury bonds, monies which are issued by municipalities and states, corporate bonds and mortgage-backed securities.
There are two classifications of bonds which are available for sale and held to maturity.
If you put the bonds in the held-to-maturity bucket, you’re not allowed to sell it.
If the bond in a year’s time is worth 50 cents on the dollar, it doesn’t matter and it doesn’t show in the financial statements of the bank because you’ve told the industry and investors that you don’t intend to sell these bonds and you’re going to hold them to maturity.
All these banks started playing into the held-to-maturity bucket because as these things traded up and down, they didn’t show up in the financial statements then they end up in a situation called duration mismatch.
Both Silvergate and Silicon Valley Bank took all these customer deposits which are liabilities then they went and bought long-dated treasuries because they wanted a yield.
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Silicon Valley Bank or SVB bought $80B worth of 10-year bonds for an average of 1.63% coupon.
In these two banks, if everyone wants their money back right away, they don’t have it in cash because they have it under long-dated treasuries so they have to sell them at a loss to give the money back to the customers.
SVB is known for VC-funded start-ups.
As interest rates shoot up, their inflows dry up because VC funds are less likely to invest in start-ups.
Their existing customers, who they rely on and lent money to, are now in a cash crunch and can’t raise more funding and more money.
Once one person asked for their money back and other people started getting worried, then you get a run on the bank and you have to sell these bonds at a huge loss.
Silvergate has the same issue in terms of duration mismatch but the reason they had a run on the bank was different.
Marc Cohodes called out that SBF was a crook and would be in jail then after that, FTX collapsed.
He then called out Alan Lane, CEO of Silvergate Bank, that Silvergate with their Silvergate Exchange Network or SEN are crooks because it was very easy for bad actors to funnel money into the system and pass it around through the SEN outside the eyes of the regulators.
In the Great Depression, the average capital outflows from banks that all went bankrupt was 33%.
69% of the capital in Silvergate left in Q4 because of the accusations around the criminality.
Everyone is going through every balance sheet of every listed bank right now to try and work out who has a high enough level of unrealized loss on the held to maturity book compared what kind of capital they have that will cause chaos in the market.
There’s so many factors at play here and the powers that be that are going to shake things up.
The quantum of the practice within the banks varies greatly.
The percentage of long-dated securities vs. at-call funds or available for sale bonds is a case-by-case basis.
JP Morgan’s billion dollar losses in the held to maturity bond portfolio doesn’t matter to them because they have access to capital very easily.
The Federal Home Loan Bank called the money back that they loaned to Silvergate when Silvergate was about to blow up, effectively blowing them up.
Some of the regional banks are going to go under.
The banks in Europe are run like a lemonade stand that are run by eight year olds compared to the way the U.S. banks are run.
Signature also has a closed system that allows these internal transactions which is called SigNet.
Marc Cohodes said that he’s going after Signature next.
Anything is possible.
Housing Financial Services Committee Hearing
Some people have opinions and some of them are very much based on things that aren’t necessarily true.
Some people are knowledgeable but they are talking to lots of people who aren’t necessarily knowledgeable.
The title of this hearing “Coincidence or Coordinated” cannot be emphasized enough how important just that alone is.
The suggestion is that the coordinated multi-agency action that’s been seen over the last couple of months or so that is destructive to the crypto industry has been intentional.
The hearing was very positive and there were a lot of criticisms towards Gary Gensler.
The overall conversation in aggregate and direction of it is very important.
Anything good that comes out of a regulation, Coinbase is going to have a hand in it.
If you want to attack something, one of the ways to do it is to get your narrative out there but in a very big way.
NYAG Claims $ETH is a Security
The New York Attorney General claims that Ethereum is a security in the Kucoin lawsuit.
Kucoin is not an American company so the prosecutors are prepared to argue this case and they’re not bluffing by any means.
They know very well that Kucoin is not going to engage and just going to ignore the lawsuit.
Whatever the judgment is, even if they don’t show up, it can’t be used for precedent.
What’s really happening to crypto is not really getting trials and things argued on their merits.
This probably does eventually become a Supreme Court thing.
The Federal Government has a success rate of 99%.
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