Weekly Wisdom #6

The journey to wiser shores continues.

Welcome, wanderer. You are still here. You are learning, levelling up and wandering this realm with purpose. Right here, right now, you are in a position to become a master of this Universe. The space tourists have left, and only the true cosmonauts remain. Keep at it, wanderer; you are becoming one of the wise.

Where does our wise wandering take us this week?

• Granrary V2

• Curve Stablecoin

• The Bull Whip EffectSubscribe now

Granary V2

Our journey begins on a sweet and sunny planet. Farmers roam the fields, grain grows graciously, and the smooth sound of bird songs fills the air. Welcome wanderer, welcome to the Granary!

Granary is a lending protocol that aims to disrupt the DeFi giants. Initially starting as an Aave fork, Granary V2 is becoming something so much more. I recently listened to this AMA to catch up on some of the alpha surrounding the awaited V2 launch.

Closely intertwined within the Byte Mason ecosystem, the borrowing and lending protocol aims to redefine how sustainable a lending market can be. A pivotal piece of their solution lies in the effective utilisation of rehypothecation.

Quite simply, rehypothecation involves depositing the funds/collateral that users have already deposited in the protocol into another yield-generating protocol. Are alarm bells ringing?! Your reaction may initially be one of trepidation; the recent FTX collapse highlighted the nefarious side of utilising user funds. This mechanism can be super risky if used without regarding safety and security. But, if done honourably, can overcome one of the most pivotal problems in DeFi.

So, what’s the reason to rehypothicate?

Most protocols are far less efficient than you may think. Last year, one of the DeFi giants, Aave, spent around 300 million on incentives for the protocol. With $300 million in incentives, how much revenue do you think they generated? 300 million? 350? 400?! Not quite. Aave generated 30 million in revenue. For every $1 in incentives they generated $0.1 in revenue. That’s a mere 10% in efficiency!

Via Rehypothicating user funds, Granary dreams of a means to create a sustainable source of token incentives. On top of borrowing and lending yield, a portion of funds is routed to other yield-generating protocols. If familiar with the Balancer Boosted Pools, this is a similar mechanism! Boosted Pools for a lending market! Granary will then use this generated revenue to buy back the protocol's native incentive token, $GRAIN.

Pretty cool right?!

1. Increased yield for users

2. Sustainable token incentive model

3. Revenue ALWAYS > Incentive emissions

In this Granary article, the wise Bebis compares the revenue of Aave compared to the potential revenue of Granary utilising this strategy. The figures are calculated using Yearn’s average interest rate, multiplied by the unborrowed assets sitting in Aave. Effectively, Granary could generate around 10-20x the revenue of similar lending markets.

From a capital efficiency standpoint, Granary looks set to take the lending market by storm. Ensuring security is of the utmost importance to the Byte Masons and Granary, as such, the rehypothecation of funds will utilize principle-protected, delta neutral multi strategies to ensure users are protected. I highly recommend giving the Bebis article a read. Granary hints at an off-risk, highly effective and efficient lending platform. If this innovation has your interest, Granary’s token ($GRAIN) is yet to be released. It may be one to keep on your radar. NFA

Curve Stablecoin Whitepaper

We venture onwards, DeFi wanderer. It’s time to leave the sweet silos and luscious fields, let us discover what lies deeper in the DeFi verse. Hold on tight, we’re about to pass through a bend in the very fabric of space-time. We’re about to enter the Curve.

Yesterday, Curve released their long-awaited stablecoin whitepaper. The DeFi giant is stepping into the stablecoin world with an innovative design model. Full of complex mathematical formulas, the whitepaper isn’t your average morning read. Let’s break down the most important and innovative aspects in a simple to understand way.

LLAMMA

crvUSD offers a brand new (and rather innovative) Lending-Liquidating AMM algorithm (LLAMMA). This new design combines the freedom of a collateralised stablecoin with the flexibility of an Automated Market Maker.

Most stablecoins in DeFi are CDP (collateral-debt position) stablecoins. The collateral that backs these stablecoins gets liquidated when the price falls under a certain value. This mechanism maintains the stablecoins peg, but it does have some limitations.

1. CDPs can become exposed to bad debt.

2. Volatile market conditions can trigger cascading liquidations.

3. Users must actively manage positions to prevent full liquidations.

LLAMMA is a solution to this problem.

Instead of a sudden and dramatic liquidation, this design unlocks a continuous and constant liquidation process. As a user, if you provide ETH as collateral to mint crvUSD, and ETH begins to fall in value, the AMM will slowly liquidate some of your ETH collateral for crvUSD. If ETH then increases in value, your collateral gets repurchased. LLAMMA reduced the need for such actively managed collateral positions.

Interconnected Liquidity and 0% fees?!

With LLAMMA, every collateral pair serves as its own traded AMM. Each collateral token will enable a new Curve Liquidity Pool. If ETH is the collateral, you have an ETH/ crvUSD Pool. If BTC is added as collateral, you now have a BTC / crvUSD pool. crvUSD has the ability to have a seemless and interconnected range of trading pairs.

Also, as the pool can generate LPs yield purely from liquidations, the swap fee could theoretically be set to 0% to ensure the most efficient swaps for traders. Interconnected trading pairs and 0% fee, could crvUSD become the most utilised stablecoin in DeFi? We will have to wait and see…We journey onwards.

You have no idea how short I am.

As we explore the beauties and bounties of the DeFi realm, we would be fools to overlook the importance of the macro markets. So, what’s been popping in the macro mall this week? The wise George Gammon and Michael Bury have some intriguing insights.

Most notably famous for predicting and shorting the Great Financial Crash in 2008, Michael Bury is a name that instantly generates respect in the financial realm. This year he already predicted the collapse of SPACs and crypto. He now predicts that we are about to have another huge drop in all equity markets. Why?George says it’s due to the Bullwhip Effect. 

Bullwhip Effect

As shown in the image above, the bullwhip effect is a phenomenon caused by a small change in demand. A sudden increase in demand from retail can cause huge variances in the efficiency of suppliers. It can lead to businesses excessively stocking inventory, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules.

George breaks down this phenomenon with a case study of Amazon. Looking at the stock price of Amazon below, you can clearly see we are in a bear market. But, many people underestimate the degree and the reason to which equities are falling. In fact, Amazon is the first company EVER to lose $1 trillion in value!

Between 2019 and 2022, demand rocketed alongside the addition of multiple rounds of stimulus checks and government intervention. Essentially, “free money” was injected into the system. And what do people do with free money? They spend it. Demand for all products and services increased exponentially, but lacking any knowledge of macroeconomics, companies were naive to realise this spike was only temporary. This demand was highly unsustainable.

People's purchasing power is now rapidly decreasing. Businesses are suddenly having to adapt to a rampant decrease in demand. Amazon has recently laid off 10,000 employees, but George and Michael believe the worst is yet to come. Purchasing power will fall to or even far below the levels of 2019. To reach the same employment numbers, Amazon would have to reduce the workforce by another 790,000!

And It’s not only Amazon…

Companies hired way too many people and bought far too much inventory due to a temporary spike in demand. Today we sit in a far more perilous economic backdrop for the everyday person. Increased inflation, higher cost of living, people have far less money but far more expenses. They are buying fewer and cheaper items. Retail is spending a LOT less. Business profits are cascading, and reducing the workforce is one of the only solutions these companies can now take.

Michael and George believe this is only the beginning of a huge reduction in the workforce. This not only affects huge businesses but it affects corner stores and cafes too. Unemployment rates could skyrocket, and aggregate demand could potentially go below levels seen in 2019. Ladies and gentlemen, the BullWhip Effect!

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