Stoic philosophers believed in four core virtues; courage, justice, temperance, and most importantly, Wisdom. But, what actually is wisdom?

Wisdom is simply our ability to know what is what, and in knowing we can guide our actions more deliberately. It is not something we can suddenly obtain. It is earned over years of experience, due diligence, and open-mindedness. Wisdom is the accumulation of knowledge over years of learning from other wise wanderers. Within DeFi, there are countless schillers, influencers, and users who deem themselves to be the know-all gurus. “Here, buy this coin for the next 1000x, trust me. I have drawn these lines on a chart that proves it.” This is not an example of wisdom. This is far from wise. To obtain wisdom in this realm, you must seek out those who truly practice it. Not those who preach it. Weekly wisdom is the newsletter that seeks those wise wanders out. So, where has the search for wisdom taken us this week?

• Digging into ThorChain

• On the radar

• Is the next Global Financial Crisis on the way?

• Will energy dethrone the FED?

ThorChain

ThorChain has always piqued my interest. Decentralized, native, cross-chain swaps solve multiple issues within DeFi. What issues?There are two pivotal ones:

1. Bridge Risk

2. Third-Party risk

Bridge Risk

DeFi is borderless. You aren’t confined by country, nationality, or background. You are free to wander as far as your curiosity takes you. But there is an issue. The tool that allows you to traverse across different BlockChains isn’t particularly safe. Bridges are notoriously risky. In fact, over $1.4 billion has been stolen from bridge hacks in 2022 alone!! Anytime you wish to take your assets from one blockchain to another, you must trust a bridge to execute this transaction. You give up custody of your funds while taking on additional smart contracts and censorship risks. Not ideal. You are putting trust in a third party to take your assets on one chain and issue your assets on another. Trust in a third party? Isn’t that one of the core theses the blockchain was built to mitigate?Vitalik shared his views on the matter earlier this year:Vitalik's Views

Third-Party Risk

Native assets are so because they live natively on-chain. But what happens when you take this asset to another chain? You are issued a wrapped version. Wrapped assets aren’t the same asset. An asset has been supplied, added to a vault and another digital token is issued that is pegged to this token. You must put your trust in the custodian that is issuing this asset. Again, not ideal.

The solution

ThorChain combats these issues via native asset swaps. Instead of relying on bridges, you can simply swap straight to the native asset. Instead of relying on wrapped assets, you swap into the actual token!

ThorChain solves a real problem. If (and it is a big IF) it set’s out what it aims to do, ThorChains token (RUNE) has the potential to become an lucrative investment. I never usually watch price prediction videos, but ThorChain has a specific mechanism that provides a mathematical formula to calculate a deterministic value. Kyle does a great job of breaking it down.

Deterministic Price

ThorChain utilizes Liquidity pools to enable native swaps. Every single liquidity pool consists of a native asset paired with RUNE. Users must either buy RUNE or the asset of choice is swapped into RUNE upon entry. For every $1 of non-rune, there is $1 of RUNE.Nodes also must maintain 2x the amount of non-RUNE assets they guard in RUNE. If over 80% of ThorChain’s RUNE token gets locked into ThorChain liquidity pools, by design, RUNE's market cap should be a minimum of 3X the value of all non-RUNE assets locked into THORChain liquidity pools.The deterministic price can then be calculated: (3 * Non-RUNE TVL) / RUNE Circulating SupplyCurrently, there is 50 million Non-Rune TVL and 300 million tokens, giving a deterministic price of $0.5. As with any asset, there is a speculative price. Currently, this is 3x, giving a current RUNE price of around $1.50.

If ThorChain is successful in what it sets out to do, what could a potential price reach?In this video, Kyle gives a future speculative multiplier of 6x, I will be a little more conservative and use the current 3x. As Kyle does, we will use the max supply of 500 million tokens.

• $1 bn on Non-Rune assets: $18

• $5 bn on Non-Rune assets: $90

• $20 bn of Non-Rune assets: $360

• $50 bn of Non-Rune assets: $900

Of course, this is reliant on ThorChain becoming an integral part of DeFi, a lot of things must go right. But, it’s definitely one to keep an eye out for. Full thread coming soon.

On the Radar

Mute.io

UniSwap equivalent built on Ethereum and Zksync. 3 days are left till Zksync 2.0 mainet. 10% of all testnet transactions have been on Mute.io! It sits at a current $23 million market cap.

The Next Global Financial Crisis?!

Normally as soon as I see titles like this I run far away, but George Gammon provides real value and breaks down complex macroeconomics super simply with animated whiteboard graphics. In this video, he explains one of the tools the FED uses to bail banks out. Historically, as you could guess, it hasn’t painted a pretty picture.

So, what is the tool?

If the Swiss National Bank requires dollars, they can simply swap Francs for Dollars with the FED, when they pay them back, the SNB pays a small amount of interest on these Dollars.

Alright Naly, but why would the Swiss National Bank ask for dollars? Well, every Wednesday the SNB holds weekly auctions, where central banks can bid to acquire dollars. Normally, there are no bids. But, in times of uncertainty, those bids start to appear.

Wait, hold up. Why would Central banks bid for dollars from the SNB, why not just swap with the FED? It’s against the law. The Federal Reserve Act prohibits it. They can, however, do the exact same thing by using the SNB as a middleman. Makes sense…

Okay, but why would central Banks bid for dollars in the first place? Well, they normally don’t. It’s a tale-tale sign that something not right is underfoot. If it is happening, it shows that the FED is bailing out these Central Banks via the SNB.Banks don’t require a bailout in a normal economy because wait for it, they can just produce those dollars themselves! How?! The global monetary system is essentially cashless and reserves.

The creation of $$$

Think back to the first point we made about the FED and SNB swapping francs for dollars. Commercial Banks can do this exact same thing.

If BANK A has a checking account with BANK B and vice-versa.

Both banks have both assets and liabilities on their balance sheet.

• Asset = Checking account on another Bank

• Liability = The other banks checking account

If both banks decide they suddenly need some dollars, they can agree to credit eachothers checking account.“Hey credit me $1 Billion and I’ll do the same for you”. Both asset and liability increase by the same amount, so they are offset. Magic!

This raises the question, why would these banks not do this? Why would they begin bidding on dollars at the SNB auction?!It comes down to counterpart confidence. If they have reason to believe the other bank is not stable and has the potential to collapse, they instead look elsewhere. In this case, the SNB repo. It is a tell-tale sign of a “canary in the coal mine”.

Anytime you see bidders at the auction, it means there is too much counterparty risk. This has been evident during Covid and the GFC of 2008. There is an astounding correlation and recently these bids have gone from $0 to $6 billion!

It’s one to watch out for…

Will energy dethrone the FED?

If you are interested in digging into the macroeconomic landscape, definitely check out Jack Farley and his Forward Guidance podcast on BlockWorks macro. Very insightful and free-flowing conversations that break down complex topics. This conversation speaks on the topics of the Energy price surges and the effect they may have on FED pivoting (or capitulating as they put it).

Jack is joined by Harris Kupperman and Porter Collins, two men who possess an incredible amount of wisdom surrounding financial markets.

You may know Harris Kuperman as the informative and renowned “Kuppy” on Twitter. You may know Porter Collins from his legendary short position in the GFC. There is even a film about him (The Big Short).

Can the FED control inflation?

Harris and Porter open the conversation by stating that the FED has never been able to control inflation. Yes, they can can impact certain aspects but they like to act as though they are in control. In reality, so many factors are outside of their control. As Harris explains “Energy is the captain now”.

Energy, Reshoring, and Geopolitical factors are all issues that the FED doesn't have the ability to impact. And these are the crucial catalysts of inflation right now. They have let it go too far. Quite simply, the FED is fucked.

Where are Harris and Kuperman bullish?

Energy. Harris believes Oil is one of the most bullish assets right now. Why? It comes down to the basic mathematics of economics, supply vs demand. Porter explains that we are at peak oil production, while demand is increasing year-on-year. Harris states there is a 5% global deficit in supply of oil (5 million barrels a day), and this is unprecedented. It’s all about to inflect and Harris believes Oil is about to go “scream out of control”.

Uranium

Harris believes that whoever prepares Greta’s speeches is preparing Europe for the return of nuclear. There is a huge shortage of Uranium and a “Nuclear renaissance is on the way”. Porter says “it is so far below production costs, it’s the only answer in town and it’s coming”. They both believe that Uranium is going to explode, it’s only a matter of time.

Is the FED going to PIVOTTTTT???

Or as Porter puts it; Capitulate. Jack asks the question, what does the FED do next, do they get to the terminal fund rate of 4.6%? Porter 

“The FED does another 25bps and then they’re done”

Harris

“I think they keep on going for it, until they take FED funds above CPI and blow up the rest of the world."

Closing thoughts

Porter believes that a crash scenario is a much better scenario for everyone, otherwise people are going to continue to buy and slowly bleed out. Is this the route they believe we take? Not likely. At the bottom of the cycle, there will be load of reasonable valuations in the market, that will enable you to position yourself for the inevitable bull when it comes. But they don’t believe we are there yet. Patience is a virtue.

Conclusion

• ThorChain has cemented itself as an intriguing risk/reward play.

• There are tell-tale signs of unconfidence in the central banks

• Will we see larger cracks show in the next month?!

• Energy industry seems to be the most bullish sector.

• Oil and Uranium are the ones to watch.