June 8, 2023: Loop-de-Loop ➰🎢
Launch of $wstETH as collateral for $crvUSD, + J.Page
J.Page
“NFTs have no real utilit….”
OK, maybe most NFTs are skems and cash grabs, but the Llamas have already put their ecosystem to work by inventing and launching an entirely new paradigm for NFTs built out by former Redacted Cartel dev KP. It’s called J.Page, and promises a new standard that promises to be significantly gas friendlier and backwards compatible to ERC-721s, and they plan to build an entire trading platform atop this new concept.
More from KP and Hawth from this morning’s Leviathan Livestream
J.Page launches tomorrow, on 6/9 😏
wstETH
Yesterday evening, the largest market to date went live for $crvUSD.
In addition to some upgrades to the contract as recommended by auditors, the new contract carries a significantly higher debt ceiling ($150MM).
In the first hours since launch, over $4MM in $crvUSD was borrowed, a quick 40% increase in the overall market cap for the new stablecoin.
The shifting market forces on display here in the immediate launch are worth detailing, as it paints a useful picture of how the entire system actually works.
Remember, there’s no shadowy cabal of Fed observ0000rs manipulating interest rates every month within $crvUSD, just hard simple math. When the market immediately went live, the rates to borrow $crvUSD were a mere 2.3% — quite low.
However, the monetary policy is governed heavily by the Peg Keepers, which uniquely have the ability to mint or burn $crvUSD into these pools, while the system tweaks this rate accordingly.
In the first several hours of the $wstETH market, so much $crvUSD got minted and deposited to the Peg Keeper pools for $USDC and $USDT that the pools became heavily lopsided. Accordingly, the system interpreted this as a glut of $crvUSD, which required readjusting the incentives to encourage borrowers to repay. Therefore the borrowing rate spiked above 6%.
Thanks to the game theory of incentives, we don’t presume it will be all that long before capital finds its way into rebalancing these pools. All the pools are delivering boosted incentives in the double digits, so it (for now) remains profitable for users to deposit into these pools, even by minting $crvUSD at 6%.
However, by now everybody should know these incentives will equilibrate over time, so perhaps not worth the risk to scramble into these pools if they may see their incentives reduced to the market rate.
Besides which, it’s only the $USDC/$USDT pools that are extremely imbalanced. Holders of these tokens may actually prefer their own slightly riskier strategy of being put into the volatile TriCrypto pools, which also carry even higher incentives, and have thus quickly amassed nearly $50MM TVL.
The other two Peg Keeper pools, with $TUSD and $USDP, are somewhat less popular stablecoins. For the Paxos Dollar though, we may well its entire demand profile shift as Maker DAO is ditching it.
What does it mean for fees? A thoughtful post by Sovereign Llama:
There’s been plenty of fees coursing through the system lately, so $CRV stakers are no doubt plenty thrilled with the state of the flywheel while they wait for the new pools to get hooked up.
Loop-De-Loop
Finally, a look at leverage. In particular, we focus in on one eager user turned 21.8 $wstETH into 381 and why we caution that leverage is risky, particularly with highly volatile cryptocurrnencies, and should thereforenot be tried without first speaking with a registered financial advisor.
