March 22, 2022: It’s a Bribe Market 🤌💸
FRAX, Terra lead second largest Votium Round to date
Bull Market? Bear Market? How about Bribe Market?
The most recent Votium round closed and trends are pushing back upwards. In terms of raw dollars, the $16MM represents a $3MM bump over the past round, and about $4MM short of the largest round that splashed the Christmas 2021 bonanza.
The masses are so accustomed to tokens where massive APRs come from inflation. The market doesn’t know what to do with a token where eye-popping returns aren’t generated out of thin air.
The Llama Airforce has tracked a total of $135mm in revenue through Votium since launch. Perhaps we need to start the meme that DeFi 2.0 == DeFi Backed by Revenue?
While we don’t cover price discussions, the action has certainly has flywheelers commenting on the price.
The round was notable for featuring several bribes above or within striking distance of $1MM.
FRAX led the way as usual, possibly due to social media mobs.
We also saw the Terra team make their first bribe in raw $UST, as opposed to their native $LUNA token.
Terra’s unique ponzinomics will soon see UST partially backed by Bitcoin. Let’s enjoy this joyride for however long it lasts.
Although $/vlCVX ticked up somewhat this most recent round, it’s been fairly static between $.35 and fiddy the past five rounds. If this has actually stabilized at this level, it offers the ability to run some basic maths for a thought experiment on valuing $CVX.
Let’s imagine the $/vlCVX plateaued and sticks within this range forever. We do see the return per bribe is down to $1.09, perhaps it is close to stabilizing. Averaging the last five rounds, let’s use a number of $.431 per round for the rest of time. With this held constant, buying one $CVX today would pay itself back in just under two years.
Now, there’s a non-trivial and growing risk the world ends before 2024, hence the concept of “time value of money.” In order to take a dollar tomorrow you need to get paid a premium today, what is referred to in TardFi [sic] as the discount rate.
If you’re actually of the opinion that this cash flow will be constant forever, you could easily value this directly as a perpetuity. To calculate the discount rate of a perpetuity, simply divide one year cash flow by current asset price to get an annualized discount rate of 54%.
For comparison, the risk free rate might be considered to be ~1.3% - roughly the rate you can earn by buying a US treasury. There’s a lower implied risk putting it in treasuries, which have centuries without a rug pull. Then again, the future looks murkier for the dollar.
A discount rate of 54% suggests to me (YMMV) investors are assuming other growth to Convex. If the sole return from $CVX is a steady stream of bribes, buying $CVX at ~$20 implies a high discount rate for future cash flows. Perhaps they feel locking $CVX prevents them from seeking a better short term return from other crypto ponzis, or that there is significant risk the cash flows will dry up due to thermonuclear winter. Interested to hear further thoughts on how to interpret this.
Anyway, don’t put too much faith in this digression. A handful of relatively stable weeks does not a perpetuity make. The Lindy Effect suggests that a protocol <1 year old might be likely to survive another year, but surviving two years is a riskier bet. There’s arguments that revenues increase (more activity, more protocols) or decrease (bribes taper off) so it’s tough as always.
Nor do all investors look at this just in terms of future cash flows. Crypto valuations frequently appear irrational. As always, don’t trust idiots on the internet, make sure to ask your local neighborhood Gensloooooor for financial advice.
At any rate, it’s silly to expect activity will simply level off forever. Convex at age two will likely look very different than it looks today. For one, we’re likely to see the Curve Wars continue to take shape.
Recent chatter about new combatants includes Vesta Finance
As well as StarGate
It’s a bribe market!
thanks for making this topic a lot more fun to read about then it has any right to be ... great stuff