March 27, 2024: Bold Bitcoin Bears 🐻🩳
Review of early Llama Lend Activity, plus eBTC, Lambda Protocol
Polls are Closed
Thursday, when governance kicks in, is always the most interesting day around Curve.
Over the past week, a huge number of governance proposals hit the forum. To get a sense of everything that’s coming soon, recommend to browse the action on Curve Monitor, as the official DAO site is still on the old UI and sometimes can’t handle so much DAOmocracy.
In particular, this will be an interesting week to pay attention to Llama Lend. As you can see, a lot of gauges kicking in, along with some parameter tweaks.
The first set of gauges here all represent markets where you can long a variety of tokens. It’s the will of the voters. The one proposal they definitively decided against is the one market that could be used to short $CRV. This proposal went down in a lopsided defeat, with a whopping 82% of veCRV votes opposed.
Convex exit polls, in the form of comments added on the Convex site, are always a lot of fun to read. One voter explained their reasoning:
“Reason: elephant suck own d*ck.jpg”
—heraharleyhayden.eth
Llama Lend Recap
In the absence of emissions, Llama Lend has been effectively in what we’d consider a period of beta testing. It’s functional and has seen some activity, but we expect the real fun is awaiting a few criteria:
suppliers get rewarded for depositing $crvUSD
leverage button for degen trading
sidechains
The third item is sooner than one might think…
The first item, in which rewards start streaming to suppliers, will kick in as of this Thursday.
However, given the healthy supply rates, it hasn’t actually been all that necessary…
Most of the crvUSD supply markets, which can be used to trade the token “long”, are quite healthy. Supplying the stablecoin to the $wstETH market or $CRV can already earn 20%+ Lend APY, sitting a few percentage points above the 15% Dai Savings Rate that serves as a benchmark for the space (of course, a good time to note that nothing in this newsletter is financial advice…)
Of course, be aware of risks. The Llama Lend market directly pairs the borrowers and suppliers, so suppliers will be unable to withdraw their supply while the market is heavily utilized. Also, if there’s any issues like the borrow token exploding, the suppliers absorb the risk of bad debt. To say nothing of the smart contract risks…
We’ll see what happens as rewards get switched on, but one presumes the market reaches some sort of equilibrium, as happened similarly to the far more robust lending platform Aave, which has fully phased out its need for incentives.
The utility of Llama Lend to the Curve ecosystem is not in extracting any fees directly, but in providing additional sinks for $crvUSD. Every wei worth of the stablecoin in existence earns money for the DAO. $crvUSD used to supply or borrow tied up for borrowing in the Llama Lend markets is $crvUSD that’s not being traded for other stablecoins and harming the peg, pushing more $crvUSD supply while keeping rates stable.
We’re currently in a contracting phase of the $crvUSD cycle, with rates above 20%. We are closely following the chart to see where this bottoms out, hoping we never see the troughs dip below $100MM again…
Already in this testing phase, a couple million worth of $crvUSD is sitting in the system, so Llama Lend may be estimated to impact maybe 1% of the overall supply. Rookie numbers!
As mentioned, the final piece of this ecosystem will be the leverage button. Leverage trading has constituted the heaviest demand on $crvUSD, amidst a broadly bullish market, particularly for Bitcoin.
This raises the question of the “short” markets on Llama Lend (ie the markets where the collateral token is $crvUSD, which can effectively be used to short the borrow token).
We’ve seen very little demand to short any of the assets during this early testing period. For the case of $CRV, perhaps the death spiral000rs are all bark and no bite… or perhaps they despise Curve so much they refuse to use a Curve product even to profit off their prophecies of doom. The $CRV short market, as we saw above, did not earn a gauge, so one imagines the supply may stay rather quiet there.
Yet curiously, in this time of rampant BTC bullishness, we saw occasional demand to actually short BTC…
The window has closed, but during the time suppliers were earning 12% on their tBTC… not too shabby!
Could Llama Lend rates become a new indicator soon?
Bitcoin DeFi
Given that Bitcoin remains the largest cryptocurrency by far, we are always interested to see the various products DeFi is cooking up (on Ethereum) related to orange coin.
Just in time for the halving, eBTC is launching!
The brainchild of BadgerDAO, who have long been pioneers of Bitcoin products on Ethereum, eBTC allows users to take out BTC loans with 0% interest rate. The protocol profits because the allowed collateral is ETH and Lido’s stETH, so the protocol and borrower split the staking rewards.
In the same manner that Llama Lend markets serve as long/short… one can follow the same logic to see how eBTC can be used to trade the flippening…
For more on eBTC, check our prior coverage from earlier last year
Or, better yet, this great explainer vid from the legendary 0xMughal
Finally, another interesting Bitcoin product is emerging… Lambda Finance is launching the first authorized $crvUSD fork, to create a Bitcoin backed dollarcoin with a soft liquidation mechanism
Follow Lambda Finance for more details…
Disclaimers! Author is also a seed investor in Lambda Finance…