[You can skip this part if you don’t want to read my soap box retrospective.]
DeFi got a little crazy last year.
It’s honestly a little crazier now but in a different way (some of the valuations of defi are priced as if these aren’t zero debt organizations throwing off cash with low burn on the blue chip side). Some of the narratives are bonkers (but I’m not here to discuss that). Not sure how your cash position survives nuclear war which is how you are pricing this.
But I digress.
Like everyone, I got swept up in NFTs last year. And gaming. The narrative made sense. They’re the first thing we’ve ever seen in crypto that had native demand outside of number go up. People were buying art because they liked it. People will play games because they like them.
I still liked them as financial primitives and was excited to see how Uniswap has used them.
I think for the CFA types in defi, monkey JPEGs was a solid meme to justify getting torched by a bunch of art collectors. If I’m being brutally honest, I lost a ton of respect for many defi threadooors for their inherent misunderstanding of supply and demand.
The way us financial autists in defi looked at monkey JPEGs & the degens of JPEG Morgan is how the actual J.P. Morgan looks at US. I think this specifically has to do with the lack of real world assets on chain and our need for inherent on chain DEMAND to drive YIELD.
The “what are we financing” meme ultimately extrapolates to a ponzi with a lack of demand side. Meaning we need demand for native on chain assets or real world assets no matter how much you like the smell of your own farts. However, WITH a robust demand side.. it starts to work. Still, I guess everything is a ponzi depending on how nihilistic you are, but the point is, it will start looking a lot more sustainable at the point where we have a robust demand side.
So let’s talk about the supply side. ETH is on track to forego 430,000 $ETH of new supply coming onto the market. It actually blows my mind $ETH was able to withstand this sell pressure from miners. That’s around $600m in new supply at current prices.. every month. SOMEBODY was buying or holding to keep the price stable. We now have $600m less in monthly supply & should assume consistent demand as nothing on the demand side has changed. I think if you extrapolate that to an annual number and assume the next bull market will have MORE transactions which INCREASES the burn.. this all starts to look very attractive with or without Monkey JPEGs.
So let’s talk about Fixed Income in DeFi. To anyone with depth in understanding of financial mechanisms, I think it was clear that Terra/Luna wasn’t going to work. If I’m being brutally honest I feel like I helped develop components of it given that everything I’ve done has been open source and creative commons to date. I personally helped to champion a system where a fixed rate of return is subsidized by an LP who is willing to sit in the variable/junior/LP/etc. (we all called it something different). A lot of people waited on BarnBridge to launch, put lipstick on it, and came up with more obscure ways to hide this blatant error in the design.
The problem is, even WITH inherent demand, the system I helped to design was never going to hold up. There are simply some environments where a variable yield is more attractive and some environments where a fixed yield is more attractive. “Environments” here can be swapped for: use cases, markets, global conditions, beras, bullas, brink of disaster and moon missions. We would always be subsidizing one side or the other until the tides went out and NOBODY was wearing pants.
However, even with everyone pantless, the meme that fixed yield in defi doesn’t have product market fit is dead. It had such strong product market fit it blew up the entire system so miss me with that bullshit meme.
Or maybe I’m just the worst ponzu creator in history and the jokes on me but I believed in all of this.
I still do.
So we tore it all down & built BarnBridge V2.