Rapture #216: DAO Problems and Value Gets a Bid

Rapture #216: DAO Problems and Value Gets a Bid

Builders in DeFi will often tell you that one of the benefits of accessing the financial services they offer is the removal of the counterparty risk.

Their arguments will often center around the fact that a bank can withhold your money at any time if they so choose, meaning that control of the money is really in the bank's hands. These builders will point to the fact that "smart contracts" (said with a hand wavey tone) prevents this instance from happening in DeFi.

Of course, this claim is demonstrably false. In fact, there is still very much counterparty risk within DeFi the same way there is counterparty risk when placing one's capital in a bank. While many believe smart contracts are immutable, that just isn't true. Controllers of the multi-sig, DAO voters, and sometimes even the developers of those smart contracts can edit those contracts at any time.

Solend debacle

In fact, the "community" of one of the leading Solana DeFi applications, Solend, just voted to seize control of a whale lender's collateral with the intent to liquidate it prematurely via OTC rather than potentially letting the whale's account hit the liquidation threshold, which currently sits at $22.30. If the whale's account hit the liquidation threshold, their collateral would be market sold natively on Solana DEXs, which have incredibly sparse liquidity at this time, meaning the liquidation could cause prices to crash. This vote was launched unannounced on Sunday and had an extremely short voting time. In essence, the "community" (really, the main development team building Solend) voted to prematurely liquidate a user's position.

So much for immutable decentralization. Not only does this show DeFi projects overall lack sufficient decentralization for their tokens to not be viewed as securities, but this event also displays how counter party risk in crypto is just as real as it is in traditional finance.

Value gets a bid

Yet not everything is bad in DeFi land. In fact, a serious bid came in for undervalued DeFi assets in the past 24 hours. On May 26th, I wrote how DeFi valuations were beginning to look ripe. Clearly, more value oriented funds agree.

For example, Synthetix's parabolic daily revenue (increased from $9,100 on June 1st to $1 million on June 19th) has caught the market's attention. SNX is up more than 124% from its bear market low on June 18th. Furthermore, daily volumes have increased 20x in that time frame as well, with the $425,000,000 SNX having been traded in the past 24 hours.

LOOKs is also experiencing a similar phenomenon, as they have rapidly rising revenues and probably one of the best P/E ratios of any coin tracked. The coin is up just under 95% in the past seven days. Arthur Hayes also brought attention to how undervalued the coin was, which I am sure helped spurt the catalyst for the most recent run up.

I am interested to see if the value narrative continues to work, as any bullish thematic narrative is dangerous in the type of bearish macro environment we are in.

My failed trade to capture the narrative

While I did expect the value bid to enter DeFi, I unfortunately picked the wrong coin and was a bit premature. The coin I was extremely excited about at the time, and one I invested around 2% of my portfolio into weeks ago, was ORCA, a leading DEX on Solana. When I made the trade, ORCA was a top 3 DEX and their daily volumes were $120 million+.

Yet much of that volume was being driven by temporary demand for GMT, which has subsided. ORCA is still interesting to me, but daily volumes have dropped to approximately $41 million and the coin is down around 50% from my purchase price.

Aped too quickly on that one.

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