The key turning point I mentioned in Rapture #230 is now behind us. As hypothesized, the crypto's bear market rally ran out of steam and BTC currently sits close to its low point thus far for the bear market. The catalyst for this breakdown was Jay Powell's comments on Friday of there being "some pain" ahead as the Fed fights inflation.
As I have outlined consistently in previous Raptures, the market has been in la la land in terms of discounting the Fed's commitment to raising rates in order to reign in inflation. In addition to the Fed's continued hawkish stance, emergent potential economic contagions are popping up everywhere around the globe; there is as a real estate market implosion seriously threatening the Chinese economy and countries in Europe are facing a severe energy crisis.
In the past few weeks, macro has continued to deteriorate. I remain bearish, and think the likelihood of another severe drawdown in crypto (i.e. 50%+) is increasing by the day. In addition to a deteriorating macro environment, after the merge, there is no readily available bullish narrative for crypto. Finally, crypto user growth across the board has effectively stalled.
Now that the bad news is out of the way, let's get into some interesting items to come out recently.
Michael Moro, the previous CEO of Genesis, and Sam Trabucco, the previous co-CEO of FTX, both recently stepped down from their leadership positions. While officially Michael Moro resigned, this departure likely stems from the $1.2 billion claim the firm has filed against insolvent Three Arrows Capital. Trabucco stated he stepped down because he wants to focus on himself. Money of course is now an immaterial issue to Trabucco.
Interestingly, Sam's stepping down comes at a time when the industry is facing increasing regulation, negative headlines continue to come out against FTX specifically, and SBF is embracing his role as the main character of crypto (and its savior for that matter).
Retiring at the top is not the same as retiring.
Compound v3 Launches
In terms of product launches, the most exciting of the week undoubtedly was Compound v3. For v3, Compound gets rid of its pooled-risk model, which was based on a system that constantly rehypothecated users' collateral, and switches to one based upon single borrowable assets.
In this modal, users won't earn interest on their collateral anymore but will be able to borrow more with a lower risk of liquidation and lower liquidation penalties. Additionally, gas fees will be less.
Below you can find a list of all the new features:
I am interested to see if the rest of DeFi moves away from a pooled risk modal to an individual asset modal. Overall, I do think Compound's new modal is better for the risk reductions it brings, since it dramatically reduces the cascading liquidations event that could have previously occurred in the pooled model.
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