Rapture #269: It's Lit Part 2

Seems like upwards momentum has stalled out for the moment. At least the market is not downside correlated with US equities...for now. The market overall is not pricing in the potential for no rate cuts this year and even more significant rate hikes if inflation picks up. We are in a funny spot, as crypto really wants to go up yet macro markets seem deluded with how much hiking (or lack thereof) we have left. Furthermore, I think there will be more instances of war outbreaking around the world. Already, conflicts are starting to rear their heads, from Iran and Israel to the Russian war escalating to tensions rising with China because of the spy balloon.

While I will be monitoring all of these events closely, and have some future newsletters set aside devoted to talking about how crypto being a geopolitical force is evolving, I want to follow up on my discussion of LIT and the Timeless ecosystem.

In part 1, I discussed why the tokenomics of LIT were attractive and why I liked Timeless' first product, the Bunni liquidity engine. Today, I will discuss the Timeless' yield products and the prestige of their developers.

Development team and backers

The timeless development team is spearheaded by famed developer Zefram, who has been extremely active within DeFi for many years. I first came across Zefram when analyzing Compound governance proposals, as he was one the major delegates consistently participating in votes.

In addition to Timeless, Zefram is also one of the co-founders of SudoSwap, one the hot new NFT exchange platforms that the crypto-native crowd is jazzed up about.

Zefram is renowned for a DeFi developer and has been associated with multiple successful product launches. Additionally, he has attracted investment from significant DeFi luminaries, including 0xMaki, Daryl Lau, Fisher8, and Scott Sunarto.

While I typically don't materially weight teams when making an investment decision, the degen prestige of Zefram does play well with the crypto native crowd, which is the current major driver in a market with little flow right now.

Bullish.

Yield tokens

Yet more than anything else, I love the use case the Timeless ecosystem is building around. Like Pendle, Timeless enables users to speculate on the rate of change of yield tied to variable rates. Timeless mints two yield tokens for every yield bearing asset: PYT and NYT. PYT represents the streams of future yield generated by the corresponding principal. For example, 1 Yearn USDC vault PYT represents the right to claim the yield generated by 1 USDC in the Yearn USDC vault from now to forever in the future. In this way, users can split apart the yield from the principal in a yield-bearing token.

In addition to a PYT, a corresponding NYT is created. Burning 1 PYT and 1 NYT enables users to get back the 1 underlying asset (in the previous example, the 1 USDC in the Yearn USDC vault). The price of NYT always moves in the opposite as PYT. If you want to bet the yield will go down, then a user can purchase NYT, which will increase in value as the yield goes down.

While the terminology is different, the utility is very similar to Pendle, though with no set termination date like in Pendle.

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