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- Prices Down Bad or Ready to Moon, Crypto is Useless (?), Crypto Lending & Borrowing with Aave
Prices Down Bad or Ready to Moon, Crypto is Useless (?), Crypto Lending & Borrowing with Aave
Internet Capital
January 28, 2024
Happy Sunday Friends —
This week’s edition of Internet Capital:
Prices Down Bad but Ready to Moon 🤔 - crypto markets are in a state of limbo. Where do prices go next?
Crypto is Useless (?) + Ondo Finance and RWAs ❔- is crypto just a huge casino or are there actual uses? Ondo Finance makes a case for usefulness.
Crypto Lending & Borrowing with Aave 👻- everything you need to know about the top crypto lending & borrowing protocol.
Markets
Markets have been DOWN BAD since the BTC ETFs launched on January 11. The event turned out to be a “sell the news” event amplified by massive Grayscale selling from investors exiting its BTC fund for lower-cost options (more on that here).
BTC was down over 15% from its recent high, with other tokens retracing as much as 30-40%. Prices have begun to rebound, but the market still feels uncertain. So where to from here?
As always, opinions are mixed. Some say the Bitcoin Halving, lower (or at least steady) interest rates, and the possibility of an ETH ETF will push prices higher. Others think that the release of the BTC ETF was the local top and that the next few months will bring more selling. Hit the comments, and let us know what you think happens next.
BTC - sitting at ~$42,500 following weekly dips well into the $30,000s. The biggest crypto ending the week above the $40k mark would be a positive sign for the market.
ETH - seems to be lagging BTC by about a week. If the trend continues we’d expect a green week for Vitalik coin sometime soon.
COIN - like the actual coins, Coinbase stock has settled after being down only for a few weeks. Its returns moving forward are likely to remain closely correlated to the crypto market’s.
SOL- despite already achieving a 10x return this year, crypto traders are still bullish on Solana. To get a sense of the coin’s comeback, check out the chart of the SOL to ETH price ratio.
DOGE - as the only coin that Elon Musk likes, Dogecoin’s price is essentially a proxy for the amount of attention the billionaire gives crypto. Price briefly spiked after X created an “@xpayments” profile, but still ended the week lower.
TAO - this week’s biggest mover was an AI crypto project. Yes, crypto + AI is a thing and it might actually be a big deal one day (another conversation for another day). Even if it’s not, some people made a lot of money this week on Bittensor’s native token.
Crypto is Useless (?)
In crypto, it’s easy to get lost in the sauce. Meme coins, airdrops, weird-sounding projects that are probably a scam, and the list goes on. It’s easy to find yourself asking “What’s the point of this again? Is anything ACTUALLY useful?” First, remind yourself that new technology takes time to develop.
Bitcoin has been around for 15 years, but programmable blockchains like Ethereum are still less than a decade old. Decentralized finance and other applications of programmable blockchains are hardly five years old, with new iterations being conceived and tested constantly.
Sure, write off the tech because it hasn’t changed the world in under a decade. But if anything can be learned from the history of technology, it’s that you’d be wise not to judge too soon.
Regardless of your current opinion, let’s look at something that’s ~clearly useful~ to get a better idea of what a real-world application of crypto looks like.
Ondo Finance
Ondo Finance is a crypto protocol that enables the tokenization of real-world assets (RWAs). Users can receive tokens representing assets that exist in the real world like stocks and bonds.
This gives token holders legal ownership of the asset, enabling them to receive all of its income and price appreciation while being able to use the token on public blockchains and in crypto apps.
To illustrate how this is useful consider the following example:
You own a stock that you don’t want to sell because you would incur capital gains taxes and give up the stock’s future returns. However, you have some large unexpected business expenses that you need some cash for. Your current broker won’t let you borrow cash using the stock as collateral and transferring it to another brokerage would take a week (as is standard).
If the cash is needed now, you are out of luck and will miss your payment. Even if you can borrow against it, you would need to transfer the cash from your brokerage account to your business bank account which costs additional time and money. Most brokerages won’t even let you borrow against stocks for business expenses on demand!
If the stock was tokenized as an Ondo Finance RWA token, you could borrow cash against your stock immediately using your choice of multiple crypto borrowing apps. The transaction could occur immediately, and you would have the cash to cover your expenses without giving up ownership of your stock, and without any restriction on how you can use the money.
Note that this does assume it is easy to get the cash from the borrowing app to your bank account. While this is still somewhat difficult to do today, it is extremely easy to do in principle and will be simple within a few years. Or even better, if crypto becomes more widely adopted, you won’t even need to transfer money to your bank account.
The idea is this: using crypto infrastructure for RWAs makes common financial actions way more efficient, on-demand, and interoperable. Activities that take weeks and multiple transactions to execute in the traditional system could be done instantly in a single transaction using crypto.
Remember Larry Fink saying “Tokenization is the future”? This is what he means. If we can put all financial assets on a blockchain, then thousands of new use cases are unlocked, not to mention the inevitable cost reductions and efficiency improvements
Protocol of the Week: Aave
As one of the first and largest decentralized finance (DeFi) protocols, Aave is a must-know in crypto. According to DefiLlama, the app currently has over $6.8 billion in deposited assets across 10 different blockchain networks. Let’s dive in 👻.
What is it?
Aave is a lending and borrowing app. Users can deposit assets to receive interest or borrow assets and pay interest.
How does it work?
Lenders can deposit supported crypto assets and automatically start earning interest. Interest accrues continuously and can be claimed at any time along with deposited assets
Users who have deposited assets to Aave can borrow assets and pay interest. The value of deposited assets determines the value of assets that the user can borrow. The amount that can be borrowed is always less than the amount deposited. This ensures that loans can always be paid back.
If the value of a borrower’s deposited assets falls below a specified threshold, their deposited assets will automatically be sold to cover their loan.
Lending and borrowing interest rates are mathematically determined by an equation.
Why does it matter
Aave is a borrowing app that could be used to borrow cash against stock as described in the above section’s Ondo Finance example. Users can get cash while avoiding capital gains taxes and without giving up the asset’s future returns.
It also allows users who don’t want to borrow money to earn interest on assets that they are holding. When depositing assets into Aave, users receive all price appreciation of the deposited assets in addition to interest from borrowers.
If you want to learn more about how Aave works let us know and we can do a deep dive!
Other News
Socket Hack - crypto protocol is hacked for $3.3 million but recovers 2/3s of the money shortly after.
Coinbase vs SEC - the largest US crypto exchange is in another legal battle with the government. The issue in question now is whether various crypto tokens that the exchange offers for trading are considered financial securities.
Trump NFTs - yes NFTs are still a thing, and the leading Republican presidential candidate has his own collection. Check them out here.
Restaking Mania - everyone in crypto is talking about restaking (using alredy staked crypto tokens to secure other applications). Learn more here. [WARNING: Advanced Topic]
Government Killing Crypto - proposed IRS rules would effectively make a large part of crypto illegal.
Take of the Week
Crypto is volatile in the short-term. If you can’t handle your investments going down 15% in a day or 40% in a month, then don’t invest. If you choose to invest, know what game you’re playing. It's a marathon, not a sprint.
Questions
Crypto is extremely confusing, especially when you’re first starting out. If you have any specific questions you want answered let us know!
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