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A weekly recap of the largest crypto events and narratives, with an extra dose of insight.

Here’s what we have for you:

  • Ethena Labs <> Synthetix

  • OP transactions overtakes Arbitrum

  • Lyra V2

  • Lido dual token governance

  • Aurory moves to Arbitrum

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Ethena <> Synthetix

LST-backed stablecoins such as Lybra have a problem. They’re not that collateral efficient. The stablecoin will always have to be overcollateralised by a wide margin, for example, for Lybra, you can only have a 58% LTV. This means that its scalability is limited.

What if we could create a more efficient version of an LST-backed stablecoin? That is exactly what the team at Ethena Labs is aiming to do with USDe. USDe is a decentralised stablecoin, backed by LSTs such as stETH, but unlike other LST-backed stablecoins, the collateral is delta-neutral, which means it doesn’t fluctuate as ETH price changes.

How do they achieve this?

Whenever a user deposits stETH or any other LST, Ethena will open a corresponding short position through perps. For example, if you deposit 1 stETH, Ethena will short 1 stETH on a perpetual exchange.

This way, the underlying collateral is delta-neutral. Suddenly, you are able to mint a stablecoin at a 100% LTV instead of the <60% LTVs that existing protocols offer. Now, the stablecoin is a lot more scalable and efficient, as the collateral makes both the stETH yield and also the funding on the stETH short.

Just a few days ago, Ethena announced that it will be building its first decentralised perps exchange integration with Synthetix. Synthetix is one of the few perp exchanges with a large amount of liquidity and stETH perps onchain, so it makes sense that Synthetix is the first integration. In addition, Synthetix has a relatively consistent funding rate, which makes it a lot easier for Ethena to manage the short side of the collateral position.

Synthetix allows stETH to be used as collateral, and has native cross-margin functionality. This partnership would also enable better funding rates for long-biased traders and greatly increase fees to SNX stakers.

Ethena Labs has a huge number of CEX and market makers that invested in their seed round, including Deribit, Bybit, OKX, BitMex, Gemini, Huobi, Wintermute, GSR, and CMT Digital. There is every reason for all these exchanges and market makers to support the decentralised stablecoin and help push adoption. I would definitely keep an eye on its growth.


Optimism Overtakes Arbitrum

Optimism overtakes Arbitrum. The graph above shows the daily transactions for two of the largest L2s. Ever since the airdrop where the ARB token was distributed in March, Arbitrum’s daily transactions has slowly been on the downtrend. Note that the graph’s y-axis is exponential, so even though it doesn’t look like that much, Arbitrum’s daily transactions has actually dropped from a peak of 2.7M to ~580K.

Similarly, Optimism’s daily active addresses are slowly but surely creeping up towards Arbitrum, with only a 20K address gap between them.

What’s behind this?

For one, Optimism is home to Synthetix, and a surprising amount of perp trading occurs there through platforms such as Kwenta. The larger driver of this trend is likely Worldcoin. As part of Worldcoin’s transition from Polygon to Optimism, they could have generated a huge number of Gnosis Safes to ensure a smooth transition. And as Worldcoin adoption increases, this could continue to be a trend until Optimism is far clear of Arbitrum. Just look at the queues of people waiting to scan their eyeballs!

Lyra V2

  • A custom Ethereum rollup on the OP stack to trade options. Does that sound familiar? It should, because Lyra V2 is joining the party to compete against the likes of Aevo of another rollapp for derivatives trading.

  • The rollapp will feature a decentralised margining and risk engine, along with an open source order matching engine. The AMM will be used to provide liquidity, and traders will be able to cross margin between options and perps.

Lido Dual Token Governance Model

  • Lido stakeholders are currently pushing for stETH to have veto power on governance proposals approved by LDO holders. This is because LDO token holders get to choose what happens with the protocol, instead of stakers who are the main users of the protocol.

  • If it goes through, stETH holders will only be able to veto proposals, not actually vote on them. This could be contentious for LDO holders as it significantly decreases the utility/value of their governance token.

Aurory moves to Arbitrum

  • Aurory, one of the more developed web3 games, is going cross-platform. All of the game’s onchain assets will now exist on either Arbitrum or Solana. This could be part of a growing trend where games expand their supported networks to grow their user base.

  • The token, AURY, is up 1x since the move was announced, with a liquidity pool live on Camelot. The project has some big upgrades around the corner such as full blitz combat and a new game hub among others.

Everyone knows about MakerDAO and DAI. A few weeks ago, MakerDAO voted to decrease the DAI savings rate from 3.49% to 3.19%. That’s still not bad as a risk-free yield in DeFi, as lending/borrowing protocols are on average only offering 2% for lending.

There’s been a growing trend lately in crypto to make every token “capital efficient”. That is to say, why should I hold a token if I can hold an interest-bearing version of the token? E.g. why should I hold ETH when I could hold stETH?

A similar notion applies to stablecoins. Why should I hold USDC when I could be earning treasury yields on it? Or in MakerDAO’s case, why should anyone be holding DAI when they can be holding an interest-bearing version of it?

In order to increase DAI’s usage and demand, MakerDAO is proposing an enhanced DAI savings rate. Depending on the utilisation of the DAI savings rate, the protocol could pay out up to an 8% interest. Compared to the current reserve rate of 5.25-5.50% chosen by Jerome Powell and gang, that is fantastic. The good news is that this vote has passed, which means you’ll be able to enjoy this high interest very soon.

Expect to see a continued trend of protocols, whether it be stablecoins, LSTs, or other tokens, figuring out innovative ways to improve the yields that they are offering. The market is huge, and if there is any way to grow your size in the market, protocols will do it. 3

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