A Deeper Look Into Yearn.Finance & Tesla Seeks to Raise $5bn #9
Market Meditations | September 2, 2020
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Today’s Meditations:
Ethereum Fails to Reach $500
To YFI or Not to YFI
A Deeper Look into Yearn.Finance
Coinbase Building Platform to Help Crypto Startups Launch Tokens, Raise Cash
Ethereum Transaction Fees Hit Another All-Time High Amid Dex Volume Boom
Bitmex Rolls Out Mobile Trading App Across 140 Countries
Barnier ‘Worried and Disappointed’ After Latest Talks With U.K
Tesla Seeks to Raise up to $5bn in Share Sale
U.S. Financial Firms Like Citi and Blackrock Make Inroads Into the Chinese Market
Blue Light and the Effects on Sleep
Ethereum Fails to Reach $500 ETHEREUM / DOLLAR
One Day
$439 – Key Structural Level. As we approach the daily close this is the key level to watch. Put simply a close above strengthens our bullish argument
$408.09 – Key Support Level. This is our most imminent support. Given our failure to break about $439 I would not be keen to look for longs here
$378.94 – Danger Zone. Below this level we need to reconsider the immediate trend, bearish arguments will start to hold more weight than bullish ones
To YFI or Not to YFI YEARN.FINANCE / DOLLAR
Two Hour
$30,000 – Key Structural level. Reclaiming this level is a key trigger for a bullish case
$26,880 – 0.5 Support Level. There’s clearly demand here. For the ideal bullish case we stay above this level and then continue to claim $30,000
$24,000 – 0.618 Support Level. Final demand zone. I expect buyers to step in at this level should we get here
$20,000 – Danger Zone. This is my invalidation level for the bullish case
Learn more about the Fibonacci levels here
A Deeper Look Into Yearn.Finance
If you’ll excuse the catchy title we will now continue where our Monday’s edition left off on the Yearn.Finance project and the spectacular YFI token launch. We’ll look at YFI through a traditional finance lens, take a deeper look at the much anticipated Yvaults and the possible implications for ETH and YFI prices.
Cash Flow and P/E Ratios
At the time of writing, around $1.1 billion is locked in the yearn.finance protocol. What sets YFI apart from most tokens, especially compared to any 2017 ICO token, is the fact that the yearn protocol is generating meaningful revenue through withdrawal and performance fees. Details are beyond the scope of this article, but here’s a great explainer on the YFI revenue model. What is essential to know is that revenue is redistributed to YFI token holders as long as the projects’ treasury, a short-term development fund, stays above $500,000.
The yearn protocol has basically become a cash-generating machine and the market has caught on. The good thing about crypto protocols generating revenue is that we can look at these projects through a traditional finance lens and have a vague idea of what their value could/should be, at least compared to other protocols in the market. ‘The higher the expected cash flow, the higher the price should be’, said Twitter user Alex Kruger.
According to a Messari report last week, with total value locked (TVL) around $800 million, the yearn protocol generates ~20 million annualized for its token holders. The protocol makes that money through its two core products, Earn and Vaults, through a 0.5% withdrawal fee if users pull their funds of the protocol and a 5% gas subsidization (performance) fee when farmed assets are sold back into their original asset. The tokenomics model is still under construction and many new innovations are still in the pipeline, almost surely leading to new revenue streams in the future.
If we look at the price to earnings ratio (P/E ratio) on different protocols, things get even more interesting. Given the pace at which DeFi is currently moving, the actual numbers move quickly so view this as an estimate. A chart made by Twitter user Rewkang on Aug 29th, a well-respected DeFi investor, shows us how YFI compares to valuations of other popular protocols based on their current P/E ratios. Keep in mind, YFI price made a strong jump upwards since this post and topped out at almost $40k over the weekend. That said, new products are coming out so earnings still are expected to increase. There’s still a strong bull case to be made.
Yvaults’s Impact on ETH and YFI Prices
“History doesn’t repeat itself, but it does often rhyme.” – Mark Twain
yETH vaults, a governance proposal that was approved earlier this week, could have a substantial impact on Ethereum prices going forward. Users will have to deposit their Ethereum on yearn and let the protocol do the work for them. Yvaults will likely be one of the more optimal strategies to earn more ETH for the average user, while you have to do absolutely nothing. The project will make it easy for anyone who holds ETH to get involved with yield farming.
According to Defipulse, 6.4m ETH is currently locked up in DeFi. If Yvaults are successful, this number could go up exponentially. Transaction fees have been incredibly high as of late and by running a yield farming operation at scale (pooled funds), this method could save a lot of gas. There are tons of Ethereum still sitting on the sidelines or exchanges. Imagine additional billions of value in Ethereum getting locked up when yield farming becomes accessible to the everyday user.
Remember how 2017 was about ICO’s collecting ETH from users to build out their product, taking ETH out of circulating supply and driving the price up because of the increased demand and decreased supply? If Yvaults are as successful as some think they will be, a similar thing could happen which would be bullish for both ETH and YFI token prices.
Over time, we could see a lot of ETH being locked through this method and given that the protocol charges a withdrawal fee, the protocol’s earnings would go up with it. This would then be bullish for YFI token price, as profits get redistributed to the holders. There are still a lot of what-if’s in this story and attentive readers know that nothing is risk-free. For example, in order to incentivize ETH holders to play around with yield farming, the platform already offers a non-KYC insurance solution for locking up their tokens. Without insurance, a critical bug could lead to a loss of all your collateral. With insurance, more users will be inclined to try out these strategies knowing that their downside can be protected.
The Bad
Our goal is to provide a complete unbias analysis. So let’s look at some of the bad. Smart contract based strategies are not without risk.
Cutting edge innovation is exciting but a lot of things can still go wrong and when you deposit funds in any decentralized protocol, you’re at risk of losing all your funds without anybody being able to protect you. These strategies are not time-tested so extreme caution is warranted.
All the risks we need to consider:
Bad code in either Yvault, MakerDAO or Curve: Human error in coding
Massive ETH price crash
Stablecoin Risk: All pegged currencies carry inherent risk, they are not the same as holding the actual currency
Founder Risk: Find out more here
Lack of Global Support: Find out more here
In markets, impossible does not exist. Take the crash we had in March that almost ruined the MakerDAO project and after the recent hype, the system only became more leveraged.
So take a humble approach to the markets. Exercise extreme caution and make sure you can say this every single day “If the entire market crashed tomorrow I would still be fine”.
Coinbase Building Platform to Help Crypto Startups Launch Tokens, Raise Cash. Coinbase wants to participate in the surge of attention that the altcoin market managed to attract lately. In a podcast conversation with Patrick O’Shaughnessy earlier this month, Coinbase CEO Brian Armstrong hinted that Coinbase was working on a product called ‘Coinbase Launch or something like that.”, which has now been confirmed without giving out details. The exchange seems to be working on an initial exchange offering (IEO) but might also support security token offerings (STO) in the future. Read more.
Ethereum Transaction Fees Hit Another All-Time High Amid Dex Volume Boom. The decentralized finance (DeFi) ecosystem continues to grow and it’s taking its toll on Ethereum’s on-chain activity and thus transaction fees. Stablecoin Tether and decentralized exchange protocol Uniswap have spent the most fees in the last 30 days, spending $10,5 million and $12.7 million respectively. Scaling solutions can’t come soon enough, as transaction fees this high prevent users with a limited bankroll to participate in the ‘open’ financial system. Read more.
Bitmex Rolls Out Mobile Trading App Across 140 Countries. Popular derivative exchange Bitmex announced that it is rolling out its first mobile application. After a month- long pilot in 18 countries, Bitmex will be making the app available in 140 countries. The charting software is said to have been built in-house and users will be able to trade, withdraw and deposit through the app. Read more
Barnier ‘Worried and Disappointed’ After Latest Talks With U.K. As discussed in previous Market Meditations, there has been an impressive rally on GBPUSD. This has been more attributed to dollar weakness than sterling strength and in fact, the value of the UK currency will be very sensitive to the outcome of Brexit talks. Increasingly, it appears as though the probability of a ‘No-Deal’ exit from the EU strengthens. In the most recent negotiations, the EU’s chief Brexit negotiator accused the U.K. of failing to engage constructively in negotiations over their future relationship, giving one of his starkest warnings yet that the time to reach a deal is running out. ‘I am worried and I am disappointed… I came back from London this morning, we did not see any change in the position of the U.K.’ – Michel Barnier. A formal negotiation round between the 2 sides is due next week, and failure to make headway could further raise the risk of a chaotic split when the post-Brexit transition period expires in December. Read more.
Tesla Seeks to Raise up to $5bn in Share Sale. Tesla will raise up to $5bn by selling stock as the electric car maker capitalises on the 6 fold surge in its valuation this year. Chief Executive Elon Musk has frequently used the company’s buoyant share price as a means of raising money. The company will raise the money by selling shares on the open market, giving it flexibility to lock in an attractive price compared with a formal secondary offering, in which an investment bank sets the terms. Tesla shares have repeatedly hit new highs in 2020, catapulting the group’s market value beyond established carmakers such as Toyota and overtaking some of the US’s best-known companies, including ExxonMobil and Walmart. Read more.
U.S. Financial Firms Like Citi and Blackrock Make Inroads Into the Chinese Market. From regulatory approval to business decisions, major American financial giants are moving deeper into the Chinese market, even though political tensions between the two countries are growing. Citi announced Wednesday it received a domestic fund custody license from the China Securities Regulatory Commission — becoming the first U.S. bank and the first of the top 5 global custodians to do so. The license will allow Citi to hold securities and sell related custody services to China-based mutual funds and private funds, if Citi passes the regulator’s inspection later this year, according to a press release from the bank. Despite Trump’s best efforts to protect the U.S. from Chinese competition, it appears that the financial services sector is drawn to this capi-communist state. Read more.
Blue Light and the Effects on Sleep
While crypto is as busy as it is now, it’s not easy to maintain a healthy sleep schedule for some. The fear of missing out and new projects entering the space every day doesn’t give us a lot of time to step away from our computer long before we go to bed. On top of that, our environment contains so much artificial light that messes with our circadian rhythm that we disrupt our sleep without even knowing it.
We all know that staring into bright screens isn’t the best way to cool down and fall asleep. It turns out that our computer and phone screens transmit a lot of high-intensity blue light, the same light that is responsible for waking us up in the morning. Several studies have proven that exposure to blue light at night has a big influence on your body’s ability to prepare for a good night’s sleep because it prevents your body from making a sleep hormone called melatonin.
To prevent artificial light from preventing your sleep habits, we can implement a few basic measurements. Before we had artificial lighting, the sun was our major source of lighting and people spend their evenings in relative darkness. Given that this solution is not easy in our current society, using a few tips to block blue light specifically can get you quite far. The easiest solution is installing a desktop application called flux, which blocks out blue light after sunset. There are multiple apps available that can do the same on your phone. A better but less convenient option is wearing blue blocking glasses if you have to sit behind a computer late at night. They won’t win you the latest fashion price, but I’ve found that wearing those at night has had a tremendous impact on improving my sleep while being able to work behind my computer for as long as I want.
