🧘‍♂️ALERT: Smart Money Crypto

Market Meditations | March 15, 2022

Dear Meditators

Whilst the market has been focused on inflation and the Russia-Ukraine conflict, certain DeFi protocols have been experiencing a consistent rise in TVL. One such protocol is Frax.

Today’s Meditations: 

  • Frax Protocol 101
  • AlgodTrading on LUNA
  • Crypto vs. The EU

⏰ Top Headlines


? FRAX: The World’s First Fractional Stablecoin 

The Frax protocol is a two token system encompassing a stablecoin, Frax (FRAX), and a governance token, Frax Shares (FXS)It is the first fractional stablecoin which means its peg is partially backed by collateral and partially stabilized algorithmically. The developers are combining the best of both designs, which they believe will improve the long-term results better than stablecoins that opt for one extreme or the other.

How Is The Peg Maintained? 

Frax uses a stability mechanism that maintains its peg via arbitrage. This means that financial incentives are provided for market participants to maintain the stability of the peg similar to Terra’s UST.

  • FRAX can always be minted and redeemed directly from the system for $1 of value.
  • Arbitrageurs have an incentive to acquire FRAX for less than $1 and redeem for more than $1, profiting off of the difference.
  • This mechanism controls the demand and supply of FRAX on the open market to keep a stable peg of $1.

Why Is Smart Money Interested? 

In crypto, we can use on-chain analytics to track ‘smart money’ to gain an edge in the market. Convex Finance, Olympus DAO, [Redacted] Cartel and Congruent Finance are key players accumulating Frax Finance (FXS).

Smart money is likely accumulating to benefit from the utility of the FXS token. By owning many tokens, they can offer the highest possible yields to their users, lock yields to drive liquidity, or generate cash flow from accruing fees.

Nansen.ai: 14/03/2022 – FRAX Accumulation – Top Exchange 7 day balance change

According to data from Nansen, Curve.fi has added almost 25 million FRAX tokens in the last 7 days. The majority of inflow is likely a result of the Convex staking rewards program which recently went live.

Currently, users can earn between 24.54% to 25.4% vAPR if they choose to provide liquidity for the FXS pool on Convex FinanceCrypto investors that explore these avenues are aware of the risks. The risks associated with Yield Farming include, but are not limited to: Smart Contract Risk, Oracle Failure, Governance Attacks, Yield Fluctuation, Impermanent Loss (learn more about it here), Systemic Risks and De-pegging of Assets.

There are no guarantees in DeFi. Always do your own research and never invest more capital than you can afford to lose.


? Double or Bust

Crypto Twitter is full of strong opinions and every now and then someone takes on a bet. Sam Bankman Fried’s response to CoinMamba, when he called out Solana as overvalued in January 2021, has gone down in CT legend, as the coin went on to more than 80x by November. Who’s up next?

  • AlgodTrading put out a tweet on Sunday asking if anyone was willing to take on a $1 million bet that Luna will be lower in price in one year from now.
  • Terra founder Stablekwon took up the challenge, and each of them sent $1 million in USDT to an escrow wallet managed by CT celebrity Cobie. They agreed that the winner would be decided based on the 24hr average price of Luna on CoinGecko on March 14th 2023.
  • GigancticRebirth then offered to take on the same bet for $10 million to spice things up further, with half going to charity. That bet is yet to be funded…
  • CT is speculating how Algod might hedge his bet, from longing LUNA to just buying spot.
  • Either way, Stablekwon has said that he’s not in it for the money and will match the donation for charity and burn $1 million in LUNA tokens just for the sake of it.

If you’re interested in LUNA you can read more about it here, see how it’s doing as the number two blockchain for TVL on Defi Llama here, or understand why Algod thinks it’s a ponzi scheme here.


? A Big Win for the European Crypto Community 

Yesterday we discussed the possibility of the European Union (EU) voting legislation that would ban all Proof Of Work (POW) crypto mining. Less than 24-hours later, the economic committee of the European Union (EU) Parliament voted against the bill with 23 in favour, 30 against and 6 choosing to abstain.

  • Instead, a more crypto-friendly proposal from Dr Berger MEP was proposed and voted in with 33 votes for and 25 against.
  • Proof of work mining will likely be added to the EU sustainable finance taxonomy rather than the proposed MiCA regulation.
  • The MiCA draft will be negotiated between the EU’s Commission, Parliament and Council.
  • After a final agreement is reached which usually takes a couple of months, the law will enter into force. Companies will be given a 6 month transition period before fully complying with the new requirements.

This is a big win for the European crypto community and a step in the right direction for policymakers. However, the discussion around POW regulation is unlikely to end here.


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??‍♂️✍️ Stories in this newsletter were written by Isambard FAKai.A, Nick T., Max P., Kimia K., Ellen B. and Koroush AK. Graphics were produced by Ellen B.


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