🧘‍♂️ALERT: What Next for DeFi?

Market Meditations | September 21, 2021

Down The Rabbit Hole We Go…

Dear Meditators

If you knew time as well as I do, you wouldn’t talk about wasting it” – Alice in Wonderland.

In the spirit of not wasting time, today’s article aims to get you up-to-date with the latest developments in crypto. All in 5 minutes.

Today’s meditations: 

  • ? Top 5 Headlines In The Crypto Markets 

  • ? Opinion Segment on The Economist’s ‘Alice in Wonderland’ Crypto Article

  • ? An Update on the Terra Ecosystem and the $LUNA Token 

  • ? Puzzle on Green BTC

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? We’re All Mad Here

Just last week, the cover story of The Economist was ‘Down the rabbit hole: The promise and perils of decentralised finance’. An Alice in Wonderland themed account of the crypto markets sent out to over 1 million subscribers to read.

?‍⬛ Curiouser and Curiouser: What Was The Story?

  • The story aimed to shed light on DeFi:DeFi is akin to the frenzy of invention in the early phase of the web… the crypto-revolution could even remake the architecture of the digital economy”. 

  • The article went on to explain that DeFi is being adopted by banks and governments. Also suggesting that Ethereum is reaching critical mass: “the value of transactions that Ethereum is verifying… reached $2.5trn, around the same sum as Visa processes and equivalent to a sixth of the activity on Nasdaq”. 

  • The article concluded that for DeFi to succeed it must be regulated: “Many DeFi applications are run by decentralised organisations which vote on sum issues; these bodies should become subject to laws and regulations”.

? We’re All Mad Here: What The Story Failed To Mention…

The content itself was lacking in a few ways ?

1️⃣ The Use Cases of Bitcoin. 

For all the pleasantries about DeFi, Bitcoin was grossly neglected in this article. The original cryptocurrency was described as being used to “buy drugs” by “crooks, fools and proselytisers”. They even went so far as to describe it as a “distraction”. We would argue that Bitcoin has had a powerful narrative since inception: a Store of Value that can be trusted. The fixed supply of 21,000,000 can be contrasted against the seemingly infinite supply of fiat currency. The economic implications of Bitcoin have been paramount and we are seeing it’s social implications more and more: be that through adoption as a legal tender in El Salvador or through Satoshi statues in Hungary.

2️⃣ An Overemphasis on Ethereum 

Certainly Ethereum is a leading crypto asset and a powerful force in DeFi. There is no denying that. Albeit it seems short-sighted that the article did not reference any other project in the DeFi space. Be that a Layer 1 or Layer 2 solution. Or any of the many DeFi applications (DEXs, lending platforms, yield farming, liquidity mining etc.)

3️⃣ A Misunderstanding of Energy Consumption 

A lot of statements about crypto energy consumption are ill-thought out to say the least. The article states that blockchain platforms “consume wasteful amounts of electricity”. Whilst this may be true today, Bitcoin actually has the potential to be carbon neutral. To learn more about crypto energy consumption, have a look at today’s Puzzle directly after this segment. 

These shortcomings withstanding, seeing a positive crypto story on the front cover of a leading institutional publication founded in 1843 and streamed to over 1 million subscribers (including global elites such as Bill Gates and U.S. Presidents) is certainly a good indicator. An indicator perhaps that crypto’s vision has gone from the global fear and rejection phase to acceptance and adoption. 

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? How Green is Bitcoin?

Let’s play 2 truths and a lie. Lets see if you can spot the lie:

  1. Bitcoin has the potential to be carbon neutral. 

  2. We can accurately calculate Bitcoin’s carbon emissions. 

  3. Once all 21 million Bitcoin is mined its energy consumption will be minimal. 

? A Little TLC

Terra. Luna. Columbus.

Over the last few weeks we’ve introduced you to the Terra ecosystem and the Luna token that stabilises the network. After a three-week delay, the massive Columbus-5 upgrade is scheduled for next week so let’s remind ourselves of what’s happening:

  • Terra is a blockchain network built using the Cosmos Software Development Kit (SDK) – the latter is basically a template for modular, or application-specific blockchains that can then be connected to each other in a sort of hub and spoke model.

  • There are two tokens on Terra – the stablecoin UST and the native token LUNA – that are set up to encourage arbitrage to keep UST pegged to a dollar. This simple video explains the details. 

  • At present only some of the LUNA is burned whenminting UST – but the upgrade will change that to burn 100%. This suggests the community are confident the ecosystem will be self-sustaining as the treasury will stop receiving LUNA when minting.

  • Columbus-5 also comes with connections to other Cosmos assets and Solana via the Inter Blockchain Communication (IBC) protocol and Wormhole bridge respectively. This means accessibility and increased exposure for UST and LUNA, and the ecosystem may become a new hot spot for DeFi activity as liquidity and transaction rates increase.

  • Finally, there is a new DeFi insurance protocol called Ozone, to help cover the risk of losses due to technical failures. If this helps bring stability and growth to the network it may also lock up a lot of UST.

To learn more about Terra fundamentals see their whitepaper. What happens next in terms of token price is unknown. LUNA already increased roughly fivefold from mid-July to late August in anticipation of this launch. These are unchartered waters so expect some volatility.

The Earth, the moon, the explorer.

2. We can accurately calculate Bitcoin’s carbon emissions. 

FALSE!  We can accurately calculate Bitcoin’s carbon emissions.

  • Carbon emissions are notoriously difficult to calculate, for example someone using geothermal energy will produce much lower carbon emissions than someone using coal powered energy. And given that mining is incredibly competitive, miners aren’t likely to reveal the secrets of their trade or how they source their energy. 

TRUE! Bitcoin has the potential to be carbon neutral. 

  • This is down to the pro of bitcoin that it can be mined anywhere to take advantage of the abundant natural resources the world has that can be used for energy sources. 

TRUE! Once all 21 million Bitcoin is mined its energy consumption will be minimal.

  • Believe it or not, most of Bitcoin’s energy consumption comes from the mining process which means that once all 21 million Bitcoin is mined energy usage would be minimal. 

We’ve just scratched the surface in this puzzle, but if you want to find out more about just how green Bitcoin can be, check out our article here ? Myth Buster: The Truth About BTC Energy Consumption.

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

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