Surviving the Dip, SushiSwap and Chainlink #11

Market Meditations | September 7, 2020

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Today’s Meditations:

  1. SushiSwap Takes Crypto By Storm

  2. Curve Fork Swerve Crosses $380m in Total Value Locked Within 12 Hours of Launch

  3. Binance Eyes Uniswap’s Lunch With Launch of Centralized ‘Swaps’ Platform

  4. Chainlink Nodes Were Targeted in an Attack Last Weekend That Cost Them at Least 700 Eth

  5. Oil Prices Face a Chill Autumn Wind

  6. EU Warns Johnson Over Tampering With Brexit Divorce Deal

  7. Goldman’s Oppenheimer Says Tech Can Continue Driving Bull Market

  8. Surviving the Dip

  9.  “Hell yes” say “No”

Scan the Week (Mondays)

Crypto News

  • Sept 7th. UMA Kucoin Listing

  • Sept 8th. Secret Contracts Proposal (network upgrade on Sept 15th if successful)

  • Sept 10th. Binance Summit: The World of DeFi

  • Sept 10th. AMPL: Beehive V2 Launch

  • Sept 12th (or earlier). Firmachain Mainnet Details

Global News

  • Sept 7th. Quiet day for the global markets given U.S. bank holiday celebrating Labor Day

  • Sept 10th. ECB Meeting. Expectation is that rates will be held but indicate that downside risks have intensified, suggesting further possible easing before year-end

  • Sept 11th. US CPI data

SushiSwap Takes Crypto By Storm

Uniswap vs SushiSwap

Crypto never ceases to amaze even the most experienced veterans in the space. After Yam and Tendies last week, the DeFi community chased the next food-based meme coin called SUSHI, intended to be used as a governance token for the SushiSwap protocol. Within a week, more than a $700m worth of tokens was deposited on the protocol, rumored to be an actual Uniswap competitor without taking outside capital.

If you haven’t been following crypto full-time, allow me to give you a simple explanation of what the protocol was about. Due to the open-source nature of crypto, a project’s code can simply be copied (forked) and used by other projects who then add their own improvements and features to it, without legal ramifications. SushiSwap was a fork of the popular automated market-making (AMM) protocol Uniswap with a token model attached to it. As Delphi Digital put it, the ingenuity of SushiSwap’s concept was that it was designed to ‘steal’ liquidity and users from Uniswap on an accelerated timeline. 

Now we are about to get a little technical. At launch, the only way to obtain the SUSHI token was by staking Uniswap liquidity provider (LP) tokens in SushiSwap. Every new block creates 100 SUSHI which is then equally distributed to the stakers on the protocol. In the first two weeks, to incentivize fast migration from Uniswap to SushiSwap, it was announced that rewards would be 1000 SUSHI per block created. After those two weeks, all LP tokens staked on the protocol would be redeemed on Uniswap and used to initialize new pools on SushiSwap using these underlying assets. The SUSHI token itself was in strong demand because of a part of the fees from trading on the protocol accrued to the token holders. Uniswap provides a 0.3% fee to liquidity providers, Sushiswap changed it to 0.25% and converted the other .05% to SUSHI which is then distributed to token holders.

Exit scammed

Over the weekend, the anonymous SushiSwap founder known as Chef Nomi suddenly became the center of attention after tweeting that he converted a huge chunk of SUSHI tokens (valued around $13 million) into ETH, effectively exit-scamming his 1.5 week old project. On Twitter, he reasoned that by doing so he could “stop caring about price” and “focus on the technicality of the migration.”

The SUSHI token, already listed on major exchanges like Binance and FTX, dumped another +60% after the news came out, bottoming out at $1 after topping at $12,50 earlier this week.

The news came out when the crypto market was already going through a strong correction and because of the increased uncertainty and loss of confidence in the latest DeFi hype, the SushiSwap saga pulled down prices even further on Sunday. After users joined the project’s Discord looking for an explanation, the founder responded by saying that ‘he was high and wasn’t capable of much reasoning at the time’. Not bad for a 13 million dollar exit scam. The founder became the target of a doxxing (revealing personal details) campaign by angry users of the community and after a few hours, rumors started leaking on Twitter that Chef Nomi was Band protocol’s CTO. Band protocol swiftly responded to the issue and so far, none the allegations have been confirmed. 

Sam to the rescue

SushiSwap had gathered a strong community around the project and disappointed token holders and farmers were hoping that a solution would magically be found after seeing their investment going up in smoke. Confidence about a possible solution increased when FTX’s CEO Sam tweeted out his public address with a screenshot of ongoing talks and seemed to be confirmed when Chef Nomi retweeted commenting “‘I’m transferring control to @SBF_Alameda now.” The SUSHI token price already started recovering earlier that day and pumped further on the news, jumping from $1 to $3 in less than 24 hours. The crypto market in general seemed relieved with the solution and started recovering instantly after a solution had been found.

With the project keys now in Sam’s hand, he announced that he would deploy a multi-signature (multisig) configuration into SushiSwap smart contracts. Through this mechanism, he plans to distribute the control of the project to several interested parties that could benefit the project long-term. On Twitter, he asked members of the community whether they would want to take part in the protocol’s future. Users had to respond below the tweet and 20 responses with the most likes from the community would be considered to join the project’s governance and receive the multisig keys.

With SushiSwap’s governance soon back in the hands of the community, confidence in the project’s survival seems to be restored at least a little bit. The value proposition of the SUSHI token hasn’t changed through this debacle so I’m very interested what this week’s price action holds in store for us. Will early investors be looking to get out of their investment while confidence is restored temporarily? Or does the community trust Sam enough to take this project to new highs? What an exciting week ahead of us!

  • Curve Fork Swerve Crosses $380m in Total Value Locked Within 12 Hours of Launch. The open source nature of most crypto projects is being (ab)used and forks of existing projects are coming out like crazy. A Curve fork called Swerve, a new and unaudited DeFi protocol, managed to accumulate $380m in deposits within 12 hours of its launch. Yield farmers hungry for the highest returns and promises continue to recycle huge amounts of capital towards the newest and shiniest protocols coming out. Swerve claims to be “100% community owned and governed”, meaning that no allocation was given to early investors or team members and tokens can only be generated by depositing funds on the protocol.  Read more.

  • Binance Eyes Uniswap’s Lunch With Launch of Centralized ‘Swaps’ Platform Binance is looking to further take advantage of the DeFi craze with a new trading platform called Binance Liquid Swap. The platform will be the first automated market making (AMM) platform to be launched on top of a centralized exchange, aiming to take away market share from decentralized alternatives like Uniswap. On the platform, users are able to provide liquidity and do swaps between three liquid pairs: USDT/BUSD, BUSD/DAI and USDT/DAI. Coindesk reported that: “When asked if Binance was moving into direct competition with the likes of Uniswap and SushiSwap, a company spokesperson told CoinDesk that Liquid Swap was aimed at an audience more at home on centralized exchanges”. Read more.

  • Chainlink Nodes Were Targeted in an Attack Last Weekend That Cost Them at Least 700 Eth. Chainlink has confirmed that at least 9 Chainlink node operators were targeted in an attack that resulted in a loss of about 700 ETH. The actual attack happened on August 30th and exploited the way in which nodes respond to queries which Chainlink described as a “failed attempt’ to spam the network. Read more.

  • Oil Prices Face a Chill Autumn Wind. The recovery in demand has officially stalled. At the same time, supply is off the scales; with huge stockpiles of crude and refined products. Put the two together and it looks like it will be a while yet before oil prices resume their upward path. After a strong initial rebound from the depths of the pandemic induced-slump, the comeback in demand slowed dramatically. China in particular has already got plenty of oil on hand. It took advantage of rock bottom princes in March and April to make purchases. To make the view even more negative, even when demand does begin to pick up again, in China or elsewhere, there may be little immediate impact on crude prices. The devastation wrought by the coronavirus pandemic has left ample spare capacity throughout the oil supply chain. Bottom line: it will take a big kick to bring crude prices out of its slumber. Read more.

  • EU Warns Johnson Over Tampering With Brexit Divorce Deal. Johnson has recently announced that he is willing to walk away from talks rather than compromise on what he sees as the core principles of Brexit, and set an Oct. 15 deadline for an accord to be struck. Further, in a move that risks reopening one of the most controversial disputes in Brexit and sparking concern in Brussels, the UK government has also drawn up new laws that could affect Northern Ireland, which would weaken the EU withdrawal agreement Johnson reached last year. As the deadline for a deal (end of December) comes closer, there is increasingly the chance that without a new trade deal, the UK and EU will face costly new quotas and tariffs on goods trade, and chaotic scenes at the border if customer checks are imposed. The nature of negotiations has been very ‘one step forward, three step backs’ and the markets have also felt this, with the pound falling as much as 1% against the dollar. Read more.

  • Goldman’s Oppenheimer Says Tech Can Continue Driving Bull Market. According to Goldman Sachs Group Inc.’s chief global equity strategist, technology stocks remain investors’ best bet and can continue driving returns in the current bull market. Even as the near term risk of a market correction persists and many tech companies’ stock got burned last week during a plunge in the Nasdaq 100 Index. Oppenheimer has backed some of the biggest stock market winners of the past 6 months and his latest theory is a ‘digital revolution’ fueled by lockdowns and the increased use of the internet and technology as working from home has become the global norm. A global norm that is forecasted to remain for the time being. The biggest short term risk to his optimistic view will be a situation where the economic recovery starts to slow, which could lead to a stock market correction of as much as 10%. Read more.

Surviving the Dip

Every key structural level highlighted in our Friday edition has been taken. For now, the market is no longer in an extreme uptrend.

So what next?

Well for starters, don’t panic. This is the most important thing you can do, mindset is everything. Whatever your situation handle it with a clear mind.

Focus on $BTC and $ETH. These are the assets that have been leading the market in 2020. We can us them to form our macro bias, coins with lower market caps may start printing bullish structures but if Bitcoin and Ethereum aren’t confluent, then our argument is diminished greatly.

Plan for every scenario. I know this seems obvious… but it’s the reason dips like this devastate people. They prepare for the upside and don’t account for the downside. When we enter a trade, if we do not know exactly when we plan on exiting, we are gambling.

Control risk and exposure. This expands from our last point, assume the scenario happens where we lose, we need to know EXACTLY how much we will lose and make sure we can afford to lose that amount.

Blood is good for the opportunity. While in the short term the price is going down and our momentum is halted, recall that the Bitcoin is still ~300% higher than it’s 2020 low. We are far from entering a bear market, so this temporary lull could be a fantastic opportunity for us to start building positions.

Finally, remember that it is just money at the end of the day. Lost money can be made back and there’s a lot more to life. Adopt a “win or learn mindset”, every loss is a victory if we learn from it.

“Hell Yes” or “No”

“Life is a sum of all your choices” – Albert Camus

Early in life we tend to yes to everything that comes our way and feel left out when we can’t. FOMO, an acronym that stands for the fear of missing out, became so popular that it is one of the most used memes on the internet. As we grow older, more opportunities arise and the mindset of saying yes to everything can actually handicap us.  We want to be in a position where we can say yes if an incredible opportunity comes our way, even if this were totally unexpected. Sometimes, the best plan can be the one that lets you change your plan.

Derek Sivers, a former musician and founder of CD Baby (a company he sold for $22 million), popularized a very simple framework for those of us who are over-committed. When faced with a difficult decision, if you’re not saying “Hell yes”, say “No”. You either wait for something that generates that “WOW!” feeling or you let it go. Time is the most valuable asset we have and we should protect it from slipping through our hands by doing things that are not important to us. As Derek summarizes: “When you say no to most things, you leave room in your life to really throw yourself completely into that rare thing that makes you say “HELL YEAH!”

The same idea applies to our trading. Cultivating a mindset where we have the patience to wait on the right trade, the setup where we know we actually have an edge is hugely beneficial. Wait for the opportunity to present itself and act accordingly. Jumping around and taking mediocre trades will not only cost you your time, but it also prevents you from acting on the setup you’ve been waiting for once the opportunity arises.