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The major themes of this week can be broken down into the divergent paths between Bitcoin and Ethereum’s DeFi ecosystem. Bitcoin put on its best boardroom suit and tie, while DeFi went from Decentralized to Degenerate Finance.

Let’s start with Bitcoin.

Bitcoin
Last week, Matt Walsh was one of the first to pick up the fact that MicroStrategy, a $1.2 billion Nasdaq listed software firm, announced it would be diversifying some of its cash holdings into bitcoin. On Tuesday, MicroStrategy revealed that it wasn’t placing a small bet but rather, allocating half of their cash reserves to the tune of $250,000,000 into BTC.

If the first major corporation holding bitcoin as a cash reserve asset wasn’t enough of a watershed moment, MicroStrategy CEO Michael Saylor’s comments on what led to the decision was the icing on the cake:

“MicroStrategy observed distinctive properties of bitcoin that led it to believe investing in the cryptocurrency would provide not only a reasonable hedge against inflation, but also the prospect of earning a higher return than other investments.”

For an asset that’s notoriously hard for new investors to wrap their heads around, having it articulated in a way that other corporate decision makers can understand is substantive. One has to wonder if other CFOs are reading this news and mulling over their BTC allocation strategies. Either way, these are the narratives that bull markets are built on.

Meanwhile, in DeFi....

Everyone’s getting hilariously rich off yield farming Yams and you’re not. Source: DegenSpartan

The 2017 vibes continued in DeFi land this week as new developments continue to bubble up at an exhausting pace.

If ICOs were the fuel for the last crypto hype cycle, 2020’s early accelerant of choice appears to be DeFi liquidity mining programs. For those of you not keeping score at home, liquidity mining is an activity where users of a DeFi protocol are compensated in that protocol’s native token for interacting with it.

Compound kicked off this trend with its COMP token to great effect back in June, as new users flooded the Compound platform to lend and borrow assets and earn COMP tokens in return. Other projects took notice and have followed suit.

Yams
They say the brightest stars burn out the fastest, as was the case with Yam Finance. In a matter of 48 hours, the root vegetable-themed DeFi protocol accrued $750M in TVL (total value locked), sending Yam tokens to a peak of $160 before a fatal bug was discovered, ultimately sending Yam tokens to $0. $750K in the Yam treasury remains locked indefinitely.

Yam Finance is essentially a frankenstein of other DeFi protocols that launched a liquidity mining program that incentivized users to lend eight different tokens on the platform in order to earn Yam tokens. It wasn’t long before the Yam experiment was moving billion dollar markets as people scrambled to buy and borrow assets supported by Yam’s liquidity mining program. COMP alone jumped over 50% and lending rates tripled as borrowers got desperate.

Tokens were soaring and yam memes were flying, until the music stopped when a major bug was found in the 10-day old unaudited smart contract. Without getting too far into the weeds, this bug basically started flooding the market with Yam tokens to the point where the protocol became ungovernable (too many Yams to reach quorum on future changes).

Efforts were made in vain to save the young protocol but the yamage was done. But fret not; stay tuned for Yams II: Return of the Yield.

Curve Finance
While the Yam fiasco seemingly came out of left field, there was another controversial token launch surrounding the much more established Curve Finance. Curve is an automated market maker that’s already been generating $100M+ in weekly volume, second only to Uniswap. Jack noted that Curve’s governance token was already on the horizon, but its launch came earlier than expected.

Last night, Twitter became abuzz with the realization that an anonymous account paid 19.9 ETH to deploy the contract for the CRV token, which was apparently publicly visible in the project’s Github repo. First, a Curve developer called it a scam, but following an audit from the team, the contract was verified as legitimate. The Curve token was launched and calamity ensued.

Amidst the confusion and inconsistent messaging from the Curve team, some sophisticated users started interacting with the prematurely deployed contract to earn CRV tokens. While the exact identity of these sophisticated users is unknown, Dash pre-mine comparisons followed, and overall, a sour taste remains.

Closing Thoughts
All in all, the two bull narratives of 2020 are only getting louder and stronger.

The case for Bitcoin as an inflationary hedge and sound investment is being articulated with crystal clarity by influential people outside of our crypto bubble.

Meanwhile, speculative fever is alive and well within DeFi, as these financial protocols multiply and innovate at a rapid clip. The levels of complexity and coordination within DeFi is astounding. This stands in stark contrast to the billion-dollar vaporware that reigned supreme in crypto’s last bull cycle. However, as evidenced by Yam Finance, the stakes have been raised, and many feel that it’s simply a matter of time before the next DAO-style blowup occurs, incinerating millions, or perhaps billions, along with it…

In other words, get your popcorn.

-CD