DAOs, Stablecoins & Liquidity Pools (Cliffnotes Experiment)
Are 3-10 bullet summaries interesting to readers?
Note: experimenting with my #process. In addition to longer posts, why not share my raw notes from readings, courses, etc? Can publish these 3-5x/wk alongside 1 bigger post (for now ;) ).
Feedback welcome!
Research Cliffnotes 6-4-2021
Backstory on Uniswap and Sushiswap fork
In web3, it’s expected that things can and will be copy and pasted if others think they can improve the design
Sushi took .3% fee on Uniswap that went to LPs and broke it to .25% for LPs and .05% that went to token holders of SUSHI
When that happened, Uniswap became a DAO because the community gained governance rights with ownership of UNI (Sep 16, 2020)
Crypto companies don’t need to be (and probably shouldn’t start as) a DAO from day 1. They can evolve
Jesse Walden & A16z call “Progressive Decentralization”
There’s no pretense of decentralization because nobody gives a shit until you figure out what your product is and whether it has fit
Look at how much time VCs spend with their winners vs their losers
Early crypto startups raise money via SAFT (Simple Agreement for Future Tokens) done by Protocol Labs
After a team has successfully completed the first two steps, they’re ready to distribute tokens to the broader community. This is an alternative to a traditional IPO, SPAC, or acquisition, called “Exit to Community,” and is the point at which a project or company becomes a DAO.
Trigger a smart contract that mints and distributes tokens, and the community governs from there
Community ownership is the most natural. In reverse -- what would happen (with typical companies) if we had started with broad community ownership and tried to introduce the current model of outside investor control?
Vitalik’s concept of “companies without managers” is the essence of DAO
DeepDAO ecosystem overview shows total AUM of all DAOs
Not as high as you’d expect
Jack Dorsey talked about BlueSky and sounded like he wanted more of a decentralized social media network.
Editor’s note: Ties into “on the record” proposal to combat deepfakes (post on applying blockchain to social media for public figures to come later)
Binace: Uniswap & How it Works
Built on Ethereum
Automated liquidity pool. No order book or trademaker
Created by Hayden Adams in 2018, inspired by Vitalik’s initial writings
Liquidity pools can work with any pair of ERC20 tokens, but usually ERC20 & stablecoin (USDT, DAI, etc)
Want 1 ETH(x) for 300 USDT(y)? Exchange them; k = x*y where k has to stay constant
Theoretically there’s a ton of liquidity that’s unused as it waits for 5-100x’ing of coin values
Uniswap v3 allows people to set custom liquidity ranges. Hurts the average Joe retailer who is lazy, while helping professional market makers
Yearn Finance might offer a product to help the average Joe
In v2, Uniswap LP positions could be deposited in Aave or MakerDao as collateral. Not anymore because each range is unique and represented by an NFT
“Impermanent loss” (updated to “divergence loss”) where it looks like you’ve made money when coin appreciates, but opportunity cost of hodling while chasing yield means arb traders took the profits. Way more depth and charts by Pintail in 2019
fiat-backed, crypto-backed, algo
Use-cases stablecoins
Binance Research: Evolution of stablecoins
Paper written in 2019, obvious caveat much has changed since
Watch out with “stablecoin” promises, as Tether (USDT) claimed to be 100%, then 74% backed by dollars. In reality, 2.4%
Coins can sit atop multiple blockchains
More trading pairs leads to increasingly sophisticated FX markets on blockchain
Authored by Vitalik Buterin and Fabian Vogelsteller in 2015
Tokens are automatically interoperable with services and software supporting the ERC-20 standard (wallets, exchanges, etc)
Easy to set them up (much of the code is copy + paste-able)
New coins are “minted” as opposed to mined like ETH
Gas fees are still paid to include transactions within blocks, even though 0 ETH is transferred (example tx)
Code needs to include a few functions
six mandatory functions: totalSupply, balanceOf, transfer, transferFrom, approve, and allowance
optional functions: name, symbol, and decimal, etc
ERC-721 -- NFTs
ERC-1155 -- could be improvement to both 20 & 721 as it allows fungible and NFT in same contracts
ERC-223 & 621 -- improve usability to implement safeguards against accidental token transfers
Binance: Yearn Finance Overview
“The fairest launch since bitcoin” because anybody could have access, which drove developer enthusiasm
Forums and proposals in the governance section
Vote on most things, including hiring a team of marketers
Wild price swings at the start, as well as whatever Andre Cronje decides to do. Creates some centralization/key man risk
(…remember, feedback on this format is appreciated. Even a quick thumbs up emoji reply. But don’t lie. It wastes both of our time.)