Weekly Recap
April 6, 2024

Crypto Fundamentals #71

MakerDao approves deployment of $100mm of DAI into USDe/DAI markets

Jimmy Zheng
Alex Weseley

The crypto venture capital landscape is heating up as Paradigm looks to raise a $750-850m fund, Galaxy a $100m fund and venture deal are up 50% MoM in March. Ethena and Wormhole airdrop a combined $3bn in value to users. Blackrock ETF adds Goldman, Citi, UBS, and more as Authorized Participants on its bitcoin ETF prospectus.

🌞 MakerDao approves deployment of $100mm of DAI into USDe/DAI markets

💫 Uniswap considers removal of events to save on gas fees

The week saw heavy losses across the board as as average and median WoW prices declined by 9.0% and 8.8%, respectively. Spot Bitcoin ETFs turned positive towards the end of the week, while outflows from GBTC slowed to ~$75mm on Wednesday. Crypto and other risk assets were impacted by comments made by Federal Reserve Bank of Minneapolis President Neel Kashkari, which stated that if inflation continued to move sideways, the Fed may not need to cut rates at all in 2024. Neel noted that "If we continue to see strong job growth, strong consumer spending and strong GDP growth, then that raises the question in my mind, "Well, why would we cut rates?' Maybe the dynamics we have right now are sustainable."

Meanwhile, the S&P 500 and NASDAQ declined on the week by 1.0% and 1.3% WoW as a strong March jobs report further dimmed expectations the Fed would cut rates in 2024.

🌞 MakerDao approves deployment of $100mm of DAI into USDe/DAI markets

Last week, MakerDAO, the decentralized governing body of the Maker protocol, approved the deployment of 100 million DAI into new sUSDe/DAI and USDe/DAI markets on Morpho, a novel lending protocol on Ethereum. A new proposal on April 1st recommended that the amount of DAI allocated to these markets should be increased to 600m with a 1bn ceiling, which sparked outrage and debate in the community. Let’s start with a little background:

What is USDe?

USDe is a cryptocurrency that aims to maintain a peg to the US Dollar. It is considered a ‘synthetic dollar’ and not a stablecoin because it has a unique mechanism through which it maintains its peg. It does so by maintaining a delta-neutral position on ETH, the collateral asset. A user that wants to mint USDe will deposit ETH in the deposit contract. Half of this ETH will be used to hold a long position in staked ETH, while the other half will be used to go short ETH, theoretically giving USDe no exposure to price changes in the underlying asset (this approach is not without its risks, which you can read more about here). USDe has reached a supply of over $2bn in just a few months, but in terms of the broader stablecoin market this is just a drop in the bucket (USDe is that tiny blip in the bottom right of this chart).

Ethana has attracted a lot of attention since its launch last December for offering incredibly high yields - over 100% APY on some days, and as low as 8% on others - on its staked USDe product, sUSDe. It has also attracted meaningful attention due to its points program where users can earn points to later be rewarded with an airdrop.

The protocol has received significant criticism within the crypto ecosystem for eliciting memories of UST. One of the similarities between UST and USDe is that UST garnered a lot of attention because users could generate 20% APY on the UST stablecoin by depositing it into the Anchor protocol. Similarly, users can generate very high APYs by staking their USDe - up to 100% in some cases. Understandably, folks are getting flashbacks to the UST depeg and Terra ecosystem collapse of early 2022. So when Maker voted to increase the debt ceiling for the DAI/USDe pools to 1bn, there was an outcry from various community members on crypto twitter. In fact, concerns over contagion were so high that a proposal in the Aave forums suggested to reduce the LTV of DAI across all Aave deployments to 0% effectively meaning it cannot be used as collateral.

A comment from Aave founder, Stani Kulevoch, in the Aave governance forums.

The move by MakerDAO to allow up to $1bn in new DAI to be minted with USDe as collateral has been perceived as extremely risky, and a consequence of bull market highs and yield chasing. Some have gone as far as to say that if USDe were to depeg, its integration with DAI would pose a systemic risk to all of DeFi. The question then becomes: if USDe depegs, what would the effects look like?

P.S. Ethena added bitcoin as a backing asset for USDe. They will employ a similar delta neutral strategy with bitcoin which will allow USDe to scale past the current 2bn supply.

P.P.S. Ethena is one of Delphi’s highest conviction bets for this cycle. Their explanation of what Ethena is.

💫 Uniswap considers removal of events to save on gas fees

Should Uniswap get rid of events and move to calltraces in order to save users 1% on gas fees? A discussion that had gone relatively quiet since last December was revived this week when Hayden Adams, creator of Uniswap, polled his X followers on this question. The issue was initially brought to the forefront of discussion when Shadow, a platform for off-chain event logs, announced a successful $9m seed round led by Paradigm in December 2023.

Events are essentially pieces of information emitted by a smart contract. A single transaction can emit multiple events, depending on what smart contracts it interacts with. For example, someone transferring an ERC20 token such as USDT will trigger the ‘Transfer’ event which includes information on the sender, recipient, and amount to be transferred. In EVM chains these events are stored on chain in what are known as a transaction’s ‘logs’. Since these logs are stored on chain they require a gas fee in order to be executed and stored by validators. According to @caitlynxyz on X, users have spent over $700m on gas for events on Ethereum! Events help data analysts and dapp developers by standardizing how to work with onchain data. At the same time, they can be a headache to developers who are trying to optimize their code to be as gas efficient as possible, yet are trying to adhere to one of the many standards set in Ethereum such as the ERC20 standard (remember, events cost gas).

The alternative offered by Hayden is to use traces. Traces refer to information attached to a transaction that is much harder to interpret than events as it includes every interaction that happens within a transaction. Take a look at a sample transaction trace here, and feel free to explore with your own transactions. In that example you can see that events can actually be derived from the calltraces. This would put the burden of deciphering the traces on sophisticated actors like indexers, MEV searchers, etc. while putting additional trust in the hands of off-chain indexers. Whereas there is currently a relatively low barrier for verifying on-chain data by querying an RPC node, this change would increase developer friction by either forcing analysts/devs to upskill, or forcing them to make additional trust assumptions.

Dune wizard Andrew Hong previously weighed in to this debate, saying that he is not too worried about this centralization, because projects like Shadow will open source and will have social verification like Dune today. He also recognizes that there may be a changing of the guard in the coming years as new crypto data infrastructure is built from the ground up. An alternative to off-chain event indexers would be shifting to calltraces.

Supporters of going eventless believe that any cost savings that can be passed on to users should be passed on to users, and that the data infrastructure to support these changes will arise naturally. The battle to make Ethereum cheap to use continues, and developers and the community alike will have to make compromises.

🫡Artemis Community Corner

Job Postings from Friends of Artemis:

Community Highlights: Artemis in the wild!

Product Highlights:

Detailed dashboard for people who love more numbers in smaller font:

Note: Revenue represents fees that go to the protocol’s treasury or are returned to tokenholders via a burn mechanism. Weekly commits and weekly dev activity as of 3/18/24.

The content is for informational purposes. None of the content is meant to be investment advice. Use your own discretion and independent decision regarding investments.

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