I've never been a massive fan of August. It's stupidly hot, there are no major holidays, and the shadow of a new school year looms. However, August does have one good thing going for it: the start of NFL training camp and, thus, a new season of Hard Knocks.
For those unaware, Hard Knocks is an annual documentary series on one NFL team's training camp. The team featured this year is the Detroit Lions. I admittedly had low expectations for this season because the Lions aren't exactly the most glamorous team in the league, but so far, it's been absolutely fantastic.
The man most responsible for this success is head coach Dan Campbell.
The dude is entertaining as hell. In just two episodes, he's had at least ten memorable moments. However, my favorite moment of his was his very first scene.
In this scene, he's giving a before-practice speech to the team. During this speech, he says a bunch of outlandish shit, including the now infamous "3 toes and 1 asscheek" line. Somehow, that wasn't the best part of the speech to me. Crazy, I know.
The best part of the speech was his bit about good teams and deep waters. Basically, he warns his squad that the good teams in the league will try to drag them out to deep waters and drown them.
I like that part so much because it's sorta what is happening to crypto, and specifically Ethereum, right now. The sharks are circling; if we let them, they will drag us out to deep waters and kill us.
How we respond over these next few months will go a long way toward determining what exactly we're doing here. Are we aiming to integrate with TradFi or usurp it? Are we working with the Feds or against them? Is decentralization or profit the main goal? How far are we willing to go to build a new financial system?
These are the questions that need answering, and until we answer 'em, we're stuck in limbo.
Now that we've done our ~deep thinking~ for the day, let's jump into this week's update.
Down-Only
Last week in The Crossroads of Destiny (shoutout Avatar), I talked about how the crypto market was at a, well… a crossroads. There were good arguments for us going up and down, and nobody knew for sure what would happen.
This week we got our answer. Drum roll, please…
Insert Vitalik airplane noises:
Yep, the market took a fat shit this week, and nobody is happy about it. Or are they? This rally was often called the "most hated" because nobody seemed to enjoy it. If that's the case, then maybe this is the "most loved dump"?
Obviously, if you were one of the $500 million liquidated on Friday, you're not the biggest fan of this dump. On the other hand, if you were fuming on this sideline during the run-up, itching for a chance to get in, you're loving this dump and should go to church on Sunday to thank God personally.
Regardless of what you want to call it or how you feel about it, at least we have some clarity on the market again. Spoiler alert: it's not pretty.
Weekly TVL is just as ugly:
Although this sucks, I can't say it was unexpected. When you really examined it, the bullish case came down to 1) No more bad shit happening and 2) The Merge. Unfortunately, not only did some bad shit happen, but it affected our beloved Merge.
The Ethereum Debate
At this point, crypto goes as Ethereum goes. It's the largest L1. It has the most valuable ecosystem. It's the most talked about. The Merge is the most anticipated crypto event maybe ever.
For months, we've been told that The Merge is exceptionally bullish for ETH. I'm sure you all have the spiel memorized by now. "Proof-of-stake!" "Issuance reductions!" "$Xm in sell pressure replaced by $Xm in buy pressure!"
All those arguments make sense. So why then, a month out from this ultimate bullish catalyst, are people still fearful of Ethereum?
From my point of view, it just feels like something is off with Ethereum. This could be due to any number of reasons. Maybe it's because the maxis are relentlessly shilling it. Perhaps it's because the macro still sucks. Maybe it's because the projected staking yields might be lower than we were led to believe. And maybe it's because of that bad shit I was talking about earlier.
That bad shit is base-layer censorship, or as the cool kids are calling it these days, an OFAC compliant chain.
For a long time, people either believed the government wasn't going to interfere with crypto, or, worse, prioritized making money over decentralization and censorship resistance. That's fine for a while, but now the chickens have come home to roost, and we've been caught with our pants down.
The Tornado Cash situation has reminded us that the government isn't going to just let an alternative financial system freely develop, which is something we shouldn't have needed reminding on.
The worry now is over the fact that the majority of staked ETH is in the control of centralized entities beholden to OFAC. If they decided to adhere to the law and censor transactions when OFAC tells them to, then instead of DeFi, you have FedFi. What would be the point of that?
This, of course, is not a done deal. Frankly, there's a lot of uncertainty around the whole situation.
Coinbase has already said they will stop staking if pressured to censor transactions. However, with staking being such a huge source of revenue, will they actually stop if push comes to shove?
Some are attempting to calm fears by claiming we can slash the stake of OFAC boot-lickers. But is this really possible if they control the vast majority of the stake?
A fork into a non-OFAC chain is possible and would provide threadooors and substackoors with content for weeks, but can it survive without the centralized stablecoins and oracles?
The bottom line is the ETH trade isn't as simple as we would like it to be. ETH has good (L2s and issuance reduction) and bad (censorship, macro, and USDC reliance) things going for it right now. Maybe the maxis are correct, and we're blowing the easiest long of all time. Personally, until I get more confirmation one way or the other, these waters are a bit too dangerous for me.
Hot Potato
Besides Ethereum, the week's main story has been the revival of some good old-fashioned degeneracy.
SudoSwap
SudoSwap was the first arena the degens did battle in. The decentralized NFT marketplace introduced a unique mechanic to the NFT space: liquidity providing. That's right, you can now ape into NFT liquidity pools just as you would on that random DEX on BSC.
Sudo started off the week super hot, peaking at $3m TVL and 1200 ETH in daily volume on Wednesday, but has since cooled off considerably. My advice on this one would be to proceed with caution. NFTs are in a bear market maybe even worse than DeFi and Sudo only has ~1200 active users. It's nothing more than a battle royale right now, so if you're going to partake in it, make sure you know what you're doing.
DogeChain/Canto
I'm putting these two together because they serve much the same crowd. Both are new chains that degens are playing around on to feel something again.
Dogechain brands itself as "the layer-2 for dogecoin", but according to Dogecoin developers, that is not the case. Even if it's not officially affiliated with Doge, it's definitely living up to Doge's meme legacy. In any case, I'm not messing around with this one. If SudoSwap, a project with actual utility, is just a PvP playground right now, can you imagine what Dogechain is? Bridge at your own risk.
Canto is a much more legitimate project. It's a layer-1 EVM blockchain built with the Cosmos SDK. Their idea of free public infrastructure is pretty cool, and I recommend you read the docs if you have some spare time. However, what people are really excited about with Canto is the opportunity to make some money. 35% of the CANTO token will be released in a liquidity mining program over the next 6 months. If you're in the mood for a DeFi summer throwback, here's your chance.
Other Stories
Umami Backtrack
#RealYield, everyone's favorite trend, suffered a hit on Friday. Umami, the originators of the #RealYield movement, has shut down their Delta-neutral USDC Vault after 3 weeks because it wasn't making any money. Instead of #RealYield, we got #NoYield.
In all seriousness, this really blows for the #RealYield trend and especially for the Umami devs. It's never fun to see people's hard work not turn out how they wanted it. Hopefully they can figure out what went wrong and fix it for their v2 Vaults. DeFi would be better off for it.
Fei Disaster
The Fei situation is one of the craziest in recent memory. TLDR: Fei was a stablecoin who raised a boatload of PCV (protocol-controlled value). They got hacked for $80m earlier this year and voted to reimburse victims. Then, a few weeks later, a new vote was run, deciding not to repay victims after all. Now the devs plan to pack it up and leave without repaying the protocols that lost money in the hack, including Frax. Needless to say, Sam from Frax is not happy about it.
The whole thing is kind of a nightmare, and shows just how ineffective DAO governance is at the moment. Even if this situation eventually gets straightened out, it's clear that there is a long way to go for DAOs.
FOMC Meeting
The minutes for the Federal Reserve's July meeting were released this week, and it was more of the same. They are going to do what it takes to bring down inflation, although it is likely that they will slow down rate hikes as inflation cools. Traders are using this news to bet on 50 bps hikes instead of 75, which is fine, I guess? It doesn't mean that the Fed is turning dovish, though, which is what would really turn the tides.
TLDR: Don't get your hopes up for a Fed money printer-fueled rally anytime soon.
Things To Keep An Eye On
I'll end this article with a few different things to keep an eye on from around the DeFi ecosystem. Check them out and DYOR.
Berachain, a forthcoming L1 on Cosmos, had a great podcast episode with the fellas from MarketCapping.
Redacted launched its Hidden Hand governance bribe protocol on Optimism, further building their baseplate credentials.
Frax looks to be building the mother of all DeFi projects.
Flashbots did some good things and some not-so-good things.
Manifold Finance seems interesting.
That's all I have for you today, folks. Let us continue to have the essential discussions on privacy and censorship next week, but this time, with more green.