Along with usual programming we’re publishing a content series covering the dYdX ecosystem - whether you’re a crypto newbie or a double-OG, tap into the main hub for more 🔥 drops!
Today’s Menu
Section 1: The Big Picture 🔭
Section 2: A Quick Epoch Review 🧐
Section 3: Have Your Say 😉
[Section 1] The Big Picture 🧐
There is an old adage in traditional financial markets of ‘Sell in May and Go Away’ which is based on a once seasonal observation that more risky asset classes such as stocks underperform in the months after May relative to prior months. This probably doesn’t hold true in crypto markets, especially as there is only a limited amount of empirical observation periods. Nevertheless, the sector along with broad macro has had a pivotal past couple of months so we take the chance to zoom out and see what’s good.
Implosion of the Algo Stablecoin:
Crypto - nor any other asset class - is immune to blow ups or extreme re-pricing (sometimes to zero) driven by inadequacy, poor fundamentals and other factors. For instance, companies with listed stocks do go bankrupt even if once a national treasure - see Wirecard. Especially in the high profile cases, there are usually unfortunate losers, strategic or lucky beneficiaries and perhaps most importantly, full scale postmortems which offer valuable learning points. The situation with Luna/UST was extreme for many, inevitable for some and a learning point for all as wider progress still remains attainable. Said postmortems are ongoing but here are some quick useful primers.
Inflation Woes:
Although cryptocurrency markets have not yet reached adolescence, teenage or even schooling age in some cases, tokens/assets derived from the ecosystem are widely held and entrenched enough within the system (partially regulated, tax liable and institutional activity) such that it can be described to an extent as just another asset class. This means that in aggregate, crypto cannot avoid headwinds coming from the macro space and given its positioning along the risk asset curve, in times of spiked volatility as the market grapples to price in higher interest rates amidst ravaging inflation, it displays its high beta tendencies.
Failed Resurgence:
Bear market rallies have been described as more deadly than sell offs themselves especially as it is near impossible to perfectly time the bottom of a market with a consistent hit rate backed by capital. Unless of course said market is one underpinned by collusion. Many a time, traders would make outsized long bets on short squeezes only to get dragged back down to earth with immediate haste. As such, the best traders seem to be those who don’t get married to positions and are able to scale leverage down to match the statistical likelihood of a specific outcome in relation to their trading decision.
Buildr Principles:
We once described the crypto market as a venture backed playground with daily mark-to-market. Tokenless protocols can build in peace or at least get grilled by their investors behind closed doors. Communities, engineers and other builders of protocols with publicly attainable tokens/assets engage are in the process of attempting to take the world from zero to one. Such activities are not “1” correlated in regards to growth and success. As in, growth does not culminate into success on a linear basis. Some fail, some pivot, some are infiltrated by bad actors and so on.
This volatility in the assessment of day to day progress is not necessarily reflected in a new monetary valuation on a daily basis if assets of said company are held privately or in a concentrated inaccessible manner. However, if assets of a startup or tokens of a protocol are distributed publicly and are exchangeable in market places & liquidity pools then progress volatility becomes reflected in price volatility. The asset or token price becomes a short term and often misguided voting score of the reality of progress towards the mission in play. When asset prices are low, the concept of hype and euphoria is very much diluted, two sources of noise that can heavily detract away from what really matters - fundamentals.
Theoretical components of a price include:
fundamentals
discount rate
supply & demand
sentiment
cashflows
utility
hype & euphoria
With all this in mind, the value of real builders comes to the fore. They focus on progress and navigate the barriers which inevitably emerge on the journey. This mainly pertains to technical specification, product-market fit and other elements of the fundamental value proposition. The price of associated assets/tokens are somewhat irrelevant in this building process but the noise and volatility around it inevitably creates dislocations which arbitrageurs and traders seek to capitalize on.
Market Psychology:
When sentiment is bearish, revisiting psychology can be useful for navigation but perhaps the most highly rewarded activity is to build. What is clear is that capital, despite being birthed from a concentrated source much of the time, continues to enter the space and world class teams continue to expand and press on with their missions. For crypto to die, backed-builders would have to completely dissipate. One thing is true though, less hype equals more clarity and for now hype is closer to mute than maximum volume. For traders, volatility = opportunity.
Market Conditions:
As alluded to, current market conditions favor traders and arbitrageurs due to volatility and persistent capital and builders due to the renewed focus on fundamentals and opportunity to accumulate at lower prices. Along with this, fear has driven up certain risk premium as has caused price dislocation where previous actors once occupied. Successful builders of today will be the winners of tomorrow. As for trading, market making and liquidity provision platforms, dYdX’s on-chain offering has still remained one of the best in class amidst numerous tests of the crypto ecosystems’ plumbing. Case in point – the defi and stablecoin drama over the last few weeks. It’s important to bear in mind the wider context here, through the lenses of a buildr. Circling back to the user-owner concept it is awesome that dydxers can continue to access a great product but also inherently engage with buildr principes. If the platform is successful in its ambitions over the coming years, user-owners will benefit from the inevitable upside this brings.
[Section 2] A Quick Epoch Review 🧐
For those new to the concept of an epoch check out the glossary excerp below:
Epoch 9: A couple of big highlights from the most recent epoch 9, was the official public release of the dYdX iOS app, available to eligible traders. The app was put through its paces earlier this year by a subset of awesome beta testers and is another step towards creating the most extensive, seamless and functional trading experience in the crypto ecosystem. Check out captain of the ship, Antonio, speaking towards that end below. To complement this, despite being closed out early in Q2, the fee holiday is back again and this time on an indefinite basis – don’t all scream at once please…
[Section 3] Have Your Say 😉
As you may have already noticed, dYdX is building with a community-first approach firmly in play. There are numerous routes by which the next billion crypto users will be onboarded but not all of them will have this approach embedded to the core. Many will be platform-led, celebrity-led, hype-led, investor-led and the list goes on. Check out the thread below for yet another opportunity to have your say - think something is missing or doesn’t work great? Let the team know!
If you missed the previous dYdX publication hit the link below and have a read ✌️