Dreams shattered as US banks & USDC crash in panic. Crypto's future will be built from these ashes. #15
Dreams shattered as US banks & USDC crash in panic. Crypto's future will be built from these ashes. #15
Fiat money is suffering a crisis of confidence as Silicon Valley's brightest minds were rugged. In the shadows, Satoshi is smiling.
As panic builds up in the US banking sector, it is becoming quite obvious that we need a better financial system. The one designed in 1913, when the Federal Reserve System (FED) was created, appears outdated and outclassed.
The Silicon Valley Bank (SVB) collapsed in under 48 hours as panicked venture capital and founders rushed to the exit. The bank did not have enough cash to honor all withdrawal requests. Instead, it closed its doors and everyone banking with SVB learned an expensive lesson in fractional reserve banking.
In what follows, I will cover:
The Silicon Valley Bank crash
How this led to USDC losing its peg
What this means for the future of crypto
My interview with the lead developer of GMD protocol, one of many builders of tomorrow
To bailout or not to bailout
Last week, a classic bank run at the speed of the Internet crushed dreams and hopes in under two days. But make no mistake, this collapse is the direct result of the fiat-based financial system. In the 2020-2022 period, cheap cash (printed from thin air) flooded the market, including to those venture capitalists. They all banked with SVB and deposited over $200 billion with this one bank.
Flushed with cheap cash, SVB had a problem. How to put that $200 billion to work in a zero interest environment. They bought Mortgage Backed Securities (MBS) paying just over 1.5% / year. The problem? The cash was trapped in long term MBS (+10 years). This turned out to be a fatal mistake. Why?
As inflation worries grew (thanks to all that freshly printed cash), the FED decided to hike interest rates to 4.75% (as of today). Suddenly, most people realized there is a better place for their money. Withdrawals poured in and SVB started having liquidity problems. Soon, panic started.
Note how the arbitrary decisions of a few people (the FED) tilted the fragile equilibrium in the banking sector forcing the market to seek balance again. Even now, the fate of a nation continues to be at the mercy of a few bankers. The market always seeks equilibrium. Printing cheap cash and then reversing course abruptly had catastrophic effects.
With the collapse of SVB, which effectively rugged some of the best minds in the US overnight, it is time to build the future of money. This starts with the values that created Bitcoin after the financial crisis of 2007-2008.
Crypto and decentralization is the future, not Central Bank Digital Currencies (CBDC) where the FED becomes the bank for everyone (hello centralization). The collapse of regional banks such as SVB appear to serve well into the CBDC narrative where these tokens will be presented as a "solution" to the current crisis of confidence. The FED will also be presented as the ultimate guarantor of CBDC. This is as centralized as you can be with money.
Don't fall for CBDC. They are a TRAP! And a much bigger one than the current system.
Instead of rushing to another fiat bank, those Silicon Valley builders should put their minds together to build the crypto infrastructure of tomorrow. This includes crypto banks ready to onboard people to a better system that would have as ultimate guarantor: Bitcoin.
Bitcoin is mathematically predictable in its "monetary policy" until 2140. This is how you create a sound foundation for tomorrow. Unexpected surprises or arbitrary decisions are replaced by mathematic certainty. Such arbitrary decisions spilled all over the place, including on USDC stablecoin holders.
USDC, an unstable stable
Circle, the issuer of USDC, placed around $9 billion in liquid cash across US banks. This cash was supposed to back the USDC peg and be readily available on demand, but $3.3 billion of that happened to be with SVB. When this bank closed their doors, Circle had a $3.3 billion problem as they could not access this money. USDC soon lost its peg to the dollar due to panic.
Turns out, the bank used to store USD as collateral for USDC had no USD. Ironic.
But this should not be news. Fractional reserve banking means you can have only $1 backing $10 in your account. This system works well so long most depositors don't request withdrawals. However, this is a huge problem when you have a 40 billion stablecoin. You need all that liquidity today. Not tomorrow. The FTX collapse is another good example of this.
Last night, Circle announced they are ready to fill in any shortfall. This means, if SVB does not send back the $3.3 billion Circle requested last week (transfer still pending, expected on Monday), then Circle will step in and cover the gap themselves by any means necessary. Them being buddies with BlackRock helped. This is good news for USDC holders and the peg has recovered since.
The issue now is, do you trust the other banks used by Circle? Sounds a bit like a ponzi with the FED on top.
This begs the question, do stablecoins have a future in a Bitcoin economy?
The above seems to indicate fiat money is not required, nor welcomed if you want to build the future of money. We can do better and we have a path forward as set by Bitcoin. Before 2014, all of crypto used Bitcoin as the main pair for all altcoins. There were no stablecoins. I believe that is where we should return to in time.
The use of stablecoins appears as a transitory step to onboard the masses to crypto, but it won't last. This is because fiat money is intrinsically prone to fail. History shows the hardest money always wins and Bitcoin is the hardest money ever created by man.
Building the future of money is no easy task, but luckily there are many bright minds working hard at it. One example is DeFI or Decentralized Finance. This ended up sprawling all sort of innovations, including decentralized exchanges which reward users for providing liquidity to the ecosystem.
One of the best examples our there is GMX which can help you retire early, stress free. This led me to the GMD protocol which is built on top of it. To get some insight, I reached out to their lead developer for some questions.
Meet Saul, the man behind GMD. Scroll down for more.
1. Tell us a bit about your background and how the idea of building GMD came about?
I ventured into crypto in late 2020. I learned about DeFi after Iron Finance collapse and fell in love with the tech. Since then, I have been a degen and learned smart contracts along the way. Throughout this bear market I invested a lot in GMX and GNS and I was bullish on decentralized perpetuals in general. The idea for GMD came after Umami retracted their V1 vaults. That is when I realized we can capture this market and at the same time, I get to build on top of my favorite protocol.
2. Can you provide more information about the team behind GMD? Are they all anon?
We are all anon. Other team members are big traditional finance / software engineering people. We are still in the process of onboarding new team members, especially developers.
3. Where would you place GMD in the Real Yield space and who are your competitors?
We would place ourselves in the Yield Aggregator + Yield Generating sector. Not only are we earning from vault's product but we are also deploying multiple strategies like Uniswap v3 and Trader Joe liquidity book to earn revenue for the protocol. I would say Umami is the closest competitor since they also build vaults and earn yield with their treasury. With our new product built on top of gDAI and Uniswap v3, however, we believe we’ll stand out on our own and with the nature of this product, we can support all protocols on the Arbitrum ecosystem.
4. What is the added value of the (pseudo) delta-neutral strategy offered by GMD?
Hedged market volatility risks and traders PnL for liquidity providers. As such, they can earn high yields on their single assets made possible by GLP yields.
5. Apart from BTC, ETH, USDC vaults - what other vaults and services do you plan to offer?
We have a USDC vault built on top of Buffer Finance offering 19.5% APY with no deposit fees right now. Our next product will be gmUSD and GND protocol. gmUSD is 100% backed by gmdUSDC and gDAI. Thus, gmUSD grows in value at the same rate at gmdUSDC and gDAI. With additional incentives on solidly forks and GND farm, gmUSD holders can earn even more APY on top of gmUSD’s natural growth in value.
GND protocol will be the first Uniswap v3 farm on market. It utilizes a Uniswap v3 engine to create Uniswap v3 LPs, xgrail tokenomics with GND and xGND, and a pool voting mechanism similar to solidly. With more capital efficiency (using Uniswap v3) and more fees generated (through concentrated liquidity).
6. Explain where the APY comes from and can GMD vaults perform better than say GLP?
APY comes from underlying GLP’s yield. GMD vaults’s APY will be slightly lower than GLP’s but users will be hedged from multiple assets exposure. They can safely earn with their btc, eth, or usdc single staked.
7. What is your long term vision for the GMD governance token and where can people buy it? Why did you choose 80,000 total GMD supply?
Real yield will be the main focus for GMD token. That means little to none inflation and continuous cash flow. That being said, we will look to increase the revenue stream for GMD over time and build more products to complement the growth of GMD. With our recent launchpad, GMD stakers now can participate in new protocol launches as well, those in which the GMD team will be somewhat involved to ensure quality product and good tokenomics. Exclusive access like this will be implemented more in the future along with revenue increase.
80k is just an arbitrary number I guess, seeing how people are fine with teams holding >50% of supply in some protocols made me think we should have added more haha.
8. With over $11 million in TVL and $200,000 in revenue at this time, what would be some of the limitations on GMD's TVL growth?
Our vault strategy depends on the GLP reserve size, which is the limitation to grow it higher. That being said, GND protocol and in our roadmap, GMD bank (lending borrowing) can help people get leverage exposure and yields from our vaults and help us hedge without too much reserve capital.
9. Which DeFI ecosystem are you most bullish on and what do you think about Coinbase's #Base L2?
Most bullish on Polygon, Optimism, and Arbitrum. BSC will always be a hub as it’s connected to Binance. Base should be pretty analogous to BSC and I think it will onboard a good number of CEX users. If they have a good incentives program I think Base could be competitive.
10. Where can people reach out to you best and is there something you want to share that was not covered?
They can send me a dm directly on Twitter. It’s been hard for me to keep track of all my coming messages. Maybe I should just code in silence and let my team members handle the talking haha. But I am open to technical discussions / potential technical integrations with GMD so if you have any idea please send me a message.
Bonus question - choose one: BTC, ETH, GMD. Explain your choice.
From an objective standpoint, I would choose $ETH, a deflationary asset with 5% real yield and multiple giga brain techs. The risk/return ratio for ETH outperforms every other token out there in my opinion. As a developer for GMD, I am very aware of its potential but also risks. With continuous developments, GMD is positioned to do very well in the next bull market. At the same time, a single mistake in the smart contract could also cost everything. Hence, I would not advise throwing your life savings in it lol. But yeah it is the nature of low cap DeFI products. More risks but more rewards!
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