Around the web. Aave proposal failed to reclaim IP rights, Flow rollback drama, UNIfication proposal passed, and more.
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Analysis
$LIT is Here. What's its "Fair Value"?
Source: @Lighter_xyz
The most anticipated Token Generation Event (TGE) is here.
Lighter launched the $LIT. Short for Lighter Infrastructure Token. Here's the token distribution:
25% is allocated for future growth programs and partnerships.
25% is airdropped to users. This will create a ton of selling pressure in the short term.
50% for team & investors. The team and investors all have a 1-year unlock and 3-year linear vesting after.
The value created by all Lighter products and services will fully accrue to $LIT holders. While I don't know the exact legal relationship between Lighter token and equity, I'm hoping there won't be any token<>equity drama like $AAVE.
The best way to project the FDV of $LIT in the medium term is to compare it to HyperLiquid.
Firstly, here's a table comparing key metrics.
Source: Perpetualpulse, DefiLlama
There are a couple more metrics that we can theoretically consider, but I'm ignoring them cuz their utility & reliability are questionable. Daily active users/wallets are useless cuz of botting. It's the same story with daily transactions.
Let's project out some potential Lighter metrics based on the above numbers.
1. On volume, Lighter is 1.3x higher. If we apply it to HL's FDV of $25B, $LIT should be $32.5B.
But that's ridiculous. Lighter's monetization models involve a freemium model. Zero fee for everyone. Some fee for premium accounts with better latency.
Combined with airdrop speculation, we should assume that most of the Lighter volume is inorganic. So volume is useless for valuing $LIT.
2. Based on OI, Lighter should be $4.8B (25/5.2).
3. Based on revenue, FDV should be $3.9B (25/6.3).
But $LIT is only trading at $2.8B. Why's that?
25% of the supply was just airdropped. That's a gigantic amount of potential selling pressure.
Since the airdrop is done, many are expecting the volume and revenue of Lighter to continue dropping significantly.
There are qualitative differences between the potential of the two protocols as well.
Below are some factors you should consider for increasing or decreasing $LIT valuation relative to HYPE.
#1. Post-TGE competitive dynamics
Since the airdrop incentives are (kinda) over. How much volume & OI will lighter retain after TGE? Depending on your thesis for future market share, your valuation will differ.
#2. Current vs potential security.
Right now, HyperLiquid is more secure/reliable than Lighter. Once Lighter reaches stage 2, it'll be more secure than HL.
#3. L1 premium vs composability with Ethereum
HyperLiquid is an L1. And right now, the market is assigning a premium for L1s.
On the other hand, Lighter is an L2 that can potentially compose with Ethereum. If you've a lending position on Aave on Ethereum, you'll be able to use it as margin on HL.
This is a big deal. Suddenly, $69B DeFi TVL on Ethereum is now available to Lighter as potential margin.
#4. Revenue vs lower fees
HyperLiquid is a much better revenue generator than Lighter. Lighter doesn't have the following value-accrual sources.
HyperEVM burns.
Auction for new perp markets.
HyperLiquid captures fees from everyone.
In contrast, Lighter has a freemium model. Only a premium account with better latency has fees, which are lower than HL fees.
Right now, as long as your size isn't too big, you'll reliably get better execution on Lighter than on HL. Theoretically, this should mean that more retail & market makers should move on to Lighter.
#5. Strength of HL's moats
Right now, HyperLiquid has some moats. Builder codes are an example. If you're not familiar with builder codes, we've covered them in a recent newsletter.
It has many benefits:
Permissionless perp markets means that the HL community can create a market for the long tail of assets.
It enables easy expansion to other verticals. Ventuals for pre-IPO stocks, many mobile-first builders, and so on.
It allows 3rd party apps to earn commission by building a front-end to HL. The Phantom wallet is the most well-known example.
However, Lighter will be building its version of Builder codes as well. Then the technical moat will be gone.
Perps is one of the biggest sectors in crypto with proven PMF. It's always on my radar. You should monitor this as well.
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Delta Neutral Strategies.
Delta is a fancy term for "price exposure". Delta-neutral means that you don't care which direction the price of your assets moves. Your portfolio value will stay the same.
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One makes money when the price goes up.
The other makes money when the price goes down.
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Funding rate arbitrage is a great strategy to explain this.
Let's use ETH for this example.
You buy 1 ETH on spot. This is +1 ETH delta.
You short 1 ETH perpetual. This is −1 ETH delta.
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The yield will come from funding rates. They are periodic payments between long and short traders in perpetual platforms. This is done to ground the price on the Perp platform to the spot prices.
If funding rates +ve, longs are paying shorts.
If funding rates -ve, shorts are paying longs
In the above example, we'd assumed that funding rates are +ve.
So you need to monitor the funding rates. It'll keep changing in specific intervals. So, looking at historical funding rates on your perp platform can be very useful.
It's usually possible to understand the funding rate trends. So you can definitely manually execute this strategy. But it requires close monitoring. Some people actually run bots for these strategies.
We can tweak the strategy a little bit to earn more.
Instead of ETH, you can buy stETH. Now, in addition to the funding rate, you'll also earn staking yield from stETH.
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Delta-hedged liquidity provision is another one.
Provide liquidity to pools. Say ETH/USDC, for example.
You can hedge it with perps or options to make the position delta-neutral.
Now, you are earning the trading fees from the pool without the price exposure.
Cross-exchange arbitrage opportunities will be available as well. You can go long on the cheaper venue and short on the pricier one. You can earn the difference while still being delta-neutral.
But I don't employ this strategy cuz I don't monitor funding rates on different exchanges. There'll be bots competing against you as well.
In volatility trading with options, you combine spot holding with offsetting calls and puts to profit from implied vs. realized volatility without betting on direction.
Do all these feel a bit too theoretical? In TDE Pro, we've a video playbook on Delta-Neutral Strategies.
Uniswap DAO has voted in favor of the UNIfication proposal. It'll align the incentives of the DAO and the Labs team.
Aave DAO has rejected the proposal to transfer the IP rights of the Aave brand to a DAO-controlled legal entity. However, the legitimacy of the vote is suspect.
Fluid is conducting its Reserve Buybacks. So far, 867.65 ETH (~$3.19M USD) has been deployed to buy back FLUID.
Flow blockchain was hacked and lost ~$3.9M in assets. Flow Foundation had announced a rollback to the pre-attack state, but dropped due to community pushback.
GMX has gone live on Ethereum. It adds to 100+ Perp markets and 23 Spot markets for Ethereum users.
Solstice had depegged to 0.82. Even though it failed to maintain the peg in secondary markets, the collateral backing was never affected.
Shift4 launched a new stablecoin settlement platform on Polygon. It powers always-on payments for merchants worldwide.
Jito's Block Assembly Marketplace (BAM) has crossed >10% of the stake in the Solana Network. BAM will enable many features, like app-specific sequencing.
Yearn Finance introduced yYB, it's a new liquid locker for the YieldBasis ecosystem. You can mint fully transferable yYB by depositing YB or migrating your existing veNFT to Yearn's liquid lock.
📰 Industry News
Bitwise has filed with the SEC to launch a spot Sui ETF. The fees and ticker details remain undisclosed.
Movement, the controversial L2 project, launched M1. They've transitioned to becoming an L1-chain.
Solfare has launched an in-wallet prediction market. It's powered by Kalshi.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing.
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