The Curve Wars are back.
But real story is not about Do Kwon, $CRV, or 've' tokens.
The real story is about power.
Power through governance.
Governance, not cash flows, will mint titans in crypto.
🧵
But real story is not about Do Kwon, $CRV, or 've' tokens.
The real story is about power.
Power through governance.
Governance, not cash flows, will mint titans in crypto.
🧵
PROLOGUE: THE GREATER FOOL
The greater fool theory says that assets without cash flows are worthless.
If you own an asset that won't pay you to hold it, you can only hope the price goes up when you sell it to someone else.
Without cash flows, is there intrinsic value?
The greater fool theory says that assets without cash flows are worthless.
If you own an asset that won't pay you to hold it, you can only hope the price goes up when you sell it to someone else.
Without cash flows, is there intrinsic value?
PART 1: VALUELESS GOVERNANCE TOKENS
I think this story truly begins with Uniswap ($UNI), one of the first DeFi protocols to achieve broad product-market-fit.
Today, it's valued at about $5 billion.
It's the biggest decentralized exchange out there.
I think this story truly begins with Uniswap ($UNI), one of the first DeFi protocols to achieve broad product-market-fit.
Today, it's valued at about $5 billion.
It's the biggest decentralized exchange out there.
Uniswap launched its token via airdrop, giving holders governance control over the project.
But, as of today, despite Uniswap taking a 0.3% on all transactions, there's still no 'value accrual.'
Even though it makes $82m in yearly revenue, token holders don't see any of it.
But, as of today, despite Uniswap taking a 0.3% on all transactions, there's still no 'value accrual.'
Even though it makes $82m in yearly revenue, token holders don't see any of it.
Thus, many have criticized $UNI of being valueless. You can't make money by holding it, you can only sell it.
Fees currently only go to $UNI liquidity providers.
Hmmm. Seems like the 'valueless governance token' meme has some legs to stand on.
Fees currently only go to $UNI liquidity providers.
Hmmm. Seems like the 'valueless governance token' meme has some legs to stand on.
A few caveats:
1. There are some legal reasons as to why they can't just 'turn fees on'
2. $UNI does plan to eventually pay revenues out via some 'value accrual' mechanism
1. There are some legal reasons as to why they can't just 'turn fees on'
2. $UNI does plan to eventually pay revenues out via some 'value accrual' mechanism
PART 2: VALUE ACCRUAL
Is value accrual the answer? Perhaps.
Protocols like Trader Joe, SushiSwap, LooksRare, and more, all pay out the value they create to holders.
Yet, they continue to trade at ludicrously low P/S and P/E ratios, especially when compared to stocks.
Is value accrual the answer? Perhaps.
Protocols like Trader Joe, SushiSwap, LooksRare, and more, all pay out the value they create to holders.
Yet, they continue to trade at ludicrously low P/S and P/E ratios, especially when compared to stocks.
Ok, so what gives?
Valueless governance doesn't make sense, but value accrual doesn't seem to value protocols fairly either.
Is there a solution?
HOW DO WE CREATE PERSISTENT PRICE APPRECIATION FOR TOKENS?
Valueless governance doesn't make sense, but value accrual doesn't seem to value protocols fairly either.
Is there a solution?
HOW DO WE CREATE PERSISTENT PRICE APPRECIATION FOR TOKENS?
PART 3: GOVERNANCE AS VALUE
What if valueless governance is a meme...
But value accrual is ALSO a memes?
The answer I propose?
GOVERNANCE AS VALUE.
Let me explain:
What if valueless governance is a meme...
But value accrual is ALSO a memes?
The answer I propose?
GOVERNANCE AS VALUE.
Let me explain:
A few weeks ago, I read the article 'baseplate thesis' by Redacted Cartel founder @0xSami
In it, Sami discusses a new model for crypto, one where protocols focus on:
• Value creation (generating utility)
instead of
• Value capture (charging money for your product)
In it, Sami discusses a new model for crypto, one where protocols focus on:
• Value creation (generating utility)
instead of
• Value capture (charging money for your product)
Interesting...
CRV is a great example of this. It's model works like this:
1. Attract liquidity by giving out free tokens to liquidity providers
2. Protocols need liquidity for their tokens
3. They have to either buy tokens or bribe token holders to get it
CRV is a great example of this. It's model works like this:
1. Attract liquidity by giving out free tokens to liquidity providers
2. Protocols need liquidity for their tokens
3. They have to either buy tokens or bribe token holders to get it
Meanwhile, as a token holder, you have to lock your tokens up to get a vote on where liquidity goes.
So with:
1. Hyper-inflationary supply (nearly 1% a week)
2. Less than 10% of the revenue of $UNI
Curve has managed to outperform it by over 100% since July.
So with:
1. Hyper-inflationary supply (nearly 1% a week)
2. Less than 10% of the revenue of $UNI
Curve has managed to outperform it by over 100% since July.
Coming from a traditional finance background, I used to think that value accrual was key.
But like most of you, I'm bullish on new ideas and financial primitives that are truly unique to cryptocurrencies.
Governance is one of these new primitives.
But like most of you, I'm bullish on new ideas and financial primitives that are truly unique to cryptocurrencies.
Governance is one of these new primitives.
Governance in equities (shareholders votes, board meetings, etc.) is largely theater.
Governance in DeFi? That's just good business.
With bribes, deflationary lockups, new tokenomics models, and literal governance wars, it's the DeFi wild west out here.
Governance in DeFi? That's just good business.
With bribes, deflationary lockups, new tokenomics models, and literal governance wars, it's the DeFi wild west out here.
As an example:
Curve accrues a meager .02% of all swaps to token holders.
It's got a P/E of over 280 (horrendously overvalued when compared to stocks)
But it's the most talked about DeFi protocol of 2022.
Curve accrues a meager .02% of all swaps to token holders.
It's got a P/E of over 280 (horrendously overvalued when compared to stocks)
But it's the most talked about DeFi protocol of 2022.
Convex serves the same function as Yearn, but is almost 2.5 as big.
For similar reasons, related to how token holders wield governance power.
For similar reasons, related to how token holders wield governance power.
PART 4: GOVERNANCE AS ENDGAME
I see two paths for today's projects:
1. Create a token model where you accrue value to token holders (similar to a dividend stock)
2. Create a model where your token is intrinsically valuable for its utility
A new primitive; unique to crypto
I see two paths for today's projects:
1. Create a token model where you accrue value to token holders (similar to a dividend stock)
2. Create a model where your token is intrinsically valuable for its utility
A new primitive; unique to crypto
Governance is power.
Power is the endgame.
Governance is the endgame.
Power is the endgame.
Governance is the endgame.
If you want to know how to benefit from this narrative shift from value accrual to governance power, let me offer you a few recommendations:
1. Give me a follow: @JackNiewold
2. Sign up for our newsletter, linked below: cryptopragmatist.com
1. Give me a follow: @JackNiewold
2. Sign up for our newsletter, linked below: cryptopragmatist.com
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