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Liquid airdrops



A lockdrop model with immediate liquidity, using Uniswap


Featured in Token Economy #91 (subscribe here)

Photo by Jong Marshes on Unsplash

Airdrops are coming back in vogue due to the regulatory uncertainty surrounding token sales.

Historically, the v1.0 model of airdropping tokens to random Ethereum addresses has proven to be largely useless. So teams are experimenting with new distribution models, particularly those teams that have raised private rounds and are now more nervous about a public sale despite getting closer to mainnet launch.

Livepeer pioneered Merkle mine, which has been widely dissected. Other teams are experimenting with variations of that ‘proof-of-work’ model. Edgewere is working on a lockdrop, whereby in order to get airdropped the EDG token one will have to lock up ETH into a smart contract for a certain period of time, after which the ETH gets unlocked (effectively giving up the opportunity cost of lending ETH on Compound/Dharma etc). DxDAO are planning something similar.

This post is a rough brain dump about a version of lockdrop that puts the idle ETH at work by leveraging Uniswap, a protocol for automated market making.

It roughly goes like this:

  • XYZ tokens available to be distributed are locked into a smart contract
  • smart contract can receive ETH contributions for up to a fixed period of time (contribution period)
  • after contribution period lapses, smart contract creates a market for XYZ/ETH on Uniswap and uses XYZ and ETH balances as liquidity pool
  • ETH contributors can withdraw ETH and XYZ from the smart contract proportionally to their ETH contribution, or keep earning a share of the trading fees from that market.

One potentially interesting aspect of this is the automated price discovery: a market price for the token is established without actually having to sell tokens or design a bonding curve. The total amount of ETH contributed during the contribution period sets the price of XYZ token in ETH terms (a potential issue here is ETH volatility during the contribution period). In that light, it could also work with a series of contribution periods, where the tokens are made available in subsequent chunks. So contributors in the second/third etc periods have a reference point on pricing. [Need to think more about this scenario].

The other interesting implication is obviously the immediate liquidity for the token enabled by Uniswap. In that light, the game theory is particularly intriguing. Many whom I’ve share this draft with raised the point that one would be incentivized to maximise the ETH contribution in order to get as many tokens as possible. However, for this actor to be able to then sell off the tokens and profit s/he would first have to withdraw most of the liquidity from the market, resulting in not enough liquidity to absorb the sale order. Imagine this actors contributed 99% of the ETH, he’d only be able to sell at best ~1% of this stash. Smaller ETH contributors on the other hand, if they knew there was a whale, would rush to sell the token, removing the incentive for whales to maximize contribution in the first place.

A few open questions remain:

  • Where would the equilibrium settle, if at all? Is there a chance no one ends up contributing for fear of others selling out before/to them?
  • Would the incentives change at all if ETH contributions were confidential until the contribution period lapses, as something like the Aztec protocol would enable?
  • On the more technical side, there’s the open question of how to distribute Uniswap liquidity shares back to ETH contributors from the smart contract that owns them. One way to achieve something similar could be for the smart contract to be a DAO agent interacting the Uniswap in the background and granting DAO shares back to the ETH contributors proportionally. Then there would be some governance around managing the liquidity and fees.
  • What are the regulatory implications of this model? Needless to say, PLEASE do not take this post as legal advice, I am not a lawyer!

Anyways, this is very rough and many details have not been thought true enough. But I thought I’d share to get some feedback before spending more time on it.

Thanks for the feedback Spencer Noon, Dillon Chen, Rob Bent, thibauld Favre, Richard Burton, Sowmay Jain, Patrick Mayr.



Bitcoin Price Eyes $12,000 Following US Fed Chair Powell Talks



  • Bitcoin’s price finally made a worthwhile move after surging to $11,840 on Bitstamp following days of stagnation.
BTC/USD. Source: TradingView
  • The price has since retraced a bit to trade at its current level of around $11,780. Nevertheless, this is a move in the right direction as concerns started crippling up that we might be in for a fill of the CME gap down at $11,100.
  • Bitcoin is trading approximately only $700 away from the $12,500 area – the 2020 highest level that was reached on August 17. The next major resistance for BTC now lies at $12,000 – $12,100.
  • The move came soon after the Chairman of the US Federal Reserve, Jerome Powell, spoke on a panel hosted by the International Monetary Fund (IMF).
  • During the event, he said that the US is “committed to carefully and thoughtfully evaluating the potential costs and benefits of a CBDC (Centra Bank Digital Currency) for the US economy and payments system.”
  • He also said that it’s better to be right than be first on CBDCs.
  • Interestingly enough, BTC’s move appears to be uncorrelated to the US stock market. At the time of this writing, the S&P 500 is down about 0.4%, while the Dow Jones Industrial Average (DJI) is down about 0.3%.

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Cryptocurrency charts by TradingView.


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33 Years Since Wall Street’s Black Monday: Have We Learnt Nothing? (Opinion)



They say that to see the future, one should only learn history. Oftentimes, though, we tend to ignore history altogether.

Exactly 33 years ago, on this day, October 19th, 1987, Wall Street and global markets tumbled in a massive selloff that saw the S&P 500 lose about 20% and the DJIA about 22%.

One might think that this is something that we don’t want happening again and that the economic policies would be structured in a way where massive national debt doesn’t mount up. Here we are, 33 years later, and the US national debt has increased by roughly 12 times.

But it doesn’t matter, right? The Fed can always just “print more money,” as the former Chairman of the US Federal Reserve has said.

Rolling Back to 1987: What Happened and Why it Matters?

The year is 1985. The United States policymakers and economists decided that the time is ripe for a shift in the direction. As such, they moved to a slower expansion approach, unlike the state of rapid recovery from the recession in the early 1980s.

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Fast forward a few years when on October 14th, 1987, the House Committee on Ways and Means introduced a tax bill that was aimed at reducing the benefits associated with financing leveraged buyouts and mergers.

October 19th comes, and traders, analysts, and economists found themselves dismayed as markets took a beating. The S&P dropped by over 20%, while the DJIA was down 22% in a single session. Additionally, markets from across the world were also bleeding out, making this into a global downturn.

Dow Jones during Black Monday of 1987. Source: Wikipedia

Back then, Nobel-winning economist Robert Shiller surveyed 889 investors right after the drops to find the reason, according to them. Most of them said that it was perhaps brought on by “too much indebtedness.”

Looking at historical data, the US national debt in 1987 was around $2.3 trillion, representing 48% of the country’s GDP.

Learn From History, or You’re Destined to Repeat It… Right

The year is now 2020, and we just saw the third quarter closing down. In March, there was another Black Swan event that saw global markets tumble in response to the outbreak of the novel coronavirus COVID-19. Countries were literally locked down, and economies suffered as a consequence.

The US was no exception. In fact, it’s the current leader in terms of total cases of COVID-19. However, it’s worth noting that this year, unlike back in 1987, there was an obvious trigger as global economies were virtually shut down in response to the outbreak.

Their response, however, was criticized by many. Data shows that the US national debt has grown to $26.5 trillion at the end of the second quarter of 2020. This represents 136% of the country’s GDP. In fact, the debt increased by around $4 trillion this year alone. For reference, it grew with that much from 2015 to 2019 combined.

When there’s an obvious uncertainty of how the world will handle the pandemic, US stock markets are charting all-time highs. And all of this was made possible by the trillions of dollars printed to bail out huge corporations.

This Time Could Be Different… But Will It?

Of course, this time, we have Bitcoin – a scarce digital asset that comes with pre-programmed inflation that will, eventually, disperse.

However, it also challenges the very essence of what banks are created for. It’s the first real attempt to separate money from state and … well, that’s scary for some.

Bitcoin’s censorship resistance, immutability, actual transparency, and, most of all, digital scarcity are just some of its inherent qualities that could make a change. However, it’s definitely questionable if and when that will happen.


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Bitcoin Miner Daily Revenue Slumps to $345K Amid Rising Wrapped BTC and HODLing Frenzy



It is a well-known fact now, that the Bitcoin blockchain is considerably processing fewer transactions than it’s ‘Ethereum’ counterpart. And this decline in transaction processing has significantly reduced the revenue of miners as well. How much? Well, on-chain analysis firm Glassnode points to numbers that are at a 5-month low.

Bitcoin Miner Revenue Touches 5-Month Low

As per the latest update from Glassnode, miner earnings on the largest cryptocurrency network dropped drastically to a 5-month low figure of 30 BTC/day.

This declining trend in bitcoin miner revenue clearly portrays the disinterest amongst traders and investors to conduct transactions on the BTC network. Since they have dropped, miners don’t have much to process. And why is that? Well, for starters, ultra-low volatility levels, even after BTC remaining above $10,000 for quite a long time.

Although there were some exciting price actions at the beginning of the year. And around mid-2020 (when BTC flew above $12k), the BTCUSD realized volatility has touched 33 percent in the last 1-Month, and 27 percent in the last 10 days, according to skew’s analysis below.

Folks don’t want to trade with their bitcoin holdings. Instead, they are moving to other avenues to put their BTC to much more ‘constructive’ use.

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Wrapped BTC Soaring Like As If There’s No Tomorrow

Multiple data sources suggest that bitcoin holders are tokenizing their BTC stash en-masse, in order to leverage the DeFi boom to reap ‘instant profits’. According to Dune Analytics, the total supply of Wrapped Bitcoin (wBTC) on Ethereum surpassed 100,000.

wrapped btc supply
Wrapped Bitcoin (wBTC) Supply Now Above 100,000, Source: Dune Analytics

This has led the total USD value locked in wrappedBTC to rally way past $1 billion throughout October, and it’s still steadily increasing with the current numbers approaching the $1.25 billion number.

Wrapped bitcoin valuation
Total USD Locked in WrappedBTC Surpassed $1 billion, Source: DeFi Pulse

It is the third most popular avenue only preceded by Uniswap and Maker. IntotheBlock that uses machine learning to arrive at significant blockchain data points, notes that wrappedBTC has experienced explosive growth throughout 2020. This can actually be seen from the chart above.

More ‘100+ BTC Owners’ Have Now Entered The Ecosystem

As mentioned above, people are not trading bitcoins. Either they are tokenizing them on Ethereum or they are buying more. The latest data set from Glassnode shows that the number of BTC addresses holding 100+ coins has been on the rise, and has reached a ‘6-month high’.

This explains why bitcoin miner fees have dropped to a ‘5-month low’ and also is a pretty bullish indicator as far as future market outlook is concerned.


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