MARKET WRAP

1. Cryptos Continue to Sink, Decoupling with Stocks

CoinDesk – May 27, 2022  at 8:30am

This week, cryptos continued to struggle in the midst of an ongoing bear market even as stocks begin to recover.

Bitcoin ($BTC) sat roughly flat this week right below $30,000, down 2% over the course of the past week. For over two weeks, $BTC has experienced a noticeable but minor stabilization after the sharp sell-off earlier this month, caused by the Terra Luna collapse. 

In contrast, the S&P 500 has bounced back somewhat, as prices have leveled out thus reducing a similarly increased level of selling. This is the first departure from a correlation between the crypto and equities markets but represents only a drop in the bucket that has been this past month and a half. Overall, the correlation between $BTC and stocks remains at an all-time high.

Notably for cryptos, Ether (ETH) underperformed relative to Bitcoin, as it broke below a 40-week moving average. The ratio appears as though there is further downside to come, similar to the bear market in 2018. On the other hand, bitcoin’s dominance ratio, its market cap relative to the total crypto market cap, accelerated upward to 45%, which is the highest it has been since October of last year.

Overall, altcoins saw a continued decline, further emphasizing bitcoin dominance in the market. Specifically, Solana ($SOL) and Dogecoin ($DOGE) took the biggest hits, with an 8% on Thursday and a 5% decline respectively. 

 

2. Terra Governance System Passes Proposal to Burn 1.3B $UST

The Block – May 26, 2022 at 4:00pm

Terra Luna’s governance system has announced its approval of a proposal by the community to remove all Terra USD ($UST) in the project’s community pool as well as previously deployed $UST from past liquidity incentives on the Ethereum blockchain. The combined amount of 1.3B $UST equates to roughly 11% of the existing 11.2B $UST supply in circulation.

The proposal received a resounding approval from the Terra community, with a 99.3% vote in favor of passing; as such, Terra’s core development team will proceed with the burn, which will occur in two distinct phases. 

First, 1B $UST from Terra’s community pool will be sent to a burn module to remove the tokens permanently. Then, the remaining, approximate 370 million $UST will be bridged back to Terra from Ethereum and burned by Terraform Labs if the community so wishes in the future (pending). 

The $UST burning proposal part of a larger revival campaign for Terra that comes promptly after Terra's governance system approved the hard-fork of LUNA to create LUNA 2.0, otherwise known as Terra Classic ($LUNC). These actions demonstrate a significant effort from the core team at Terraform Labs to revive their project after its “golden age” and to provide some infrastructural innovations as a recourse to its heavily damaged community.

 

3. Avalanche to Onboard Apecoin and “Otherside” Metaverse Project on Subnet

CoinDesk – May 26, 2022 at 3:16am; Reddit – May 26, 2022

The core team at Avalanche has presented a proposal to ApeCoin DAO, requesting that it consider building out its “Otherside” Bored Ape Yacht Club (BAYC) metaverse as an Avalanche subnet, rather than on Ethereum. Yuga Labs, the creator of BAYC and Otherside, has yet to publicly comment upon the proposal.

While the proposal is still in its early stages of consideration, there is considerable value to be found in this potential avenue for both ApeCoin DAO, the administrative body of Ethereum-based ApeCoin, and Yuga Labs, the creators of BAYC and Otherside. Last month, Yuga Labs hosted a sale of its Otherside NFT land plots on Ethereum, but it was faced with such intense network congestion and steep gas fees that many of its customers ended up losing thousands of dollars in an attempt to purchase the land-based NFTs. The ordeal prompted interest from the team in developing a new blockchain to solve these scalability issues.

Almost immediately, CEO of Ava Labs, Emin Gün Sirer took notice of the opportunity this provided the Avalanche blockchain, which is not only a significantly cheaper and faster blockchain but also boasts blockchain that is compatible with EVM, the computing environment utilized by Ethereum’s decentralized applications. Avalanche quickly sent an official proposal to ApeCoin DAO about the potential for cooperation between both organizations. 

Despite the strong alignment in incentives, however, there was a significant opposition to this proposal felt by the majority of the ApeCoin DAO and the greater BAYC community at large. The community, as a whole, indicated their greater loyalty to Ethereum, arguing that they “should not move out of Ethereum ever” and that they should instead “search for an L2 solution on Ethereum.”

This is because Avalanche utilizes subnets within its consensus protocol. Feasibly, if ApeCoin agrees to join the Avalanche ecosystem, a large number of Avalanche users would inherently assume a position within the ApeCoin DAO and become BAYC holders as well. This, perhaps, feels invasive to some individuals within the BAYC community, thus prompting indignation.

 

4. Political Tensions Rise Between DAO Members of Merit Circle and YGG

CoinDesk – May 27, 2022 at 3:31am

Nearly seven months after receiving a substantial $175,000 investment from gaming guild giant Yield Gaming Guild (YGG), Merit Circle DAO, another blockchain gaming guild with over $115M worth of assets under management, has put forth a proposal to refund the investment due to what they consider to be a lackluster contribution of value from YGG.

Back in October, YGG invested in Merit Circle with the intention of expanding its scholarship program. In return, Merit Circle DAO hoped to see an introduction from YGG to new investors and greater social media coverage. Now, however, Merit Circle indicates that the partnership is regrettable. One DAO member and an investor at Sad Cat Capital stated:

“Unfortunately, we were also disappointed with YGG’s response, as it demonstrates how little value they have added over the past [seven] months. As a VC firm ourselves, we take pride in the activism we do for projects that we love.”

YGG, in response, claims that the agreement between them was to exchange tokens for capital, with no promises of supplementary “value-add” services being made.

It is crucial to note that this conflict results from the democratic nature of both DAOs. These are organizations governed communally by members with equal status and say, but they exist as a separate body from the actual, incorporated organization that is the actual company. The investment contract in question was signed not by members of the DAO themselves but rather by Merit Circle Ltd., the Gibraltar-incorporated counterpart of the DAO, which is controlled by Merit Circle executives and investors. 

It is unknown if the signed agreement has a clause that would allow for a cancellation and refund of the investment, thus making the efficacy of a potential proposal by the DAO itself to initiate a refund dubious.

 

5. Andreessen Horowitz Raises a Whopping $4.5B for its IV Fund

On Wednesday, a16z announced the formation of its fourth investment fund, valued at a staggering $4.5B, setting the record for the largest individual crypto fundraise in history. This latest round of fundraising practically doubles the crypto holdings of a16z, increasing it to more than $7.6B.

A16z partners Chris Dixon, Sriram Krishnan, Arianna Simpson, and Ali Yahya will be the partners in charge of managing the new portfolio. The firm plans to allocate roughly $1.5B of the new funds toward Web3 investments, focusing on seed-round crypto projects, and the remainder will be directed to “more traditional startups”.

The announcement arrives at the doorstep of a bear market for the crypto industry when a lot of startup companies are struggling to sustain their operations. On this, Arianna Simpson, a partner of a16z commented: “We can't predict the future state of the market… but we work with our companies to make sure they are well-capitalized to handle the storms.”

 

6. Elon Musk Commits Tens of Billions More to His Twitter Deal

This past Thursday, the price of Twitter (TWTR) surged again in response to yet another commitment from Elon Musk with regard to his desired takeover of Twitter, increasing his promised investment from $12.5B to $33.5B. 

The new commitment means that Musk is willing to shoulder up to $33.5B of the expected $44B worth of costs in acquiring the company.

Since the announcement, Twitter’s stock price soared over 5% after trading hours on Thursday, returning to roughly $39 a share. This increase is yet another wave of fluctuations in the price of Twitter, which has followed Musk’s equivocating sentiments since his initial takeover announcement in April. At the time, the share price rose to a high of $50 before falling to $37 per share when the deal appeared less certain.

The new commitment, disclosed in a filing with the SEC, follows a number of other headlines surrounding Twitter, such as Jack Dorsey stepping down from Twitter’s board and a $150M settlement with the Department of Justice and the Federal Trade Commission for the mishandling of user data over the past several years.