THE BULL EPISODE w/Cryptovestor - Flywheel #75

Samuel McCulloch
Samuel McCulloch
Oct 25, 2023
THE BULL EPISODE w/Cryptovestor - Flywheel #75

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Positive. Electric. BULLISH.

These three words are what describes Cryptovestor. 

The Mega Frax Bull is our guest for this week on Flywheel and, honestly, it’s like he can read Sam K’s mind somehow. Always probing, always asking questions in main chat, no one else has the drive to uncover Frax Alpha like Cryptovestor does. 

Cryptovestor began his journey in the crypto world much like many others, lurking and observing from the sidelines. He was initially a Bitcoin maximalist in 2014 but didn’t dabble in altcoins until after DeFi summer. Intriguingly, he was present during Ethereum's ICO but chose not to participate. However, he later purchased ETH at just $7.

His foray into on-chain experiences began in 2014 when a friend introduced him to the concept by sending him $1 in BTC. Cryptovestor evolved from being a Bitcoin maximalist to an Ethereum maximalist, and then transitioned to being an advocate for CVX. His interest in Frax was sparked after hearing about it in the OlympusDAO ecosystem. From there, he became a devout Fraximalist, finding his home at Frax.

One thing we loved about Cryptovestor is just his positive long term attitude. After 18 months of a bear market, everyone’s a little on edge and wanting to get back to up only. The down prices don’t phase CV as he firmly sees the potential of everything Frax is building and how it could bring hundreds of millions of dollars in revenue to the protocol. 

The most powerful thing he said in the episode is we need to move past our bear market lizard brain mindsets and think for a second what the protocol will look like when ETH breaks to new highs and we have strong stablecoin legislation in the United States. All of the current issues will resolve themselves and the narrative about Frax will radically shift in a short period of time. 

With how fast crypto moves, we all could be looking back on this article at the end of the year and wonder why there was so much hand wringing at the time.

His belief in the potential of stablecoins is otherworldly. He predicts that stablecoins will be the next trillion-dollar market and that they will eventually surpass giants like BTC and ETH in terms of market cap. He envisions a future where stablecoins are used as reward points by major companies, such as American Express, leading to the emergence of stablecoins like VisaUSD, MastercardUSD, and PaypalUSD. 

While he recognizes that not all stablecoins will succeed, he believes that some will become bigger than Tether. He foresees a world where there are hundreds, if not thousands, of stablecoins, including private ones for companies. This proliferation of stablecoins will have second-order effects, leading to major successes and failures. Among on-chain stablecoins, he rates Frax’s team as the best in the world, with DAI being the second best.

Cryptovestor is particularly excited about the partnership possibilities with PayPal and Paxos. He hints at potential collaborations, such as the creation of a Frax x PayPal card, and believes that Frax’s supply will rise along with PayPal’s. He envisions a future where transactions through PayPal will use Curve in the background, unbeknownst to users.

But outside of positivity, CV is a super sleuth who understands Frax from top to bottom. His thesis is that the stablecoin market will explode to trillions of dollars over the next decade and Frax will be one of the main beneficiaries of the industry's growth. Market’s of these sizes are inevitable, he thinks, as the use case for stablecoins is infinite and global. 

Uncovering BAMM

When we were making this episode we actually discovered how BAMM works. Cryptovestor talked about it yesterday, but we wanted to add some more clarity in this article. 

If you don’t remember how BAMM works, refer to an earlier Flywheel episode with Infinity Pools. We wrote the following at the time:

InfinityPools are an oracle-less decentralized perpetual exchange utilizing UniV3 mechanics to allow for leveraged trading with near-infinite leverage and no liquidations.

With InfinityPools, traders take fixed duration loans against existing Uni V3-like positions. They pay an upfront fee to cover the fees for the duration. If at the end of the trade, their position has a negative balance, the assets are returned in kind to the LP. However, if the trade is in profit, they can either extend the duration of the loan and continue to pay interest, or they can close and collect their profits.

Our primary criticism at the time was that demand for this product would be sluggish, as it would be difficult to price the IV of high volatility alt coins. LPs get locked into a position and could suffer a ton of impermanent loss or out of range price movement.

But this was shortsighted.

If the two assets in the liquidity pool are stablecoins, then trader's don't care about Gamma. Instead they want to remain as closely pegged to $1 as possible and they want volume.

Frax is already paying for locked LP, as part of its gauge system include in the protocol since launch. All of this liquidity though is locked and can only bolster the balance sheet of Frax.

But what if Frax could borrow it?

This could turn locked liquidity into a special borrowing facility for Frax, allowing it to earn yield when interest rates are low. Or use the collateral to fight off liquidity crunches during market downturns. Both side of the liquidity pool could be borrowed as well. Maybe there are opportunities with USDC, or USDP, or ETH, all liquidity will be up for grabs. It's a truly ingenious system.

Overnight, the CR would turn from undercollateralized to overcollateralized plus earning yield.

BAMM adds extra contract and interest rate risk to the protocol, but the trade-offs are plus positive overall. It will be a narrative shaping product when released in 2024.

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