Last week on Sunday, January 22, 2023, a LobsterDAO member created a new flavor of stablecoin called WUSD.
The date is only important because a 1 hour (lol) claimdrop was opened late on Sunday night Eastern time for LobsterDAO NFT holders. Most people in the group missed the claimdrop because it was late Sunday and only deeply autistic Lobsters were at their computers. The timing was intentional to prevent any Sybil attacks or other gaming of the claimdrop.
Don’t worry though if you 1. didn’t own a LobsterDAO NFT (you already lost if you don’t have at least 2 of these. gg.) and then 2. missed the claimdrop, GLO is a big honeypot. You can’t sell (more lol)
It has one of the most confusing, but novel 2 token mechanisms, WUSD and GLO, in crypto at the moment.
What is WUSD?
The simplest thing to understand about WUSD is that it's a governance free, immutable, wrapper for 6 USD fiatcoins: USDT, USDC, BUSD, USDP, TUSD, and GUSD. Just swap any of the 6 for WUSD! Easy!
WUSD charges a 1% wrapping fee that is used to buy GLO. Unwrapping is free.
WUSD is a cheeky response to DAI and Frax, which both claim to be “decentralized” but the majority of their collateral is made up of centralized stablecoins. Frax can claim some level of abstraction as its USDC collateral is distributed amongst every major DeFi protocol to bolster its resilience. DAI on the other hand keeps most of its collateral segregated in one area, the PSM, and so any enforcement action against it would be vastly more critical to the health of the network.
So what’s the difference between DAI, Frax, and WUSD?
Well, the team was nice enough to provide a “Memeparison”
The GLO token and “utility credit”
Moving past WUSD is where things start to get complicated, or at least turns into a honeypot. First, looking at the chart below what is the first thing you think of?
Very natural price action….. Is this a honeypot? Yes, kinda. If the protocol fails to grow any bigger, the 218k of USDC will be stuck forever (lol.. Why do we throw money around like this?…only in crypto)
WUSD/GLO is trying out a new system to see if they can solve the tragedy of the commons aka “when you don’t know where the yield comes from, the yield comes from you.” aka the mercenary dumper problem aka SBF calling DeFi a ponzi.
The standard play for any new protocol is to: 1. Issue a token on a fixed distribution schedule 2. Incentivize liquidity for Pool 2 (token + ETH in LP) 3. Hope it doesn’t get dumped to zero. If you’ve been in crypto for longer than 5 minutes you’ve seen 1000 charts like the one below.
Token price starts out nice and high due to low liquidity. As time goes on, it gets dumped to zero as more and more tokens are issued. The protocol fails if it can’t gain enough traction to ever grow faster than emissions. Token price eventually goes to 0.
GLO “solves” this by only allowing people to sell when they have “utility credit,” an internal meta currency. The term doesn’t refer to loans or the ability to buy anything. Rather, it’s more like loyalty points. When you get some “utility credit” you can use it to spend GLO. GLO is unsellable without credit, a honeypot by any other name.
The only way to get credit is if certain actions are completed by users as a whole. If no one uses WUSD, GLO is useless and can’t be sold. Whales can buy a ton of GLO, but they can’t sell until they satisfy the conditions to earn credit.
There are three ways to earn credit:
- Minting WUSD. Everytime at least 100K has been wrapped, all preexisting wrappers earn 1% credit and the epoch advances. It doesn’t matter if 100k or 10m is minted at once, as excess minting is counted only in the current epoch. Since launch WUSD has been at Epoch 0, with only 44k WUSD minted at this time.
- Running a front end. Devs who want to support WUSD can set up their own front ends, similar to how Liquity operates. Credit is issued based on the total volume of WUSD minted. The front end earns 1% of all mint volume as credit.
- Providing GLO-USDT and/or GLO-USDC liquidity on Uniswap v3. (changing soon)
Fun, right? I have no idea if this model can succeed. DeFi is all about incentives and WUSD/GLOs are opaque in the sense that they are new and no one knows how to play the meta game yet. Right now, is there a reason to mint WUSD other than get up to 2 GLO to unlock some bags? Yes, the wrapped fiat has value and can be used to transact once Curve LPs are created. Is this enough to kickstart growth and bring in new liquidity for WUSD? Maybe? I don’t know.
One thing I remember is in the recent interview with GammaSwap, Daniel made the point that there is always a cost of capital. Even if you are just holding cash, there is some minimal interest rate (risk free rate) which is the baseline for all investment decisions. Yield farming in DeFi might suffer from the tragedy of the commons, but at least it provides a forecastable reward yield. WUSD just has a growing honeypot which might get big enough for a whale to come along and mint WUSD to unlock it. The honeypot is dangling right now, will anyone bite? Only time will tell.
FRAX and WUSD
We have Curve pools. WUSD should pair with FRAX and incentivize growth through Frax’s flywheel.
If the LP rewards are high enough, that will bring in lots of liquidity to WUSD and unlock GLO.One thing WUSD could have done before launch was to distribute a few hundred GLO to the Frax protocol in return for future rewards. Bribes for bribes. This should be a good lesson for other new projects looking to kickstart their growth in the future. Throw Frax a bone when you launch. Help us help you.
