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The downfall of DeFi?: Depeg, debriefed
The Tally Newsletter, Issue 88
Welcome back to the Tally Newsletter, a weekly publication focused on DeFi and DAO governance. We’ll keep you updated on key proposals, procedural changes, newly launched voting systems, and shifting power dynamics in the Tally ecosystem. We’ll also recommend the most important reads and listens of the week to ensure you’re an informed citizen of web3.
I’m coolhorsegirl, a DeFi native excited to bring you the latest, weekly. With prior experience at Index Coop and across the DeFi ecosystem, I’m interested in DAO governance and general DeFi innovation aimed at maximizing decentralization.
This week, we’re debriefing the USDC depeg. It’s big stuff; what is often heralded be crypto’s most stable stablecoin is proving unstable, at least for now. Is the FUD fair? Or is everyone just reliving the events of last year’s Terra collapse? Regardless, people are calling Silicon Valley Bank’s shutdown “the second biggest banking failure in US history” and it certainly has implications on DeFi. Let’s dive in.
🤿 Deep Dive: The downfall of DeFi?: Depeg, debriefed
Spring 2022 saw the TerraUSD depeg. In Spring 2023—March 10 to be exact—Circle’s fully collateralized stablecoin USDC (USD Coin) experienced a depegging event, where its value deviated significantly from its intended peg of 1 USDC equaling 1 USD. It’s trading at as low as $0.89 on some exchanges. And because Circle is centralized, we have no on-chain way of detecting exactly where things went wrong. Brutal.
Circle announced on Twitter that it held $3.3 billion of USDC reserves at the troubled Silicon Valley Bank, shut down by regulators on March 10. These funds represent ~8.25% of total fiat USD that back the USDC stablecoin. Therefore, the fully collateralized stablecoin is no longer fully collateralized. Enter a depeg event.
Naturally, Twitter is freaking out. PTSD from the Terra (LUNA) situation is real. Even exchanges Binance and Coinbase are throwing around a bit of FUD (maybe fairly), halting USDC:USD conversions, at least through the weekend.
So, does this predict the downfall of DeFi? Probably not. While USDC’s depeg is less than ideal in the short-term, 91.75% of Circle’s USDC reserves remain liquid. Even in the case that the 8.25% of funds are totally lost, it is expected that Coinbase, Circle’s partner in the CENTRE Consortium, will step in. And you can’t compare it fairly to the FTX situation: Circle has the money (well, 91.75% of it). FTX did not.
Some positives: Circle is a regularly audited US entity and USDC has maintained a solid peg since its inception, unlike many other troubled stablecoins. That said, one thing I’ve learned is that in crypto you can never be sure. Regardless, Circle tweeted that “Circle & USDC continue to operate normally.”
Lastly, another reminder that real DeFi operates on-chain. Without on-chain activity, we can’t be sure how the USDC depeg will pan out. There is a silver lining, though: I guess my salary (and that of a lot of crypto’s workforce) is coming via arbitrage this month!
⌛️ On-chain Proposals
On-chain DAOs are decentralized autonomous organizations that operate entirely on the blockchain, using smart contracts and other blockchain-based technologies for its operations and decision-making processes. Tally believes that true DAOs operate on-chain.
Summary: Already passed on Snapshot, now going on-chain. Requesting $122k for hype generation and execution of the very name of the committee: merch, memes, and marketing.
Voting ends: March 16th
Summary: Hitting Tally again because of a failure to reach quorum last time around. Passed on Snapshot. Fresh out of ETHDenver, the Allo team is focusing on work for both Allo Protocol and Grants Stack, each with associated S17 outcomes. 136,200 GTC ask to maintain full budget and reserves with some leftovers from last season.
Voting ends: March 13th
Summary: Allow DAO members to exit by burning their tokens in exchange for a proportional share of the treasury. If passed, rage quit defends against 51% attacks but leaves the treasury far more likely to become more volatile given more frequent exchanges.
Voting ends: March 18th
Summary: Incentivize solo staking by offering a 10 ETH monthly prize pool for the next 3 months to any solo staker that puts “⌐◨-◨” into their validator’s graffiti flag.
Voting ends: March 18th
📝 10 Things To Read or Listen To
Article: “Decentralised Ventures: Networked, Moisturized, On-Chain and Flourishing” by Gaia Dadabit
Article: “Qualitative Insights from 23 DAO Leaders” by talentDAO
Thread: “Introducing Subscribe to Mint” by Mirror
Thread: “Quality Requirements for Delegates” by polynya
Podcast: “Improving the contributor journey in DAOs w/ Vikram Aditya of DAO Lens” from Crypto Sapiens
Podcast: “Content Worth Collecting w/ Adam Levy” from On the Other Side
Podcast: “From Vinyls to Music NFTs w/ Kabuki” from Rehash
Podcast: “Why We’re Investing $20M into DAOs w/ Seed Club Ventures” from The Blockcrunch Podcast
Video: “The Potential for Contribution-Based Governance” by Stefen Deleveaux
💫 DAO Talk: The Incredible Rise of Governor DAOs || Dennison Bertram @ ETH Denver 2023
🤭 Meme of the Week
Updates from Tally: Recovering from ETH Denver and looking forward to DAO Tokyo in April. Tally API remains live and ready for your use. Get after it. And good luck sorting out your USDC. See ya next week!
p.s.- To temper the craziness going on in DeFi, I’ve had a standard week: enjoying Melbourne’s sunsets from the hill near my flat and hodling my Based Ghoul. I love that thing!