A boat in a container shipyard

The DEX Brief No. 18 - Special Feb & March Issue!

SVB, liquidity migration + more

Written by

Mark Lurie

Published on

March 24, 2023

Top of Mind at Shipyard

In last month’s DEX brief, we wrote about the imminent sea-change coming to DeFi. We posited that shifting DeFi interest rates will cause liquidity to move from protocol pools into on-chain USD treasuries and yield-generating ETH staking, resulting in a sudden washout of many unsustainable DeFi protocols. Since then, TradFi has given us a preview of this with the sudden failures of Silvergate, SVB, and Signature. While the trigger for their fall was the unrealized losses in their bond portfolio, the broader context was the flight of deposits from checking accounts across the banking system into money markets and treasuries. This left banks more and more exposed to the necessity of selling bonds, which realizes losses. It turns out, depositors started caring about their yield once treasury rates hit ~5%. 

The most common counterargument to our hypothesis is that DeFi protocols that may otherwise lose liquidity can react by moving away from having ETH and USDC as their primary pairs and instead use liquid wrapper tokens. These tokens would incorporate risk-free yield, such that liquidity providers earn both protocol yield AND the risk-free rate. For example, Uniswap’s Numeraire token may naturally shift from ETH to stETH (Lido’s liquid, wrapped version of ETH) such that LPs would earn trading fees on top of the risk-free ETH yield. So the argument goes, why flee if LPs can get the best of both worlds?

We don’t see that happening. Architecturally, the most popular liquid staking tokens act in some ways like a bank. For example, Lido keeps a buffer of unstaked ETH to meet instant withdrawal demand (e.g., 20%), but any amount beyond that buffer would require a wait to unstake the cache of ETH. Similarly, no treasury token could be fully redeemed instantly as the treasuries would need to be sold (and could even result in losses just like SVB’s bond portfolio). We haven’t even gotten to the security risk of the multisigs–there is no shortage of examples of multisig-based security models getting rekt. If stETH were the Numeraire of Uniswap pairs, it would introduce substantial risk into the system.

To us, liquidity flight and a shift in user behavior to the most sustainable protocols is much more plausible than migrating to new Numeraire-esque tokens that rely on buffers and trust. Expect washouts of prominent DeFi protocols in the months to come.

Insights From Our Team

  • Crypto Addiction Is a Problem, Not Everyone Can Agree How Big: “Scientific research has shown that emotional stress is a consistent trigger for addictive behaviors; as such it would be more beneficial to society and a better use of financial resources to invest in social infrastructure that helps people recover from the underlying factors that have caused their addiction” - Shipyard CSO, Angie Malltezi on crypto addiction possibly being a symptom of other issues. 
  • As Silicon Valley Bank Falls, Crypto Firms Brace for 'Extinction-Level' Tech Startup Turmoil: “Being put into receivership doesn’t mean no one’s gonna get their money back. It’s different than a bankruptcy. But there are no clear answers on how long it’ll take for customers to get their money. It’s not like people are going to get pennies on the dollar, but it could be years from now that they get their money back.” - Shipyard CEO, Mark Lurie on why this has been the toughest environment he’s seen for raising capital. 
  • Crypto industry braces for impact with Silvergate exit: “The move affects a huge number of market markers and exchanges that relied on the bank to process instant crypto-fiat transactions. As Silvergate winds down operations, risk concentration in the industry will also increase, with few banks still partnering with crypto firms. - Shipyard CEO, Mark Lurie on the difficulties Silvergate’s closure will cause for crypto platforms. 
  • The Impact of Crypto Catastrophes on Trader Psychology: In the aftermath of the implosions witnessed in the crypto space (and now traditional banks), some may be left wondering how catastrophes like these could affect investor psychology and behavior. Based on her background in neuroscience, Shipyard CSO, Angie Malltezi explains the impact severe financial loss can have on emotional, social, and physiological health.  

DEX Headlines That Caught Our Attention

  • Not unlike the exodus from CEXs that followed the FTX fiasco, the aftermath of SVB’s collapse is seeing a big migration of funds from CEXs to DEXs and investors loading up on USDC. 

What’s New at Shipyard


The DEX built to give self-made crypto traders the best possible prices on small trades

  • To further Knowledge, one of Clipper’s Community Values, Clipper has worked with Anthony Pompliano’s Crypto Academy to offer the course to the Clipper community at a massive 50% ($500) discount! To get the discount, register for the course using the code CLIPPER50 by April 7th. Crypto Academy is also offering the Clipper community 5 free spots in the course–2 will be raffled at the AMA on March 27th (if enough RSVPs, details below) and the remaining 3 will be given away prior to April 7th via activities in the Clipper Discord. Full details can be found here
  • Exclusive AMA with Pomp: Join Pomp, Kenny (Crypto Academy’s director of education), and Clipper’s Head of Community on Monday, March 27th at 6 pm ET for a live Q&A and AMA. This is your chance to ask Pomp anything about crypto, investing, markets, or the Crypto Academy training program. Register here to secure your spot. 

WTF, Crypto 

A Shipyard Software Production, hosted by CEO Mark Lurie

  • How to Use Crypto for Payroll: Megan Knab, CEO of Franklin Payroll, and Mark discuss the gap in the market for crypto-native payroll solutions, the upsides and downsides of getting paid in crypto, and how more web3 workers opting for compensation in crypto will affect the crypto economy. 

In the Works & Other Updates

Galley (part of the AdmiralDAO fleet): 

  • Polygon pools & auctions are now up on Galley, enabling the creation of guaranteed auctions with Clipper NFTs! 
  • LP Early Bird Role: Early Galley LPs can claim a role in Discord that grants access to future rewards, including special NFTs.

Written by

Mark Lurie

Published on

March 24, 2023

March 29, 2024

What are stablecoins used for?, Clipper expands to Base, the latest AdmiralDAO proposals, and more.

February 28, 2024

A positive omen for DeFi derivatives, Clipper's new facelift, the latest AdmiralDAO proposals, and more.

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