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12th April 2024 > > London & ENA.


tl;dr

London’s elections are a pointer to the future. ENA and USDe are destined to fail, just not yet.


Market Snap








Market Wrap

The FTSE is set for a record close in anticipation of dramatic interest rate cuts as food prices become an ever-stronger deflationary force. The Bank of England is once again proving its technocratic incompetence, though in fairness, it should not have been given responsibility for interest rates in the first place.


Curious Cryptos’ Commentary – Elections to be the Mayor of London

Brian Rose, founder of the London Real Party (who?) is standing as a candidate in the elections to be Mayor of London.


Rose is a known conspiracy theorist, who is willing to give David Icke a platform for his disgusting racist views. We all know what Icke really means when he claims the world is run by reptilian humanoids, putting him on a par with those who parade around London glorifying that symbol of hate, the Swastika.


Rose has zero chance of becoming Mayor which is a good thing. But his manifesto is of interest to us, though let me make this very clear, this commentary is not an endorsement of the man or his outlook on life.


He has promised to give every citizen £100 of a new crypto with the working title LONDON. The brand agency that came up with that idea didn’t work very hard for its corn. He claims it will be funded by a one-off £1bn tax on financial services companies in the city. It would be used for paying council tax bills, tube and bus travel, and presumably shops would be encouraged to accept it as payment.


This isn’t a new idea – Lugano in Switzerland accepts BTC and USDT for any and all municipal payments, an initiative first launched in limited form nearly two years ago that has undoubtedly been a success. Zermatt, home to the iconic Matterhorn which acts as the last staging post for the finale to the world’s greatest ski-tour, the Haute Route, has followed suit, as has the canton Zug.


In the relatively recent elections for the Mayor of NYC, the incumbent had to come out in support of cryptos after his challenger had done so and had been rewarded with a bounce in the polls. He has since completely reneged on those promises, but reporting that politicians lie for electoral gain is hardly news, regardless of their political affiliations.


I have searched in vain for any comment by the current Mayor of London, Sadiq Khan, on the topic of cryptos. His opponent Susan Hall (who?) is likewise somewhat reticent.


As time passes, cryptos will become an important subject for those who wish to stand for elected office. They will have to express their support or their antagonism on this topic. As we know, that debate is highly politically polarised in the US. One hopes we do not follow that model in the UK, though at the moment there seems little appetite to create a welcoming environment for the production of crypto tax dollars by any major party.


That must surely change.


Curious Cryptos’ Commentary – ENA (Ethena)

On the 4th April we briefly looked at ENA and its associated synthetic stablecoin USDe.


Synthetic stablecoins are a hybrid of algorithmic stablecoins (essentially backed with nothing) and true stablecoins that are backed with cash or cash-like instruments at better than a 1:1 ratio. USDC is a fine example of the latter, USDT less so though it is improving with time.


USDe is currently paying a 37% yield to those who mint and stake for seven days. Superficially attractive, TVL has risen from $200m to $2.3bn in just two months. Minting USDe is simply achieved by depositing other stablecoins into a smart contract. Staking is equally undemanding.


That yield though is a worry.


Ethena Labs, issuer of ENA and USDe, is transparent that it is using what is known as the cash and carry trade to generate this yield. This idea has been around in TradFi for a very long time. It involves buying an asset with cash, and shorting the futures. For most assets most of the time, positive contango means that this trade makes money whilst supposedly being delta-neutral.


The real world has an ingrained habit of messing around with models like these.


The implosion of LTCM (Long-Term Capital Management) in 1998, triggered by the Asian crisis and Russia defaulting on its debts, was precisely for the reason that whatever the quants say, markets will cause the maximum amount of pain to the maximum number of people. LTCM was over-leveraged using the cash and carry trade. It could not handle the margin calls required to maintain its positions, and it did not have the capital base to close them out at a loss.


ENA and USDe will one day implode, but that day is still far off. Meanwhile, the CC Treasury has opened a small position in ENA, but it will remain small, and it will be short-lived.

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