Aave Credit Lines, USDC Blacklist, Compound Governance


This week has been a particularly big week in DeFi land with over $2b worth of value being locked up. $0 – $1b took 1.5 years. $1b – $2b took 5 months. Not bad at all. That being said let’s look into some of this week’s events and take a deeper look at why they matter and some thoughts around how we’re seeing a change in the landscape before our very eyes.

Aave Credit Lines

Rather than figuring out how to enable under-collateralised loans from start to finish, Aave has cemented it’s place to simply facilitate the first part – the infrastructure to facilitate giving credit to someone else. While the problem of how to trust people still remains, there’s plenty of experimentation that can be done with this since developers only need a front-end and web3 integrations to play around with this new mechanism.

In the short term we probably won’t see anything ground-breaking with this. However there’s a bigger play over here. The Aave-wrapped token ecosystem is becoming increasingly large and by packing more features like this, we’re starting to see Aave going to give Compound a greater run for its valuation. For reference, check out what I wrote about in early June: https://defiweekly.substack.com/p/governance-liability-and-competition

Aave is currently trading at a $230m valuation (almost fully diluted) while $COMP trades at a $500m valuation (not fully diluted). Why is there still a difference? In short, the Silicon Valley premium. A term used to describe teams/tokens that are based in the Valley and have the right investors on their cap/token tables. Let’s take a look at some of the contenders and their valuations. $MKR and $COMP are right at the top, although not by much. The day $SNX tops $MKR is going to be a day where I think that location will become increasingly irrelevant in the crypto space and the only metric that will matter is traction.

However, when you look at this chart there’s another interesting dynamic going on. Ignoring the absolute numbers and purely comparing the relative numbers, we have fascinating play going on where the amount of value locked up by these projects is very correlated to the the amount locked up.

If there’s three calls I’ll make from here it’s the following.

  1. Loopring will probably grow into a ~$300m valuation as gas fees get continually higher and retail will move off into L2. They’re the furthest in the game and the team has always been heads down executing. $120m valuation is a cheap bet to make.

  2. Bancor’s new liquidity mining program + reflexivity scheme will allow it to grow AUM very quickly – they’re taking a page out of the Synthetix playbook. Many, including myself, were wrong that forcing a native token into the ecosystem will harm TVL. Team is also extremely hard working and the main reason for their valuation discount is their large ICO. Look past this and you have free alpha as ETH maxis continue to play them down. $100m valuation with decent upside.

  3. Last but not least, Aave is going to reach parity with COMP. This is probably the hardest of all to hit but I’d put the chances of it at least 50%. The “a-token” ecosystem is going to start capturing liquidity effects that aren’t too easy to put a finger on right now but are surely building given the pace of development and execution. $250m valuation is high for sure, but buying the right asset at a bad price is often more important than buying the wrong asset at a good price.

Okay I’ve probably given away enough alpha for this edition, moving on.

USDC Blacklist

On a bigger note, the following event happened. TLDR: $100k wallet associated with scams was frozen by CENTRE (the issuer for USDC).

This is pretty big news because USDC was always believed to felt “impartial”. What’s also very interesting about this piece of news is that FATF just released a report about money laundering with stable coins and mentions the term “stable coins” 230 times in the report. TLDR of the report: stable coins are going to start becoming regulated in the next 6-12 months. Read it for yourself directly over here:


What’s also big news about this is that it solidifies the characteristics of the 3 stable coins we have right now:

  1. USDC – regulated by US concerned geopolitical events and blacklisting is still not a non-zero chance. Liquidity is decent and easy to get in and out of.

  2. USDT – do they have reserves or not? Nobody properly knows but at least their uncertain regulatory stance makes them a more stable choice for crypto native people since that’s basically what majority of this industry relies on (DeFi included lol).

  3. DAI – the most decentralised on paper but also the most dangerous due to its reliance on ETH beneficiaries minting causing a constraint supply. Almost half of the supply is currently being used to farm COMP. The peg is relatively unstable and relies on a governance vote that takes a few days to execute and see the effects of. Brittle is the best word to describe DAI.

Ultimately the type of stable coin your application relies on will be a political statement in itself.

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Governance, Ripple Effects, Farmers & Funds


A few days ago I came across a spot on thread by Cyrus on the Maker forum about the ripple effects Compound would have on DAI. Checkout the full post over here: https://forum.makerdao.com/t/upcoming-comp-farming-change-could-impact-the-dai-peg/2965.

Here’s the core quote from the piece which is worth examining.

  1. Natural Dai holders currently hold roughly …

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Governance, Liability and Competition


Hey everyone! This was an impromptu post simply because there’s too many interesting things regarding governance/decentralisation going on at the moment. I’d highly recommend grabbing a cup of coffee to read this one.


In the past few weeks we saw a flurry of announcements from MakerDAO around how the protocol is going to decentralise and be in the control of token holders. To me, this quite frankly reflects two dangers points:

  • They’re increasingly worried about legal liability and trying to clean themselves of any trouble that will come their way

  • The number of committees, votes, processes are far too many for any real progress to be made to the protocol relative to the competition

The first point became clear this week when word got out that a group of traders came together to seek $20m in damages from MakerDAO failing on March 12th for $45k worth of losses. Given this information, it makes sense now as to why they were rushing to get this all out of the door. I’m curious as to why these traders chose the path they did even though MakerDAO was willing to compensate them via the governance vote. Regardless, the Maker foundation may not have control over the protocol now but they still do have plenty of MKR in their treasury. I believe this number is something close to the tune of $100m. It seems that the 2017 model of having a foundation is an increasingly bad idea as it aggregates the liability to a real set of human beings that collectively hold some money. MakerDAO may be able to clean their hands and say it’s not in their control, and the traders know that, but that’s not the point. There’s a clear path to profitability from these events. If MakerDAO wasn’t in the business of minting synthetic US Dollars, would there still be a valid case? This tweet is pretty relevant as well:

PS: Vance, if you’re reading this I’d love to learn more about the other points and write a post going into depth on them.

The second point to mention which worries me is that this marks MakerDAO’s death by governance. Personally, I’ve done multiple startups and worked in various stages of companies. MakerDAO is officially now only going to be able to move at the speed of 1,000 person company rather than a 10 person startup. DAI has good liquidity and is the key MOAT, but let’s be clear here: it has in no way accomplished its mission on scaling out a full decentralised stable coin. $100m is very little relative to Tether and UDSC (in the billions). We’re going to start seeing many more teams attack MakerDAO until finds a model that works and scale rapidly. Lien is an interesting contender as they’ve gone down the anonymous path but their model has some big IFs to answer. In addition, a few other issues Maker should be solving but isn’t due to legal issues:

  • Creating more synthetic assets

  • Improving on the tokenomics of MKR

  • Creating more borrow demand to boost DSR (currently sitting at 0%)

I may sound bearish here but given my experience being on the ground in many situation, MakerDAO will more likely than not be able to ideate and innovate at the speed they need to.

Now that we’ve covered the main issues with MakerDAO, let’s look into what’s going on in Compound land. They recently announced they’re giving up complete control of the protocol to $COMP holders.


Let’s cut to the chase of what everyone’s really thinking, which people are actually going to get the tokens:

Distributing COMP

A collection of Compound’s most important stakeholders share the ability to upgrade the protocol:

  • 2,396,307 COMP have been distributed to shareholders of Compound Labs, Inc., which created the protocol

  • 2,226,037 COMP are allocated to our founders & team, and subject to 4-year vesting

  • 372,707 COMP are allocated to future team members (we’re hiring!)

  • 5,004,949 COMP are reserved for users of the protocol — we’ll be releasing more details of this plan in the coming weeks

  • 0 COMP will be sold or retained by Compound Labs, Inc.

COMP empowers community governance — it isn’t a fundraising device or investment opportunity. Until the decentralization process is complete, COMP will not be available to the public.

I created this little table so we can get a better idea of what’s going on here. Let’s go through them one by one:

  1. Shareholders. I don’t have the exact numbers but Compound has raised two rounds, one at $8.2m and the other at $25m totalling $34.2m. There’s obviously a significant difference in the valuations of these rounds but we can simply say that $34.2m worth of equity results in 24% of tokens. Compound is effectively saying their valuation is around $100m – $130m. In-line, roughly – except $COMP has close to no liquidity and will not be traded freely for a while since they want it to be a governance token not a speculative token.

  2. Founds and team have the same portion of investors, pretty surprising but I guess good on them. I thought I’d snoop around Etherscan a little to get a better breakdown: https://etherscan.io/token/0xc00e94cb662c3520282e6f5717214004a7f26888#balances

    #1 holder is the allocation for users at 51% of the supply. Now this is where it gets interesting. #5 is the option pool. There’s exactly 3 wallets that have more options than the option pool. My best guess is 2 are for founders, 1 is a large investor – probably a16z given they led the Series A. Each stake in this range should be worth roughly $5m-$10m.

  3. Option pool. Pretty significant and attractive for future hires given the value of these eventually liquid tokens.

  4. Users. This is probably the most interesting bucket of which I’m not sure what to expect yet. My best guess is that users who lock up liquidity inside Compound will get COMP tokens although that seems a bit boring, hopefully the team can do something really neat with this allocation so more people own $COMP.

  5. Compound Labs, Inc = 0. Obviously Compound has good legal council and has done this very deliberately to ensure they don’t have any liability, something which MakerDAO can’t really escape at the moment. To me this a clear signal that large crypto foundations are a relic of the past.


I think Compound has a much better shot at continually innovating and use their liquidity as defensibility to create even more value for users. However their real threat I think will ultimately come down from a token competitor such as Aave. This poll was pretty surprising for me to see tbh:

Aaave’s LEND token doesn’t have great tokenomics but is currently trading at a $30m valuation and has seen impressive growth (value locked up not price) in the past few months. If there’s a trade to make, it’d be to bet that LEND will ultimately reach value parity with $COMP. What else does Aave have going for them? Well I guess ChainlinkGod sums this up pretty well:

I don’t own any LEND at the moment but I’m seriously considering it and will write an investment thesis if it does make sense. I find the last point ChainLinkGod pretty interesting, “less captured by VCs”. Every token that is heavily captured by VCs always trades down and takes ages to come up mainly due to their illiquidity. Something like LEND poses a real threat simply due to the fact it has a much wider distribution and the casino is ready for anyone to play out – just buy the token off some exchange that has them. Speculators = liquidity = price appreciation.


This is one of my more opinionated and speculative pieces so take everything here with a grain of salt. However if there’s one thing that’s become clear to me in the crypto playbook it’s the following things:

  • Decentralisation is striving to satisfy ideology. It’s to remove liability.

  • Having a foundation is a terrible idea, don’t have one.

  • VC tokens are going to start competing with ICO/speculative tokens. Who wins will be something I’m very interested to see.

  • Protocol tokens will be available to those with liquidity. If there’s a time to be a crypto whale, now is the time. A few more DeFi protocols will be incentivising users with their native token in exchange for liquidity. Promise.

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