Hello Whales and welcome to the little newcomers who have just joined us in the Premium edition! There are more of you every week. Thank you so much 😍

To devour this week

🖊️ Editorial

🗣 Our exclusive news

⚡ Stablecoins Next Gen

⚖️ The Ooki DAO case

THE BIG SPLASH

IA vs Web3?

Things are moving so fast in Tech. Take VivaTech, for example! Exactly a year ago, Europe's biggest tech fair was putting the spotlight on Web3 and cryptos, with numerous stands and figures from the ecosystem such as Vitalik Buterin (Ethereum) and Changpeng Zhao (Binance). And this week, for its new edition (14-17 June), it's almost as if Web3 no longer exists 😅. Or almost.

There are still figures from the ecosystem like Nicolas Julia from Sorare or Yat Siu from Animoca Brands, but the star of 2023 is clearly... artificial intelligence. ChatGPT obviously has a lot to do with this. In just a few months, American Sam Altman's conversational robot has crushed, and eclipsed, everything in its path, especially crypto topics.

But the followership of investors and start-ups has also played a real role. All it takes is for a technology to create a buzz for everyone to jump on it and forget what they were doing before. It would be a terrible mistake to think like that. Especially in Europe. Because AI and Web3 are two sides of the same coin, that of tomorrow's economy 🚀.

By promoting unlimited creation at will, AI is going to have a considerable impact on our lives. In fact, it has already begun to do so, which raises questions in terms of the authenticity of content and people online.

Web3 and cryptos, because of what they provide in terms of digital scarcity and authenticity, are the perfect answer to these issues. And as Marieke Flament (Near) reminded us a few weeks ago, we really shouldn't miss out.

THE BIG NEWS

Our exclusive news 🔥

👉 StackinSat launches community fundraising

In the current climate, there are no 36 solutions for raising money. While investment funds are particularly skittish (read our survey), start-ups in the ecosystem are turning to their community 🤝.

That's what Swissborg did a few months ago: the company managed to raise $23 million from 16,000 of its customers, and that's what France's StackinSat also wants to do.

Launched in 2020, the investment platform dedicated to bitcoin is preparing a "community" fundraising round for the autumn. "Given the market conditions, we preferred to turn to our customers who have shown signs of interest," explains its co-founder and CEO, Jonathan Herscovici.

The Biarritz-based company, which has already raised €1.5 million in 2021, wants to raise funds to continue growing. "We've been breaking even for a few months now," Jonathan Herscovici points out. "The aim of this operation is to accelerate our growth in the corporate sector. Today, enterprises account for between 10% and 15% of our volumes, whereas they represent only 1% of our customers."

StackinSat has not set a precise target for the amount of the fundraising, which could be spread over several months. Only the company's customers will be able to take part in the deal and put in a ticket of between €500 and €50,000 to become shareholders in the company.

The Big Whale launches its breakfasts 🔥

When we talk about Web3, we often talk about the theory, but not enough about the practice and the real impact of cryptocurrency-related technologies. That's why we've decided to launch our monthly themed breakfasts.

For this first edition, we've chosen to look at the luxury industry. 💎 Several major brands such as Christian Louboutin, Le Bristol Paris and Hennessy will be coming to speak.
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See you on 27 June at WeAre in Paris. There are only 50 places! Don't hesitate to take yours. 😎

THE BIG REPORT

GHO, crvUSD... What next-gen stablecoins are worth

By Grégory Raymond (in Paris)

Two decentralised stablecoins are arriving on a market crushed by DAI. What are the projects of Aave and Curve, the two stars of DeFi, worth? We investigated.

If there's one sector that the crisis hasn't stopped, it's stablecoins (read our 2022 benchmark). Despite the sharp fall in the markets and the gloomy backdrop, stablecoins continue to spring up regularly. To date, there are nearly 40 of them, with a total capitalisation flirting with the $130 billion mark 💸.

The inflation of this type of product is due in particular to economic issues. "Stablecoins generate a lot of revenue for their issuers. It's clearly one of the fastest-growing and safest crypto products in terms of business," explains Stanislas Barthélémi, crypto expert for consultancy firm KPMG.

There are several types, and the biggest are centralised stablecoins issued by companies (Tether's USDT and Circle's USDC mainly).

Volume of the largest stablecoins on exchange platforms:

But as far as decentralised versions are concerned, i.e. based on a pool of digital assets managed by a decentralised organisation, the page of the UST and the collapse of Terra-Luna seems to have been turned. And the projects are back on track!

"The DeFi players have continued to work and have developed decentralised and automated versions," notes Stanislas Barthélémi. These projects have the advantage of being less dependent on regulators, and also represent an interesting source of revenue in a very complicated market.

To date, the most relevant decentralised experience is that of the DAI (issued since 2017 by the Maker protocol, $4.7 billion in circulation). But this one should soon see the arrival of GHO, attached to the Aave decentralised borrowing protocol ecosystem.

Last month, it was decentralised exchange Curve that launched its own stablecoin, crvUSD, into orbit.

GHO, the stablecoin from Aave giant

On paper, Aave's GHO has everything going for it as it is based on Aave, the benchmark decentralised borrowing protocol ($5 billion in value tied up in June).

In a few days' time - the governance vote is currently taking place - it will be possible to borrow GHO by placing a wide variety of cryptocurrencies as collateral, probably all those available on Aave's markets (ETH, wstETH, USDC, WBTC, etc.). An automatic collateral liquidation mechanism is planned if the value of the collateral falls sharply 📉.

"Aave shines for its speed of execution, despite its decentralisation, so I think GHO could work well - at least initially - and that they will succeed in generating additional revenue and thus improve their overall profitability," believes Paul Frambot, creator of the Morpho protocol, which optimises Aave's costs.

To ensure its attractiveness, Aave has pulled out all the stops: part of the GHO's revenues will be redistributed to holders of the AAVE governance token who store in the protocol's safety mechanism (Safety Module).

"We've reached the point where the protocol's revenues now exceed its expenses. We're going to be able to redistribute value to users," explains Marc Zeller, in charge of AaveChan, a delegation platform within Aave's governance.

Until now, users have only received AAVE tokens from the DAO's reserve (yielding around 6% annually). Soon, they will earn double remuneration, which should make the protocol even more attractive 🤑.

"The launch of the GHO will in particular be a way of reducing the Safety Module's considerable AAVE subsidies," analyses Paul Frambot. According to current projections, there will be no more AAVE tokens to distribute within 18 to 24 months.

While GHO revenues will initially be paid out in the form of (logical) GHO, a proposal is being drawn up for a portion to be converted and sent in ETH. "I hope this will be the case within the next 18 months, that's really the direction we want the mechanism to take," Marc Zeller continued.

The question remains as to whether financial regulators will not perceive this remuneration system as an illegal financial security. "The SEC is bound to be very attentive in the United States," warns Stanislas Barthélémi of KPMG.

crvUSD, Curve's "anti-liquidation" stablecoin

Launched at the beginning of May, the stablecoin of decentralised exchange Curve (itself specialising in the exchange of similar digital assets, such as USDT-USDC or ETH-stETH) is beginning to be deployed, even if its capitalisation is still modest at $42 million.

"We have a lot of ambition with this project, we hope it will become the largest decentralised stablecoin on the market", wants to believe Julien Bouteloup, a member of the Curve team.

The crvUSD works in the same way as most large decentralised stablecoins, i.e. the DAI or the future GHO, with the difference that it introduces a new way of managing insolvent positions. 👀

In this model dubbed "LLAMMA", instead of liquidating a user's collateral all at once, when a certain price is reached, the protocol will gradually convert the collateral as it goes 💡. And if the prices of users' collateral assets start to rise again, which reduces the protocol's risk of losing funds, it will automatically start buying back the collateral it has sold.

This should help reduce losses for users facing liquidations and prevent large volumes of collateral being dumped on the markets simultaneously. Massive liquidations are often responsible for accelerating the fall in crypto prices 😬.

"This soft-liquidation mechanism is interesting, but I'm waiting to see how it will behave in the event of extreme volatility. It's still too early to know whether it will really be effective," temporises Stanislas Barthélémi of KPMG.

Reading between the lines, it is possible to see the launch of this stablecoin as a way of bolstering Curve's core business, in a context where Uniswap is knocking out the competition within decentralised Exchanges (read our Uniswap survey).

DEX market share over the past year:

"The crvUSD's take-off could be hampered by the general trend in Curve, which has been losing ground somewhat in recent months," notes Stanislas Barthélémi.

The crvUSD will also face a scalability challenge, as for the time being only sfrxETH (ether staked on the Frax protocol) and wstETH (ether staked in the Lido protocol and placed in an Ethereum contract) can be used to create stablecoins.

This low diversity can be explained by the very recent nature of this new product, which still raises a few questions. This should evolve.

"The main challenges are to increase liquidity and refine the various asset pools (pure and decentralised USD, volatile assets such as liquid ETH, etc.) in order to guarantee parity and provide the most reliable dollar stablecoin in the DeFi," insists Julien Bouteloup.

A vote is currently underway to pay back part of the revenue generated by stablecoin borrowing to holders of the CRV governance tokens. Although each situation is unique, it is not at all out of the question that this protocol too could attract the attention of regulators, who could, here too, reclassify Curve as a "financial security"...

What are the regulatory risks hanging over these stablecoins?

Despite their decentralised nature (no company is in charge of issuing them), both projects may need licences to operate legally.

"With the European MiCA regulation to be applied within 18 months, there is a strong risk that these stablecoins will be considered e-money tokens insofar as they are denominated in legal tender," fears William O'Rorke, partner at law firm ORWL, which specialises in disruptive technology law. "The issuer would have to obtain e-money status to access the EU market," he notes.

This poses a problem, as the issuers in question are decentralised autonomous organisations (DAOs), and this type of structure does not yet have a clear legal status.

If Aave or Curve decided not to comply, they would have to stop addressing users directly by thus becoming a "real" protocol (no direct access from their site, etc.In addition, GHO and crvUSD may already be considered financial instruments under European law. "Based on the Autorité des marchés financiers' extensive qualification method, as soon as there is a financial flow from the issuer/entity linked to the issuer to the holder of the token, then we can consider that a token can be qualified as a security," says William O'Rorke.

And on the US side, it's not necessarily any simpler. Far from it! "The SEC may have to consider that crvUSD and GHO meet the necessary criteria to qualify as financial securities within the meaning of US federal regulations," points out Morgane Fournel-Reicher, a lawyer for Kramer-Levin specialising in US digital asset law.

The sticking point is mainly the fact that the two stablecoins will redistribute part of their income to the holders of the AAVE and CRV governance tokens.

Generally, this type of mechanism almost automatically places crypto projects in the "financial security" box, requiring them to be registered as such with all the constraints that this implies (cost, centralisation, etc.)

"To achieve this, the US regulator can rely on the Howey Test and determine whether holding the tokens alone allows income or interest to be received," continues Morgane Fournel-Reicher. "But there is also the 1990 Reves vs Ernst & Young case law, particularly with regard to decentralised lending mechanisms", she points out.

"In both hypotheses, the fact that the devices are deployed programmatically and that the services are not rendered by a centralised counterparty will probably not be enough to rule out a regulatory risk", fears the lawyer.

Although nothing is certain, a major regulatory battle awaits both projects.

"Our perception is that staking AAVE in the Safety Module constitutes work, because people are participating in the security of the protocol, it's not a passive return," believes Marc Zeller. "Some people consider this strategy risky, but as we are not Americans we think we can do it," he continues.

"One of our main challenges for crvUSD will be to tackle the FUD propagated by multiple centralised institutions that don't like competition from Europe," warns Julien Bouteloup.

It remains to be seen how all this will be perceived by regulators...

What positioning against DAI?

The near-simultaneous arrival of these two stablecoins coincides with the need to boost the revenues and appeal of DeFi's two star applications. Nevertheless, their success is by no means guaranteed, as this type of project is technically and economically difficult to sustain.

"Developing a stablecoin is very complicated, especially when it's not your only activity. I think you have to be focused on it if you want to do it well," says Morpho's Paul Frambot.

Although the Aave and Curve stablecoins are important in the development of the two protocols, they remain secondary projects.

"I think the best approach is that of Maker, which launched a lending marketplace (Spark, editor's note) at the beginning of May and whose main aim is to encourage the adoption of its DAI stablecoin," he continues. "Launching a stablecoin as a side project is a bit like doing things by halves," huffs another sector specialist.

especially as a good decentralised stablecoin finds its value in its resilience...

DAI largely dominates the decentralised stablecoin market :

Aave's GHO will be sensitive to censorship "especially if its collateral consists of centralised assets such as the USDC or, more generally, real-world assets", notes Stanislas Barthélémi. As far as Maker is concerned, the USDC currently accounts for less than 20% of the DAI's collateral.

On crvUSD, "the arbitrage mechanisms that enable crvUSD stability to be maintained - for the GHO I think they are going to launch without a price stability module - cannot withstand mechanisms such as the USDC's depeg autonomously and without any intervention from governance", explains Pablo Veyrat, creator of the Angle protocol, issuer of the decentralised stablecoin agEUR.

Then there remains the question of the revenues generated by GHO and crvUSD borrowing. "Neither will be able to beat the centralised stablecoins on this point," warns Paul Frambot.

The giant Tether has said it has recorded profits of $1.4 billion in the first quarter of 2023 alone thanks to the exploding yield on US Treasuries (around 5% annually).

Decentralised stablecoins suffer from an obvious lack of return on tied-up capital. As their reserve has to be over-collateralised due to the volatility of their collateral, part of it cannot be used to provide a return 🙃.

"By trying to do everything at once - global lending and stablecoin - we risk ending up with an average product that will struggle to compete with specialist solutions such as DAI," warns Paul Frambot. Only the competition, and the months ahead, will tell.

Listen to this week's Big Talk replay to find out all about the next edition of Surfin Bitcoin in Biarritz (23, 24, 25 August 2023) 🎙️

THE BIG FOCUS

Why the Ooki DAO ruling is historic

By Grégory Raymond (in Paris)

A decentralised autonomous organisation (DAO) has just been recognised as a legal entity by a US court. The Big Whale talks to lawyer Victor Charpiat about the consequences of this landmark decision. The interview is available on The Big Whale website 🐳.

This edition was prepared with ❤️ by Raphaël Bloch and Grégory Raymond. The Big Whale is a free and independent media. By supporting us, you are contributing to its development.