$380 million in 12 hours

VeradiVerdict - Issue #101

$380 million is how much capital went into a new project called Swerve in less than 12 hours! Swerve Finance is a fork of Curve Finance, which is a decentralized exchange that has accumulated over $1B in total value locked up and became known for its tight spreads between stablecoins. Curve launched not too long ago but had some scrutiny, as:

  1. Shareholders in the company would receive 30% of the token supply

  2. An anonymous farmer launched the token without warning

  3. Team taking more than 70% of the voting power

The developer behind Swerve goes by the name John Deere and stated that he wanted to improve all the things that were wrong with Curve by creating a product with a similar use-case BUT 100% owned by the community. The Swerve product was created in a unique way in that it was able to implement the copyright curve contract legally, see below what YFI creator Andre Cronje, who has a legal background, has to say:

What Swerve did, was add a proxy pattern, so the implementation is the copyright curve contract. But the storage is Swerve. This abides by the copyright, but also allows a full feature fork. Both from a legal and technical perspective, this is really smart.

- Andre Cronje (YFI)

The Swerve launch was one of the best fair launches that I have seen:

  • There was no pre-mine (no allocations of tokens to anyone, no investors or team)

  • The only way to get tokens is to provide liquidity

  • Except for a hiccup in the UI of the homepage, no one knew when the project was launching for liquidity mining and everyone had a fair shot to start providing liquidity at the same time)

The token distribution below:

Within 12 hours, we saw 970 addresses that have deposited more than $377m in the protocol’s pool of stablecoins, currently at $414m of total value locked up.

How do you get started?

  1. Launch/click on the Swerve Finance App from their website

  2. Click on the header SWUSD, then click on Deposit header

  3. Deposit one or a set of stablecoins from DAI, USDC, USDT and TUSD

  4. After making your deposit, you can click on the DAO header

  5. In the DAO header, you can choose to lock up some of your tokens to get voting power and an increase boost of rewards, max is 2.5x (to calculate how many tokens equate to a certain reward multiplier, click on the CALC header)

  6. Lastly in the DAO header, you will be able to check the current APY (which is ~186%) and claim rewards

Governance?

The number of tokens that users hold is important as the number equates to having the ability to create proposals (need 2500 veSWRV) for voting and voting power. There are already 5 proposals that are being discussed:

I think these all make sense in the early beginnings of a projects as the code in these launches are not audited (beware of the risk!), incentives/fees aren’t nailed down yet, and there isn’t any clarity on how development/developers will be funded.

Another strategy to prevent a central point of failure of these smart contract projects is to have multiple signers, and Swerve is looking for 4 influential folks to serve this role.

What does this all mean?

The beauty of the blockchain is that it allows for transparency and automation. What comes with that is that the code is open-sourced and folks can fork (take the code) and create new use-cases and economics models with it. We’ve seen projects like Sushi and Swerve show that they can take liquidity from legacy players Uniswap and Curve but have a token model with more distribution and control to the community. Whether the founders/developers should be anonymous vs known is up for debate. Both Sushi and Swerve went with anonymity and had to build up trust through influencers while Yam has some recognizable names from the investor/entrepreneurial side.

What is also unknown is how much governance should be given to the community in the early stages of a project? Projects succeed because of having a large and sometimes nimble vision of how the product should develop. Will too much governance slow down innovation? What sort of things should be up for governance?

What I do know if that these new forks are launching with unaudited contracts so please beware, risk what you can bear to risk, and follow technical folks who are looking at the contracts. Vote for auditing of contracts shortly after launch. What I also know is that we will see more decentralized exchanges, decentralized stablecoins, and decentralized lending protocols being forked in the near future.

Who’s next?

- Paul V

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ABOUT ME

Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. The firm invests in equity, pre-auction ICOs, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.