Trust and Trade • Letter 114

Hedgehog Admin -

Hi, this is Colton Dillion from Hedgehog, the crypto robo-advisor that keeps your portfolio fresh and current. Use Hedgehog to automatically invest with the strategy of your choice, based on market cap, daily active users, or volume of on-chain transactions. Available wherever you get your apps — AKA the Android Google Play Store or iPhone App Store.

Speaking of on-chain transactions…

DEXterity

Occasionally we get PR emails from other crypto businesses. To be clear, just because we choose to share the news doesn't mean we endorse the project. Do You Own Research (DYOR)!

The most recent report came from DEX startup Brine Fi, which just raised a $16.5 million series A round led by Pantera Capital. Reminder: DEX = decentralized exchange, unique to the crypto industry, a marketplace for users to buy and sell their assets without relinquishing custody first.

Brine Fi purports to be the fastest DEX (though I'm sure the claim would be contested by competitors), with privacy to boot:

The crypto market is known best for its volatility which creates opportunities for traders but all too often the trading engines of DEX can't keep up and fail to execute orders instantaneously, which leads to price slippage. Brine Fi is able to execute orders in milliseconds while remaining fully non-custodial and this feature has helped them onboard some of the largest hedge-funds, exchanges and high frequency traders in the world by helping them diversify their asset allocation and mitigate counterparty risks.

Brine Fi also solves another common issue prevailing in DEXs called frontrunning, wherein a user places an order of a huge value on a DEX, it becomes public to everyone and this information can be used by anyone by getting their order executed first at a better price, which might lead to the previous order not being executed. To tackle this issue, Brine Fi makes use of zkP (Zero Knowledge Proofs) technology, powered by StarkWare, which enables privacy on trading positions, so that traders can get their high volume orders executed with ease. Moreover, users can trade gasless and pay a trading fee as small as 0.05%.

StarkWare also invested in Brine Fi, so the collaboration must be a close one. Zero-knowledge proofs are a very cool technology, a return to the crypto-as-in-cryptography roots of the cypherpunks who dreamt about digital money before Satoshi Nakamoto came along (under that alias, at least) and perfected the trick.

DEXes are also neat, exemplifying crypto's trademark balance between trustlessness and economic cooperation. The blend of autonomy and interdependence results in a system where users can have the cake and eat it too — control of their assets, plus the ability to transact at will. Although, you should be careful from a compliance point of view: you never know if the wallet on the other side of your trade is connected with sanctioned activities.

Gall at Gala

A while back we profiled "GameFi" project Gala Games on the blog. Unfortunately, based on recent news there's a bit of a mess behind the scenes, with an inter-team lawsuit underway:

[CEO] Schiermeyer's main allegation is that [cofounder] Thurston stole 8.6 billion GALA tokens in February 2021, more than 100% of the total amount of GALA in circulation at the time as reported by market aggregators. Schiermeyer claims Thurston effectively held the company hostage, as exposing the token theft would cause him to liquidate his holdings, collapsing the GALA ecosystem as a result.

As a partial solution, in May 2023, the company issued Gala v2 tokens that were advertised as bringing "a host of improvements to the table, including enhanced burn mechanisms, security enhancements, and future upgradeability." Only Schiermeyer claims the real purpose of the tokens was to make the GALA tokens in Thurston-controlled wallets obsolete while leaving the rest of the ecosystem unaffected.

From the outside it's always hard to tell whose grievances are legitimate, but none of this sounds great. An example of the risky reality that many — most — crypto projects are not decentralized in practice. The integrity and track records of the core team are paramount.

Relevant: Hedgehog's guide to evaluating the quality of a cryptocurrency.

Quick Hits

"While stablecoins are a killer application, no regulatory frameworks exist for trust in these systems." I guess trust is the theme today! That quote is from a thought-provoking piece titled "Cynical Optimism."

Also:

The big mistake most investors would make in the next few years is thinking the current speculatory landscape in crypto is what the technology could eventually enable. The risk we all face is misjudging the timelines with which these changes could occur.

Three more links:

Someone should use an Apple Watch to display their Casio G-SHOCK NFT. As a postmodern statement about consumerism, naturally, not just to flex 😉

Until next time, keep hedging,
— Colton

To get future newsletters delivered straight to your inbox every week, sign up here! Check out past newsletters in the complete archive.