David Angliss, analyst at Australia’s leading cryptocurrency investment firm, Apollo Capitalshares the fund’s regular take on what’s happening in the fast-moving and volatile cryptocurrency space.
The Terra LUNA implosion sent shockwaves across the entire crypto landscape, and if you hold digital assets of any kind, your wallet certainly felt it.
While Apollo Capital’s funds were not spared, the company says its risk management framework was at least able to contain losses and successfully limit damage. That, and the fact that the vast majority of its DeFi-based investments are Ethereum-centric, with less investment in rival networks.
In a blog postApollo recently shared their take on what exactly happened with the pullback of the US Dollar and the fall of LUNA, as well as details on how they quickly transitioned into damage control.
Beyond this “Black Swan event”, David Angliss confirms that the Apollo team has reduced the risk of its exposure to its market neutral funds and exited other stablecoins that could be considered to carry similar risks to UST.
“We have increased our positions in fiat and Dai-backed stablecoins, away from the most experimental under guaranteed algorithmic stablecoins,” said Angliss Stockhead in a chat last week.
Return of the DeFi King: MakerDAO
“One thing the Terra event showed is that Dai (DAI), the oldest decentralized stablecoin, is still the strongest,” Angliss pointed out.
Amid the widespread fallout, in which other stablecoins (briefly including Tether) also managed to crash, Angliss said that MakerDAO (MKR) has managed to turn crisis into opportunity, returning to the top of the TVL (total value locked) ranking for DeFi systems.
Based on Ethereum, MakerDAO is the protocol that issues the stablecoin Dai and facilitates non-intermediary collateral-backed lending (in the form of ETH and other tokens), which is a system that serves to safeguard the value of the token and maintain its US dollar peg.
“It’s not completely without fiat backing,” Angliss points out, “because a lot of its collateral is in the form of USDC [about 34% at the time of writing]”.
That said, secured debt is a very different system than centralized, fiat-backed USDC and USDT, and also very different from Terra’s collapsed LUNA/UST protocol.
As Angliss puts it, MakerDAO’s return as DeFi king is truly “a case of time in market beating market timing.”
Moonshot Opportunity? Like pretty much all cryptocurrencies, the MKR governance token is a long way off (-77%) from its all-time high. It is currently changing hands for US$1,434 and peaked at around US$6,292 about a year ago.
But maybe it’s more of a down-to-earth shot. Angliss believes what happened represents “a reality check moment” for the industry and that Maker’s strong comeback proves that “strong fundamentals matter in the long run”.
The silver linings of post-Terra terror?
So, are there any positives to take from the crypto crash of the Terra ecosystem? Angliss says Apollo found silver linings…
• “People talk about the anchor protocol [Terra’s yield-generating lending and borrowing platform] being the main reason for the crash, as they offered an APY that was not sustainable, but that’s not necessarily true.
“Anchor’s above-average APY can be seen as a marketing expense by Terraform Labs to attract users, similar to protocols that offer liquidity mining incentives.
“The main reason for the crash was the breakdown of the algorithmic support mechanism which ultimately caused the UST to become unanchored, lose trust and lead to the death spiral.”
• “And it’s lucky that it happened sooner than later. A $50 billion ecosystem crash is bad, but something like $100 billion would have been far more catastrophic.
• “The other thing is that it’s been a year since Bitcoin peaked at around US$68,000…yes, it hit US$69,000 in November, but only stayed there for a day or two. It’s a good thing it happened at a stage that’s probably closer to the bottom than not.
• “And at this point I can tell you that with our long directional funds, we are definitely accumulating our favorite assets right now…I think the Ethereum merger [from a proof-of-work protocol to proof-of-stake] will be the catalyst that could turn things around – it is a consensus that we are fully in a bear market and have been for some time.
Convex – another potential DeFi play in the bear market
We also asked Angliss if he had any good crypto investing strategies at the time – and he highlighted the power of staking, especially staking assets in robust protocols that deliver reliable returns.
It is clear that Convex Finance (CVX), which is tied to the Curve Exchange (CRV) liquidity pool on Ethereum, is the one he is very interested in.
“Convex and Curve are definitely the ones users will incorporate into their strategies in bear market conditions. And that’s because these are tokens that offer good and reliable performance, with a proven “flying” economic token mechanism.
“As I said earlier, when it comes to Maker…people are looking for strong fundamentals and reliability, especially in the market we’re in right now. And when it comes to staking, for me , it is convex.
We will endeavor to cover the Convex protocol in a little more depth with Apollo in the future.
Any views, information or opinions expressed in the interview for this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed, or otherwise taken responsibility for the financial product advice contained in this article.