Andreas Park PRO
Professor of Finance at UofT
Presenter: Andreas Park
A tumultuous time since April 2022
The NFT Boom
The NFT Boom & Crash
The Terra Implosion
UST Stablecoin
LUNA (cryptocurrency of the TERRA network)
A timeline
May 7: selling pressure on UST from Curve withdrawals
May 12: LUNA and UST at $0.01
June 27: Three Arrows Capital ordered to liquidate
June 12: Celsius Network suspends withdrawals
July 13: Celsius files for Chapter 11
July 6: Voyager Digital files for Chapter 11
July 4: Vault suspends withdrawals
Three Arrows Capital lost >60% of value and faces numerous margin calls that they did not react to
partially saved by \(\ldots\) FTX
The FTX Implosion
A timeline
Nov 8
What's next?
The Aftermath:
is crypto dead or dying?
Disclaimer: I wrote the following before, eh, ... last week...
Cryptomarket Crash
bitcoin
ETH
-70%
-60%
Consequences of the Crash?
Some Questions
Are blockchains no longer used?
transactions on Ethereum flat
Is crypto-investing dead?
crypto market follows traditional market
Is crypto trading dead?
trading volume on exchanges lower but steady
Are markets dead?
no meaningful net outflows from exchanges
Other consequences?
What is a Blockchain?
Examples of research questions in the literature
What is a Cryptocurrency?
Contribution of economic research
Addresses, Accounts, Wallets, and Public/Private Keys
Smart contract accounts
Externally owned accounts
controlled by private keys
private
key
public
key
seed phrase
public
address
wallet = software to keep and use private keys
Research: known, well-established mechanisms in mathematical cryptography/number theory
What is Decentralized Finance?
decentralized finance =
provision of financial services without the necessary involvement of a traditional financial intermediary
DeFi: new financial infrastructure that will be a common resource
payments
stocks, bonds, and options
swaps, CDS, MBS, CDOs
insurance contracts
payments network
Stock Exchange
Clearing House
custodian
custodian
beneficial ownership record
seller
buyer
Broker
Broker
seller
buyer
Examples of research questions in the literature:
What makes DeFi different from TradFi
New institutions!
\(X-Q\)
\(X\)
\(Y+P(Q))\)
\(Y\)
\(c=X\cdot Y\)
Examples of research questions in the literature
1. flash-borrow DAI
5. repay DAI
3. receive ETH
4. convert ETH to DAI
2. liquidate ETH loan with DAI
Loan liquidation opportunity
Examples of research questions in the literature
Securities Creation: Tokensets
idea: create new mutual fund like asset
UniSwap Lab supports development
a website app accesses the code
token holders control contact features
don't own the code
operation = decentral
control = decentral
anyone can use the baseline code
core code runs on the blockchain
tokens used as rewards
DAO Tokens & Yield Farming
liquidity \(\nearrow\)
volume \(\nearrow\)
protocol fees \(\nearrow\)
token value \(\nearrow\)
Insight: protocols use tokens that have equity features as incentives to users
Examples of research questions in the literature
Vampire Attacks: SushiSwap vs UniSwap
Source: https://finematics.com/vampire-attack-sushiswap-explained/
Examples of research questions in the literature
Does it matter economically?
Broker
Exchange
Internalizer
Wholeseller
Darkpool
Venue
Settlement
Examples of research questions in the literature
approx:
400B p.m.
approx:
700B p.m.
Taxonomy of Tokens
What's a crypto-token and what's special about it?
Tokens by use
payments:
utility
stablecoins
governance
asset
derivatives
Disclaimer: this list in non-exhaustive, new ideas and concepts come up every day!
Examples of research questions in the literature
Examples of open research questions
Practical questions that arise
What do I look for in a token?
What every finance professional needs to learn
Challenges
Source: Cambridge Bitcoin Energy Consumption Index https://cbeci.org/
Usage
Network | DApps | Dollarvolume |
---|---|---|
Ethereum | 3,500 | $40-50B |
Solana | 100 | $2.5B |
Binance Smart Chain | 250 | $3B |
Avalanche | 400 | <$.5B |
EOS | 300 | <$100M |
Algorand | 12 | <$20M |
Ethereum Challenge 1: Environment
Ethereum Challenge 2: Throughput
Source: Etherscan w re-scaling
Ethereum Challenge 3: State Size
Examples of open research questions
Hacks, Thefts, and Exploits
Common Reasons: hacks, faulty code, tricking a protocol
Example of research question in the literature
Summary and Outlook
Prediction and Summary
@financeUTM
andreas.park@rotman.utoronto.ca
slides.com/ap248
sites.google.com/site/parkandreas/
youtube.com/user/andreaspark2812/
What lies ahead?
What is an NFT?
Source: Christophe Spaenjers (Hec Paris) NFTs: Modern Masterpieces—Or Money For Nothing?
Boring view of DeFi: do what FI does without FIs
Interesting view: do things that we have not seen
Developments: NFTs bring in entirely new ideas
Myths, Misconception, and some Truths
Myths, Misconception, and some Truths
Understanding the evolution
Evolution
By Andreas Park