Editorial
History was made this week as El Salvador’s leader, Nayib Bukele, pushed legislation through the county’s congress that designated Bitcoin as legal tender. This designation means that public and private debts within the jurisdiction can be paid with Bitcoin. In order to facilitate the wider adoption of BTC, Bukele is committing to the formation of a development bank that will allow for 1:1 conversions between USD (El Salvador is dollarized) and BTC. Microstrategy, meet macro strategy.
Now, there’s a lot to unpack here that I won’t be discussing. The topic is nuanced, with questionable local politics, a refreshing rebuke of regional power dynamics, and global monetary implications all at play. The following points are all worth reading more on:
Bukele is positioning himself as a Latin Lee Kuan Yew - that’ll be up for historians to decide, as contemporary observers are decidedly more negative
El Salvador’s geothermal energy could prove to be a viable catalyst for Bitcoin mining in the region - but don’t confuse that for incentivizing renewables en masse
Salvadoran adoption of BTC over the coming quarters will be a technical stress test for Lightning - but it may prove to be a greater regulatory stress test for DeFi, given Strike’s reliance on USDT and the potential for wrapped Bitcoin to be accepted
With that said, I’d like to take this space to consider what happens next. Just as has been the case at the retail and corporate levels, it is unlikely that the tide of nation state crypto adoption stops at Bitcoin. And as more Latin American leaders signal their willingness to support crypto, it becomes ever more likely that we will see an interregional arms race for who can leapfrog the furthest. As the Salvadoran case already demonstrates, it is clearly not enough for a country to just accept Bitcoin without also revisiting the financial infrastructure it finds itself in.
Any material adoption of Bitcoin by one of these jurisdictions is going to be swiftly followed by Ethereum, DeFi, and the various other auxiliary networks that are forming around that ecosystem. The following verticals are worth monitoring:
Stablecoins: I’ve previously pointed out that stablecoins are a far greater geopolitical concern than Bitcoin ever was, as they force non-US countries to decide whether their economies can survive a censored internet in order to preserve their monetary control. Dollarized Latin American countries are obviously an exception to this Faustian Bargain, and we should anticipate fascinating case studies in the coming year.
Lending: The common refrain from DeFi critics is that the current ecosystem’s reliance on overcollateralized loans does nothing for the non-wealthy. Point taken. What this critique misses, however, is that the ability for state institutions and wealthy conglomerates to put up that capital, borrow from DeFi protocols, and then lend out credit lines will grow to be an efficient alternative to the current status quo in regions with limited access to capital. There is no reason to be bearish on an internet-scale capital market, full stop - especially as “superliquid” solutions improve the capital efficiency issues associated with the aforementioned process flow.
DAO Incorporation: For countries with less-than-perfect rule of law, DAOs provide a mechanism by which they can improve their ease of doing business and attract foreign direct investment. Allowing DAOs to enter into contractual agreements would enable jurisdictions to outsource notarization to Ethereum and make it straightforward to assess disputes with on-chain data. US lawyers might have torn their hair out by now, but it is the relative improved functionality that matters here.
Web3 Publishing: Platforms like Mirror.xyz will allow journalists to create audiences at scale with pseudonymous identities and avoid censorship in the process. For regions with traditionalist media landscapes or heavy-handed social media regulation, this should serve as a powerful force for accountability.
Crypto has been more than Bitcoin for quite some time now. I’m ecstatic to see Bitcoin lead the charge at the sovereign level, but its dependence on existing institutions is an undeniable reality. For that, we have Ethereum.
Congrats on surviving G7 Weekend, and here’s to dovish FATF guidance later this month,
Governance
The community has been busy with a number of votes and discussions ongoing. Regarding SnapShot votes, one is currently in progress and the other will go up for community vote tomorrow:
Match the Remainder of Bancor’s Coinvestment: Bancor is an automated market maker (AMM) decentralized exchange that supports liquidity for the BOND token. Its community voted to match up to 1,000,000 Bancor tokens (BNT) against BOND deposits into its liquidity pool. The DAO currently has matched about a third of this capacity, allowing it to earn yield on its BOND deposited as a function of exchange fees. Matching the remaining capacity would increase the DAO’s share of the fees and make a strong case to the Bancor Community for introducing liquidity mining rewards, which would allow the DAO to earn BNT tokens on top of any exchange fees it is entitled to with its stake.
Subsidize Nexus Mutual Shield Mining: Nexus Mutual is Ethereum’s leading on-chain insurer. The amount of coverage available to any supported project is allocated by the mutual’s members staking its native token, NXM, in support of specific projects. By rewarding mutual members with BOND for staking in favor of BarnBridge, the amount of coverage available for users deposited into our applications or the DAO increases. Barring community pushback, the Snapshot vote will look to allocate 11,000 BOND total to the initiative over the next year.
In addition, there are a few less pressing forum conversations going on as well:
Treasury Framework: As the DAO treasury continues to earn fee revenues, what we use these assets for becomes of greater importance. I attempted to synthesize a few of the points raised by community members in Discord conversations to create a hierarchy of needs for such spending.
Rari Capital Integration: The Rari team reached out in regards to opening a Fuse Pool for BOND. While this could be redundant within the context of an existing CREAM Finance alternative, the prospect of Fuse Pools for junior tranches could be interesting and I believe it warrants further investigation.
As for events this week, look out for yours truly doing an AMA with the Mai Finance community on Wednesday, and Discord office hours this Thursday, 11 AM EST. Additionally, make sure you’ve signaled your vote to get BOND listed as collateral on the AAVE governance forum.
Key Metrics
With the updated dashboard still in progress, I’ll be citing DeFi Llama again this week in celebration of us getting quite close to $200M in TVL. SMART Yield is currently supplying $117M in liquidity to AAVE, $68M to Compound, and $6.7M to CREAM. The treasury is sitting on over $1.5M in stablecoins as a result.
We were pleasantly surprised on Friday afternoon to find that Sushiswap now supports the bb_cDAI and BOND tokens in its Onsen liquidity mining program. Both pools continue to offer attractive yields.
On the topic of metrics: we’re currently working with two community members to publish BarnBridge’s first quarterly report. I’m looking forward to it setting the standard for DeFi, as well as looking into solutions that can allow us to do more real-time reporting like Boardroom or Parcel.
Lastly, an alpha leak for those of you who read this far: SMART Secret is well underway, with smart contracts being drafted and a tentative audit timeline scheduled for the back half of July. It was born out of our discussions to make it easy for secondary market liquidity to form around both senior and junior tranches, and I’m incredibly excited for it. I’m sworn to secrecy on it for now, but I will say that it expands BarnBridge’s horizons materially, and successful implementation will cement our status as a DeFi blue chip. Even better, because the team at Atpar is leading development, we’re able to continue building SMART Alpha in parallel.
For all those who sold in May and went away, we’ll be ready for your return in August.
Disclaimer: BarnBurner is not an official BarnBridge publication and is not meant to reflect the shared views of its core team or BOND token holders. BarnBurner is an educational weekly newsletter meant to share updates on technical and governance-related happenings that occur within the BarnBridge ecosystem. The content herein is not financial advice and readers should not base any investment decisions off of it.
Thanks to Zach Owens for his photography and branding work 🤝