TehColeSlaw Profile picture
18 Apr, 13 tweets, 2 min read
1/ One easily overlooked quality about Thorchain’s network of LPs is that they themselves are agents in the market place (as facilitated by swappers and arb bots). The way that agency expresses itself during a market sell-off is rather interesting.
2/ Perhaps we just saw a great example in the past 48 hours.

A generic scenario: BTC sells off, and alts, because they are less liquid sell off worse. Imagine on the initial downward impulse, RUNE sell off the worst of all the significant Thorchain LP tokens.
3/ Not an unreasonable assumption because it has the smallest market cap.

The LP balances are an expression of relative price and don’t change until swaps take place.
4/ If RUNE sells off more, to an arb bot, it’s a great chance to buy cheap spot RUNE, swap it for LP tokens, then sell those tokens for more RUNE.

More generally, if RUNE drops faster than the LP tokens, all of a sudden it’s as if the nonRUNE TVL bids for spot RUNE.
5/ The effect more granular than that and potentially quite significant.

For the sake of discussion, let’s imagine Thorchain has 20 well capitalized LPs, the market corrects and RUNE drops the most. LPs exist to sell winners and buy losers.
6/ So all 20 pools are selling our their tokens to buy RUNE. Technical, bots are doing this, but easier to imagine it’s the pools themselves.

So at first, all 20 LPs effectively have a spot bid for RUNE.
7/ That idea makes it easy to imagine that pretty quickly, there is a limit to RUNEs underperformance.

In fact, it’s almost a mathematical inevitability that one of the LP tokens will be underperforming RUNE. What does that means?
8/ Instead of have 20 LPs buying RUNE, there are 19 LPs buying and 1 selling, a net 18 LPs buying RUNE. The net bid for RUNE is lower, but still RUNE is bid, and it’s underperformance likely lesses still.
9/ This process of cycling LPs between buying and selling RUNE will dampen RUNE’s underperformance. And noteworthy is the fact that several pools are stable-coin pools. The biggest and most sustainable bids will come from those pools during sell-offs.
10/ If RUNE drops 20% relative to cash and if the stable coin pools are large, those will be significant and persistent bids. And as I noted earlier, LPs exist to sell winners and buy losers so they would sell lots of cash to buy lots of RUNE.
11/ Does this idea track with how RUNE trades during selloffs? The price action during the past 48 hours suggests as much.

One of the emergent properties of RUNE is that it may be a low beta token relative to BTC / ETH.
12/ Certainly, as Thorchain amasses capital - particularly stable coin capital - it’s reasonable to expect this phenomenon to become more noteworthy.

Won’t it the limit the upside of RUNE? In a very hot market when every other token is surging - very likely.
13/ But over time, the value of RUNE will be a function of the nonRUNE TVL in the Thorchain network. That growth should be massive.

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More from @SlawTeh

16 Apr
1/ Getting many questions, even accusations, about the usefulness of baseline price when valuing $RUNE. Here is a link to a more comprehensive breakdown:

What is baseline price?

It is a calculation derived from first principals.
2/ Baseline price is not an opinion or point of view. If RUNE’s market price below a certain level, arb bots buy RUNE? Why?

As important, a what price do the arb bots stop buying RUNE? Answer: the baseline price.
3/ I can hear the responses, “What about the circulation supply? What about the fully diluted supply?” The questions and thoughts of modern france.

These are forward looking questions, they ask about the future, and invite speculative answers.
Read 6 tweets
10 Apr
1/ This long thread is an exploration on the notion that when you LP into an AMM, you are selling convexity. At the end of a longish abstract thread, I point out some of the ways that Thorchain and its native token $RUNE attenuation this risk.
2/ In finance, convexity is a notion of acceleration. Think of like the arc of ball thrown off the roof of a building. It drops at an accelerating rate. Imagine that ball was an investment, dropping at an accelerating rate. Putting assets into an AMM LP can kinda be like that.
3/ How so?

Imagine a bitconnect:ETH AMM LP. Hah! You can’t unthink that thought. As bitconnect ponzied ever higher, LP investors would have been furious about the way that token was sold out for more ETH by the AMM. This outcome is one version of convexity risk.
Read 31 tweets
8 Apr
1/ The best metric to value $RUNE - its baseline price - is derived from RUNE’s deterministic value. It measures how much RUNE’s current price is a consequence of the value of the non-RUNE tokens locked in Thorchain’s LPs and how much the price is a speculative premium.
2/ RUNE’s deterministic value is simply three times the non-RUNE value in the network. Why three? Because for every $1 of non-RUNE value in the network, $1 of RUNE is in the LP and at least $2 of RUNE must be bonded by the nodes. For example ..
3/ Today’s $80M of non-RUNE TVL requires $240M RUNE - the network’s deterministic value. With roughly 200M RUNE outstanding, the deterministic value per RUNE is $1.20. This simple measure misses one critical, highly determinative factor. Not all RUNE is in the network.
Read 19 tweets
31 Mar
1/ Let’s look at Thorchain / $RUNE and the opportunity to stake into the BTC:RUNE LP from the point of view of a BTC OG with sizable bags. Our BTC OG is curious, willing to learn-by-doing, and stakes 2 BTC into the LP. Why?
2/ As outlined here - - the LP rewards could generate a significant economics (as in more BTC). And what BTC OG doesn’t want more BTC? The BTC:RUNE LP will literally buy the OG more BTC.
3/ So what happens when 2 BTC is staked? Two BTC go into the pool in exchange for an allocation of pool shares. The pool is balanced 50% BTC and 50% RUNE, so it’s as if the OG sold 1 BTC for the equivalent amount of $RUNE - a token. A nfw jfc token! Insert scream emoji here.
Read 13 tweets
29 Mar
1/ Staking coins into a RUNE LP captures two types of value - cashflow, and RUNE appreciation. Cashflow has two parts - transaction fees and block rewards. Transaction fees are self-explanatory. Block rewards will create an explosive flywheel effect of value accrual.
2/ Currently, there are 200M RUNE in circulation, and a max total of 500M.
3/ Messari gives a great breakdown of RUNE’s token supply curve: messari.io/asset/thorchain. Over the next 5 years, 90M RUNE, worth $550M will be provided as liquidity rewards, issued with the production of each Thorchain block.
Read 10 tweets
27 Mar
1/ $RUNE - Thorchain’s token - acts like a crypto index fund with network effects, with at the moment, a huge speculative premium. And the speculative premium is deserved because RUNE acts a crypto index fund with network effects. So for some perspective ..
2/ $BTC is off-shored, hard money with network effects. This money with network effects has done pretty well. BTC is also a very narrow purpose enterprise - it secures both the money and the ledger of the money.
3/ Enterprises come in many varieties and structures. A family is an enterprise. As are schools, grocery stores, mayors’ offices, discord channels, Apple, and so one.
Read 16 tweets

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