Thread by @CryptoDamus411

The Shanghai-upgrade will take place in March '23.

This upgrade will create a new narrative of protocols benefiting from the competition between LSD-protocols.

My bull case as to why I believe @AuraFinance - $AURA will be a massive winner in the LSD competition

Thread
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Intro:

Liquid staking is currently a one-way street.
Users that stake ETH to secure the network, currently can't unstake their ETH.

After the Shanghai-upgrade, users will finally be able to withdraw their ETH.

Currently 16 million ETH is staked, & will gradually come onto the open market again.
Needless to say, this will have huge implications for the Defi-landscape.

In my thesis there are 2 scenario's:

1.
Post-Shanghai, more people stake their ETH because of the now flexible conditions.
More people enter = yield decreases.

Staking ETH becomes less interesting vs. providing liquidity to an LP.

LSD's will look for ways to boost their yield.

2.
People sell ETH on the open market cause of the current market conditions.
Less people stake in LSD => yield goes up.

LSD staking becomes more attractive vs traditional LP-providing.
Now LP's need to offer higher yield to remain competitive

@FroyoFren explains it perfectly

I have a bias for the first thesis, as ETH is understaked relative to other L1-chains, which makes me believe people feel uncomfortable not being able to withdraw their ETH.

It doesn't matter if scenario 1 or 2 or 3 or 6 happens:

Bottom line:

Both LSD's & LP's will fight to have deep liquidity.
Without deep liquidity it's unthinkable for any protocol to integrate across the Defi landscape.

So, how do you attract liquidity?

The most popular way is by bribing on (for boosted yield, for example) platforms like Curve & Balancer.

In short, protocols or individuals can vote on proposals, such as boosted yield for a certain Liquidity Pool.

For example:

Vote:
Increased rewards for the FRAX/ETH liquidity pool.

$FXS massively benefits from this as they would attract more liquidity.

So, they will try and 'bribe' the vote in their favour, by collecting as much voting power as possible through bribes.

How much do protocols spend on bribes?

A lot. Millions.

In the last voting rounds on Convex $FXS spend 6 million in bribes to try and turn governance voting in their favour.

Bribing is becoming big business.

Link: templecodex.link/frax-part-2-fr…

The below thread from @realdegengmx (give hime a follow) explains my thesis perfectly:

https://twitter.com/RealDegenGMX/status/1615008200528629761?s=20&t=GcM2XmtLSZ2-I_qbtGtoRQ

Given that the battle for liquidity will be intense, protocols will be fighting hard & spending A LOT of $$$ to get those extra % of yield.

Enter @AuraFinance :

A protocol boosting Defi yield & governance potential, on top of Balancer.

Let me explain:

Balancer is an automated market maker (AMM) that allows users to create liquidity pools with up to eight different tokens in any ratio.

Users can provide liquidity by supplying a pair of tokens and in return get yield from the fees from this.

If you don't know how a LP (liquidity pool) works, watch this video until you understand:

The complete Balancer ecosystem is governed by veBAL (vote escrowed Balancer).
When user provide liquidity to the BAL/WETH pair, they get veBAL in return.
They must lock (mind the word 'lock') in that veBAL, allowing them rights to vote in the Balancer ecosystem.

Some examples of pools you can vote on:

$AURA adds another yield & voting layer on top of Balancer.

You can deposit veBal into Aura in exchange for an additional APY and voting rights in the Aura Ecosystem.

There's a bit more to it than that but let's keep things simple.
If you want more detailled info on how Aura works:

Aura's mission is simple:

Acquire as much as possible veBal, so they maximaze the Aura holders' opportunity to win governance votes

Aura currently holds 23,5% of all veBal in circulation.

So protocols (like Frax, LDO) have a very big incentive (yield & voting power) to buy & lock Aura.

Something which is very very likely to happens once these bribe wars will start.

I think the below example is self-explanatory:

$OHM committed to buying 1 million $ worth of Aura over the course of the next 6 months.

Stargate Finance $STG took a participation in Aura already.

I wasn't lying when I said bribing is big business.
Confident others will follow

Frax Founder Sam Kazemian said the below in the Telegram 2 days as well.
It seems he's already setting himself up for potential bribe wars.

$Frax @fraxfinance is also exploring the idea of a boosted FRAX-Aave pool on @Balancer to be supported with incentives for vlAURA holders.

This will be coupled with their plans for incentives to the Triple-ETH LSD pool.

Aura launched and $rEth pool in light of a partnership with @pendle_fi , resulting immediately in the highest trading volume ever for the protocol!🚀

https://twitter.com/tn_pendle/status/1613696140884729858?s=20&t=eyL_eojEJL6Qe_u8tNamog

Smart Money has been accumulating $AURA as well since late July, probably not the worst sign.

Another catalyst would be expansion to other platforms outside of Balancer, adressing a bigger share of the veToken market, something which is very likely to happen:

Tokenomics:

Circulating: 20 million
Total: 56 million
Max supply: 100 million

Before you go screaming 'INFLATION!!!' let me explain a couple of things.

1. The incentive for these LSD protocols to buy & lock Aura outweighs the inflation BY FAR.

Remember if their competitor attracts liquidity and they don't, they lose.
No liquidity, no yield, no defi integration.
Finito.

Simply put:
Buying power > selling power here.

2. 60% is locked, so actual circulating is 8 million.

Aura has an impressive 426 million TVL for a 40 million market cap.
They are the 17th (!) biggest protocol on Ethereum in TVL.

Impressive to say the least, for a protocol that launched 6 months ago

@AuraFinance is very active on Twitter, Discord & other socials.

However, not too many people are talking about it.
It's still relatively under the radar.

Their business model allows for easy partnerships, always a good catalyst as well.

Summary:

Aura is a relatively new protocol that offers a solution to a problem that soon might get very actual.
Protocols spend million on bribes and will only increase this once the fight for liquidity breaks loose.

My bags are packed and yes, they are big :)

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