While I appreciate a good historical revisionist take, this is the wrong message. As anyone who talks to me about L2s or cross-chain lending knows, I hold the view that all markets are local.
Margin depends upon the safe and timely liquidation of accepted collateral. Unless you have a purchase agreement in place, this usually means underwriting on the basis of the accessible secondary markets.
If this sounds weird, it’s actually how real-world commodities work. There are real monetary and time transport and storage costs, and while crypto reduces these, it is not immune to them (bridging, collateral maintenance, custodian, compliance, etc etc).
If the price of soybeans crashed in Dalian while staying steady in Chicago and Brazil and Tokyo, no serious person would say the price in Dalian did not crash.
It is entirely appropriate to speculate on what may have gone wrong inside the local market (Binance) and why arbitrageurs took so long to harmonize prices with external markets.
But from the perspective of Binance, which has to protect its own solvency and keep the exchange mechanisms from seizing up, the local market is all that matters. The only alternative is for Binance itself to take market risk by holding what looks like insufficient collateral, on the assumption it will recover market price.
Note that you can simultaneously say the price was almost certainly going to rebound to par and also think it would be irresponsible for Binance to risk its users and platform on even a 99.9% +EV event.
Was Ethena what broke? No. Someone got a serious case of bonkus of the conkus and fell out of bed, disrupting the largest of the many(!) local markets for crypto assets.
It deserves a longer discussion, but this has major implications for DeFi on frontier chains, where local market liquidity is limited. An oracle price dominated by mainnet prices may be your best available option today, but still not be the ideal option, and significant innovation or additional planning is sorely needed in frontier chains when lending against even major assets where price discovery occurs in external markets.
(Bonus points if you recognize this applies to RWAs as well)
Margin depends upon the safe and timely liquidation of accepted collateral. Unless you have a purchase agreement in place, this usually means underwriting on the basis of the accessible secondary markets.
If this sounds weird, it’s actually how real-world commodities work. There are real monetary and time transport and storage costs, and while crypto reduces these, it is not immune to them (bridging, collateral maintenance, custodian, compliance, etc etc).
If the price of soybeans crashed in Dalian while staying steady in Chicago and Brazil and Tokyo, no serious person would say the price in Dalian did not crash.
It is entirely appropriate to speculate on what may have gone wrong inside the local market (Binance) and why arbitrageurs took so long to harmonize prices with external markets.
But from the perspective of Binance, which has to protect its own solvency and keep the exchange mechanisms from seizing up, the local market is all that matters. The only alternative is for Binance itself to take market risk by holding what looks like insufficient collateral, on the assumption it will recover market price.
Note that you can simultaneously say the price was almost certainly going to rebound to par and also think it would be irresponsible for Binance to risk its users and platform on even a 99.9% +EV event.
Was Ethena what broke? No. Someone got a serious case of bonkus of the conkus and fell out of bed, disrupting the largest of the many(!) local markets for crypto assets.
It deserves a longer discussion, but this has major implications for DeFi on frontier chains, where local market liquidity is limited. An oracle price dominated by mainnet prices may be your best available option today, but still not be the ideal option, and significant innovation or additional planning is sorely needed in frontier chains when lending against even major assets where price discovery occurs in external markets.
(Bonus points if you recognize this applies to RWAs as well)
A similar real-world example is oil futures with May delivery in 2020. The US WTI market traded at something like NEGATIVE $35/barrel. Meanwhile the price of Brent in London was trading at POSITIVE ~$20/barrel
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