Cardano Dan's Newsletter - Issue #19
Can Cardano pull a Netflix Maneuver in DeFi?
Welcome to the quick-hitting newsletter about Cardano, Crypto Trading, Blockchain, Monetary Policy, & Data Privacy.
I hope you enjoy this newsletter and it gives you a glimpse into what’s coming with Decentralized Finance (DeFi) on Cardano.
Quote of the Day
"Neither RedBox nor Netflix are even on the radar screen in terms of competition"
— Blockbuster CEO Jim Keyes in 2008
We all know how that ended. And how quickly it happened.
Many of the big banks were saying the same thing about Bitcoin and Decentralized Finance just a short time ago.
“If you're stupid enough to buy it [Bitcoin], you'll pay the price for it one day”
— Jamie Dimon, JPMorgan Chase CEO in 2017 when Bitcoin was ~$5,800
Mark Cuban has also been a famously harsh critic of Bitcoin.
But now, JPM is working on their own cryptocurrency and Cuban is investing in DeFi.
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DeFi Overview
So what the heck is DeFi!? Well, it’s an umbrella term for anything that contributes to decentralizing the world of finance.
Decentralizing means anything that removes central 3rd parties in the middle of transactions that are taking place. If you’ve ever watched Ray Dalio’s video that I’ve shared before, you understand that transactions are the underpinning of the economic machine.
Smart Contracts are the enabler for all of these cool DeFi use cases. So effectively, you remove the middleman in transactions and replace them with smart contracts and, voila, you have DeFi.
Popular DeFi use cases include Decentralized Exchanges (DEXs), Yield Farming, Decentralized Loans and more.
Decentralized Exchanges
A popular use case to start with is the DEX. Right now, centralized exchanges rule the cryptocurrency world. These are the Binance, Coinbase, and Kraken’s of the world.
But these exchanges exert a lot of control over their users just like banks do over today’s consumers. That runs pretty contrary to many of the values and principles espoused by cryptocurrency supporters.
Enter the DEX. DEXs allow users to swap tokens with one another without going through a centralized 3rd party. There’s a lot to this, and we’ll explore more about it later this week.
The most well-known and utilized DEX right now is Uniswap and it runs on top of Ethereum to exchange ERC20 tokens. Although because of some of the challenges I’m about to describe, there are new competitors every day with PancakeSwamp, Sushiwap, 1inch, and MDEX as notable additions.
The Current Problem
Everyone loves the idea of broad access to lots of cryptocurrencies and easy trades without going through a 3rd party middleman.
Unfortunately, the current reality of Uniswap falls short of the ideal. All Uniswap transactions require ETH to pay the gas fees associated with the transactions. Because the price of gas fees is high, it’s very difficult to justify paying the high fees for small transactions and that leaves only whales to effectively utilize Uniswap at the moment.
Here’s a tweet from a Crypto Twitter friend sharing his sentiments about a real-life example
A recent Cointelegraph article on the topic sums it up this way, “In order for DeFi to continue its explosive growth, the gas issues seen on the Ethereum network problem will need to be addressed before any level of mass adoption can be achieved.”
How Cardano Improves the DEX Experience
Cardano 360 showed off a demo of swapping on Cardano. Here’s a screenshot of the user experience. Very similar to all of the other swap UIs that are out there.
Cardano’s improvements to swapping aren’t necessarily about the UI. Rather, they’re about the protocol. Cardano’s EUTXO model and smart contracts have been designed in such a way that
fees are predictable before the transaction takes place1
fees will be lower because transactions between native tokens and assets don’t incur execution fees2
fees are lower because of the design of Cardano and greater throughput of the network compared to Ethereum
I hesitated to add the last one because people argue and debate about that how to properly compare throughput. Here’s a good example.
Many will also point to Ethereum 2.0 and say that the high gas fees will be resolve when that rolls out. Perhaps.
But I personally think that Cardano has a clearer path to a low fee DEX solution than Ethereum has to their 2.0 POS solution.
Make sure to stay tuned for Wednesday’s newsletter for more Cardano DeFi discussion.
Technical Analysis
The Cardano ADA picture hasn’t really changed since my last newsletter. I’d just be wasting space to rehash what I’ve said before, so go check it out here.
Instead, let’s check out another project I’m watching. I posted a similar Ontology ONT chart yesterday. This is the Calculated USD version of the chart to show a longer history. The things I like about this setup:
Ontology broke a long-term downtrend resistance line, tested additional resistance, before returning to test the prior resistance as new support (green line).
It’s now returned to the resistance around $1.80 and is attempting to break through that very significant level.
Volume is looking great on this break through resistance levels.
If ONT does break through $1.80 and establish that as support, it has the potential to display a very Cardano ADA-like run to its prior ATH from early 2018.
OmiseGO OMG is another coin I’m trading right now for very similar reasons.
Before You Go
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What do you think? I’d love to hear your thoughts, questions, and feedback below!
This newsletter is for entertainment and educational purposes. I’m not a financial advisor and you should do your own research and consult a financial advisor before investing in cryptocurrencies.
https://iohk.io/en/blog/posts/2021/03/12/cardanos-extended-utxo-accounting-model-part-2/
https://www.crypto-news-flash.com/3-reasons-why-cardanos-defi-will-be-a-threat-to-ethereum-in-2021/