Is Stargate Just a Dump Coin for Whales?
Stargate launched with huge buzz. After rising nearly 700% in two weeks, the price has steadily declined. Was it all just hype?
You shouldn’t own common stocks if a 50% decrease in their value in a short period of time would cause you acute distress — Warren Buffet
Stargate
Before we begin, let me say I am a beneficial holder of Stargate (STG). I first heard about Stargate on Crypto Banter. The host, Ran Neuner, mentioned the tech, but also said he was holding off on buying. Curious, I checked out the project and tried it for myself.
I was sold on Stargate after my first $10 transfer. As many a detractor has pointed out, the tech underpinning STG is great. Two days before I learned about STG, I had been using Wormhole to transfer tokens to Planet Finance on BSC.
Wormhole works, but it’s not great. Mind you, I was using Wormhole after the huge hack. It was not exactly confidence inspiring. Not to mention, the whole process was clunky as shit.
Stargate is very different. Stargate enables native chain asset transfers, with two minutes to finality. Stargate utilises the Layer Zero protocol to accomplish this impressive feat. For its part, Layer Zero allows for cross-chain, universal messaging using “Ultra-Light Nodes.”
Without going into too much detail, Layer Zero routes block headers from the source and destination chains through an oracle and an end-point relay. The relays transmit transaction proofs to each respective blockchain, which is then verified against the block header.
The result is a seamless cross-chain transfer of assets. The Stargate protocol is easy to use and intuitive. You pick a source chain and asset, and a destination chain and asset, then do the swap. Two minutes later you’re done.
Buying the hype
Before I bought STG, I spent a half-hour or so looking over the documentation. I hopped in at $3.20 and added more to my bag at $3.60. At those prices, I took a gamble on a continued hype train. The launch auction made a splash on Twitter, after Alameda Research bought all the 100 Million tokens available.
After the liquidity auction, a bonding round was next, with an allocation of 160 Million STG across seven chains. This was followed by a community auction that came in two rounds. 20 Million additional STG tokens were sold in those rounds for $0.25 each.
The public DEX sale saw the token price settle around the $0.50 — $0.60 cent range for the first couple days. My gamble was the hype train might carry the token to a 10x from the DEX price and give me a little scalp play. For a second it looked like it might, but STG topped out at around $4.25.
I remain bullish on the future of STG. I’ve been DCA’ing down, adding chunks at bouncing lows. The current price is hovering around $1.55 on a pretty clear down trend. My average buy-in is just above the $2 mark. However, the sentiment in the STG Discord (where price discussion is allowed) has turned surprisingly bearish.
I’m actually hopeful the bear sentiment persists. I can’t quite bring myself to encourage it, even though I think it would be pretty epic to find an entry around the initial DEX price, if not lower. Time will tell I suppose.
STG Emissions
In the Discord price discussions, there are a few voices expressing displeasure over the emission rate. From my perspective, the emissions don’t seem particularly outrageous.
The Stargate protocol launched a seven-chain swap. Such an endeavour is clearly going to need deep liquidity to be functional. Those tokens have to come from somewhere.
The narrative developing in the Discord group is that some nefarious group of insiders “knew” the emissions rate was going to be very high and have been dumping on retail. This is surprising to me, because all of the auction & team tokens are locked until March 2023.
Of course, if you bought in at $0.50, then dumping at $4 makes perfect sense. That’s hardly nefarious insider behaviour though. That’s just how trading works.
STG Staking
The bigger bugaboo in the STG Discord seems to be the realisation that STG staking offers no financial rewards. It appears many were hoping staking rewards would pump the market price. Never mind the docs very clearly say staking was solely for vote escrow governance.
One kind of cool thing Alameda Research did when they gobbled up 100 Million STG was to give up aSTG voting rights. I’m not sure I would have done the same, but it is a nice good-will gesture on their part. The interesting thing to me about STG voting rights is the community has a sort of blank slate to figure out how to make STG profitable.
Maki, the head of business development at Layer Zero (and co-founder of SushiSwap) said in a recent community call that Stargate was in talks with Yearn Finance to allocate a portion of yUSDC across all of the Stargate pools. The core idea being, Yearn users can yield hunt across pools using Stargate.
Maki also mentioned another proposed collaboration between PancakeSwap and TraderJoe utilising Stargate bridging. Also noted was an end-game goal of creating liquidity pools of multiple native assets beyond stablecoins, such as Ethereum, Optimism, and Arbtitrum (among others).
For those not paying attention, 30% of the community allocated pool is completely unlocked. This opens the door for a number of interesting options, including DAO treasury swaps, bribes for CRV and CVX rewards, direct development grants, and any number of other possible deployments. Any of these ideas can be implemented through the blank slate governance of the STG token.
The STG Long View
Even if you don’t put much stock in the voting wisdom of STG holders, a step back from short-term price action is warranted. Alameda Research committed to not selling their $25 Million stake in STG for three years. I don’t know the nice folks over at Alameda, but I can make some guesses about their intentions.
For starters, I’m pretty sure they didn’t hop in at $0.25 looking for a 10x on their investment. Reading the STG price discussion on Discord, it seems many people think that is Alameda’s long game. I would wager (indeed, I am wagering) Alameda is expecting closer to a 100x (or more) in those three years.
Alameda is certainly aware the clock is ticking on the unlock schedule. That tells me they anticipate value is going to be flowing into STG by this time next year, or the token is going to be facing significant sell pressure. Remember, those unlocks are linear and a bunch of tokens will potentially be hitting the market after the one-year mark.
Keep in mind, the underlying protocol we’re talking about here is a native asset, multi-chain swap. This native asset, multi-chain swap also enables fee-free cross-chain transfers if you use STG. I’m no DeFi guru or anything, but even my little baboon brain can see huge potential for cross-chain DeFi in just that one aspect alone.
And if my baboon brain sees value in that, certainly the legions of giga-brain devs out there see value too. Likewise, as Invest Answers often says, “follow the money.” Well, the money over at Alameda Research just bought a truck ton of STG.
Me personally, I didn’t need to follow the money. I used Stargate and said out loud, “holy shit” like five times in a row. It works great and that’s a big deal in this space. It’s simple. It’s intuitive. And it’s seamless. That’s why I bought it, and will continue to, as long as these low prices hang around.
Here’s my long-term view:
1. Worst case (and least likely), STG zeroes out before next year’s unlock
2. More likely I end up break-even, or a little bit under by the unlock
3. (Perhaps) very likely I’ll be up at least 10x by the unlock
No matter what, I know when the lock expires. I think Alameda envisions an April 2023 where Stargate has at least a $25 Billion market cap (well within reason). That’s a token price of $25. This means a 100x for Alameda and a 10x for my shrimp bag. Why wouldn’t I take that bet?
But if I get to March of next year and STG is still waddling around at a couple bucks, I’ll bail. Missed opportunity costs and all that aside, it’s a nothing burger. Thing is, I also think Alameda might see more upside than the 100x.
If that turns out to be true, then God bless those kooky little Discord fudders. In fact, God bless them already! STG just dropped another $0.07 cents since I started writing this. Guess I better go scrounge the couch cushions for some more dry powder.
Of course, these are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.
Until next time, be safe, be smart and be sure to tie the camel.
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