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Understanding WPUNKS:40 LCTs & Liquidity

Hey MetaStreet community members and Ascend participants:

We’re aware of concerns regarding the price and liquidity of PUNK40 Liquid Credit Tokens (LCTs) and want to address them directly.

Before diving in, please note that: MetaStreet is a permissionless protocol controlled by decentralized smart contracts. ****All loans, including deposits into our lending pools and the minting of LCTs, occur without our involvement and cannot be altered once initiated. Loan terms across the lending pools are fixed once a user makes a deposit.

What Happened:

In recent weeks, the market value of CryptoPunks NFTs declined to a low of 23 ETH, but is gradually recovering to around 30 ETH price levels. This drop represents a ~60-70% decrease since the PUNK40 tick launch in mid-February. Factors contributing to the decline include market reactions to Yuga's activities with the collection (e.g., Nina Chanel’s Super Punk World) and reduced incentives for DeFi activities on Blast due to its token launch. Despite reduced LCT liquidity on AMMs, the protocol is functioning as designed.

While the true impact won't be clear until loan repayments or defaults mature (redemption value), it's important to note that secondary market value remains secondary until actual redemptions occur, which you can track here: MetaStreet Pool.

Secondary liquidity for the LCTs on AMMs and DEX’s are not necessary for the protocol's operation (e.g., the Pudgy pools), but it provides a unique feature allowing participants to trade their risk/repayments with others.

How We’re Responding:

Although we’ve provided warnings and documentation about protocol risks and rewards, we understand that some community members may not have been fully aware of the trade-offs and risks associated with minting or purchasing LCTs. The protocol functions by prioritizing lower risk (PUNK20) repayments before addressing higher risk tranches (PUNK40).

  • SHORT TERM: Since we do not control the funds in these noncustodial smart contracts, our ability to directly intervene is limited. However, we will monitor those who incur losses in the PUNK40 pool (both LPs and LCT holders) and will try to accommodate where we can.

    We will provide a one-time bonus after when redemptions for the PUNK40 LCTs are live for users whose positions suffer a loss at maturity (Punk Price < 40 wstETH). This bonus will be calculated retroactively after all upcoming maturities are completed, based on factors such as holding, moving, or trading amounts. We cannot provide live-tracking now, as participants are actively trading risk on secondary markets. You will see this reflected in your ASCEND dashboard.

    This will be a separate category of XP from Reserve or Prestige to avoid diluting past actions in other pools.

  • LONG TERM: Based on these observations, we believe a new product feature might be warranted. We’re considering launching a beta version of a parametric insurance system called slapSwitch in the near future.

    • What Can You Do Right Now:

    You can continue to speculate on the value of your debt position before the loans mature. Various platforms such as Wasabi, Particle, Thruster, and Curve, which we’ve integrated since day one, allow you to LP, long/short, and buy/sell the Punk LCTs. Some participants are hopeful of a Punk price recovery and have bought/longed the PUNK40 LCT on secondary markets. Others have hedged their exposure by shorting the asset before the liquidity breakdown.

    Conclusion

    We understand that some of you have experienced losses with the PUNK40 tranche. MetaStreet is closely monitoring the situation and working on solutions to help offset these losses to the best of our abilities.

    These efforts are part of our larger goal to create value from digital objects that are often illiquid, volatile, and hard to trade. Liquid Credit Tokens (LCTs) were designed to unlock yield from these assets in a more effective and accessible way, but they are not 100% free of risk. Your feedback and experiences are crucial as we continue to improve our protocol design. Thank you for being a part of MetaStreet's journey.