AL #73: Is Corn a Better Yield L2?
A bold Bitcoin-flavored iteration on yield-linked L2s.
Author's note. If you've been reading Auditless Research for a while, you may have noticed that we have started referring back to previous issues more frequently. In this post we were able to do it even more and keep expanding our public Zettelkasten. This has been a wonderful benefit of having a back catalog of 70+ pieces to refer back to. Hope you’re enjoying slowly making sense of and mapping out crypto with us.
In case you thought we had too many rollups…
Polychain, Framework, Offchain Labs and Sandeep Nailwal are all funding Corn, a new yield-focused L2 that uses BTC as its gas token.
Instead of just borrowing ideas from game design, the onboarding process is actually built as a game with a “story mode” aspect.
The chain takes casual DeFi to another level, calling its developers “Corn Stars”.
But it’s not just the GTM that is unique, the chain boasts several differentiators.
Corn uses what it calls “hybrid tokenized Bitcoin” (BCTN) as the gas token
Details are scarce, but effectively Corn is developing their own 1:1 pegged Bitcoin which will use multiple custodians (think Ethena, not BitGo).
There's two psychological barriers that Bitcoin whales have to overcome to be more willing to generate yield on their Bitcoin:
They often see yield as counter to the “digital gold” thesis;
They see existing single-custodian wrapped Bitcoin solutions like WBTC as having weak trust assumptions compared to native self-custody.
BTCN aims to spread out the custodian set which could alleviate the 2nd concern and attract inflows from the BTC network.
While these whales may prefer a Bitcoin rollup to an Ethereum L2, there are still significant technical challenges associated with launching serious proof systems on Bitcoin which we described in a dedicated newsletter.
The other appeal of controlling one’s own token reminds me of the stablecoin proliferation thesis by Figue:
My goal here today is not to expand on my personal flavor of stablecoins, but instead share why I believe every single relatively large protocol will end up having their own currency, by which I specifically mean stablecoin, not another crypto-asset.
FYI – we did an interview with Figue in April – he’s thought about token liquidity flywheels more than most. I recommend giving this a read.
The important question, however, is whether using BTCN as a gas token is a benefit to Corn the network or BTCN itself. I'm not sure.
But this tweet by Corn was an interesting preview of how using BTCN as a gas token could lead to it being the numeraire for liquidity:
The rise of BTC as collateral in Symbiotic restaking is a preview of the appetite for BTC-denominated yield and products even in the Ethereum ecosystem.
$CORN can be staked to direct emissions to dapps
Corn incorporates ve-style tokenomics at the core of its flywheel.
Corn can be staked to obtain popCorn.
popCorn holders can then redirect CORN and BTCN emissions towards dapps.
This is an interesting way to redistribute sequencer fees and can be put in contrast with two alternatives.
Sequencer Fee Sharing
We discussed the downsides of sequencer fee sharing in last week’s issue: while it serves as an incentive campaign for apps, there’s no discretion that can be applied to where the sequencer revenues are distributed.
Network sponsored liquidity mining
Kerman Kohli recently deconstructed Arbitrum's $85M campaign which had Arbitrum granting ARB tokens to several protocols to host their own liquidity mining campaigns.
The conclusion: the campaign did not have positive ROI according to community research.
With popCorn voting, apps decide how much support in liquidity mining they want to receive.
Each dapp has a choice to own as much CORN as they would like. Holding CORN is then equivalent to running a liquidity incentive campaign sponsored by the Corn network, scaled up by the size of the CORN holdings.
Of course in practice, large CORN holders will emerge (Launchpads would be particularly interesting on Corn) which could then serve as brokers for incentive redistribution.
While Corn may very well see a successful launch (a la Blast), I still have some reservations about incentives as a long-term sequencer fee redistribution method.
The incentive cost of driving and retaining liquidity and adoption is very high and borderline unsustainable.
Minimally, it has to be carefully complemented with smaller discretionary grants and inflation has to be high enough to prevent unsustainable apps from turning into Corn yield farms.