#28 Terra's crash, frogs, souls, Spotify and Robinhood
Terra crashed, what now? Also, news about Pepes, soulbound tokens (NFT revolution?), Azukis, Spotify and Robinhood to go non-custodial.
UST’s doomsday scenario
In recent months, we witnessed an interesting phenomenon in crypto: prices would continue to drop while the observable on-chain behavior showed signs of good health. Until the last weeks of April, capitulation was meeting “persistent, robust and quiet demand” (Short-Term Pain, But Long-Term Gain?, Glassnode). The macro-environment was pushing crypto down, but the industry refused to let go of a certain sense of optimism and officially call it a bear market. Things have changed now.
Crypto had its Lehman Brothers event in early May. The collapse of the UST will be one of those defining moments in the industry's history. This is not crypto’s first failure, but it has been the biggest. At its peak, the UST was the third largest stablecoin by market cap, with $18B in circulating supply. And LUNA, Terra’s native token, and UST’s support currency reached $41B. Now they’re just ashes.
Last week we published a report covering the concepts and facts surrounding the “UST’s doomsday event” and provided our insights into the main conclusions. Although some of the information is already dated, we believe it is a convenient summary of what happened. So make sure to read it if you need some background.
But once we have a recollection of the events, it’s time to assess the damage from a broader perspective.
The harm made by the collapse of UST is not measured in dollars but credibility. Stablecoins’ promise of stability, paired with the profits available through Anchor, was precisely what lured many retail investors to crypto. It seemed like the golden dream of a digital economy: safe, easy to use, and highly competitive. The confidence lost by these investors will be hard to recover.
Frauds like Mt Gox and hacks like The DAO’s are still being held against crypto and are responsible for slowing down the macro adoption that it would require to be the natural financial alternative it yearns to become. We can now add UST to the dark CV of crypto. And it would be naive to expect that critics will be nuanced and care about the differences between the diverse types of stablecoins or lending protocols. The UST doomsday will probably delay mass crypto adoption because the general public will be able to tell the difference between the good and the bad projects for a long time. This also weakens the case for decentralization.
The general user will think of good old safety measures and guarantees as the only safe way to protect their money. Corporations and governments and big stacks of legislation will emerge as the only trustworthy protectors, and decentralization will be interpreted as alchemy.
The glass-half-full view says that the demise of UST and LUNA was just a matter of time and that crypto is better off without them. And that the confirmation of the bear market is likely to bring back the focus on builders, free of hurries and euphoria, and take it away from short-sighted speculators. No good story is ever free of plot twists. So we might as well welcome this newfound healthy dose of mistrust in crypto.
⬡ Six Angles
We select six topics to illustrate the very different angles crypto can be approached from. We could choose dozens, but six is the atomic number of carbon… and otherwise we'd be writing for ages.
1. NFT history | The book of Kek
Green is the color of hope, so if you need a mood-booster, head over to Pepe.wtf, where you will find the most extensive collection of frog-green NFTs for solace.
In case you didn’t know (I), Rare Pepes is one of the oldest and most relevant NFT collections. It launched on Counterparty, a Bitcoin L2, in 2016, many years before Ethereum or OpenSea hosted the Cambrian explosion of NFTs in 2021. Rare Pepes are a collection full of innocence, fun, and dankness, and are rightfully a classic. If NFTs finally become a relevant element of the future society, Rare Pepes will be a piece of history.
In case you didn’t know (II), Carbono is behind the development of Pepe.wtf, a site where users can browse through the most relevant items in the Rare Pepe collection and its successors (Dank Rares, Fake Rares, and Fake Commons), and find the next gem for their collection.
In case you didn’t know (III), we partnered with the Pepe Pawn Shop, Vincent Van Dough’s Pepe OTC shop, where collectors gather to hoard the latest drops.
In case you didn’t know (IV), Pepe.wtf now includes a Drops page, where you’ll be able to be on top of the latest card launches coming from the Pepeverse.
And lastly, in case you didn’t know (V), you can now access The Book of Kek, the most extensive collection of fun, entertaining and helpful information on the whole Pepe ecosystem.
The information available in The Book of Kek is probably nowhere outside of Pepe.wtf. The meme's origins, an explanation of its brief history with the American alt-right, a collection of the essential cards and artists, and useful information on how to browse and buy Pepes. This is also the beauty of crypto: the possibility to find uncharted territories of the internet where history is being written today.
2. Technology | Soulbound tokens
Bear times are build times. There is one concept emerging in the middle of the fog that might quietly develop into something big. It is turning up in conversations here and there, still in a vague form, but with the potential of developing into actual applications, we can touch: they are the soulbound tokens, aka’s SBTs (in case we needed another acronym).
The infinite, borderless transferability of digital property is one of the main pillars of crypto’s innovation. The ability to create finite digital assets (currencies or NFTs) and move them around the globe seamlessly is something that is breaking all types of barriers, from technological to cultural, in many industries, from banking to art.
But what if we created digital assets that were intransferable?
Think of it like this: when a gamer plays World of Warcraft, there are many items they can buy, like swords or potions. But there are also objects that players can only acquire through achievements, that they can only earn through completing complicated tasks, like killing a dragon, and which end up inseparably linked to their virtual character because of what they did. These items are called soulbound in gaming.
I wish I had come up with this explanation myself, but it belongs to Vitalik Buterin, who is also the main name promoting this new type of token.
In an industry built to create trustless financial relations, soulbound tokens open up a whole new dimension. They can represent things that pertain to a human, like their education, identity, or reputation. These inalienable assets are the door to trusted relations in crypto and new applications like uncollateralized loans, improved governance, or professional ties.
3. NFTs | Azuki’s rug pulling past
Azuki has become one of the blue-chip NFT collections from the “club 10.000” (don’t look up the name, I just made it up). 10.000 anime characters looking to your left with a floor price that has reached 30ETH ($80,000).
Zagabond, one of the creators behind Azuki, recently published a post outlining his history in Web 3, NFT projects. He expected it to be an inspiring story about progress, learning, and success, where he shared the experience acquired in his previous projects. But instead, it turned out to be the unintentional revelation of a history of rug pulls.
Rug pull is the term expressed to define the moment when a project's promoters abandon it, suddenly leaving behind a community of empty-handed, confused users. It is not an unusual event in the Wild Wild West of crypto and risk that always needs to be considered when coming close to a project, to the point that many teams announce anti-rug pull measures, such as token vesting.
4. NFTs | Spotify and the NFT echo chamber
Spotify recently launched a survey among some users to test out a potential new feature in their platform.
Artists can already promote merch and tickets on their Spotify profiles. Now the streaming service is testing a feature that will let them also promote their NFTs. Exclusive: Spotify tests letting artists promote NFTs on their profiles
The company surveyed users to evaluate interest, and many of the responses looked like this.
This is not the first time NFTs have faced fierce backlash. For example, the gaming community has confronted big developers at the first hint of NFTs getting close to their games. Sometimes it’s good to remember that crypto is a little bit of an echo chamber, and NFTs still have significant reputational issues to deal with before they get mainstream.
5. Regulation | Portugal, and Germany regulate crypto tax
There is a forest of regulation showing behind the crumbling trees of the Terra collapse. Many regulators are currently looking into stablecoins (with the UK as a notable outlier, announcing new stablecoin friendly regulation), while others, like Portugal and Germany, continue shaping the long-term fiscal framework for cryptos.
Portugal: Portugal’s Status as a Crypto Tax Haven Appears to Be Ending. The nation will start applying capital tax gains to crypto revenue.
Germany: Germany Affirms Crypto Sold After One Year Is Tax-free. Germany seems to be pioneering sensible tax legislation for crypto with a regulation covering concepts like mining, staking, airdrops, and masternodes from the tax system perspective.
6. TradFi | Robinhood to launch a non-custodial wallet
Robinhood is planning on launching a non-custodial wallet before the end of 2022. The company is responsible for onboarding more than 30 million people to a convenient brokerage app. While customers could already perform basic crypto operations through their platform, announcing a non-custodial wallet is breaking news.
Robinhood is famous for creating user-friendly on-ramps for complex financial products and services. Their take on a non-custodial wallet will be interesting to see, as self-custody is one of the riskiest but at the same time most authentic aspects of crypto.
Wallets are the software that serves as an interface between a user and a blockchain, and allows them to perform transactions such as a token purchase, a loan, or acquiring an NFT. Custodial wallets are those where the passwords and assets are managed by third parties, such as Coinbase or Binance, whereas the non-custodial ones are the ones where the user is alone. There’s no “I forgot my password” button, no phone to call if you clicked the wrong button during a transaction.
The fact that Roobinhood is planning to launcha non-custodial wallet shows an unusual commitment to decentralization coming from a non-crypto-native organization.
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