#41 Genesis on brink
We cover the Genesis crisis, the latest development in the crypto domino. Also, we celebrate two birthdays: Botto's and Pepe.wtf's
These days we’re following the struggles of Genesis capital, a case that epitomizes the situation in crypto. Crypto in 2022 has witnessed a flow of crises that look like this week’s INTERPOLATION: climbers holding with teeth and nails to the rocks, or each other or God knows what, trying to survive.
Genesis is another example of a company that’s suffering the consequences of previous meltdowns and whose collapse can create even more shockwaves.
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“Interpolations” is the educational collection of NFTs we’ve created at Carbono to help people learn how to purchase their first NFT. Dall-E creates each artwork after a prompt inspired by this newsletter. You can find the collection on OpenSea, and follow this tutorial for a detailed description of buying your first NFT.
For this week’s Interpolation, we asked Dall-E to draw “climbers bound by ropes falling off a cliff” in low poly style.
Genesis halted withdrawals citing “unprecedented market turmoil” after the fall of FTX locked them away from $175M. The amount doesn’t sound too big for a company able to manage $2.8B in active loans, but it seems like this was the straw that broke the camel’s back. This was the second time Genesis was affected by an explosion's shockwaves.
In May, the collapse of Three Arrows Capital poked a $1,2B hole in their balance. Su Zhu and Kyle Davies left Genesis behind. With somewhere between $3 and $10B in assets under management, these golden boy hedge fund managers vanished, leaving behind a trail of flabbergasted creditors and open wounds.
Digital Currency Group assumed the losses back in the day. DCG is a crypto company conglomerate and Genesis’ parent company, and after chipping in that $1.2B, they probably ran out of resources to rescue Genesis again. The group seems to be desperately seeking funding to close the hole. Otherwise, they might have to consider getting rid of other company assets. Digital Currency Group also owns Grayscale, an asset management fund that manages GBTC (Grayscale Bitcoin Trust), that for a long time, was the best way for institutional investors to get exposure to bitcoin. Today GBTC trades at a 42% discount over the net asset value of bitcoin and has refused to disclose verifiable on-chain information on its holdings to appease the audience. Not a good look. Grayscale could be the next domino piece to fall.
If things look complicated right now, wait until I remind you of a couple of details:
FTX collapsed in a matter of weeks after an article by Coindesk that Alameda Research, FTX’s sister company, owned primarily illiquid or worthless assets in their balance sheet. Investors reacted by pulling away their funds from FTX, leading to a supply shock that revealed that Sam Bankman-Fried had been mismanaging customer funds. Coindesk is a Digital Currency Group company.
And so is Grayscale, as we mentioned before. And Grayscale’s GBTC is also behind the demise of Three Arrows Capital: an oversized exposure to Grayscale’s illiquid, devalued shares of GBTC prevented 3AC from being able to liquidate positions and redeem their customers on time.
Genesis is likely to become the next chapter in crypto's purge. Global market conditions and a fair share of self-inflicted wounds are putting the industry to the test. Liquidity has fled, and reputation is at all-time lows. But contrary to other bear markets, nobody today thinks these events are definitory of what crypto is and what it stands for. While we see bad apples rot and bad actors show their true faces, we are also learning about the strengths of DeFi, and the role of decentralization in transparency and accountability, We’re incorporating lessons about tokenomics (Aave and Curve are working on decentralized stablecoins ready to avoid mistakes from the past), deploying self-regulatory measures (proof of reserves, rescue funds), watching technology make progress (The Merge, ATOM 2.0’s value proposition), welcoming TradFi (JPMorgan’s experiments with DeFi) and having some fun (with NFTs increasing their penetration among top tier brands).
None of these features are as headline-worthy as our good old scandals, and we will have to wait before we feel their full effects, but this is the true face of crypto.
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⬡ Six Angles
We select six topics to illustrate the different angles from which crypto can be approached. We could choose dozens, but six is the atomic number of carbon… and otherwise, we’d be writing for ages.
1. Birthday number one | Botto turns one with a revamped art and economic model
It’s a weird moment to celebrate a birthday, but we’ve had two anniversaries at Carbono lately, and we’re as proud as we could be. Botto, exploring the overlap between AI generative art, DeFi, and DAOs, has recently launched its second period.
Botto was born in October 2021 as a project exploring the frontiers of human-AI collaboration in the pursuit of artistic excellence. Artificial Intelligence was already delivering astounding results in machine creativity. But an artist is much more than an aesthetic output: artists have a soul, a purpose, an arc. And they need a business model to sustain them in the long run. Web 3 innovations provided the necessary ingredients to continue this exploration: the $BOTTO token and the BottoDAO added the human touch and the economic structure.
After one year of life, Botto has launched 52 auctions on SuperRare, sold ~700ETH in art, and visited 12 cities in real-life art exhibitions (Miami, LA, NY, London, Paris, Venice, Madrid…)
As 2023 approaches, we’ve launched Botto’s Second Period, with innovation in the artistic and Web 3 sides.
The Art Engine has been redesigned to give the community the power to have a more decisive say in creative evolution. Every 12 weeks, the DAO will decide on routes to explore: from incorporating new AI algorithms to introducing aesthetic or thematic topics to the artistic production.
The Economic model has also incorporated new tools. For example, Botto now offers Access Passes: NFTs that generate voting points that allow people to participate in the curatorial phase and the AI training. And we have also redesigned the incentive structure to promote the most productive behaviors, such as consistent voting and participation.
2. Birthday number two | Pepe.WTF welcomes more frens
We are also celebrating Pepe.WTF’s birthday. We launched this site in November 2021 to offer a meeting point for collectors and artists from the Rare Pepes ecosystem.
Rare Pepes are the OG NFTs. Launched in 2016 on Counterparty, a Bitcoin Layer 2, they are the purest representative of the outsider ethos of internet culture. Born as memetic snapshots of digital life, they have eventually become the most culturally relevant NFT collection.
PepeWTF offered users a much-needed friendlier experience of browsing Pepes and soon incorporated the spinoffs of the original collection. Fake Rares, Dank Rares, and Fake Commons have continued the saga and helped grow the community.
Pepes are a different breed of NFTs. They never attracted the crypto-bro trader/collector -they are too heterogenous, dank, and clunky. The user experience remains challenging, and traders cannot trade cards as quickly as the collections launched on top of smart contract blockchains. Although it keeps opening up to new cohorts of collectors and artists, it remains faithful to a meme-fueled spirit, more interested in community, fun, and memes. We believe we are partly responsible for the growing interest in Pepes while we defend the community-driven, fun-seeking culture surrounding them.
If you want to sneak a peek into the world of Pepes, we recommend you check out Pepe.WTF, click on the Wiki to see how to get started and claim LAYERSOFLIFE, the card we created to celebrate our birthday.
3. Web 3 use cases | Decentralized Social Media
Nobody can tell whether Twitter is thriving or dying. Elon’s numbers seem to say participation is at all-time highs, while the exodus of advertisers warns of financial trouble ahead. Whatever the case, we can say that the turmoil has brought decentralized social media back under the spotlight.
Decentralized social media is based on the premise that users should own their digital footprint. Currently, web 2 companies own the platform, the content, and the network. So if you ever get banned or bored from Facebook/Twitter/Instagram/TikTok, you can leave. You can’t pack up your stuff and leave: just leave.
But there’s an alternative: your social graph (your network of contacts) content and online behavior can be stored on the blockchain, and platforms can become just user interfaces that compete for your time.
Another example of the user-empowering role reversal that Web 3 suggests.
4. Cosmos | ATOM 2.0 is rejected, not dead
One month ago, the Cosmos core team shared their vision for the future of Cosmos in a white paper that received the name ATOM 2.0. The authors described some innovations that would give the Cosmos Hub, the primordial Cosmos blockchain, and ATOM, its native token, new, more essential roles in the ecosystem. Cosmos can be described as a toolbox for developers: the initial vision of Cosmos was expressed through the launch of Tendermint, a consensus mechanism, the Cosmos SDK, a developing framework, and IBC, the Interblockchain Communication, a protocol for the transmission of information and value across compatible blockchains. The Cosmos Hub and ATOM were the two first use cases of the toolbox, but they were in no way central to the ecosystem. Each developer could freely choose what and how to use the tools Cosmos shared, and so they did: devs built Terra (technically sound, but flawed in its design), Osmosis, EVMOS, Stargaze, and other successful protocols. Cosmos Hub and ATOM became irrelevant.
ATOM 2.0 suggested a pivot towards a little bit of helpful centralization. It created a set of services that would give the Cosmos Hub a central role in the ecosystem, making ATOM the unofficial currency. Everyone seemed excited about the ideas, but when the time came to vote, ATOM 2.0 was rejected. Critics were wary of the new emission model for ATOM and rejected the general complexity of the white paper.
Nevertheless, the noise generated by the vote has created the positive side-effect of putting the Cosmos community to work together. So ATOM 2.0 achieved what it was meant to achieve.
5. Ethereum | Ethereum scares stakers
Ethereum’s Proof of Stake validation mechanism invites validators to stake their assets (32ETH minimum) to be eligible to create new blocks and earn the newly minted ETH. The transition to Proof of Stake happened in August 2022, but staking has been available since 2021. Unstaking is another story: unstaking is still unavailable, and neither the assets validators stake nor the rewards generated can be used until the Shanghai upgrade takes place. And there’s no deadline for that. There’s a lot of faith in Ethereum involved in staking.
That upgrade, Shanghai, is expected to include the mechanism by which Ethereum will release those rewards. There was a projected implementation for six to 12 months after the Merge, according to the Ethereum Foundation website. But followers noticed the language had changed last week: The Foundation website no longer had a proposed timeframe. Anxious Ethereum Stakers Question When They’ll Be Able to Access Funds
6. Binance | CZ makes every right move
Some might say that Binance has emerged as the movie's hero in the latest developments in crypto. The once sneaky CZ, who roamed the gray areas of regulation, is slowly turning into some sort of ubiquitous benevolent god for crypto. Sam used to be the guy for this: he saved Blockfi and Voyager from death, while CZ publicly claimed,” I would never do that type of deal.” He was on the right side of history.
Now Binance has promoted transparency through proof of reserves or launched a crypto recovery fund, initially equipped with $2B.
Most probably, crypto will take some time before they embrace a new hero after having their hearts broken by SBF, but CZ seems to be doing all the right stuff to become the most suitable candidate.
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