#46 Some bottom signals
Headwinds remain there (macro situation, layoffs, bankruptcies), but they've become more stable and predictable. In the meantime, the bright side of crypto shines: Shanghai, Ondo, Circle.
Hype in crypto is at all-time lows, and there’s not much mainstream attention to what happens to the industry. But if you look inside, some weeks are still fast and hectic (even SBF now has a newsletter). This was one of those weeks.
The Genesis / DCG drama is still unfolding. Cameron Winklevoss and Barry Silbert are still engaged in a long-distance (toxic) relationship, writing each other open letters on Twitter, trying to call the attention of regulators so that someone unclogs the situation. Good-old Gary Gensler has finally intervened with a good-old accusation on both Gemini and Genesis for trading with unregistered securities. Maybe not what they expected.
We recently published a thread explaining what we believe are the three main pain points that could take crypto out of its relatively flat line, and the DCG case is the main topic.
The other two are Binance and Tether. Binance, because even though they’ve rubbed off every doubt about their solvency, they can’t eliminate legal threats. Tether because while competitors improve in transparency and accountability (more on this below), they remain a bit too opaque for the current times.
In any case, we don’t foresee anything sudden or drastic happening in any of these directions. On the contrary, we are more inclined to believe that we are at or near the bottom already. After the fall of FTX, prices did not suffer too much. Whoever hasn’t sold already is not going to sell now. Opportunistic investors sold long ago so did speculators, and even miners can’t sell because they’ve gotten rid of most of their reserves already to be able to face their debt obligations.
We try to be realistic and balanced, so we don’t want to minimize the situation. One of today’s angles covers the HR catastrophe crypto is going through. But we’re also seeing the quiet signs of progress we always talk about. There’s tech improvement, professionalization of crypto as an industry and progress in the relationship with TradFi.
We asked Dall-E to draw “an empty business district on a foggy day in Turner style” to illustrate the quiet moment we’re going through. Dall-E added that red dot in a window in the background and we want to believe that that’s the room where engineers and entrepreneurs are working.
In this issue of Carbono Insights, we cover:
The Shanghai fork: Ethereum developers meet weekly to decide on the next steps. Here’s what their meetings tell us about Ethereum’s roadmap.
Ondo Finance’s tokenization of U.S. Treasuries. We’re very excited to see this.
Layoffs in Coinbase, Consensys and Crypto.com.
Two predictions about the NFT market in opposite directions.
To close off, The name game: a fun semantic debate, as a palate cleanser
⬡ Six Angles
We select six topics to illustrate the different angles from which we can approach crypto. We could choose dozens, but six is the atomic number of carbon… and otherwise, we’d be writing for ages.
1. Ethereum | What we know about Shanghai
Every week, all Ethereum’s core developers gather around the (aptly named) All Core Developers Execution calls. The meetings are highly transparent: the agenda is shared on Github and the zoom call is broadcast live through YouTube. That is how we know what’s going on in the minds of these shadowy super-coders.
These days we have something to look for in every ACDE because of Shanghai’s relevance as the biggest Ethereum update post-Merge. Shanghai was initially going to include a few relevant improvements: proto-danksharding (a small step towards Ethereum scalability that would make rollups, especially optimistic ones, more efficient) and EOF improvements (changes in the Ethereum Object Format, aka an upgrade of the whole EVM).
But in response to the increasing pressure, developers have decided to push everything, except staked ETH withdrawals, to the back burner. Shanghai will be laser-focused on allowing validators to withdraw their well-earned Proof of Stake rewards, locked in the Beacon Chain since December 2020.
Shanghai will kick off a new chapter in Ethereum’s history. (Hint: check out our last newsletter)
2. TradFi & DeFi | Tokenized U.S. Treasuries.
Ondo, a financial services company founded by two ex-Goldman Sachs employees that aims to offer “institutional-grade, blockchain-enabled investment products, and services,“ has built a new bridge between TradFi and DeFi.
The Ondo Short-Term U.S. Government Bond Fund provides liquid exposure to an ETF of short-term U.S. Treasuries. TL;DR it is an investment vehicle that tokenizes U.S. Treasuries and makes them available and (relatively) liquid on the blockchain.
Ondo is writing and applying the playbook for fully compliant Real World Assets in crypto. Their approach makes regulators happy, and brings exposure to safe, reliable yield to crypto projects willing to play by regulatory rules.
All the details, 👇
3. Stablecoins | Circle’s reserves
In early November, the days before the debacle of FTX, Circle kicked off the Circle Reserve Fund, a fund that invests in US Treasury bills managed by BlackRock. In Circle’s latest attestation, delivered by Grant Thornton in December, the Circle Reserve Fund held $11B. Since then, Circle has topped it up to $28.6B, which amounts to ~65% of its reserves.
As analyst JP Koning states:
In other words, 65% of the assets that back the stablecoin USDC (currently ~$44B in circulation) are invested in t-bills managed by Blackrock. It doesn’t get much more compliant than that.
4. Layoffs | Coinbase and Consensys add to the body count
Coinbase announced cuts of 20% of its workforce (around 950 employees) in an effort to restructure costs in the face of “ongoing market conditions.” This is the second major layoff in Brian Armstrong’s company, after a 1150 cut in June. $COIN shares raised in response, as investors consider that cutting costs gives the company the oxygen to survive for long.
The same day, BTW, Consensys announced the cut of 100 staff members too and a few days later, Crypto.com joined the club with a 20% staff cut.
Coindesk estimates that crypto has lost 27.000 employees since April. Probably the loss of top-notch talent is one of the most harmful consequences of the bear market.
5. NFTs | Two mirroring predictions for 2023
We’ve read some interesting threads with NFT predictions lately, so we decided to produce our own in our typical “six angles” fashion: 10-20 lines (already wasted a couple) with links to read more.
There are two trends we’ll be looking for in two opposing directions:
On the one hand, NFTs are the icebreaker of crypto in normie circles. We’ve seen this play out this year with Reddit’s collection on Polygon, and we have high hopes on Starbucks and Instagram. The challenge ahead is a UX-centered one. People already like to buy and collect and are ready to buy digital assets. but they don’t need to hear about wallets, tokens, transaction fees, or self-custody.
On the other hand, we will see the financial side of NFTs getting increasingly technical and complicated. We already have lending platforms that allow investors to use NFTs as collateral. and we’re seeing improvements in the standardization of prices and the introduction of financial primitives, like margin trading on NFTs.
After the promised ~20 lines, here are the recommended reads:
This one skews a little more toward cultural impact:
This one is from a Delphi researcher with a veeeery long Part I (still waiting for Part 2)
6. Branding | Crypto or Web 3?
People feel strongly about words, we know that. And these days, there’s a debate in Crypto Twitter about whether the way people framed the industry contributed to the bear market. Some people really seem to hate the Web 3 tag.
When the term started to circulate, Web 3 seemed like a way for the industry to avoid negative connotations from the term crypto. Crypto seemed rebellious and speculative and bore the weight of a history of scams. Insiders, especially from the VC community, wanted a cleaner slate, and that’s how Web 3 was born. Web 3 told a bigger story. One about how crypto was a cultural shift and the next iteration of the Internet. Overpromising?
Others just don’t take the debate too seriously