#50 Gary Gensler's Big Hammer
#50 Gary Gensler's Big Hammer
Now that liquidity and activity have returned to crypto, regulation is the next great hurdle. It seems like crypto is in the crosshairs of US regulators.
There’s regulatory heat coming toward crypto. Last week it manifested in the form of a settlement between the SEC and Kraken, by which the exchange would wind down their staking services to US customers and pay a fine of $30M. The SEC claims to be protecting retail investors from unregistered securities. Once again, the Commission, led by Gary Gensler, expresses its opinion about a complex subject through a direct enforcement action. Unfortunately, Gensler’s only tool is one great big hammer. Hester Peirce, a dissenting SEC Commissioner, said, “a paternalistic and lazy regulator settles on a solution like the one.”
All eyes turned to Coinbase, the other major centralized exchange offering staking services. Coinbase CEO Brian Armstrong acknowledged the rumors that staking services might be under scrutiny. Chief Legal Officer Paul Grewal pointed out the differences that keep Coinbase out of the SEC’s reach. TL;DR, the way the product is marketed can make it fit in the Howey Test. In either case, the question of whether the SEC’s hammer will make a distinction remains.
Crypto prices dumped. This news, together with other law enforcement activity (the other most important one in recent days, the probe on Paxos from a NY financial regulator), seems to draw a big picture of regulatory pressure that some have called “crypto’s choke point” (”read Nic Carter” is a piece of advice that never fails). In general, the US government has chosen confrontation as their way of approaching crypto instead of innovation and nuance.
This was easy: we asked Dall-E for a suited man in Manhattan holding a massive hammer. The resemblance to Gary Gensler and the iron-y fist were unexpected but well-received details.
You wouldn’t tell it’s been a bad week for crypto judging from the rest of the contents of this newsletter.
There’s been a heated debate about the true decentralization of Uniswap.
We introduce Goldfinch from the RWA department.
⬡ 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. Governance | VC fight
One of the most critical latent debates around decentralized governance emerged in the Uniswap forum. The leading AMM discussed a potential deployment on Binance’s BNB when the conversation about what bridge to use for fund transfers sparked controversy. The two most important contenders, LayerZero and Wormhole, are two perfectly good technical solutions with nuances that could skew the decision in one direction or the other. But the debate turned into a power struggle between whales: LayerZero is backed by Jump Capital and other VCs, Wormhole by Andreessen Horowitz (a16z) et al.
Can governance be considered decentralized when some actors hold enough power to tip the balance themselves? For example, analytics platform Bubblemaps claims that a16z has enough power to move the needle substantially in any governance decision. And the bridge debate shows how whales can use this to extract value from it.
There’s still reasonable doubt about how holders of governance tokens like UNI, SUSHI, etc., profit from their investment. Well, here you have it: if you’re big enough, you can steer a project towards a beneficial strategy (that may or may not be the best for the project)
2. DAO | Treasury management in DAOs
“Ethereum Name Service DAO Passes Vote to Sell 10K Ether”. Ethereum Name Service (ENS) is a DAO-governed project that sells .eth addresses. In short, it’s the blockchain equivalent of .com domains and probably one of the most straightforward and elegant crypto businesses.
The DAO recently decided to convert 10k of their holdings in Ether into USDC to cover operating costs. A move that reveals a rarely spoken obvious truth about DAOs: they have expenses.
A recent thread by Token Terminal revealed the operating costs of MakerDAO ($34.09m), Sushiswap ($5.22m), and Lido ($24.51m).
In case you need reasons to re-consider DAOs as proper, serious organizations.
3. NFT | Sales spike again
Two millionaire sales of a Cryptopunk ($1.4M) and a Bored Ape ($1.3M) are the icing of the NFT resurgence. Accompanying the rest of the market, NFTs are experiencing an unexpectedly sweet beginning of the year.
Once liquidity is unfrozen, it immediately flows to NFTs. We don’t know if this is because they should be considered one more financial asset in the crypto ecosystem or because people are sincerely drawn to the crazy idea of owning JPGs online. This is crypto, so it’s probably both.
https://dune.com/hildobby/NFTs
4. AI | AI-related tokens pump
In recent months Artificial Intelligence has led the technological buzz race by far. Since the launch of Dall-E and the meteoric rise of ChatGPT, the world has started to come to terms with the idea that machines will soon rule us.
AI-related tokens are piggybacking on the momentum and are among the latest weeks' best-performing assets.
Carbono has been involved in the design and evolution of Botto, an AI art and NFT project, since 2021. As a result, we’ve witnessed the trend firsthand, like when the token experienced a run after Coinmarketcap included it in the “AI and Big Data” watchlist, attracting new investors.
There’s also the fact that Botto has been creating first.class art, attracting collectors, generating revenue, and distributing it among the community. But that’s a story we’ll probably dig into shortly: we’ve been doing some looking back, and we’ll soon share the results.
5. Real World Assets | Introducing Goldfinch
Real World Assets have taken the back seat lately. RWA were the longer-term, safer value proposition everyone was looking at when things were quiet. When crypto went back into a frantic mode, other narratives took the spotlight.
RWA will remain one of the most exciting areas of crypto for months or years to come, regardless of the attention they get. So today, we want to introduce you to Goldfinch.
Goldfinch wants to provide access to liquidity to small and medium businesses thanks to crypto. Financing SMBs is a tremendous global challenge since banks are not always interested in walking the last mile. DeFi’s optimization of processes opens the door to innovation in this area.
Goldfinch is a decentralized credit protocol on Ethereum that loans out digital assets as USDC stablecoins without the need for crypto-assets as collateral. Coinmetrics did this deep dive last week if you want a profound understanding of the project.
Goldfinch intermediates between crypto liquidity providers, lenders, and financial institutions in emerging markets, who act as borrowers. These financial institutions are the ones who will then put the funds to use in the real world and guarantee that the funds return, with interest, to liquidity providers.
6. Stablecoins | Aaves tests GHO
There’s a new stablecoin in town. Aave has just deployed their stablecoin GHO in Ethereum’s testnet, which means we could see it flow through DeFi in a matter of days or weeks.
Besides some technicalities (like their innovative liquidation mechanism), the thing to watch is whether emerging from a successful lending protocol will give GHO a strong competitive advantage.