#57 Tech Against the Machine
The banking crisis has gone quiet, but regulatory pressure is still high. Nevertheless, crypto keeps doing its thing: after Arbitrum, zero-knowledge L2s take the stage. Also, Shapella and bitcoin.
The noise of a new global banking crisis has quieted, maybe because we’re in the eye of the hurricane or because the FED’s swift reaction was indeed the right thing to do at the right moment. With the banking crisis off the table for now, regulators are trying to grab our attention through more enforcement cases. After the SEC bullied Coinbase, it was time for Binance to suffer regulatory pressure from the CFTC. If Operation Choke Point 2.0 ever sounded like a conspiracy theory, you’ve got fewer reasons to doubt.
But there are things to be excited about on crypto and reasons to reject the FUD (or, as CZ would say, “4”). Two weeks ago, we had Arbitrum airdropping hope; this week, it’s the zero-knowledge rollup fever taking over, the perspective of Shapella happening, and even good-old bitcoin is shining with new light.
While we’re surrounded by things we cannot control (Like Elizabeth Warren), we’ll keep focusing on the things we’re passionate about.
In this issue of Carbono Insights, we’ll try to separate the signal from the noise:
We can’t forget about regulation, so we’ll talk about Operation Choke Point 2.0, But we’re more interested in other news
It’s zero-knowledge time: zk-rollups come out of the cave after months of expectations.
It’s been one week since Arbitrum’s airdrop, and we checked what has remained after the noise.
China is looking favorably at crypto again through crypto-friendly jurisdiction, Hong Kong
Bitcoin is on its way to hosting a whole ecosystem of DeFi, and L2s.
1. Regulation | Operation Choke Point 2.0
Operation Choke Point 2.0 is the super-catchy name given to the theory that the American government is conducting deliberate efforts to debank the crypto industry. Nic Carter initially introduced the concept, spreading it widely across the media (who sometimes called it a “conspiracy theory”).
Operation Choke Point 1.0 was an initiative launched by Barack Obama’s administration to prevent fraudulent businesses from accessing the U.S. banking system. It used financial regulators to strangle the financial operations of online payday lending, firearms sales, and other high-risk industries.
Operation Choke Point 1 was taken to court and declared illegal. Governments don’t have permission from the judiciary to use financial regulators as a political weapon.
The lawyers that beat the Obama administration in court claim today that the same intimidatory tactics are being used today against crypto.
Cooper & Kirk successfully sued the FDIC, Federal Reserve, and OCC over the original Operation Choke Point, so the law firm is well positioned to recognize the signs that the Obama-era pattern of threats and pressure tactics was being deployed again, this time against crypto. NEW WHITE PAPER UNCOVERS HOW FEDERAL BANKING REGULATORS ARE WAGING "OPERATION CHOKE POINT 2.0" AGAINST THE CRYPTOCURRENCY INDUSTRY.
2. Ethereum | We have a date with Shapella
It used to be “late March,” then “early April,” and now it’s “April 12th”. Ethereum developers have agreed on an epoch to deploy the combined upgrades of Shanghai and Capella, which means we have an estimated date and time.
The announcement brought optimism to liquid staking tokens.
Unless Satoshi Nakamoto rises from the shadows and reveals that he was Elon Musk all this time, Shapella and all its branching consequences will be the most significant thing happening in the following weeks.
Remember, you can familiarize yourself with Liquid Staking in our LST tokens primer.
3. Scalability | The time for Zero-Knowledge has come
Zero-knowledge rollups have been in our prayers for months. They bear the promise of a cheaper, faster, safer, and more private Ethereum experience and the possibility of unlocking new use cases for crypto. What would you do with immediate, cheap blockchain transactions? You can think of DeFi on steroids or the definitive emergence of GameFi.
We wrote a longer piece about last week’s announcements, how we got here, and where it will take us. Read Zero-knolwedge rising here.
We had three big announcements last week in the zk space:
Matter Labs launched zkSync Era and won the “first” badge by frontrunning Polygon’s announcement. But they didn’t just front-run Polygon: Era looks more mature; it is already attracting a few million in TVL and has a long list of protocols “coming soon.”
Also, zkSync Era will bring the first sizeable experiment with account abstraction, one of crypto's most interesting UX improvements.
Polygon launched their zkEVM mainnet, too, although they warned users to handle it carefully while bugs are discovered and fixed. In their announcement, they had Vitalik as a guest star. Maybe Vitalik’s endorsement has something to do with the fact that Polygon’s zkEVM is the most Ethereum-compatible of the current takes at zero-knowledge rollups.
Consensys joined the announcement party with the launch of their developer-ready testnet, Linea. It’s still a training ground, but Consenys has a history of delivering tier-1 products.
In less recent news, other relevant players in the zk arena announced some progress: Starkware launched an alpha testnet using their upgraded language Cairo 1.0, which is expected to bring enhanced scalability and decentralization; Scroll, who are developing another Type 2 zk rollup (similar in compatibility to Polygon’s zkEVM) currently stand on a pre-Alpha testnet stage and are expected to launch on Q3.
4. Arbitrum | Week 1 after the airdrop
Arbitrum’s airdrop was messy, with high fees, outages, and widespread scam attempts. But it built the foundations of a new Arbitrum, closer to decentralization, and is now equipped with a powerful tool for incentivization called ARB. So let’s see what the storm has left.
Total Value Locked has risen above $2B and is $1B above the numbers in early January. Although, to be fair, Optimism has also almost doubled its TVL in the same time, from ~$500M to nearly $1B today.
Active addresses and daily transactions peaked during the airdrop days and, as could be predicted, then slumped down after. But still, Arbitrum’s massive rise seems like a slight anomaly in an otherwise stable upward trend that dates back a few months.
One week later, Arbitrum still holds onto the #2 spot in DeFi traded volume over BSC and Polygon.
5. Banking | We will, we will bank you
Now that the US openly fights crypto, China seems to be a little more open. Who would’ve guessed?
Chinese banks have been directly reaching out to crypto businesses over the past few months, adding to signs that the city’s push to become a major digital asset center has backing from Beijing, even though trading of crypto has been banned on the mainland for well over a year. (Chinese Banks Court Crypto Firms in Hong Kong After Mainland Ban)
Hong Kong announced the development of more welcoming regulations for crypto business, and mainland China seems more than okay with that. The East seems to be willing to bank the unbanked…crypto companies.
6. Bitcoin | Bitcoin ecosystem rising
“Bitcoin” and “ecosystem” used to be oxymoronic words. Bitcoin was its own thing; almost an appchain used to do one thing and one thing only and be excellent at it. But Ordinals came and shook everything.
Today we have projects like Stacks becoming “the second top-performing digital asset in March of those with market caps above $1 billion(...) according to data from Messari.” (Coindesk). Stacks is a Bitcoin layer for smart contracts. Once Ordinals opened Pandora's box of NFTs, everyone started dreaming of NFT marketplaces and, why not, DeFi on bitcoin. Stacks is leading the way.
But they’re not alone in the task of expanding bitcoin. Actually, Jack Dorsey was probably there first. Spiral, a company funded by Dorsey’s Block, recently announced the roadmap for LNX, a developer’s kit to expand the features and UX of Lightning Network.
Bitcoin is no longer asleep.