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#79 Max pain territory: FTX liquidation, NFTs as securities, DAOs breaking, BTC halving is not enough, but also Metamask tech and a permisionless future
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It is the umpteenth week of the bear market. The shot of hopium injected by BlackRock has proven to be short-lived. We remain immersed in a time of low trading volume, rock-bottom interest in crypto, and high uncertainty. And to top it all off, we are met with another liquidation risk. FTX just received the approval to sell their assets to gather funds to distribute among creditors. Over $3 billion in different cryptocurrencies are expected to enter the sell side of the market. Prices in crypto are struggling, to say the least. Some say we’re in “max pain” territory.
It’s undeniable: FTX is liquidating, the SEC is extending its jurisdiction over NFTs, and emblematic DAOs like Nouns are going through heavy crises. Even Bitcoin’s halving, which is often seen as the light at the end of the tunnel, needs to be taken with a grain of salt.
But for those of us who remain, hope doesn’t end here. Even in this dark hour, we remain faithful to technology (read on to learn of Metamask’s new extensions) and philosophy (remember, we’re on the road to a permissionless future).
The bear is just taking a nap.
Shameless shill: you can now find me on Friend.tech. This platform is one of the most exciting embryos of a project that have emerged from the current doldrums and I’ll be paying attention to it. Follow me for more in depth analysis, raw opinions, the occasional discovery…and hopefully all the conversation you’re up for. Look for “mrubio” or “miguelatacarbono” and get your key.
1. Liquidations | FTX unchained
As we approach the anniversary of the spectacular FTX debacle, the centralized exchange is still inflicting wounds on crypto. These days, the announcement of the potential liquidation of its assets to obtain funds for debtors is what’s shaking crypto. In the context of low liquidity and trading volumes, FTX’s $3.4 billion portfolio is a scary threat.
FTX plans to drop $100-$200 million of crypto every week through Galaxy Digital of a portfolio comprised of Solana, BTC, ETH, Aptos, and a few others.
After two weeks of spectacular announcements (and tepid price action), it doesn’t seem like Solana will be able to absorb such extreme selling pressure. And even though BTC and ETH should be in a better position, their current situation couldn’t be worse, with trading volumes at their lowest in more than four years.
This is not even the liquidation we were all expecting. The bags from Mt.Gox victims and the assets held by the US Government (see here a summary of its seizures) were in the news just a few months ago as another Damocles sword. The danger is not over.
2. Regulations | Stoner Cats are also securities
Once again, the SEC is trying to establish its power over NFTs, this time with the chase of Stoner Cats, the collectible fiction led by Hollywood power couple Ashton Kutcher and Mila Kunis (these days going through quite a bit of trouble, besides their issues with crypto regulators).
Stoner Cats were considered by the SEC (drumroll) unregistered securities, and the company behind them has paid a $1 million fine and committed to reimburse its customers, although the settlement does not include an admission of fault.
Once again, the SEC has decided to regulate by enforcement, extending its frontiers a bit further. Stoner Cats were indeed NFTs that harbored the possibility of obtaining future revenue through secondary market sales. But so do baseball cards and Star Wars memorabilia. The SEC thus stretches the application of its regulation on investment contracts.
3. DAOs | NounsDAO splits up with itself
Nouns is one of the most popular NFT collections, and NounsDAO, the organization behind it, is one of the simplest yet more experimental communities in crypto. Nouns are bespectacled pixel-art fun creatures that have been auctioned one per day since August 2021 (”one noun, every day, forever”). All the proceeds from the sale become part of the project treasury, and Noun owners become DAO members. It’s that simple.
NounsDAO’s treasury has been used to create value for intellectual property and the brand by funding different cultural products. Nouns, the art, are CC0 (covered by a Creative Commons Zero license), which means that their image can be used and transformed freely by any third party, after the belief that expanding the creative footprint of the project adds value to the whole community of holders.
These days NounsDAO has been innovating in a different direction. The DAO has a mechanism in its system that allows a community section to part ways if they disagree with the project's direction. At least 20% of the community has to agree with the need to split. It’s called a “rage quit” mechanism, and it was used by +50% of the Nouns owners recently. The divorce includes creating a twin DAO and splitting the treasury between the old and the new DAO.
On one hand, this breakup is a symptom of the general disease affecting NFTs. Noun owners are disappointed in the direction of the project and prefer to find a different path…or an exit, so that they can recover part of their money. On the other hand, they’re just using a mechanism built for this type of event, which shows how DAOs can innovate over more traditional forms of organization, giving freedom and ownership to its members.
4. Bitcoin | The halving is not enough
Every four years, Bitcoin cuts in half the amount of new BTC it mints as miner rewards per block in a phenomenon called the halving. Bitcoin’s hard-coded predictable supply system has turned it into an asset that some can consider an improvement over gold. The periodic reduction of issuance speaks of reduced supply. And less supply means more scarcity, and more scarcity means higher value. That’s the prevalent narrative.
But the current bear market is teaching us that there’s another very important side of the price action. We’re going through times of low volatility and high reluctance. There’s no new money flowing into crypto. And inflows have been as strong an indicator of bull runs as supply shortages. This is the point held by this author in his article Bitcoin Halving Is Nice, but Kickstarting Bull Run Requires Fiat Money Supply Growth.
Traders, however, should note that previous halvings did not necessarily catalyze bull runs single-handedly. Macro likely also played a significant role, mainly in the form of abundant fiat liquidity conditions.
5. Tech | The Wordpress-ization of wallets
Metamask has announced the launch of Snaps: the wallet software will now allow third parties to develop custom-made extensions that users can install and use. The old concept of plugins once again enters crypto.
So far, the initial batch of Snaps already allows the use of the most extended wallet software with non-EVM chains. Ecosystems like Cosmos, Solana, and Bitcoin are coming to your front door.
Plugins are a natural step in the evolution of software technology. We are immersed in the typical sandwich where developers are equipped with more and more tools to expand the abilities of the current ecosystem while non-technical users get served features more easily. We could call this the WordPress-ization of crypto.
And WordPress is very big.
6. Permissionless | Remember why we’re here
Eric Voorhees says his girlfriend calls him “the oldest man in crypto”. Maybe he’s not as old in age, but he certainly has some Gandalfian wisdom to share.
Voorhees shared a piece of that wisdom lately during the Permissionless event held by Blockworks in Austin, Texas. Voorhees is a crypto OG who fell in love with the values of peaceful rebellion and liberty embedded in the bits of the blockchain revolution. And in these times, during one of the worst bear markets we could experience, his opening speech is an energizing reminder of why we’re here in the long run. If crypto is to prevail, it will be because it improves society in the way it understands freedom and fairness by improving the rails on which the world economy can run.
Don’t take my word for it.