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#81 Uses cases: speculation, plush toys, computation, ETFs and stocks
Your weekly dose of context to keep you up to date with crypto and help you find your next opportunity
Two turbines are creating some tailwinds and helping crypto look a bit greener. They are the Ethereum futures ETF approval, which will make Ethereum futures tradable starting this week, and the stability expressed by interest rates in the latest announcements. Rates are expected to remain high, even throughout 2024. The news is grey, but they make the mid-term future predictable.
Neither of these news items is groundbreaking, so the current situation is probably only a small pause in the long and winding road ahead. But as an industry that speaks and understands memes…
Today's newsletter focuses mostly on use cases. We're pleased to announce that there will be less talk about concise infrastructure designs and more discussion about the practical aspects of crypto. There’s a lot about good old speculation, the blood that runs through our veins, but we also have stories about plush penguins, shared computing power, and stock trading.
1. Crypto | "The Casino on Mars" Mental Model
Matt Huang, co-founder and managing partner of VC firm Paradigm, recently shared an article that can be valuable for those in crypto looking to engage in conversations with people unfamiliar with or skeptical of crypto.
"The Casino on Mars" provides a mental model that can help explain fundamental questions about crypto, such as why it's necessary, what the killer app is, and why speculation is so prevalent.
Here's a snippet:
"Today's casino-like speculation is part of a bootstrapping process. Much like the gold rush of 1849 transformed San Francisco from a quaint village into a major port (and ultimately the heart of tech innovation), today's speculative frenzy in crypto is attracting the settlers and catalyzing the infrastructure necessary to turn a barren planet into a thriving crypto civilization."
2. NFTs | Real World Asset NFTs
An unexpected glimmer of hope emerged during the coldest winter the NFT industry has ever seen. The self-explanatory cute bird collection, Pudgy Penguins, is now available as physical toys in 2,000 WalMarts across the USA. These toys bridge the gap between the digital and physical worlds.
The toys come with a "unique birth certificate" that allows users "to claim unique traits for their digital Forever Pudgy character inside Pudgy World by scanning a QR code." Blockworks
The world is turned upside down as the uniqueness of digital assets is translated into physical objects. Does this signal that the Real World Asset trend is the key to NFT's success in 2023?
3. Regulation | Do we need to be ready to go Binanceless?
The world's largest exchange, Binance, is facing increasing pressure from US prosecutors. It all started with an accusation from the SEC (US Securities Exchange Commission) for deliberately offering unregistered financial products to US citizens through their American subsidiary. Recent rumors suggest that the company as a whole is under investigation by the Department of Justice for serious crimes, including enabling money laundering and aiding in the evasion of sanctions to Russian individuals and institutions, with some allegations involving serious name-dropping connections with groups like Wagner or the Lazarus Group.
The truth is that Binance is likely too big and too vague to fail. Binance US has scaled down its operations and is virtually disappearing, while the main corporation is making swift moves to appease American law enforcement. Recently, Binance sold its Russian branch, albeit to Commex, a relatively unknown exchange founded just days before the sale in a manner typical of CZ's style. Even if this doesn't deceive prosecutors, it may slow them down.
If Binance were to collapse, it would have significant repercussions for the crypto market, as it accounts for half of the world's crypto trades. However, the loss of liquidity and access to crypto for millions of people, especially those in underbanked regions, would be a major concern. While the collapse of FTX, a different exchange, serves as a precedent, the victims of Binance's fall would have a different profile.
In any case, FTX's demise was due to fund mismanagement, whereas Binance, according to CZ's statements, has not commingled funds and can potentially reimburse every customer's penny. Even critics acknowledge that if there has been any misappropriation, it's likely not as widespread as in the case of FTX.
Given the highly unlikely scenario of Binance going bankrupt, the only potential abrupt disappearance could result from a fatal regulatory blow. However, this seems unlikely due to the company's convoluted jurisdictional paths. The only option for US prosecutors would be to apprehend CZ, who currently resides in the United Arab Emirates, beyond the reach of extradition agreements.
If the worst were to happen to Binance, the weakest would be the first to suffer while the rest are already prepared.
4. Solana | Decentralized Physical Infrastructure
Solana is showing clear signs of recovery from the FTX-induced debacle in late 2022, so its merits as a viable infrastructure alternative are resurfacing. Before the era of rollups, Solana was the top choice for developers seeking faster block times and low transaction costs. This is why Solana became the go-to platform for launching use cases that would have faced challenges on Ethereum or other Layer 1 blockchain.
One such use case is DePin: Decentralized Physical Infrastructure, where "infrastructure" encompasses everything from Wi-Fi hotspots to computing power for AI processing to dashcam footage. Imagine sharing a part of your personal infrastructure that benefits from network effects with a decentralized network and being rewarded for your contribution. Startups like Hivemapper, Helium, or Render have chosen Solana for this purpose. Read more about current DePin projects on Solana, here
5. US | US citizens can't have nice things
Coinbase, a centralized exchange, claims that about 75% of global crypto trading volume comes from derivatives market activity. Coinbase has recently obtained a license to offer derivatives to non-US citizens, marking an exciting development.
Celestia, a Data Availability Layer, launched their airdrop last week. Their $TIA token will be distributed to developers and users involved in different Layer 1 and Layer 2 ecosystems, except for US citizens or those using a VPN to disguise their US citizenship.
The pattern here is clear: US crypto users have been excluded from exciting developments due to regulatory pressures. Until US regulation takes a clearer and hopefully more lenient stance, both US users and the industry will miss out on the innovations of decentralized finance and access to a significant source of liquidity.
6. TradFi | Kraken Plans to Offer Trading in US-Listed Stocks
Kraken, renowned as one of the crypto world's oldest, most transparent, and trustworthy centralized exchanges, is adapting to the ever-evolving market dynamics. In response to the challenges posed by the bear market situation in crypto, Kraken seems to be taking a bold step into the world of traditional assets.
Rumors suggest that the exchange is poised to offer registered securities in both the US and UK markets and has either already obtained or is in the process of obtaining the necessary licenses. While fraught with potential risks, this ambitious move reflects Kraken's determination to diversify its offerings and navigate the competitive and crowded waters of retail stock trading.