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#84 Not IF but WHEN
Yuor weekly dose of crypto context
Some lies take thousands of repetitions to become true. but it took just one lie about bitcoin’s spot ETF to excite the markets. A Cointelegraph reporter mistakenly announced the approval of a spot BTC ETF, and for a few hours, we witnessed what the future might look like if/when the SEC gives a verdict.
To be fair, this lie has some solid basis, and more than deceiving the gullible, it has awakened the greedy. A spot bitcoin ETF is possible, and if it manages to revert the bearish trend, crypto will be readier than ever to emerge from the depths of the bear market. This is what this newsletter’s about.
The halving is coming, institutions are ready, and crypto keeps working on the significant issues: true decentralization (is Lido a risk to the ecosystem?), actual business models vs ponzinomics (Uniswap Labs’ fee), and the relationship between TradFi and DeFi (represented in this issue by Mountain Protocol).
1. Spot bitcoin ETF | A lie with a side of truth
After Cointelegraph prematurely reported the approval of BlackRock's spot Bitcoin Exchange-Traded Fund (ETF) by the Securities and Exchange Commission (SEC), we gained insight into the potential market reaction if a Bitcoin ETF were to receive official approval.
In the aftermath of the blunder, numerous opinions emerged, suggesting that the question is no longer "if" but "when" a Bitcoin ETF will become a reality. Figures like Galaxy's Novogratz and Coinbase's Grewal have expressed confidence in its imminent arrival, a sentiment shared by Bloomberg analysts.
Furthermore, even industry outsiders like Larry Fink, BlackRock's CEO, who only entered the cryptocurrency arena in June, acknowledge the growing public demand for such a product, stating, "We are hearing from clients around the world about the need for crypto."
Following the initial knee-jerk reaction to the fake news, we now witness a more deliberate and rational inflow of funds into cryptocurrency. Macroeconomic conditions are currently showing a temporarily favorable outlook, although these may not yet be the strongest grounds for a bull run. But they certainly provide a much-needed respite.
2. Decentralization | Lido’s efforts
Lido has recently taken center stage as it approaches a significant milestone – accumulating nearly 33% of the total ETH staked within its protocol. With this substantial portion of staked Ether now coursing through its system, Lido has evolved from being a mere participant in Ethereum to a critical pillar of its ecosystem. Any developments within Lido now profoundly influence the broader Ethereum network.
To illustrate, consider this scenario: If law enforcement were to exert pressure on a select few influential Lido stakeholders whose substantial LDO holdings can significantly impact the protocol's governance, regulators would attain a level of influence over the entire Ethereum ecosystem that surpasses any other avenue.
As Lido continues to solidify its position within the Ethereum landscape, the community remains divided, with some sounding alarms about the potential implications of this concentration of power, while others applaud Lido's commitment to risk reduction.
3. Uniswap | Who owns what?
Uniswap Labs has introduced a 0.15% fee on trades conducted through their web or mobile applications within specific liquidity pools. This decision surfaces the many nuances involved in the sustainability of decentralized protocols. Let’s take a moment to clarify a few crucial distinctions:
Firstly, Uniswap and Uniswap Labs are not synonymous. Uniswap represents the decentralized protocol through which users trade, and these users solely pay fees to liquidity providers when utilizing the protocol. Uniswap Labs, on the other hand, is the team behind the initial creation of the protocol. Once deployed onto a blockchain, the protocol becomes independent and immutable. Nevertheless, Uniswap Labs offers various interfaces, including web and app, to traders, and it's these frontends for which they impose charges.
Secondly, it's essential to note that this fee is unrelated to the UNI token. The UNI token functions as a governance token, endowing holders with the authority to vote on decisions impacting the protocol. UNI lacks a functional mechanism for value accrual. The discussion surrounding the integration of a fee switch, similar to the one implemented by Uniswap Labs, which would distribute revenue to UNI token holders, has stagnated due to operational, and regulatory concerns.
Some perceive Uniswap Labs' recent action as a reasonable compensation for their contributions while simultaneously appearing as a betrayal to certain UNI token holders. These token holders might reasonably expect that any added fee atop the protocol, which could potentially impact Uniswap's competitiveness, should be subject to a vote and offer benefits to token holders.
4. Bitcoin | How risky is crypto?
Crypto investment has been called many things by financial big shots, but when BlackRock's CEO dubs it a "flight to quality," it's undoubtedly something fresh.
"Flight to quality" is a financial and investment term employed to depict a scenario in which investors shift their capital from riskier or less stable assets to those deemed safer and more dependable. This phenomenon frequently unfolds in times of economic or geopolitical turbulence as investors seek sanctuary in assets recognized for their lower volatility and capacity to preserve their worth.
Whether one regards cryptocurrencies as an unwarranted risk or a sanctuary hinges largely on one's perspective regarding the global situation. Larry Fink's observation stems from his recognition of issues such as excessive money printing, mounting debt burdens, and declining institutional trust, which have increasingly drawn attention to the appeal of cryptocurrencies as a refuge for capital.
5. Stablecoins | Yield-bearing Mountain
There's approximately $84 billion USDT in circulation and $25 billion USDC. If T-Bills backed these stablecoins at their current APY of 5%, they would be generating $4.2 billion and $1.25 billion in revenue, respectively. Treasury bills fully back neither of them, but their collateral likely generates some generous yields that they are not passing on to their users.
Mountain protocol saw an opportunity here. US treasuries back mountain's $USDM, and the coin follows a rebasing mechanism for distributing yields to its holders, similar to Lido’s stETH. Mountain must comply with regulations to offer this, so it's not entirely permissionless. Users will have to undergo KYC processes to acquire the coin. This is likely a trend we will continue to see: if you want real-world yields, you're going to need to play by real-world rules.
Since last week, Mountain's $USDM has been available for trade on Curve.
6. Bitcoin | The Halving
Do you have a moment to talk about our lord and savior, the halving?
The Bitcoin halving is a pivotal event that occurs approximately every four years. The halving reduces the rate at which new bitcoins are created and distributed to miners by 50%. This process is hard-coded into the Bitcoin blockchain to control inflation and ensure the fixed supply of 21 million Bitcoins.
Halvings have a significant impact on the Bitcoin market. The increased scarcity often leads to potential price rises due to the reduced supply narrative. The next halving is less than 200 days away.
We've discussed this before: the halving alone may not be sufficient to drive prices up, as it affects supply but not demand. Unless the cryptocurrency market encounters a more favorable regulatory and macroeconomic context, the impact of Bitcoin's supply mechanics may not be enough.
However, the halving is less than 200 days away, and so it, more or less, the final decision regarding a spot Bitcoin ETF.