How has another week passed by so quickly?
Well, the TL;DR response might be: this IS the Magical Mystery Tour of cryptocurrencies, where on-chain markets run 24/7, there is ALWAYS something exciting happening and the only constraint to innovation is access to wizard devs and imagination. It has been a choppy week for digital assets, with some days seeing prices down (and up) over 30%, but news flow has continued to highlight the universal awareness of cryptocurrency, the rapid expansion of the space and the vast investment taking place on a daily basis. This week’s big news is all about investments, skepticism and maturity.
Welcome back to DeFi Insights! 🌌
1. Big figures, go figure
This week’s biggest figure was from FTX. A mere six weeks have passed since FTX closed a $420.69 million round and Sam [SBF] is already looking to raise another $1.5 billion. Could it be for FTX to one-up Crypto.com’s naming rights purchase for the Staples Centre? Possibly, although Sam has already signalled his intent to acquire and partner with firms to explore new markets and consolidate FTX’s position in the market: exchange acquisitions offer particularly compelling opportunities to bootstrap new users and revenues from global regions. Also, spoiler alert, Binance still holds a huge lead over all other exchanges in terms of daily volumes; there’s a lot to play for in the runners-up race to onboard new users. [CMC’s Top 5 exchanges by 24hr vol traded]:
From 2021’s massive fund | raises and launches, it would be reasonable to anticipate a flurry of ecosystem M&A into 2022. In addition to FTX’s announcement, Silvergate Bank is looking to raise $461 million in a public stock offering, 10T Holdings are raising $500 million for a new fund, ParaFi has raised an additional $200 million for its Flagship Digital Opportunities Fund.. and VCs are reportedly in talks to purchase $50-150 million Polygon tokens to invest in the ecosystem.
However, in spite of positive news flow, this week has been volatile [not up-only]. Whilst we’re on the subject of ‘Big Figures’, almost half a trillion dollars were wiped off digital asset markets from 2 pm UTC last Friday into Saturday morning, which was effectively a 5th of the total market cap.. in the space of 16 hours.
Omicron-related concerns were part of the initial volatility that then triggered large cascading liquidations [see here], but the over-correction [a 20% flash sale] provided opportunities to buy the dips. This tweet-thread by Sam Trabucco [now CEO of Alameda Research] offers an interesting reflection on market inefficiencies.
2. The Road to Maturity
“The OCC is approaching crypto-related activities in the federal banking system very carefully with a high degree of caution and expects its supervised institutions to do the same.”
This sentence in the OCC semi-annual report released this week casts an important light on the state of crypto; centralized regulated financial services providers custody-ing capital for retail clients [banks] do need to proceed with caution. In terms of figuring out how to bridge consumer protection mandates with the nascent, irreversible nature of on-chain finance, the regulators aren’t there yet.
Notably this week, Dawn Stump, a commissioner of the CTFC, called for more guidance from regulators on digital assets: “What I discourage here at the CFTC is bringing enforcement actions without giving [their targets] the tools they need to be compliant”. So it was interesting to see FTX contributing some of their own proposed guidance points via a Key Principles doc, which echoes and iterates on points from Coinbase’s October Digital Asset Policy Proposal.
There is still a long way to go on the road to maturity. Not only does the Lindy Effect need to play out until skeptics become more comfortable with digital assets, but the ecosystem also needs to become easier to navigate, UI/UX needs to improve and regulators need to figure out a suitable way to regulate the ecosystem well. Raoul’s suggestion of a Grand Compromise is worth considering on the last point:
3. Behaving like a grown-up
Maturity appears to be where firms including Visa [through their advisory services for banks], Fidelity Digital Assets [FCA approved], Coinbase & FTX [mentioned above with their proposed guidance] and a list of other projects are intentionally carrying the ecosystem.
Yesterday, senior executives from leading crypto firms, including Bitfury, Circle, Coinbase, FTX, Paxos, and the Stellar Development Foundation, gave a crash course on the point of crypto and what needs to be done in order for the US to take the lead… This is the sort of communication and PR the crypto ecosystem stands to benefit from and wouldn't be possible without coordinated efforts to educate and explain. Bitfury’s Brian Brooks was especially vocal: “Is it consistent to take the position that only banks should be allowed to issue stablecoins, but then fail to grant bank charters to the largest issuers of stablecoins?”
Making a visible attempt to play by TradFi rules is definitely gathering momentum as a movement within the crypto ecosystem. Over the last week, we’ve seen more traditional financial firms hopping on the blockchain intelligence bandwagon with Visa & AmEx now backing TRM [who Uniswap happens to have as a partner]. This follows Mastercard’s recent acquisition of CipherTrace. Alkemi Earn is an Institutional DeFi protocol aiming to solve some of the issues present in the ecosystem through KYC/AML-layered digital asset pools with an investigation into establishing decentralized identification for compliant professional DeFi. In case you missed Alkemi Network Head of Ecosystem, Engin Erdogan last week, check out his speaking slot at DACOM here:
And now for something a little more technical but still very interesting…
Tarun established Gauntlet Network as a “financial modelling platform that uses battle-tested techniques from the algorithmic trading industry to inform on-chain protocol management.” This basically means they offer a consultancy service for platforms running on blockchains to make sure they are as safe to use as possible. Firms like Gauntlet are carrying the DeFi ecosystem towards maturity in their own way and Tarun explains his concepts coherently and [relatively] simply. Enjoy!
… brought to you by Alkemi Network
Alkemi Network is building an on-chain liquidity network with a suite of tools and products that serve as onramps for everyone to participate in decentralized finance.