Buckling Up for 2022
EDITION N°19 | 6 January 2022
Happy New Year! ✨
Bounding out the gate ‘woohoo…’ to blood on the streets ‘…oh’.
Brand new year, excitement and Web3 euphoric anticipation abound and yet here we are with crypto markets legging down again while traditional markets [SPX / NDQ] are close to All-Time-Highs. In fairness, the Nasdaq has dropped 5% this week and is looking somewhat wobbly up there, but still. This is not the picture we hoped for in the first week of 2022, but as we know from Bitcoin’s historic volatility [below] there are many months with double-digit losses as well as gains, typical for any maturing asset class.
- Is it all over? No.
- Are. You. Sure?
Well, as we saw last year, there was around $30bn of investment from VCs ploughed into the ecosystem in 2021 [PitchBook via Bloomberg], institutional money continues to find its way in - helped along by Institutional DeFi players including Aave Arc and Alkemi Network - and there are now 18,416 Web3 monthly active developers committing code in open source crypto and Web3 projects [vs ~10k in January 2020; Electric Capital]. Also, people are waking up to the reality that you can make a living in Web3 and the ecosystem is continually compared to the Internet back in 1995, i.e. Opportunity, right. On that note, getting experienced ex-FAANG designers into crypto = positive [via UI/UX anticipated improvements].
So, no, it’s not all over. However, it is important to keep an eye on emerging technologies and the broader market rotation trades, just like in TradFi.
The news flow cycle is only just spinning up for the year but there are already a few recurring themes back on the table: crypto projects are still raising - with NFT platforms leading the way, central bank digital currencies ‘CBDCs’ are still a thing and crypto crime & security are [still] concerns. It’s been a choppy first week but where else can one find so much excitement? Besides, Rome wasn’t built in a day.
LFGGGGGG, welcome back to DeFi Insights.
1. Rays…
…Of light and capital continuing to find their way into the ecosystem. The biggest news so far this year? OpenSea just closed a $300 million funding round, valuing the platform at $13.3 billion 🤯 for an online marketplace [Web2 shopfront] that facilitates the sale of blockchain-based non-fungible tokens [Web3 transaction processing/settlement], some of which are actual JPEGs on the Ethereum blockchain. Staggering valuation, although what’s perhaps more staggering is the speed of growth for OpenSea which was valued at $1.5 billion back in July 2021. No surprise that they’re in talks to buy Dharma Labs, the crypto wallet with seamless on-ramping that sidesteps exchanges, which could effectively streamline direct NFT purchases from a user’s bank account.
Wen Amazon <> OpenSea?
OpenSea volumes have been flying so far this year, with $243+ million worth of Ethereum-based trades on the platform on 2nd January alone.
So it wouldn’t be a surprise to see [bluechip] NFTs getting more of the capital in the rotation trade and awareness continuing to rise; next stop, music NFTs.
Also worth mentioning here: Metaversal [NFT investment and co-production co], has just raised a $50 million Series A round; congrats to CEO Yossi Hasson and the team! NFTs, the mainstream discovery gateway and PR facilitator for the whole cryptocurrency ecosystem. TY / HNY Serena.
2. CBDC ahoy
China’s CBDC, the Digital Yuan, will be supported on the Chinese 1.2+ billion-user social networking platform WeChat. There are 7.9 billion people in the world [Worldometer] so that means 1/8+ of the total global population will have the opportunity to use China’s Central Bank Digital Currency. Note Facebook apparently has 2.8 billion users [Business of Apps] although they met with significant opposition trying to launch the Libra Diem currency as a public company [not a central bank].
It will be interesting to see which countries will follow suit and create CBDCs; Christine Lagarde has mentioned that the European Central Bank will consider launching a Digital Euro, although China has been working on the digital currency solution since 2014 so the ECB version could still be a few years out. The UK’s Bank of England said there would be no ‘Britcoin’ before 2025 late last year, although again that might not be achievable [via tech debt]. Jamaica just completed its CBDC pilot and is planning the rollout for later this year whilst El Salvador accepted Bitcoin as legal tender last year, although some say that didn’t go so well. Incidentally, El Salvador now intends to move forward with issuing Bitcoin Bonds, although we’ll have to see how that plays out as well.
Perhaps the CT post below from Qiao Wang will shed a little more light on the ethos of Web3, the philosophy behind crypto adoption and the geopolitical situation to consider with regards to CBDCs. The rocky discourse between governmental regulatory bodies seeking to de-throne digital assets and libertarians wishing to regain and protect their data sovereignty will definitely continue for some time.
3. CryptoCrime & Security
Today’s Chainalysis report revealed cryptocurrency-based crime hit a new high in 2021 with illicit addresses receiving $14 billion [vs $7.8 billion in 2020]. Given the mainstream movement into NFTs and the discovery of DeFi, it might not be such a surprise; Elliptic’s DeCrime report in November ‘21 had already shed light on losses totalling $10.5 billion in 2021 for the year [vs $1.5 billion in 2020]. It is worth noting the $14 billion represented just 0.15% of total crypto transaction volumes - the lowest it has been to date, however, $14 billion of funds syphoned off from unsuspecting dabblers to nefarious actors is still a significantly large number. It is disappointing that DeFi platform scams aka ‘rug pulls’ accounted for over half of the total - at $7.8 billion, an 82% jump from 2021, although again this isn’t a surprise - auditing and assessing code and anonymous teams as a newcomer is a tall order.
This is why platforms that have been audited, that facilitate an added security element of KYC/AML for their clients AND provide reference-able information regarding their team, are considered more suitable for a professional user base. We’ve discussed this before in previous DI editions. There is a reason that the slogan DYOR has been around for so long. These are teething problems, but ones that will fuel the regulators’ calls for more transparency and will most likely lead to the growth of a parallel KYC-permissioned DeFi alongside the permissionless system, similar to what we see today with Alkemi Network, Aave Arc and the broader ecosystem.
On that note, Nickel Digital Asset Management’s commissioned report revealed 79 of their 100 interviewed institutional investors and wealth managers see asset custody as the key investment criteria. 73% anticipated SEC regulation of crypto assets would be positive for price. Regulation is becoming more of a certainty, the shape and form is obviously a concern amongst the community but the underlying hope is with clearer guidance, traditional financial institutions will be able to offer broader crypto services to their clients and new money will be able to pour in. We shall see what 2022 has in store!
And now, time for some brainwork x2.
We greatly enjoy the content Bankless make available to their community and the following video interview and discussion with Ethereum creator, Vitalik Buterin, is no exception - enjoy!
Secondly, because not everyone reading our newsletter knows how to play poker or yield farm for that matter, we had to include the following guide from Jordi Alexander. Again, enjoy!
… brought to you by Alkemi Network
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Now a member of the Global DCA [the Global Digital Asset & Cryptocurrency Association]!
