Week in Review | Week #12, 2021
This was another busy week for the market that never sleeps. Price registered a pullback for many of the crypto assets including BTC and ETH. There was plenty of conflicting news and sentiment such as Ray Dalio suggesting that bitcoin may be banned in the US, while Fidelity attempts to create a bitcoin exchange-traded fund (ETF). Non-fungible token (NFT) arts and collectibles continued to dominate the headlines as more prominent players entered the space. The NFT platform play is becoming a very competitive play and the race there may start to look more and more like the rivalry between L1 protocols.
Yet another hack in DeFi
It appears that the TurtleDex project has been rug pulled for around $2.5M, drawing attention to the BSC ecosystem for the wrong reasons. Sadly, hacks and rug pulls are nothing new for the DeFi sector. However, the more centralized nature of BSC means that Binance could interfere to resolve the matter.
This presents a curious dilemma for the ecosystem. It could turn out that the centralization is seen as “a feature, not a bug”. When the DAO hack occurred on Ethereum, the intervention caused a divide in the community that led to the creation of Ethereum Classic.
However, BSC was inherently seen as a much more centralized version of Ethereum. As such, interventions on behalf of the community might actually be welcomed. While this may serve as a deterrent for decentralization maximalists, if Binance steps in it may actually create an added sense of security for projects and traditional companies looking for exactly that.
A lot of fundraising activity
The crypto primary market has been active. Unmarshal raised $2.6M for a multichain data indexing network, Covalent raised $2M for its data solution, StarkWare raised $75M to continue working on its scalability solution, payments play Lolli got $5M, Equa raised $2.3M, and Blockchain.com raised $300M. With the industry growing, startups are able to attract more interest and find it easier to raise capital.
The question of stable coins
Stablecoins have been a vital part of the DeFi growth story. While approaches differ greatly from asset-backed to various forms of algorithmic, stablecoins have grown in size and importance in the industry.
This makes any central bank digital currency (CBDC) news particularly important. With the Federal Reserve Bank of Boston and MIT working on a prototype that may be ready in July, the industry needs to consider how it will incorporate CBDC. Regulatory positions on crypto-assets differ across the world, but it appears likely that at least some, like the Bank of Thailand, will want to regulate stablecoins.
While regulated asset-backed stablecoins like USDC may find it easier to negotiate with regulators, algorithmic alternatives may come under pressure. Governments are still not entirely clear on their positions regarding cryptocurrencies, but it appears they may be particularly sensitive to unregulated assets that may compete with traditional currencies.
If CBDCs enter the space, blockchain maximalists may need to become more flexible in order to operate in compliance with regulations.
DeFi continues to evolve
Uniswap finally announced the much-anticipated V3 of the protocol, expected to launch in May. The upgrade should offer LPs flexibility, by allowing them to deploy capital in particular price ranges. The concentrated liquidity feature should, in theory, increase capital efficiency, while different fee tiers should allow for better risk-reward distribution.
Uniswap V3 appears to be the next class of AMM, which may shake up the industry. Many AMMs both on Ethereum and on other blockchain networks can be considered descendants of Uniswap. This is why it is particularly interesting that Uniswap will try to protect the V3 Core for 2 years.
If the licensing approach is successful, the industry may see more teams deploy with a similar setting to create some limited protection for their IP.
Other DeFi protocols also made notable improvements. Enzyme Finance announced the integration of Aave, which will enable managers to deposit supported assets into the lending protocol. Alpha Finance has teased the coming of ALPHA tokenomics.
While DeFi may not be getting as much media hype as NFTs at the moment, the continued development is important for the growth of the sector.
Tokenize everything becoming NFT everything
During the height of the ICO hype, there were calls to “tokenize everything”. Now it seems that NFTs are taking up the mantle. The space is attracting a wide range of creators and entities.
The tweet NFTs got a lot of attention when Jack Dorsey sold his first tweet, and now Charles Hoskinson is selling a tweet as an NFT as well. Celebrities have found a lot of success selling digital collectibles as their fame appears to convert well into NFT demand, and now Lindsay Lohan will be minting her NFTs on Tron.
Kevin Roose, a New York Times writer, is selling an article as an NFT, while Matt Kindt is selling MIND MGMT: The Artifact comic as an NFT.
The art world, which has delivered some of the highest sales figures for NFTs so far, is seeing the NFT-ing of Wladimir Baranoff-Rossiné painting. While this may remind some of the Banksy screenprint NFT stories, in this case, the original work of art is not being destroyed.
Even brands that appear far away from the digital art and collectibles space are trying to mint NFTs. Most recently, Charmin has entered the segment with NFTs being sold on Rarible.
While all of this activity brings excitement and awareness to the crypto industry, it may also create unhealthy hype. It is important that the industry takes into consideration the lessons of 2018.
NFT platform space getting crowded
With NFTs gaining in popularity, it is only natural that more and more NFT platforms appear. OpenSea, one of the leaders in the segment has recently announced a $23M raise, but it is far from being alone. Paradigm has invested in Zora, Crypto.com will have its own NFT platform, and Nifty’s will try to build a social media platform geared towards NFTs.
There are many more established and emerging platforms in the NFT space both in the Ethereum ecosystem and developing on other networks. With the crypto market still developing, it is unclear if these new projects will open a gateway for new users, or find that the supply and demand are currently not there for so many NFT platforms.
The information provided here is for informational purposes only. This is not investment advice and should not be treated as such. Strategic Round Capital and/or the author of this article holds a position in BTC, ETH, AAVE, USDC.