Weekly Crypto Digest: Turbulent Times in Crypto — BlackRock’s ETF Move and Tether’s Unexpected Shift 2023.06.12–2023.06.18
Dear Reader,
Welcome to the June issue of Gryphsis Academy’s weekly Crypto Digest. We bring you pivotal market trends, insights into emerging protocols, and fresh industry updates, all designed to enhance your crypto and Web3 expertise.
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Market and Sector Snapshot:
Layer 2 Overview:
LSD Overview:
AI Sector Overview:
Main Topics
Macro Overview:
- US Stock V.S. Crypto
Big Story:
- Blackrock BTC Spot ETF Application
- USDT Depegging
Protocol Spotlight:
- Uniswap
Narrative Pick(LSD):
- EigenLayer and the Re-staking Narrative
VC Funding Highlight:
- Gensyn ($43M)
- Connext ($7.5M)
Alpha Threads:
- @TheDeFISaint’s analysis on Gain’s V6.3.2
- @DeFiMinty’s tutourial on DeFiLlama
- @Louround’s thread on Swaap Finance V2
- @Viktor’s thread on $CRV flywheel
- @Slappjakke’s token watchlist
Upcoming Events:
- Crypto
- Macro
Macro Overview
This week’s macroeconomic landscape was marked by the release of CPI data on June 13th, followed by PPI and FOMC updates on June 14th. The CPI recorded at 4%, slightly down from the previous 4.1%. The PPI, in contrast, dipped to -0.3% from the prior 0.2%, while the FOMC rate remained steady at 5.25%. Notably, these figures didn’t trigger substantial price shifts in SPX and NQ, both of which sustained their upward momentum throughout the week.
While the stock market maintains its upward momentum, the crypto market continues to underperform, with $BTC showing stronger resilience than$ETH. Bitcoin dominance has been on the rise, nearing the 50% mark. Events such as the resolution of the Binance lawsuit and Blackrock’s application for a Bitcoin spot ETF might hint a potential shifts in the crypto landscape over the coming weeks.
Story of the Week
BlackRock’s Bitcoin ETF Filing: A Potential Game-Changer in Crypto Investment
This week, BlackRock, the global investment giant, has initiated steps to launch a Bitcoin ETF (Exchange-Traded Fund) and has submitted a registration statement to the U.S. Securities and Exchange Commission (SEC). The proposed ETF, dubbed the ‘iShares Bitcoin Trust,’ primarily relies on Bitcoin assets managed by Coinbase Custody Trust Company. With the ETF set to be benchmarked against the CME CF Bitcoin Reference Rate, an index managed by Kraken’s CF Benchmarks, this could potentially offer a more mainstream and accessible investment alternative for the significant majority of Americans yet to own Bitcoin.
However, the proposed ETF isn’t without its share of regulatory hurdles. The SEC has been historically known to turn down similar proposals, including one by Grayscale to convert its GBTC fund into a spot Bitcoin ETF. As such, BlackRock’s latest filing is under the industry’s careful scrutiny. The outcome of this proposal will likely have a far-reaching impact on the future of crypto-based ETFs, hence making this a crucial event to watch out for in the unfolding crypto narrative
Our Take
BlackRock’s proposed Bitcoin ETF could potentially be a turning point for crypto adoption, as its successful launch may pave the way for a significant influx of institutional capital into the crypto market. There are four main reasons why this could be a game-changer.
1. Enhanced accessibility: A spot Bitcoin ETF could dramatically increase the accessibility of Bitcoin to traditional financial institutions and retail investors, potentially signaling a significant capital inflow into the crypto market.
2. Increased adoption: As a leading global investment manager, BlackRock’s move into Bitcoin could inspire other institutions to follow suit, accelerating the adoption of crypto assets.
3. Reduced regulatory uncertainty: If approved, the Bitcoin ETF would suggest a level of regulatory acceptance and could pave the way for a clearer regulatory framework for the crypto market.
4. BlackRock’s Prestige: As a high-profile and respected institution, BlackRock’s successful filing could carry more weight with regulatory authorities compared to previous, unsuccessful attempts by others.
Should the ETF be approved, we could potentially see a resurgence in the crypto market, spurred on by these factors. However, it’s critical that investors don’t base their investment decisions solely on this seemingly bullish news. The chances of approval remain uncertain, with a possible 50/50 outcome. Moreover, the current state of the market also adds an additional layer of uncertainty.
USDT’s Temporal Depreciation: Examining the Latest FUD Incident
This week, USDT momentarily deviated from its usual 1:1 ratio with the US dollar, primarily due to an imbalance in Curve’s 3Pool. This imbalance triggered a slight drop in USDT’s value, causing it to temporarily trade at $0.99578. Though the price soon hovered around $0.99801, the event led some traders to capitalize on the difference by borrowing USDT from Aave and trading it for DAI or USDC. Tether’s CTO, Paolo Ardoino, quickly reassured the community, emphasizing that Tether was prepared to redeem any amount of USDT and that the temporary depegging was not a cause for concern.
Curve 3pool:
Our Take
USDT has often been the subject of concern during market instability, usually concerning its transparency and 1:1 redemption ability. However, such episodes also serve as stress tests for Tether, arguably making it more robust with each incident. Given USDT’s significance, a complete collapse seems unlikely, as it would have profound implications for the entire crypto market.
Despite this, it’s prudent to consider hedging strategies in light of such events. Beyond the ‘Y2K’ method we discussed last week, there are other ways to protect oneself from potential USDT depegging. The most straightforward approach is swapping USDT for other stablecoins, though this may incur losses depending on the market conditions. Another strategy is shorting the USDC/USDT pair using futures contracts on CEXs.
Alternatively, one can leverage money markets like Aave or Radiant to perform looping — depositing collateral, borrowing USDT, then using the borrowed USDT to swap for the same assets as the initial collateral and repeat the process. If USDT were to depeg further, the debt would decrease in value, potentially resulting in profit. At the time of writing, the USDT proportion in the Curve 3pool has begun to stabilize, declining from 70% to 47%. We will continue to monitor the situation closely and provide further analysis should there be any notable developments.
Weekly Protocol Pick
Welcome to our “Weekly Protocol Pick” — where we spotlight a protocol that’s making waves in the crypto space. This week, we’ve picked Uniswap, one of the most important protocols in DeFi.
Being the pioneer of innovation in the DeFi space, Uniswap continues to innovate its functions to address market needs. The concept of Automated Market Makers (AMMs) has revolutionized the way users can trade, eliminating the need for an order book, which is hard to implement on-chain due to technical constraints. This week, Uniswap announced its V4, packed with features that could spur substantial growth for DEXs. But before diving into the V4, let’s take a look at the chronology of Uniswap from V1 to V3.
Uniswap V1 is a simple yet potent protocol. It introduced liquidity pools, powered by the constant product function (x * y= k), enabling traders to interact directly with the pool and eliminating the need for counterparties. In March 2020, Uniswap launched V2, an enhanced version of its predecessor. Key updates in V2 include the ability to swap ERC-20 tokens directly, bypassing the need for ETH bridging required in V1. It also introduced a Time Weighted Average Prices (TWAPs) oracle and Flash Swaps feature.
In May 2021, Uniswap launched V3, introducing concentrated liquidity to address the capital inefficiency issue in CPMM. Rather than spreading liquidity across a price range between zero and infinite, V3 allows LPs to set custom price ranges for their liquidity, boosting the capital efficiency and allowing LPs to potentially earn higher yields.
For V4, the Uniswap team introduces two key features: “hooks” and “singleton” contract. Hooks give developers the ability to customize pool interactions at various stages, opening the door for innovative applications such as time-weighted average market makers (TWAMM), volatility-based dynamic fees, and on-chain limit orders.
The singleton contract streamlines operations by housing all pools within a single smart contract. This, alongside a “flash accounting” system that transfers net balances, greatly improves efficiency and reduces gas costs.
Our Insights
Uniswap V4’s unveiling coincides with an intriguing period for DEXs. The ongoing battle for user adoption between DEXs and CEXs has recently been fueled by increased regulatory scrutiny on CEXs. This, in turn, is gradually nudging users away from centralized platforms. The enhanced functionality brought by Uniswap V4 could further amplify this transition, drawing more users into the DeFi world. While CEXs have traditionally held the edge in trading features, DEXs, with updates like Uniswap V4, are rapidly closing this gap.
While significant protocol updates often act as robust price catalysts for tokens, the broader market conditions and $UNI’s lack of utility have muted any immediate price movements following the announcement of Uniswap V4. Despite this, relative resilience can be observed when comparing $UNI to $ETH. Given that the implementation of V4 is not imminent, it may be beneficial to maintain ongoing tracking to identify potential profit opportunities as market conditions improve and the actual implementation draws near. We will continue to monitor the project and the flow of ‘smart money’ to provide timely, actionable insights.
Trending Narrative — LSD(Fi)
Following our research into the LSD market, this emerging narrative continues to trend within the DeFi space. After the Shepalla upgrade, Ethereum staking activity shows no signs of slowing down. Leading the charge are Lido, Rocket, and Frax, showcasing impressive 30D TVL growth of 8%, 20%, and 15% respectively. In addition, this week has seen a significant milestone in the LSD market with the mainnet launch of EigenLayer, a re-staking protocol. This development marks an important step forward for the entire LSD market.
Re-staking, pioneered by EigenLayer, has emerged as a significant concept in the LSD market. Re-staking essentially allows already staked capital to be staked again, creating additional slashing conditions. For example, if an application wants to provide services on the Ethereum network but struggles to set up its security network, it can use EigenLayer’s contract to specify its reward and slashing mechanism. Restakers can then deploy their staked ETH or LSDs to EigenLayer, securing the application in much the same way as they secure the Ethereum network.
In just 24 hours after launch, EigenLayer hit its deposit cap, indicating robust user interest. As of now, the platform supports the re-staking of stETH, rETH, cbETH, and Beacon Chain ETH, providing diverse opportunities for users.
Our Insights
Re-staking, as enabled by EigenLayer, holds dual significance. Firstly, it addresses the fragmentation of staked capital in PoS chains like Ethereum, where security correlates directly with staked capital. Secondly, it offers a solution for applications like bridges, oracles, and rollups that often struggle to secure sufficient capital for a robust system. EigenLayer consolidates this fragmented capital, extends it to needy applications, and in the process enhances capital efficiency, user rewards, and application security, creating a win-win for all. As the LSD market cap grows, so does the bullish sentiment around it. With EigenLayer’s mainnet launch, we foresee a further capital influx into the LSD market, propelling its continued growth.
VC Highlights: Top Funded Crypto Protocols This Week
Welcome to our weekly Investment Spotlight, where we shine a light on the most significant venture capital moves in the crypto space. Each week, we’ll focus on protocols that have attracted the most funding.
Gensyn
Gensyn Protocol, a trustless layer-1 system, aims to revolutionize deep learning computation by incentivizing contributions of computational resources. Utilizing blockchain technology, it provides automated task allocation and reward distribution for machine learning tasks. The goal is to democratize ML training, unify ML silos, and enable Web3 Dapps to reduce their reliance on Web2 infrastructure. This pioneering approach pushes forward the exploration of artificial general intelligence. Gensyn is backed by top institutions such as a16z, Coinfund, and Maven 11, securing a substantial $43M funding on June 11, making it the highest funded protocol this month.
Founders of Gensyn, Ben Fielding and Harry Grieve:
Connext
Connext is a protocol pioneering in secure cross-chain transactions. It offers a solution to the user experience fragmentation caused by blockchain scalability issues. With principles of modularity, security, and simplicity, it utilizes a hub-and-spoke architecture for interchain communication, employs automated off-chain actors for network monitoring, and implements a single primitive for simplified multi-chain contract interactions. The protocol has raised 7.5M on June 15. Some of the investors include Poluchain Capital, Polygon, and NGC venture.
Modular Architecture of Connext:
Protocol News
Sturdy Finance hacked for 442ETH.
Opnx’s Justice Tokens are now live.
Synthetix added stETH to perpetual contracts.
Mav Protocol launchpool on Binance.
Polygon’s new announcement of Polygon 2.0.
Aevo announancment on Aevo Open Mainnet.
Uniswap DAO’s proposal of sending 50% $ARB airdrop to Uniswap Foundation’s multisig.
Finblox offers tokenized T-bill through Open Eden.
Polkadot revamped governace system.
Opensea Pro integrates Sudoswap V2.
Frax Finance to launch a Layer 2 called Fraxchian.
Gains Network delists stock and indices.
Industry Updates
A16z opening office in the UK.
BlockFi’s customer withdrawal could start in the summer.
Bitstamp got UK crypto approval.
Binance US and SEC working out deal to avoid asset freeze.
Blackrock close to filing for BTC ETF application.
Celsius updates bankruptcy plan.
New York bans CoinEx exchange, seizing 1.7M assets.
Binance is leaving the Dutch Market.
Alpha Threads
Alpha is abundant on Crypto Twitter, but navigating thousands of threads in Twitter can be hard. Each week, we spend several hours researching, handpick threads packed with insights, and curate a list of weekly selection for you. Let’s dive in!
Upcoming Events
This newsletter is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. The past performance of any asset is not indicative of future results.
