#90 Waking up from a coma, two years after
Carbono Insights containsts your weekly dose of crypto context and opportunities. Today, what if someone had slept through the last two years?
Imagine someone who had been in a coma for two years. An accident put them to sleep in late 2021, and they are starting to wake up now. They left when crypto was a rockstar, when BTC was in all time highs. They’ve missed the chain reaction that Terra kicked off in May 2022, followed by the explosion of Three Arrows Capital, Celsius, and FTX, among many other smaller names. They haven’t seen crypto’s reputation take a beating and the whole ecosystem being aggressively prosecuted by regulators. They don’t know about Russia and Ukraine or Israel and Palestine (lucky them), and the last thing they remember is interest rates being flat at 0%, and Silvergate, SVB, and Signature being a-ok. Their last memories are of crpyto conquering the world and NFTs taking the spotlight as its Trojan Horse. DeFi summer was in the final stages of cooling off, and Facebook was about to announce it changed its name to Meta, anticipating a fever of digital realms. Back then, everyone believed the backbone of crypto — L1s, Cexes, and Dexes, DeFi exchanges, lending protocols, and derivatives — was already well-oiled and running on autopilot. The foundations were set, and the next step was ruling the world through mainstream applications.
Our hypothetical comatose friend had an accident right before that. We wish we would have too because, instead of moving to the mainstream, we fell on our nose after tripping with our own gowns, like a drunken bridesmaid. And paraphrasing Marvin, the paranoid Android, then it all went into a bit of a decline.
Now imagine they’re waking up to the last weeks of 2023 with a very promising start for 2024 ahead. This is a summary of the events and trends going on these days I’d share with them.
1. Regulation | SBF is in jail, and CZ left Binance
How to say this… Remember when we thought Sam Bankman-Fried was going to lead us to Valhalla? It turns out he was stealing from us. FTX is no more. It collapsed, locking billions in customer funds. So did many other organizations and companies, especially centralized exchanges. While you were sleeping, we realized that contrary to what regulators and pundits claim, the risk of opaque, human-led organizations is often higher than that of crypto protocols. While everything burned, DeFi worked as expected.
And those regulators — they went into hyperactive mode. The SEC has been prosecuting big and small entities, primarily for offering unregistered securities, while being ambiguous about when cryptos become a security and offering no possible avenue for registration. Binance fell prey to regulators. They’ve had to pay more than $4B in fines to the US Department of Justice, and CZ had to step down to ensure that the exchange survives. He didn’t steal money, which in 2023 was something to be grateful for, but he’s been paying for playing hide and seek with laws for years. Believe it or not, these are all good news. We end the year with a cleaner record. It’s easy to think that it goes up from here now.
2. TradFi | Blackrock is expected to launch the first BTC ETF in a few weeks
No, I did not mean Grayscale. It’s Blackrock. The number one asset manager in the world decided that it was about time its investors had proper access to bitcoin, and they filed for a spot bitcoin ETF (an upgrade from the futures one you know of). Nobody thought there was a chance the SEC would let it happen because they’ve been leading an anti-crypto crusade, but when Blackrock showed up, we all went, “Wait a second…”. After Blackrock’s submission, many firms followed suit, and things look good. We might have a BTC spot ETF in early January, and that’s probably the main reason everyone’s more bullish lately than we’ve been in years. But you wouldn’t know that.
3. Sustainability | Ethereum has stopped burning forests
Ethereum transitioned from a Proof of Work blockchain to a Proof of Stake. Instead of miners using electricity and computing power to validate blocks, we have validators putting their assets at stake as a guarantee and getting rewarded for it. Also, devs came up with a way of eating the cake and having it, too, thanks to Liquid Staking Derivatives. Anyone can stake their ETH and access Ethereum’s “mining” rewards, but at the same time, get a receipt for their staked ETH that they can use across DeFi. It’s like getting a wardrobe ticket after depositing your coat, but then being able to perform financial operations with that ticket, like it had the same value as said coat.
Staking is becoming a core pillar of crypto. It is one of the most straightforward ways of generating revenue in crypto (getting paid for using your funds to secure a blockchain), which is probably why it’s becoming the foundation of a lot of innovation.
4. Scalability | You guessed it: no “Ethereum killer” killed Ethereum.
Ethereum is still where the most exciting things happen in crypto, but the scalability problem is still alive and kicking. Back when you were awake, there was a race between alternative L1s offering a different mix of decentralization, stability, and security. But the L2 era came. For a long time during the bear market, it looked like the only way blockchain would work was through scaling Ethereum. The chosen recipe for scaling was the rollup: secondary Layers (L2s) that process transactions and validate them in bundles on Ethereum. We have half a dozen very big ones already and another dozen promising ideas coming up. For a while, it looked like L2s would bring all the necessary variety of blockspace needs, and alternative L1s were no longer needed. Fantom, Avalanche, and Solana were as asleep as you. But in the last weeks, they’ve woken up, and we’re once again wondering who will become the home of the new use cases.
5. DeFi | RWAs are the new thing
Oh yeah, Terra died too, sorry. Terra was this Cosmos-based blockchain, home to the algorithmic stablecoin UST, that used the native Terra token, LUNA, as collateral. Terra offered APRs that made TradFi investors drool. Everyone wanted to get hold of UST’s 20% yield. But this, too, turned out to be a house of cards. Since Terra collapsed, nobody in DeFi has been able to offer huge APRs without raising suspicion. At the same time, interest rates have been growing worldwide. We’re now above 5%, and there are no strong signs that they will drop any time soon. So since yields shrunk inside crypto and grew outside, it started making more sense to invest your funds in assets like US T-bills. That’s why, in the last years, we’ve seen many projects work hard to reverse the direction and give crypto protocols access to revenue from the outside instead of attracting greedy investors to crypto. This trend is now called “Real World Assets,” and some projects you know, like Maker or Frax, are doing great work at it. They’re using their treasuries to purchase TradFi assets and bring the revenue obtained on-chain. They’re building invaluable technical, legal, and cultural infrastructure.
Bitcoin | The Ethereumization of Bitcoin
The Bitcoin you know is changing. It used to be a monolithic blockchain, running relentlessly on imperturbable principles. Things here are changing, too. A guy discovered a way to create native NFTs on the Bitcoin blockchain (Ordinals) and opened Pandora’s Box of opportunities. Now Bitcoin can potentially serve multiple purposes, not just BTC transfer.
Some people hate bitcoin NFTs because that’s not what the blockchain was initially built for. It was meant to allow the permissionless transfer of value, and now people are tainting its purpose. In the meantime, all this new activity is generating another revenue stream for miners, who used to rely solely on block rewards, which diminish every four years. Now, there are many more options. After opening the NFTs season, Bitcoin started exploring all the corners of blockchain technology: smart contracts, scalability solutions, and even an equivalent of ERC-20 tokens, which are currently being mainly used to mint and trade memecoins.
Are memecoins still a thing, you ask?
Oh man…this is going to take us ages.
