Carbono Insights #65 | The Butterfly Effect

Crypto sighs in relief now that Joe Biden and House Republicans are closing in on an agreement regarding the debt ceiling in the US. As a result, the general disregard of markets, slow to respond to rate hikes, inflation, and other economic indicators, has been interrupted by a moderate spike of optimism (if it lasts, will it bring a renewed sense of euphoria, will we see another memecoin craze?)

Last week the tepidness of crypto markets gave us a break from the feverish reporting of crazy developments and allowed other narratives to emerge: Hong Kong’s upcoming crypto-friendly regulation, the latest chapters of Tornado Cash (one of the most influential chapters in crypto) and FTX (crypto’s most entertaining soap opera).

In this issue of Carbono Insights

• Hong Kong will implement its new regulatory framework in early June
• Tornado Cash is again the lab rat for broader crypto regulation
• It looks like FTX will have a sequel.
• Pudgy Penguins show the way of online and offline NFT relations
• US potential presidential candidates from both sides of the aisle support bitcoin
• Botto approaches its fourth period.

1. Regulation | Go East

Hong Kong, a long-established global finance hub, is now gearing up to regain its prominence as a leading crypto finance hub with the forthcoming implementation of new crypto regulations on June 1st. This regulatory framework aims to establish a new licensing system for exchanges while eliminating existing restrictions on retail investors.

By lifting these restrictions, Hong Kong’s new regulations will give retail investors in Asia unprecedented access to crypto investments in assets like Bitcoin (BTC) and Ethereum (ETH).

This is not a free-for-all legislation, though. Instead, the city is dedicated to implementing stringent risk management protocols, emphasizing the importance of information disclosure, and promoting transparency within the crypto ecosystem to safeguard investors.

Considering the broader context, some frame Hong Kong’s initiative as a strategic move by China, particularly in light of the increasingly adversarial regulatory climate prevailing in the United States. This approach aligns with parallel endeavors, such as promoting crypto-friendly banking services and exploring pilot programs in the tokenization of green bonds or central bank digital currencies (CBDCs).

2. Regulation | Tornado Cash’s butterfly effect

Tornado Cash is the butterfly in the chaos theory narrative of crypto. Everything around this protocol ends up having massive ramifications, probably because it has become the epitome of a decentralized, trustless protocol living on the edge of criminal regulation.

These days we’ve learned that Alexei Pertsev’s trial will be delayed. The Russian developer was apprehended in the Netherlands for contributing to Tornado Cash code. His trial is the butterfly that will determine whether writing open-source code can be prosecuted if the resulting code is used for nefarious purposes.

Crypto advocates who speak in defense of Pertsev claim that code equates to speech. CFTC Chair Rostin Behnam disagrees. In a recent intervention in Bloomberg’s podcast, he claimed the opposite: “It’s easy to suggest, ‘Oh, there’s no institution, there’s no individual, it’s just code, you can’t regulate that, it’s self-effectuating,’ but that is the wrong set of questions. It’s really about what U.S. customers are being offered and exposed to?”.

The outcome of this debate will become a strong precedent in either direction.

3. FTX | FTX 2.0

The collapse of FTX was one of the most ground-shattering events in the history of crypto. A financial scandal (boring!) with a compelling cast that included (allegedly) drug-taking, promiscuous, ADHD millionaires under 30 (and at least one billionaire), a lot of naïve politicians, and a stern bankruptcy undertaker (not so dull anymore). The catastrophe became a notorious one, and the consequences are very present in today’s regulatory hostility in the US.

The FTX case has provided us with a constant flow of news, often more from the entertaining side of things (like FTX founder, SBF’s, list of approved websites he can visit).

Maybe one of the most relevant ones, from the victims’ perspective, is the possibility of FTX resurging from its ashes. A case that was first heard of in January and that is more likely than ever after the covert mentions of a 2.0 version of FTX in the latest court filings.

4. Adoption | Pudgy Penguins on Amazon

We all knew NFTs were going to be the ice-breakers of crypto. Just last week we saw how Pudgy Penguins proposed their take on the cross-pollination potential between the offline world, the online web 2.0 ecosystem, and the full-blown blockchain-based experience.

Pudgy Penguins is a collection of 8,888 unique cartoon penguins living on the Ethereum blockchain that recently took physical form and started selling as toys on Amazon.

These cute creatures present what looks like a perfect match between what the physical and digital worlds can do best to cooperate.

The toys are cute, which is what toys can do. And, if somebody wants to, they can enhance their experience digitally.

Each Pudgy Toy, available on Amazon and soon in retail stores, grants owners the opportunity to mint NFTs. Your digital penguin is a soulbound NFT, while your trait box includes tradeable NFTs of cosmetic items with varying rarities to decorate your penguin. Delphi Digital

5. Politics | Presidential candidates enter the debate

While no party has ultimately claimed ownership of the Bitcoin narrative, the anti-crypto stance of the current administration has skewed the pro-crypto sentiment towards the right. The Biden administration has been criticized for its attempt to interfere in American financial freedom, supported by the cliche of the left’s tendency to intervention.

Recently, though, notable figures from both sides of the aisle, such as potential presidential candidates Ron DeSantis (Republican) and Robert F. Kennedy Jr (Democrat), have expressed varying support for Bitcoin. However, it does not appear to be a core issue in their agendas, which can be viewed as a positive aspect. It is essential to avoid excessive partisanship in the cryptocurrency space.

6. NFTs | Botto’s Fourth Period

Carbono is part of Botto’s founding team, and we are still involved as community members and contributors to the DAO.

Botto, the decentralized autonomous artist, is approaching the beginning of its Fourth Period. Periods are timeframes with a coherent creative and operational design.

The Fourth Period will incorporate two new AI models into Botto’s art engine. In addition, it will include a modification in the revenue distribution models -active voters will receive 50% of the art sales profits.

The community is currently voting on the topic that will become the overarching theme across all drafts (the last two periods revolved around the concepts of Fragmentation and Paradox)

In the meantime, Botto continues to increase its artistic footprint. Recently, by contributing six unminted pieces to Ryan Koopmans’ “Flowering of Ideas.” Another way in which the machine collaborates with other artists.