Carbono Insights #73 | Crypto-Cola
At other times, the names that are currently popping their heads in crypto could have triggered a nice pump. Let’s not forget the effect Tesla had when it announced that it incorporated BTC into its balance sheet and that it might accept bitcoin as payment for its electrical cars too.
PayPal launched a stablecoin that could potentially onboard millions into crypto, Coca-Cola is holding Coinbase’s hands in launching their own rollup, Base, and VISA is making technical improvements for the Ethereum ecosystem that contribute to the development of crypto’s user experience. Prices continue to look flat, and activity in crypto is lethargic, but the long-term signal sent by these endorsements is clear.
1. Stablecoins | PayPal’s Dollar-Pegged Stablecoin
PayPal launched a stablecoin, the $PYUSD, a move that would have rocked the world of crypto in more sensitive times, but these days it received a lukewarm reception.
This is what we know about $PYUSD so far:
It is an ERC-20 token issued on Ethereum. ERC-20 is the most popular token protocol, used by most cryptocurrencies and stablecoins, that guarantees the transferability and interoperability of the token in EVM and EVM-compatible chains and applications.
It will be issued and managed by Paxos, a regulated institution that will take charge of minting the token, maintaining the peg, and publishing third-party attestations to prove the proper collateralization of the asset.
PayPal will back $PYUSD with USD and treasury bills, the most trustworthy collateral possible and also a very profitable one since the rate hikes have made T-bills one of the most trusted sources of revenue in the markets. This same collateralization strategy has produced $850M in revenue for Tether, with over $70B USDT issued. It’s no surprise that PayPal, with its access to customer deposits, has set its sights on stablecoins as a business.
$PYUSD, like most centralized stablecoins, includes features that allow PayPal to freeze assets as part of its compliance efforts, which undermines the supposed uncensorability of crypto. Many people were surprised by this… but it’s the same people, I guess, who don’t know that USDC and USDT have the same features. No government would allow stablecoin issuers to gain any traction and amass such amounts of USD without some sense of control.
On the other hand, PYUSD will make crypto available for over 400 million customers and integrate with popular payment services like Venmo.
2. Scalability | Everything is Happening on Base Already
The first week of Base has gone by, and we could say that it’s been like watching a timelapse of an L2 launch. In a matter of just days, everything happened and happened fast.
Everything started with good old degenerate gambling around the $BALD token and a subsequent rug pull, all of this happening even before a proper bridge was working.
We have the mainstream crypto onboarding narrative. Coca-Cola and Atari are some of the big names accompanying Base in its on-chain summer launch campaign that tries to engage a community with daily NFT mints.
From Onchain Masterpieces: Coca-Cola®’s Collection of Iconic Art
From the point of view of the ecosystem, some of the biggest DeFi protocols have already deployed on Base, such as Synthetix, Aave, Sushiswap, GMX, Balancer, or Chainlink, and the ones missing will probably do so soon.
And most recently, friend.tech brought a new flavor of Web 3 social media to crypto. One in which creators are tokenized, and subscriptions to their content are spun as investments.
Things are moving really fast on Base. The L2 has already entered the Top 20 of chains by TVL, right behind competitor zkEVM (Polygon’s zero-knowledge rollup).
Everything in crypto is about community, and Coinbase has one of the biggest ones around, so expect this speed to keep up.
3. Real World Assets | The Dark Side
We’ve been writing about Real World Assets for a few weeks now as one of the healthiest trends in crypto. Since rising interest rates gave TradFi products better APYs than DeFi’s, those protocols that are building bridges between the old and the new are showing the benefits (e.g., MakerDAO, as we explained last week).
Well, last week, we witnessed the dark side of the trend, with Goldfinch suffering the pains of default. Goldfinch takes funds from crypto and pools them into professionally managed credit pools for real-world businesses to borrow from. “Goldfinch offers crypto lenders access to successful emerging market debt deals,” says their site.
Goldfinch brings real-world yields to crypto, but also real-world risks: the firm recently saw Tugende, a Kenyan motorcycle company, default on a $5M loan taken out via the protocol, damaging the firm’s credibility and token price.
4. Regulation | Fed Novel Activities
The Federal Reserve recently announced the creation of a “novel activities supervision program”, a plan to strengthen the oversight over technologically delivered banking services, especially in crypto and Distributed Ledger Technologies. Under the umbrella of this program, the Fed plans to monitor custody, lending, trading, and stablecoin issuance.
On one hand, this looks like one step closer to a comprehensive regulatory approach by the US, and it contains more or less the same old reasonable demands (reasonable as in “expected from a regulator”). On the other hand, the central bank’s intervention adds one more vector of regulation to an already chaotic network of official opinions on crypto, and we are left to wonder if this is a nuanced, sensible approach or another name for operation chokepoint.
5. Narratives | Things That Are Not Happening
We know about crypto’s attention span, and how it follows successive narratives that fade in and out, so we thought it would be interesting to provide a short reminder of some narratives that are NOT playing out these days.
- ETFs. The SEC has delayed their decision on ARK21’s bitcoin ETF submission, so the possibility of a fast verdict on the ETF narrative gets pushed back.
- The SEC has also appealed the Ripple case resolution, and some opinions against the prior ruling that established that Ripple was not (always) a security have emerged with strength. This extends, therefore, to all tokens with a potential identity crisis.
- L1s used to be a driving force in crypto. There was once a current of opinion that claimed that some blockchains were deemed to become “Ethereum killers”. Now all the bets are on L2s, and ecosystems like Cosmos and Solana need to fight for scraps of relevance.
- Venture Capital is looking elsewhere for inspiration. Scandals, regulatory uncertainty, and the allure of AI have drained crypto from venture funding.
- The metaverse. Crypto use cases that actually move the needle remain restricted to infrastructure and DeFi. The metaverse trend and some of its tangents, like gaming, have yet to show some muscle.
6. AI | The Overlap between Web 3 and AI
Speaking of narratives and AI, Kerman Kohli points in this direction as crypto’s next major narrative. In his newsletter, this crypto founder behind ArcX, a company that is building the fundamentals of Web 3 marketing, points to two specific areas of AI where crypto will provide added value:
- Crypto is the rails for internet money in the hands of AI agents. More and more, AI will be able and encouraged to perform complex tasks in a human’s life. Think of things like choosing and getting the best insurance for a car and how your assistant AI could help you there from beginning to end. AI agents are going to need money, and we all know what the most perfect form of digital money looks like.
- Identity validation. Crypto created digital uniqueness validation. This is increasingly useful at a time when AI is able to create infinite content. Blockchain technology is better positioned than any other to verify the authenticity of things like content or personal identity.
The next major crypto narrative, by Kerman Kohli
