Carbono Insights #78 | Solana Rising

Please excuse us for being bullish, but there are many reasons to be optimistic, especially in the long term. We should expect groundbreaking catalysts in 2024, with the final verdicts over the spot Bitcoin ETF, and now also the spot ETH one. And we must not forget Bitcoin’s halving.

For the time being, we can only find comfort in letters, because numbers are still moving on a plain.

• Solana comes with grandiose announcements of mainstream adoption.
• The IMF confirms that crypto is not going anywhere.
• Tokenization of real-world assets continues to build up.
• We make strides towards privacy-respecting blockchain technology.
• Crypto finds new use cases related to the leading trend, AI.

All these are nice stories of technical and cultural progress and adoption that are not finding an echo in crypto’s global market cap, the total supply of stablecoins, or the value locked in DeFi protocols. But we have never seen such a level of confidence from all sides: regulation, TradFi, technology, and communications all point in the same direction (up only).

1. Adoption | Solana rising

It’s not easy to claim that this is the chart of the blockchain that’s had a stellar couple of weeks, but we’ve seen weirder things in crypto. This is Solana’s all-time TVL chart, and maybe it says more about the story of crypto and its hopefully long-gone bad habit of bloating numbers.

Solana is a high-performance blockchain platform known for its fast transaction processing and low fees. It used to be the leading Ethereum competitor in the smart contract blockchain landscape before it crashed colossally under the weight of Sam Bankman-Fried’s fall. SBF and his companies were the biggest ambassadors of Solana, and FTX still holds 8% of Solana’s token supply.

But lately, Solana has starred in some of the most exciting announcements of the entire industry. They announced an integration with Shopify to process payments in USD-based stablecoins, and recently they partnered with VISA to integrate USDC settlements into their network.

Shopify processes 10% of all US e-commerce volume, and VISA is behind 4 out of every 10 global credit card transactions. So, if we’re speaking of bullish signs for blockchain technology and stablecoin adoption, Solana should be at the center of the conversation.

In another, less mainstream, piece of news, Solana was chosen by Rune Christensen, founder and leader of MakerDAO, as the software of choice for the development of a future native chain for the Maker protocol. A strong endorsement of Solana’s stack and developer community.

No optimistic statement without its anti-climactic caveats, though: Solana’s critics always point out that the chain’s lack of centralization makes it less of a pure-bred piece of crypto infrastructure. Solana has suffered a number of embarrassing outages, and there are still clouds over its long-term stability (for example, if the 8% of SOL in the hands of FTX gets moving).

Let’s hope these wounds turn into scars asap. We all love our stories of redemption, and we love the possibility of mainstream adoption of crypto even more.

2. Regulation | IMF says ban on crypto will never work

In a document shared with the world leaders attending the G20 summit in India, the International Monetary Fund and the Financial Stability Board, two of the most important standard-setting financial institutions, have claimed that a “blanket ban” on crypto activity won’t work. It is costly, technically demanding, and creates incentives for (inevitable, we should add) circumvention.

The joint document suggests a regulatory roadmap for nations to protect themselves against the potential contagion risks of cryptocurrencies on world economies. Beyond the details of their plan, it’s interesting to finally see international organizations set this as the basic premise for regulation: “banning crypto is pointless.”

Not so long ago, this wasn’t as clear.

3. TradFi x DeFi | Tokenization gets a lobby

Real World Asset tokenization is so far the winning trend in this cr

ypto bear market. In the current context of high-interest rates, where APRs are higher outside than inside DeFi, bringing to DeFi yields from TradFi financial products, like treasury bills, has been the smart move. The trend has been endorsed by BlackRock CEO Larry Fink himself (Larry Fink Says Tokens Are “The Next Generation For Markets”)

Tokenization could become the tightest knot between TradFi and DeFi (it already is, if we understand that fiat-backed stablecoins are tokenized dollars). The challenges it presents are more than technological; there’s all the regulatory and operational complexity.

This is the reason we are happy to see a lobby of sorts being born around tokenization. The Tokenized Asset Coalition was recently announced with the mission of advocating, educating, and setting technical standards for tokenization.

Crypto industry heavyweights, including Coinbase, Circle, and Aave have built a working group to encourage others to bring traditional financial assets on-chain. The Tokenized Asset Coalition aims to bring the “next trillion dollars of assets” into crypto through education and advocacy for tokenization, targeting both the world of decentralized finance (DeFi) and TradFi. Tokenization Advocacy Group Wants to Bring the ‘Next Trillion’ of Assets to Blockchain — CoinDesk

4. Tech | Regulation-friendly Tornado Cash

The radical transparency of truly decentralized blockchain technology is one of its core values and lies at the center of any potential for revolution that crypto may hold. But it also has a dark side that needs to be addressed: transparency is an enormous roadblock on the path to mainstream adoption because of the obvious reluctance it instills in users and the frontal opposition it creates from regulators.

But developer ingenuity might be the key, once again. And, once again, Vitalik is involved in the display of said ingenuity.

Ethereum’s lead scientist recently co-authored a paper that suggests a way to use zero-knowledge proof to validate a wallet’s “innocence” in the face of certain claims (for example, the question of whether some funds were obtained illicitly), without having to provide transaction information. A possible first step into zk technology vaccinating blockchain technology from its excessive transparency.

5. Investment | Spot ETH ETFs coming

If you’re not confused by the current ETF stream of news, I admire you. I write a newsletter and have to check my notes every time. Let me ELI-5 where we’re at.

Feels like centuries ago, the SEC approved a futures Bitcoin ETF. The Commission considered futures a less risky product than spot and approved a bunch of submissions in a move that kicked off the last big crypto rally (Oct 2021).

The following year in crypto felt like a purge. After all the good omens from 2021, things started to crumble with Terra kickstarting a chain of collapses that dragged many huge names to the ground (mostly centralized companies with questionable business practices). Regulators reacted by starting a cold war with crypto, with enforcement actions and hostile reactions.

During all this time, the SEC has had at least one important proposal to accept a bitcoin spot ETF on their table: Grayscale’s. It seemed like Grayscale, a company indirectly involved in the chain of dramas of 2022, was doomed until two things happened. One, BlackRock filed a spot bitcoin ETF proposal to the SEC, proving that big financial institutions still consider the product worthy of interest; and judges backed Grayscale’s lawsuit against the SEC, pushing the commission to find new grounds to reject Grayscale’s spot bitcoin ETF.

While the US discovers its position regarding spot ETFs, the EU has already approved its first spot bitcoin ETF.

Riding the current wave of positive sentiment towards crypto ETFs, Ark Invest and 21 Shares have applied for a spot ETH ETF, which could open the floodgates of adoption of crypto’s #2 asset. Prospects are good.

6. Use Cases | Blockchain for Photojournalism

Back in the days, the word on the street said that blockchain technology was going to revolutionize virtually every sector. Eventually, the buzz decayed, and we have confined our expectations to revolutionizing finance, which is already ambitious enough.

But we’re happy to see some of the initial use-case scenarios re-emerge, providing real added value. In the upcoming AI era, crypto can offer a very valuable feature by validating the authenticity of digital content in a decentralized manner, the same way it validated digital transactions.

Reuters has been using blockchain technology to guarantee the integrity and veracity of digital photography during its journey from the photographer’s camera to the eyes of a reader. These days, when virtually anyone can produce an image that confuses audiences from their home computer, having a trustworthy piece of technology protecting us from the dangers of another technology feels like a relief.

Also, the site that Reuters has built to explain their pilot program is wonderful. Make sure to check it out.