Carbono Insights #80 | Rektember is packed

Just one more week of September remains. Many refer to this month as “Rektember” due to its tendency to bring losses to the markets, and 2023 is no exception. Most of the leading crypto metrics, such as total market cap, DeFi traded volume, or stablecoin supply, remain frozen or tend to slide downwards. We heard from the FED and the CBE this week: they won’t be increasing interest rates, but they are very cautious with their macro perspectives, so things remain the same on the liquidity front, which happens to be the only meaningful front at the moment.

This is one of the most diverse newsletters we’ve ever published. We’ve covered topics ranging from infrastructure (Eclipse, the flavor of the week), institutional investment (of the crypto-friendly and poorly-aligned types), potential mainstream apps (FriendTech), some unrelated drama (the story of SBF’s parents), branding in Web 3 (how CEXes create a brand or, more accurately, how they fail to do so), and some history (news from MtGox).

1. Infrastructure | Eclipse, or the new recipe for L2s

There’s a new Layer 2 solution in town, and it’s called Eclipse. It has created quite a buzz in Crypto Twitter, although all we’ve seen so far is an announcement saying, “I’m coming.”

Eclipse seems to be a remarkable feat of engineering — an Ethereum L2 built with state-of-the-art technology that draws lessons from the experiences of predecessors, from Optimism to zk rollups. It appears to champion one of the potential directions for crypto infrastructure: modular design. This means that a blockchain typically performs four core functions — execution, data availability, consensus, and settlement — that are assigned to different stacks on Eclipse.

• Execution is handled by Solana’s SVM, a more efficient version of Ethereum’s EVM.
• Settlement (final security) relies on Ethereum.
• Data Availability is managed through Celestia.
• Proving utilizes zk proofs from RISC Zero.ç

I may not fully grasp the technical details, but I buy into the narrative: “We built using pieces of the best-performing, battle-tested technologies.”

However, my enthusiasm is reserved until I learn what can be achieved with this infrastructure. Hopefully, a high-speed blockchain will inspire entrepreneurs to build the next killer crypto app.

2. Institutional Investment | Citigroup and Nomura: The Two Faces of Adoption

There are several signs that lead me to believe that the question of the next bull run is not a matter of “if” but “when,” despite the current super-boring context.

The constant stream of institutional interest news is one of them. However, the news this week is a lesson on when this interest is genuine and when it is noise.

These two headlines carry very different implications for the crypto ecosystem.

If you ever see the word “private” preceding “blockchain,” remember that it has nothing to do with crypto. A private blockchain is merely an alternative way to track interactions and, frankly, an inferior one. Blockchain technology is valuable only when you seek the benefits of decentralization.

“The new product, called Citi Token Services, aims to provide clients with access to tokenized deposits, cross-border payments, and automated trade finance solutions 24 hours a day.”

You could develop excellent software for that without using blockchain.

However, on the other hand, the Japanese giant Nomura has launched a service to offer “long-term exposure to bitcoin.” It’s a different story. One of Asia’s leading banks opens the doors to the original crypto for its investors, making the purchase of the asset more accessible and easier. A win for crypto.

3. Decentralized Social | Finally, a Non-Degen-Only Killer App

Dear readers, please forgive me for repeating myself: I’m thoroughly enjoying my experience with Friend.Tech. I’m not trying to persuade you to join; I’m aware that my excitement is influenced by my background and interests, and there’s still a lot of senseless trading happening. However, I’m genuinely pleased that the latest trend has some rationality to it and isn’t entirely about gambling.

For those new to it, Friend.Tech is a platform that allows people to monetize their social media presence. Imagine a paid private chat where people can pay to read what you have to say, with prices calculated using a bonding curve, eliminating the need for a seller to buy or a buyer to sell, thanks to the magic of crypto.

For months, we’ve seen little more than memecoins and hamster races shifting liquidity from one chain to another. It’s refreshing to see an application that could be adopted by my dad becoming the most successful L2.

4. FTX | What Did Sam’s Parents Know

There’s little to learn about crypto from the SBF drama these days, but you can’t deny that it’s entertaining, to say the least.

In the latest chapter of the FTX series, Sam Bankman-Fried’s parents, Mr. Bankman and Ms. Fried, have taken the spotlight. These two notable law professors are accused of making multi-million-dollar profits from their son’s business/scheme.

Joe Bankman and Barbara Fried acted as de facto advisors to the company in areas such as corporate fiscal policy and public affairs, and they were generously rewarded for it. It’s unlikely (and apparently, there’s proof of this unlikelihood) that they were unaware of the illicit origin of the rewards they received in return for their involvement.

The FTX story is one of widespread, deliberate, and obscene corruption — so massive that it’s hard not to take it as a cautionary tale on human nature.

As I mentioned earlier, the Bankman-Frieds’ involvement can be quite amusing. However, if you’re looking to delve deeper into the essence of the story, I highly recommend reading Arthur Hays’ ‘White Boy’ essay, which explains how SBF rode the wave of all the positive biases appended to his background.

5. Branding | The Untapped Potential of Branding in Web3

When we talk about how crypto desperately needs to improve its UX, we usually think about seed phrases, asset bridging, fee calculations, app integrations, etc. Solving that problem is challenging enough, but it won’t be sufficient to make crypto mainstream. We need projects to express their vision and added value more straightforwardly, simply, and compellingly.

(If I hear ONE MORE DEX claiming they have “low fees and low slippage”…)

Introducing brands.

Brands are much more than logos; they are psychologically engineered mental shortcuts — conceptual synecdoches that convey a broad message efficiently. Yes, logos and imagery are part of a brand, but building one involves the coordinated effort of all the components of a project’s communication.

This week, we’re proud to partner with The Relevance House, a branding company that has helped dozens of firms start, scale, or flourish in the crypto realm. The Relevance House has just published a report (the first of many) providing “in-depth quantitative analysis of the cryptocurrency and Web3 branding landscape.” In this initial issue, they focus on Centralized Exchanges and how they present themselves to the world.

“Using our methodology, the Centralized Crypto Exchanges Edition ranks each of the top ten crypto exchanges by brand consistency, highlights which exchanges are struggling to differentiate their brand while sending emotionally conflicting messaging, and provides food for thought as to the benefits of a simpler and more streamlined approach to branding.”

Check out their 19-page executive summary here, and don’t hesitate to reach out if you want the more extended version.

6. Liquidity | MtGox Delays Repayments

There’s only one source of truth in crypto: liquidity. As long as money does not flow in or out, tokens and protocols remain stagnant. We’ve witnessed this firsthand during this bear market, where news that would have triggered a massive bull run two years ago barely moved the needle. From PayPal launching a stablecoin to the latest and most outstanding hacks, nothing surprises the crypto world anymore because there’s no money flowing in or out.

From that perspective, we bring you some good news. The MtGox repayment deadline has been pushed one more year into the future. The infamous ten-year-old hack story involving 850,000 bitcoins has finally concluded: debtors will receive 20% of the recovered assets. But it won’t happen soon.

In times like these, the possibility of a sudden flood of liquidations withdrawing money from crypto could be enough to unsettle the crowd.