Carbono Insights #83 | Crypto Logbook: Geopolitical Insights, Institutional Ventures, and Emerging Trends
Only a handful of the top 50 cryptocurrencies by market cap have shown an increase in yet another week marked by the doom of persisting inflation and the dramatic geopolitical situation, this time with a heart-breaking developing crisis in the Middle East.
There’s not much to do in crypto except for rowing and waiting. The approval of a spot bitcoin ETF is our northern star. The next significant event will provide some regulatory clarity and kickstart a new wave of adoption. It’s probably a wave slower than many think, but a wave nonetheless. There’s light on the horizon.
Builders continue, in the meantime, continue to build. They come in many shapes and sizes. There are the crypto native teams, like Frax’s, continually improving their protocols; institutions, such as BlackRock, JPMorgan, or Barclays, experimenting with blockchain technology; tech giants like Amazon are partnering with Web 3 teams. They all continue adding new layers to the industry from their unique angles.
1. Geopolitics | Crypto’s role in the Middle East may alert regulators
Crypto has emerged once again as a critical component in international financing during times of conflict. In a recent article, the Wall Street Journal claimed that Hamas and other allied terrorist groups have been avoiding bank controls through crypto to obtain donations that could amount to over $100M.
Israeli Defense Minister Yoav Gallant said the use of digital currencies was making the job of stopping terrorist financing ever more complex.
This use case is a byproduct of crypto’s core value proposition. Money cannot be censored according to political positions, even if these political positions are counter-terrorism.
On the other hand, only a few months ago, Hamas claimed they would stop requesting donations in crypto because of the traceable nature of digital assets. Donors were at a major risk of being identified and prosecuted than by using other means.
Nevertheless, crypto’s enemies, such as those in power in the US, will probably use this situation to make a stronger case against the industry.
2. Institutional adoption | BlackRock, JPMorgan, and Barclays launch a tokenization pilot
Last week, BlackRock, JPMorgan, and Barclays were involved in a high-profile pilot program. BlackRock tokenized money market fund shares on JPMorgan’s blockchain infrastructure and used those shares as collateral in an over-the-counter (OTC) deal with Barclays.
According to BlackRock executives, “the tokenization of money market fund shares as collateral in clearing and margining transactions would significantly reduce operational challenges in meeting margin calls when certain segments of the market experience acute margin pressures.”
To be honest, I don’t get a word from the statement above. If you comprehend its meaning, please contact me on Twitter at @miguelatcarbono. What I do get is that three top-tier financial institutions have participated in a program that adds credibility to the space. Among these institutions, there’s one currently seeking approval for a Bitcoin and Ethereum exchange-traded fund (BlackRock) and another led by a long-time critic of cryptocurrency (JP Morgan). This certainly carries some significance.
3. Bitcoin | BitVM could bring smart contracts to Bitcoin
One of the many metrics painting the picture of stagnation in crypto is the fading trading volume of NFTs. This decline in popularity in digital art and collectibles has hurt one of the most exciting trends in the year: the emergence of Bitcoin’s ecosystem, riding on the back of the Ordinals revolution. Ordinals created a way to mint and trade NFTs on the Bitcoin chain, and trading volumes and mining fees skyrocketed, providing a possible answer to the question of where miners will earn revenue when BTC issuance dies down. A question that is increasingly pertinent as we approach the next halving.
Entering BitVM: following the tradition of giving names through acronyms, BitVM is based on the expression Bitcoin Virtual Machine, borrowed from Ethereum’s Virtual Machine. The EVM is where the main difference between Bitcoin and Ethereum lies. While Bitcoin is a machine designed to facilitate the transfer of funds, Ethereum’s EVM turns its blockchain into a supercomputer, capable of processing any type of complex operations through smart contracts. Where Bitcoin could only process transactions, Ethereum could host whole lending protocols, decentralized exchanges, DAOs…
Bitcoin developer Robin Linus has published a paper outlining how the Bitcoin blockchain could perform complex computing without going through the pains of a fork. A development that has once again excited the imagination of the community.
BitVM, though, has come forward with a paper first and hopes applications will follow. Experience tells us that the Ordinal way is usually the successful one: a clunky technology comes up that creates a wave of careless, mindless adoption, and then people eventually soften the edges and turn it into something presentable.
4. Frax | Unyielding builders create a yield-bearing token
Frax has hopped on board the RWA train. If you’re not a full-time crypto enthusiast, you might not have this project on your radar, but Feax has a few cool achievements to boast about.
Their team is small but super focused. They’re all about perfecting the concept of stablecoins, and they take that mission seriously. Some of their achievements include the design of the USD-pegged stablecoin FRAX (initially an algorithmic, crypto-backed stablecoin that has gone through significant re-designs ), the Liquid Staking Derivatives frxETH and sfrxETH (which the team considers ETH-backed and ETH pegged stablecoins) and an ecosystem of utilities, such as a dex, lending protocol and a bridge built to serve the purpose of providing liquidty to their assets.
With the Federal Reserve’s interest rates at their highest point in 22 years, FRAX just dropped sFRAX into the mix — a staking vault meant to ride the wave of rising Treasury yields. sFRAX enables stablecoin holders to earn yield from T-bills.
This is just one step up the ladder to Frax’s V3, a much-anticipated upgrade that will include a custom chain for their protocol. A kickass dev team, a laser-focused vision, and the ability to jump on board with the latest trends make Frax a project to watch.
5. Amazon and Google | The silent infra race
Immutable, a prominent player in the crypto world, has recently become a part of Amazon Web Services’ ISV Accelerate Program, a program is specifically designed for companies leveraging AWS services in their product offerings Immutable is designed and now maintains a blockchain network tailored to the gaming sector.
There is a silent race between two industry giants in the cloud services arena. Google Cloud has been making a series of notable announcements in the Web3 space, partnering with key players like Polygon, Coinbase, and various other crypto industry leaders. Amazon Web Services and Google Cloud are actively expanding their programs and collaborations, gaining extensive exposure and expertise in cryptocurrency.
6. Trends | RWA, SocialFi and Telegram
In this post, crypto Twitter content creator Edgy outlines the three most important trends in the last quarter of 2023. The three narratives he highlights are RWA, SocialFi, and Telegram bots.
RWA represents the Copernican shift in the world of crypto. After years of revolving around itself, many crypto protocols have understood that it’s time to explore traditional products and services for yields. SocialFi, on the other hand, is monetizing one’s social media persona. Meanwhile, Telegram bots are the user experience revolution that has enabled thousands to perform various operations, from basic tasks like token purchases to more complex actions such as copy trading or sniping, all from the comfort of their Telegram apps.
Turning to Treasury bills for yields, monetizing your social media presence, and engaging in fast-paced trading through Telegram are three things that nobody would have easily predicted. Yes, they might have been predicted, but not with such ease. At the end of the day, building bridges with traditional finance (TradFi), challenging Web 2 social media, and enhancing the user experience in the crypto space are core issues on the crypto horizon. We wouldn’t have expected it to turn out quite like this. Isn’t it beautiful?
