Paxos custody deal, Mastercard anti-fraud system, SWIFT tokenization trial, BlackRock ETF, NYDIG $720M Bitcoin fund, MiCA progress, BIS Basel III and Web3 gaming reports TLDR, Layer 1 & 2 definition.
5 October 2022
Hello there and welcome to the Blockchain From First Principle newsletter where we curate some of the week's news, summarise reports, articles and look at blockchain, crypto, and Web3 from the first principles for those seeking to understand more and stay ahead of their game.
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Table of Content
🗞️The 10 news you should be aware of
💸PE/VC funding
⚖️Policies and laws
📚Reports, here is the TLDR
📈Charts of the week
💡Metaverse and NFT news, trends, and insights
🔦Company spotlight
📅Blockchain, Crypto, and Web3 events calendar
👩💻The job fair
📚The terms of the week
📎Miscellaneous resources
🗞️ The 10 news you should be aware of
1. Paxos wins custody deal for Fidelity, Schwab-backed digital asset exchange EDXM
EDXM was unveiled just three weeks ago with a consortium of backers, including Citadel Securities, Fidelity Digital Assets, Schwab, Paradigm, Sequoia Capital and Virtu Financial. In addition to providing custody services, Paxos will also deploy its settlement solution that enables netting.
2. Mastercard pushes deeper into crypto with a new tool for combating fraud
Mastercard is releasing software that helps banks identify and cut off transactions from fraud-prone crypto exchanges. The Crypto Secure system uses artificial intelligence algorithms to determine the risk of crime. It relies on data from the blockchain as well as other sources. The service is powered by CipherTrace, a blockchain security startup that Mastercard acquired last year.
3. ENS registrations hit all-time high in September
Ethereum Name Service registrations and renewals hit all-time highs in September. 437,000 domains were registered and 45,000 were renewed last month. There are now more than 1 million ENS domains. ENS is testing out a new smart contract that will allow ENS holders to create subdomains that can be lent out to other users.
4. Binance signs agreement with Kazakhstan and plans regional hub
Kazakhstan is set to host Binance’s regional headquarters, as the pair finalize a partnership to develop crypto regulation in the region. The agreement is part of Binance’s wider global law enforcement training program for global law enforcement.
5. Grayscale terminates Bitcoin trust material agreements with Genesis
It appears that Genesis may have fallen on tough times as part of the ongoing crypto winter, according to a recent filing with the U.S. Securities and Exchange Commission (SEC), Grayscale Bitcoin Trust has terminated two agreements with cryptocurrency broker Genesis.
6. Basel III reporting: Banks had tiny exposure to cryptocurrencies
As per the report published by BIS, only 19 of the 182 banks reported exposure to crypto assets, and two are purely crypto banks. The total crypto exposure was $10.7B, which is less than one percent of total crypto assets.
7. SWIFT completes tokenization interoperability trial with SETL, Clearstream, Northern trust
In the same way that SWIFT currently provides the glue for cross-border payments, it wants to create a common interface to enable the tokenization of assets to take off. Investors and asset managers shouldn’t have to integrate with numerous different platforms
8. SWIFT sets out the blueprint for central bank digital currency network
The idea is that once scaled up, banks may need only one main global connection, rather than thousands if they were to set up connections with each counterpart individually. The trial involved France and Germany's national central banks as well as global lenders like HSBC, Standard Chartered, and UBS.
9. Financial Stability Council recommends crypto spot market regulator, stablecoin legislation
The Council published a report on Digital Asset Financial Stability Risks and Regulation. It identified three regulatory gaps and made several recommendations. The Report highlighted the lack of direct regulatory controls as crypto are not classified as securities, and How Exchanges and other platforms directly deal with retail investors causing consumer protection issues.
10. BlackRock’s newest ETF invests in 35 blockchain-related companies
BlackRock has launched a new exchange-traded fund (ETF) called the iShares Blockchain Technology UCITS ETF to provide European customers with exposure to the blockchain industry, while reports indicate a Metaverse-focused ETF may be on the way.
💸 PE/VC funding
1. Crypto checking account provider Juno raises $18M and launches token
ParaFi Capital led the round, with Hashed, Jump Crypto, Uncorrelated Fund, Greycroft, 6th Man Ventures and others participating. The firm has also launched a native token for its tokenized loyalty program and is airdropping the token to existing users today.
2. NYDIG raises $720M for institutional Bitcoin fund
In December, NYDIG raised $1B at a valuation of $7B led by WestCap. CEO Robert Gutmann and President Yan Zhao will continue their work at the firm’s parent company Stone Ridge Holding. The company withstood multiple rejections to trade spot bitcoin exchange-traded funds. The focus is on expanding mining solutions and Layer 2 adoption.
3. Horizon raised $40M in Series A
Startup behind NFT game Skyweaver raised. Video game publishers Ubisoft and Take-Two Interactive are among the notable backers.
4. A16z leads $40M funding for web3 data protocol Golden
The protocol will use tokens to incentivize users to submit accurate information. Protocol Golden is designed in such a way, to penalize incorrect information and incentivize tokens to legitimate and correct information.
5. Fidelity reveals $5M Ethereum Index Fund
Unlike Exchange Traded Funds (ETFs), Index Funds only trade after hours at fixed prices. Fidelity said in its SEC filing that the first sale took place on September 26. The new Fidelity Ethereum Index Fund enters an increasingly crowded field with other prominent Ethereum funds
6. Decentralized music platform Stems raises $4M pre-seed round
The funding round was led by Ideo CoLab, with additional participation from Merit Circle and Yield Guild Games, among others. Stem encourages music collaboration between music artists and fans through NFTs and other web3 tools. It will launch its platform on Oct. 6, at which time 7 NFTs costing 100 MATIC each will be minted
7. Crypto Venture-Capital firm paradigm leads $14M funding round for DeFi platform Exponential
Exponential who partnered with Haun Ventures, VC arm of FTX, investment arm of USDC, Solana and Polygon for an institutional-grade risk assessment system analyzes risk, find and compare yield across major chains and protocols. Exponential will soon launch the ability for customers to invest directly in DeFi projects through its custodial platform.
8. Paradigm leads crypto firewall provider Blowfish’s $11.8M raise
Blowfish partners with Solana wallet Phantom to protect users form malicious transactions. Its competitor Harpie raised $4.5M in a seed round.
9. Aikon Multi-chain platform raised $10M
Aikon Series A led by Morgan Creek Digital is built on the Open Rights Exchange (ORE) network and is powered by the ORE token raising $10M to accelerate blockchain adoption.
⚖️ Policies and laws
1. The European Council passes MiCA, EU’s comprehensive crypto regulation
The EU’s landmark Markets in Crypto-Assets (MiCA) regulation passed in the European Council on Wednesday morning and will need to pass through an additional vote in the European Parliament next week. If approved, laws will be in place at the start of 2024 at the earliest.
2. US senator bill seeks to cushion crypto exchanges from SEC actions
The Digital Trading Clarity Act of 2022, introduced by Senator Hagerty, aims to provide regulatory clarity around two primary concerns plaguing crypto exchange establishments — (i) the classification of digital assets and (ii) related liabilities under existing securities laws.
3. NFT firm seeks US Election Commission’s OK to market campaign souvenirs
The FEC ruled that as long as this token has no monetary value “the distribution of tokens is not a form of compensation for volunteers' services but rather a novel means for volunteers and supporters to show their support for the campaign
4. ‘Prohibitive’ global crypto capital norms could ‘derail’ market
Currently, Basel proposed that lender exposure to cryptocurrencies shall not exceed 1% of capital. If this issue is not addressed, It may not economically viable to facilitate clients’ needs and likely shift in activity to the nonbank sector which is less regulated
5. Court rules CFTC legally served Ooki DAO through help bot
A federal court ruled that the Commodity Futures Trading Commission (CFTC) can serve a decentralized autonomous organization (DAO) through a website help bot and forum post.
6. EU policymakers vote to modernize tax with blockchain technology
The European Parliament voted, with an overwhelming majority, in favor of a file to use blockchain technology to modernize taxation processes in the European Union. The file also calls on streamlining rules on taxing crypto-assets.
7. UK shuts down temporary crypto company licensing program
The time it takes to register a firm depends on the quality of the information provided to the Financial Conduct Authority, the regulator told CoinDesk. Crypto firms, however, have been complaining about the FCA’s delays in processing applications.
📚 Reports, here is the TLDR
The Bank for International Settlements published a report on Basel III, the risk assessment framework, which has a new segment for crypto-asset reporting. Here is the summary.
Only 19 of 182 banks reported crypto exposure at the end of 2021 and two are pure crypto banks
Total crypto exposures reported by banks amounted to approximately $10.7B .In terms of risk exposures, crypto-assets represented 0.01% of all exposures
90% of Crypto assets were either invested in Bitcoin or ether, although via a variety of mediums such as direct, grayscale trust, and ETFs
American banks made up ten of 19 banks, with seven being in Europe and the rest in Asia
Prominent funds such as Galaxy Interactive, Immutable, and a16z each raised $325M, $600M, and $500M, respectively, to invest in web3 gaming startups. Yet, mainstream gamers have been anywhere from lukewarm to outright hostile towards potential web3 integrations.
In this comprehensive report, Sal Qadir and the Galaxy team examine ✅ 50 years of gaming history, emphasizing past experiments in video game economic design, ✅ the psychological motivations behind gaming, and ✅ the future of web3 gaming with a particular emphasis on past experiments in developing in-game economies.
Key facts:
The global gaming market reached $198.4bn in 2021, more than the film and music industries combined ($99.7bn and $26bn, respectively).
The rapidly growing gaming space is projected to reach $260bn by 2025.
There are 2.5 billion gamers worldwide (3bn projected by 2023).
The average gamer plays for 8 hours and 27 minutes per week.
US gaming revenue is projected to hit $90bn in 2022.
Mobile games make up about 50% of gaming revenue, with consoles making up ~30% and PCs making up the remaining ~20% of the market.
Key takeaways:
Tokens later, game first. Web3 should be seen as a backend accounting feature that makes in-game digital assets more useful to players. It should not be seen as a panacea that will unilaterally improve games.
Major game publishers are cautious about web3. Web3 game development will likely occur at the fringes until mainstream adoption hits another inflection point. Smart web3 game developers will capitalize on this lack of competition.
Composability will be bottlenecked by Layer 1/blockchain ecosystem choice. If a developer chooses to deploy on a siloed layer 1 with permissioned validators, many of the benefits of web3 will be minimized. More work to be done.
Non-transferable NFTs will likely be a key primitive for web3 games. Player achievements and unified logins through wallets can enable a player’s history to travel with them across various platforms and game environments.
Meta games will reign supreme. Games built on top of other, existing games, are an obvious first move for aspiring web3 game developers. Successful developers benefit from existing infrastructure and intra-platform composability.
Bridges will be key to mainstream adoption. Bridges will be necessary to support cross-chain interoperability. One ecosystem with built-in interoperability features, such as Cosmos, seems unlikely for now.
More control, more money. One potential solution is for publishers to allow tokens/NFTs to work across any of their titles, but they would not allow money to leave their broader ecosystem.
Tournaments are a compelling use case for permissionless NFTs/fungible tokens today. The reason this model works is that the NFTs are not required to start playing but become a factor as a player increases skill with the game.
Not everything needs to be on-chain. On-chain transactions are costly from a transaction fee and data storage perspective. The logical conclusion is a mix of both on-chain and off-chain assets to cater to all types of gamers.
Game developers may rely on DeFi-inspired business models to monetize. Imagine two separate games built on the same blockchain supplying liquidity for the biggest swap pool for their respective tokens on Uniswap. Both developers and gamers benefit from the composable ethos of DeFi and web3.
The main goal for web3 game developers should be to produce a great game first
Great games are architected to maximize the level of engagement with their users, introducing in-game economic features only after the player is already immersed. Overall, the Galaxy team is bullish on web3 games that intelligently incorporate web3 features as needed to augment an already-compelling gaming experience.
📈 Charts of the week
The timeline of Solana instability throughout 2022
NFT monthly volume has dropped 97% from 2022 highs
Polkadot and Cosmos development active has been impressive
💡Metaverse and NFT news, trends, and insights
1. UPS launches store in Decentraland metaverse
UPS is embracing one of the metaverse’s key advantages: for events. It will host talks by well-known small business experts on various topics such as raising funding, cashflow management and taking advantage of the latest technology.
2. Warner Music Group with OpenSea
The partnership will create more web3 opportunities for artists to launch their NFTs on a more customized and dedicated drop page and express themselves across borders and languages. Earlier this year Warner Music Group partnered with Plinterlands to create a blockchain game.
3. Solana NFT game Star Atlas launches playable demo on Epic Games store
Showroom is a pre-alpha demo of the Unreal Engine 5 technology powering the game. It lets Star Atlas NFT owners explore a 3D environment and view the ships and vehicles in which they've invested. Michael Wagner, CEO of Star Atlas said demo also features a single non-NFT ship to explore, and that some access codes will be given to select non-owners.
4. Japan to Invest in Metaverse and NFT Expansion
Japan’s Prime Minister Kishida’s administration recently established a Web3 policy office under the Ministry of Economy, Trade, and Industry (METI), which is focused on creating policies for the country’s gradual blockchain expansion.
5. Meta opens NFT sharing on Instagram and Facebook
Users in the U.S. can now connect their crypto wallets to Instagram as part of the app’s new digital collectible feature, which the tech giant has been testing since May.
🔦Company spotlight
The company: 👉 TransitNet 👈 provides ownership-verification tools for cryptographic assets. Last week, TransitNet launched the world’s first title registry for crypto wallets. By documenting crypto ownership, TransitNet makes it safer to hold crypto in self-hosted wallets and transact with it while opening up new use cases for Web3. Website:
The story: TransitNet was founded in 2020 and raised pre-seed funding. It was founded by Eric Jackson, PayPal’s first head of US marketing, and Christopher Grey, former private equity and investment banking executive.
Why should I care: TransitNet’s latest product enables verified records of title to be created and securely shared with other parties, allowing users to document ownership of crypto wallet addresses and securely share that information. This has wide-ranging applicability in countless real-life situations and can address key security concerns that are holding millions back from entering the space. Ultimately this infrastructure gives both individuals and businesses greater certainty about the ownership of assets, which makes TransitNet poised to become a crucial piece of Web3 infrastructure.
📅 Blockchain, Crypto, and Web3 events calendar
….for the next couple of months
Seoul Meta Week 2022 | Oct 3-7, 2022 | Seoul, Korea
Blockchain Economy Dubai Summit | Oct 4-5, 2022 | Dubai, UAE
Crypto Expo Dubai | Oct 5-6, 2022 | Dubai, UAE
Blockchain Expo North America | Oct 5-6, 2022 | Santa Clara, US
DeFi Conf 2022 | Oct 6, 2022 | Belfast, United Kingdom
Future Blockchain Summit | Oct 10-13, 2022 | Dubai, UAE
Stellar Meridian 2022 | Oct 11-13, 2022 | Rome, Italy
🆕 Devcon Bogotá | Oct 11-14, 2022 | Bogotá, Colombia
CBDC Summit 2022 | Oct 12-13, 2022 | Washington, US
Bitcoin Amsterdam 2022 | Oct 12-14, 2022 | Amsterdam, Netherlands
World Blockchain Summit Dubai 2022 | Oct 17-18, 2022 | Dubai, UAE
Digital Asset Summit 2022 | Oct 17-18, 2022 | London, UK 👉 Get £250 off your tickets with code NEWSLETTER
I.D.E.A.S. 2022 | October 18–19 | NYC, US
Vietnam Blockchain Summit | Oct 19-20, 2022 | Hanoi, Vietnam
Bitcoin Collective | Oct 21-22, 2022 | Edinburgh, GB
Money20/20 | Oct 23-26, 2022 | Las Vegas, US
Blockchain Expo Tokyo | Oct 26-28, 2022 | Makuhari Messe, Japan
Plan ₿ Forum | Oct 28-29, 2022 | Lugano, Switzerland
ETH Lisbon | Oct 28-30, 2022 | Lisbon, Portugal
San Francisco Blockchain Week | Oct 31-Nov 6, 2022 | San Francisco, CA, USA
LA Blockchain Summit | Nov 1-3, 2022 | Los Angeles, CA, USA
Blockchain Economy Summit | Nov 1-3, 2022 | Los Angeles, CA, USA
Florida Bitcoin & Blockchain Summit | Nov 4, 2022 | Tampa, FL, USA
Solana Breakpoint 2022 | Nov 4-7, 2022 | Lisbon, Portugal
Web3 & Blockchain World (W3B) | Nov 8-9, 2022 | Toronto, Canada
Crypto Nexus | Nov 8, 2022 | San Francisco, CA, USA
Blockchain Economy Summit | Nov 10-11, 2022 | Barcelona, Spain
Pacific Bitcoin | Nov 10-11, 2022 | Los Angeles, CA, USA
Istanbul Blockchain Week | Nov 14-17, 2022 | Istanbul, Turkey
Adopting Bitcoin | Nov 15-17, 2022 | San Salvador, El Salvador
ETH Gathering Barcelona 2022 | Nov 17-21, 2022 | Barcelona, Spain
Cardano Summit 2022 | Nov 19-21, 2022 | Lausanne, Switzerland & Online
Next Block Expo | Nov 23-24, 2022 | Berlin, Germany
NFT Fest Aus 2022 | Nov 23-24, 2022 | Melbourne, Australia
DCentral Miami 2022 | Nov 28-29, 2022 | Miami, FL, USA
Decipher 2022 | Nov 28-30, 2022 | Dubai, UAE
MiamiWeb3 | Nov 28-30, 2022 | Miami, FL, USA
🆕 Blockchain Expo Global | Dec 1-2, 2022 | London, UK
🆕 Africa Bitcoin Conference | Dec 5-7, 2022 | Accra, Ghana
👩💻The job fair
Global Access Labs - Software Engineer - Ireland/Remote
Ledger Vault - Front End Engineer - Paris, France
Parallel Finance - Product Engineer - San Francisco/Beijing
Neco Finance - CTO - Remote
📚The term of the week
Layer 1 & Layer 2 - Blockchain operates through a layered architecture. Because of the lack of a single controlling body, all transactions must be safe, and data must be securely maintained on a distributed ledger, following a predetermined protocol for confirming transactional data. To allow this unique transaction authentication process, blockchains feature a layered design.
Layer 1 is the main blockchain network in charge of on-chain transactions, while Layer 2 is the connected network in charge of off-chain transactions.
For example, the Ethereum blockchain is a Layer 1 and Polygon is a Layer 2 scalability solution making Ethereum transactions with negligible fees and much faster.
📎 Miscellaneous Resources
The opinions are our own. The content of this newsletter is not intended to serve as financial advice and is for general informational and educational purposes only. We do not warrant, endorse, or assume responsibility for the accuracy of any information offered by the third-party websites linked above.