Levine's article, Bitcoin via Lightning, Twitter wallet, Goldman bond, BNB $10M fund, Plaid connector, MakerDAO custody, Celestia $55M, Hong Kong CBDC, EU DeFi regulations, DeFi and other reports.
26 October 2022
Hello there and welcome to the Blockchain From First Principle newsletter where we curate some of the week's news, summarise reports, 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 19 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 19 news you should be aware of
1. Bloomberg's Matt Levine writes 40,000-word article on Crypto
The only article in this week's Bloomberg Businessweek was an article on cryptocurrencies by financial columnist Matt Levine. It was the second time in the publication's 93 year history that it printed with a single story. Levine's article looks at the good and bad parts of crypto, the crypto financial system, and how crypto solves some old problems.
2. Cash App users can now send and receive Bitcoin via Lightning
Cash App users can now both send and receive Bitcoin using the Lightning Network. Users could previously only send Bitcoin. The Lightning Network speeds up Bitcoin transactions and reduces costs. Cash App has a $999 limit every seven days with the Lightning integration. The feature is available to all US customers, except those in New York.
3. Crypto winter is hurting Google’s ad empire
Google's chief business officer has blamed the company's slowdown in revenue growth in part on crypto companies and other financial firms who have reduced ad spending. The company's overall ad growth for the quarter was the weakest of any period since 2013, except for one quarter at the beginning of the pandemic.
4. App Store guidelines updated with new rules for apps with NFT and ad managers
Apple has updated its App Store guidelines to include specific mentions of apps with NFTs and new rules for advertising management apps. The guidelines now state that NFTs must be sold through the App Store's in-app purchase system and not through other purchasing mechanisms. NFT ownership can not unlock features or functionality within an app.
5. Twitter working on 'Wallet Prototype' that supports crypto deposit and withdrawal
Twitter is working on a wallet prototype that supports crypto deposits and withdrawals. Evidence of the project was discovered by a Hong Kong-based app researcher and reverse engineer with a great track record of finding evidence of upcoming products and services.
6. MakerDAO community approves proposal to place USDC in Coinbase's Custody Platform
MakerDAO will place up to 1.6 billion USDC into Coinbase Prime. Coinbase Prime is Coinbase's institutional custody service. 88% of community votes were in favor of the proposal. The investment will earn Maker a 1.5% reward.
7. Near protocol’s USN Stablecoin shut down after suffering $40M ‘Collateral Gap’
Decentral Bank is unwinding its Near-native USN stablecoin as it has become undercollateralized by around $40 million. USN minting has been permanently halted. USN can be redeemed for USDT through the USN Protection Programme. The USN Protection Programme is funded by a grant from the Near Foundation. It will be live for 12 months.
8. Polygon-based DeFi platform Quick Swap closes lending service after exploit
Blockchain data shows the attackers manipulated token prices by borrowing funds using a flash loan, a form of unsecured lending, and then used the inflated values as collateral to drain all liquidity from the affected Quick Swap pool. Followed by this exploit company said in a tweet “Quick Swap Lend is closing " after $220k was exploited.
9. Standard Chartered-backed Zodia Custody offers crypto ownership proofs for institutions
Zodia Custody has released an identity toolset that can help institutions to easily prove the ownership of crypto held in custodial wallets. Zodia’s “proof of ownership” system cryptographically embeds the identity of an owner in a private key of a wallet, ensuring a third party can validate the key and link back to its owner quickly
10. BitOasis inks deal with Mastercard to launch crypto-linked payment cards
BitOasis will offer physical and virtual cards linked to their exchange accounts for which it partnered with Mastercard. Recently Mastercard also partnered with Nexo and Amber group for a similar deal. The card will be available to BitOasis customers across the Middle East and North Africa.4
11. Japanese card company JCB launches CBDC project with IDEMIA
The aim is to demonstrate that CBDC can be used with existing payment cards and payment infrastructure. While most CBDC solutions focus on mobile wallets, not everyone has a smartphone and sometimes cards might be more appealing.
12. Goldman Sachs completes blockchain green bond project with BIS, HKMA
The Hong Kong BIS Innovation Hub completed its second blockchain green bond experiment Project Genesis 2, in which Goldman Sachs and several other organizations participated. Two issues identified as necessary for the successful growth of green bonds are, to address greenwashing and ensure funding addresses climate issues instead of refinancing existing projects.
13. SBI and CBOE to collaborate on equities and digital assets
There is plenty of scope for collaboration as both organizations have significant interests in both traditional securities markets and digital assets. The companies may enter into joint venture subject to regulatory approvals to explore a business collaboration spanning traditional financial products and digital assets.
14. BNB chain introduces $10M fund to incentivize project growth on the blockchain
The program, known as the Growth Incentive Program, will initially support 10 projects in the fourth quarter, with gas incentives of up to 800 BNB tokens a month in total. In addition, individual projects can receive $1 million a month to cover fees spent on gas, the transaction fee paid to blockchain network validators for their services.
15. Compound suspended 4 tokens as lending assets to prevent price manipulation
It means users cannot deposit these tokens and take loans due to low liquidity in these assets. The tokens are 0x (ZRX), basic attention token (BAT), maker (MKR), and yearn finance (YFI). Proposal-131 passed with 99.99% in favor to stop lending, using these tokens as collateral.
16. A Lee Bousfield’s Twitter prevented a 200 billion BitBTC exploit
The attackers could have deployed their own token on Optimism, given themselves all the supply, and set that token’s L1Token to the real BitBTC L1 address. It could have taken 7 days to withdraw the tokens but BitBTC after the twitte patched the vulnerability via a software update.
17. Open banking firm Plaid launches Web3 crypto wallet connector
It enables Web3 developers to easily integrate cryptocurrency solutions with hundreds of types of self-custody wallets via a single API, rather than integrating with each one individually. Right now it is only Ethereum compatible and supports 300 different wallets.
18. Reddit users created 3 million crypto wallets to scoop up polygon NFTs
More than 86K NFTs were minted on the platform with sales of around 230k. Reddit NFTs are currently at a $100M market capitalization. Reddit claimed 50M daily active users and grossed over $350M in earnings last year. The NFT marketplace boosts revenue through Web3 integration.
19. Crypto yield platform Freeway Halts, Token Tanks 75%
With extensive volatility and uncertainty in the crypto and foreign exchange, Freeway suspended its services. Freeway offered users unrealistic returns of 43% and the halt in operation left users out of pocket. The token tanked 75% after the news and
💸 PE/VC funding
1. ParaFi backs Thala Labs’ $6M raise to build DeFi stack on Aptos
The startup will build DeFi applications on the Aptos blockchain and is already working on a decentralized stablecoin. The seed round is co-led by ParaFi Capital, White Star Capital and Shima Capital, according to a company announcement. Other investors include Beco Capital, LedgerPrime, Saison Capital and Infinity Ventures Crypto.
2. Accel and Quona Capital lead $18M round into crypto investment app
Venture capital firms Accel and Quona Capital have led an $18 million round into Singapore-based crypto investment app Pillow. Elevation Capital and Jump Capital also took part in the round according to founder Arindam Roy.
3. NFT startup Exclusible raised $5M
The company works with luxury brands to develop their Web3 offerings, including creating NFTs for clients such as Asprey Bugatti, Christian Lacroix, and Louis Monet. Dan Holzmann, co-owner of Swiss football club FC Basel, and venture capital firm Tioga Capital have led the funding round.
4. Blockchain developer platform Tatum raises $42M in funding
Blockchain developer startup Tatum has raised a $41.5 million round led by Evolution Equity Partners. Venture capitalists are increasingly looking to invest in crypto infrastructure firms as DeFi and trading startups fall out of fashion amid the bear market.
5. Web3 publishing platform Paragraph raises $1.7M
The round was led by Lemniscap and includes participation from FTX Ventures and Binance Labs. Other investors in the round include FTX Ventures, Binance Labs, GCR and Seed Club Ventures, according to a company release.
6. Celestia raises $55M led by Bain Capital Crypto, FTX Ventures, and Jump Crypto.
The company introduced Modular blockchains — opposed to monolithic blockchains — which are, in theory, highly scalable and segmented, less constrained, and break the rigidity of monolithic chains into flexible components, promising greater scale, security, and decentralization.
7. VC firm Ego Death capital raises $30M
Funds were raised through high-net-worth individuals, family offices, and institutional investors. Ego Death Capital plans to invest in 12 to 15 companies with an average check size of $1M to $1.5M. Half of the funds go towards follow-on investments in the original portfolio companies.
8. Ottr Finance, a Solana-based crypto app, raises $3.1M pre-seed
Ottr is a Solana-based self-custody Web3 mobile app, with which millions of users globally can easily get started with crypto without the complexity of staking, on-ramping, and gas fees. A $3,1M pre-seed led by Race Capital to be used to scale over 100 countries worldwide.
9. Bitcoin technology startup Synota raises $3M in seed round
Synota, a startup that wants to bring energy payments to Bitcoin’s Lightning Network, has raised $3 million in a seed round led by Ego Death Capital.The new capital will be used toward the commercialization of Synota’s software, including plans for a bitcoin mining-related service.
⚖️ Policies and laws
1. Hong Kong completes CBDC prototype, including CBDC-backed stablecoin
Given the project has been completed, in September the Hong Kong Monetary Authority (HKMA) shared its CBDC roadmap as it transitioned from its research phase and moved to development. The HKMA is also involved in the MBridge multi-CBDC project for cross-border payments. And it’s working with the Bank of Israel on CBDC cybersecurity.
2. CFTC points out 20% of the enforcement cases as crypto-related from June 2021 to June 2022
18 digital asset-related cases have been undertaken out of 82. SEC and CFTC battle continue to regulate the crypto industry with debates on classifying crypto asset class as either a commodity or a security.
3. Singapore Central Bank Proposes Stablecoin Rules to Reign in Crypto Sector
The Monetary Authority of Singapore (MAS) published a new set of rules limiting certain retail investors from accessing the crypto market considering their loss-bearing capabilities. This new rule comes after a turbulent year involving the collapse of the multibillion-dollar enterprise Terraform labs and Arrows capital ties to the country.
4. UK Proposes Bringing Crypto Under Regulatory Eye
UK’s Financial Services and Markets Bill would bring crypto under its scope and regulate crypto assets and activities under the amendment clause. Apart from UK, European Union MICA to be effective from 2024 to regulate all crypto assets which are not regulated by current legislation.
5. EU Commissioner calls for industry recommendations on DeFi regulation
The European commission project for overseeing the crypto is almost coming to a close. The Commission has released multiple reports investigating ways to supervise Defi this month, Commissioner Peter Kerstens calls for solutions to regulate Defi.
6. A Majority of US Voters Want More Crypto Regulation, Poll Shows.
Poll results indicate that more voters want to see lawmakers treat cryptocurrency as a “serious and valid part of the economy” than as a “mechanism for fraud” and other crimes. When developing crypto regulations, the majority of voters (58%) want lawmakers to prioritize market stability and fraud detection.
📚 Reports, here is the TLDR
Decentralized finance: Information frictions and public policies
Are DeFi services fundamentally different from traditional finance? Should policy frameworks adapt to the specific nature of DeFi systems? How could public actions promote synergies and ensure sustainable interactions between DeFi, traditional finance and the real economy?
In addressing those questions head-on, this report of the European Commission provides a rationale for the presence of public support in the DeFi ecosystem.
More in detail… In spite of the many shortcomings associated with traditional financial systems, substituting automated protocols for financial intermediaries does not solve the fundamental information friction that lies at the heart of financial contracts.
Ultimately, the main value proposition offered by DeFi is a shift in the information structure upon which financial services can be deployed.
By introducing such a distinction, this report first rationalizes why policy frameworks need to integrate DeFi-specific information constraints to be implementable. Next, it investigates how the heterogeneous treatment of information under different classes of DeFi protocols presents conditions under which public actions might be warranted.
From this analysis, the report finally derives feasible policy approaches that have the potential to generate growth and sustainability for the DeFi ecosystems and its interactions with the real economy.
While the future of DeFi remains open, it is clear that it holds a credible promise for new forms of financial services adapted to a globalized, competitive and digital economy. At the same time, severe threats to consumers, producers and the economy at large accompany this opportunity.
This report ultimately aims to support the early stages of a coordinated public effort to promote the growth of DeFi products that are both sustainable and harmonized with general public policy goals such as financial stability, economic inclusion, market integrity and consumer protection.
J.P. Morgan Digital Transformation: Resorts, Gaming and Entertainment
This white paper explores various ways that resort operators may bolster their in-person experiences with digital elements. Each example is a springboard to showcase opportunities for payments to enhance digital innovation. Below are three key takeaway views on the space:
The resort, gaming and entertainment ecosystem may lead many industries in
the convergence of the digital and physical experience with a super-app that powers the entire user journey.New technologies such as the metaverse, augmented reality and virtual reality could play a key role in creating further opportunities for a contextual, digital experience.
Integrated payment solutions can grow resort businesses into a greater marketplace experience for both third parties and resort guests by enabling faster, safer and lower-cost virtual wallet transfers.
Though the firm has continued doing deals, a16z crypto - which manages $7.6B in funds and raised $4.5B fund in May - participated in only seven crypto and blockchain VC deals in the third quarter of 2022, according to PitchBookdata.
In her article, Anne Sraders tries to understand why it looks like VCs/PEs are not taking the opportunity to snap up lots of deals at lower prices.
The conclusion:
VCs may have made investments in stealth
VCs may be waiting for even lower valuations
Crypto companies raised funds in 2021 or early 2022, and are not keen on raising a downround and taking a valuation cut
Whether she is right or not, we’ll have to wait for the next quarters to see if the chill in the crypto venture space will last.
📈 Charts of the week
The table below shows the fundamental differences between stablecoins and CBDCs
The below chart shows that total staked Ethereum surpasses 14 million in Q3 2022
The below chart shows the sudden jump in volume due to the Reddit NFT launch
Reddit onboarded over 3,000,000 wallets, minted over 86,000 NFTs, and brought in a 175 ETH sale ($230,000). This caused a huge surge in NFT volume on Polygon. Reddit NFTs are currently at a $100M market cap.
💡Metaverse and NFT news, trends, and insights
1. Kings of Leon's NFT album creator now has a metaverse music venue
Web3 music company YellowHeart launched a metaverse music venue on Spatial. a move it hopes will drive changes in how artists release tickets and engage with fans. Blues artist G.Love will be performing there later this year.
2. Crypto firm Seba Bank targets storage of blue-chip NFTs
Crypto firm Seba Bank has started its first NFT service, an institutional-grade, certified and independently audited hot and cold storage custody product for blue-chip NFTs.
3. Azuki NFTs set a record for the most expensive skateboards in history
Azuki has embedded each skateboard with a PBT-based BEAN chip, a cryptographic chip that connects the physical item to its digital token. Nine “Golden Skateboard” NFTs make up the most recent Azuki collection, fetching $2.5M in total. The most expensive NFT at 309 ETH. Uplifts the status of Azuki as a blue chip.
4. Warner bros release Ethereum-compatible “Lord of the rings” NFT
Warner Bros. Discovery is launching Ethereum-compatible Web3 movie experiences and non-fungible tokens as part of the new WB Movieverse. The first release features The Lord of the Rings: The Fellowship of the Ring and will be available starting Oct. 21.
5. NFT creators have earned $18B in royalties to date: Galaxy Digital
The highest-earning entity Yuga Labs earned a total of more than $147.6M in royalties. All of these earnings are collected through sellers and not the buyers. Now, most of the NFT marketplaces are joining the zero royalty club. Degods became the latest to join the zero royalty club earlier this month with royalty payments from 9.99% to 0%.
🔦Company spotlight
The company: 👉 CertiK 👈 is a security-focused startup providing a ranking platform to analyze and monitor blockchain protocols and DeFi projects. It evaluates protocols and smart contracts to ensure the security of individual blockchains and the entire industry. This includes conducting comprehensive security audits of smart contracts and blockchain code and safe and in-depth attack simulations to expose vulnerabilities in crypto exchanges, wallets and decentralized applications (dApps). It also provides ongoing services, including on-chain analytics and monitoring, wallet and suspicious activity tracing and KYC services designed to de-anonymize blockchain and create greater accountability in the industry.
The story: Founded in collaboration with Columbia University and Yale, CertiK is combining the power of research and technological innovation to solve this problem. Since, it has attracted investment from big names such as Sequoia, Goldman Sachs, Tigerglobal, Softbank and others.
Why should I care: As Web3 continues to gain momentum, hacking and other digital threats are becoming more prevalent. A recent report by CertiK revealed that Web3 companies have lost over $2 billion to hacks and exploits in 2022 alone. To combat this, the blockchain industry must develop better security protocols and systems to deal with these threats to gain the trust of the larger public. This is essential for developing the blockchain industry, allowing individual users and companies to build a greater trust in the reliability of blockchain.
📅 Blockchain, Crypto, and Web3 events calendar
….for the next couple of months
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
🆕 Singapore FinTech Festival | Nov 2-4, 2022 | Singapore, SG
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
🆕 Blockchain: Applied - An Introduction to Web3 | Nov 20, 2022 | London, UK
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
Nordic Blockchain Conference | Dec 1, 2022 | Copenhagen, Denmark
Blockchain Expo Global | Dec 1-2, 2022 | London, UK
Africa Bitcoin Conference | Dec 5-7, 2022 | Accra, Ghana
Future of Crypto by Benzinga | Dec 7, 2022 | NYC, US
Israel Crypto Conference | Dec 7-8, 2022 | Tel Aviv-Yafo, Israel
CoinAgenda Caribbean 2021 | Dec 7-9, 2022 | San Juan, Puerto Rico
World Blockchain Summit Bangkok | Dec 8-9, 2022 | Bangkok, Thailand
Taipei Blockchain Week | Dec 12-17, 2022 | Taipei, Taiwan
MetaVentures Bangkok | Dec 14-15, 2022 | Bangkok, Thailand
🆕 Blockchain Expo World 2022 | Dec 21-31, 2022 | Istanbul, Turkey
👩💻The job fair
Drift Labs - Quantitative researcher - New York
Protocol Labs - Research Scientist - Remote
Custodia Bank - Smart Contract Engineer(Solidity) - Remote
Co:Create - Director of Business Development & Client Implementation - Remote
📚The term of the week
Community Governance - A system in which a community, instead of a central body, governs the protocols. The community uses governance tokens to signify each party’s vote on a given discourse. In some communities, the majority of governance tokens are held by founders and early investors, which allows them to control outcomes. However, the community holds more decision-making power than the shareholders.
📎 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.