August 18, 2022       /       Unchained Daily       /       Laura Shin

Daily Bits✍️✍️✍️

• Flashbots accelerated the release of its relay code as open source.
• Canadian pension giant CDPQ lost $150 million in its Celsius investment.
• JPMorgan says Coinbase could benefit from the Ethereum merge.
• Ukraine bought weapons with some of the $60 million crypto donated after Russia’s invasion.
• Crypto lender Nexo is suing a former director over a $7.9 million trading loss.
• Michael Moro has stepped down as Genesis CEO and the company laid off 20% of its employees.
• Federal Reserve Governor Michelle Bowman pushes back on a CBDC.
• Senator Pat Toomey said that the Federal Deposit Insurance Corporation “may be improperly taking action to deter banks from doing business with lawful cryptocurrency-related companies.”
• Adam White, former COO of Bakkt, joined Blackstone as a crypto-focused senior advisor.
• Registrations on Ethereum Name Service (ENS) reached two million yesterday.
• Crypto platforms in Canada have started enforcing new regulations, that impose an annual net buy limit of $30,000 CAD on all cryptocurrencies except BTC, ETH, BCH and LTC, in nine provinces.

Today in Crypto Adoption…

• The International Finance Corporation (IFC), a member of the World Bank Group, partnered with Chia Network to push investments for tokenized trading of carbon credits.

The $$$ Corner…

• Coinfund launched a $300 million fund to invest in early-stage blockchain projects.
• Shima Capital raised $200 million for its first Web3 fund.
• NFT platform Fractional raised $20 million and it rebranded as Tessera.
• Crypto gaming DAO Matchbox closed a $7.5 million funding round.
• Snackclub, a DAO focused on Web3 gaming, is looking to raise funds at a $100 million valuation.

What Do You Meme?

What’s Poppin’?

Bets on the Ethereum Merge Are High

by Juan Aranovich

Last week, after the successful integration of the Goerli testnet into the Beacon chain, the Ethereum Merge date was announced.

The Merge is expected to happen on September 15 and will mark one of the most important events in the history of crypto, as the Ethereum blockchain transitions from a Proof of Work consensus mechanism to a Proof of Stake one. Numerous analysts and traders, from crypto native ETH proponents to investment banks, are also saying it will positively impact the price of ETH.

Various narratives around the Merge, which will also reduce Ethereum’s environmental impact, have been making people bullish. First, after the Merge, some believe that ETH will become a “triple point asset”:

• A capital asset.
• A consumable asset.
• A store of value.

This last one is a little controversial, as that has long been BTC’s claim. However, with the implementation of EIP-1559 and the transition to Proof of Stake, the meme of ETH being “Ultra Sound Money” started circulating last year, along with the emojis 🦇🔊 (a bat and a sound). ETH bulls have also compared the Merge to a “triple halving” (meaning it is equivalent to three BTC halvings) and have said it will lead to ETH becoming a deflationary asset.

Yesterday, Arthur Hayes, former CEO and cofounder of BitMex, published a post (featured in “Recommended Reads”), explaining that, if the Merge is successful, “there is a positive reflexive relationship between the price and the amount of currency deflation. Therefore, traders will buy ETH today, knowing that the higher the price goes, the more the network will be used and the more deflationary it will become, driving the price higher, causing the network to be used more, and so on and so forth.”

The sentiment appears to have won over traditional finance. According to JP Morgan analyst Kenneth Worthington, the Merge is not only beneficial for ETH holders. In a note to investors, the analyst said that Coinbase could experience a “bigger revenue opportunity” from its Ethereum staking service.

In addition, it looks like Citi is bullish on ETH. “Citi says switching from PoW will reduce overall issuance of ether by 4.2% a year, and with ether (ETH) eventually becoming deflationary, this may improve the case for the token as a store of value.

The move to PoS turns ETH into a “yield-bearing asset” with cash flows, the bank said, which may be interpreted as a form of revenue for the network. Having potential cash flows would allow the use of a range of valuation methods that aren’t available for the blockchain now, the bank added,” reported Will Canny from CoinDesk.

Market data also seems to support the current optimism for Ethereum. First, the ETH/BTC ratio shows that ETH has outperformed BTC by 50% since the prices bottomed out in June. Second, aggregate open interest (the total number of open futures contracts held by market participants) of ETH options hit an all-time high last Friday.

Recommended Reads

1. Arthur Hayes on the ETH trade
2. Robert Leshner on the Ethereum merge
3. Patrick Bush and Matthew Sigel on ATOM

On The Pod…

Welcome to The Chopping Block! Crypto insiders Haseeb Qureshi, Tom Schmidt, and Tarun Chitra chop it up about the latest news in the digital asset industry. In this episode, Laura Shin, host of Unchained and author of The Cryptopians, also joined the conversation. Show topics:

• What Tornado Cash is and why it got sanctioned by the OFAC
• The difference between Tornado Cash and blender.io
• Whether privacy is dead as a category and whether regulators are going after it
• How these sanctions have a negative impact on the funding of privacy projects
• How people within the industry can have different points of view, even when they understand the technology
• Whether the ban of Tornado Cash only means that malicious groups will just go and use other protocols
• Why regulation by enforcement sucks
• The asymmetry between the government’s sanction and the effort needed to push it back.
• What changes after the Merge for ETH in terms of centralization
• Whether some MEV solutions make Ethereum more centralized
• Why MEV is intrinsic to blockchains and whether it is impossible to get rid of it
• Why Proposer-Builder Separation is helpful for the network
• Whether MEV is illegal and the plausibility of major exchanges not extracting MEV
• Why Facebook has an MEV extraction business model, according to Tarun
• How some NFT exchanges are not enforcing royalties
• What Sudoswap is and how it works
• How the royalties were there to bootstrap the supply side of NFTs
• Why Tarun thinks music NFTs will never happen
• The economic reasoning around royalties
• The differences between NFT marketplaces like OpenSea and Magic Eden
• Whether NFTs have a real-world use
• How Dragonfly’s acquisition of Metastable brought Laura some old memories

Book Update

You can purchase it here: http://bit.ly/cryptopians