Issue #32

Market Overview

As of the time of writing (Monday 5pm), the total market cap of the crypto asset market is $US1.06T, down 1.2% from last week.

Below is the weekly performance of the top crypto and NFT assets. 

News Headline Highlights

• Coinbase, the second largest crypto exchange by trading volume, announced a product called Wallet-as-a-Service (WaaS). Waas is designed to reduce the complexity for web3 users associated with managing private keys by allowing companies to create fully customizable in-app wallets.
• Yuga Labs, the company famous for creating the Bored Ape Yacht Club, sold 288 TwelveFold generative art pieces for 735 BTC (US$16.5m) in a 24 hour auction. TwelveFold is a limited-edition collection of 300 generative art pieces created by Yuga Labs’ Chief Content Officer and co-founder of 10KTF, Michael Figge. Each piece is inscribed on satoshis on the Bitcoin blockchain using the Ordinal Standard.
• A bankruptcy judge in the Southern District of New York, Michael Wiles, overruled the various objections of Binance.US’s proposed $1B acquisition of bankrupt crypto lender Voyager Digital’s assets. Whilst Binance.US may still have to overcome regulatory hurdles before the deal can be finalised, Wiles indicated he was in favour of approval.
• Initial oral arguments were presented in Grayscale’s case against the US Securities and Exchange Commission (SEC) for wrongful denial of the conversion of GBTC into an ETF. During the hearing, U.S. federal appellate court judges most strongly questioned whether the SEC’s approval of futures products and denial of spot products was correct. The hearing was positive for GBTC which saw its infamous discount to spot prices shrink from 46% to 40%.
• Crypto derivatives on the Chicago Mercantile Exchange (CME) reach new volume and open interest milestones.  Ether options volume on the CME reached its highest level since inception (August 2022). Whilst bitcoin options open interest reached an all-time high and crossed $1 billion for the first time.

• Within 5 days, Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank all ceased operations. Silvergate and Signature were the two main banks for crypto companies, while Silicon Valley Bank was predominantly focused on VC-backed tech start-ups. Whilst Silvergate wound down voluntarily and had the funds to make depositors whole, that was not the case for SVB or Signature which were shut down by the FDIC. Before US market open on Monday, it was announced that bank depositors will be made whole in a joint statement delivered by the U.S. Federal Reserve Chairman Jerome Powell, U.S. Treasury Secretary Janet Yellen, and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg
• Coinbase acquired One River Digital Asset Management (ORDAM), an institutional digital-asset manager and U.S. Securities and Exchange Commission-registered subsidiary of One River Asset Management. The move comes as Coinbase seeks alternative ways to expand beyond its core retail trading business in response to the drop-off in transaction volume in recent months.

 Crypto Asset Project Updates

• Tether's US Dollar stablecoin (USDT) market share has risen to its highest level in 15 months amid the Binance USD regulatory and Circle’s banking issues. USDT now accounts for over 54% of all stablecoins.
• MakerDAO, a decentralised autonomous organisation (DAO) responsible for managing the DAI stablecoin, is reviewing a proposal to allocate an additional $750m to U.S. Treasurys. If passed, the resolution would add to the $500 million approved in October 2022.
• Aztec Team announced they will be sunsetting their privacy infrastructure 'Aztec Connect'. In the coming week, deposits into the Aztec Connect contract from front-ends will be disabled. Users will continue being able to withdraw with no fees for one year.

Regulation Station

• Acting chief of the Office of the Comptroller of the Currency (OCC), Michael Hsu, suggested a common consolidated industry regulator is required to provide assurances to users of crypto service providers. “We won't be able to know which players are trustworthy and which aren't until a credible third party, like a consolidated home country supervisor, can meaningfully oversee them”.
• New York State Attorney General, Letitia James, filed suit against KuCoin alleging the Seychelles-based crypto exchange is violating securities laws by offering tokens – including ether (ETH). Her rationale for declaring ETH a security is that it is “a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH”. Magnet quick take - this is an insane stance to take, classifying the works of an independent developer as a ‘common enterprise’ (classification under Howey test) is wrong. Another example of why 80yr old regulation is impractical framing for digital assets…
• Revealed in the Joe Biden 2023 budget, the U.S. Treasury Department proposed a 30% excise tax on the cost of powering crypto mining facilities. The tax would be phased in over the next three years, increasing 10% each year. Magnet quick take - this is a very shortsighted stance that will handicap US miners, ultimately resulting in mining operations moving to other global venues (as was the case when China banned mining). This will reduce US taxes and remove the proven benefits crypto mining has proven to provide, such as sustainable energy innovation and stabilising US grid power.

The Weekly Deal Room

• Web3 app developer Kresus aims to bridge more everyday consumers to Web3 products and services after raising $25m in a Series A led by Liberty City Ventures. 
• Toku, a startup that helps crypto companies comply with international tax obligations related to token-based salaries, raised $20m in a funding round led by Blockchain Capital. 
• Yuga Labs raised $16.5m in a 24 hour public auction of their Twelvefold generative art collection that utilises the Ordinal Standard to inscribe the art on the Bitcoin blockchain.
• Proven, a developer of zero-knowledge proofs that enables exchanges, stablecoins, asset managers and custodians to prove solvency on a daily schedule, raised $15.8m in a Seed Round led by Framework Ventures.
• Violet, a blockchain compliance and identity infrastructure company raised $15m in a funding round for Mauve, a compliance-focused decentralised exchange, led by Coinbase Ventures and Brevan Howard.
• Cubist, a security-focused Web3 dev tools provider, raised $7m in a Seed Round led by Polychain Capital.
• Gyroscope, who tout development of an ‘All Weather Stablecoin’, raised $4.5m in a Seed Round co-led by Placeholder VC and Galaxy.
• Non-custodial bitcoin platform, Relai, raised $4.5m in an investment round led by Jeff Booth's ego death capital.
• EtherMail, a Web3 email solution for anonymous and encrypted wallet-to-wallet communication, raised $4m in a pre-Series A funding round led by Tim Draper and Draper Associates.
• Tensor, a Solana-centric NFT trading platform, raised $3m in a Seed Round led by Placeholder VC.

Metric of the Week

Circle’s US Dollar stablecoin, USDC, often regarded the most regulated, safest and robust stablecoin in crypto, lost its peg over the weekend, falling as far as $0.87 per token. 

Fear set in after failures in the US banking system raised concerns that Circle deposits which back the stablecoin might now be recoverable. Specifically $3.3B in cash that was held with Silicon Valley Bank. 

Since it has been made clear that all depositors will be made whole, renewing confidence in the peg which has risen to $0.99 per token. We expect this to return to its peg once US dollar transfer wires reopen on Monday.

Source: Coingecko