Eterna's Insights - August 2023

Crypto ETFs: A New Reality in the US?

Crypto ETFs continued to make headlines over the month. Grayscale, a crypto asset manager, successfully pushed back against the SEC's previous denial of converting its Grayscale Bitcoin Trust (GBTC) into a listed Bitcoin ETF. The SEC had cited concerns about the prevention of fraudulent and manipulative practices. However, a judge's ruling granted Grayscale's petition for review and vacated the SEC's denial. This development is seen as a positive step for the crypto industry in its ongoing engagement with regulatory authorities.

Additionally, there's anticipation surrounding the potential approval of Ether Futures ETFs in the US. Various firms, including VanEck and Valkyrie, have submitted applications for these ETFs, pending SEC approval. While the SEC was expected to make a decision on the approval of Spot Bitcoin ETFs this month, they opted to extend its review period by an additional 45 days. This has impacted decisions on applications from WisdomTree, VanEck, Invesco Galaxy, Bitwise, Valkyrie, Wise Origin Bitcoin Trust proposed by Fidelity, and Blackrock.

Cooperation Unlocking Innovation

Microsoft and Aptos Labs have entered into a partnership to explore the integration of AI with blockchain. Aptos is leveraging Microsoft's infrastructure to create tools like the Aptos Assistant chatbot, designed to assist users with queries related to the Aptos ecosystem and support developers working on smart contracts and decentralized applications (dapps). In addition, both companies have expressed their intention to delve into blockchain-based financial services, including asset tokenization, payment solutions, and Central Bank Digital Currencies (CBDCs). Mastercard has also deepened its involvement in the CBDC space by creating a CBDC partner program. The initiative aims to bring together notable industry players such as Ripple, ConsenSys, Fireblocks, and Fluency to foster innovation and efficiency in the CBDC realm.

Asset tokenization has gained momentum in recent months, leading to experimentation by numerous financial institutions. This month, Chainlink and Swift announced that they have successfully tokenized value across multiple private and public blockchains in recent experiments. The interoperability tests were conducted with over ten financial institutions including Citi, BNP Paribas, and BNY Mellon. The tests were done through Chainlink’s Cross-Chain Interoperability Protocol, which went live last month.

Base Front and Centre

Base, the new Layer 2 from Coinbase, officially launched its public mainnet. Base has been gaining significant traction with the likes of Uniswap, Balancer, 1inch, and Sushiswap all launching on the network. Furthermore, Coinbase has enlisted mainstream brands including Atari, Coca-Cola, and Opensea to offer daily mints of onchain collectables. The biggest driver of activity on the network can be attributed to a new decentralized social media app called Friend.Tech, which enables tokenization of Twitter accounts for access to private chats. The new dapp quickly gained 100k users and generated over $25m in fees. PayPal has furthered its footprint in the crypto space by integrating with Hardware Wallet manufacturer, Ledger. Through the new integration, US residents with a verified PayPal account will be allowed to buy Bitcoin, Ether, Bitcoin Cash and Litecoin through Ledger Live with no extra verification.

Regulation Updates

Singapore became one of the first jurisdictions globally to agree on stablecoin regulation. The Monetary Authority of Singapore announced that it had laid out a framework for some key requirements that must be fulfilled to be recognized by the regulator. These include the following. Reserves that back stablecoins must be held in low-risk and highly-liquid assets. They must equal or exceed the value of the stablecoin in circulation at all times. Stablecoin issuers must return the par value of the digital currency to holders within five business days of a redemption request. Issuers must also provide “appropriate disclosures” to users, including the audit results of reserves.

In the UK, crypto asset businesses now face stricter regulations, with the implementation of the 'Travel Rule' starting from September 1st. Crypto asset businesses must collect, verify, and share information about crypto asset transfers. If payments originate from jurisdictions without the Travel Rule, businesses must make risk-based assessments before transferring crypto assets. Stricter regulations such as this have resulted in companies such as PayPal pausing crypto activity in the UK.

Eterna Portfolio Company Spotlight:

Onramp Invest has been acquired by Securitize

Our portfolio company, Onramp Invest, has been acquired by Securitize. Onramp is the leading digital asset wealth platform for Registered Investment Advisors (RIAs), while Securitize is the leader in expanding investor and business access to tokenized alternative assets. As a result of this acquisition and for the first time, RIAs will be able to offer their clients investments in top-performing alternative asset classes such as private equity, private credit, secondaries, real estate, and more, through the same Onramp Invest dashboard they are already familiar with. By giving RIAs direct access to Securitize’s alternative investment portfolio, they will be able to offer their clients institutional share classes from top alternative asset managers, lower minimum investments, lower fees, and access to liquidity. According to Securitize CEO, Carlos Domingo, “Our acquisition of Onramp is another big step forward in expanding investor access to top-performing alternative assets and in democratizing private capital markets. Onramp already offered RIAs easy access to digital assets, so it is a very natural extension to offer them tokenized alternative assets to complement their portfolios.”