Eterna's Insights - July 2022

The Good

There has been a lot occurring with the Ethereum merge, during which the Ethereum network will undergo a transformation to the Proof of Stake consensus mechanism. At the beginning of the month, the second of three public testnets was completed, as Ethereum’s Sepolia testnet activated Proof of Stake consensus. Towards the end of the month, it was announced that the final testnet merge, Goerli, is scheduled to have its merge event in August. According to lead Ethereum developer, Tim Beiko, the Goerli testnet will merge with the Beacon Chain called Prater and the combined Goerli/Prater network will retain the Goerli name post-merge. This will occur in 2 phases starting on August 4th with the Bellatrix upgrade on the consensus layer. The second phase called Paris, where the execution layer will transition from Proof of Work to Proof of Stake, is expected to be completed between August 6th - 12th.

The Bad

The Securities and Exchange Commission (SEC) charged an ex-Coinbase product manager with insider trading, the first case of its kind. The individuals were accused of plotting to profit from the listing of new tokens on the Coinbase platform. What was significant about the case was that the SEC stated that 9 out of the 25 tokens allegedly traded in the scheme were securities. This was the first time that the SEC has identified several cryptocurrencies as securities without charging the issuers of the cryptocurrencies. Following this case, the SEC is now also probing Coinbase for allegedly listing securities. Coinbase has responded with criticism towards the SEC on not providing clear rules for defining how cryptocurrencies may be deemed securities.

The Ugly

Three Arrows Capital (3AC), a prominent crypto hedge fund, has filed for Chapter 15 bankruptcy in New York to protect its US assets. This came after a court in the British Virgin Islands ordered 3AC to be liquidated. The Monetary Authority of Singapore has also ‘reprimanded’ 3AC for misleading information and ignoring assets under management limits. Voyager Digital, who loaned $670m to 3AC and declared 3AC in default, filed for Bankruptcy protection. They also recently rejected a joint bid from Sam Bankman-Fried’s FTX and Alameda Research. They called the deal proposed “a low-ball bid dressed up as a white knight rescue”, in documents filed to bankruptcy court in New York. Celsius, a cryptocurrency lending platform, has also filed field for Chapter 11 Bankruptcy in New York. New documents as part of the bankruptcy showed that the firm has a $1.2bn hole in its balance sheet, with the firm reporting that it has $5.5bn in total liabilities and $4.3bn in assets.

The Interesting

Jewelry brand Tiffany and Co. announced that it will be launching a collection of diamond-encrusted pendants exclusively available for CryptoPunk owners. The pendants will be sold for $50k and will be limited to 250 editions. KuCoin became the first exchange to offer NFT ETFs. The suite of ETF products will be denominated in USDT and will offer fractional ownership of 5 blue chip NFT collections, including Bored Ape Yacht Club, CryptoPunks, Sandbox, Otherdeed, and Ethereum Name Service.

The Daimler Group, the parent company of Mercedes Benz, announced that its Southeast Asia division will release a blockchain-based data sharing platform, called Acentrik, using Ethereum Layer-2 scaling platform, Polygon. Acentrik will enable its users to buy and trade data, such as insurance details, results of scientific trails, and more. Rather than the data being saved on the blockchain, each dataset will be represented by an NFT on which a metadata hash is stored on.

Dubai’s Crown Prince, Hamdan bin Mohammed bin Rashid Al Maktoum, announced Dubai’s Metaverse Strategy, which will look to use the metaverse to create 40,000 "virtual jobs" and add $4 billion to its economy over the next five years. The announcement also stated that Dubai will look to develop Metaverse use cases and applications in Dubai’s government.

Custody, Custody, ETFs

Institutions have continued flooding into the crypto space. BNP Paribas announced that they are entering the cryptocurrency custody space via a partnership with Swiss digital asset safekeeping firm Metaco. This is significant news as BNP Paribas Securities is a major global custodian with $13tn in assets under custody. It was also reported that Barclays was entering the space by taking part in crypto custody firm, Copper’s, new $2bn funding round. Charles Schwab announced that it would list a crypto ETF on the NYSE. Unlike ETFs that track a basket of digital assets, Schwab’s will provide investors with exposure to companies that may benefit from the development or utilization of cryptocurrencies.

It’s all talk with CBDCs

There has been much discussion surrounding CBDCs over the last month. US Federal researchers, Todd Keister from Rutgers University and Cryril Monnet from the University of Bern, released a paper stating that a government-issued dollar could actually help stabilize a wobbly financial system. According to the paper, a CBDC would give governments an early-warning system for signs of distress in the economy. More flows into digital dollars would tell regulators that trouble could be brewing. In addition, the European Central Bank published key objectives for the digital euro in a blog authored by Christine Lagarde and Fabio Panetta. According to the blog, a digital euro can only be successful if it becomes part of everyday lives of Europeans. It must add value with existing solutions”. They also said that the digital euro would be a means of payment and not a form of investment. Finally, Australian Central Bank chief, Philip Lowe, stated he believes that regulated private tokens could be better than CBDCs as the private sector is better than the central bank at innovating and designing features for these tokens. He also believes that there would be significant costs for central banks to set up digital tokens.