Latest Research News for Stablecoins, Bitcoin, Ethereum and DeFi, July 2024

Stablecoins Update

Circle Gets French License To Issue Stablecoin in EU

Circle obtained an e-money license from France, aligning with EU’s Markets in Crypto-Assets (MiCA) stablecoin regulations. This makes Circle the first global stablecoin issuer to comply with MiCA. The license allows Circle to issue USDC and EURC tokens in the EU under MiCA’s stablecoin rules. Circle also launched its Circle Mint service in France for minting and redeeming stablecoins, enabling all European Union countries to use it. The move is seen as a significant step towards mainstream adoption of digital currencies in the EU. This follows the views that MiCA rules were particularly stringent, especially regarding USD denominated stablecoin and their use as “means of exchange” (MoE). Specifically, companies must stop issuing non-euro-denominated stablecoins used as a MoE if they cross a threshold of more than 1 million transactions or a value of over 200 million euros (US$215.2 million) per day, according to Article 23 of MiCA.

Tether Record Breaking Half Year Profits at $5.2 billion

Tether released its Q2 2024 assurance opinion, conducted by BDO, a leading global independent accounting firm. Tether shares the following “Building on the momentum from Q1 2024, the second quarter of 2024 marked a significant milestone for Tether with a net operating profit of $1.3 billion,its best result ever, delivering a record net profit of $5.2 billion for the first half of the year. Tether now owns close to $98 billion dollars of US treasuries directly or indirectly. This growth brings Tether’s exposure to Treasuries above Germany, the United Arab Emirates, and Australia. While China and other countries have been recent net sellers of U.S. Treasuries, Tether positioned itself at 18th in the rankings of countries owning U.S. debt; it also ranks 3rd in purchases of 3-month U.S. Treasuries after the United Kingdom and the Cayman Islands. Given the trajectory of USDt adoption, it sees the potential of becoming 1st in the next year” the press release said. This event showcases that Tether and other stablecoin are business models that work.

Stablecoins: A Growing Force in Payroll

A recent report on stablecoin adoption and utilization by Rise, an up and coming payroll solution provider, has surfaced some interesting insights.

The first piece of info is evident, DeFi users (86.2% of respondents) prefer USDT versus USDC. This is likely due to SVB going bankrupt while holding more than $3 billion dollars of reserve assets of Circle. On the other hand, USDT is the stablecoin that registers the highest volumes on all exchanges. Nevertheless, wallet holding USDC grew by 59% since 2023 and with USDT they are the two major stablecoin for payments and payroll making up 65% of all payroll payments.

Regarding DeFi liquidity, it is largely composed of half stablecoin pools on decentralized exchanges and has grown by around 40%.

Paxos Prevails in SEC Investigation Over BUSD

Paxos, a regulated blockchain and tokenization platform, announced on July 11, 2024, that the SEC has concluded its investigation of the Binance USD (BUSD) stablecoin without recommending enforcement action. This decision comes after Paxos received a Wells Notice in February 2023

The company maintained throughout that its USD-backed stablecoins are not securities under federal law. Paxos views this development as a potential catalyst for increased stablecoin adoption by global enterprises. Paxos reaffirmed its commitment to customer asset safety, highlighting that their stablecoins are always backed 1:1 with US dollar-denominated reserves in segregated, bankruptcy-remote accounts

Bitcoin Update:

Germany Selling Spree

In July, Germany sold out all of its bitcoin holding that it had seized. The selling started mid June while the bitcoin market was starting to trend lower. It picked up at the beginning of July when it sold the majority of its 50,000 BTC in the span of 13 days, with 40,000 BTC sold in the last 5 days. The market might have front run the German govt in the selling at the market was already trending down.

The move has been heavily criticized by Crypto Twitter

Bitcoin Nashville Conference

The conference that happened from the 25th to the 27th was packed with announcements from US political figures with Donald Jr Trump, former 45th POTUS, Senator Lummis and Robert F Kennedy Jr. Those have definitely stopped the fears of the US govt selling its 207,189 BTC that have been seized over the years, as Germany has done for the past months.

Donald Jr Trump and Senator Lummis and RFK Jr have generally advocated for the same plans. It all boils down to the following key points:

• Create a “Strategic National Bitcoin Stockpile” i.e. direct the US Treasury to build a reserve of bitcoin with the DOJ’s current holdings as its “core”. Senator Lummis provided more details of this strategic reserve, explaining it would need to be held at least 20 years and used as a hedge against the inflation of national debt over the same period.  

Donald specifically added:

• End anti-Bitcoin policy, including:
  • Fire Gary Gensler
  • End Operation Chokepoint 2.0
• Embrace stablecoins for US dollar dominance
• End development of a CBDC and block future attempts.

On the other hand, RFK Jr while advocating for building a strategic reserve of bitcoin for the US has openly criticized Donald Trump by saying: “I welcome President Trump’s new enthusiasm for Bitcoin. But he’s only weeks into the Bitcoin dialogue” while he is a long term holder. He further cautioned the crowd with “Bitcoin is about our souls. It’s about our values,” Kennedy said. “President Trump needs to explain how his personal values align with those of Bitcoiners. If he doesn’t do that, then we don’t really have any insurance, do we, that his support of them is not another ephemeral monetary policy fad du jour.”

We will keep a close eye to this development as nonetheless this rapid adoption of Bitcoin in politics seems to be beneficial for adoption.

Combination Of Selling Pressures

MtGOX announced at the end of June that it was ready to start the repayment process which would start at the beginning of July. There is speculation that the creditors would sell the bitcoin as soon as it is received. This remains to be seen but as of now MtGOX has only 33,000 BTC left to distribute. This is unlikely as they could have sold their claims during the 10 years of wait. Also some claim holders are institutional  (Fortress and Off the Chain Capital) which are unlikely to sell. Also selling those bitcoin would incur heavy taxes as the profits are multiples higher of the initial value.

Government selling has also been the case during this month with the example of Germany (see above).
Finally the miners are suspected to offload bitcoin from their treasuries but this seems rather doubtful as miners seem to only sell the bare minimum while stacking as evidenced by Glassnode article showing a steady cumulative bitcoin sold reaching 8.9k at the end of July.

Ethereum Update

Coinbase to Compete With BlackRock’s BUIDL

Coinbase Asset Management is creating a tokenized money-market fund, according to four people familiar with the plan.

Tokenization of real-world assets is a hot corner of crypto which is starting to become crowded. Nevertheless BlackRock’s tokenized U.S. Treasuries fund quickly grabbed $500 million of assets this year. Coinbase is attempting to reiterate the same feat which seems to answer high demand from users thanks to the product’s high transparency and liquidity compared to US Treasuries. Two of the people familiar with the matter said Coinbase Asset Management has been working with Bermuda-based Apex Group to help facilitate its tokenized fund. Apex services over $3 trillion of assets across custody, administration, depositary and managed funds.

ETH ETFs Launch – Not What The Market Expected

The ETH ETFs have launched on the 23rd of July with an underwhelming support and inflow. There was 5 main issuers: Fidelity Ethereum Fund (FETH); Franklin Ethereum ETF (EZET); Invesco Galaxy Ethereum ETF (QETH); VanEck Ethereum ETF (ETHV); 21Shares Core Ethereum ETF (CETH). Similarly to the Bitcoin ETF launch, the issuer has engaged in fee wars, with some waiving fees up until some AUM threshold or specific date but fee are all waived right now. Some already shared the fee number and it seems to be averaging around 0.25%.

The launch has been underwhelming after the Bitcoin ETF launch breaking records. At the end of the month of July, ETH net inflow was negative as outflow from Grayscale ETHE Trust overwhelmed the inflow of the past 17 days after launch.  

MakerDAO Launched A $1Billion RWA Competition

MakerDAO launched the Spark Tokenization Grand Prix, a competition aiming to allocate $1 billion worth of reserves toward tokenized real-world assets. The competition is open to all RWA issuers. Superstate, Ondo Finance, Paxos, Mountain Protocol, Open Eden, Arca, Wisdom Tree, Ledgity have already expressed their intent to apply with their tokenized short term US treasury funds. It remains unclear if non-USD RWA assets like EUR will be eligible. The initiative is part of a reserve diversification effort, kicking off MakerDAO’s Endgame, a protocol overhaul designed to expand the DAI stablecoin into RWA products, diversifying its backing reserves.

DeFi Updates

TON – The Open Network

ETH and SOL are still battling to win over developers and secure the most VC funding. But while this is happening, few are paying attention to The Open Network (TON).

DeFi is booming there, and developers might want to look up and see if the grass is greener elsewhere. The TON ecosystem is rapidly growing, with a Total Value Locked (TVL) of $760 million USD. It has 52 full-time developers and 250 monthly active developers, showing a very healthy trend.

Compared to more mature chains with similar TVL like Polygon, BNB Chain, or Optimism, TON’s developer activity is thriving while others are seeing a decline. This is likely because the current trend is all about memecoins, and TON is leveraging this by making it easy for the 800 million Telegram users to send and receive crypto directly from the messaging app.

Compound Governance Attack

A recent governance attack took place on Compound Finance. A proposal to transfer 499k COMP tokens, worth $25 million, from the Compound treasury into a third-party controlled multi-signature wallet has narrowly passed with about 51% approval. Led by Humpy, the leader of the Golden Boys, the tokens will be used in a DeFi vault named goldCOMP to generate yield for its depositors. Though it is clear that the vault will be in the sole control of Humpy and his team. The approval follows a previously failed attempt, with OpenZeppelin noting that many COMP token delegations originated from recent exchange withdrawals. This vote grants the Golden Boys significant control over COMP governance, prompting Compound governance to initiate precautionary measures, such as transferring timelock admin rights and adjusting risk parameters to guard against potential governance attacks

Meme Coins Frenzy – Continued

The meme coin sector has surged quite impressively in mid July with a couple of news events that shaped this trend.

First, we have seen rotation of traders into meme coins especially at times when ETH, BTC and SOL are trading in range. The $53 billion meme coin sector rose by more than 12% on the 16th with the likes of pepe (PEPE) and dogwifhat {{WIF}} surging by 22% and 25% respectively, data from CoinGecko shows. This shows that traders are rotating into riskier bets as they take profit on the major pair. US based memecoin like America Coin (USA) or Donald Trump Coin (STRUMP) have surged respectively 203% and 43% after the failed attempt assasination attempts on the 45th POTUS.

Memecoin are still traders and retail favorites since they offer them volatility with suitable levels of liquidity to enter big positions when the majors might lack volatility during the same time frame.

Another example is the memecoin after Kamala Harris (KAMA) that surged around 100% right after 46th POTUS Joe Biden announced that he was withdrawing from his re-election campaign. On the other hand the memecoin associated with president Biden called (BODEN) fell down by 50% minutes after the announcement.

Something to note is that this trend has been happening largely on Solana with protocols like Pump.fun that enable users to create a memecoin with a fair launch in a few clicks and seed the liquidity on DEX as soon as it reaches a certain market cap. This is akin to the jettons (memecoin) on TON that are airdropped or earned to/by users that participated in “click games” within Telegram mini apps. The ease of use and access to risky bets with the promises of changing one’s life through investing (more like gambling) is something retail has been fond of for quite some time now.

This trend isn’t stopping to politics or a few great internet memes turned liquid with a token or just token as a form of reward for participation, memes are in some way at the essence of the internet. Akin to spectacles, memes have been around for a long time and will not go away soon especially when blockchain technology enables their transfer and value accrual to happen through demand and supply.

Key DeFi Stats for July:

Image: DefiLlama

In July, the TVL moved up and down slightly but ended the month at the same level at around $96 billion dollars. DEX 30 day volumes have gone up to the level of May with around $140 billion from $117B in June.

Here are the top DeFi projects based on Total Value Locked (TVL):

Source: Token Terminal. TVL of top protocols as of July 8 2024.

A look at the top DeFi protocols based on the fees generated

Let’s look at the top 5 DeFi/NFT protocols/ecosystems with the most fees generated over 30 days, which generally translates to the most active protocols. In some cases, the protocols take a % of the fee as revenues (eg. Lido Finance) in other cases its distributed almost entirely to the Liquidity Providers Stakeholders (eg. Uniswap Liquidity Providers) hence their revenue varies based on such parameters.

Here are the top 5 protocols for the month of July in terms of Fees generated:

Image by Coinchange, data sourced from DeFillama

Similarly to last month two out of the top 5 are on Solana and the rest 3 are on Ethereum. Pancakeswap replaced AAVE from last month. No wonder the war between the two is cut throat.

Macro View

Donald Trump Assination Attempt

We open the Macro View section with a few words on 45th POTUS Donald Trump.
On July 13, 2024, Mr Trump, survived an assassination attempt while addressing a crowd at a campaign rally near Butler, Pennsylvania. Trump was shot and wounded in his upper right ear by Thomas Matthew Crooks, a 20-year-old man from Bethel Park, Pennsylvania. Crooks fired rounds from an AR-15–style rifle from the roof of a building 400 feet (120 meters) to 450 feet (140 meters) from the stage. Crooks also killed one audience member and critically injured two other audience members. He was subsequently shot and killed by the United States Secret Service’s Counter Sniper Team.

This event sparked a short term increase in perceived chances of Trump winning elections on Polymarket bets.

Massive Trade Deleveraging in Japan & Rotation in US

The Great Rotation: SPY to Russell 2000

The stock market is experiencing a significant shift, often referred to in the news as the “Great Rotation,” where investors are moving their capital from large-cap stocks, represented by the S&P 500 (SPY), to small-cap stocks, represented by the Russell 2000. This rotation is driven by several factors:

• Performance Discrepancy: The S&P 500 has gained 17% this year, while the Russell 2000 has lagged, gaining only 10.5% despite a recent surge. However, the Russell 2000 has shown impressive gains recently, rising 10% over the last five trading sessions, a feat not seen since April 2020.
• Valuation Concerns: There are concerns that valuations of tech stocks (big 7), which dominate the S&P 500 and Nasdaq 100, are becoming stretched, drawing comparisons to the dotcom bubble. This has prompted investors to seek opportunities in undervalued small-cap stocks.
• Economic Indicators: Positive economic indicators, such as expectations of interest rate cuts which did not materialize, have fueled a risk-on sentiment. As the FOMC kept interest at 5.25% – 5.5% until the next meeting, the Russell 2000 does not seem to be the safe haven either as small companies can struggle in a high interest rates environment.
• Retail Investor Activity: Retail investors have also been active in driving up small-cap stocks, contributing to short squeezes that further elevate prices.

Yen Carry Trade and Its Impact

The yen carry trade has been a significant factor in global financial markets, and recent developments have brought it into sharp focus.

The yen carry trade has involved borrowing yen at low interest rates and using the proceeds to invest in higher-yielding assets, such as U.S. Treasury Bills (T-Bills) and stocks.

This strategy has several implications in the current market dynamics:

• Unwinding of Carry Trades: The Japanese yen has appreciated by nearly 10% against the US dollar over the last three weeks, triggering a significant unwinding of carry trades through margin call or liquidation. This rapid appreciation has been driven by multiple factors, including interventions by the Japanese government direct intervention of $36.8 billion, and changes in monetary policy from 0.1% to “around 0.25%”, a major shift since 2008 in Japan monetary policy.
• Market Liquidity: The carry trade increases market liquidity, as borrowed funds are deployed into various investment vehicles, including small-cap stocks. This added liquidity can amplify market movements and contribute to the recent surge in the Russell 2000 while pushing for liquidation of asset that are overvalued like the magnificent 7 (Apple, Google, Amazon, Microsoft, Nvidia, Meta, Tesla)
• Risk-On Sentiment: The carry trade is often associated with a risk-on sentiment, where investors are willing to take on more risk for higher returns. Though the deleveraging at place currently shows that investors are shifting their focus in anticipation of election and monetary policy.

This evolving situation with the yen carry trade underscores the interconnectedness of global financial markets and highlights the potential for monetary policy changes in one country to have far-reaching effects on asset prices worldwide.

U.S. Business Cycle Update

Since the Fed began its monetary tightening plan in early 2022, different sectors of the U.S. economy have experienced varied outcomes. This is largely due to the combination of loose fiscal policy (large federal deficits) and tight monetary policy (positive real rates and rapid tightening), which affects sectors differently based on their sensitivity to deficits or interest rates. The government’s significant debt means that higher interest rates increase the fiscal deficit, partially counteracting the disinflationary effects of monetary tightening.

Commercial real estate operators, not benefiting from deficits, are hit hard by higher interest rates. Conversely, the travel industry, catering to older and wealthy travelers who benefit from federal deficits, is doing well. We’ve seen recessions in the manufacturing and commercial real estate sectors and a right-sizing in unprofitable tech sectors outside of AI. Meanwhile, labor markets and service sectors remain strong.

Recent metrics suggest that economic softening is beginning to affect the labor market and parts of the service industry, especially among those without substantial assets. The official unemployment rate has risen from 3.4% to 4.0%, and historically, a 0.5% increase in unemployment tends to perpetuate itself. The number of adults employed full-time decreased in Q1 2024, while increasing again in Q2 2024 and continuing for August.

The ongoing fiscal deficits stimulate parts of the economy, but the tight monetary policy seems to be impacting the labor market and service sector. As of now the FOMC is maintaining its policy which indicates that it could loosen it by year end if economic indicators improve, aligning with the expectation of a breakout in global liquidity in late 2024 or 2025.

The Federal Reserve’s FOMC met in July and decided to maintain interest rates between 5.25% and 5.50%. They revised their projections, increasing expectations for inflation in 2024 and 2025 and raising longer-term unemployment forecasts. This meeting leaned hawkish, highlighting the uncertainty among Fed officials. Their dot plot for 2025 and 2026 showed a significant spread of 250 basis points between the highest and lowest interest rate projections.

The Fed is likely to ignore idiosyncratic or geopolitical events when forecasting or responding to inflation which might disservice the US as we have seen the impact of not decreasing interest rate when Japan increases it. U.S. bank lending rates are low, and much of the current credit creation comes from the federal government, which is not sensitive to interest rates. The Fed is likely to view this as a job well done and avoid over-tightening based on external factors.

In a recent episode of the Bankless podcast, economist Luke Gromen discussed the significant implications of what he terms “The End of the Petrodollar.” Highlighting a shift in global financial power, Gromen noted that Russian President Vladimir Putin is actively working to circumvent U.S.-based payment systems. As illustrated in a clip featuring Putin, Russia is collaborating with BRICS nations, which now include Saudi Arabia and other oil-producing countries, to develop a new payment system immune to U.S. government influence. Although current reports indicate some trades are still settled in USDT, the long-term objective appears to be transitioning away from U.S. dollar settlements. Furthermore with the re-election of President Maduro, Venezuela could have a significant impact on the petrodollar hegemony in a situation where oil prices are low due to an increase of oil production.

Putin emphasized the creation of an independent payment system within BRICS, free from political pressures and external sanctions. BRICS’ expansion to include Saudi Arabia, Iran, UAE, Egypt, and Ethiopia has bolstered its share of global GDP to 36% and its share of the world’s population to 45%. Notably, Saudi Arabia has chosen not to renew its 50-year Petrodollar agreement with the U.S., which expired on June 9, 2024. Established in 1974, the Petrodollar Agreement provided U.S. military protection to Saudi Arabia in exchange for pricing all oil sales in U.S. dollars and reinvesting the proceeds into U.S. Treasuries. The end of this agreement signals a potential shift away from the U.S. dollar as the global oil trade’s primary currency, a development that is bullish for hard money assets like gold and store-of-value assets like Bitcoin.

Regulations Update

Russia To Allow Crypto As Form Of Payment, Regulate Mining Bitcoin

This move by Russia is an attempt at circumventing Western sanctions that had a significant impact on how it conducts international trades. While Russia made significant improvements to its payments system by accepting the currency of its trade partners like China, India and UAE, still a significant part of the trades are still settled in EUR and USD and go through the SWIFT payment system. This led to a decrease of Russia import by 8% hence Russia is taking significant decisions regarding cryptocurrencies in an attempt to facilitate trades by developing their own crypto payment infrastructure. Which architecture is referenced remains vague at the moment. The Law also include regulation toward crypto mining while not lifting the existing ban on crypto payments, meaning that the development of the solution is still in the work and not fully ready although the Duma said the law will enter in full force in September while the first payments would be made near the end of the year.

Bybit Exit France After Being Blacklisted since May This Year

In a press release published August 1st,  BYBIT shared that it would close down its services to France users. This comes after French Regulators reminded users that BYBIT had been blacklisted since May 2022, saying that “Unregistered platforms providing [digital asset custody services on behalf of third parties, services to purchase or sell digital assets against legal tender, to trade digital assets for other digital assets] services in France are illegal under French law. BYBIT is not registered as a DASP”. In its press release, BYBIT expressed their commitment to regulation “It has always been Bybit’s primary objective to operate our business in compliance with all relevant rules and regulations. In light of recent regulatory developments from the French regulator, Bybit will stop offering our products and services to French nationals and residents (“French Users”)” the press release shared.

The closing of services will be fast taking full effect in less than 15 days. Effective as of August 2nd, all “French Users” will be restricted to “Close-only” mode, which means that from that time onwards, there can be no opening or adding of any new positions nor the purchasing of any type of products. Then as of August 13th, all unclosed positions will be liquidated by force.

Kamala Harris Campaign Seeks To  “Reset” With Crypto Companies

Recently Vice President Kamala Harris advisers have approached crypto companies in an effort to to reset relationships, an article from the Financial Times describes. They apparently have inquired about meetings with major companies like Coinbase, Circle and Ripple Labs. This comes from the amazing support Donald Trump has received from the sector after his appearance at Bitcoin Nashville and decision to pick as VP a true Bitcoiner, JD Vance.

From the perspective of the industry this is important as the Bitcoin and crypto sector have really entered the political debate where candidates might actually take into consideration changes to regulation that have been pushed for years in vain. This was highlighted at Bitcoin Nashville with the cheering crowd that left Trump stunned when he proposed to fire Gary Gensler, SEC chair, as soon as he takes office.

Capital Raises in July 2024

Source: ICO Analytics

1. Iris Energy (IREN) is a leading next-generation data center business that powers Bitcoin mining, AI, and other operations using 100% renewable energy. Headquartered in Australia, Iris Energy aims to scale its hash rate capacity to 30 EH/s and data center capacity to 510 MW by 2025, with plans for further expansion and power monetization activities.

Total raised: $413M

1. Block Mining Group is a Bitcoin mining infrastructure and colocation service provider with its headquarters in Chicago, Illinois. The company operates in the United States, building and deploying data center infrastructure that supports the Bitcoin network.

Total raised: $92.50M

1. Sentient is an AI research organization fostering an Open AGI Economy for AI builders and creators. It develops platforms and protocols enabling open-source AI developers to monetize their innovations, collaborate on powerful AI projects, and become significant stakeholders in a decentralized AI ecosystem. Sentient addresses the limitations of closed-source AI by promoting open, monetizable, and community-aligned AI models through blockchain protocols and incentive mechanisms.

Total raised: $85M

Partior is revolutionizing financial market infrastructure with its decentralized, programmable, and always-on platform. Utilizing a global unified ledger, Partior enables seamless, secure, and scalable movement of liquidity, addressing inefficiencies such as settlement delays and high operating costs. The platform supports real-time cross-border multi-currency payments, Payments versus Payments (PvP), Delivery versus Payments (DvP) settlements, and trade finance functions. Partior’s interoperability with both digital and non-digital asset networks ensures comprehensive and efficient financial transactions.

Total raised: $60M

1. Carv is a Web3 identity startup that is developing a wed3 ID solution that combines web2 and web3 gaming data to create unique user IDs.
   Total raised: $35M

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