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Jul 10, 2024

The Latest Research News in Stablecoins, Bitcoin, Ethereum and DeFi, June 2024

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Stablecoins Update

Tether Adjusts Strategy Amid Blockchain Prioritization

In a strategic move to streamline its operations and focus on community-driven blockchain support, Tether has announced it will cease minting its USDT stablecoin on the Algorand and EOS blockchains. This decision comes as part of Tether’s ongoing efforts to balance maintainability, usage, and community interest. Despite having approximately $113 billion of USDT in circulation across 16 blockchains, a significant majority of this supply is concentrated on just two chains: $59 billion on Tron and $52 billion on Ethereum. On the other hand, Algorand and EOS account for a mere 0.1% of the total USDT supply, with $85 million and $17 million, respectively. This shift underscores Tether’s commitment to optimizing its resources towards platforms with higher community engagement and usage.

Stablecoins: A Growing Force in U.S. Debt Holdings

Image source: Major holders of U.S. Treasury securities. (Tagus Capital) (Tagus Capital)

Stablecoin issuers have rapidly emerged as significant players in the U.S. Treasury market, collectively holding over $120 billion in U.S. Treasury notes. This substantial investment positions them as the 18th largest holders of U.S. debt, surpassing even major economies like Germany and South Korea. Tether Ltd. alone holds around $91 billion in Treasuries, while Circle, the issuer of USDC, holds $29 billion in short-dated U.S. debt, including repos. This growing trend highlights the increasing influence and integration of stablecoin issuers within traditional financial systems, reflecting their expanding role beyond the crypto space into more conventional financial markets.

Paxos Launches Yield-Generating Lift Dollar

Paxos has introduced a new yield-generating stablecoin, the Lift Dollar (USDL), in the UAE. Regulated by the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM), the USDL offers users a programmatic daily yield of around 5%, aligning with returns on U.S. Treasury bonds. Paxos CEO Charles Cascarilla explained that the Lift Dollar, like other stablecoins issued by Paxos, is backed 1:1 with dollars and short-term U.S. government securities. This new product aims to provide a savings account-like yield, democratizing access to the risk-free rate in a secure manner. However, due to regulatory constraints, Paxos USDL will not be available in the U.S., emphasizing the challenges stablecoin issuers face in navigating diverse regulatory landscapes.

Tether Introduces Synthetic Dollar Backed by Tokenized Gold

Expanding its tokenization efforts, Tether has launched a new platform called Alloy on the Ethereum network. This platform allows users to mint synthetic digital assets backed by Tether’s tokenized gold (XAUT). The introduction of Alloy is part of Tether’s broader tokenization venture, which aims to enhance the creation and management of collateralized digital assets. According to Tether CEO Paolo Ardoino, Alloy will eventually be integrated into a larger digital assets tokenization platform set to launch later this year. This initiative represents Tether’s commitment to innovation within the stablecoin market, potentially offering yield-bearing products in the future and broadening the scope of stablecoin-backed assets available to users.

Bitcoin Update:

BlackRock’s iShares Bitcoin Trust Shatters Records

BlackRock’s iShares Bitcoin Trust (IBIT) has continued its record-breaking streak, becoming the world’s largest Bitcoin ETF and surpassing Grayscale’s GBTC. Remarkably, IBIT is the first ETF to hit $20 billion in under 2.5 years, achieving this milestone in just 137 days compared to the previous record of 985 days. Despite this impressive growth, Bitcoin’s price hasn’t surged as expected. One major reason is hedge funds using these ETFs for their spot long positions to create a “basis trade” against futures. This has resulted in a significant increase in net short futures positions over the past few months. Additionally, the impending repayment of creditors from the Mt. Gox bankruptcy, involving a transfer of 141.7K BTC worth nearly $10 billion, is causing further market uncertainty.

Bitcoin’s Path to Potential Growth

Despite these challenges, many experts believe Bitcoin has substantial growth potential. Analysts and traders are offering optimistic forecasts, predicting significant price increases. For example, 10x Research suggests that Bitcoin futures positions reaching record levels of $37 billion could drive the price to $83,000 soon. Bernstein analysts predict that Bitcoin and ether ETFs could grow into a $450 billion market, with Bitcoin reaching $90,000 by the end of the year and $150,000 by 2025.

Nik Bhatia from The Bitcoin Layer highlights a recent drop in Treasury yields as a sign that Bitcoin could be poised for a new high, while Bitwise CIO Matt Hougan points to a shift in Washington’s attitude towards crypto as a potential catalyst for market growth. Renowned commodities trader Peter Brandt even predicts a 230% surge in Bitcoin’s value against gold over the next 12-18 months, potentially reaching $234,000.

Industry Leaders’ Bold Predictions

Other industry leaders are equally bullish. Chamath Palihapitiya speculates that Bitcoin could exceed $500,000 per coin by October 2025, and Galaxy’s Mike Novogratz sees Bitcoin hitting $100,000 by the end of this year. Glassnode’s recent analysis suggests a strengthening market outlook, with most Bitcoin investors holding unrealized profits and speculation returning after a period of sideways trading.

NYDIG has also recommended buying June $75,000 calls against selling September $85,000 calls, citing positive momentum. Robert Kiyosaki, author of “Rich Dad Poor Dad,” boldly predicts Bitcoin will reach $350,000 by August 2024. Standard Chartered’s head of digital assets research, Geoff Kendrick, goes as far as predicting a surge to $150,000 if Donald Trump wins the upcoming U.S. presidential election.

Global Adoption and Market Impact

Globally, the adoption of Bitcoin ETFs continues to expand. Australia recently launched its spot Bitcoin ETF, and Thailand has greenlighted its first spot Bitcoin ETF. BlackRock’s income and bond-focused funds have also purchased shares of their own spot Bitcoin ETF, signaling increasing institutional interest.

In a significant corporate move, Semler Scientific (SMLR), a developer of arterial blood flow products, has adopted Bitcoin as its primary treasury asset, initially purchasing $40 million worth of BTC. This move, following Microstrategy’s playbook, led to a 25% surge in Semler’s stock. The company has since acquired more BTC and plans to raise $150 million in equity to buy additional Bitcoin.

Ethereum Update

VanEck’s Bold Ethereum Price Target

VanEck’s Matt Sigel has made waves by raising the firm’s 2030 price target for Ethereum to $22,000, projecting a 470% growth from its current levels. Sigel’s optimistic forecast is grounded in the belief that Ethereum could generate $66 billion in annual free cash flow, all of which would accrue to token holders. This projection underscores the growing confidence in Ethereum’s potential as a major financial asset in the coming years.

The Slow Road for ETH ETFs

However, the path to Ethereum ETFs remains slow. In a June 5 interview on CNBC, SEC Chairman Gary Gensler indicated that ETH ETFs would “take some time” as the SEC continues to review S-1 registration statements. In contrast, Ark Investment, led by Cathie Wood, has decided not to wait. The firm abandoned its ambitions for a spot-Ether ETF this week, opting to concentrate on Bitcoin ETFs instead. The fierce competition and razor-thin margins in the ETF space, as highlighted by Franklin Templeton’s updated S-1 filing, which shows a customer fee of just 0.19% per year, likely influenced this decision. Furthermore, Franklin Templeton has promised to waive all sponsor fees on the first $10 billion for the first six months after the fund goes live, adding to the competitive pressure.

Singapore’s DBS: A Major Ethereum Holder

Meanwhile, Singapore’s largest bank, DBS, has become a significant player in the Ethereum market, holding nearly $650 million in ETH, according to data from Nansen. This substantial holding demonstrates the increasing institutional interest in Ethereum as a valuable asset.

Political Contributions and Crypto Advocacy

In the political arena, Kraken co-founder Jesse Powell has made headlines by donating $1 million to U.S. presidential candidate Donald Trump, with most of the donation in ether (ETH). Powell’s donation aligns him with the Winklevoss twins, founders of the Gemini exchange, who have also contributed to Trump’s campaign. Powell expressed his excitement about supporting Trump, describing him as the “only pro-crypto major party candidate” in the 2024 Presidential election.

Trump has embraced crypto during his campaign, accepting donations in various cryptocurrencies and advocating for the U.S. to become a leader in the crypto industry. Despite his pro-crypto stance, Trump has yet to propose specific policies for the sector, and the topic did not come up during his first presidential debate against President Joe Biden.

DeFi Updates

The crypto world is witnessing a rivalry akin to the iconic Yankees vs. Red Sox or Coke vs. Pepsi showdowns. This time, it’s Ethereum (ETH) versus Solana (SOL) competing for developers and projects. While the comparison may seem like apples and oranges due to their differing architectures, the competition is fierce. The debate between Ethereum developer Justin Drake and Solana founder Anatoly Yakovenko on the Bankless Podcast highlights the contrasts between Ethereum’s modular approach and Solana’s monolithic design. This episode is essential for those interested in understanding the nuanced differences and the ongoing battle for blockchain supremacy.

Meanwhile, Silicon Valley-based asset manager Franklin Templeton, with $1.6 trillion in assets under management, is considering a new investment fund focused on altcoins. This move signals a growing interest in diversifying investment portfolios with crypto assets, beyond the major players like Bitcoin and Ethereum. The focus on altcoins could provide investors with new opportunities and exposure to emerging projects within the crypto space.

The Internet has democratized financial issuance, making it accessible to all without barriers. This phenomenon is exemplified by platforms like Pump.fun, which have enabled Solana to host a myriad of meme tokens. These tokens, often dismissed as frivolous, capture the zeitgeist of digital culture and entertainment. Pump.fun is to Solana what DeviantArt was to digital art in the mid-2000s – a hub for mass-produced digital goods, though unlikely to host masterpieces like the Mona Lisa.

Meme Coin Frenzy!

In a striking example of the meme economy’s power, rapper Iggy Azalea recently launched a memecoin called $MOTHER. Within a week, the coin’s value skyrocketed to $200 million, marking a 1,000% increase.

This rapid valuation dwarfs the time and effort required for a traditional VC-backed fintech startup to achieve similar figures. The memecoin’s allure lies not in financial fundamentals but in the entertainment and speculative experience it offers. It’s about the thrill of potential massive gains or the risk of total loss – an experience reminiscent of reality TV’s impact on viewers’ lives.

The meme economy is not confined to crypto. Figures like Roaring Kitty, who gained fame trading GameStop, illustrate how the Internet perpetuates its own form of entertainment. Roaring Kitty recently held a $290 million position, demonstrating the enduring appeal of online financial spectacles. The rise of financialized social media platforms, like Farcaster, which raised $150 million, further integrates NFTs and memecoins into everyday digital interactions.

Celebrities and influencers are capitalizing on the current financial mechanisms, much like reality TV stars did with their audiences. From Donald Trump to Caitlyn Jenner, many are leveraging their fame to launch crypto ventures. While this trend might be aesthetically unappealing to some, it underscores a broader cultural shift towards entertainment-driven financial products.

As AI agents begin to transact on blockchains and teenagers issue thousands of tokens annually, the financial landscape is rapidly evolving. The proliferation of memecoins, NFTs, and other digital assets suggests that this trend is only beginning. The Internet, in its boundless capacity for innovation and entertainment, continues to reshape how value is created and exchanged.

Key DeFi Stats for June:

Image: DefiLlama

In June, the TVL decreased slightly in dollar terms from around $107B to $96B for the whole DeFi market. DEX 30day volumes have gone down to $117B from $140B last month.

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 June in terms of Fees generated:

Image by Coinchange, data sourced from DeFillama

Two out of the top 5 are on Solana and the rest 3 are on Ethereum. No wonder the war between the two is cut throat.

Macro View

Liquidity Indicators

Domestic U.S. liquidity has been rangebound since bottoming between Q4 2022 and Q1 2023. This trend is expected to continue into 2024, with a potential breakout to the upside in 2025 as the Fed ends its quantitative tightening. I’ll be closely monitoring this timeline to see if it needs adjustments. Recently, the Congressional Budget Office (CBO) revised its federal deficit projections from $1.5 trillion to $1.9 trillion for 2024, indicating an increase in the Treasury’s borrowing estimates and a subsequent rise in bond supply.

The CBO anticipates a mildly shrinking deficit during the 2025-2027 timeframe, citing strong tax revenues and lower interest rates as key factors. While I agree that interest rates may decrease, I am less optimistic about the overall deficit reduction due to the close ties between tax revenues and asset price performance. The possibility of a stock price malaise among mega-cap stocks during this period could impact revenues. Additionally, the CBO’s assumption of no recessions within a ten-year span seems overly optimistic given historical trends.

If we manage to avoid a recession, see stock prices rise, and have the Fed trim interest rates, the CBO’s projections could hold true. Another potential revenue boost could come from the expiration of tax cuts enacted during the Trump administration in late 2025, unless they are extended.

Global liquidity measures are also trending sideways, balancing gradual credit creation with central banks’ quantitative tightening and a strong dollar index. I expect this state to persist for a while, potentially breaking out to the upside in late 2024 or 2025, similar to domestic liquidity trends.

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, with discrepancies in data collection likely due to a rise in self-employment and gig work post-pandemic.

The ongoing fiscal deficits stimulate parts of the economy, but the tight monetary policy seems to be impacting the labor market and service sector. This raises the likelihood that interest rates have peaked, and the Fed may trim rates by the year’s end, aligning with the expectation of a breakout in global liquidity in late 2024 or 2025.

The Federal Reserve’s FOMC met in June 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. 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. Ongoing geopolitical conflicts are causing trade frictions and rising container shipping rates, reminiscent of the pandemic lockdowns, but these are largely outside the Fed’s control.

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.

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

In the political arena, President Biden’s alignment with Elizabeth Warren and her appointee Gary Gensler appears to have significant implications for the crypto sector. Biden’s recent veto threat against overturning SAB 121 has solidified partisan politics at the presidential level concerning crypto. In his communication to the House of Representatives, Biden described the effort as “Republican-led” and argued that overturning SAB 121 would “inappropriately constrain the SEC’s ability to set forth appropriate guardrails and future issues” and “risk undercutting the SEC’s broader authorities regarding accounting practices.” He emphasized that the administration would not support measures that could jeopardize consumer and investor well-being.

The American Bankers Association (ABA) had urged Biden to reconsider, arguing that pushing investors offshore or into less regulated entities under the guise of investor protection is irrational. They suggested that well-capitalized custodians like Bank of New York and State Street should be allowed to offer solutions. North Carolina Democrat Wiley Nickel echoed this sentiment, stating that the veto could hurt consumers and harm Democrats in vulnerable races, noting that 50 million Americans own cryptocurrency.

Robinhood Fighting US Regulatory Hurdles

Robinhood (HOOD) announced an agreement to acquire Bitstamp, the industry’s oldest crypto exchange, for $200 million. This acquisition is significant for the landscape of crypto M&A, though the price tag suggests a bearish outlook for sellers. The $200 million deal represents a single-digit price-to-revenue valuation (about 8x trailing) and a 60% decrease from Bitstamp’s $500 million valuation during the 2018 NXMH private equity acquisition, where 80% was bought for $400 million. Despite this, it’s a strategic move for Robinhood, offering an international growth engine in their crypto business and providing a hedge against recent SEC challenges, specifically a Wells Notice for its U.S. crypto offering.

Bitstamp, a Luxembourg-based cryptocurrency exchange with global offices and over 50 licenses and registrations, has been for sale for some time. Despite its status as the oldest exchange, it has less than 1% market share, with daily volumes of $196 million and 1.2 million monthly active users. This acquisition, while representing low market share, is a prudent use of Robinhood’s resources. The $200 million cash transaction uses less than 15% of Robinhood’s estimated excess cash, offering a good value at an 8x revenue multiple compared to Robinhood’s 10x valuation.

This deal signals Robinhood’s strategic pivot to international expansion, driven by regulatory pressures in the U.S. Bitstamp’s licenses in the EU, including countries like Italy, Spain, the Netherlands, and France, position Robinhood to compete more effectively with major players like Coinbase and Binance. Additionally, the acquisition opens doors for Robinhood to serve institutional clients, a previously untapped market. Overall, this acquisition is a solid move for Robinhood, marking an important moment in crypto M&A, though it reflects a low valuation comp and offers limited support for U.S. infrastructure players looking to sell or raise capital.

Capital Raises in June 2024

Source: ICO Analytics

  1. Gensyn Protocol is a layer-1 trustless protocol for deep learning computation that rewards participants for their compute time. It facilitates task distribution and payments through smart contracts, ensures the verification of completed ML work and creates a decentralized Al compute network.

Total raised: $50.60M

  1. Mythical Games is a giant Web3 video game development studio known for creating popular games such as NFL Rivals and Blankos Block Party, which were released on the Epic Games Store. They are building a Webs gaming ecosystem that utilizes blockchain and playable NFTs, allowing players, creators, artists, brands, and developers to actively participate and benefit from “play and earn” game economies.

Total raised: $297M

  1. One Trading is a regulated digital asset exchange that aims to bridge the gap between crypto and traditional asset trading by providing a single platform for professionals, businesses, and institutions. With high KYC & AML standards, transparency, and asset segregation, they offer a secure and transparent trading environment. Additionally, they focus on capital efficiency and robust risk management to provide a reliable trading experience.

Total raised: $32.62M

  1. Meanwhile is a life insurance company that offers policies denominated in Bitcoin

(BTC). It provides a tax-advantaged way for policyholders to leverage their Bitcoin wealth and pass it on to the next generation. With guaranteed growth, liquidity options, and a focus on generational wealth transfer, Meanwhile aims to provide innovative solutions in the insurance industry using digital currencies.

Total raised: $19M

  1. Conflux is a first layer consensus blockchain designed for high throughput and scalability while maintaining decentralization, using a Tree-Graph structure to confirm multiple blocks concurrently. It is a regulatory compliant, public, and permissionless blockchain that operates with an account-based model and supports a modified version of Solidity and Ethereum Virtual Machine for its smart contracts.

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