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January 02, 2023

Happy New Year, folks 👋🏻 GM. Let’s start 2023 with a bang. SBF’s hearing is happening tomorrow. Perhaps fittingly, the first week in crypto in 2023 will be opened by SBF. He plans to plead not guilty. Really? — Matt Levine wrote a great piece highlighting how SBF played with real money with magic money as collateral. Let’s see how it plays out 🤦

In Today's Email:

What Matters: SBF hearing and Bahamas’ $3.5B in crypto 🏛️
Products: Code4Arena, a decentralized web3 audit solution 👨🏻‍💻
Charts: ETH liquid staking, stablecoins growth 📈

WHAT MATTERS

FTX Creditors Want $3.5 Billion From Bahamian Regulator

The Bahamian Regulator released a statement that it’s holding $3.5 billion in crypto assets belonging to FTX’s customers. The agency plan to hold the assets until the Bahamas Supreme Court deliver them to the appropriate customers and creditors.

However, the current management at FTX thinks otherwise. They said that the value of the crypto assets held by the Bahamian Regulator should be around $296M.

Bahamas represented that they had $3.5 billion of FTX client assets. In reality- closer to $2 _million_
— nic (legacy blue check) carter (@nic__carter)
6:07 PM • Dec 31, 2022

State of play: Unsurprisingly, FTX debtors have released a statement regarding the Bahamian Regulator’s crypto seizure. The FTX debtors stated that on-chain data showed that the Fireblocks wallet controlled by the Bahamian Regulator was valued at $296M at spot market prices. It was initially worth $167M at the moment of transfer.

$165M of that was in FTT token… 🤦‍♀️

Here are the important takeaways.

"The FTX Debtors have informed the Bahamas Commission that none of Mr. Bankman-Fried, Mr. Wang or the Bahamas Commission had a right to take cryptocurrency of the FTX Debtors,"
"There can be no assurances such a large amount of FTT could be sold at spot prices, or at all,"
"The FTX Debtors urge the Bahamas Commission to clear up any confusion created by their recent statements and provide the public with accurate information concerning the cryptocurrency seized and how it was valued for the purposes of these statements."

What's next: SBF trial is set to happen on January 3rd, 2023. The disgraced founder of FTX who’s currently free on a $250M bail bond plans to plead not guilty 🤡 — he also commented that the recent movements in Alameda wallet funds are not him.

None of these are me. I'm not and couldn't be moving any of those funds; I don't have access to them anymore.
— SBF (@SBF_FTX)
7:31 PM • Dec 30, 2022

Our take: FTX bankruptcy proceedings continue to become one of the most complex cases out there. Regulators from different jurisdictions are involved, creditors exist in various countries, all the while relevant crypto assets to the case are somehow still continuously being moved by unknown parties. What a mess.

For builders: As always, don’t store your runway capital on centralized entities. Use your own multi-sig set-up and split the funds between multiple cold wallets. Don’t cheap out and compromise on OpSec.

For investors: The outcome of this case will create a lot of precedent. We don’t think that there will be any substantial crypto primitives in crypto until the FTX cases and subsequent contagions are solved. Too much regulatory risks.

PRODUCTS OF THE WEEK

code4rena: Decentralized Web3 Audits

Code4Arena

What is code4rena: code4rena is a community-driven platform for smart contract audits. It creates contests where any auditor can participate and receive compensation from the rewards pool. This resulted in a faster turnaround (48 hours) and a decentralized experience for the auditors and the audit-service seekers.

Traditional audits take too long. Ask any web3 founders. You need to pay an exorbitant amount of money and wait in line. Am I at Carbone NYC? 🤷
Sponsors, which are typically web3 protocols, create a reward pool where talented auditors can compete. The code4rena team manages the end-to-end experience of the contests. Notable projects that have been audited by code4rena include: OpenSea, ENS, Sushi, and Blur 👍

Other cool products:

Scout, a peer-to-peer crypto transfer platform.
LSD Exchange, a protocol that buys and sells future ETH yield.
ZEBEDEE, a play-earn-shop platform for web3 gaming.
leos.guru, a web3 learning platform with hands-on exercises verified on-chain.
Affordably, a crypto cashback tool.
Wallet_guard, a scam detection browser extension for Chrome and Brave.
MintWorldGG, a 2D RPG games with NFT, similar to Pokemon.

CHARTS OF THE WEEK

Lido Dominates ETH Liquid Staking

Messari

Ethereum is the most important web3 protocol. Multi-billion in values and thousands of projects are built on top of it. With its recent move to Proof-of-Stake, the dynamics around staking are important to watch. This is because staking might increases the likelihood of centralization. For ETH stakers, withdrawals aren’t possible until the second half of 2023, when the Shanghai hard fork is scheduled to be executed.

Our take: For the foreseeable future, liquid staking providers are taking on the uncertainty risk ⚠️ — this is why Lido and Coinbase managed to accumulate 43% of staking market share. In fact, 72% of ETH staking is managed by known staking providers.

To watch: The market share of ETH staking after withdrawals are enabled. Post-withdrawals, there might be less incentive to stake with liquid staking providers, shifting the market dynamics to either centralized institutional custodians, or self-custody.

Stablecoins Percentage of Crypto Market

Delphi Digital

Stablecoins are growing. In the past 18 months, stablecoins market cap as a percentage of the total crypto market cap grew from 14% to 18% 📈 — all this happened even as the total crypto market cap made a round trip from $1 trillion to $3 trillion and back again to $1 trillion.

State of Play: Stablecoin has the strongest product-market fit. It increases the velocity of capital, specifically the US Dollar, by making it truly digital and verifiable on-chain. This makes it easier for market participants outside of the US to access the USD, in ways that weren’t previously possible. Combined with high interest-rate, the demand for USD is an ever-increasing one 💵

Our take: As the world becomes more global and crypto continues to find more use-cases, projects that integrate stablecoin with real-world assets and real-world yield would emerge. It will cement USD as de-facto world’s reserve currency, perhaps even to the detriment of other competing powers around the world.

QUICK BITES

Binance US Voyager deal might fall under Federal Committee review.
FTX debtors will seek crypto held by Bahamian regulator.
Sushiswap passes new tokenomics proposal, giving revenue back to Treasury.
Italy approves 26% crypto-gains tax.
Valkyrie Investments wants to manage and sponsor Grayscale’s GBTC.
UK enforces crypto tax break for foreigners using local brokers.

MEME & NOTEWORTHY READS

Richard Chen’s blog on 3 underrated crypto product trends in 2023.
Marusha’s blog on crypto self-custody and how to achieve it.
Eric Wall’s thread on 2023 crypto predictions.

Not a meme, but a really great art.

The Fall of The Crypto Angels
— ɅLFIE (@Degen_Alfie)
3:10 PM • Dec 28, 2022

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.