Bringing $50 Trillion On-Chain: Tokenized US Treasuries

Plus: DCG vs Genesis round 2, 2023 crypto market outlook

January 11, 2023

GM folks 👋🏻 - happy hump day 🐫. The battle between the Winklevoss and DCG is heating up, with Cameron Winklevoss dropping the F-bomb 💣 (more on that below). It's only the second week of 2023, but we already have a lot to unpack. Let's dive in 👇

In Today's Email:

What Matters: DCG vs Genesis heats up ‎‍🤼‍♂️
Case Study: 2023 crypto market outlook 👀
Features: Ondo Finance's tokenized US Treasuries 💵

WHAT MATTERS

DCG vs Genesis: It's Heating Up

State of play: Cameron Winklevoss of Gemini has published an updated open letter to the Digital Currency Group (DCG) Board of Directors. Strap in, it's a meaty one 🍖

Winklevoss presented a series of allegation towards Silbert's management of DCG. He even uses the F word... fraud 😲
Winklevoss alleged that Genesis provided loans to bankrupt crypto hedge fund 3 Arrows Capital to help inflate the value of the Grayscale Bitcoin Trust (GBTC), which is another subsidiary of DCG. As 3AC defaulted on its loans, Genesis incurred massive losses.
Winklevoss also alleged that Genesis and DCG conducted accounting fraud by treating a 10-year loan as a "current asset", creating the false representation that DCG has fixed the liquidity issue at Genesis post-3AC's collapse.

Why it matters: This is the most important ongoing crypto story. The outcome would dictate the crypto market price action for at least the next few quarters.

There seems to be considerable evidence that Genesis was not solvent. That said, the $1.1 promissory note that DCG owes genesis is due in 2032 and not callable. Simply put, there are a lot more open questions to be answered about DCG intracompany financing deals.
For now, it seems like Gemini is clearly winning the PR battle. DCG replied to the letter but many argue that it doesn't provide further clarity. We might need to wait for the result of the US authorities' investigation on DCG.

"Barry does not recall ever meeting, speaking with, or otherwise privately communicating with the Three Arrows Capital principals. DCG has never coordinated purchases or sales of GBTC or any other investments with Three Arrows Capital."
— Tree of Alpha (@Tree_of_Alpha)
7:16 PM • Jan 10, 2023

For builders: Don't get cute with your treasury. Times and times again we've seen founders keeping their runway capital in volatile crypto assets instead of stablecoins. Don't try to deposit the USDC in your treasury to a bunch of stablecoin pools with 8% APY given in the form of the protocol's native token thinking you're being smart. You're simply adding unnecessary risks.

For investors: Ask about board seats and specific controls framework over your portfolio companies. Gone are the days when founders can raise 8 figures without explaining clearly how the multi-sigs are managed. Demand monthly financial reports. Scrutinize unnecessary lavish spending that falls on the borderline of being a fraud. Do your work.

"Who's gonna custody the USDC? You and your cousins? yeah no thanks buddy" ✌️

CASE STUDY

2023 Crypto Markets Outlook

Photo by Jeremy Bishop

State of play: Crypto-native and TradFi firms have been releasing their 2023 crypto market outlook reports in the past few weeks. Below, we'll highlight interesting patterns and provide further elaboration on certain ideas 🤓

Common patterns amongst 2023 crypto market outlook reports:

Crypto market will rebound by Q2 or Q3 2023, while altcoins continue to underperform.
Bitcoin mining industry will consolidate as smaller players are forced to shut down.
AppChain thesis will increase in popularity.
DeFi-CeDeFi trends of tokenizing real-world asset will continue.
Regulatory action from the US and developed countries will increase.

Our take: With predictions, people are often not taking enough risks. They make statements that are relatively neutral, resulting in predictions that can't be accurately assessed whether they are right or wrong. It's not about getting it right, but clarity around predictions will catalyze conversations about the topics at hand. So let's expand on it 👇

Crypto market rebound: The crypto market is often ahead of TradFi. The common consensus is that the Federal Reserve will keep on raising rates for another percent or so, and keep it there until inflation subsides. If you have sustained capital that can keep on buying for two years, we think only BTC and ETH are worth DCAing until Q4 2023.
BTC mining consolidates: This is already happening as the price of BTC decreases, forcing smaller miners or those without proper risk management to downsize, sell parts of their business, or file for bankruptcy. As the industry consolidates, we think there'll be a dominant player that combined climate tech green energy with Bitcoin mining, and tokenized it on-chain.
AppChain: As liquidity dries and raising capital becomes more difficult. Crypto projects will be forced to think of new ways to generate revenue. Becoming your own AppChain not only fits the investment narrative, but it accrues more value toward the underlying token associated with the project. Projects with PMF that need to scale will also look to weigh their options between grants from Ethereum L2, alternative L1, or becoming their own AppChain. We think more top 20 projects by TVL will become its own AppChain.
Tokenized Real-World Assets (RWAs): This is a trend that has been emerging for half a decade, since the 2017 crypto bull market. In 2023, the regulatory frameworks and technology infrastructures needed to support these projects might have finally caught up. We believe that tokenized RWAs will reach $10 billion in 2023.
Regulatory action: It's not a surprise that the downfall of FTX, 3AC, Celsius, and others will catalyze regulatory enforcement actions towards existing bad actors, and actors who are on the line (read: Binance, Tether). Tether has had its fair share of battles with US regulators, but we think Binance will do a record-breaking settlement with US authorities.

FEATURES & GOVERNANCE UPDATE

OndoFinance: On-Chain US Treasuries

Ondo

Crypto traders want yield too. For the first time since the 2009 financial crisis, interest rates on US Treasuries are above 4%. The global macroeconomic environment is tightening and money is no longer cheap. As a result, institutional investors are slamming the brakes on risky investments (tech and crypto). They choose to allocate capital towards US Treasuries instead for a safe-and-steady 4-5% APY 🦺

However, US Treasuries yields aren't available for on-chain crypto market participants. Until today. Stablecoins like USDC and USDT don't pass back the yield to tokenholders, benefitting the issuers of those stablecoins instead.

Why would crypto traders want US Treasuries exposure? Well... when on-chain stablecoin yields are less than 1%, it makes sense why 🤷

Enter Ondo: Ondo is a (Ce)DeFi platform that brings risk-free rates on-chain. They do this by launching a tokenized fund that allows stablecoin holders to invest in US Treasuries and bonds. It's essentially a tokenized wrapper on a short-term US Treasuries ETF.

Why it matters: It's still a step in the right direction. Although it requires KYC and can be considered a centralized solution. Crypto needs to find a way to further integrate itself when the broader financial market. This can be achieved by working on two fronts, the extremely DeFi-native ethos with pure decentralization, and the CeDeFi narrative that further democratizes access via blockchain solutions.

bringing tokenised fund units on-chain to deploy liquidity for risk-free yield is great news
Yes, it is a financial overlay on top of existing ETFs
Yes, it is a centralised solution
But, it is one that goes in the right direction
Kudos to @nathanlallman and team
— Luca Prosperi (@LucaProsperi)
1:51 PM • Jan 10, 2023

Other notable feature updates:

Yearn launches permissionless vault factory.
Dopex launches stETH single staking option vault.
ConsenSys launches zkEVM private beta.
OpenSea supports Arbitrum Nova.
SteakHut launches TraderJoe liquidity management.
MarginFi launches on Solana.
Pangolin launches Fantom cross-chain swaps.
Shopify supports Avalanche's NFTs.
StarkNet releases Cairo 1.0.
Bebop DEX launches on Arbitrum.

QUICK BITES

Coinbase cuts 20% of staff.
FTX Nishad Singh met with prosecutors, aiming for a deal.
CFTC sues Mango Markets exploiter, SEC is also investigating.
SBF’s Robinhood shares seized by the DOJ.
Gemini’s Winklevoss calls for Barry Silbert removal.
DCG’s Barry Silbert shares letter to shareholders.
Gemini ends earn program, terminates Genesis loans.
Consensys lays off 100+ employees.
Mark Cuban ordered to full deposition in Voyager-promotion lawsuit.
Bithumb probed by South Korean tax officials.
Zipmex investigated by Thai regulator over earn program.

MEME & NOTEWORTHY READS

Dirty Bubble Media’s article on Signature Bank crypto trouble.
Foobar’s blog on vanity addresses.
Gemini's open letter to the board of Digital Currency Group.

“Once you start down the dark path, forever will it dominate your destiny.” Yoda
Gemini now suddenly supports Tether after all these years of excluding it.
This isn't concerning at all. 🤥
— Cryptohippo (@cryptohippo65)
9:49 PM • Jan 10, 2023

If you enjoy reading this issue, please consider subscribing. It takes 1 minute of your time but it would mean the world to us 🙇

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.