Eterna's Insights - June 2022

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Reality Hits Home

Three Arrows Capital (3AC), a prominent crypto hedge fund, has plunged into liquidation. 3AC is well known for its highly leveraged bets and its bullish view on Bitcoin, thus the impact of the market crash has been devastating to many of their positions. As such, 3AC experienced a liquidity crisis and started defaulting on loans from other major crypto companies, which has sent shockwaves across the industry. Major companies to be impacted by these shockwaves include BlockFi, Voyager Digital, Babel Finance, Genesis, as well as others. Voyager Digital loaned $670m to 3AC and recently declared 3AC in default, stating that the fund failed to repay the loan. As such, Voyager Digital’s share price has plummeted, and it was forced to limit withdrawals. BlockFi, a crypto lending platform, was also exposed to the collapse of 3AC as well as the liquidity crunch the crypto industry has faced. BlockFi’s exact exposure to 3AC is still unknown. Both Voyager Digital and BlockFi have been bailed out by FTX and Alameda Research Founder Sam Bankman-Fried. BlockFi will be acquired by FTX with the valuation linked to performance metrics as well as receiving a $250m revolving credit facility, while Voyager received a $200m and a 15k Bitcoin loan from Alameda Research. Another major platform that has been severely impacted is Celsius, a cryptocurrency lending platform, which abruptly froze its clients’ accounts, suspending withdrawals, swaps, and transfers on its platform due to an apparent liquidity crisis. Celsius is currently rumored to be insolvent and as such has reportedly hired bankruptcy lawyers. Further reports have suggested that Goldman Sachs is looking to raise $2bn from investors to buy up distressed assets from Celsius.

As a result of poor market conditions and the liquidity crunch the industry is facing, many major companies have had to face layoffs. These companies include Coinbase, Gemini, Crypto.com, BlockFi, Bitso, Buenbit, Mercado Bitcoin, among others. While aspects of the crypto industry are facing tumultuous times, other areas are thriving, and as such some major companies are hiring and even accelerating their hiring process. Binance recently announced that they are looking to hire more than 2,000 people across Europe, Asia, South America, and the Middle East. Kraken and ConsenSys are looking to hire 500 and 125 employees respectively. In addition, Chainlink, Aave, Uniswap Labs are also hiring.

NFTs Leading the Way

While the markets have been hit drastically, innovation and adoption in the space has continued at a rapid rate, and a great example of this is the NFT space. Binance made headlines by partnering with Cristiano Ronaldo. Through the partnership, Binance is aiming to promote their NFT platform and as such will create a series of NFT collections in collaboration with Ronaldo for sale on the company’s platform. Meta has begun rolling out a digital designer clothing store called the “Meta Avatar Store”. The new store will be launching across Facebook, Messenger, and Instagram and will allow users to buy digital outfits for their Avatars. The store will initially feature outfits designed by Balenciaga, Thom Yorke, and Prada. Salesforce announced the launch of its own NFT platform, named NFT Cloud. The platform will enable customers of the firm to mint and manage their own NFTs and help them create brand engagement strategies and access. Mastercard announced partnerships with multiple platforms including ImmutableX, The Sandbox, and MoonPay to allow cardholders to buy NFTs on several marketplaces. Finally, eBay continued its dive into the world of NFTs through the acquisition of a UK based NFT marketplace called KnownOrigin. In addition, the company has applied for multiple trademark applications for different products in the Metaverse.

Adoption of digital assets from major institutions has not been hindered by the crash. JPMorgan released their institutional-grade DeFi plans. According to Tyrone Lobban, head of Onyx at JPMorgan, part of this plan is bringing trillions of dollars of tokenized assets (tokenized US Treasuries or money market fund shares) into DeFi, in order to use these new mechanisms for trading, borrowing, lending, but with the scale of institutional assets. Citadel, Fidelity, Charles Schwab, and Virtu Financial are reportedly working together to build a cryptocurrency trading platform. Details of the platform are still unknown as it is early in its development, but it is expected to be available end of this year or early next year.

USDC and EUROC, USDT and GBPT!

The two biggest stablecoins issuers, Circle and Tether, announced plans to launch new stablecoins. Tether will be launching a stablecoin pegged to the British pound. The sterling-pegged stablecoin called GBPT will launch in early July. Circle will be launching a stablecoin pegged to the Euro. The euro-pegged stablecoin called EUROC launched last week. Both stablecoins will be asset-backed stablecoins, meaning tokens will be fully backed by cash or cash equivalents.

Solana Smart Phone

Solana made headlines this month by announcing the launch of the Solana Mobile Stack software ecosystem for Android, along with an upcoming Android smartphone called Saga. According to Solana Labs, the mobile stack will enable new functionality such as the minting of NFTs from anywhere, easier mobile transactions, wider-spread access to Solana’s DeFi protocols, and more ways to play Solana-based Web3 video games. Their new smartphone, Saga, will feature top tier specifications, including an OLED display, 12GB RAM, and 512GB of storage and is set for release in early 2023.

Regulation at Last?

The New York Senate passed a moratorium on Proof of Work (PoW) mining in an effort to address the environmental concerns surrounding cryptocurrencies. The bill would impose a two-year moratorium of PoW mining projects powered by carbon-based fuel. Following the collapse of Terra, Japan became one of the first major economies to pass a landmark law clarifying the legal status of stablecoins. Under the new legislation, stablecoins must be linked to the Yen or another legal tender and guarantee holder the right to redeem at face value. In addition, the legislation states that stablecoins can only be issued by licensed banks, registered money transfer agents, and trust companies. Finally, the EU secured an agreement of what is to most likely be the first major regulatory framework for the cryptocurrency industry. The landmark law, known as Markets in Crypto-Assets (MiCA), includes rules that will cover issuers of unbacked crypto assets, stablecoins, trading platforms, and wallets in which crypto-assets are held.

 

Disclaimer: this newsletter was put together for informational purposes only based on our review and analysis. This should not be construed as a solicitation, offer, or recommendation to acquire or dispose of any investment or engage in any transaction.




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