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Eterna's Insights - March 2024

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Key Takeaways:

  • Ethereum completed its Dencun upgrade

  • The LSE plans to launch a Bitcoin and Ethereum ETN market

  • HSBC launches retail access to tokenised gold

Portfolio Spotlight: BlackRock has partnered with Securitize to launch its first digital fund (BUIDL) on the Ethereum blockchain


Dencun Is Now Live

Ethereum completed its Dencun upgrade, with the key feature being the introduction of proto-danksharding. This feature focuses on making Layer 2 transactions significantly cheaper, paving the way for massive scalability improvements on Ethereum. Since the upgrade, the average cost of transactions on Layer 2 Optimism has dropped to nearly 4 cents, down significantly from the recent average of around $1.40. The average fee on Coinbase’s Layer 2 solution Base fell to 3 cents from roughly $1.50.

The Evolution of Crypto ETFs

The excitement around ETFs has continued this month. BlackRock's IBIT ETF has now amassed over 250k BTC, equivalent to approximately $17.7bn in assets under management (AuM). Fidelity is also gaining significant traction, having reached over $10bn in AuM, which corresponds to about 143k BTC. Additionally, since launch, US Spot Bitcoin ETFs have seen over $180bn in cumulative trading volume and are approaching the $200bn milestone. This success has sparked speculation about the potential approval of a spot Ethereum (ETH) ETF. Reports indicate that Grayscale and Coinbase have engaged with the SEC to address concerns regarding the safety of a Spot ETH ETF. While it remains unclear when an approval might be granted, various asset managers, including Fidelity, have submitted filings for Spot ETH ETFs. Notably, Fidelity's filing includes the option to stake a portion of the ETH it manages.

Building on the success of Spot BTC ETFs in the US, other jurisdictions are starting to take action. The London Stock Exchange (LSE) has announced plans to begin accepting applications for the listing of Bitcoin and Ethereum crypto exchange-traded notes (ETNs) starting in the second quarter of this year. ETNs are types of debt securities that track an underlying asset, offering investors a way to gain exposure to cryptocurrencies during London's trading hours. This development aligns with the UK's Financial Conduct Authority (FCA) indicating that it will not object to proposals from Recognised Investment Exchanges (RIEs) interested in establishing a listed market segment for cryptocurrency-backed ETNs. Meanwhile, Hong Kong is also preparing to enter the space, with finance firm VSFG planning to launch a Spot BTC ETF as early as May. This signifies a growing acceptance and interest in cryptocurrency investment vehicles across global financial markets.

Institutions Steaming Ahead

Institutional adoption has remained a hot topic over the month. Nearly a year after its launch, the Canton Network, a blockchain platform created by Digital Asset Holdings and involving major banks like Goldman Sachs and BNY Mellon, has undergone its first major test. The network, which aims to facilitate institutional asset transactions, saw firms including Goldman Sachs, BNY Mellon, and Cboe Global Markets, along with initial participants Microsoft and Deloitte, complete over 350 simulated transactions. These tests covered a range of operations from tokenised assets to securities lending, aiming to assess benefits such as risk reduction and capital optimisation. In addition, Deutsche Börse Group has launched the Deutsche Börse Digital Exchange (DBDX), a new platform dedicated to the spot trading, settlement, and custody of crypto assets for institutional clients. Announced as part of its strategic 'Horizon 2026' vision to lead in the digitalisation of financial assets, DBDX aims to offer secure, transparent, and regulated market operations for cryptocurrencies in Europe.

Tech Going Crypto Native

Tech firms are increasingly embracing the cryptocurrency ecosystem, with Google, Robinhood, and Revolut introducing new features that enhance user interaction with digital assets. Google has expanded its search capabilities to include the ability to track wallet balances across multiple blockchains. This feature builds on Google's earlier integration, which allowed users to search for Ethereum Name Service (ENS) domains.

Robinhood has launched a crypto wallet specifically for Android users, called Robinhood Wallet. This wallet gives users full control over their digital assets by securely holding private keys. It supports a wide array of cryptocurrencies. The wallet is designed to simplify the management, transfer, and reception of cryptocurrencies, and offers additional features such as crypto swapping, direct funding options from Robinhood balances or external wallets, and access to the latest crypto news and trending tokens.

Lastly, Revolut has announced a collaboration with MetaMask to introduce Revolut Ramp. This new feature enables users in the UK and the European Economic Area (EEA) to directly fund their MetaMask wallets from their Revolut account, simplifying the process of acquiring and adding cryptocurrencies to self-custody wallets.

Tokenisation Growing

Tokenisation has continued to gain momentum. HSBC has announced that retail investors in Hong Kong can now access tokenised gold through its online banking services and website, following its initial launch of institutional trades last November. This development positions HSBC as the largest bank to offer consumers access to gold in tokenised form, which represents physical gold stored in HSBC's London vault. The move to include retail investors comes after the bank's successful launch to institutional clients and was made possible by regulatory approval from Hong Kong’s Securities and Futures Commission. This offering leverages HSBC Orion, the bank's tokenisation platform previously used for issuing a $750m Hong Kong green bond.

In parallel, tokenised treasury notes are witnessing remarkable growth. The value of Treasury notes tokenised through public blockchains has surpassed $1bn for the first time. Tokenised Treasuries are digital representations of US government bonds that can be traded as tokens on the blockchain. The market has expanded tenfold since last January and 18% since the launch of BlackRock’s Ethereum-based tokenised fund BUIDL on 20 March, which leads us into our Portfolio spotlight for the month.

Eterna Portfolio Company Spotlight:

BlackRock has partnered with Securitize to launch its first digital fund (BUIDL) on the Ethereum blockchain

BlackRock has partnered with Securitize to launch its first digital fund on the Ethereum blockchain, the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), a money market fund. BUIDL seeks to offer a stable value of $1 per token and pays daily accrued dividends directly to investors' wallets as new tokens each month. The Fund invests 100% of its total assets in cash, U.S. Treasury bills, and repurchase agreements, allowing investors to earn yield while holding the token on the blockchain. BUIDL made a remarkable entry into the market, securing over $245m and swiftly climbing to second place among its competitors. This impressive debut positions it just behind Franklin Templeton's Franklin OnChain U.S. Government Money Fund (FOBXX), which leads with $360m in deposits. Finally, BlackRock also announced a strategic investment into Securitize. As part of the investment, Joseph Chalom, BlackRock’s Global Head of Strategic Ecosystem Partnerships, has been appointed to Securitize’s Board of Directors.


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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