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Crypto's Evolution in 2023, Solana's Comeback Attempt, & a Chance for Regulatory Clarity
The Web Three Newsletter | Jan 11, 2023
We curate and summarize three key opinion pieces or industry updates from the world of crypto, weekly
This week, we take a look at:
1️⃣ Crypto's Evolution: From Speculation to Value in 2023 | Episode on the Unchained Podcast
2️⃣ Solana's Comeback: Is the Network on the Rise Again? | Full article on Market Meditations (link)
3️⃣ Crypto Clarity: The 118th Congress's Chance to Lead | Tweet thread by Brad Garlinghouse, CEO at Ripple
Section1️⃣- Crypto's Evolution: From Speculation to Value in 2023
A discussion on state of the market heading into 2023, potential “contagion” effects, status of the mining industry, issues around ETH and MEV, among other topics.
This is a summary of a podcast with Lucas Nuzzi, head of R&D at CoinMetrics, and Larry Cermak, VP of research at The Block.
2023: Crypto's Shift from Speculation to Value 💡
In 2023, the crypto industry will have an opportunity to focus on finding real-world applications for blockchain technology and crypto assets. A shift away from speculative use cases is expected, with an emphasis on finding ways to highlight the value-adding services that projects can provide.
However, the market will continue to face challenges such as a lack of credit and liquidity, resulting in a flight to quality projects and less speculative activity. Projects with a clear product-market fit will have exciting opportunities to rise to the top and provide valuable services to the ecosystem.
Crypto Prices : Will the Pain Continue? 📉
The crypto market continues to feel the effects of the tumultuous market in 2022, leading to a decrease in retail participation. 2022 was a year of pain, with many projects collapsing and becoming "zombie projects" with no support.
However, projects that were able to retain momentum had strong communities behind them. Nevertheless, they still need to deliver or continue to perform well for retail investors to support them. Additionally, the effects of projects that have unlocked or investors buying a lot of coins at cheap prices are also playing a role in the bear market. It is important to keep this in mind when making crypto investments. The crypto market in 2023 may not recover as quickly as investors hope.
Rising Concerns over Crypto Contagion 🤔
As we head into 2023, the crypto industry is grappling with a new concern: contagion. The market has seen several projects collapse in 2022, and many investors are becoming more diligent about tracking "unlocks" in an attempt to anticipate further collapses.
One of the most pressing issues is the potential fallout from the situation at FTX, as well as concerns over the solvency of Genesis, DCG, Gemini, and even Grayscale. It's likely that 2023 will see a continuation of this trend, as contagion can take time to fully materialize. Experts warn that the market will continue to face challenges such as a lack of credit and liquidity, leading to less speculative activity and potential cascading failures.
Crypto Market Collapse: 2018 vs 2022 💰
Experts are comparing the 2018 bear market to the current one in 2022, noting that 2018 was a slow bleed resulting in projects dying from lack of funding, while 2022 saw many projects collapse and return to zero value.
The current market is also affected by macroeconomic conditions and interest rate policies, making predictions difficult. Nevertheless, it presents an opportunity for projects with solid use-cases and better services to rise.
VC Investing in Crypto: Shift to Quality over Speculation 💸
Investors are becoming more cautious about allocating capital in the crypto market. The collapse of many projects in 2022 has led to high standards and a focus on long-term, quality projects over speculation. Additionally, valuations for seed and series A investments have dropped significantly.
However, for some VCs, this is a prime environment to invest in companies that need short-term liquidity. It also pushes them to do more due diligence on their investments to prevent scams from growing in the future.
Bitcoin Mining: A Tough Road Ahead ? 💻
The Bitcoin mining industry seems to be facing a tough road ahead. The industry is currently around $4 billion in debt, and large mining firms like Core Scientific have filed for bankruptcy.
With the current low prices of Bitcoin, mining has become unprofitable for many miners. This has led to a decrease in hash rates, and it's expected that there will be a massive collapse of hash rates in the future. This may lead to a cleansing of the industry, as only well-managed and efficient firms will survive. However, this could be a painful environment for miners heading into the new year.
Decentralization Concerns in ETH: A look at Mev, Boost and Relay 🚨
The podcast discussed the increasing centralization of Ethereum's blockchain, specifically focusing on the Mev, Boost, and Relay projects - these projects account for 60% of all blocks in Ethereum. However, the high centralization of these projects poses a risk not just from a censorship perspective but also from a single point of failure perspective. Ethereum researchers and developers are looking at ways to mitigate these concerns and hopes that Proposer Block Separation (PBS) will be a top priority to address these issues.
Ethereum's Scalability : What’s in Store ? 📈
With Ethereum's success in 2022, its merge and the struggle of its competitors, it's expected to face less competition in 2023. Instead, the focus will be on maturing layer-two technologies and scaling solutions such as ZK rollups and Zk-casing, as well as solutions like Polygon's transfer to proof-of-stake chains. As these projects are expected to launch their own tokens, it will be interesting to see how they compete with Ethereum's token in terms of investability and value accrual. It's also worth considering if the trade-offs made to achieve scalability are truly worth it, as it is not yet clear which chain will accrue the most value in the future.
Stablecoins in 2023: A Competitive Market 💰
The podcast also discussed the world of stablecoins in 2023. As per the guests they are an 'insanely good business model' due to the interest rates and how they don't payout any of that interest rate to users. So they're basically 'printing cash'. The outlook for Circle, Tether and Paxos is good, and as long as interest rates remain high, these companies will continue to grow and do well. There will be a battle for interest rates for revenue among these companies and it can get interesting to see who will take the lead in the market.
Defi's Next Frontier: Product-Market Fit 🚀
In 2023, the focus of Defi will be on the user experience and abstracting away the blockchain aspect to make it more user-friendly, similar to the FTX level of experience in terms of trading. Concerns over scalability, usability, and hacks will be addressed to make Defi more accessible and less complex. The focus will also be on providing a strong foundation of services, such as flash loans and better lending protocols, and products that potentially abstract away the need for blockchain knowledge.
NFTs Resilience Despite Market Dip : Will NFT Trading Volume Pick Up Again? 📈
NFTs have proven to be resilient despite multiple mini cycles of high interest followed by a decline, thanks to their relatable concept of rarity and value. The industry may see more development in the future, with potential for blockchain-based trading cards and games. Long-term creator royalties may be difficult to enforce on a smart contract level.
Binance Dominance - What is the Risk ? 📊
Binance accounts for nearly 90% of trading volume among crypto-only exchanges. But it is being reportedly investigated by the DoJ. This is not ideal - FTX was nearly 1/10th the size but its collapse really affected the industry a lot. If something bad were to happen to Binance, it would not bode well for the industry at all - as Binance where most of the liquidity is. It would also affect people’s faith in the industry for maybe years to come.
📙 Check out the full episode here on the Unchained Podcast
Section2️⃣- Solana's Comeback: Is the Network on the Rise Again?
Despite setbacks, a recent surge in activity has many believing in Solana's future potential. However, caution is still advised.
Summary from an article in the Market Meditations publication (link)
Solana's Setbacks 📈
Solana, once considered to be one of the most promising Ethereum competitors in the industry, has recently been hit with a series of setbacks that have cast doubt on the network's future. In the past year, Solana's market cap fell by over $50 billion and its native token, $SOL, has dropped almost 95% since April.
The network has experienced outages, has been criticized for its close ties to FTX and Alameda Research, and has seen a number of projects leaving the ecosystem. However, there are some indications that Solana may not be out for the count just yet.
BONK Airdrop Revives Interest 🐶
On December 24th, a crypto token called BONK was airdropped to some participants of the Solana ecosystem. This token, which is similar to Shiba Inu, saw its value jump over 400% in the week following the airdrop, and this sudden surge of activity has helped to revive interest in Solana.
As a result, Solana's market cap has almost doubled since the beginning of the year. Additionally, Magic Eden, the largest NFT marketplace in the Solana ecosystem, has seen record sales volumes of over 8 million $SOL in December. This may be due in part to collaborative launches by household name brands such as Toys'R'Us and Aston Martin.
Uncertain Future ⚠️
While it is clear that Solana has had a rough time recently, there is still reason to believe that the network may be able to make a comeback. Some supporters believe that Solana may be stronger without some of the more controversial players in the industry, and that the recent signs of survival are a positive indication for the future. However, it is important to note that the future of Solana is uncertain and those considering investing in the network should approach it with caution.
📙 Read the full article on Market Meditations (link)
Section3️⃣- Crypto Clarity: The 118th Congress's Chance to Lead
The 118th Congress has the historic opportunity to establish clarity in the crypto industry and position the US as a leader in the field
Summary of a twitter thread by Brad Garlinghouse, CEO of Ripple
Bipartisan Support for Crypto Clarity 🤝
The 118th Congress has begun and there is a growing optimism that 2023 will finally be the year for regulatory clarity for cryptocurrency in the United States. This sentiment is supported by the fact that support for regulation is a bipartisan and bicameral effort. Leaders from both the Republican and Democratic parties have publicly supported blockchain and recognized the need for clarity.
Building on Prior Efforts 🚧
In addition, prior efforts have already laid the groundwork for the current Congress. Previous bills have tried to address various aspects of the crypto industry, including stablecoins and centralized exchanges (RFIA and DCEA), clearer definitions of what constitutes a digital asset security (Securities Clarity Act), safe harbors (Clarity for Digital Tokens Act), and more. These proposals provide a starting point for debate in the new Congress.
Progress over Perfection 🚀
It is worth noting that while no bill will be perfect, and that perfect should not be the enemy of progress. The lack of coordination and standards globally is pushing business to countries with lower regulatory bars, with sometimes catastrophic results.
International Standards and the US 🌎
Other countries, such as Singapore, the EU, Brazil, and Japan, have already established crypto frameworks. The UK, in particular, is ahead of the US in this regard. The US has a chance to catch up and get this right for millions of Americans who are, and will continue to be, interested in crypto. The 118th Congress has a historic opportunity to ensure that the US remains an innovation leader for decades to come. The hope is that they take this opportunity.
📙 Here’s the tweet thread by @bgarlinghouse
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