Bullish Executive Order, Massive NFT Acquisition, and the Next-Gen of DeFi
Market Movers
The majority of the largest coins by market cap were in the red for the week. However, most rises were not significant. For example, Bitcoin dropped roughly 2% come Sunday night
Our pump of the week was Zcash (ZEC) which rose over 45%
Zcash differs from many cryptocurrencies by giving its users the option to completely conceal their public addresses while sending/receiving the coin
Many believe that privacy coins like Zcash will skyrocket in 2022 due to consumer privacy trends. Times of uncertainty, like the ones we find ourselves in right now with the Ukraine/Russia conflict, may also be the catalyst for the upward trajectory of privacy coin prices
First Sip
If you’re already a crypto native, feel free to skip to “Table Talk.”
PROOF OF WORK AND MINING
In our first newsletter, we talked about the environmental impact of Bitcoin mining. What does mining mean, though?
To answer that question, we’ll have to take a step back and understand the fundamental algorithm that makes Bitcoin (and many other cryptocurrencies, including Ethereum) work: Proof of Work (PoW).
PoW relies on making transaction validation computationally expensive and, by extension, energy expensive. It works by having some hash function that takes two parameters: the thing to hash (in this case, a list of transactions) and a random number called a nonce. The hash function then returns a 256-bit guess (long string of letters and numbers) based on the inputs (the list of transactions and the nonce). You can think of a hash function as a black box that takes two things in and spits a guess out. With every change of the nonce, the guess also changes where even a one-digit change in the nonce results in a completely different guess.
The goal of PoW validation is to find a nonce that is less than a 256-bit value set by the network. With Bitcoin, this target is set with the goal of a transaction being approved every 10 minutes and is re-adjusted by the percentage difference from 10 minutes every week. If greater than 10 minutes, the target is increased to make it easier to solve for transactions and decreased less than 10 minutes to make it harder.
If a validator finds a nonce that works, it is broadcast to the entire network where the other validators confirm it is a valid solution, and then, once a critical mass does, the entire blockchain is updated with the validated transactions.
These validators guessing nonces are also called miners and are rewarded in BTC for their service to the network. So, mining just means that you are running a computer that is making these guesses to find one that validates a transaction faster than all of the other validators.
Table Talk
BIDEN SIGNS EXECUTIVE CRYPTO ORDER
This past Wednesday, President Biden signed a much anticipated Executive Order labeled Ensuring Development of Digital Assets.
The release of the order signals a monumental day in crypto’s evolution as it marks the first whole-government strategy enacted to address digital assets.
Investor sentiment swayed bullishly in response to the order: Bitcoin surged from around $38K to above $40K in the hours after the announcement before returning to an average under $40K for the rest of the week. In spite of this, it is worth mentioning that the plan is very vague and offers no concrete steps for how the government plans to regulate cryptocurrency. Regardless, the order is a very solid first step in the eventual country-wide adoption of digital assets. Can’t run before you walk.
The full order, which you can read here, is lengthy. However, here are a few main points you need to know from it to save yourself from sifting through the governmental jargon.
The Government Recognizes the Growth Potential of Crypto/Is Interested in being the Leader in the Space
In recent months, we have seen various reports indicating that the U.S. is anti-crypto/anti-Bitcoin. However, the administration’s executive order reveals a more conservative stance by acknowledging the benefits of embracing digital assets in a safe manner. Simultaneously they’ve indicated, “The United States has an interest in ensuring that it remains at the forefront of responsible development and design of digital assets” (via whitehouse.gov).
The Order Addresses Potential Risks and Tasks Federal Agencies to Address Them
Data protection, risk disclosures, sanction evasions, climate/pollution, and national security were all listed as possible risk factors that digital assets could potentially create. Additionally, federal agencies such as the SEC, FTC, CFTC etc. were all cited as being responsible for enacting necessary action plans to report on these risks that fall within their mandate. “The Chair of the SEC, the Chairman of the CFTC, the Chairman of the Federal Reserve, the Chairperson of the Board of Directors of the Federal Deposit Insurance Corporation, and the Comptroller of the Currency are each encouraged to consider the extent to which investor and market protection measures within their respective jurisdictions may be used to address the risks of digital assets and whether additional measures may be needed,” the report says (whitehouse.gov).
A U.S. Central Bank Digital Currency (CBDC) Will be Explored/Stablecoins will be Evaluated
The Order details the U.S. Government’s goal of assessing whether they have the technological infrastructure and necessary resources to implement a centralized U.S. stablecoin, often referred to as the CBDC, and seeing whether it is in the country’s best interest to do so. Lastly, the impact of stablecoins in the U.S. and globally will be put under the microscope in the coming months.
NFT Buzz
YUGA LABS ACQUIRES CRYPTOPUNKS
Yuga Labs, the company behind the Bored Ape Yacht Club, announced on Friday that it acquired two NFT collections: CryptoPunks and Meedbits from Larva Labs. Following the sale, Yuga Labs now owns both the first and second largest NFT collections in the world—BAYC and CryptoPunks (via Coindesk). Current prices of both collections equate to more than $3B. Still don’t believe in NFTs?
Although specifics of the deal were not disclosed, it was announced that Yuga Labs plans to grant owners of CryptoPunks and Meedbits commercial rights to their NFTs (via TechCrunch).
The priciest NFT sale to date was CryptoPunk #5822 (seen below) which sold for 8,000 ETH, which at the time of sale was roughly $23.7M (via CryptoPotato).
Yuga Labs’ acquisition is an incredible consolidation of the largest sales volume NFT collection with the highest individual sale NFT collection (via CoinMarketCap).
DeFi Demographic
THE NEW GENERATION OF DEFI: TERRA & TERRA L2 PROTOCOLS
We’ve discussed how the DeFi ecosystem seems to be mimicking the Internet companies pre-2001. Further evidence for that hypothesis can be seen with the DeFi token valuation churn over the past several weeks.
The “DeFi 1.0 blue chips,” which include Uniswap, Compound, MakerDAO, Aave, Yearn Finance, Synthetix, and Curve have seen a significant drop in valuation over the past month (via The Defiant). All seven of these protocols are built on Ethereum. The average percent change of these protocols’ tokens price over the past month comes in at about -23.7%, compared to only a -10.9% change in the price of BTC (via CoinMarketCap). The overall cryptocurrency market cap changed about -9.6% (via CoinMarketCap).
Meanwhile, some DeFi tokens built on the Terra blockchain have exploded over the past month—including the Terra token itself. Even though the locked value in the DeFi 1.0 blue chips remains high, protocols like Anchor, Mirror, and Spectrum, which are all built on Terra, have seen an average gain of 78.7% (via CoinMarketCap). The underlying platforms that support DeFi are changing as more evolved layer one (L1) protocols are developed that provide a superior value proposition. One word, two syllables: bullish.
Final Cup
Historic past week for cryptocurrency due to the Wednesday signing by President Biden of a digital asset executive order. The plan outlines a vague blueprint of where the U.S. and crypto are heading. Things will inevitably change throughout the coming months/years as governmental and non-governmental agencies report their findings.
YugaLabs is now the uncontested king of the NFT space. They now own the top two collections in the world. One can reason that they believe their new acquisitions will continue to rise given their massive investment.
If you think of coin price as a proxy for optimism relating to specific protocols, DeFi is seeing a shift in optimism from ETH-based protocols to LUNA-based protocols. As DeFi applications mature, the platforms they’re built upon will also evolve—we’re seeing the beginning of a major shift.
Meme of the Week (via Reddit)
CPI was reported at a 40-year high of 7.9% on Thursday. If only there was an asset to hedge against such an atrocious number. If only…
Pat + Ari ✌️
Disclaimer: None of this is investment advice, financial advice, or trading advice. CRYPTOPONG does not endorse any of the cryptocurrencies, DeFi applications, or NFT collections mentioned in this article. Perform your own due diligence and/or consult a financial advisor before investing.