A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

• OpenAI developer conference

• CME becomes second largest Bitcoin futures exchange

• Backpack launches an exchange

• Arbitrum staking proposal

• LayerZero wstETH drama

The Latest

He’s counterfeit

It’s time dept.

AI conference season is upon us

It’s conference season. No, I’m not talking about Solana breakpoint, although I will get to that shortly. The conference I’m talking about is OpenAI’s. On November 6, OpenAI will be hosting its first developer conference. If you’re thinking about how this relates to crypto, Sam Altman, founder of OpenAI, also happens to be the founder of Worldcoin, one of the most widely adopted crypto based proof-of-personhood solutions. The two companies aren’t exactly intertwined, but their narratives are. Whatever AI narrative momentum is produced due to OpenAI’s developer conference will likely carry over to crypto AI tokens too.

Further fueling the narrative, the Biden administration recently issued an executive order aimed at regulating/monitoring the growth of AI. One crucial component of the executive order was that any AI model that required more than a certain threshold of operations to build must report to the government. If AI is going to power the workforce of the future and society at large, you wouldn’t want the government to have too much influence in something like the responses an AI model can give. One can see how that would be very problematic from a freedom of speech perspective and brainwashing people to think or lean a certain way. Regulatory capture has happened repeatedly in every emerging tech industry in America, and I wouldn’t be too surprised to see the same playbook being executed.

The more one thinks about it, the more one realizes how important a permissionless AI stack will be. That ranges from permissionless GPUs that train the models, permissionless cloud computing to run them and permissionless storage. The AI narrative should continue to strengthen long-term, even if you think it is a temporary fad today.

The other notable conference taking place is Solana Breakpoint. The token is up more than 30% in the past seven days, and as time has shown, token price going up is truly the best marketing for a protocol. However, crypto does have a trend of tokens falling dramatically post-conferences. They’re more top signals rather than bottom signals.

The most notable announcement of the conference was Firedancer, a new validator client being built by Jump (Jump Crypto is an investor in Decential Media.) It promises greatly increased network performance with the same existing hardware by making a number of software optimizations. Numbers teased from the conference were the ability to process 1,000,000 TPS per tile and linear scaling with the number of cores/tiles. This is the benchmark for the network stack, not the entire end-to-end validation process, so don’t expect anything close to 1M TPS. However, one can likely expect at least a 10x improvement in actual transaction throughput, which should further cement Solana’s image as one of the best decentralized high-throughput chains existing today. — Joseph Cooper, Decential Media

Quick Bits

CME becomes second largest BTC futures exchange

• The Chicago Mercantile Exchange (CME) recently became the second-largest BTC futures exchange on an open-interest basis. At $3.53B, the exchange is just behind Binance in the number one spot with $3.87B in open interest.

• This is a strong sign of institutional interest, as institutional investors may be much more interested in trading futures on a regulated exchange rather than a crypto native CEX such as Binance.

Backpack launches an exchange

• Backpack, the developers behind the popular MadLads NFT collection — and more importantly, the Backpack wallet — and xNFTs, is launching a crypto exchange. The exchange will be a regulated through a VASP license from the Dubai Virtual Assets Regulatory Authority.

• This is a surprising move, especially considering the company has never been interested in financial applications. But if it envisions itself as a wallet with the goal of becoming a super app, then the exchange, which I would expect to be an xNFT in that same wallet, would play well into that thesis.

Arbitrum staking proposal

• Arbitrum currently has a staking proposal with voting live on snapshot. The proposal aims to turn on ARB staking, with voters being able to choose 1.75%, 1.5%, 1.25%, or 1% of the total ARB token supply from the DAO treasury as staking rewards.

• Personally, I am against this proposal. Stakers will not be contributing to the ecosystem in any way, whether that’s providing economic security or providing extra on-chain liquidity for ARB. It’s just giving out tokens for the sake of it and because the DAO currently has more than $3B of ARB tokens that are sitting idle.

And last but not least

LayerZero wstETH drama

On October 25th, LayerZero announced that wstETH is now available as an OFT on Binance Chain, Scroll, Avax, and Ethereum. For those who are unfamiliar, wstETH stands for wrapped staked ETH, a derivative of Lido’s popular staked ETH. Today, wstETH is only available on Ethereum mainnet, given that is where ETH has to be staked. If Lido wanted to support wstETH on other chains, it would need to be bridged via a bridging solution. One such solution is LayerZero’s OFT standard, which stands for omni-chain fungible token. It uses an oracle + relayer system, whereby these two entities are independent of each other, to provide the bridge security. Upon LayerZero announcing that wstETH bridging was supported through OFTs, CT collectively blew up, calling out LayerZero for what they thought were unethical marketing practices.

For one, many thought that LayerZero used deceptive marketing terms to lead users to believe that LayerZero’s announcement was officially endorsed by Lido, which it was not. For example, “wstETH is now integrated with LayerZero’s OFT standard” or “Expanding wstETH access to these chains will enable their respective DeFi ecosystems to flourish while supporting Lido’s desire for chain expansion.” Both were considered “sketchy sales tactics” by Hasu, strategic advisor to Lido. Some feel that by unilaterally deploying this bridge and marketing it in an official seeming way, they are trying to pressure the Lido DAO to accept this as the canonical solution to avoid liquidity fragmentation. A commonly used term here is vendor lock-in, where the cost of switching to a different vendor is so high that the customer is essentially stuck with the original vendor. For example, if Lido DAO took three months to evaluate a bridge solution, due to how important the security considerations are when it comes to one of crypto’s most important tokens, it is possible that by then LayerZero’s wstETH OFT has already gained widespread adoption across various rollups. By then, Lido DAO would have to compete with many external forces, such as a bad user experience, fragmented liquidity, and more.

I don’t think LayerZero did anything wrong here, to be honest. The whole premise of crypto is that it is permissionless. The benefit of building composable systems, where developers can integrate tokens, contracts, and protocols however they want, is immense. That opens up the surface area of innovation and value creation exponentially compared to the world of Web2. In addition, if Lido doesn’t find and integrate or build a solution for something in demand, the free market will do its thing, and someone else will do it. Truth be told, Lido is stuck between a rock and a hard place right now. In the worst case, the adoption of LayerZero’s wstETH takes off and becomes the widely accepted canonical version of wstETH, and Lido has to rush against time to find an optimal but secure solution. In the best case scenario, there is zero demand from users to use LayerZero’s wstETH, and this gives Lido ample time to figure out a solution. Given how popular wstETH is as collateral across DeFi, I tend to think it’s the former. — JC

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.