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:

• Crypto goes mobile 📲

• Pudgy Penguins top Amazon charts 📊

• Lido staking and the never-ending fee switch discussions 🤔

• Hong Kong retail trading regulation 📰

• Ethereum social consensus 👀

The Latest

Am I the only one who thinks of the Death Star whenever central bank digital currencies are mentioned? Alderaan was having a chill week until the news hit recently that the U.S. Federal Reserve and the Monetary Authority of Singapore successfully conducted a bunch of tests using CBDCs for cross-currency pairs trading. The trades settled simultaneously and instantly, cut settlement time to about 30 seconds from what can take two days and worked across different underlying ledger technologies at the participant banks.

That’s pretty cool, actually. This type of central-bank trading is a part of the global foreign exchange market, the largest in the world at $7.5 trillion traded daily in 2022. Speeding money movements around the world is a positive, both in the money saved and the huge increase in trade certainty. In crypto, this is the market that Ripple has unsuccessfully been trying to disrupt. It’s too big, too powerful, for that, but that doesn’t mean CBDCs aren’t coming for us all.

According to the Atlantic Council, 11 countries have introduced a CBDC, 18 more – including China – are in a pilot phase, and overall, “114 countries, representing over 95 percent of global GDP, are exploring a CBDC.” I’m in favor of the central-bank currency market use for CBDCs, but I’m very skeptical of their introduction to retail consumers in place of the current electronic cash system. Privacy concerns are paramount as a CBDC requires a blockchain and we all know by now that that means transactions could be tracked, monitored and censored. In China, 260 million people are a part of this sick experiment as you read this. So are industry-driven stablecoins the answer?

It's not so simple, so I called Chris Giancarlo, the former acting head of the CFTC who’s currently running the Digital Dollar Project. Chris wondered if private stablecoin issuers are any more trustworthy than a government in terms of protecting privacy, and made a crucial point about how we vet investors – known as know-your-customer and anti-money laundering regulations. KYC/AML is done prior to an investor being allowed to trade, when they couldn’t have done anything illegal yet. Giancarlo said investors should be allowed to trade assuming they’re lawful, and that market surveillance can spot suspicious activity and then go after it. Doing KYC/AML after the fact, not beforehand, could be a game changer and would be a step in the right direction if implemented with any CBDC retail use.

Because governments abuse any and every power they’re given, laws need to be written to ensure privacy concerns are foremost in any CDBC regime. And then it must be a voluntary and alternative system to the current cash system. Congress has work to do, as according to Giancarlo there’s no mention of privacy in the current stablecoin bill.

I don’t want to live in the Death Star and I don’t want to blow up Alderaan. And I don’t want the government having full visibility into my every financial transaction. Blockchain cynics should note how seriously central banks around the world are taking digital currency tech, stop moaning, and join the fight for privacy. The Bank for International Settlements has done some interesting research on privacy features in CDBC use, but there’s more to be done. This is a technology that will be very hard to stop and can be a fascist’s dream. It demands our attention in these critical early stages of development and acceptance. — Matthew Leising, editor in chief, Decential Media

Mobile phone addiction dept,

Crypto’s Mobile First Move

Last week, StepN announced itself as the first-ever blockchain gaming app to successfully integrate Apple Pay into its platform. Allowing users to use Apple Pay to now purchase StepN products directly within the app reduces the need for a crypto wallet. Unsurprisingly, each in-app purchase is subject to taxation.

In the associated Twitter thread, StepN said, “This milestone would not have been possible without the continued support from Apple since StepN’s launch in 2021.” I don’t think Apple really supported anything for StepN. I would assume StepN simply used Apple Pay’s SDK to turn on this support. And even with this “monumental milestone,” I’m not sure it would make a huge difference for their 77 active users. 

On the other hand, Apple does have to approve apps on the app store. So the approval of apps such as Uniswap’s wallet and Axie Infinity Origin marks an important step for crypto mobile adoption, especially in its current market structure that relies on centralized companies operating a permissioned app store.

Mobile is likely where most new entrants will interact with crypto, especially in developing countries, given their mobile penetration rates. Protocols have started realizing that. For example, dYdX will build two open-source front-ends for mobile, one for iOS and one for Android.

Similarly, Solana has been making a big mobile push with the Saga phone going on public sale. xNFTs, which are in wallet apps, may also further drive mobile adoption by skirting the need to list apps through a centralized app store. Crypto adoption is important, and building valuable apps with a smooth mobile experience will be crucial to that. I’m all for crypto’s continued push into mobile, but let’s not forget that mobile infrastructure is largely centralized and that will always remain a risk. — Joseph Cooper, Decential Media

Crypto charting

Here's a deeper look into the economics and mechanics of web3 and crypto courtesy of charts by Pyth Data Association. To see more Pyth research click here.

Bitcoin Pizza Day fails to excite the markets $BTC

Bitcoin Pizza Day this year was a dull affair for the markets - Bitcoin prices have chopped around the $26,500 - $27,500 range all week. The market remains hesitant to take a view amid uncertainty around the debt ceiling limit in the U.S. and inflation around the world.

Increasing scrutiny on Binance taken in stride - $BNB

Reuters published a special report alleging that Binance commingled customer funds and company revenue, quoting former insiders as sources. Binance refuted these allegations calling them weak but overall it shows increasing scrutiny and pressure from authorities globally. The market seemed to brush it off, with BNB trading in a right range of $305-$315 over the last week.

Quick Bits

Pudgy Penguins - A New Paradigm for NFT IP

• Pudgy Penguins is bringing utility to NFTs. Last week, they launched Pudgy Toys, a toy line based on the Pudgy Penguin IP. So far, they have sold over 20,000 toys and netted $500K in sales. Pudgy toy buyers receive a QR code that unlocks a series of NFTs and gives them access to Pudgy World.

• In addition, the owner of the Pudgy Penguin NFTs that are converted into physical toys will receive royalties on the toy sales. How’s that for real yield on your right-click jpeg? I look forward to more crypto-native IP brands expanding into the real world. Another great example of this is Wassie’s Hotel in Singapore.

LDO Staking and The Fee Switch Discussion

• Last Wednesday, a proposal was posted in the Lido governance forums to introduce LDO staking. Crypto is addicted to turning on fee switches to “increase token utility.” In this case, stakers would enjoy a jaw-dropping $14M in fees on a $2B market cap token at maximum…. amazing.

• Unsurprisingly, the proposal seemed to have been coordinated by a few individuals, with one of the participants posting about the proposal before the proposal even went live. Huh, I wonder how that’s possible.

Hong Kong Retail Traders Rejoice

• Starting June 1st, retail traders in Hong Kong can start trading crypto. Before we kick off another mini Asia liquidity narrative, platforms can only start applying for a license on June 1st, with approved trading likely beginning in the second half of the year. (Check out Decential’s Hong Kong regualtory coverage here.)

• Approved tokens must be included in two major indexes, and today, that list only includes 9 tokens, including BTC/ETH/SOL/AVAX/MATIC and a few other Bitcoin forks. Importantly, there will be no earn programs, deposit-taking, or lending and borrowing, and also no derivatives. 

And last but not least

Vitalik and Not Overloading Ethereum Consensus

On Sunday, Ethereum inventor Vitalik Buterin posted a blog, titled “Don’t overload Ethereum’s consensus.” Taking a small stab at Eigen Layer, the gist is that there should be a clear distinction between re-using validators (which is ok) and overloading social consensus (which is not ok). Overloading social consensus, in this case, means protocol teams recruiting and then emotionally blackmailing Ethereum’s validator set, saying it is in Ethereum’s best interest to fix something, more often than not by hard-forking the chain.

Eigen Layer and restaking ETH has been one of the larger narratives of the year. Vitalik’s concerns are valid, but it also forces one to wonder, what is the last layer of consensus? Last week we talked about Ethereum’s consensus failures, and one would think that Ethereum’s consensus algorithm, Gasper, is the final layer of consensus. But if one really thinks about it, the Ethereum validator set always has the ability to hard fork the entire chain if they so desired, and at that point, society as a whole (meaning the wider crypto community) will quite literally come to a social consensus on which chain should be the canonical chain. So, we live in a society. Is everything just social consensus? — JC

Out of the Ether: Special NFT Edition

Have you read the definitive history of Ethereum? No? Well then get your special edition of Out of the Ether while you can. There are only 1,000 that were printed and each copy is an NFT that can be registered on the Lukso blockchain’s Universal Profile protocol.