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. Without further adieu, let’s dive into this week’s news.

The Latest

As you may have noticed, the feel and content of the newsletter has been shifting in recent weeks. The goal is to make the Web3 Rewind a resource for crypto investors and sophisticated users who are deep in the weeds and may need a sign post of what's coming next. We're still committed at Decential to cover the amazing and fascinating people who are making web3 a reality, so keep checking the web site for those in depth stories as well as news. But we think the newsletter gives us a chance to speak to degens who've been around since before Ethereum was a thing and to hopefully provide them with some insights.

We've added a chart section as well for some technical analysis and a way to visualize larger macro economic trends that affect crypto. The chart data is courtesy of the Pyth Data Association, which is working to decentralize data. Check out more about them here.

As always, thank you for your support and interest in what we're doing in all our coverage areas at Decential. Speaking of which, make sure to check out the latest documentary we co-produced, Follow the Money #3 — Dear Elizabeth Warren. It's a powerful look at the reality behind Bitcoin mining and how the issue gets twisted by the media and powerful politicians. And if you have an idea or concern you'd like to see addressed in the newsletter or on Decential, feel free to email me at [email protected]. I'd love to hear from you. — Matthew Leising, editor in chief, Decential Media

Credit card dept.

Blur Launches Blend

Buy now pay later (BNPL). Did fintech just redesign a credit card, and make it even more ridiculous? Doesn't matter. We're bringing it crypto, specifically NFTs. On Monday, Blur, the popular NFT marketplace for pro traders, launched Blend, a peer-to-peer (P2P) lending protocol for NFTs. Unlike existing NFT lending protocols that rely on an oracle such as BendDAO, Blend is oracle free and utilizes a Dutch auction mechanism to price and liquidate loans.

There are a few use cases. The first is if you want to borrow against your NFT, whether that's a Bored Ape or an Azuki. You can do so at various rates that are offered by lenders and then matched P2P into a perpetual loan. At any time, a lender can initiate a refinancing auction, which kickstarts a Dutch auction that gradually increases the offered rate from 0% to 1000% to another lender who wants to assume the loan. If no other lender assumes the loan and the borrower doesn't pay off by the end of the 30 hours, then the original lender claims the collateral.

Since lending was incentivized, some pretty silly deals were being offered, including a 90% LTV loan on a Cryptopunk at 0.3% APR. For those who aren't great at modeling credit risk, lending out 90% of the collateral value on a hyper-volatile JPEG which you can only liquidate after a 30-hour refinancing period isn't a great idea. 

If that all seems a bit weird, it gets even weirder here. Using these loans, you can use BNPL financing to buy an NFT with a small upfront amount, often less than 10% of the NFT price. After making a BNPL purchase, you can slowly repay your borrowed amount to take ownership of the NFT, or you can list the NFT and keep any profits from your purchase price. BNPL works in web2 because merchants will pay the BNPL provider, as BNPL results in an average sale size increase of 50%. We'll likely see a similar model as NFT collections find innovative ways to increase the demand around their initial mint.

Leverage is a great tool when the market is going up. If we ever get an NFT bull run again, then Blend will absolutely fuel that fire. But reflexivity on the way up also applies on the way down. Lenders who are eager to lend at absurdly high APYs will look to firesale any NFT collateral on the way down, assuming there is no one to refinance their loan to, and that fuels further refinancing, and further liquidations, and so on. — Joseph Cooper, Decential Media

Crypto charting

We have a new feature in the newsletter starting this week, 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. Let's get to it!

A week summed up in 4 charts

The banking crisis extended its reach last week with First Republic being taken over by JPM. Flight to quality, risk off trade saw stocks in SIFI banks rise along with bonds, while regional bank shares sank.

BTC and ETH traded together, first as risk assets selling off, then stabilizing.

On May 3rd, new Layer-1 Sui launched their mainnet, with its token, SUI, listing on numerous global exchanges. Historically, new tokens have experienced extreme volatility. Pyth confidence intervals for SUI stayed tight for the first day of trading, highlighting relatively low volatility overall on listing day.

Every 300ms, the 80+ data providers on Pyth submit prices on-chain along with confidence intervals which give an indication of the potential price deviation at that time. The various submissions are aggregated together on-chain to create the Pyth price and confidence interval. It's essentially a measure of the difference to buy and sell the token, with smaller differences indicating more confidence in the pricing. In fast-moving markets, or where there are times when exchanges have idiosyncratic issues such as halted withdrawals, the confidence intervals can become wide relative to the price.

Quick Bits

Liquid Staking Tokens and The Search for Higher Yields

• The Shapella upgrade to the Ethereum blockchain (which enabled staking withdrawals) has been live for a month or so, and we've seen some significant shakeups in the liquid staking market. ETH stakers want higher yields and lower fees, especially given the flexibility to now withdraw their staked ETH.

• Coinbase's cbETH has seen a 2% outflow since the Shapella upgrade. In the meantime, Lido, Frax, and Rocket Pool have seen significant inflows, with Frax topping the leaderboards with an increase of 29%. cbETH charges the highest fees at 25% and is the most centralized, so there's nothing surprising there.

Coinbase Launches Their International Exchange

• On Monday, Coinbase announced its international exchange. It gives institutional users in eligible jurisdictions outside the U.S. access to perpetual futures. At launch, only BTC/ETH is available at a maximum of 5x leverage; not exactly a competitive offering compared to other CEXs or perp DEXs. However, it is better than nothing. I'll take the slow and steady approach over Coinbase never capturing any perp market share.

• One interesting feature of the international exchange is that all trading is settled in USDC. If you didn't know, Coinbase receives ~33% of USDC interest income, meaning that growing the USDC supply is very much in their best interest. If the international exchange takes off, it could greatly benefit Coinbase's exchange volumes and interest income.

Inflation - Not for OP

• While Jerome Powell is struggling to hit a 2% inflation target, crypto doesn't exactly have that problem. It's pretty easy to turn down token inflation if a protocol wants to - it's more often than not a transaction or a DAO vote away.

• Polynya is attempting to reduce inflation for Optimism's token, OP. Polynya wants to reduce natural inflation from 2% to 0%. Still, it's a futile effort as OP is expected to inflate to the tune of a 270% increase in circulating supply from March 2023 to April 2024, resulting from various scheduled token unlocks.

And last but not least

Bitcoin Hash Rates and TXs Hit an All-Time High

What's the simple way to fix Bitcoin's long-term security issues? Turns out it's to get people really excited about storing NFTs on Bitcoin, and then launch a collection of wizard NFTs. I personally did not have that on my bingo card. For the last 3 days, 33% of Bitcoin tx fees have been driven by ordinals, which is a method to attach data to individual satoshis.

There are now 3M Bitcoin ordinals, and the Bitcoin network recently hit an ATH for the number of ordinals minted in a day at 373K. A new token standard, BRC-20, was also recently introduced. It has nothing to do with the ERC-20 token standard on EVM chains. Instead, the BRC-20 token standard is an experimental fungible token created using ordinals and inscriptions for deploying/minting/transferring tokens. Yes, Bitcoiners have discovered they can deploy tokens. This is not a drill.

Similarly, Bitcoin's hash rate has pushed to new record highs, with the largest 5-day increase in its 14-year history. I'm not sure if there is any correlation between a failing U.S. banking system and the Bitcoin hash rate, but here we are. It seems like people may be selling regional bank stocks in order to buy ASICs to mine Bitcoin. 🤣

Will this solve Bitcoin's security issue? As of now, the Bitcoin network needs to generate more transaction revenue relative to its security budget. Perhaps, but it will increasingly come at the cost of miner hardware constraints and block data limits. I'd love to assert that speculative behavior isn't sufficient economic activity to secure a chain, but then again, isn't 99% of what's happening on Ethereum today speculation? — 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.