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’s amazing week

• Low float high FDV tokens

• Spot ETH ETF filing amendments

• Farcaster $150M raise

• Uniswap responds to Wells notice

• The loss of Ethereum’s credible neutrality

The Latest

What a week

Private markets dominate dept.

Low float high FDV, or not so high

Recently, there’s been much public discourse about low float high FDV tokens. Let’s break that down — FDV stands for fully diluted valuation and refers to the total value of a token assuming all of the supply is in circulation. The core argument here being that many token generation events, known as TGEs, when a token is first launched on public markets including CEXs and DEX and available for trading, have taken place recently. Almost all those with a large FDV, but a small circulating supply on day 1, have woefully underperformed the market. In most cases they have a down-only chart and launch at quite frankly ridiculous valuations that are unsustainable. Now I know what you’re thinking, most valuations in crypto don’t make any sense anyway, so why is it any different for all of these low float high FDV tokens?

The key gripe that many participants have is that these low float high FDV tokens launch at incredibly high valuations. Take Starknet for example, which launched at a $27B FDV and has been down only, currently trading at less than half its initial value at a $12B FDV. Or Wormhole, which launched at a $15B FDV and is currently trading at a $5.6B FDV. The problem isn’t necessarily that these tokens are trading at insanely high valuations, it’s that they started trading at incredibly high valuations. 

It hasn’t always been like this. Tokens in the past launched at incredibly low valuations and appreciated over time. In this case, retail was able to buy early on and benefit from much of the upside. Today, however, retail only has the option of buying tokens at sky-high valuations while the private markets (VCs) capture all the upside and then dump on retail. This means that there isn’t anything left for retail to buy given the high valuations of all the tokens that launch today.

For example, Ethereum raised $16M in an ICO, pricing the token at an effective valuation of $26M. Similarly, retail users were able to buy SOL tokens on the open market at a ~$250M valuation. Now all you can do is buy a token on the open market at a $10B valuation as a retail user. Quite a different dynamic.

I don’t think people are frustrated with the fact that these tokens are launching with a low float. If anything, many of the best-performing tokens also launched at similar floats. For example, SOL launched with a 12.5% float, UNI launched with a 15% float, AVAX with a 6% float, AXS with a 14.6% float, and the list goes on. Individuals are more so frustrated with the fact that they no longer get to benefit from any upside in the public markets, and understandably, this makes us not much better than the world of TradFi and IPOs.

What’s the solution here? One of the solutions, which likely won’t come soon, is making it regulatory friendly for founders to raise from retail through an ICO-like mechanism. If founders weren’t scared of Gary Gensler coming after them, they might be inclined to raise from retail early on, which would give retail access to more upside starting from a lower valuation. However, one must wonder, if VCs are willing to write larger checks, at higher valuations, and provide more support (BD/hiring/marketing, etc), why would a founder ever raise from retail? — Joseph Cooper, Decential Media

Quick Bits

SEC approves spot ETH ETF

• In a shock move, the SEC yesterday accepted exchange applications to list exchange-traded funds based on spot Ether.

• Bloomberg ETF whisperers, Eric Balchunas and James Seyffar, sparked fevered speculation earlier in the week when they upped their ETH ETF approval odds to 75% from 25%. Fidelity, VanEck, Invesco/Galaxy, Ark/21Shares and Franklin Templeton all submitted amended Ether ETF applications on Tuesday, removing any language that would allow staking from their filings. Perhaps this led to the SEC about face.

Farcaster $150M raise

• Farcaster, crypto’s best shot at replacing web2 social media thus far, has raised a $150M round led by Paradigm. Other investors include a16z, Haun Ventures, Union Square Ventures, Variant, and Standard Crypto.

• The funds will be used to grow its user base and add developer tooling. Since October, the protocol has seen 350K paid sign-ups and is one of the most widely adopted social protocols with sustained activity.

Uniswap responds to Wells notice

• On Tuesday, Uniswap responded to the SEC’s Wells notice. Uniswap pushed back on the assertion that it is an unregistered securities exchange and said it doesn’t meet the definition of an exchange.

• It’s quite clear that existing crypto protocols still cannot fit into existing legal frameworks, and that Uniswap will have to fight the good fight for the entirety of crypto. Not cause it wants to, because it has to.

And last but not least

Is credible neutrality no more?

One of the greatest strengths of Ethereum as a protocol is that it is meant to be credibly neutral. This means that the core protocol itself never favors any group of stakeholders or actors and that it provides a level playing field. The Ethereum Foundation is a non-profit organization with the goal of supporting Ethereum and its development. It has a set of stated principles which include attempting to resist the natural tendency of organizations to grow and accumulate power, removing themselves from the equation whenever possible, and to not try to control or force the natural processes of the ecosystem.

This means that everyone who works at the Ethereum Foundation, and especially those who make large decisions surrounding the future of Ethereum, have to uphold the principle of credible neutrality. One way in which the foundation can demonstrate this is if its employees never have the interest of any other protocol other than Ethereum in mind. Well, that’s the complete opposite of what is happening today. Recently, it has been disclosed that several Ethereum core developers and researchers have received significant token compensation in return for being advisors to projects that may have conflicted incentives with Ethereum. 

Two of these researchers, Justin Drake and Dankrad Feist, happen to be two of the most influential researchers in the Ethereum ecosystem and critical decision-makers. They recently disclosed through a tweet (Justin Drake’s/Dankrad Feist’s) that they have become advisors to EigenLayer, one of the hottest protocols today. Funnily enough, Drake was not shy about the fact that the advisership comes with a significant EIGEN token incentive which could easily be worth more than the combined value of all his other assets (mostly ETH). I quote “We’re talking millions of dollars of tokens vesting over 3 years.” Feist’s advisership is likely no different.

Now to the fun part. EigenLayer is a re-staking protocol. It provides economic security as a service to various protocols. Fundamentally, if the protocol charges a take rate on the yield paid out for economic security, that value can only accrue to EigenLayer and its token. However, there have been talks of enshrining EigenLayer into the core Ethereum protocol. When that happens, would the captured value flow to ETH holders or EIGEN holders? No one knows, but ultimately the distribution of the value captured is very much a zero-sum game.

One can see how this is slightly problematic if the core researchers at the Ethereum Foundation, who should be acting in the best interest of Ethereum, now hold millions of dollars of the EIGEN token, which may result in them favoring a decision that would benefit the price of the EIGEN token. However, these saints have said, “I do not believe that they will change or influence my positions on how the core protocol should be developed.” Economic incentives are likely the single most important force-driving behavior in this industry, and across all human behavior. To think that you won’t act rationally in the interest of maximizing personal financial gain is quite frankly a joke.

You can’t stop employees at the Ethereum Foundation from investing or being advisers. Even if you could, I personally feel like that would be pretty unfair not to be able to capture any upside from protocols that benefit from being built on Ethereum. However, with the existing incentives, one could easily argue that Ethereum is no longer credibly neutral. As much economic security as a blockchain has, there is always a risk if the underlying blockchain is not credibly neutral, similar to the risk that one day Apple decides to boot all crypto apps from its app store because it is not credibly neutral. To think that the Ethereum researchers only got their hand forced due to a tweet from Cobie is not confidence-inspiring, to say the least. There could potentially be many other Ethereum researchers and developers who have tragically misaligned incentives to the core Ethereum protocol. I’m not sure what the plan of action going forward is. It probably shouldn’t be as drastic as disbanding the Ethereum Foundation, but it can’t be left unattended. Because if so, we give up on the very values we work for every day, to build permissionless, decentralized, credibly neutral rails for the betterment of humanity. — JC

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