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:

• BlackRock’s spot bitcoin ETF

• BNB Chain using the OP stack

• Crypto mortgages

• Sam Altman, more crypto

• Protocol risk management

The Latest

TradFi making moves dept.

Spot crypto is all the rage

Last Thursday, BlackRock filed for a spot Bitcoin ETF. Since then, Bitcoin has hit a yearly high in what the crypto community is calling “the Fink bid,” standing for Larry Fink, current CEO of BlackRock. In a subsequent flurry of action, WidstomTree has filed for a spot Bitcoin ETF, Invesco reactivated its ETF filing, and EDX Markets, an exchange backed by Citadel Securities, Fidelity, and Schwab started operations (see also Charting section below)..

All that activity is probably everyone thinking, BlackRock has the best chance out of all of us to get approved, and if BlackRock gets approved, mine will get approved too. And so far BlackRock’s track record has been pretty solid, an astonishing 575 approvals vs 1 rejection. And the rejection was for an ETF which didn’t require participants to disclose their holdings on a daily basis. Specific for this filing, BlackRock will be partnering with Coinbase Custody and Nasdaq, and has responded to concerns about spot-market manipulation.

In the past five days, GBTC share price is up by ~28%, with the discount to NAV narrowing from 43% a week to 33% today. This is likely due to speculation on the street that if BlackRock’s spot ETF gets approved, then GBTC will enable a legal redemption mechanism or that Blackrock may buy GBTC to kickstart their spot ETF.

There is $6.3T held in 401K plans. Charles Swchab+ Fidelity have a combined $11T+ in assets under management. Globally, there is $60T in pension funds and $250T in private retirement savings. There is no need to overthink this temporary narrative while the ETF seeks approval and EDX market gets off the ground. If even 1% of this capital makes its way into Bitcoin through a spot ETF, or the assets available under EDX, what do you think happens? Crypto is still a pain to get exposure to for your average working-class citizen or pension fund. Between the unbelievable returns we saw during 2020-2021 and the beginning of a technological revolution, I would like to think everyone wants a little bit of exposure.

Similarly, asset managers will be much more comfortable getting exposure to crypto through BlackRock (known as the fourth arm of the government) and Coinbase Custody (a qualified custodian under a public company). Importantly, a spot ETF doesn’t have performance drag, which occurs when a futures-based ETF has to rebalance periodically. If there’s any shot at a spot Bitcoin ETF getting approved, BlackRock represents our best chance in years. This comes on the heels of Jerome Powell calling stablecoins a form of money that the Federal Reserve needs to regulate accordingly.

Could this be all we need to kick-start the next bull market? As we all know, sometimes the news is more powerful than the actual event. The SEC has 240 days to approve or reject the ETF, which puts us for February 2024. The next Bitcoin halving occurs somewhere in Q2 next year. Regardless of whether you believe in crypto cycles being based on Bitcoin halvings, the spot ETF is probably as big of a catalyst as it gets if it gets approved. Position yourself accordingly. — 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.

Institutional Rush: Financial Giants Flock to Crypto Markets! $ETH $BNB

This week has brought several noteworthy headlines, with one of the most significant being Deutsche Bank, the renowned German banking giant, applying for a license to offer crypto custodian services. This unexpected move is particularly notable considering the cautious stance many financial institutions have taken towards anything related to cryptocurrencies in recent months. In another positive development, Citadel launched its crypto exchange, commencing operations on Tuesday. As we approach the end of the first half of 2023, a bullish momentum has been evident, bringing a breath of fresh air to the market.

Quick Bits

opBNB Chain

• Earlier this week, Binance, or more specifically BNB Chain, announced opBNB. It’s an L2 solution built on top of BNB chain, optimized for gaming, DEXs, and daily use. High transactions per second is the name of the game.

• A few questions remain, such as why does BNB Chain need an L2 if Binance can scale BNB Chain however they like as a slightly more centralized chain, and why choose to use the OP stack?

Crypto mortgage

• Milo caught CT’s attention last week as a platform that provides mortgages based on crypto collateral. I’m no credit expert, but providing a mortgage on crypto collateral that is still wildly volatile seems like a horrible idea.

• If we get Milo to mass adoption, then we can probably engineer a mini-housing crash by nuking crypto, and everyone finally gets the cheap real estate they’ve been waiting for. And that seems entirely possible, considering you only get margin called when your assets dip to 35% of the total loan amount.

Sam Altman and Reserve protocol

• Reserve is another crypto project that Sam Altman is invested in. This brings his crypto portfolio to Worldcoin, a Bitcoin life insurer and Reserve protocol.

• Reserve protocol provides actual real-world value, unlike 99.9% of protocols out there. It enables individuals in developing countries, often with high inflation, to access and transact in US dollar pegged stablecoins. 

And last but not least

Oops, I borrowed too much

On Sunday, an important vote came to a close. Before that, some context is needed. Michael Egorov is the founder of famous blue chip DeFi protocol Curve. He has a position on Aave V2, borrowing roughly $63M of USDT against $180M of CRV. There’s ~$30M worth of CRV liquidity onchain right now, so if this position were to be fully liquidated in full, it would leave AAVE the protocol with around $150M worth of bad debt. In the process, the price of CRV onchain would quite literally go to 0. As part of an initiative to manage that risk, Gauntlet proposed to freeze CRV collateral and set Curve LTV to 0, to prevent the account from adding CRV and increasing concentration risk. Surprisingly, the wider community has rejected the proposal.

Perhaps the wider crypto community doesn’t want Michael to sell his two mansions in Australia. Or perhaps the crypto community is saying, hey, we let him put on this position in the first place, we accepted that risk when he put it on, so he should be able to keep it open. It’s not really Michael’s fault that the protocol let him put on this position and messed up their mechanism design. Either way, this is quite a genius way to achieve exit liquidity. You simply borrow a massive amount onchain against your protocol token, let yourself get liquidated, and Ta Da! you now permanently have a load of stablecoins. To take the other side of the argument, I don’t think Michael will let his position get liquidated, as that would completely kill two of the largest DeFi protocols today. — 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.