Let’s take a break from price action, airdrops, and applications, and go straight to the FUN! Today we talk about code. Yay!

There are some relevant technological changes approaching the crypto ecosystem from both the Ethereum and Bitcoin fronts. Crypto is a highly technical ecosystem, so you might belong to that group of people that gets excited about code upgrades. But if you’re not, hold your yawns, because we will also explain why these improvements matter.

TL;DR

The Ethereum developer community continues discussing Pectra (a name derived from Prague and Electra), the upgrade expected to happen in Q1 2025. Pectra will contain several EIPs (Ethereum Improvement Proposals) that will bring improvements in areas such as performance, decentralization, and user experience. Among the most anticipated updates is EIP-7702, which will enable “account abstraction” on Ethereum wallets. More below.

The Bitcoin community, for its part, is discussing the inclusion of OP_CAT. Exciting, I know! OP_CAT is an opcode that was included by Satoshi in Bitcoin’s original design but was later discarded by Satoshi himself. OP_CAT could make a comeback and open the floodgates to a new wave of programmability on the Bitcoin blockchain. Read on, reader.

Pectra: Ethereum’s Last Revolution

Pectra is the next, and possibly last, great leap in Ethereum development.

Vitalik said before Shapella: “After this [next] fork is done” (meaning Shapella), “and then after scaling is done, we’re in a stage where the hardest and fastest parts of the Ethereum protocol’s transition are essentially over. Various things will need to be done, but those things can be safely done at a slower pace.” Vitalik Says Ethereum Will Focus On Scalability Post-Shapella

Pectra brings a large batch of improvements, so large that developers might decide to break it down into two. Pectra update might split into two hard forks.

Among these improvements are some aimed at making Ethereum more efficient in general, with enhancements in the storage requirements imposed on nodes and the computational power needed to validate the chain. These seemingly nerdy aspects connect to the heart of Ethereum’s vision: By lightening the burden of maintaining an Ethereum node, the possibility of participating in Ethereum validation opens up to many more people. Vitalik’s dream is to see smartphones validating Ethereum while being used to request an Uber. A larger number of nodes would simultaneously provide the highest guarantee of security, sustainability, and chain resilience..

But the star among all EIPs is EIP-7702: the improvement proposal meant to bring account abstraction to the Ethereum blockchain.

Let’s make a quick educational stop and explain a core concept in Ethereum’s mechanism today.

Concept Refresher (I): Types of addresses in Ethereum -EOA vs SC

In Ethereum, there are two main types of addresses: Externally Owned Addresses (EOAs) and Smart Contract Addresses. EOAs are like personal accounts. EOAs are used to sign the transactions that initiate fund transfers or smart contract interactions. They are managed by a public/private key pair that a user needs to save like gold dust, or they’ll lose access to the funds.

Smart Contract Addresses, on the other hand, are controlled by code on the blockchain. They automate actions based on the conditions specified by an input. They are versatile and perform complex tasks like managing funds in decentralized apps and enforcing rules autonomously.

EIP-7702 aims to introduce the “smart contract wallet” hybrid, making individual addresses less dangerous and clunky. Smart contract addresses allow automated payments, alternative authentication methods including social recovery or biometric authentication, and gas sponsorship (the ability for third parties to subsidize gas costs for certain transactions).

To an outsider, these improvements might look utterly unimpressive. At the end of the day, these are basic elements of the banking user experience that only crypto-natives don’t take for granted: why do we have to be terrified of key loss? Why does every single operation require unintelligible gas price calculations? We might be able to kiss these things goodbye, and welcome a more familiar way of interacting with funds digitally.

Freedom to Concatenate: The OP_CAT revolution

Bitcoin used to live in a comfortable slumber, protected by its halo of immutability, until Ordinals broke out. In early 2023, an unexpected side effect of the latest upgrades in Bitcoin’s code enabled the creation of unique on-chain assets, triggering a wave of NFTs and something like fungible tokens that took the OG chain by storm.

One and a half years later, Bitcoin has become one of the noisiest corners in crypto, with hundreds of developers and millions of dollars working to expand its capabilities.

The latest addition to this saga is the OP_CAT debate. OP_CAT is an opcode, one of the many components of the Bitcoin scripting language. It was originally conceived by Satoshi Nakamoto in Bitcoin’s early days, but Nakamoto himself shelved it due to concerns over potential abuse.

Today, OP_CAT has reemerged as an avenue for the potential enhancement of Bitcoin’s capabilities. The “CAT” in OP_CAT stands for “concatenate”: OP_CAT would reintroduce a “concatenate” feature to Bitcoin Script, allowing the combination of two strings of data into one.

Sounds trivial, but it’s huge.

OP_CAT could potentially unlock the ability to perform conditional operations on the Bitcoin blockchain, expanding its utility spectrum and bringing it closer to the capabilities of a smart contract blockchain. This could mean improved bridging, fundamental DeFi operations, improved custody solutions, and a broader range of applications and interoperability options.

Now comes the time to go through the proverbially unstructured and slow governance process that Bitcoin updates must navigate before becoming part of Bitcoin Core.

Concept refresher (II): Bitcoin’s governance process

Bitcoin is a piece of software, and as such, it is subject to maintenance and improvements. But faithful to its principles of decentralization, the governance process that determines what changes make it to Bitcoin Core takes a multi-step approach where debate is heavily encouraged.

Bitcoin’s governance process begins with the informal discussion stage, where proposed changes to the Bitcoin protocol are debated across various platforms such as GitHub, forums, mailing lists, etc. The subject of the discussion can eventually become a BIP: a standardized template for proposing and implementing changes. BIPs are supervised by Bitcoin editors. If a BIP gains traction and the discussions are deemed valid, it moves forward in the process.

After a long process of debate, improvement proposals are voted on through code implementation: miners express their opinions through on-chain signaling (adding information to blocks) and eventually through implementation. The final verdict on the implementation of an improvement proposal happens once miners and nodes decide to adopt the changes or pass.

It’s as if Congress wrote a law, and the law only came into effect when the majority of police officers, judges, or citizens began to obey it.

Improvements can happen via soft forks or hard forks. Soft forks are backwards-compatible changes, which means that updates do not require all nodes to upgrade. The chain can keep running normally. Hard forks, on the other hand, are significant changes that create a divergence in the blockchain. The nodes that sync with the new version start a new chain of their own, incompatible with the prior one.

If you thought Bitcoin was alone in the world and looked exactly like Satoshi wrote it, think again.

The proposal to bring back OP_CAT received a BIP number in April, which means that editors have given it their blessing and the proposal moves on to the next phase. In recent months, it has garnered some notable endorsements, along with a $1M grant program launched by Starkware for developers willing to improve this implementation.

Tech without context can be hard to digest or even boring. But technological improvements are always the manifestation of a problem-solution pattern, so they need to be evaluated according to the size of the challenges they face and the values they stand for.

Pectra can massively improve Ethereum’s user experience and takes great steps towards more decentralized, and therefore secure and censorship-resistant, validation. OP_CAT could be the key to programmability in Bitcoin: the largest chain, with the broadest community and the strongest financial footprint could take an evolutionary step towards the vision of a decentralized computer.

Cool.

Carbono Insights #101 | From Yawn to Yay. Ethereum and Bitcoin Updates You Can’t Ignore was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.

These are just different ways of offering the same product: blockspace. But what is blockspace? Why would anybody want some?

Blockchains are distributed databases secured by decentralized networks of participants like miners and validators. Blockspace is the capacity these databases have to store data. It’s the space where users can record transactions, such as payments or smart contract interactions, trusting that their operations are secure and censorship-resistant. We have a plethora of that now, and it continues to increase in size and variety. Blockspace comes in many different shapes and sizes: fast/slow, expensive/cheap, decentralized/centralized… You can choose across a broad spectrum of possibilities.

The supply of blockspace is massive. But what about the demand? What are the use cases that justify this infrastructure-building fever? That should be the challenge now. This newsletter issue focuses on six examples of use cases currently in the news, each in a different maturation stage.

Runes: Gambling, Investing or Both

In sync with Bitcoin’s halving, the Runes protocol was launched to the world. Runes are a new way of minting fungible tokens on the Bitcoin blockchain. Ethereum pioneered this with its ERC-20 protocol back in the day. Bitcoin had lagged for years, remaining faithful to its ethos of being a single-purpose blockchain. This philosophy was notoriously broken in early 2023 by the Ordinal theory. Runes now comes to certify the death of this approach with a protocol that was born, as expressed by its creator, to import the memecoin frenzy to Bitcoin.

Runes represent the crypto community’s unwavering thirst for different, apparently contradictory purposes: the often cannibalistic and destructive impulse to gamble on one hand and the impulse to transact globally and permissionlessly. ERC-20 enabled a spring of use cases that enabled the appearance of DeFi, DAOs, and all the instruments that crypto has come up with to transform how humans interact digitally. Runes are Bitcoin’s attempt at bringing that use case to the most populated and wealthiest blockchain there is.

TradFi, the incumbent in the adoption race

Institutional adoption is the second most popular use case in crypto, gaining momentum in 2024. Gambling and degening have been how crypto-native users stress-tested and taught DeFi how to offer efficient and secure digital financial services. Traditional financial institutions are already aware of crypto’s advantages, and only two things stand in the way of adoption: one is unclear regulation, as illustrated by the doubts surrounding the approval of Ethereum ETFs. The other is speed. Despite all the bragging by developers working on infrastructure, crypto still needs to be orders of magnitued faster before it can meet the needs of traditional finance.

Global Identity: A Mighty Adventure with Mighty Obstacles

Legal personal identification is an issue ideally suited for the advantages offered by crypto. Globally, nearly 1 billion people need an official ID, hindering their participation in the political sphere and access to the financial system. Even in developed countries where IDs are prevalent, they suffer from a lack of interoperability. They are often a jumble of disparate documents like driving licenses, passports, and social security cards, each with its own set of data and limitations. A global, trustworthy, interoperable ID that respects the owner’s privacy is something that crypto is technically capable of.

Sam Altman, CEO of OpenAI, is the type of visionary willing to tackle a problem of this magnitude, and Worldcoin is his weapon of choice. Altman aims to create secure, interoperable, privacy-preserving digital IDs that people can use to engage digitally with any service, be it private or public. While Sam’s vision is compelling, Worldcoin has encountered significant legal and ethical challenges on a global scale. Governments are wary of the company’s handling of people’s data, and its methods of acquiring new users, often involving bribing people with crypto in underdeveloped countries, raise ethical concerns. Also, using shiny sci-fi-looking orbs to scan people’s retinas doesn’t help build trust.

Recently, Worldcoin launched World Chain, a blockchain designed to prioritize blockspace for actual humans rather than the armies of bots that populate other major blockchains. Described as “built, owned, and governed by all of humanity,” World Chain enables permissionless and global crypto transactions, promising exciting possibilities and unsettling implications.

Decentralized Physical Infrastrucure. The Uberization of technological resources

Thanks to its upcoming airdrop, IO.net has consistently made the headlines lately. IOnet is a Solana-based DePin protocol that enables people to rent the processing power of their GPUs, which is one of the most coveted resources for running AI models. IOnet is the last of a long list of examples that have captured the imagination of investors looking for the overlap between two of the most exciting opportunities: AI and crypto.

AI requires a substantial amount of technological resources: computing power, storage, internet connection… Resources that are only within the reach of gigantic corporations.

Unless they compete against a whole network of incentivized individuals. That’s where crypto makes sense.

Grass aims to decentralize data obtention, Bittensor decentralizes AI models, Helium decentralizes bandwidth, Akash decentralizes server storage, and Hivemapper decentralizes world maps. These projects represent how crypto can contribute to a fairer distribution of physical and technical resources.

They are undoubtedly thrilling, but at the moment, only crypto insiders are aware and interested of these projects. Try asking any AI expert about IOnet, and you’ll see the nothingness behind their eyes.

Adidas x STEPN, and the re-emergence of another horrible buzzword, “phygital.”

NFTs have long been the trailblazers of crypto adoption, captivating audiences with their unique blend of digital ownership and scarcity. While they may have recently taken a backseat in the crypto conversation, if the ongoing bull run persists, they could soon find themselves back in the spotlight. Brands are eagerly eyeing the potential of NFTs, envisioning them as powerful tools for engaging customers as digital collectibles, fuel for loyalty programs, and keys to new digital services.

One recent example of NFT adoption comes from Adidas, the sportswear giant, and Stepn, a move-to-earn fitness app. The two brands have joined forces to launch the Stepn x Adidas Genesis Sneakers collection, a way to merge virtual and physical rewards. These Solana-based NFT sneakers will be integrated into Stepn’s fitness-focused game, allowing users to earn rewards while staying active in the real world.

“Phygital” is back on the menu, ladies and gentlemen. Crypto has a unique ability to add superpowers to physical objects and, vice-versa, connect tangible objects with digital products and experiences.

However, Adidas is a pioneering crypto brand. Other giants like Sotheby’s or Christie’s, Reddit, and Starbucks, belong to the first generation of major brands with colonies in Web 3. We will still have to wait for the second.

Web 2 and Web 3 look at each other from afar

ByteDance, the company behind TikTok, and Sui, a blockchain Layer 1 focused on achieving record transaction speed and built by former Facebook engineers using Facebook tools (the efficient Move programming language) and leveraging Facaebook’s connections to Silicon Valley, have announced a partnership. Bear with me while I share this piece of corporate PR writing with you, which is shared in Sui’s official blog.

BytePlus, ByteDance technology solutions subsidiary takes its first foray into empowering companies and services on blockchain with Sui. BytePlus will work with Mysten Labs to adapt its recommendation solutions and augmented reality products, among other services, to Sui. BytePlus Empowering Web3 with Sui, Eyeing Gaming and SocialFi

Subsidiaries seeking synergies empowering common strategic goals. What the hell does that even mean?

The emptiness of the announcement represents the stage of the collaboration between Web 2 and Web 3. Behind the scenes, there’s definitely a considerable overlap between Web 2 and Web 3 developers and users. However, the centralized nature of Web 2 corporations clashes with the iconoclast spirit of decentralization of Web 3. There are many cultural bridges to build.

Carbono Insights #99 | The case of use cases was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.

This will probably be the last newsletter we publish before the halving happens. The halving is a regular, predictable milestone in Bitcoin, where the minting of new BTC during the mining process is reduced to half. It usually has a strong effect on the asset price. There are not enough precedents to assert with certainty what will happen this time (every halving has happened in a totally different context), so it’s hard to tell what BTC will do. More on this below.

But besides BTC price action, the main topic since January, we’re seeing more and more exciting things happening in the space. Some of them are even on the Bitcoin blockchain.

In this issue, we cover Runes, an innovation that might trigger a token summer on Bitcoin. We explain Ethena, the new start in the Ethereum ecosystem, with a brilliant token design for a yield-bearing USD synthetic asset. We also touch base on institutional movements: Venture capital coming back to the space and the progress of tokenization.,

The halving is coming. Are we excited or not?

With the latest Bitcoin halving less than 10 days away, anticipation grips the crypto community. This halving, occurring approximately every four years, slashes the rate at which new Bitcoins are created by half. The reward miners earn diminishes, reducing the rate at which new BTC enters circulation. This straightforwardly affects BTC supply, and given the historical trend of increasing demand for BTC, each halving event has consistently resulted in price hikes.

“In each of the three (3) previous halving events, the price at the end of the year in which the halving occurred exceeded the price at the occurrence of the halving, including the halving event that happened during the most recent bull market during 2020–2021.“ Forbes — How will this halving affect bitcoin?

However, amidst this optimistic narrative, voices of caution emerge. Arthur Hayes, a charismatic crypto figure and billionaire, intends to stay away from Bitcoin for a while. He points out that the halving coincides with a period of tighter dollar liquidity, potentially fueling a sell-off of crypto assets. Hayes’ decision to abstain from trading until May underscores concerns about broader economic factors, including government measures impacting the USD supply.

Hayes is a highly technical and verbose writer. If you have the time and guts, Heatwave is the post where he explains everything. For an abridged and simplified version, click here.

Ethena, the new kid on the block

Ethena is one of the most successful protocols to appear this year. It has been grabbing attention lately for a couple of key reasons, making it the talk of the town in crypto circles.

Recently, a buzz surrounded the airdrop of its token, $ENA. This wasn’t your run-of-the-mill airdrop; it was more like a boutique event, rewarding genuine engagement with the protocol through a points system.

Even more recently, Ethena recently made waves by accepting Bitcoin as collateral for minting its synthetic asset, USDe.

But let’s rewind a bit. What exactly is Ethena, and why is it causing such a stir?

Ethena brings together some of the most tried-and-tested concepts in crypto and packages them into a product that generates yield transparently and trustworthy. It draws from the wells of stablecoins, staking, and perpetual futures trading to create its flagship product, USDe.

Initially marketed as a stablecoin, Ethena had to pivot and rebrand as a USD-based synthetic asset. USDe may resemble a stablecoin at first glance due to its dollar peg, but its mechanics set it apart from the usual conversion of dollars into tokenized equivalents.

Ethena uses ETH, and now BTC, to create a delta-neutral USD position with a positive carry.

Delta neutrality is the state of a portfolio where the overall change in the value of the underlying assets does not significantly impact the portfolio’s value. In plain English, this means that its portfolio holds ETH (let’s leave BTC out for the moment, for the sake of the explanation) in a way that is not affected by the price of the assets, yet it generates yield anyway.

• Ethena holds ETH
• Ethena stakes half its ETH. Staked ETH yields a 3–4% thanks to staking rewards
• Ethena then takes a short position for the value of the remaining half. Short positions earn hefty fees thanks to funding rates (the payments exchanged between long and short positions in perpetual futures contracts)
• Ethereum’s price changes? Ethena doesn’t really care because its revenue is not linked to the asset but to the staking rewards and the funding rate.

Ethena has reached $2.25B in TVL, granting it a position in the top 20 protocols by value locked.

VC are back in town

Venture capital is tiptoeing back into the crypto playground, drawn by the siren song of Bitcoin’s revival after a year of playing coy.
Things are heating up, with news VCs like 1ks (who raised a $75M fund just this month), Galaxy planning a $100M crypto fund and Paradigm, who publicly steered away from crypto in their website, removing direct references to it from their web homepage, leading rounds again.

Every type of inflow into crypto has a different purpose, a different speed, and a different effect in crypto. Native crypto investors, like degens, are constantly moving around, burning trends and leaving. The current ETF inflows are expected to be slow and steady since mainstream investors to whom ETFs are geared are not willing to spend too much time managing their funds, but their capital does not have much mobility within the crypto space (meaning, once it settles in BTC, it stays there). VC money can sometimes be fast, sometimes even harmfully so, such as degens’, but in general, it comes to stay and helps build in the longer term. It is used to hire or expand on a longer time frame.

For a deep dive into how much money is currnetly flowing towards crypto, and where it seems to be going, make sure to check out this thread by Koryo.

Crypto Koryo on Twitter

Trading on narratives: why, and which ones?

In the world of crypto investment, attention plays a huge role. Sometimes, it’s like a big gambling game, with hype being the main tool to rope in unsuspecting investors, banking on the hope that there’s always a “greater fool” willing to buy in.

But not everything is shady in crypto. There’s something honorable about “narrative investing.” Narratives attract capital because they speak about values and missions, and people are also drawn to them. It’s all about figuring out which stories stick and using that to suss out the good investment opportunities. So, if you’re curious about the whole attention game in crypto, check out this tweet from CoinGecko

Coingecko on Twitter

Runes: Bitcoin-based tokens on steroids

Last week, we mentioned how Bitcoin was becoming more and more Ethereum-like in terms of capabilities. One of the outcomes of this evolution was the appearance of BRC-20 tokens, an experimental protocol emulating ERC-20, the standard for Ethereum tokens.

Well, the Runes protocol is about to take the BRC-20 vision to a new level. Designed by Casey Rodarmor, the visionary behind inscriptions and Ordinals, Runes promises to revolutionize the creation of tokens on the Bitcoin network. With claims that Runes surpass the capabilities of its predecessor, BRC-20, in terms of minting and trading efficiency, anticipation is high for their impending launch.

Scheduled to coincide approximately with the upcoming halving event, Runes is expected to debut around April 20th, marking a significant milestone in the crypto calendar.

Details around Runes are still scarce. The only way to approach them at the moment is by engaging with some Ordinals collections, which have announced that will mint and distribute Rune equivalents of their NFTs as soon as the gates open. Make sure to check out projects like Runestones, RSIC, or Rune Pups in Magic Eden, the place to stop for your Ordinals shopping.

Asset tokenization FTW

The tokenized U.S. Treasury debt market is experiencing significant growth, surpassing $1 billion in market value for the first time. These tokenized Treasuries, which are digital representations of U.S. government bonds, can be traded as tokens on public blockchains like Ethereum, Polygon, Avalanche, and Stellar. This market has seen a nearly tenfold increase in value since January last year and an 18% surge since BlackRock’s Ethereum-based tokenized fund BUIDL announced on March 20th.

The tokenization of real-world assets (RWAs) is considered one of the most significant contributions that crypto can make to the world of traditional finance. Even BlackRock CEO Larry Fink has pointed out this trend as one of the key factors to consider in the future of finance. In the current interest rate context, RWA tokenization enables the bringing of yields from traditional financial products into crypto while adding liquidity and ease of trading with blockchain technology.

Carbono Insights #98 | Last issue before the halving: Bitcoin, Ethena, institutional investors and… was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.

However, skepticism is growing around the anticipation for an Ethereum ETF approval, as regulatory authorities remain largely silent on the matter. The lack of communication from authorities and issuers has left the market in limbo. Although recent submissions from industry giants such as Grayscale and Fidelity sparked some attention, doubts persist. Notably, Fidelity’s proposal to incorporate revenue from ETH staking into their ETF has garnered interest but has not dispelled the prevailing uncertainty.

Compounding these concerns are reports of pressure from US senators and unsettling rumors regarding the Securities and Exchange Commission’s (SEC) stance on Ethereum. US Senators have called on the SEC to halt any potential future crypto-based ETF approvals, citing concerns over deceptive marketing practices observed in approved bitcoin ETFs. Moreover, reports from Fortune and Coindesk suggest that the SEC may be exploring the classification of Ethereum as a security. These rumors were accompanied by revelations of a probe into the Ethereum Foundation’s activities by an undisclosed public agency.

Despite these challenges, there are strong reasons against the SEC’s alleged stance. The Commodity Futures Trading Commission (CFTC) has overseen ETH futures trading for years, operating under the assumption that ETH is not a security. Additionally, the SEC has struggled to substantiate its claims in court cases, previous and current, including ongoing disputes with cryptocurrency exchanges Kraken and Coinbase. Despite these setbacks, pressure from the Biden administration to regulate the crypto industry could spur Gensler, the SEC chair, to pursue stringent measures.

As the May deadline for ETF applications approaches, Ethereum’s future hangs in the balance. With notable contenders such as Blackrock vying for approval, the outcome remains uncertain. While Ethereum enthusiasts remain hopeful for a breakthrough, the regulatory landscape casts a shadow of uncertainty over the cryptocurrency’s prospects. As stakeholders brace for further developments, the Ethereum community awaits clarity amidst mounting regulatory scrutiny.

Ethereum Faces Uncertainty as ETF Approval Prospects Dim Amid Regulatory Pressure was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.

Here is a list of the recent initiatives by and for traditional financial institutions worth watching.

VanEck’s new NFT platform SegMint highlights TradFi’s keen interest in Web3 tokenization (March 4th)

Van Eck, the issuer of one of the 11 approved ETFs, recently launched Segmint, “a self-custodial NFT marketplace and digital assets platform.” SegMint allows KYCd users to store and fractionalize their NFTs — pretty degen, if you ask me.

SegMint’s Lock & Key Model simplifies the process of managing self-custodied assets by introducing a straightforward solution for sharing access and ownership. Imagine having a secure vault where you can store your digital assets, and then effortlessly issue keys to others, granting them shared ownership without compromising security. This model not only enhances accessibility, but also provides additional protections for shared assets.

Deutsche Börse launches regulated spot platform for crypto assets (March 5th)

Deutsche Börse Group, one of the world’s leading exchange organisations, has launched the Deutsche Börse Digital Exchange (DBDX), a crypto spot platform for institutional clients. DBDX offers a fully regulated and secure ecosystem for trading, settlement and custody of crypto assets that leverages the existing connectivity to market participants.

The first trades (euro to ETH) have already taken place (source).

Figment, Apex to List Ether and Solana Staking ETPs on SIX Swiss Exchange (March 7th)

The ETPs will provide investors exposure to Ether and Solana prices and additional staking rewards, including maximum extractable value (MEV), while bypassing complexities involved in staking as individuals. Staking yields will be reinvested into the ETPs to enhance their performance.

Figment and Apex have found a way to approach staking yields to traditional markets.

Wyoming Grants DAOs New Legal Structure (March 8th)

Gov. Mark Gordon signed a bill into state law that adds to Wyoming’s growing codes for DAOs, which were already cleared to establish themselves as limited-liability corporations there. Now DAOs can also secure themselves as unincorporated nonprofit associations.

When hostile regulators claim that crypto refuses to comply with the law, they rarely acknowledge the absence of legal frameworks to comply with. Wyoming is opening the gated for DAOs to become legal entities.

With Mastercard, MetaMask Tests First Blockchain-Powered Payment Card (March 11th)

MetaMask is testing a Mastercard payment card, which it says is the first entirely on-chain card. Issued by Baanx, the card will let users spend crypto “on everyday purchases, everywhere cards are accepted,”

VISA and MasterCard didn’t let the bear run scare them, so they continued working on pilot programs and crypto integrations. This credit card is still barely a rumor, but it is a strong indicator of the possible growth vector for credit card issuers within crypto.

Goldman Sachs, BNY Mellon and Others Test Enterprise Blockchain for Tokenized Assets (Mar 12th)

Digital Asset and leading market participants completed the Canton Network pilot, a first-of-its-kind program demonstrating the interoperability of twenty-two independent distributed ledger applications (dApps) in the capital markets domain. The successful execution of over 350 simulated transactions proved how a network of interoperable applications can seamlessly connect to enable secure, atomic transactions across multiple parts of the capital markets value chain. It also demonstrated the potential benefits of using such a network to reduce counterparty and settlement risk, optimize capital, and enable intraday margin cycles.

Friendly reminder: permissioned blockchains miss the benefits of true decentralization.

Second Mover Advantage | March 1st-15th was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.

While retail investors ask their bankers about ETFs and mainstream media starts picking up on the All-Time Highs, crypto insiders are enjoying the time to play with memecoins.

We tried not to be defeatist during the bear and will try not to be triumphant now. We’re still building, but this time under a warm sun. Shameless plug: remember, we’re Carbono, and if anyone wants to know more about where opportunities might be for them, know that we get crypto.

Bitcoin’s price action simple explanation

It is not very often that crypto follows an elementary logic, and this seems like one of those rare occasions. Bitcoin price continues to go up following a fundamental rule of economics: the demand for BTC created by the approval of spot bitcoin ETFs exceeds the pace at which new bitcoin is minted in the mining process. After the year 2023, when anyone willing to abandon the ship had already abandoned, there is not enough sale momentum to tie purchase appetite.

In his article, The Bitcoin Demand Shock, Coinshares’s James Butterfill brings the data to the table

So far, the launch of the ETFs on the 11th of January has led to an average daily demand of 4500 bitcoins (trading days only), while only an average of 921 new bitcoin were minted per day.

If you’re feeling bullish and want to feed your confirmation bias, we also have numbers for you. Famous crypto investor Andrew Kang puts bitcoin demand in context, making an estimation of potential global crypto ownership in relation to global income.

One of the most common cardinal sins of crypto investors/traders is underappreciating the amount of wealth/income/liquidity in the world and its spillover into crypto.

Dencun: bullish news for Ethereum

Depending on when you read this, the latest upgrade to the Ethereum network will have just gone live or will have been running for a while. Dencun is one of those technical milestones that hopefully nobody will really care about in the future when blockchain technology is the invisible infrastructure and not headline material.

Dencun will drastically reduce the costs for L2 to settle transactions on mainnet Ethereum. As soon as possible, this should translate to improved or even new use cases for crypto that were dormant while transaction costs were too high and transaction speed too low.

This is definitely great news for Ethereum.

Clouds over Ethereum ETFs

Some not-so-great news is the current sentiment around approving a spot Ethereum ETF. Bloomberg analysts, the people whose light guided our way before the approval of the bitcoin spot ETFs, are now estimating the likelihood of a spot ETF approval down to only 30%. The reason is mainly the lack of progress. The road to bitcoin spot ETFs was filled with news: issuers were anticipating their strategy, filing modifications to their submissions, the SEC was expressing their position…

Ethereum ETFs are quiet.

The deadline is still far: May 2024 is when decisions must be made. Things might change in the meantime.

Wyoming takes DAOs seriously

DAOs are a new breed of corporation, born from the primordial soup of fully digital relationships (some could even call it the Metaverse) and crypto infrastructure, which provides the means to engage in financial activity.

DAOs are challenging because they can behave like companies without being anything like them.

The state of Wyoming recently passed a breakthrough bill supporting this new company vision.

The new bill, which was approved on March 7, will provide a legal framework for DAOs to enter into legal contracts with third parties, allow them to pay taxes, and provide the organizations with limited liability–a term that offers protection for shareholders and stakeholders.

https://thedefiant.io/wyoming-s-new-dao-act-gets-two-thumbs-up

This provides many DAOs with a clearer compliance framework. Believe it or not, it’s something the crypto community eagerly seeks

And the winner is…memes

There’s something strange about this bull run, though. We mentioned earlier that there is a clear culprit: ETF inflows. This means that, deep inside, things have not really changed that much in crypto from other perspectives. Technology still progresses at the same pace it used to before the bull. Changes have more to do with sentiment and culture.

Memecoins are the kings of sentiment. They feel like a rollercoaster in so many ways. One, because their charts are full of ups and downs (if we ever witness a loop in a price token’s chart, it’s likely to be that of a memecoin). Two, because they are strongly rooted in amusement.

Crypto is euphoric and solvent today. There are two ways of making real money: staying close to BTC and playing with memes.

Second mover advantage

TradFi has never been the most innovative sector. Banks and other financial institutions are generally burdened by a very large structure of physical and human resources and live under the heavy scrutiny of legislation. In their case, the smartest way to innovate is probably by being the best second. Let others break the ice.

Luckily for them and for us, the number of pioneering initiatives to look into keeps growing. In the last weeks, we have seen some interesting adventures popping up.

Van Eck, issuer of one of the 11 approved ETFs, recently launched Segmint, “a self-custodial NFT marketplace and digital assets platform.” SegMint allows KYCd users to store and fractionalize their NFTs — pretty degen, if you ask me.

Apart from Van Eck, we’re seeing many firms dipping their toes (sometimes even their ankles) in crypto:

• Bank of America and Wells Fargo are starting to offer bitcoin spot ETFs, and Morgan Stanley is mulling it over.
• Deutsche Borse has launched a regulated spot platform for crypto assets.
• And MasterCard and Metamask are testing a blockchain-powered payment card.

Carbono Insights #96 | Of bulls and frogs was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.

The beast has awoken. Since the ETF news brought back euphoria, crypto has been, once again, moving at breakneck speed. It is hard to keep up with all the hyperbolic launches, mind-blowing airdrops, and the deafening noise of prophets of the financial revolution.

Marketing has supplanted traditional valuation rules. Users move from one chain to another, from one DeFi protocol to another, searching for the latest incentive scheme. It is hard to judge the value proposition of many of these projects when they’re hyped according to their giveaways (real or imagined by the community).

Excuse this futile “old man yells at cloud” moment, though. This is crypto. It is populated by fast-moving bounty hunters, so we shouldn’t be surprised. But the emphasis on building for the new generation of financial services or bringing the crypto revolution to the doorsteps of normies is now clouded by all this frenzy.

Who’s thinking about moms and dads? They will come back with questions any time soon, and this time, unlike in the last family gatherings, they will be listening. Why? Because BTC is doing these things again.

But remember that things are a little bit different this time. When your parents ask again what the hell crypto is about, you don’t have to stop at DeFi and speculative use cases (avoid memecoins at all costs).

There is more proof than ever that crypto can disrupt other industries. It’s still early, but they are great new use cases to help you explain what you do on your computer all day. Let’s take a look at some of them.

Decentralized Social Media can return power to users

Social media companies, led by Meta and Twitter, have turned from a source of societal transformation to an extension of the powers that be in just a couple of decades. They are now more akin to the establishment than to people since they own the narrative, the algorithm, and your data.

Decentralized social has always had a great appeal. It embodies the core values of crypto: platforms like Lens or Farcaster promise full ownership of your data and your network and full independence from the platforms. Imagine seamlessly migrating your content, activity, and network from Twitter to TikTok.

But now, beyond having a narrative of positive impact (like walking to work, saving or eating more fruit), decentralized social has developed a potentially killer app that could finally make the experience of socializing on the blockchain more attractive than socializing in your traditional place.

Farcaster, a “sufficiently decentralized” social media protocol, just integrated Frames. Basically, frames allow users to embed any type of content inside a post and wrap it in blockchain functionality. Imagine being able to post virtually anything in your Instagram feed instead of only what Instagram lets you post. This includes even websites and video games. And now imagine that besides the like and comment buttons, you could add buttons that led to crypto-transactions such as vote… or buy.

Turning the digital social square into a mall has been a long-lasting dream of anyone in Silicon Valley. Farcaster is delivering on this promise.

Crypto can onboard AI, police AI, and support AI. And this is just the beginning

Last year, crypto moved to the passenger’s seat in the metaphoric car of disruptive technologies. But there is enough space for synergy to feel optimistic about the combination of crypto and AI.

Crypto has long been exploring AI as a content generation tool (ask us about Botto!). However, crypto can also accompany AI in the content generation process as a potential tool for defending authenticity. Blockchain technology could be used to verify and track content and become a trusted source of truth, warning about deepfakes or other AI-generated or modified content.

But tell your parents that these days the current focal point in the intersection of crypto and AI lies in how blockchain technology can offer a decentralized infrastructure to AI. Ask them how they like the idea of a few vast corporations managing how you design and train the artificial intelligence that will help people make and execute decisions daily.

Blockchain is in the way to becoming an alternative infrastructure for the development of decentralized AI tech. Decentralized storage and computation stand out as some of the most promising use cases in this approach, captivating developers…and speculators. Tokens like Bittensor’s $TAO (decentralized AI modeling, learning, and training), Render’s $RNDR (decentralized computing), and Akash’s $AKT (decentralized storage) have recently emerged as top performers in this space.

This is where we stand, but the potential of AI and crypto together is vast, and exploring where it can take us is an exciting prospect. Thanks to crypto, AI models could eventually engage in economic relations autonomously. Think of them doing the shopping for you. But let’s not scare the elders with this yet.

DePin: other telecommunication infrastructures can be decentralized too

If Mom and Pop understood the idea of decentralizing AI infrastructure, they will get this too: DePin is the name given to Decentralized Physical Infrastructure, and it refers mainly to telecommunications infrastructure that can be offered by a decentralized network of participants coordinated through crypto. Akash, the provider of decentralized storage mentioned above, is a representative of this trend too.

But let us exemplify this trend better with Helium, because Helium is breaking it lately, too. Helium is a decentralized network leveraging blockchain technology to provide affordable internet connectivity through a global network of hotspots. These hotspots are connectivity home devices.

Tell Mom and Dad it’s like a modem that you and your neighbors place on your windows so that passersby connect to them. Your parents would thus become small internet service providers, and Helium would reward them for that. Helium aims to democratize internet access and revolutionize how we connect to the digital world by incentivizing users to host hotspots and participate in the network.

Real-world assets, aka traditional assets on steroids

Real-world assets (RWAs) are the trend that is more vigorously exploring the connection between conventional financial products and crypto. Somehow, RWAs have been around in the form of stablecoins for a long time. Most stabelcoins are basically blockchain-native IOUs connected to bank accounts where good-old greenbacks are stored.

The railways that can connect crypto with TradFi are currently being built. Moguls like BlackRock’s Larry Fink have hailed the potential for tokenizing assets (the idea of creating blockchain-based representations of traditional assets like stocks or bonds). In layman’s terms, onboarding real-world assets into crypto would mean giving them steroids regarding market access and speed.

Lately, Ondo Finance has been leading in word of mouth as the best representative of RWAs, with news of geographical expansion (new offices in Asia Pacific) and blockchain expansion (the launch of their stablecoins in the SUI ecosystem). Ondo’s products include OUSG (which tokenizes a short-term treasuries ETF managed by Blackrock) and USDY (which receives yield from treasuries as well). Ondo does everything according to TradFi’s books: they take care of KYC, AML, and whitelisting investors according to legislation so that the tokenized versions of RWAs do not misbehave in crypto.

Games on blockchains can also be fun

You can probably tell your parents that crypto allows players actually to own your in-game stuff. Explain to them that all that in-game stuff is also cross-game stuff because your ownership can be potentially exercised across different platforms. The jersey your avatar is wearing in Fortnite could go on Mario on Mario Kart. Of course, Fortnite and Mario Kart do not care about blockchain at the moment, but they’ll get it.

The promise of decentralized ownership of digital assets makes intuitive sense in gaming. There are two reasons why the industry has not flourished yet.

One is the fact that the infrastructure is not there yet. Transactions are expensive and slow, but without getting into detail, you can tell your parents that crypto these days is mainly obsessed with infrastructure and that anyone seeing beyond trading is only speaking about scalability (you can drop words like parallelization or modularity).

Two, that developers hadn’t given enough love to the fun part of crypto games. When the hype peaked before 2023, everyone used to speak about “play to earn”, and how to obtain tokens with monetary value in gaming. Now, things are a bit more focused on “play for fun,” which is actually the whole point of video games. Earnings will come later. Ask them if this looks like a game developed by a bunch of crypto-nerds trying to shill you their token.

Carbono Insights #95 | Getting ready for crypto catch-up: AI, DePin, RWA, and other use cases… was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.

Are we taking the blue pill or the red pill?

If we want to retain some control of the future, though, we must commit to the freedom to come up with technical and financial innovation.

The following are the news and innovations that we will be cheering for during 2024.

Bitcoin

Bitcoin has some of the most outstanding catalysts in the ecosystem, with the likely approval of a spot spot ETF approvals and the halving in April. To top it all, 2023 has been the year when the Bitcoin blockchain evolved beyond its original purpose and became much more than a single-purpose platform. The appearance of Ordinals in January and the subsequent innovations, such as BRC-20 tokens, have given a new life to the idea of blockchain as an ecosystem. Miners rejoice in the new revenue stream, and developers develop. This year we’re bound to see Bitcoin follow Ethereum’s path of blockchain utility.

Ethereum

Ethereum ended up being the clear winner of the spot bitcoin ETF wave. The potential arrival of an ETH ETF, which has a hard deadline for approval or rejection in May, immediately became the “next best thing." Investors ran to buy.

But besides the rise of the beast of speculation, Ethereum has its own reasons to be excited. Dencun, is coming soon: Dencun is the upgrade that will include EIP-4844, an improvement proposal that will drastically reduce rollup transaction costs. Another great leap in infrastructure design for crypto that will mostly affect the emerging galaxy of Layer 2s.

Infra

The infrastructure space (the one that defines the design and capabilities of the blockchains that will host crypto applications) is becoming increasingly broad and complex and is going supersonic.

Layer 1s had taken the back seat during all 2023, with Ethereum’s rollup centric vision being the center of attention. During most of 2023 it was all about optimistic rollups maturing (Optimism and Arbitrum growing in market share), and zero-knowledge rollups making a stellar appearance. But in the last quarter of the year, the L1 narrative returned from the dead on the shoulders of Solana’s resurgence. And when we thought it was all about L1s or L2s, the modular narrative popped up, offering a broader scope of alternatives for increasingly efficient blockchain development.

The infrastructure race seems to be red-hot, but with no signs of cooling down in the short term.

RWA

Real World Assets were one of the trends that brought more hope to crypto during the bear run, approaching crypto to TradFi yields, increased by the interest rate hikes. Projects like Ondo, Maple, and Centrifuge have built institutional-friendly products, while others like MakerDAO or Frax are building bridges between DeFi and TradFi. We expect those products and bridges to be increasingly important in approaching these two worlds.

Stablecoins

Stablecoins are simultaneously one of the most solid applications of blockchain technology and one of the most vibrant spaces. The race between the old contenders (USDT, USDC, DAI…) remains alive while new value propositions emerge, like yield-bearing stablecoins backed by treasury bills, LSDs, or even blockspace.

LSDFi

LSDFi is the latest phase in a trend initiated by Ethereum’s transition to Proof of Stake. After Ethereum allowed staking and unstaking of ETH, staking became one of the most trusted sources of yield. Following up, a whole new vertical was born after Liquid Staking Derivatives allowed users to have the cake and eat it, too. DeFi came up with a myriad of applications where LSDs could be used to increase revenue. LSDFi is that category of projects that give a second life to LSDs. The category includes products and services like staking (Eigen Layer), yield-bearing stablecoins (Lybra), LSD indexes (Index Coop), and even yield-bearing L2s (Blast).

Applications

The whole point of blockchain technology is to provide solutions to real problems. From that perspective, crypto is already offering relevant applications in the finance field, but other sectors are poised for disruption. Some of the most mature ones, with the potential to receive an impulse from the bull run, are:

• DePin (Decentralized Physical Infrastructure), such as decentralized connectivity networks (Helium), decentralized storage (Arweave), and decentralized computing (Render).
• AI. Closely related to DePin, decentralized computing and storage can provide precious services to AI.
• Decentralized social. With the increased blockchain efficiency, the promise of taking control of your data and social graph from the hands of greedy Web 2 social media providers is closer than ever.
• GameFi. The promise of crypto-fueled gaming, with embedded interoperability and incentive mechanisms, is today closer, thanks to the advances in infrastructure.

Trends and Narratives for Year 1 of the post-ETF Era was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.

Spot Bitcoin ETFs went live, and the price dropped for a few days due to massive sell-offs from miners, FTX, Grayscale, and even the US Government. Now, they seem to be recovering. Perhaps the sell-off mania is fading out, or people already feel the positive vibes of the next FOMC meetings, which could bring good omens regarding interest rate decisions.

But we said we would not talk more about ETFs, and we’ve already failed. What we want to do now is what we do best: the impressive maneuver of explaining technical concepts to those in a hurry and discovering opportunities for those on the nerdiest side of life.

Today, we would like to explain staking in six levels of complexity. Choose the initial step of the ladder according to your knowledge and expertise.

Staking became an adult in 2023 when Ethereum transitioned from a Proof of Work to a Proof of Stake consensus mechanism. From that moment, the interest rate paid by the chain to stakers became one of the most transparent, reliable, and trustworthy sources of income for ETH holders, similar to the yield generated by T-bills.

Unsurprisingly, such a solid foundation has become a category of its own. Staking, whether on Ethereum or any other Proof of Stake chain, is now the base layer for many innovations that use yield-bearing assets as the foundation for many different things. Read on!

What is a Consensus Mechanism?

The core contribution of blockchain technology is to allow the safe transfer of data between parties without the need for centralized intermediaries. When you pay for a coffee with your credit card, the traditional conversation between centralized intermediaries is substituted by distributing and communicating transaction info across an open network of voluntary intermediaries called nodes. Blockchains host a conversation between all the nodes, who share information and agree on what is true and valid.

If a traditional bank transfer is like a phone call between two bank clerks, a transfer through the blockchain is like a Zoom call with thousands of participants working simultaneously. How can they agree on anything?

The answer is consensus mechanisms: protocols or algorithms that enable nodes in a distributed network to agree on the same version of the information (“Alice just paid $12 to this coffee shop”).

What is Proof of Stake?

Blockchains work like this:

1. You want to make a transaction, so you sign and broadcast your information: “I want to send 1 ETH to Alice.”
2. Your transaction joins a queue where all the transactions that happened more or less at the same time wait for their turn.
3. Every node participating in network validation makes a list of the transactions they would add next. That list of transactions is a block.
4. Then, the whole network needs to decide whose block is considered valid.
5. Once they all agree, the information in that block is distributed to all other nodes so that everybody saves the exact same copy of the information.

In Proof of Stake, the network decides whose block is valid by organizing a lottery. The network randomly assigns the task of suggesting a block to a node. A node’s chances of getting the assignment are proportional to its staked capital. If it adds a block and everybody agrees it looks good, the node gets rewarded with extra capital. If it does something wrong, its staked assets get slashed. This mechanism guarantees that any individual node’s incentives align with the blockchain’s general purpose.

In the case of Ethereum, any node that wants to run a block validator must stake 32 ETH. That ETH acts as a deposit and a proof of commitment to the network. “I’ll leave my money here, and if I don’t perform properly, you can take it.”

What is Liquid Staking?

Now we know that anyone with 32 ETH ($73k at today’s prices) and the technical knowledge to run a validator can profit from staking.

The next step that the industry came up with was pooled staking. If you don’t have 32 ETH or the capacity to run a network, you can stake any amount you want, pool it with other users’ funds, and give it to a professional validator to do the job and share the revenue.

This form of validation through pooled funds became professionalized. Decentralized protocols emerged that offered to perform validation for anyone with ETH. And the next thing they decided to do was issue a receipt. This gave birth to Liquid Staking Derivatives.

Now, remember this is crypto: everything is tradeable. Those receipts immediately became proxies for the “real” capital, and, as such, people wanted to do business with them.

That’s what LSDs are: Liquid Staking Derivatives. Derivatives that turn a staked asset (= illiquid) into a liquid one..

LSDs allow people to stake their assets, let’s say ETH, and get a receipt in exchange, for example, stETH, that can be used across DeFi. This way, while your ETH produces yield for you passively, you can still try to get some extra revenue on top, for example, lending it for profit.

What is LSDFi?

LSDFi is the name given to crypto protocols that have built DeFi solutions available for LSDs. There are essential services like lending and borrowing through Aave or providing liquidity for trading on Circle. And then there’s a growing list of more complex services that use LSDs as their lifeblood.

Lybra, for example, is a stablecoin project that accepts Liquid Staking Derivatives as collateral for minting its stable eUSD. By holding the eUSD token, users can effortlessly earn yield generated from the underlying LSDs.

Pendle is another example of how crypto leverages the technology’s interoperability and composability to create more layers of added value. Pendle allows interest trading strategies using different LSDs as collateral. It creates derivatives of the LSD (a derivative in itself) to separate the principal from the yield and allow traders to develop strategies using these separately.

What is Restaking?

Are you dizzy yet? Here comes another layer of complexity, abstraction, and yield to the staking ecosystem.

Eigen Layer is a protocol that introduced a new crypto primitive: restaking. Eigen Layer offers a set of smart contracts where users can stake their LSDs to participate in another layer of Proof of Stake validation.

Imagine a developer wanting to launch a protocol secured by Proof of Stake. In addition to the enormous effort of building a decentralized protocol, this developer would have to figure out how to attract validators who would put their effort and capital to work securing the protocol.

Our hypothetical developer could rely on Eigen Layer to provide that locked capital and the subsequent security associated with it through their smart contracts.

Eigen Layer accepts LSDs as stakeable assets. In other words, Liquid Staked assets can be staked again. Re-staked.

What is LRT?

You made it to the top! Here’s as high as staking has taken us in complexity so far. But if you got up here understanding every concept, what’s coming next will be easy peasy.

People can stake ETH on the Ethereum blockchain, but Ethereum does not natively support liquid staking. This created an opportunity for projects like Lido or Rocket Pool to create liquid staking protocols. You give them your ETH, and they mint another token for you that acts as a receipt.

Well, you know who else doesn’t have liquid staking derivative minting capabilities? Eigen Layer. Once you restake your assets, unless… Yeah, you guessed it: other third parties are now adding liquid staking on top of Eigen Layer in this emergent category that we’re seeing now pop up in the form of dozens of protocols getting their LRTs running.

If you are confused or concerned about the complexity of the category, you are not alone. People are already worried about step 3, Liquid Staking. Currently, one single protocol, Lido, handles almost one-third of all the staked ETH. This means that if Lido were compromised, one-third of the whole supply of ETH would be in danger. That could break the supercomputer easily.

Eigen Layer, the other big player in this ladder, also raises concerns about restaking. The additional layers of yield always come with, sometimes compounded, extra layers of risks.

Congratulations! You’ve climbed the ladder! Now, try not to look down.

Carbono Insights | #94 The state of staking explained in six levels of difficulty was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.

Before we start writing Chapter 2 of the history of post-spot bitcoin ETF crypto, we must give Chapter 1 a proper ending. For the last few days, we have been looking at the ETFs like parents look at their first baby: checking every inch, recording every breath, laughing at every sneeze. But, like with babies, everybody knows that this is a lifelong adventure. The best is yet to come as the ETFs grow into mature financial products, well raised to fit in our society.

But while this happens, let’s indulge in the information binge of the last days and highlight the most exciting or entertaining aspects of this pivotal moment.

First movers

Grayscale can claim they were the first to launch a spot BTC ETF. It seems fair since they were true trailblazers with their GBTC product, and their legal win over the SEC paved the way for the approval of the other 10.

Grayscale was the first, but Franklin Templeton earned the medal for the cheapest. The last days before the ETF were a competition to win the price race. As we mentioned in the previous issue of Carbono Insights, three elements will determine the success of an ETF: brand power, distribution, and price. The brand takes years to build, and distribution is just starting.

This first-mover advantage might have impacted the ETFs’ baby steps. Here’s the inflows in the first 30 minutes after the launch.

The size of inflows

The neverending question is, “How much BTC will these funds buy?”. This will determine the heights BTC reaches (and the size of our bags). Blockworks has created this tracker that will allow us to track inflows live.

Some people pointed out that the numbers would have to include outflows from GBTC to reflect reality. Many investors probably decided to exit GBTC now that the gates were finally open. Even taking this into account, the opening days have been a success. Here’s Eric Balchunas, ETF analyst and one of recent months’ most popular crypto-twitter personalities.

The winner is…Ethereum

The star of the show in the recent ETF approval saga? (drumroll) None other than Ethereum. The Bitcoin (BTC) maneuver had already been anticipated and acted upon by most investors who now offset the incoming investments in BTC with some well-timed sales in a strategic move.

Investors seem to agree that the wise move to do now is look at Ethereum (ETH), the proverbial dark horse in this race. With the imminent Dencun upgrade on the horizon, promising to make Layer 2s incredibly cost-effective, and the eagerly awaited ETH ETF set with a firm May deadline, ETH is claiming the spotlight. Throughout its history, Ethereum has consistently played the role of BTC’s beta play, and the script is unfolding once again.

Larry Fink loves tokenization

We’ll reiterate: ETF success hinges on brand, distribution, and price. Larry Fink, BlackRock’s CEO, is enhancing the former factor through a press tour where he praises cryptocurrencies in conjunction with BlackRock’s application for an ETH ETF spot.

Fink also seized this opportunity to reiterate his fondness for tokenization, which appears to be his preferred outcome. “These are just stepping stones towards tokenization. I truly believe that this is the direction we’re headed; we have the technology to tokenize today.”

His grasp of the subject matter and reasoning is commendable (something unimaginable before 2023), although occasionally flawed.

We’ll leave you with Noelle Acheson (follow her!) and her explanation of where Fink might be missing the mark.

We love you anyway, Larry.

Warren and Gensler yell at cloud

In his statements following the approval of the ETF, Gary Gensler went off script to express his dissatisfaction with the measure he had himself voted in favor of. “Though we’re merit neutral, I’d note that the underlying assets in the metals ETPs have consumer and industrial uses, while in contrast, Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity, including ransomware, money laundering, sanction evasion, and terrorist financing.”

Gensler seemed to be speaking on behalf of his boss, Elizabeth Warren, a vocal opponent of crypto. Surprisingly, Warren indicated that the decision to approve the ETFs was “wrong on the law.”

Gensler’s misplaced assertion and Warren’s surprising statements suggesting that a legal process is not legal continue to highlight the tension between regulatory bodies and the cryptocurrency industry.

Closing statement: Hester Peirce

For a closing statement, let’s hand the mic to Hester Peirce. Peirce, sometimes called “crypto mom,” has often defended crypto’s position, not because she’s a firm believer in the space (she might be, don’t know, don’t care) but because she feels the SEC has overstepped its boundaries of their mandate by intervening in the natural evolution of crypto. Her dissenting opinion is masterfully entitled “Out, damned spot! Out, I say!” a quote from Macbeth that expresses Lady Macbeth’s intense guilt as she sleepwalks and tries to wash imaginary bloodstains from her hands. The SEC’s resolution has finally ended, but in her opinion, it leaves a stain on the SEC’s credible neutrality, necessary to be a respected authority in financial markets.

Let Hester Peirce drop the mic.

Starting next week, we will be speaking about the post-ETF world. What are the trends where you should look if you want to be up to date with crypto?

Carbono Insights #93 | Baby steps for bitcoin spot ETFs was originally published in Carbonocom on Medium, where people are continuing the conversation by highlighting and responding to this story.