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Fed Chairman testifies in Congress about inflation, CBDCs; LooksRare launches a vampire attack on OpenSea; Bitcoin wallet Strike launches services in Argentina. |
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The total implied network value (market cap) of the digital assets market stands at $2.03tn, up 1% from last week (when it stood at $2.01tn). Bitcoin’s network value is 6.75% of gold’s market cap. Over the last 7 days, BTC is up 2.5%, ETH is up 2.1%, and LUNA is up 15%. Bitcoin dominance is 39.85%, unchanged from last week. |
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Data current as of 10pm ET on January 13, 2022. Prices and Data via Messari.
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🏛️ Fed CBDC Report "Within Weeks" |
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Powell questioned on inflation/CBDCs during confirmation hearing. During his confirmation hearing in front of Senate Banking Committee on Tuesday, Fed Chairman Powell faced a series of questions mostly centered on inflation. But Powell was also asked several questions regarding CBDCs and the potential for a digital dollar. Powell shared that the Fed's white paper on CBDCs would be published "within weeks," adding that “it’s more going to be an exercise in asking questions and seeking input from the public, rather than taking a lot of positions on various issues…although we do take some positions.”
Senator Pat Toomey, the Committee's ranking member, pressed Powell on the Fed's stance on a digital dollar, including whether the Fed would be handling retail accounts: “It seems to me that there is absolutely nothing in the history, the experience, the expertise, the capabilities of the Fed that lends the Fed to being a retail bank. Is that a fair observation?” Powell agreed, "I would say yes."
Toomey also asked whether anything would preclude a "well-regulated, privately issued stablecoin" from coexisting with a potential digital dollar. Powell responded, "No, not at all."
While Powell agreed that retail accounts should not be under the Fed's scope, US Rep. Tom Emmer (R-Minn) put those limits into law as he introduced a bill that would prevent the Fed from issuing a digital dollar directly to individuals. He argued that it would be an authoritarian measure that intrudes on individuals' financial privacy, limit private sector innovation, and would create a single point of failure.
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OUR TAKE: Powell's CBDC commentary from the confirmation hearing was mostly in line with what has been communicated in the past, including from the President's Working Group report on stablecoins from November when Powell stated that, in creating a CBDC, the Fed would not seek to undermine the “two-tiered banking system." The release timing window of the Fed's white paper was tightened to "within weeks" (note that this was first brought up last July with expected publishing date for last September). Powell’s assurances that regulated private stablecoins could coexist with a potential digital dollar also struck a positive tone for the cryptocurrency industry.
During the hearing, Powell did not outright support the idea of the Fed launching its own CBDC and we wouldn't expect the Fed to commit to doing so whenever the white paper is published. We would expect them to continue their plans to research CBDCs, recognize some of the potential benefits of a digital dollar, and highlight key challenges and focus areas to study - which should include how stablecoins may fit into the system, already a collective effort between the regulatory agencies in the PWG.
We had previously written that the oversight arrangement for stablecoins suggested in the PWG's stablecoin report resembled a CBDC mediated by commercial banks much the same way traditional dollars are created and distributed today as opposed to a centrally managed surveillance setup like China's digital yuan - which would ease the concerns raised by Rep. Tom Emmer. Whether Tom Emmer's proposed bill passes, we applaud his efforts in keeping the Fed from following China's approach to a CBDC and for protecting the liberties of individuals. Even as several countries have launched or piloted their own CBDCs, the Fed should be in no rush to do so as we are still very much in the R&D phase and with the dollar being the world's reserve currency.
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🧛 LooksRare 'Vampire Attack' on OpenSea |
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OpenSea faces challenge from decentralized upstart. LooksRare, a decentralized competitor to OpenSea, launched earlier this week with incentives aimed squarely at stealing OpenSea’s userbase (fresh-off-the-heels of OpenSea’s massive $300M fundraise last week). This so-called ‘Vampire Attack’ strategy was most famously employed by SushiSwap in 2020 when it stole over $1B in liquidity from Uniswap thanks to its superior (at the time) incentives mechanisms for attracting users with the accompanying SUSHI token. (Uniswap would launch its own token shortly thereafter).
According to data from Dune Analytics, LooksRare has posted volumes of $1.16B dollars since launching on Monday, January 10th. This represents 4.6X more volume than what OpenSea has posted during this same timeframe ($253M). As of January 13th, 5:30pm, ~$360M worth of LOOKS tokens have been claimed by ~103,000 addresses for an average value of $3,500 per claim. Out of the ~185,000 addresses that were eligible for this airdrop, 56% have already claimed their LOOKS tokens. The token itself is currently up ~166% from its initial price of $1.54, trading at $4.11. Its market cap is currently hovering in the ~$500M range with a fully diluted valuation of $4.1B (at today’s prices).
This isn’t the first time an NFT marketplace challenger has sought to dethrone OpenSea. What’s different this time with LooksRare? Seemingly, timing is on their side. While both Infinity and Artion attempted similar approaches last fall, LooksRare is riding a tidal wave of ideological criticism that has been increasingly levied against OpenSea. From OpenSea’ lack of native token (underscored by the $SOS airdop on Christmas Eve), to the 2.5% platform fee OpenSea keeps for itself, to a history of questionable internal ethics, there is no shortage of grievances against OpenSea’s business model that may have reached a boiling point with the crypto natives. It also helps that NFT sales are seeing another boom, with total sales last month on Ethereum-based applications at their highest since August 2021. Marquee NFT collections, such as BoredApes, are also seeing all-time high floor prices coupled with increased press coverage as celebrities continue to snap up these coveted collectibles. All of these factors have coalesced to give LooksRare a uniquely strong position to combat OpenSea’s track record of dominance in NFT trading.
LOOKS tokenomics are the primary driver behind their massive volume these past few days. LooksRare’s documentation outlines that 2.8m LOOKS tokens will be distributed to traders on a daily basis for the next 30 days before tapering off in 4 phases over the next year. There are currently 3 key strategies users can employ to earn LOOKS rewards: 1.) stake LOOKS tokens directly on the LooksRare platform (currently 945% APR) 2.) Earn LOOKS trading rewards by trading eligible collections (typically NFT collections with >1,000 ETH in daily volume are considered eligible) or 3.) Stake in a Uniswap V2 LOOKS-ETH Liquidity Pool. While there are allegations that wash trading is accounting for the majority of LooksRare’s volume run-up, there is no doubt that they are making waves in the NFT space in a manner not seen by any other challenger to OpenSea to-date.
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OUR TAKE: Just one week after it seemed like OpenSea was running off with an insurmountable market share lead, anchored by a war-chest of fresh funding, LooksRare punched back hard. With the benefit of hindsight, it’s clear that the crypto community’s collective criticism against OpenSea choosing private funding over a token airdrop was spot-on. The $SOS token airdrop this past Christmas at the very least demonstrated that there is a large amount of demand from regular users to capture some of the economic value being created by NFTs. The $360M of LOOKS tokens claimed in the LooksRare airdrop has already breezed past the $300M OpenSea raised last week (though this comparison is apples-to-oranges given the liquidity differences of cash vs new tokens). Regardless, LooksRare was able to create a suite of incentives wrapped in a polished, decentralized product that has captivated the minds of many.
As impressive as LooksRare’s debut has been, though, it’s less clear how sustainable their success will be. Much of the ‘mercenary volume’ that has flocked to LooksRare due to its trading incentives will likely depart just as quickly once those incentives dry up (and they will start to dry up in as soon as 30 days). This is perhaps best evidenced by the fact that LooksRare’s impressive trading volumes have been driven by a very small number of users. The main question now is can LooksRare capitalize on its moment-in-the-spotlight to continue building an experience that will be compelling enough for users to choose its platform over OpenSea? LooksRare’s lower trading fees of 2%, though not substantially lower than OpenSea’s 2.5%, is a good start. Moreover, LooksRare’s architecture as a ‘decentralized’ NFT marketplace with robust tokenomics seems better-positioned to operate in world that is increasingly decentralizing and leaning into ‘web3’ business models.
While it’s early to tell, we imagine LooksRare will ultimately enjoy a position similar to where SushiSwap has settled into. LooksRare is probably not going to completely fail and drop to near $0 volumes. LooksRare also will probably not replace OpenSea as the de-facto marketplace for trading NFTs. Instead, LooksRare will likely carve out a low, double-digit percentage of market share of NFT trading volume, behind OpenSea’s high double-digit percentage market share. We expect OpenSea to fight back with a renewed sense of urgency now, similar to what Uniswap did with the launch of its UNI tokens weeks after SushiSwap’s vampire attack. It will be incredibly interesting to see how this battle for NFT trading market share will play out over the next few months.
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⚡ Strike Enters Argentina |
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The CEO of Strike, a Bitcoin payments processor and wallet, announced the expansion of its services to Argentina. Having already launched services in El Salvador and the U.S., Strike will enable Argentinians to send and receive BTC using Bitcoin’s Layer-2 scaling solution, the Lightning network, which enables near-instantaneous on-chain settlement for transactions. According to CEO Jack Mallers, Strike is working with merchants and consumers in Argentina to kickstart initial integrations to the tech and teach locals about the use cases for Bitcoin and crypto, which include low-cost remittance payments and long-term savings. “Argentina is one of the most exciting countries for building the Bitcoin economy, leveraging Bitcoin as both a superior asset and a superior payments network,” Mallers said.
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OUR TAKE: There are a number of reasons why it makes sense for Strike to move into Argentina. First, it like many other Latin American countries has a history of struggling with high inflation, averaging roughly 192% every year since 1944. In addition, less than 50% of the country’s population has access to a bank account. Despite this, Argentina is the third biggest economy in the region and its tech-savvy residents (80% have mobile phones) are already familiar with the concept of cryptocurrencies. As such, there is a clear opportunity for the benefits of non-state-controlled coins such as Bitcoin (BTC) to be acutely realized in Argentina. Bitcoin could shine as an effective alternative for civilians to store, save and send wealth. Indeed, for some in the country, it already has.
For many of the same reasons as Argentina, Strike plans on expanding its presence to other Latin American countries including Brazil and Columbia over the course of the year. By doing so, the company is looking to capitalize on the demand from consumers in the region for financial technology services that enable easily withdrawable, secure and stable cash balances. To this end, Strike’s initial launch in Argentina will only support balances of the U.S. dollar-pegged stablecoin Tether (USDT).
It would be a trivial task for Strike to also enable BTC balances given that the company’s services are built on the Lightning network which only supports transactions and accounts in BTC. However, the conscious decision to roll-out wallet functionality in Argentina for USDT exclusively to start suggests that Strike is fine tuning its services to target market demand for cheap and instantaneous cash settlement. To this end, BTC would not prove effective due to the volatility of the currency. However, stablecoins like USDT can and do in the global cryptocurrency markets act as a stable (no pun intended) medium for day-to-day payments and transfers. For a target audience that lacks a robust and reliable banking system capable of handling even the most basic needs from civilians, BTC’s use as a long-term store of value is secondary to the short-term, payments-focused uses of its technology.
Strike relies on Lightning to facilitate cheap and instantaneous transactions in BTC that is then converted into USDT on behalf of users and held in an account on cryptocurrency exchange Bittrex. Strike users can seamlessly send and receive payments in USDT. Over time, Strike will likely add the optionality for users in Argentina to open and hold balances in BTC, through it is clear at this time that the main motivation for Strike launching its services in the region is to promote use of Bitcoin as a payments rail technology rather than an investment or store of value.
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Founder of the Fei Protocol proposes a new Ethereum token standard for yield-bearing assets
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CEO of Block Jack Dorsey creates a new fund for defending Bitcoin developers against litigation
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Cryptocurrency exchange Xapo gives up its BitLicense, ceasing operations in New York
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Coinbase acquires CFTC-regulated derivatives exchange FairX
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Layer 2 Ethereum network Arbitrum experiences unexpected outage lasting 10 hours
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The amount of ETH burned due to gas fees hits an all-time high due to market volatility
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Luxor Technology is starting a new brokerage business for buying and selling BTC mining machines
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2021: Bitcoin Mining's Big Year |
In this report, GDR's Karim Helmy and Galaxy Digital Mining's Brandon Bailey give a detailed overview of the major events and trends that made 2021 Bitcoin mining's most important year. They also share detailed predictions for 2022.
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MEV: How Flashboys Became Flashbots |
In this major report, GDR's Christine Kim does a deep dive on miner or maximal extractable value, how miners and bots frontrun users on Ethereum.
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2021: Crypto VC's Biggest Year Ever |
In this report, GDR's Head of Research Alex Thorn summarizes the epic year in cyrpto/blockchain VC investing that saw more than $
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Bitcoin miners raised an enormous amount of capital in 2021, contributing to the growth of mining in North America, now the world's largest center for Bitcoin mining. |
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Nearly $800m has been earned by bots and miners through MEV on Ethereum since January 1, 2020. |
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Thanks for reading this week. Have a great weekend.
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Alex Thorn
Head of Firmwide Research
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