Did you know that crypto VC firm Andreessen Horowitz calls itself a16z because there are 16 letters between the A of Andreessen and the Z of Horowitz? Fascinating, I know, but believe me, thereâs even more interesting stuff contained within a16zâs recent âState of Crypto 2023â report.
Despite all the bad news, regulatory uncertainty and banking woes battering the crypto market, it has been remarkably resilient of late. Bitcoin recently hit $30k, while ETH soared above $2k in the wake of a successful Shapella upgrade. So, what gives? What might the future hold for the industry, what trends are emerging and which cryptos should we be keeping an eye on?
All this and more is examined in a16zâs report from earlier this month and, to save you the trouble of wading through it yourself, weâve stepped up to do the honours. In todayâs video, we unpack what the folks at a16z are saying, examine what their findings could mean for crypto and give a few of our own thoughts as we go along.
You can watch that video here.
đ Crypto Market Forecast đ
healthy correction in the crypto market. The recent rally had caused many to wonder whether we were in the midst of a new bull market. This still may be possible, and the recent passing of the MiCA bill by the European Union is one of many pro-crypto regulations weâre going to see over the next few months. This will set the stage for serious institutional investment, but there are some headwinds in the shorter term.
This week saw aÂCoinbase will be launching its offshore exchange as soon as this week. The timing couldnât be better, considering that the SEC gave Coinbase a Wells Notice on the 22nd March. Last Friday marked 30 days since the Wells Notice was issued, which means the actual lawsuit could come soon. That said, the fact that Paxos still hasnât been sued suggests Coinbase could dodge a bullet – itâs been more than two months since Paxosâ Wells Notice.
The regulatory attacks donât end there though. DeFi is in the firing line as well, thanks to a report by the US Treasury. In response to that, some protocols have started to float governance proposals related to KYC/AML. Obviously, you canât force decentralised protocols to comply, but you can target the centralised parts of their infrastructure, like stablecoins. In the case of MakerDAO, itâs transferred almost all of the USDC backing DAI to Coinbase to earn yield. Itâs an easy (and existing) target for regulators.
One sector that seems to have been bucking the trend until very recently appears to be NFTs, but even now the sector appears to be getting hit. This could be something to do with all the NFT-based borrowing thatâs been going on. The decline in NFT prices could be due to liquidations on those loans, or simply fears that NFT-related DeFi protocols will be targeted by regulators.
In terms of macro factors meanwhile, it appears that US regulators are preparing for a credit event in the non-bank sector. This is because the Financial Stability Oversight Council or FSOC proposed new rules that will give US regulators powers to declare non-bank entities as systemically important. Consider that a âsystemically importantâ designation is how regulators were able to justify bailing out the depositors of Silicon Valley Bank and Signature Bank.
The craziest part is that this new rule would also give US regulators incredible powers over the crypto industry. If you watched our video about bank bail-in laws, youâll know that FSOC has been wanting to subject non-bank entities to the same laws for months (if not longer). This new rule would give FSOC what it wants, and make it possible to, say, designate Coinbase or Circle as systemically important, shut them down, and sell them to a big bank.
Another macro factor to keep in mind is the ongoing war in Ukraine. Spring is approaching, and the fighting is likely to intensify soon. At the same time, tensions between the United States and China continue to rise. The risk of a potential conflict over Taiwan is likewise increasing. This is evidenced in a tweet by EU President Ursula Von Der Leyen, which seems to imply that China-Taiwan is now more important than Russia-Ukraine.
Say, did you hear that Warren Buffet sold almost all of his TSMC shares? Probably nothing.
đšÂ MEV Menace đš
hated seeing or hearing anyone say these three words: âJared from Subwayâ.
Last week, traders of the PEPE and WOJAK meme coins absolutelyÂcontroversial former spokesman, who lost over 100 kgs by just eating Subway sandwiches.
And no, Iâm not talking about Subwayâs Iâm talking about the Ethereum account tied to the ENS address âWhy? Is it because they make really bad sandwiches?
Well⌠sort of. To be more precise, itâs because jaredfromsubway.eth operates an MEV bot that carries out something called a âsandwichâ attack on these tradersâ meme coin transactions.
In case youâre unfamiliar, hereâs a simplified explanation. An MEV bot is essentially that friend who sneaks a peak at your cards before they bet in a round of poker.
front-running) or lower (back-running) gas fee than the scouted transaction.
In the context of blockchains, an MEV bot scouts for profitable transactions that are about to be processed on the blockchain and then manipulates the order of these transactions with its own in order to make a profit off the scouted transaction. It typically achieves this by bidding a higher (jaredfromsubway.ethâs sandwich attack is a variation of this in which the MEV bot places two transactions – one which it inserts âbeforeâ and one which it inserts âafterâ the scouted transaction (thereby sandwiching it). If the scouted transaction is a DEX buy order for the PEPE meme coin, the MEV botâs first transaction would push the price of PEPE up by buying it before the scouted transaction, and then its second transaction, which occurs after the scouted transaction, would sell the PEPE it bought (now at a higher price) at a profit.
7%Â of the gas spent on that day. It made a profit of roughly $700,000 and spent $1.1 million in gas sandwiching these meme coin transactions, making the bot a net loss of almost $400,000. Yikes.
Notably, jaredfromsubway.ethâs MEV bot was the top gas spender in the Ethereum network on 19th April, accounting for aboutÂSituations like this also cause Ethereumâs network to slow down due to increased congestion and transaction fees, leading to a negative impact on the networkâs overall efficiency and user experience. Safe to say, Jaredâs antics did nobody any good, least of all Jared.
benefits) has a mostly bad rep. Some estimate that MEV bots have syphoned over $1.38 billion from everyday Ethereum users so far. Moreover, MEV isnât an issue just native to Ethereum. It affects all blockchains that follow a consensus system that allows certain players to front-run transactions by leveraging information.
Having said that, it comes as no surprise to find that MEV activity (even with itsÂSo, whatâs the solution?
explains in a recent Blockworks podcast, mitigating MEV is ultimately a matter of choosing between âdiscriminating at the user level or at the application levelâ, as any form of MEV mitigation will involve a design choice doing some form of discrimination.
Well, the answer isnât straightforward. As Tarun Chitra, the founder and CEO of Gauntlet Networks,ÂMEVBlocker and Flashbotâs MEV-Share Protocol. Barring implementation differences, both projects focus on distributing a portion of the money made with Maximal Extractable Value (MEV) back to Ethereum users, rather than just validators and block-builders.
Having said that, the most popular choice currently seems to be one involving the giving of a âkick-backâ to users from whose transaction the MEV was extracted. There are two projects that come to mind when I think of this approach:Âmodular functional system, this approach could change as well. In summary, MEV is a problem that we will have to constantly be innovating against as the ecosystem keeps growing.
However, as time goes on and the building of layer-2 scaling solutions switches the Ethereum ecosystem to a moreÂđ Personal Portfolio đ
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Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.