BitGo: Crypto Water Cooler — Nov 27
GM. It’s Wednesday, November 27.
BitGo Hits Milestone: Support for More Digital Assets Than Any Other Qualified Custodian
Newsmakers
Ethereum Community Likes A New Dev Proposal. But Can They Move Fast Enough?
The Merge, Ethereum’s September 2022 shift from proof of work to proof of stake was nearly three years in the making. It went off without a hitch, earning widespread praise. Since then, there have been few compelling improvement proposals, leading to growing discontent with what many see as the network’s academic approach to development.
Now debate is simmering over a proposal unveiled by Ethereum Foundation researcher Justin Drake earlier this month. While his plan to replace the Beacon Chain, Ethereum’s consensus layer, with a new chain, the Beam Chain, has been greeted with excitement, critics say it would take too long.
The Beacon Chain was conceptualized about five years ago and launched December 1, 2020 in preparation for The Merge. It operated in parallel to the main chain and then the two chains merged into one proof of stake chain. Since then, advances in block production techniques, zero-knowledge cryptography, and quantum computing have made Beacon seem outdated.
The Beam Chain would reduce block production time and use zero-knowledge cryptography to secure against quantum computing-enabled hacks. It would also lower the threshold for staking from 32 ETH to 1 ETH. If the proposal is approved, developers could begin writing production code in 2026 and complete testing in 2029. And there’s the rub.
While it’s hard to fault the number two crypto for taking the same thoughtful, long term approach that led to the success of The Merge, the competitive landscape has also changed in the past five years. Solana has outpaced ETH during the current bull market and made headlines several times for besting Ethereum’s daily transaction volume. Its total value locked on DEXs is nearly ten times Ethereum’s.
Newer chains like Sui and Aptos and buzzy chains that are yet to launch like Monad could also soon be nipping at Ethereum’s heels. The remarks of one Lido researcher seem to sum up the challenge: while the plan is great, the timeline needs to be cut in half to ship in 2027.
Read more→Blockworks
Centralized Exchanges Begin Listing Blue-Chip Memecoins
Even before the U.S. election, memecoins were one of the fastest growing sectors in crypto. Post-election, the sector got a boost when U.S.-based centralized exchanges Coinbase and Robinhood listed large cap memecoins such as PEPE and WIF along with some altcoins. Binance, meanwhile, has been listing two to three memecoins every week.
While the timing may be driven by hopes of a reduction in enforcement actions involving “unregistered securities,” the moves are part of a strategy to bring retail investors back to crypto. As Barron’s notes, trading on centralized exchanges (CEXs) hasn’t come close to pre-FTX levels. Most memecoin trading has been taking place on decentralized exchanges (DEXs). Whether CEXs will cannibalize that business or help grow the segment overall remains to be seen.
Interest is certainly broadening. Per Cryptonary’s September 2024 State of The Memecoin Market Report, memecoin-related posts on X and YouTube began spiking in December 2023. Google searches for the term reached an all-time high on November 20.
The ability to buy on a reputable CEX, where users can open an account and trade without having to buy crypto, could encourrage the memecoin-curious to test the waters. That could open the door to more mainstream adoption and market growth as it has with Bitcoin. It could also boost Ethereum and Solana, which currently host the lion’s share of coins.
The value proposition may be less appealing for serious memecoin traders. Fees on CEXs are typically measured in dollars per trade vs. pennies on DEXs. Traders may also be put off by having to leave money with the exchange and with having to go through KYC checks—both are requirements at most CEXs. And, even at a listing rate of two to three coins per week, it will be a long time before CEXs offer the selection that DEXs do. That limits one of memecoins’ main draws: the ability for traders to find a needle in the haystack and become one of the very few memecoin millionaires.
Read more →Barron’s ($)
Hidden Hierarchy: Study Finds Large Liquidity Providers Dominate DEXs
One of the ways DeFi democratizes access to the financial system is by eliminating TradFi intermediaries, such as market makers, whose buy/sell order books are replaced with automated liquidity pools. In theory, anyone can become a DeFi market maker by contributing to these liquidity pools. But, in practice, most market making is being done by a small number of sophisticated, deep pocketed players, finds the Bank for International Settlements (BIS) in a study titled “Decentralised dealers? Examining liquidity provision in decentralised exchanges.”
BIS studied the top 250 liquidity pools on Uniswap V3, the largest DEX on Ethereum, representing about 96% of total trade volume. It concluded that, although technological, regulatory, and operational barriers are lower than TradFi, it nonetheless favors the “emergence of sophisticated liquidity providers, even in a market design where access itself is unrestricted.” Reasons include economies of scale and participants’ skills and knowledge.
For the study, BIS divided liquidity providers (LPs) into sophisticated (SLPs) and retail (RLPs), based on factors such as capital committed and technological capabilities. An average RLP has a position of $29,000 while SLPs average $3.7MM. While BIS labeled ~7% of wallet addresses as SLPs (6,124 out of 88,299), the SLPs outperformed RLPs in every category.
As of the end of 2023, SLPs conducted about three quarters of all transactions and provided 65-85% of liquidity. They made roughly three basis points more each day than RLPs and earned 10 to 25% more in fees. And, while RLPs are profitable on average, the average is skewed by the few that are highly profitable. On more than half of the days, RLPs lost money on a risk-adjusted basis.
Read more → BIS
News In Brief
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DeFi and Web3
Midweek Market Pulse
Total Market Cap: $3.21T – 7-day change as of Tuesday 11/26/24 12 PM EST: +3.6%
The crypto market rose 3.6% to $3.21T in a thrilling week in which Bitcoin (BTC, +1.6%) surged towards $100K, leading the entire market higher before coming back down to Earth as post-election exuberance cooled and traders took profits. Kathleen Brooks, research director for the online brokerage XTB, wrote that many traders held put options giving them the right to sell Bitcoin for between $98,000 and $99,000, which took some wind out of the rally’s sails.
After months of lagging Bitcoin and Solana, Ethereum (ETH, +7.2%) quietly outperformed both.
Solana (SOL, -4.3%) hit a new all-time high of $263.83 on November 22 but pulled back more than 10% due in part to backlash against memecoin launchpad pump.fun’s failure to control inappropriate content on its new livestream feature. The selloff spread to Solana’s top memecoins Dogwifhat (WIF, -13.3%), Bonk (-24.2%), and Popcat (-31.6%).
Controversial memecoin Chill Guy ($CHILLGUY, +25.7%) hit a market cap of nearly $500MM despite being threatened with legal action for copyright infringement by the Chill Guy artist. By way of compensation, crypto users set up a wallet for him and contributed $59,000 worth of Solana and nearly $240,000 worth of tokens—including $177,000 of CHILLGUY, $44,700 of REALLYCHILLGUY, and $2,500 of FWOG. So far, he has not warmed to their overtures.
Elsewhere, alternative layer-1s Cardano (ADA, +27.8%), Avalanche (AVAX, +22.1%), and Polkadot (DOT, +38.8%) rose sharply raising hopes of a long-awaited “alt season.”
The Last Word
Liquidity Pool
: A smart contract containing two or more digital assets allowing traders to buy and sell within the pool
/ Automated market maker algorithms track trades and maintain stable prices with the liquidity pool.
About BitGo
BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.
Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.
Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.
BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.
Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 700 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.
For more information, please visit www.bitgo.com.
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