The takeaway: George Kaloudis looks into whether much-ballyhooed “Bictoin NFTs” will solve the blockchain’s longterm security spend problem.
DeFi Things
Revolut, the popular European “neobank” with 25 million customers worldwide, will offer staking services for Polkadot (DOT), Tezos (XTZ), Cardano (ADA) and Ethereum (ETH) token holders. The offerings will be available to customers in the U.K. and European Economic Area (EEA). StarkWare, the Israel-based startup valued at $8 billion last year that recently announced plans to open source its layer 2 scaling tech, will join Chainlink’s SCALE accelerator program to build out “the StarkNet ecosystem.” StarkNet tokens will cover certain operating costs for the Chainlink oracle nodes under the arrangement. Finally, Alchemix Finance approved a proposal to buy back a portion of its native ALCX tokens using funds from its treasury and yield-farming activities.
Money Back
FTX Group is sending “confidential letters” to politicians and other beneficiaries who Sam Bankman-Fried showered with political donations, asking them to return the money by month’s end. In a press release FTX lawyers said they “reserve the right” to try and force repayments – plus interest – of the estimated $93 million through court action. That comes as FTX CEO John J. Ray III, who made a whopping $690,000 from FTX last year alone, disclosed the defunct exchange is being advised by cybersecurity company Sygnia to shore up its “insecure environment” and prevent further hacks. Finally, Filecoin creator Protocol Labs announced layoffs and Overstock subsidiary TZero will sunset its token trading platform.
Rules and Regulation
The U.K.’s Financial Conduct Authority warned crypto companies that marketing or promotions that fall afoul of new but not-yet-finalized standards could face prison sentences of up to two years. The rules for “clear and fair” advertisements will apply to overseas firms. Elsewhere, South Korea’s Financial Services Commission (FSC) on Monday published guidelines for security tokens under the country’s capital markets rules. This comes ahead of highly anticipated regulations that will institutionalize security tokens. Hong Kong’s Securities and Futures Commission (SFC) asked for more funding in a budget report as Hong Kong looks to become a crypto hub. Finally, Italian regulators have begun setting up a supervisory environment anticipating European Union laws for regulating crypto, central bank Governor Ignazio Visco said in a Sunday speech.
Layer-2 networks and scaling solutions have been getting a lot of attention from crypto enthusiasts and analysts of late, but what about the much-needed innovation in decentralized application (dapp) functionality?
The total size of the application-based industry is approaching $500 billion in market capitalization (with DeFi comprising a $48 billion TVL), but its growth has been limited by factors such as UI/UX and, fundamentally, the lack of utility for most people. To grow further, blockchain needs more applications that are more relevant for more people. Continue reading.
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Sound Bites
“The service sector is still very strong and until that weakens, you’re going to continue to see continued wage pressure.”
– Oanda senior market analyst Edward Moya, on CoinDesk TV’s “First Mover”
The Takeaway: Security Spend
Casey Rodarmor, the creator of a new “Bitcoin NFT” protocol, may have accidentally solved Bitcoin’s security budget problem – the worry that there would be no financial incentive to mine bitcoin in the future because there is a fixed supply and transaction fees might not be enough – and kick-started a hullabaloo on Twitter between some of Bitcoin’s partisan factions. While Rodarmor’s Ordinals project has rejuvenated Bitcoin’s lackluster fee economy, many think putting non-fungible tokens (NFT) on the blockchain is more like adding spam.
More transactions should mean more fees. Blocks full of transactions are better than blocks not full of transactions – not to mention the empty blocks (which does happen). Right now, miners make almost all of their money from the block subsidy in the form of newly minted bitcoins, but the subsidy will go away eventually leaving only transaction fees.
A best-case scenario for Ordinal NFT’s longevity is they act as a buyer of last resort for blockspace. Since Ordinal NFTs are unusually large transactions, they will almost always be more expensive than normal peer-to-peer bitcoin transactions on a per-transaction basis even if they have low fee rates.
That doesn’t necessarily mean Ordinals has solved Bitcoin’s long-term security budget problem: Users may be willing to wait longer to save money by paying a lower fee rate for Ordinals transactions, so that they are only included in blocks when market fee rates are comparatively low and blockspace is abundant. But there’s a risk that users would be unwilling to pay higher fees for Bitcoin’s original (and arguably only) use case: peer-to-peer financial transactions. Maybe then, almost all blocks will only include Ordinal NFTs and no other types of transactions forever. I think that’s unlikely, but it could happen.
Sure Ordinal NFTs are fun-ish, but at the risk of sounding pompous, they are so much less consequential than bitcoin’s best use case of peer-to-peer, borderless, censorship resistant money. In all, my take is that Ordinal NFTs will be at its very best a means to strengthen the bitcoin transaction fee market and at worst a spectacular fad that fades away with no wider negative consequences for Bitcoin.
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