#43 The Context: Musk + Twitter = web3?
Musk’s takeover of Twitter casts a long shadow, but is it good news for crypto?
Hi there, this week we take a look at the long shadow cast by Elon Musk over Twitter, and whether it is good news for crypto or not. We take a look at what it takes to be a crypto hub and what that even means (Shout-out to Sam O’Donohue for his ideas on this). Finally, a closer look at the travails facing cryptocurrency miners.
The usual disclaimer: This newsletter collates the main themes of the week in DeFi/crypto/metaverse/web3/NFT land and tries to provide unbiased context. It’s aimed at anyone who wants to keep an eye on the space but isn’t following it too closely, or is on the hunt for story ideas and angles. It’s put together by a team at YAP and doesn’t contain any promotion of our clients (if one is mentioned, we’ll flag that).
This was put together by a team led by founder Samantha Yap, and Jeremy Wagstaff, formerly of the journalism parish. Thanks to Sam O’Donohue, Ruby Wu, Becky Corbel and Ewan Brewster for your contributions. Your feedback is as always welcome. Ping us at firstname.lastname@example.org. Old newsletters can be found here.
Is a Musk-led Twitter good for DeFi and web3?
Which territory is serious about becoming a crypto hub, and what does that mean?
Do crypto miners have a future? Maybe, but not where you think
[Will Twitter be Musk’s web3 sandbox?]
You can’t ignore the elephant in the room: Elon Musk. His takeover of Twitter has several ramifications and implications for DeFi:
Dogecoin outperformed most other crypto (except ETH) as it became increasingly clear that Musk was going to become the majority owner of Twitter. The only rational justification for this is hope that Musk’s Twitter may use DOGE as payment for a Twitter subscription.
VC firm Andreessen Horowitz is ‘temporarily’ helping Elon Musk via its crypto general partner, Sriram Krishnan. On exactly what wasn't clear.
More concrete may be Binance's role, after putting $500M into Elon Musk's acquisition ‘to bring Twitter into Web3'. Binance has said an internal team would be working on, among other things, 'on-chain solutions to address... the proliferation of bot accounts.’
Twitter has already been experimenting with NFTs and blockchains. On October 27 it announced that it would allow users to buy and sell NFTs through tweets. Indeed, Twitter had a plan to fix social media called Bluesky; will Musk pick up where Jack Dorsey left off?
Some thoughts and questions:
Musk is currently firing or losing a lot of Twitter staff. Will that make it more likely he looks for radical solutions — beyond charging users in some way?
The idea of one person controlling a network as ubiquitous as Twitter sends shivers down a few spines, but viewed through DeFi and web3 eyes it may be a logical next step to building a truly decentralised, censorship-resistant network. That may sound great for those territories where free speech is curtailed, but what does it mean for open societies, where ‘censorship’ is more associated with curbing offensive language and behaviour, and preventing false information from circulating?
(Stories by Mat Di Salvo, Andrew Hayward and Kate Irwin of Decrypt, Jocelyn Yang of CoinDesk and Joel Khalili of WIRED)
Hong Kong has confirmed that it is hoping to woo startups and steal a march on its rivals by allowing retail investors to trade in crypto and crypto-related ETFs. As part of the process it plans to explore pilot projects on NFTs, tokenisation of bonds and property rights, and the territory's own central bank digital currency, or CBDC.
At the same conference, officials from the UAE, China, Hong Kong and Thailand discussed their MBridge pilot for commercial and central banks to make international corporate payments via CBDCs using a single blockchain structure.
We flagged last week (\#42) that Sam Bankman-Fried had posted a draft of a proposed regulatory framework, a move which prompted some pushback. Ethereum founder Vitalik Buterin has also given his tuppennies’ worth saying that the industry shouldn't be 'enthusiastically pursuing institutional capital'.
Some thoughts and questions:
What does it mean to be a crypto hub, exactly? It’s a term much loved by journalists, but never clearly defined. Is it about local adoption, about using crypto as legal tender, about luring startups, allowing local listings of ETFs, favourable taxation regimes, or tokenisation of real-world assets?
While some have argued the HK proposals could go some way to harmonising regulations between jurisdictions, is that true? And is it even desirable? Should startups talk to officials to help develop regulations?
Hong Kong is proposing to open crypto to retail investors — which makes sense since Hong Kong tops the world for retail share traders. Singapore has gone the other way, barring advertising to locals and may soon require retail investors to take a test before trading crypto. Why the different approaches -- and which is more appealing to startups looking for a base?
Hong Kong’s proposals also suggest that the territory hopes to fork from China's broad crackdown on crypto. Beijing’s tight control over the territory had worried many that crypto would face a similar fate, but HK has made clear that won’t be the case: a few weeks back it promised its cryptocurrency stance was separate from the mainland’s. Will that be enough to reassure DeFi startups and talent to stay, or come back?
(Stories by Manish Singh of TechCrunch; Georgina Lee of Reuters; André Beganski, Mat Di Salvo and Will McCurdy of Decrypt; Xinmei Shen of South China Morning Post)
[Canaries in the bitcoin mine]
It's hard times for miners and hosters:
Ethereum's move to proof-of-stake has left investors with stacks of redundant equipment, forcing them to switch either to mining other proof-of-work cryptocurrencies, cloud computing, or, in the case of ‘home’ miners, heating their home. Others are looking to do high-performance computing applications like AI, machine learning and image processing.
LSE and Nasdaq-listed Argo Blockchain has seen its share plunge after announcing a fundraise of $27 million had been called off, a few days after Core Scientific's stocks also nosedived after a warning of potential bankruptcy, in part over the failure of bankrupt lender Celsius to pay millions of dollars in unpaid electricity tariffs. Digihost was threatened with delisting from Nasdaq after losing 84% of its value this year. And mining data centre Compute North last month filed for bankruptcy, owing $500 million to creditors.
Some thoughts and questions:
Mining, while electricity guzzling, was considered the ‘clever’ part of building a digital currency, incentivising users to process transactions while securing it from cheating. But the economics of the situation are cruel: mining companies held some of the bitcoin they had mined in reserve but have had to use that bitcoin to pay off debts, further contributing to the currency’s fall. At the same time, as more miners compete with each other to increase their bitcoin stash in a slowing market, the mining difficulty adjusts to reflect the competition, requiring more power to validate transactions. While logical in itself, the cycle quickly becomes vicious, raising questions about which mining companies might be left.
This isn't just about the Merge, but also about dominoes continuing to fall from the Celsius and Terra crash. Core was hosting some 26,655 of Celsius’ cryptocurrency mining machines, and is claiming that Celsius’ refusal to pay outstanding invoices is causing losses which “call into question Core’s own ability to continue as a going concern.” Court documents indicate that, under receivership, Celsius is taking a hard line on outstanding debts to DeFi partners, which begs the question: what other dominoes are there?
(Stories by Martha Muir of the Financial Times; Stacy Elliott, Andrew Asmakov, Sujith Somraaj, Zi Wang and Alys Key of Decrypt)
Ethereum Scaling Platform zkSync v2 Goes Live Amid Controversy: Matter Labs deployed zkSync 2.0 last F,riday but sceptics have questioned whether the iteration was ready for prime time.
Crypto Finance Firm Galaxy Digital to Cut One-Fifth of Workforce: Sources: CoinDesk estimates CoinDesk estimates that some 11,700 crypto jobs had been lost since the beginning of April. Crypto exchanges Coinbase, Gemini and Crypto.com have all made big job cuts.
Instagram will soon allow select creators to make and sell NFTs directly in its app: People on Instagram will be able to buy the NFTs directly within the app. Meta says the process will take place via traditional in-app purchases across iOS and Android.
Amy Cantor was at Celsius Network bankruptcy hearing on 1 November 2022 and took notes. She includes links to the court documents; it makes for compelling reading, and the case may well shine significant light on how operations like Celsius are run. This will likely play a role in what regulators choose to focus on; indeed, lawyers for the Unsecured Creditors’ Committee told the judge in response to a question that they were investigated whether Celsius operated like a Ponzi scheme.
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An occasional segment exploring one particular aspect of DeFi.
This Week: “Ethereum Virtual Machine (EVM)” by Samantha Yap
Besides the Ethereum Network, notable blockchain ecosystems have emerged in the past few years. These include Solana, Avalanche, Near, Polygon, Cosmos, Starknet, Binance Smart Chain, and Polkadot among many others, which are underpinned by Layer 1, Layer 2 or Layer 0 chains. One of the main questions asked about each chain is whether it is ‘EVM-compatible’. So what does that actually mean?
EVM stands for ‘Ethereum Virtual Machine’. It is a computation engine that executes smart contracts on the Ethereum Network. It also helps to compute various types of smart contract code into a readable format. Every Ethereum node runs on the EVM to maintain consensus across the blockchain.
Polygon and Avalanche are EVM-compatible chains, which means smart contracts deployed on these changes will be recognised by Ethereum nodes. This enables developers to port their decentralised applications (dapps) or tokens over from Ethereum to these chains with ease, helping chains become highly successful due to the low barrier to entry.
EVM is significant because most crypto applications are built on the Ethereum network layer. Roughly 60% of DeFi’s TVL (Total value locked) is on the Ethereum network, not including the volume on other EVM-compatible chains. Binance Smart Chain’s success can be attributed to the fact that it is EVM-compatible as it grew rapidly due to the ease with which Ethereum users could transfer their ETH over to the new chain using the Binance Bridge.