The usual disclaimer: This newsletter collates the main themes and headlines 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. 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).
[tl;dr]
The return of memecoin mania
Binance caught up in Bitcoin block space battle
Trading firms reportedly backing away from crypto
[A Little Pepe in Your Step, Eh?]
PEPE, an Ethereum meme token launched in April, surged to a market cap above $1.5 billion over the weekend, 🚀 although it has since started coming back to earth. 🌍
What Reporters Said 🔎: “Memecoins take a recognisable internet meme and add an element of financial speculation,” wrote The Block executive editor Andrew Rummer. “They have a long history in crypto, even if they have zero utility. While early adopters can make big profits on the way up, those who buy near the top can end up sitting on huge losses.”
PEPE was particularly primed to leave some saps holding the bag, suggested CoinDesk’s Krisztian Sandor. “Analysts…have raised concerns about the concentrated ownership of pepecoin, pointing to a handful of traders acquiring substantial amounts of PEPE when the token was released last month.”
Say hello to higher transaction costs, wrote Decrypt’s Nivesh Rustgi, pointing to the highest Ethereum gas fees in a year. “It’s likely that excitement around meme coins, specifically the newly-launched PEPE, is responsible.”
What Columnists Said: Looking for a word for PEPE pandemonium? Fortune’s Jeff John Roberts has one: “stupid.” The token “doesn’t do anything,” and “its cultural significance is as muddled as the broader Pepe meme.” Worse still, the token comes across as “predatory” at a particularly bad time for a shell-shocked industry: “Episodes like ‘pump the frog’ only reinforce the popular prejudice that crypto is only for charlatans and idiots.”
Why It Matters: We’ve seen meme coins and tokens come and go. “Stupid” or no, some, like Shiba Inu, have shown staying power. And they’ve certainly shown the power to make “legitimate” activity on the Ethereum network costlier.
[Taproot of the Problem?]
Ethereum isn’t the only network prone to congestion. 🤧 Increasingly, Bitcoin is dealing with it as well, causing Binance to pause BTC withdrawals twice over the weekend. ⏸️
What Binance Said 💬: The exchange blamed a “recent surge in $BTC network gas fees” for leaving a bunch of pending transactions stuck in the queue.
What Reporters Said 🔎: Not a surprise, suggested CNBC’s Tanaya Macheel: The Bitcoin blockchain “wasn’t designed to handle a large number of transactions at scale,” which is why scaling solutions like Lightning Network are seeing an uptick in interest.
Africans are already switching to Lightning and stablecoins, reported CoinDesk’s Eliza Gkritsi, who noted that some of the fee increases are due to ordinals, a sort of Bitcoin NFT, and BRC-20 tokens “associated with some memecoins.” Protos points to data showing that “taproot transactions, the type used for ordinals, have grown to account for over 50% of Bitcoin transactions, compared to just 2% at the start of the year.”
Why It Matters: The rhetoric is heating up after developers realized 2021’s Taproot upgrade for Bitcoin could enable new types of transactions and products on the network. Some people would prefer Bitcoin to stick to financial transactions. The network has split before: when advocates for low-fee, fast transactions forked the blockchain to form Bitcoin Cash.
[Jane Says, ‘I’m Done With Crypto’?]
While Ethereum and Bitcoin devs contemplate scaling their networks, major market makers Jane Street and Jump Crypto are reportedly scaling back their crypto exposure in the US (though not globally).
What Reporters Said 🔎: This is part of the contagion from crypto’s bad 2022, reported Bloomberg’s Katherine Doherty and Yueqi Yang, who broke the story: “Jane Street and Jump Trading were caught up in some of the turmoil, and were among trading firms questioned by US prosecutors in a probe of the failed TerraUSD stablecoin project. Jump Crypto had been a major backer of the TerraUSD project since 2019.”
What Analysts Said: Watch out for low liquidity, 💧 wrote Oliver Knight at CoinDesk. Bitcoin liquidity has been way down since FTX went bust and, according to one analyst, “the abrupt exit of Jane Street and Jump Trading…has the potential to disrupt the fragile flow of liquidity across the industry.”
Why It Matters: While liquidity may dry up, 🏜️ there’s been a steady flow of crypto action moving abroad as firms grow tired of the US’s regulatory posture.
[Tidbits]
“Zimbabwe launched gold-backed virtual coins as a central bank digital currency (CBDC) on Monday in its latest bid to fight currency volatility and contain spiralling inflation.” Story by Semafor (Tawanda Karombo)
“FTX founder Sam Bankman-Fried asked a New York federal judge to dismiss most of the criminal case against him, saying the Justice Department brought flawed charges in a rush to indict him after the collapse of the crypto exchange.” Story by The Wall Street Journal (James Fanelli)
“Cryptocurrency exchange Bittrex Inc filed for bankruptcy protection on Monday, three weeks after the U.S. Securities and Exchange Commission (SEC) accused it of operating an unregistered securities exchange.” Story by Reuters (Dietrich Knauth)
“Aragon’s key backers doubled down on their controversial banning of Discord members, arguing in a Friday blog post that the decentralized crypto governance project can be a DAO even if its town square is on lockdown.” Story by CoinDesk (Danny Nelson)
[Tweet of the week]
[Events]
Chinwags #0: Building Future-proof DAOs | 8th - 11th May 2023 | Warsaw, Poland
Blockchain Economy Istanbul Summit | 8th - 11th May 2023 | Istanbul, Turkey
EY Global Blockchain Summit | 9th - 12th May 2023 | London, England
NFT Tallinn | 9th - 10th May 2023 | Tallinn, Estonia
Solana Hacker House | 10th - 14th May 2023 | Taipei, Taiwan
TMRW Conference | 12th - 14th May 2023 | Belgrade, Serbia
BuildETH | 12th May 2023 | San Francisco, CA, USA
ETHGlobal Lisbon | 12th - 14th May 2023 | Lisbon, Portugal
Blockchain Expo | 17th - 18th May 2023 | California, USA
Dubai International Crypto Summit | 17th May 2023 | Dubai, UAE
[DeFi Definitions]
A new occasional segment exploring one particular aspect of DeFi.
This week: “Proof of Work” by Iris Au
Commonly known as “mining”, Proof of Work (PoW) is a consensus mechanism used in blockchains to validate newly-added transactions. A critical component of Bitcoin and other blockchains, PoW ensures that all transactions recorded are secure and transparent.
In PoW, network participants, also called “miners”, compete to be the first to solve a complex cryptographic problem with the use of specialized hardware. The first to solve the problem is rewarded with cryptocurrency and can add a new block of verified transactions to the blockchain. Once the new block is added, the transaction is considered complete and the solution to the problem is broadcasted to other miners.
Those with more computational power have a higher chance of solving the problem, successfully updating the blockchain, and receiving the reward in the form of coins and transaction fees. Given that PoW requires the use of significant computational power, some environmentalists are concerned about its environmental impact.
The team: founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Tiffany Mac Sherry, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.