This week in The Context, we take a break from the Bitcoin price talk to explore the world of Solana memecoins, liquid staking within Ethereum ETFs, and an SEC probe into Ethereum.
[SOL Cycle 🚵♂️]
Solana trading volumes were higher than Ethereum trading volumes for five straight days, March 14 to 18, driven largely by memecoin trading. 📈
What Journalists Said 🧑💻:
A “memecoin frenzy” has hit Solana, wrote Sebastian Sinclair (DLNews). These “cryptocurrencies inspired by internet jokes or memes” helped make SOL (temporarily) the fourth-biggest cryptocurrency by market cap. 4️⃣
Need proof? Beyond Dogwifhat, 🐶 Book of Meme, and BONK, 🦥 there’s “blue-chip meme” SLERF, which singlehandedly did more trading volume than all Ethereum exchanges combined—”within its first day of existence,” noted Shaurya Malwa (CoinDesk).
The frenzy won’t last, suggested Andrew Hayward (Decrypt) on Tuesday. “Meme coins tend to spike when Bitcoin and the broader crypto market are in the green, 🟢 and crash harder than average when it’s in the red.” 🔴 With BTC correcting after crazy gains, Solana memecoins are “plunging as fickle investors potentially rotate to other coins.”
Why It Matters ⁉️:
Presales of Solana memecoins attracted an estimated $100 million in tokens last weekend, with speculators drawn to the allure of quick money. Cue the price jumps and falls. This “frenzy” showcases a broader crypto trend in which hype and social media marketing drive significant financial movements, even in the absence of substantial product or service offerings. Yet the same might have been said about NFTs on Ethereum a few years ago—and that blockchain has a robust ecosystem. This level of speculation could be a sign that Solana is breaking through.
[Liquid dETH 💧]
Now that Bitcoin exchange-traded funds (ETFs) are a thing in the U.S., financial firms are filing Ethereum ETF applications with the Securities and Exchange Commission (SEC). Fidelity became the latest institution to amend its application to include liquid staking.
What Journalists Said 🧑💻:
Instead of just holding onto the ETH it buys on behalf of customers, Fidelity wants to put it to use. By placing some ETH with a staking service such as Lido [a YAP Global client], it can “provide investors with additional income,” wrote Tom Mitchelhill (Cointelegraph).
Indeed, staking services Lido and Rocket Pool got an initial price bump, noted Pedro Solimano (The Defiant). 📈 But then their coin prices cooled because Fidelity will probably tap “the services of a centralized and institutionally-focused staking provider, rather than a liquid staking protocol subject to tokenized governance.” 🆒
Staking complicates things, wrote Niamh Rowe (Fortune). SEC head Gary Gensler has already speculated that staked tokens may be securities. 🔓 Moreover, “there’s concern ETF inflows would put more staked tokens in the hands of just a few providers,” centralizing the network in a way that degrades security and enables market manipulation.
Why It Matters ⁉️:
While Fidelity is a massive firm and knows how to work with regulators, liquid staking will be a tricky sell with the SEC. Getting even simple Bitcoin ETFs approved was a huge undertaking, and the agency’s history of cracking down on crypto exchange’s staking programs doesn’t bode well. Plus, other big news this week put a serious dent in Ethereum’s ETF hopes...
[Looking Into the Ether 👀]
CoinDesk broke news Wednesday that the Ethereum Foundation is being questioned by a “state authority.” Fortune quickly followed with its own scoop that the SEC has sent subpoenas to companies regarding its dealings with the foundation. 🍨
What Journalists Said🧑💻:
On February 26, an Ethereum Foundation developer wrote a Github commit that states: "We have received a voluntary enquiry from a state authority that included a requirement for confidentiality.” The commit removes language from the Ethereum Foundation website stating it’s never received a confidential inquiry, reported Danny Nelson, Nikhilesh De, and Sam Kessler (CoinDesk). It also deleted its warrant canary, “which some companies include on their websites to indicate they've never been served with a secret government subpoena or document request.”
An Ethereum ETF looks increasingly unlikely because this inquiry is bigger than the foundation, reported Jeff John Roberts and Leo Schwartz (Fortune). The state authority in question appears to be the SEC, and several crypto companies have been hit with subpoenas looking into their dealings with the Ethereum Foundation. The blockchain’s 2022 shift to proof of stake “provided the SEC with a new pretext to attempt to define Ethereum as a security, according to people at three different companies familiar with the subpoenas.”
Why It Matters ⁉️:
While an inquiry isn’t necessarily a problem by itself, a wider SEC probe should be enough to make investors and builders nervous. If Ethereum is classified as a security in the U.S., hundreds of companies will potentially be vulnerable to SEC action.
[Tweet Of The Week]
Credit: @valueandtime
[DeFi Definitions]
A segment exploring one particular aspect of DeFi. View previous entries here.
This week: ‘’Memecoins” by Ewan Brewster
Memecoins started off as a cheaper and light-hearted alternative to Bitcoin. They take their names from the memes that inspire them and possess absolutely no utility. Despite their inherent ridiculousness, they have become immensely popular amongst the crypto community with Dogecoin having a total market cap of $21billion. But why?
The value of a memecoin depends entirely on their popularity within the community. As they are created, their founders will attempt to hype up their new currency on social media but their lifespan totally depends on the strength of their community base. Memecoins can also boom when high-profile players endorse them, for example, Dogecoin surged in value after Elon Musk showed his support for the cryptocurrency.
As Memecoins are yet to have any real utility, they are, for now, merely a way to make money and despite their humorous reputation, there are dangers involved in investing. Memecoins are more volatile than other cryptocurrencies due to their unlimited supply and they are much more vulnerable to mainstream factors such as social media trends.
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).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Andrew Wickerson, Tiffany Mac Sherry, Liam Quinn, 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 brands through impactful storytelling. Find out more about us here.