Weekly Attestations #4

But first, TradFi… 

While the Dow slipped negative, the S&P 500 Index experienced its worst weekly decline in 10 weeks in part due to a cascade of upside inflation and growth surprises, resulting in a roughly 35% loss in its rally since October, but it remained up 3.40% for the year to date. Communication services and consumer discretionary stocks performed worst within the S&P 500, but the declines were widespread, and growth stocks fell only slightly more than value shares. The street seemingly points to investors expecting more rate hikes as futures markets priced in a roughly 27% chance of a half-point hike in the federal funds target rate at the upcoming March policy meeting, with a 38% chance that the terminal rate would reach a target range of 5.50% to 5.75% or higher, while St. Louis Federal Reserve President James Bullard's comments that the Fed should bring rates to 5.375% provided a brief boost to sentiment. 

As per inflation, the Commerce Department reported that core personal consumption expenditures (PCE) price index rose 0.6% in January, the biggest increase since August, pushing the year-over-year increase to 4.7%, while personal spending increased by 1.8% in January. Despite rising interest rates, new single-family home sales reached their highest level since March 2022, seemingly disregarding that some major retailers reported disappointing earnings and cautious guidance, which typically indicates a possible tightening in household budgets. While on the debt side the sell-off in US Treasuries sparked by growth and inflation data resulted in bond yields hitting their highest level in over three months, with corporate bonds trading lower, and risk sentiment weakened by the release of the Fed's last policy meeting minutes, while high yield bond traders reported market volumes to be below average.

The digital asset market followed a similarly volatile pattern that we get into below. For news on Coinbase working to breach deeper into the decentralized ecosystem to Arbitrum surpassing the godfather Ethereum to Do Kwon getting sued and more, read on.

“Reason has always existed, but not always in a reasonable form.” - Karl Marx

Token Specific News

Establishing a new BASE

• Coinbase has launched Base, its own Ethereum-focused layer 2 (L2) blockchain, built on Optimism's OP Stack. Base aims to attract millions of new crypto users in the coming years and is a "secure, low-cost, developer-friendly" way for anyone to build decentralized apps (dApps) on-chain. While it is built on Optimism's OP Stack, it is not limited to Ethereum and also provides secure access to L2 networks such as Optimism and Solana. By building Base, Coinbase aims to enter the decentralized ecosystem through its own chain and expand further into the developer space. Base also provides a bridge for users into the cryptoeconomy, which will allow developers to directly integrate their products with Base and provide fiat on-ramps. The launch of Base reinforces the importance of L2s in growing the blockchain ecosystem, making it more accessible to a broader range of both developers and users, allowing cheaper, faster transactions that still take advantage of the security of L1s like Ethereum. The company has also announced the Base Ecosystem Fund, which will invest in and support early-stage projects building on Base that meet predetermined investment criteria.

Finally, a digital asset that uses a CKS instead of an X, introducing last weeks winner; STACKS

• The native token of the Bitcoin smart contract protocol Stacks, STX, has seen a surge of more than 130% over the past week. The Stacks protocol enables developers to write smart contracts for the Bitcoin network, and has seen increased activity due to the emergence of the Ordinal inscription craze, which creates more opportunities for developers. Stacks is also developing a trustless bridge for Bitcoin to be ported into the protocol’s DeFi ecosystem, with the sBTC token allowing BTC to become the foundation for a more secure web3. STX has also gained popularity as the native token for the layer 2 Stacks Network, built on top of Bitcoin's network.
• Bitcoin's hard cap and halving make it difficult for the cryptocurrency to sustain price appreciation and offset security reduction, leading to the development of Stacks as a Layer 2 solution. Building on L2 and securing the value on L1 is a better design for most applications, and Stacks is the most advanced in developing an ecosystem for more traditional crypto applications, with advanced NFT, DeFi, and naming service ecosystems. The emergence of Ordinals has sparked creativity and innovation within the Bitcoin community, leading to the creation of a new trade idea: Long $STX. Stacks is considered the best option to develop a broader Bitcoin economy today and a viable long-term solution.

Arbitrumping Ethereum (not Donald)

• Arbitrum, a layer 2 scaling system, has surpassed Ethereum in daily transactions, increasing its dominance as the leading layer 2 rollup. The number of daily transactions on Arbitrum has increased by roughly 590% in less than two months, from 159,919 on Jan. 1 to over 1,103,398 at the time of press, according to block explorer Arbiscan. In comparison, the number of daily transactions on Ethereum increased 46% in the same period to 1,084,290, per Etherscan. The number of unique addresses on Arbitrum’s network has reached an all-time high of about 2.95 million addresses, and Arbitrum’s total value locked has jumped 81% since Jan. 1 to roughly $1.85 billion. Despite this, Ethereum is still ahead in terms of network fees, with Ethereum’s one-day fees standing at $6.7 million compared to Arbitrum’s $154,000. The increased activity on Arbitrum may stem from users speculating about a potential Arbitrum airdrop, according to a digital asset strategist at Fundstrat Global Advisors.

Names Bond, Tokenized Bond

• Tokenized bonds are similar to regular bonds that can be issued by companies or governments to raise additional funding from individual investors or lenders, but with the added advantage of being on the blockchain. The significance of this lies in the fact that there is no need for paper-based certificates, central clearing or banks as intermediaries to facilitate the bond transactions. This results in a faster and cheaper process, making it highly convenient for all parties involved. The true value in the following transactions show not only the value of bringing off chain resources on chain, but also the growing adoption and use cases by some of the largest enterprises and government agencies.
• Siemens, a prominent German technology company, and the Hong Kong government are among the first to have issued tokenized bonds. Siemens issued its first tokenized bond worth approximately $64M on the Polygon blockchain to three investors. The transaction took two days to complete, and Siemens collected the funds using traditional banking means since the digital euro was not yet available.
• The Hong Kong government, in collaboration with the Bank of China and HSBC, used Goldman Sachs’s tokenization platform to issue a 1-year bond worth about $101M on a private blockchain. This is the world's first green bond that will be used to fund environmentally friendly projects. The fact that Siemens went ahead with the tokenization of their bonds without notifying Polygon's team is an example of how blockchain networks do not require permission or approval to operate.

Not So Stablecoins

• Decentralized finance protocol, Platypus Finance, has suffered a flash-loan attack leading to the loss of >$8mm. Following the attack, the platform's stablecoin, Platypus USD (USP), lost its price peg to the dollar and fell to $0.48 putting volatility into what should be the most stable aspect of the industry. The protocol's PTP token also lost 25% of its value in 24 hours. PeckShield, a blockchain security firm, confirmed that the hacker exploited a flaw in the "emergency withdraw" function of Platypus' contracts, which allowed them to withdraw $8.5m more than the collateral they had supplied. The platform is currently the seventh-largest protocol on the Avalanche network with a total value locked of $41m, despite the figure dropping by 25% in one day, according to DeFi Llama. The team has reached out to the hacker to negotiate a bounty in exchange for returning the funds, and Platypus has confirmed it is working with Binance, Tether, and Circle to freeze the stolen funds. The affected users’ balances are covered for up to 35% of their value, and the team has reached out to the hacker to negotiate a bounty in exchange for returning the funds. Platypus has confirmed that it will repay a minimum of 63% of funds to users and that it is currently in contact with law enforcement following the incident. This comes shortly after Paxos and Binance terminated their relationship following a probe from the SEC
• See Similar: Frax, a stablecoin issuer, has decided to increase the collateral ratio for its stablecoin to 100%, removing the small algorithmic component that previously contributed to its value. This move is aimed at making the stablecoin safer for users to hold, as algorithmic-backed stablecoins like UST have been deemed less secure. The proposal received overwhelming support from the community, with over 98% of voters in favor of implementing the changes. The blockworks research team also approves of the move, as it brings Frax closer to Maker's model, where DAI is overcollateralized, prioritizing safety. There is no immediate need to increase the credit ratio, and the hope is that growth, asset appreciation, and protocol earnings will gradually raise the CR to 100% over time.
• See similar: TrueFi’s governance token surged 220% after Binance minted $50 million of the decentralized exchange’s stablecoin called trueUSD. This comes after Paxos said it will cease issuing Binance’s BUSD stablecoin amid a regulatory crackdown… See MJL/Adapt3r relationship

Helium's Plan to Stay Grounded

• Developers have announced that Helium will fully transition to the Solana blockchain by March 27th. As a result, HNT tokens for the decentralized wireless network have surged by nearly 6% to $3 in the last 24 hours. After the migration, HNT, MOBILE, and IOT tokens will all be issued on the Solana network and remain as the tokens in the Helium ecosystem. Additionally, a new version of the Helium wallet app will be released, and users can choose to use Solana-based wallets such as Phantom and Solfare.

Blockchain IRL

• Google Cloud has partnered with the Tezos Foundation to allow its customers to deploy Tezos nodes and build Web3 applications on the blockchain. The partnership will enable companies and developers to host and deploy RPC nodes for Web3 applications using the Tezos blockchain and Google Cloud infrastructure. Additionally, the Tezos Foundation will provide new and existing Google Cloud customers access to its corporate baking programme, offering easy deployment of nodes and indexers on the Tezos protocol. The partnership is also set to provide select Tezos incubator startups with Google Cloud credits and mentorship via the Google for Startups Cloud Program.
• Music streaming service Spotify may be dipping its toe into Web3 with a new pilot involving “token-enabled playlists,” allowing holders of non-fungible tokens to connect their wallets and listen to curated music. Spotify is offering this exclusively to token holders in the Fluf, Moonbirds, Kingship and Overlord communities for a three-month testing period. Spotify told CoinDesk that it "routinely conducts a number of tests in an effort to improve our user experience."

Regulation

Do (Kwon) You Think You Can Escape the SEC?

• The US Securities and Exchange Commission (SEC) has charged Terraform Labs and its CEO Do Hyeong Kwon, also known as Do Kwon, with securities fraud regarding the algorithmic stablecoin Terra USD and the LUNA token. The SEC’s complaint alleges that the company and its founder failed to provide investors with full, fair and truthful disclosure regarding these crypto assets, and misled them with false and misleading statements about the products' value. The SEC’s lawsuit claims that Terraform Labs and Kwon marketed “crypto asset securities” to investors seeking to profit from investing in Terra UST and related products, and raised billions in investor funds from April 2018 until May 2022. The SEC also accuses Terraform Labs and Kwon of committing fraud by repeating false and misleading statements to build trust, causing devastating losses for investors.
• See similar: SEC Defines ‘Interrelated’ Terra Tokens as Securities
  

Federal Trade Commission investigates Voyager's 'deceptive and unfair' crypto marketing

• The US Federal Trade Commission (FTC) is investigating cryptocurrency broker Voyager Digital over allegations of "deceptive and unfair marketing" of crypto assets to the public. Voyager filed for bankruptcy protection in July 2022 following the collapse of the Terra blockchain, which had a significant impact on the crypto markets. The company had $1.3bn of crypto assets on its platform at the time of its bankruptcy filing. Binance.US agreed to buy Voyager's assets in December, but the proposed sale has faced objections from regulators, including the FTC and the Securities and Exchange Commission (SEC). The FTC has raised concerns that the sale may interfere with its work, while the SEC alleges that the sale of Voyager's assets to Binance.US could be in violation of securities laws. New York State's Department of Financial Services (NYDFS) and Attorney General Letitia James have also opposed the deal. The NYDFS has alleged that Voyager unlawfully served customers in the state and discriminated against New Yorkers who won't be able to reclaim their crypto for six months while Binance.US gains approval in the state. Voyager creditors had until 23 February to approve the deal.

“To settle or not to settle, that is the question” - CZ Shakespeare

• Binance is reportedly considering settling with the Department of Justice and the Commodity Futures Trading Commission over money laundering and improper crypto derivatives trading allegations. According to Binance's chief strategy officer, Patrick Hillman, the exchange may pay a fine to settle with the regulators. Hillman did not deny the allegations but explained that the company was initially founded and run by software engineers who were not familiar with laws and rules designed to combat money laundering and economic sanctions. Binance is reportedly working with regulators to determine what remediation is necessary and the potential amount of the fines.

Coinbase Says It Will Be 'Net Beneficiary' Amid Heightened Regulatory Scrutiny

• Coinbase reports that its rigorous process of evaluating digital assets before listing on the spot market is one of its advantages over competitors. The exchange has also avoided offering high-leverage products and does not operate as a market maker that trades against customers or issues exchange tokens. Coinbase expects 2023 to be a year of regulatory focus and believes its strong foundation will make it a net beneficiary of the new environment. The exchange does not believe it has violated any securities laws and remains committed to working with global regulators and policymakers to drive prudent regulation of the emerging asset class. Coinbase expressed disappointment at the lack of regulatory transparency and public participation in the US and highlighted positive regulatory developments in other countries.
  

Hong Kong’s Securities and Futures Commission (SFC) has published its proposed rules for crypto trading platforms 

• The regulator is seeking comments on whether to allow licensed platforms to serve retail investors and what consumer protection measures to offer. The new rules would also mean all platforms would need to apply for a license, including existing ones. Platforms “should begin to review and revise their systems and controls to prepare for the new regime,” the SFC said. It was misconstrued through a tweet last week that the city was set to offer crypto trading to retail investors, which is not the case. Hong Kong’s new Virtual Asset Service Providers (VASP) licensing regime kicks in at the start of June, but it only permits exchanges to provide access to professional investors.
• See similar: Web3 a ‘Golden Opportunity’ for Hong Kong: Finance Secretary: Hong Kong's Financial Secretary, Paul Chan, will establish a task force made up of policymakers, regulators, and crypto industry players to provide recommendations on the development of virtual assets. The move is part of Hong Kong's ambitions to become a Web3 hub. The Securities and Futures Commission of Hong Kong (SFC) recently proposed easing restrictions on virtual asset trading platforms, which some crypto businesses have welcomed. Hong Kong has traditionally acted as a go-between for global companies wanting access to the Chinese market, and there have been signals of under-the-radar backing from Chinese leadership.

Other Domestic Regulation Updates

• It Isn’t Just the SEC — Feds’ Dragnet Targets Crypto Banking, Too
• Bernstein: SEC Tightening of Crypto Regulations Is not an Existential Threat
• How New Jersey’s Crypto Bill Could Impact Industry Firms in the State
• SEC Land Grab: Crypto Enforcement Actions Accelerate Under Gensler
• SEC’s Shadow Crypto Rule Taking Shape as Enforcement Cases Mount
• Binance Urges Industry-Wide Action to Boost Trust in Crypto
• The SEC’s Crackdown on Ethereum Staking Has a Silver Lining
• SBF Legal Defense to Appoint Tech Expert as Court Mulls Amending Bail Conditions
• U.S. SEC Sues Terraform Labs and Founder Do Kwon for Securities Fraud
• Chainalysis Finds Pump and Dump Scams Common and Unprofitable
• Sam Bankman-Fried Hit With Additional Bank Fraud Charges in New Indictment
  

Other International Regulation Updates

• Canada Close to Tightening Rules for Crypto Exchanges: Sources
• FTX’s Japanese arm will begin processing withdrawals for customers starting Feb. 21
• Lawmakers in the European Parliament continue to refine anti-money laundering rules for crypto
• Beijing Using Hong Kong as Crypto Testing Ground: Report
  

Pain & Gain

Misc. Pain

• Polygon Lays Off 20% of Staff Amid Restructuring
• Traders Still Prefer Centralized, Trading Volume Suggests
• CoinShares ‘Unsure’ It Can Recover Any of $31M FTX Exposure
• Immutable carries out second round of layoffs in seven months, cuts 11%: SMH
• Nexus Mutual Pays Out Over $5M to FTX, BlockFi Users
• IRS TO CELSIUS CUSTOMERS: PAY TAXES ON YOUR TRAPPED FUNDS
• Crypto Fund Galois Winds Down After Losing 50% of Funds To FTX
• Moody’s downgraded the creditworthiness of Silvergate Capital and its bank subsidiary Silvergate Bank.

Misc. Gain

• Yield Guild Games raising $75 million venture fund to double down on web3 gaming
• OpenSea Goes Zero Fee, Creator Royalties Optional
• Tokenization Picks Up Steam With On-Chain Tesla and Apple Shares
• Coinbase earnings beat thanks to USDC interest income, analysts say
• Uniswap Traders Can Now Buy NFTs With UNI, SHIB or Any Ethereum Token
• Web3 Startup Aims For Mastercard Purchases Via Ethereum Wallets
• Abu Dhabi Tech Incubator Allocates $2B for Web3 Development
• Amazon Leads $20M Round for ‘Synthetic Celebrity’ Creator Superplastic
• Napster Acquires NFT Music Platform Mint Songs
• The SEC’s Crackdown on Ethereum Staking Has a Silver Lining
• Aave’s Proposal to Freeze BUSD Poised to Pass
• Centrifuge Wants To Back Aave’s GHO Stablecoin With Real-world Assets
• Arbitrum’s User Base Is Fastest Growing Among Leading Blockchains: Bernstein

Weekly Metrics

Sector Performance Breakdown (7d trend)

• Derivatives 5.50%
• Stablecoins -0.08%
• Exchange Tokens -1.35%
• Asset Management -1.83%
• Smart Contract Platforms -3.09%
• DeFi -3.48%
• Web3 -3.90%
• Currencies-3.92%
• Data Management -4.31%
• Lending -4.93%
• Interoperability -5.10%
• Decentralized Exchanges -5.99%
• Privacy Coins -6.10%
• Gaming -6.46%
• File Storage -13.32%

‍Top Gainers (Market Cap > $100M)

• Liquity (LQTY) +102.44%‍
• Stacks (STX) +36.39%‍
• NuCypher (NU) +33.78%‍
• DODO (DODO)+30.35%‍
• SSV Network (SSV) ++22.74%

Top Fundamental Trends

Revenue (7d trend)

• Idle Finance (+368%)
• ParagonsDAO (+250.6%)
• Rarible (+203.8%)
• Filecoin (+202.9%)
• Optimism (+109.1%)

Earnings (7d trend)

• LooksRare (+1153.2%)
• Rarible (+559.8%)
• Idle Finance (+439.6%)
• Abracadabra.money (+425.5%)
• Reflexer (+117.4%)