The Weekly Wrap - 26 March 2021

Mar 26, 2021 - 4 min read

1. Uniswap V3 introduces innovative DEX features

The Facts:

  • Uniswap DEX, one of the largest cryptocurrency spot exchanges in the world, will launch V3 on Ethereum mainnet on May 5, with an L2 Optimism deployment soon after.
  • A key upgrade in V3 introduces concentrated liquidity positions. Liquidity providers (LPs) can choose a specific range of asset prices for liquidity provision instead of having to allocate capital across the entire asset price spectrum.
  • Uniswap V3 core codebase is now licensed under Business Source License 1.1. This protects Uniswap Labs and their commercial interests from entities who may wish to copy the new code and launch competing exchanges. All code needed for external integrations with Uniswap will not fall under this new licensing provision.

Why it’s important:

  • V3 design improvements mean that gas costs will be slightly cheaper compared to V2. Nevertheless, demand for Ethereum block space is likely to remain high, so fees on L1 are unlikely to drop. Adopting L2 Optimism however, will significantly reduce gas fees, perhaps almost to zero.
  • The ability to concentrate liquidity positions will increases capital efficiency. This means LPs are no longer required to have idle capital on standby, yet can achieve the same liquidity depth as V2 with far less capital at risk. Uniswap estimates a 4000x increase in capital efficiency for LPs relative to V2. This enhanced capital efficiency and flexibility may attract more professional market makers to Uniswap.
  • LPs can concentrate liquidity in multiple positions and by doing so, can replicate custom formulas used by other DeFi players such as Curve. This implies that most existing DEXs can now be built on top of Uniswap V3. It also expands the design possibilities for new AMMs. Uniswap now has over USD 2 billion in their treasury that can be deployed to explore, research and implement such new opportunities.
2. Fidelity Investments and Goldman Sachs files for Bitcoin-tied ETFs

The Facts:

  • FD Funds Management, a subsidiary of Fidelity Investments, filed an S-1 form with the SEC to register the “Wise Origin Bitcoin Trust”, a Bitcoin exchange-traded fund (ETF). The fund will track Fidelity’s Bitcoin Index. Fidelity Digital Assets would custody the underlying Bitcoin in the ETF following SEC approval. “Wise Origin” appears to be a translation of “Satoshi Nakamoto”.
  • In a filing with the SEC, Goldman Sachs intends to offer “autocallable contingent coupon ETF-linked notes due 2026”. Payouts will depend on the performance of the ARK Innovation ETF, a fund offered by ARK Investment Management. According to the filing, the ETF may have exposure to cryptocurrency and Bitcoin indirectly through a grantor trust.
  • Eight Bitcoin related ETFs from U.S. institutions have recently been filed with the SEC. These include: Fidelity, Goldman Sachs, SkyBridge, VanEck, NYDIG, Valkyrie, WisdomTree and Bitwise.

Why it’s important:

  • The Fidelity ETF filing means that one of the largest financial institutions in the world are now actively seeking to offer a direct Bitcoin ETF. Fidelity has been involved in crypto since 2018, with the launch of Fidelity Digital Assets which offers cryptocurrency custody and trade execution. Increased interest from institutional investors suggests Fidelity is responding to market demand.
  • Goldman Sachs President and Chief Operating Officer, John Waldron, has also noted that demand from Goldman’s clients is growing. The re-opening of the crypto trading desk, plans to offer custody, and now the involvement in the Ark Investment ETF, confirms Goldman active interest.
  • Despite numerous filings, the SEC is yet to approve a Bitcoin ETF. The recent new ETF filings in the U.S. coupled with recent ETF approvals in Canada, may be putting pressure on the SEC. If the SEC finally moves ahead, more than one ETF may be approved to avoid favoring one institution’s filing over another.

Is Fiat Dead?


3. Investment in NFT infrastructure expands

The Facts:

  • A large increase in news stories on NFTs in the mainstream media, following the Beeple NFT sale for USD 69 million, is mirrored by Google Trend search data that show that NFT searches have almost reached the same level as ICO’s in 2017.
  • NFT marketplace OpenSea has raised USD 23 million in a Series A round led by a16z. Other participants include Naval Ravikant, Mark Cuban and 3LAU. The crypto asset investment firm Paradigm has invested in Zora, a marketplace for tokenized limited-edition goods.
  • TIME magazine will auction NFTs of two of TIME’s most “iconic” covers: “Is God Dead?” from 1966, “Is Truth Dead?” from 2017, and the new special cover created for the auction “Is Fiat Dead?”.

Why it’s important:

  • NFT market volume suggest that the market may be in the midst of an NFT mania. Beeple himself suggested that NFTs may be in a speculative bubble. Nevertheless, MetaKovan, the purchaser of Beeple’s “5000 days” regards the piece as “the crown jewel” and “the most valuable piece of art for this generation”.
  • Devin Finzer, CEO of OpenSea, when discussing the sudden and rapid interest in NFT technology, maintains that “digital ownership” will soon be adopted by billions of people. Fred Ehrsam, co-founder of Paradigm, reiterated that NFTs may have reached a mainstream moment. But like the early days of the internet, the future is hard to predict.
  • At the same time, the NFT space is attracting controversy. There is wide discrepancy between views of sceptics and visionaries. Nevertheless, NFTs seem to be following the pattern of previous techno-economic paradigm shifts and the bubble-like behavior that inevitably follows.

Number of the Week

Combined DEX liquidity tags new all-time high, via Cointelegraph

4. FED chairman, Jerome Powell, comments on Bitcoin, cryptocurrencies and stablecoins

The Facts:

  • In a virtual panel discussion titled “How Can Central Banks Innovate in the Digital Age?” hosted by the Bank of International Settlements, Federal Reserve Chairman Jerome Powell made several comments on cryptocurrencies, stablecoins, Bitcoin and CBDCs.
  • He stated that Bitcoin is a “speculative asset” and is “essentially a substitute for gold rather than the dollar”. Powell also stated that in his view, stablecoins will not serve as the basis of the global financial system in the future. Rather fiat currencies will retain that role.
  • SEC commissioner Hester Peirce, speaking at a British Blockchain Association virtual conference, stressed that the growing interest in crypto from legacy financial institutional and traditional investors will put pressure on regulators to provide regulatory clarity. She stated that this year will mark a “turning point” for crypto regulation in the U.S.

Why it’s important :

  • The chairman of the U.S. Federal Reserve seems to be confirming that Bitcoin can be regarded as digital gold. This aligns with the current narrative supporting investor interest in Bitcoin. Powell also stressed that Bitcoin can be seen as an asset for speculation rather than a currency or means of payment.
  • Since January 1, 2021, total stablecoin supply has grown over 10x, from approximately USD 5.8 billion to over USD 60 billion. Powell’s remarks suggest he does not regard stablecoins as a threat to financial system at present. However, if demand for stablecoins continue at the present rate, it will be interesting to see how regulators react.
  • Hester Pierce has long been an advocate for “evidence-based rulemaking” for cryptocurrency regulation. In her view, some government officials disproportionally focus on illicit uses of cryptocurrency. A better way forward may be to focus on the protective uses. With Powell’s acknowledgments, and the increasing importance of stablecoins and cryptocurrencies, it is likely that new regulation will be forthcoming soon.
5. Morgan Stanley to offer access to bitcoin funds

The Facts:

  • Morgan Stanley will offer access to bitcoin funds for its wealth management clients. These funds will be initially operated by NYDIG and Galaxy Digital.
  • In a new investor note from the wealth management unit, the case for Bitcoin and cryptocurrency as a new asset class suitable for investment was outlined.
  • Morgan Stanley notes that “a firming regulatory framework, deepening liquidity, availability of products and growing investor interest—especially among institutional investors—have coalesced.”

Why it’s important:

  • Morgan Stanley’s wealth management unit includes 16,000 advisors and USD 4 trillion in assets under management. Their network enables them to reach and influence a large number of new potential investors who are looking to deploy capital in cryptocurrencies and Bitcoin.
  • Morgan Stanley recently participated in a $200 million capital round with NYDIG for “bitcoin related strategic initiatives”. This new announcement reaffirms the interest in the adoption of cryptocurrencies on Wall Street.
  • In contrast, a recent report from Bank of America expressed skepticism about Bitcoin, claiming that holding Bitcoin in a portfolio is unlikely to produce diversification, stable returns, or protection against inflation. In their analysis, price appreciation, which depends on demand outpacing supply, is the only investment justification.

Bitcoin Suisse