Issue 162: Binance Under Scrutiny, Bitcoin Miners Selling their Holdings, and More!

Key Takeaways

• Proof-of-work mining subject to 2-year moratorium in New York City
• Bitcoin miners selling their holdings to cover their costs
• Terra bridge V2 went live
• Ethereum's first dress rehearsal for the merge
• Metaverse use case: a beer brewery

This Week in Crypto

Last week saw companies in the cryptoassets industry cut up to 10% of their staff, which is not a new phenomenon to bear markets in this industry. In a more hopeful turn of events, China’s scaling back its lockdown measures possibly triggering NASDAQ100 and S&P500 to rise last week and providing a catalyst for risk assets including cryptoassets to follow suit. All eyes are on the US Consumer Price Index (CPI) report, coming out on June 10. May’s CPI report would provide the data necessary for the Federal Reserve to dictate how aggressive they will be with the next interest rate hike scheduled to take place in June.

Regulations and Adoption

• On June 2, Lawmakers in New York City passed a bill suspending proof-of-work mining operations, that rely on carbon-based fuel, for two years. The bill is currently on its way to New York’s Governor Kathy Hochul, who could sign it into law or veto it. In effect, new applications for mining facilities will not be approved and those of existing ones will not be renewed, unless they run 100% on renewable energy. Over the past few months, Bitcoin miners based in New York could tell a ban was approaching and already started moving to crypto-friendlier jurisdictions around the US such as Texas, leveraging the state’s cheap and abundant electricity. In consequence, New York’s share of the Bitcoin mining network dropped from 20% to 10%.
• Binance has been facing some regulatory scrutiny as reports revealed that it has served as a conduit for the laundering of at least $2.35B in 5 years. However, its CEO, published a transparency report to refute these claims. The Securities and Exchange Commission (SEC) is allegedly probing Binance’s native token BNB for potential violation of securities regulation.
• To protect investors from the repercussions of another crash like UST’s, Japan passed a bill limiting stablecoin issuers to licensed banks, registered money transfer agents and trust companies.
• With regards to adoption of cryptoassets, Crypto.com received a provisional approval of its Virtual Asset MVP license from Dubai’s Virtual Assets Regulatory Authority (VARA), giving the Singaporean crypto exchange the opportunity to scale in the region.
• Nigerian blockchain advocacy group, initiated by the president’s office, is introducing a code of conduct for VASPs with the purpose to make Nigeria ​​the world’s safest and biggest blockchain space with the largest blockchain solutions, investments, and adoption. This comes after a national campaign to steer investors away from cryptoassets and more towards Nigeria’s brand new central bank digital currency (CBDC), which was blamed for taking a toll on the country’s fintech industry.

Technical and Onchain Indicators

Figure 1: Bitcoin miners selling off their holdings

Source: Compass Mining

Data collected by Bitcoin mining services company, Compass Mining, indicate that Bitcoin held by miners are being sold off to the open market and has in fact reached an all-time high. As energy prices skyrocket – on the back of the Russo-Ukrainian conflict – and Bitcoin becomes less profitable for miners, selling off holdings would be a better option as opposed to shutting down the mining facilities.

Figure 2: Bitcoin Production Cost

Source: TradingView

As shown in Figure 2, the cost of producing 1 BTC ranges between $20K and $34K, so price needs to pilot above this level in order for miners to remain solvent and endure their operations without incurring annual losses.

DeFi and Metaverse

The ramifications of Terra’s collapse can still be felt across the market which amongst some of which, had been the additional scrutiny of stablecoins. For instance, Tether’s USDT took a beating this past month as it lost almost 12.7% of its market capitalization, while Circle’s USDC gained 10.7% market share over the same period. The rising tension between both established players pertains to how either firms manage their reserves and the kind of transparency they convey. Circle’s assertive moves in reducing its reliance on commercial paper has increased its credibility amongst regulators and accordingly investors.

As touched upon in previous newsletters, Terra 2.0 had launched following the latest governance proposal that resurrected the dead network. The blockchain’s new token labeled LUNC launched on multiple major exchanges last week, meanwhile we began seeing the early innings of a network migration as protocols such as Stader and Phoneix relocated over to the new blockchain hoping to benefit from the network effects. In that regard,Terra Bridge V2 went live to enable the transfer of LUNA between Ethereum and Terra ecosystems.

In other news, the Venture arm of the infamous centralized exchange Binance made a strategic investment in the governance token of the emerging ecosystem’s main DEX, Pancake Swap. The decision was fueled by the intent to promote the next iteration of global blockchain adoption by providing technological, community and marketing support complemented by enterprise solutions for Web3 transformation. The last piece of notable news within DeFi had been the implementation of liquid staking for the Polkadot network native token. The collaboration between Moonbeam and Lido should enable users to deposit xcDOT(cross-chain) to receive stDOT (synthetic), and accordingly increases the utilization for DOT within the growing DeFi space.

This week was no different when it came to the metaverse as we saw ceaseless adoption carried out by some of the biggest names in the fashion and entertainment industries. First was Prada’s latest initiative to launch a collection of NFTs freely available for those who purchase the Timecapsule apparel release. In a similar manner, Warner Bros company publicized their newest push to get into the NFT industry with the tokenization of the Looney Tunes story in the form of a 10K collection of the Tweety character. NFT holders should expect to enjoy an exclusive set of percs such as virtual meet and greet, special deals to physical collections and more.

Last but not least, the controversy surrounding BAYC continued this week as their discord server got hacked for the third time in 2 months leading to the loss of 200 ETH. And finally, the move-to-earn game StepN, which amplified the gaming frenzy on the Solana network, faced a cyber attack at the beginning of the week. The game was stormed by a DDOS attack following the introduction of a new anti-cheating system dubbed SMAC, or STEPN’s Model for Anti-Cheating. The upgrade was designed to eliminate fake users as well prevent fraudulent motion data from gaming the system through amending real walking/running data, attributed to their ML algorithm.

Crypto Infrastructure

The most pressing matter this past week had been the excitement surrounding what is known as the first dress rehearsal for the merge. Ethereum’s longest-standing testnet dubbed Ropsten network will finally host the transitioning merge of the ETH 2.0 beacon chain - on June 8. The biggest smart-contract network by capitalization will now have two more testnet transitions (Goerli and Sepolia) to the POS system before the focus shifts towards the network’s main layer. The merge is slated for an August launch if all goes well.

Solana, on the other hand, suffered another outage, marking it the fifth outage this year. This time, the network breakdown was triggered by the processing of offline transactions called durable nonce transactions. Even though the former constitutes less than 0.1% of all economic activity on top of the network as opposed to normal transactions, the feature has been rising to prominence amongst entities involved with multisig setups. They are venues that would require more than 2 minutes to sign their respective transactions - as this type of transaction does not expire unlike normal transactions. The issue, nevertheless, was that a durable transaction was mistakenly processed like a normal one, instigating the user to resubmit it again and triggering the network’s double-spending issue as validators failed to reach consensus due to the runtime bug. As a result, developers have disabled the feature altogether to avert any future problems. You can check out the post-mortem here for a further technical breakdown of the events.

In an indirect reaction, the infrastructure provider Alchemy announced it’ll expand its support to the troubled network a day following the network halt. The integration should provide Solana with a well-needed boost in its reliability, as exemplified by the superior scalability performance of heavy dApps Aave and opensea, whom are both dependent on the solution. Finally, the infamous oracle network Chainlink unveiled its integration into the Solana ecosystem, allowing protocols to take advantage of one of the seven price feeds the protocol has made available on top of the network.

The developments within the infrastructure vertical didn’t stop there as the BNB network unveiled its latest technical roadmap, which should see improvements on multiple fronts. The upgrade includes fostering the capacity for launching sidechains to host NFT-based dApps, growing the total number of validators to 41 from 21, and increasing the block gas capacity to 200M to match the increased demand on the network. Zcash was no stranger either, as the privacy-focused blockchain enjoyed its most significant update in two years. Dubbed NU5, the upgrade should introduce critical features such as orchard shielded payment protocol to remove the dependency on complex setup ceremonies, as well as make it easier to execute private transactions on mobile phones thanks to the new format of unified addresses.

Weekly Returns

The returns of the top five cryptoassets over the last week were as follows — BTC (-1.54%), ETH (-4.31%), BNB (-8.11%), ADA(-3.6%), XRP (-5.09%)

Net Inflows per 21Shares ETP

The net outflows of our ETPs amounted to $6.75M in the past week. Find the breakdown of the inflows and outflows per ETP below.

Media Coverage

Our sixth edition of our State of Crypto report has been making waves across news outlets last week. “One of the most consequential findings was that when comparing all return and risk measures across different rebalancing frequencies, they found that rebalancing quarterly provided the best trade-off for investors,” writes Coin Bureau. You can get a copy here.

In these coming few weeks some of our team members will be presenting on stage their theses on the cryptoassets industry. On June 13th, Leena ElDeeb will be in Lugano, Switzerland, for the MetaForum conference to talk about the use cases of Web 3 in geopolitical conflicts. Leena will also participate in a panel titled “Communicating in Web 3.”

On the other side of the word, Karim Abdelmawla will be in Dubai, UAE, for Wealth Today Summit on June 21, where he’ll participate in a panel titled “Family Offices Investing in Crypto: Next Steps.”

News -A Munich-Based Brewery to Offer Voting Rights on Business Decisions via NFTs and a DAO

What happened?

Founded in February, MetaBrewSociety is planning to offer a range of tokenized “beer share” certificates that provide varying levels of governance rights over a physical brewery in Munich. They’re currently eying Sandbox to be their meta-location. By holding an NFT certificate, the holder is entitled to at least 100 free cans of beer per year; which helps fund the purchase and scaling of the brewery. Once the physical location has been purchased, the project will then form a DAO that will consist of the NFT holders who would then have the right to vote on business decisions of the brewery.

Why does it matter?

The benefit of the DAO is twofold:

1. plays an important role in the governance of the business
2. plays a key part in consumer research.

This unusual use case of DAOs and NFTs is living proof that Web 3 can help stimulate and modernize industries as old as time. Web 3 has a unique feature that distinguishes it from its other peers: creating dedicated communities and uniting them around one utility facilitated by a token. That being said, the MetaBrewSociety will use its brewery in the metaverse as a way to collect traction to its community and increase the exposure of the project while also acting as an online shop for its range of beers.