21Shares Monthly Review

This Month in Crypto: Executive Summary

Easing inflation in the US hyped market sentiment in crypto’s favor in January, despite some headwinds brought by Genesis’ bankruptcy and a law enforcement action against Bitzlato, accused of laundering $700M, with Binance being the last destination for the funds. Over the past 30 days, Bitcoin and Ethereum have increased by almost 40% and 30% respectively. The outlier of last month’s rally was Solana, up by 140%, which may be attributed to the hype created by the meme token called BONK. Optimism stood out within the realm of scalability solutions, increasing by 132%. As for decentralized applications, staking-as-a-service platform, Lido, increased by 117% over the past month; users have been allocating billions to collect rewards.

Figure 1: Price and TVL Development of Major Crypto Sectors

Source: 21Shares, Coingecko, DeFi Llama. Data as of January 30.

Key takeaways from this report:

Former CEO of troubled crypto exchange FTX pleads not guilty and crypto lender Genesis files for bankruptcy,
Ethereum Shanghai Upgrade still on schedule, Polygon zkEVM mainnet launching soon, and Fantom to introduce account abstraction in its next upgrade.
Liquid staking protocols experience tremendous growth, DeFi continues to embrace the onboarding of Real World Assets (RWAs).
NFT marketplaces and GameFi protocols continue migrating to Polygon; Seoul is launching a metaverse for its public services by 2026.

Spot and Derivatives

Figure 2: Total Liquidations

Source: Coinglass

Over the past month, we have seen the largest short squeeze in months of over $2.57 billion liquidated on Binance, OKX, and Bybit. This dynamic is an indication that there were more funds betting against Bitcoin and the recent positive rally disappointed their positions. The recent price action is simply a regression to the mean. We are back to levels where we were post the LUNA debacle and pre-FTX. However, it is important to note that this rally may not be long-lasting as we may face mispriced headwinds.

On-chain Indicators

Figure 3: Inflation Rate of Bitcoin versus Ethereum

Source: Glassnode

Since the Merge of September 15 last year, Ethereum’s supply change is now nearing -3K ETH, according to data collected by Ultra Sound Money. That means that ETH is gradually becoming a deflationary asset, thanks to a post-Merge mechanism that removes a portion of ETH that has been spent on transaction fees. That is in comparison to its rival cryptoasset, which has also progressed on the deflating front on the back of Bitcoin’s halving slated to happen next year. The fact that Bitcoin's native, unaltered, underlying technology is bringing its inflation down, is very telling of Bitcoin's core value proposition akin to gold: scarcity.

Macro and Regulations

Macro: year started with significant job cuts across the board. Inflation cooled down in the US in December, increasing by 6.5% year over year. However, inflation has surged in other countries around the world, like Argentina (95%), Pakistan (25), and Egypt (22%), in what the World Bank calls the slowest global economic growth in three decades. Bankruptcy filings also loomed in the cryptoasset industry, Genesis filed for Chapter 11 bankruptcy protection, revealing they have less than $500M in assets, whereas its biggest creditor has a claim to $765M. Genesis’ parent company, Digital Currency Group, suspended its quarterly dividends to weather the market environment. An escalation to the Russo-Ukrainian war has been burgeoning in the last week of January, as countries like the US and Germany have finally agreed to send tanks to aid Ukraine in its fight against Russia.

Law Enforcement: The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) warned banks about the risks involved with crypto in a joint statement. The statement reiterated that cryptoassets in the past year have been highly volatile on the back of exposure of vulnerabilities and counts of fraud. On that note, former CEO of troubled crypto exchange FTX Sam Bankman-Fried pleaded not guilty to eight counts of criminal charges; his case is to be determined in October. The Manhattan U.S. Attorney's Office assigned an “FTX task force” to trace stolen funds; $5B of which have been recovered in liquid cryptoassets. To the dismay of the SEC, Binance.US received initial court approval of its acquisition of Voyager. After the final court hearing scheduled in March, Binance.US will buy Voyager’s assets, and users will be able to retrieve 51% of their investments in this billion-dollar-deal. Binance also appeared in the US Justice Department’s “major international cryptocurrency enforcement action” arresting the founder of the Hong-Kong-registered Bitzlato, accused of laundering $700M; about half of which was attributed to Binance. According to the Financial Crime Enforcement Network (FinCen), Binance was one of three main counterparties along with Russian-based “Hydra” and “The Finika.” Other investigations that happened this month:

Genesis and Gemini: On January 12, the SEC sued troubled crypto money markets Genesis and Gemini for selling unregistered securities as part of Gemini’s lending program “Earn.” Two days before the lawsuit, Gemini’s cofounder took to Twitter to call out Genesis, and its mother company Digital Currency Group for allegedly defrauding Gemini and 340K Earn users.
Core Scientific: The bankrupt bitcoin mining company is under investigation for securities fraud by a law firm representing the company’s investors, alleging that Core Scientific has sold both its mining and hosting businesses in a series of questionable transactions before dumping onto the market via SPAC.
Ooki DAO: Last year, the CFTC filed a lawsuit against Ooki DAO for running an unregistered crypto futures trading facility and failing to conduct proper KYC checks. The deadline for response was January 10, 2023 – which led the regulator to call for a default ruling in the absence of the defendant(s).

Regulations brewing in January: World regulators rushed to finalize the regulatory frameworks they started in 2022. Europe’s most anticipated crypto legislation, Markets in Cryptoassets (MiCA) is experiencing expected delays due to delay in translations; MiCA’s final vote is postponed to April. On the other hand, Morocco and Israel published their first proposed crypto bills for feedback. Capital gains have also been part of lobbying this month. In its continued effort to become a crypto hub, the UK granted a crypto tax exemption for foreigners using local services. In contrast to the UK’s move, the Italian Parliament approved the 26% capital gains tax on cryptoassets worth more than EUR 2,000. In El Salvador, a new landmark digital securities bill was passed to make way for Bitcoin bonds.

A global standard for regulating crypto has been finding use cases amidst every debacle. In a Bloomberg interview, CFTC commissioner Caroline Pham called for a global standard for regulating crypto as a hedge against industry meltdowns like FTX and Terra Luna. Japan’s regulators, on the other hand, want the US and Europe to treat crypto like they do traditional banks. The former president of Japanese crypto bank project Komainu was named CEO of Dubai’s crypto regulator, the Virtual Assets Regulatory Authority (VARA), responsible for granting licenses to crypto operators and regulating the sector in the Emirate. Having a crypto-native insider as a regulator could mean light years of change in the right direction for the crypto industry in Dubai.

Bitcoin Mining received some positive news for its fundamentals this past month. The world’s first nuclear-powered Bitcoin mining facility is looking to find a home in Pennsylvania, where Cumulus Data has completed a data center connected to the state’s Susquehanna nuclear power station. TeraWulf may be using the data center for mining Bitcoin as part of its mission to accelerate the transition to a carbon neutral environment. To even boost more confidence in Bitcoin’s fundamentals, a retail Bitcoin miner solved block 772,793 to remind the community as well as skeptics of the pioneer cryptoasset’s probabilistic design. This happened during the most stressful time for retail Bitcoin miners, most of whom were squeezed off the grid due to an increase in larger conglomerates in the space. Investor appetite is also up a notch for Bitcoin mining as Blockstream raised $125M in convertible note and secured loan financing from Kingsway Capital and Fulgur Ventures. The Bitcoin infrastructure company will use the funds to expand its institutional bitcoin mining colocation services.

Between adopting crypto and central bank digital currencies (CBDCs): Signals for crypto adoption have been fluctuating this month between institutional adoption of cryptoassets and and its adverse alternative, CBDCs.

EU: Abn Amro became the first EU bank to launch a digital bond on a public blockchain using Fireblocks on the Stellar blockchain.
UAE: Led by BlackRock’s former Chief Investments Officer Peter Knez, Venom Foundation and Iceberg Capital are partnering in a joint billion dollar Web3 fund to help grow innovative protocols and dApps disrupting DeFi, GameFi, and the wider scope of Web3.
Russia and Iran are working on a gold-backed stablecoin to de-dollarize foreign trade. The project will only be possible when Russia regulates cryptoassets, which has been in the works since September.
China: The digital yuan has been part of China’s circulating cash data since December and was used to buy securities for the first time ever.
Thailand’s central bank will be implementing a CBDC for the Thai Baht wholesale market in the first quarter of 2023. The government is currently working with the Monetary Authority of Singapore to handle remittances between the two countries using the new currency.
UK: Bank of England is questioning the need for a digital pound after the European Central Bank’s publishing of their digital euro stocktake.

In conclusion, to strengthen the role of the digital euro on the international scene, interoperability with other CBDCs will be crucial to facilitate cross-currency transactions. The lack of interoperability across CBDC systems may become one of the key weaknesses of these initiatives in contrast with globally-accessible fiat-pegged stablecoins.

Crypto Infrastructure

Layer 0s:

Polkadot: released V3 of its interoperability protocol dubbed XCM. The upgrade is focused on enhancing programmability, bridging, and the functional multi-chain decomposition. Programmability, in this case, would help execute more sophisticated messages, such as safe dispatches, where the cross-consensus messaging system ensures the receiving chain is running on the same software as intended before initiating a transfer. On the other hand, bridging will construct more cohesive interoperable ecosystems and enable the blooming of complex applications that leverages several parachains and networks. Finally, the upgrade will disintegrate the relay chain into multiple chains focused on governance, staking, and validation to help the core chain fulfill its objective of primarily securing parachains and passing messages amongst them. Although the upgrade ameliorates Polkadot’s capability for cross-chain data communication, it remains to be seen if the refinements give the network the edge it needs to catch as much traction as its competitor, Cosmos.

Cosmos is expected to release the V9 Lambda upgrade before the end of Q1, introducing replicated security. A mechanism that allows consumer or linked chains to rely on the security guarantees of the broader central cosmos validator set rather than bootstrap their security. Implementing this feature will level the playing field between both projects since offering shared security was Polkadot’s main strength over Cosmos, so it’ll be worth monitoring the adoption rate of both respective networks.

Layer 1s:

Ethereum: Developers released a shadow fork of the network during the last week of January. The decision is designed to emulate the production environment of Ethereum to allow for testing the blockchain ahead of the much-anticipated Shanghai upgrade. Notably, it would enable developers to conduct trials on the withdrawal process before the full mainnet deployment expected in March. That said, some of the anticipated network upgrades will now be postponed to ensure that users can withdraw their staked ETH. Namely, proto-danksharding (EIP 4844) will be pushed back until later in the year, per the developers' call to prepare for the Shanghai upgrade in late March. EIP 4844 is a procedure that entails allocating more space for data rather than mere transactions. This layout differs from sharding, where the objective is to save up more space for transactions as opposed to references of data that L2s process. The newly proposed transaction type will help rollups reduce gas costs in the interim period until dank sharding is fully implemented. That said, developers have agreed to set February as the soft target to launch the testnet for the Shanghai upgrade.

In a similar vein, Metamask revealed its new in-house feature allowing users to stake their ETH directly. Lido Finance and Rocket Pool, the two largest liquid staking providers by market share, will build the railway for this process. Users depositing their stake will receive their stETH from Lido or rETH from Rocket Pool, rebalancing synthetic tokens which compound the initial deposit with the daily accrued staking rewards and reflects the generated yield directly to the wallet. This is a crucial event as it disentangles the complexity of staking and allows for the broader participation of solo stakers via utilizing some of the above solutions, such as Lido, which doesn’t require a minimum staking amount, unlike the 32 ETH requirement. The inclusion of Rocket Pool is also significant as it is the most decentralized amongst the universe of liquid staking providers with 1,971 nodes.

Fantom: Unveiled a new tool to help finance the development of projects on top of its blockchain. Dubbed the Ecosystem Vault, the on-chain fund will take a cut of 10% of the network's transaction fees and redistribute them to the designated projects. Projects looking to secure funding by the vault must lock in the approval of 55% of the community, with at least 55% of the network's stakers to be present. This is a worthy development as it helps the community directly participate in the bootstrapping of its ecosystem and introduce further transparent systems that align the interests of both involved users and developers. The tool is part of the newly adopted gas monetization program, which reduces the burn rate of FTM and reallocates it towards incentivizing builders to migrate over to the network through subsidized gas costs.

Further, the Fantom foundation announced that Account Abstraction (AA) would be the next major upgrade for the network. AA is a process that merges both Contracts Accounts and Externally Owned Accounts into a single unifying interface. To that end, individuals could enjoy critical web 2.0 functionality like social recovery, predetermined periodic payments, and even Economic Abstraction. Latter is a notion that refers to users paying fees in tokens other than the required native asset like FTM or ETH, empowering users with a richer and more flexible experience. This is a promising development as AA is only limited to the L2 network starknet, and is anticipated to be implemented on ETH mainnet later in its roadmap, thus putting Fantom at an advantage over all other EVM-based networks.

Solana: Solflare wallet announced it'll be amongst the first to implement prioritized transaction fees on the Solana network. The non-custodial provider is introducing this feature to help users seamlessly process their respective transactions during times of high congestion. Solflare will monitor the network to identify if the L1 is overloaded, then proceed to hike the fees accordingly to accelerate the processing of transactions for users paying the premium over the rest of the wallets. This will be a necessary improvement to help the network combat spam transactions that are exploiting the network's negligible fees. On the flip side, tools like Flashbots to mitigate front-running prioritized by the highest transaction cost will be an important implementation on the Solana network.

Avalanche: Amazon inked a new partnership with Ava Labs to help streamline node deployment. The collaboration will help support Avalanche’s infrastructure and dApp ecosystem by introducing one-click node deployment for individuals aspiring to run as validators. Further, Ava labs is expected to bring in subnet deployment as a managed service to the AWS stack allowing institutions and governments to readily launch their customizable chain anchored to the broader secured network. Although this is an excellent opportunity for Avalanche to grow its foundation by allowing the rapid onboarding of new validators, the crypto industry needs to start prioritizing building out truly decentralized infrastructure that can withstand downtime, outages, and potential overreaching regulatory crackdowns.

In other news, there is now more BTC circulating on the Avalanche network (BTC.B) than there is on Bitcoin’s Lightning network. The total number of tokens bridged over to Avalanche has reached a total sum of 5700 BTC as opposed to 4929 BTC on top of Bitcoin’s L2 scalability solution. The growth rate on Avalanche is impressive, notably since the network’s cross-chain bridge was launched in June of last year, in contrast to Bitcoin’s complementing solution that has been around since early 2017. Users can leverage BTC.B to use their idle capital across DeFi rather than transact with it on top of Bitcoin’s lightning network, making for a far more compelling use case for the asset.

Layer 2s:

Polygon: After launching two consecutive testnets for the network’s zkEVM rollup since last October, the cofounder of Polygon announced that the solution should be deployed on the mainnet ‘soon.’ Although we don’t have a tentative date yet for when the scalability solution might see the light, we remain hopeful that it won’t take long as Polygon isn’t the only network planning to release its zkEVM as zkSync, Scroll, and ConsenSys are all laying the groundwork to launch their scaling solution. In addition, Polygon is also working on improving its POS sidechain as it deployed a hard fork to address the gas spikes occurring during times of high demand and the block reorganization issue.

zkSync: The ETH scaling solution teamed up with the infrastructure provider Espresso system to enable private transactions on top of its zkEVM public network. The current experiment for the rollup is to leverage Espresso’s privacy-oriented technology called Configurable Asset Privacy (CAPE). Although Espresso’s CAPE privacy tool is still on testnet, the integration is expected to help entities initiate transactions and carry out their on-chain activities without necessarily exposing it to the wider public. This is an incontestable condition for institutions to come on board and experiment with DeFi without worrying about broadcasting their financial operations.

Metis: The Optimistic rollup network revealed that it had joined forces with Stargate. In its first new chain expansion for Stargate since its launch in March 2022, Metis will be utilizing the cross-chain liquidity solution, built on top of the Layer Zero protocol, to help bridge assets across networks. In addition, the collaboration will commence with enabling cross-chain compatibility for USDT, allowing the token to be natively transferred between the seven other blockchains that Stargate currently supports. This exciting initiative addresses some of the woes of cross-chain bridges, which were a prime target for hackers last year, as we saw the siphoning of close to $2.5B from the vulnerable infrastructure.

Arbitrum and Optimism: The Optimism network discharged the first phase of its most significant upgrade to date on the 12th of January. The L2 activated what is known as the bedrock upgrade, a raft of architectural updates to its rollup chain. The process began with migrating the Goerli testnet to the Bedrock network on Thursday. As a reminder, scalability solutions are either optimistic or zk-based rollups. Optimistic rollups assume transactions are valid and offer a window for node operators to submit fraud proofs, while zk-based rollups use computed verification using zero-knowledge technology for faster-yet-intensive processing. Optimism belongs to the optimistic rollup stack.

To that end, the network is scheduled to reveal its eventful pipeline of features: modularity under the umbrella of OPStack, low transaction fees, snap syncing (fast networking), reduced deposit times to under 3 mins through two-step withdrawals, and smarter state submissions. Although there are multiple components to be excited about, we at 21shares believe that the most impactful feature will be centered around modularity. The excitement behind our thesis is founded on the grounds that bedrock is a generic rollup client, and not exclusively focused on the Optimistic client. This signifies the L2 will become proof agnostic, meaning that it will be flexible to switch from processing zk-based proofs to optimistic fraud proofs as needed without any issues.

In that view, both Arbitrum and Optimism have outpaced Ethereum’s daily transfers throughout the second half of January. Although the advancement was driven by the slew of network improvements that both L2s implemented, Optimism’s daily transactions took a beating following the conclusion of its quests initiative. An observation that reiterates our thesis that Arbitrum will be a network to keep a close eye as they were able to secure organic traction and a sticky user base to their ecosystem without exorbitant incentives in the form of token emissions.

Decentralized Finance

Figure 6: Performance of Top 10 DeFi Protocols in January

Source: 21Shares, DeFi Llama

Stablecoins:

Circle: The issuer behind the USDC stablecoin revealed last week that the company would partner with Deloitte for its Proof-of-Reserves. This is a net positive for the industry at a time when other crypto-native companies were led into thinking that the big four were reluctant to provide PoR audits for private companies. Thus, the collaboration should instill confidence in the space and signal that other serious companies should go down the same route. In similar news, Circle announced that its interoperability protocol, Cross Chain Transfer Protocol (CCTP) designed exclusively to deliver the cross-chain transfers for its stablecoin, is inching closer to launch. Circle is expecting to roll out CCTP before the culmination of Q1, although a testnet has already been deployed on Ethereum’s Goerli and Avalanche’s Fuji networks. The solution, which introduces a creation and redemption mechanism, is an integral development for USDC as it offers a more secure mechanism to allow for the cross chain deployment of the stablecoin across the plethora of networks it is integrated into. This is in contrast to the lock and mint apparatus which fragments liquidity as it relies on synthetic versions of the stablecoin rather than a multichain native version of the token.

Australia: is planning to launch a stablecoin pegged to the Australian Dollar. The National Bank of Australia expects the fiat-backed token AUDN to be released halfway through this year, aiming to deploy it on top of Ethereum and Algorand. AUDN is not Australia’s first aim at leveraging blockchain to create a tokenized representation of their dollar, as the nation and New Zealand Banking Group teamed up with the custodian Fireblocks to issue another stablecoin pegged to the AUD. That said, The Bank of Australia said that the stablecoin will be utilized to service in areas such as cross-border money transfers, repurchase agreements, and carbon credit trading. This is an interesting progression as it reiterates our belief that stablecoins will accelerate financial inclusion and establish a globally interconnected financial system on the back of their capacity to connect with smart-contracts and native superior interoperability, more so than CBDCs will.

Ethereum Ecosystem:

Lido Finance: eclipsed MakerDAO to become the largest DeFi project by Total Value Locked (TVL). The blue-chip liquid staking derivative (LSD) protocol dethroned the legacy money market protocol as the vertical continues to gain momentum on the back of enthusiasm surrounding the Ethereum Shanghai upgrade. As discussed, ETH withdrawals will likely be enabled by March this year as part of the next major update the network will implement. Although withdrawals will be rolled out to avoid compromising security, the event nonetheless paves the path for further utilization of ETH beyond its role in securing cash flows through staking. Liquid staking introduces the concept of packaging staked ETH in a synthetic derivative form that can be simultaneously used across DeFi primitives like lending, all while securing the network without cutting off users' access to their capital. Although the Lido finance token increased by 125% through January, it wasn't the only beneficiary as Frax, RocketPool, StakeWise, and StaderLabs grew by 120%, 93%, 102%, and 250%, respectively. Projects that are all offering liquid staking derivatives. This will be a narrative worth monitoring this quarter as the Shanghai upgrade approaches and the locked ETH gradually departs to some of the protocols above.

Even with the excitement around the novel derivative, liquidity on the secondary markets needs to significantly deepen before institutions and the wider crypto space can participate in liquid staking. As things currently stand, a ~$10K order size is sufficient to cause a 2% movement in for Lido's stETH, accompanied by a range of ~$150K - $350K for RocketPool's rETH and Coinbase's cbETH, respectively. That is minuscule liquidity to handle the $25B worth of locked capital in the form of staked ETH.

MakerDAO The money market protocol pushed a new governance proposal to gauge the community’s support for holding the GUSD stablecoin as part of DAI’s reserves. As a refresher, DAI is MakerDAO’s stablecoin, while GUSD is Gemini’s. The controversy around the latter stems from the fact that the exchange’s Earn program was reliant on the yield generated by the now-troubled crypto lender Genesis, which owns close to $900M in debt to earn users. The community was wary due to fears that the exchange could claim back its GUSD in the scenario that it declares bankruptcy, which the Winklevoss twins have clarified since then that the stablecoin isn’t a property of the exchange in a blog post on the MakerDAO forum. For context, the community approved the decision to include GUSD last year, lured by the increased revenue (1%) that would get redistributed back to the DAI holders. That said, The governance vote was on the brink of removing support to GUSD until the largest delegate - GFX labs - received enough capital from ParaFi (investor in Gemini) to swing the vote towards keeping GUSD. Correspondingly, Paxos is now suggesting paying MakerDAO a daily marketing fee, accruing to $29M annually, to hold $1.5B of its USDP and include it as part of DAI’s reserves. Maker isn’t stopping there as the community approved yet another governance vote to deposit $100M USDC of the protocol’s treasury into yearn protocol to generate an additional 2% in annual yield.

Ondo Finance: Ondo Finance launched a tokenized fund to facilitate exposure to US debt securities., The ETH-based DeFi platform allows stablecoin swaps into three different tranches of US treasuries and bonds:

Ondo US Short-Term Government Bond Fund (OUSG), earning 4.64% on the back of investing into Blackrock’s US Treasuries ETF (SHV).
Ondo Short-Term Investment Grade Bond Fund (OSTB), offering a slightly higher annual return (5.45%) due to risker allocation towards short term investment-grade corporate bonds.
Ondo High Yield Corporate Bond Fund (OHYG), returning a more attractive dividend (8.02% APY) by investing into Blackrock’s high yield bond - relatively the riskiest out of the 3 offerings.

This is a development worth monitoring as blue-chip protocols like Aave, Compound, and Maker offer 1-2% returns on stablecoin deposits, which is negligible compared to the risk-free rate found on the back of last year’s increasing interest rates determined by the Federal Reserve. Thus, we have yet to see how the injection of new collateral backed by real-world assets will spur outflows from crypto-native strategies on lending markets to RWA-backed strategies. This may be the case if US treasuries and corporate bonds remain attractive going forward.

In a similar vein, Societe Generale withdrew $7M for the first time from MakerDAO. The process marks the first instance the digital-asset-centric subsidiary (SG-Forge) uses its real-world asset vault that is backed by tokenized securities in the form of home loans. The French bank launched its vault in August 2022 after the MakerDAO community approved the governance vote to add the bank to its ecosystem and supply them with a $30M debt ceiling. Along the same line, Block Tower looks to be taking a cue from Societe Generale as the institutional credit fund began borrowing up funds from MakerDAO. As a refresher, Block Tower and MakerDAO collaborated last December to bring on $220M worth of real-world assets on-chain through Centrifuge - a credit financing protocol enabling the tokenization of real-world fixed-income products. The project uses the Tinlake platform to tokenize debt securities and bring them on-chain. In the case of Block Tower, the credit fund leveraged Tinlake to tokenize structured credit products, including consumer ABS, auto ABS, and CLO, into tokens representing a claim of ownership. Although the first two on-chain financing operations were conducted during the last week of December, the credit fund has only begun to leverage the RWA-backed capital situated in the BlockTower series 4 pool on MakerDAO which is integrated with Centrifuge. For context, more than 50% of the revenue generated by the MakerDAO money market protocol now comes from utilizing Real-World-Assets, which is a significant structural change to help in creating real inherent value.

Finally, Maple Finance unveiled a new liquidity pool focused on trade receivables. The decision by the protocol marks a shift from its previous business model focused on uncollateralized lending. The capital network will instead consolidate its efforts on bringing more RWAs on-chain to introduce more sustainable yields that defy the speculative nature that the crypto industry might exhibit. Maple’s move to take advantage of sustainable revenue generation sources echoes the wider structural shift of DeFi protocols, as 3 of the top 10 lending protocols by fees accrued are now projects focused on onboarding real-world assets on-chain.

Metaverse and NFTs

Figure 9: Performance of Major NFTs Marketplaces in January

Source: 21Shares, Dune Analytics

Macro headwinds took a direct toll on the NFTs industry, as Ethereum-based NFT marketplace SuperRare laid off a third of its workforce. Magic Eden was exploited on January 4, with over 25 fake NFTs sold on the NFT marketplace, costing around $15K in losses, which the marketplace promised to refund. The developers temporarily disabled tools and loopholes that allowed the exploit, which affected the Solana-based collections ABC and y00ts. It was also revealed that y00ts and DeGods received $3M to move to Polygon from Solana. The Polygon Ecosystem has also been literally making moves, as NFT marketplace Rarible announced the expansion of its white-label marketplace building tool on Polygon. A Solana-based Web3 game, Synergy Land, is also moving to Polygon, who said they had enlisted Xternity to streamline the game’s migration. Powered by Fireblocks, Xternity is a secured, both self-custody and direct custodial wallet specifically designed for gamers. Web 2 companies seem to be harvesting the fruit of their integration with Web3 last year. On Instagram, the Polygon-based collection Aku’s Dream Lab sold out in 11 seconds.

More adoption: A panel in Davos, led by Circle’s CEO Jeremy Allaire and CoinDesk’s Michael Casey, concluded that the economy would become increasingly tokenized in the future. Carbon credits, housing, electricity, government bonds, foreign exchange, and other real-world assets will be traded on the blockchain. Public services are in the process of tokenization in South Korea; Seoul is launching a metaverse for its public services which has raised concerns around misuse of public funds. The “public metaverse” is planned to be fully implemented by 2026; users can get tax consultation and access counseling. Additionally, the public metaverse will also make space for a support center for struggling SMEs. Apple is also launching a mixed-reality headset, and it plans to drop more details this year. Proof signed with Hollywood talent agent United Talents Agency in a partnership that would extend to the Ethereum-based NFT project Moonbirds. It is as clear as day that utility is a real issue weakening the NFT landscape. While the most robust use case for NFTs that presented itself thus far remains the tokenization of identity, entertainment use cases are yet to prove themselves to maintain the trust and loyalty of their investors.