Our industry is in limbo. What’s going on?

Today, enjoy the On the Margin newsletter on Blockworks.co. Tomorrow, get the news delivered directly to your inbox. Subscribe to the On the Margin newsletter.

What are we really doing here?

“Uli doesn’t care about anything. He’s a Nihilist. Ah, that must be exhausting.” 

— Bunny Lebowski, The Big Lebowski

I’ve been thinking a lot about use cases, adoption in crypto and what we’re really doing here.

Bitcoin is up 30% year to date, and yet the vibes have felt like we’re in a bear market. Every altcoin has sunk under the weight of inflated high-fdv, low-float launch strategies and governance tokens that cannot pass on any value accrual to holders due to the regulatory gray zone we live in under the Biden administration. 

As our industry sits in limbo with 1) no regulatory clarity, 2) TradFi and crypto constantly talking over each other with no one stopping to think about what the product-market fit opportunities are, 3) the only narrative to speak of this year being ETF adoption (which furthers disassociates buyers from onchain self-sovereign ownership) and 4) quite literally no borrowing markets since the implosion of FTX/Silvergate/3AC…it feels like we’re all lost at sea.

I joined the crypto world through the lens of a macro investor. It felt like bitcoin, along with permissionless DeFi protocols, were the solutions to many of the issues I discovered in my investing journey. Simply put, markets have transformed from efficient capital allocation vehicles into debt refinancing vehicles at the cost of financial equality — e.g. the Fed buying MBS during QE to stabilize markets at the cost of inflating housing prices into unachievable levels for many.

Like many, I believed in this premise during the last cycle and was vehemently excited about the idea that we were on the precipice of a revolution that would realign societal incentives and solve many issues plaguing our modern financial world. 

Instead, all we have this cycle are nihilistic memecoins that get pumped and dumped endlessly, inflated VC-backed governance coins with no attachment to any claim of equity and ETFs — a Wall Street-approved speculation vehicle that disintermediate holders from the actual protocol innovations that got us excited in the first place.

Excuse my French, but what the fuck are we really doing here?

I’ve decided I need to do some soul-searching to reconnect with what brought me to this industry in the first place.

First, I went to read up on what Travis Kling has been discussing:

He has been expressing a lot of these nihilistic feelings I and many others currently have, which he coins as a general feeling of quiet quitting on the mission that got us here.

One thing that he brings up is how part of this nihilism isn’t fully our fault; it’s the lack of regulatory clarity. 

The lines around what is allowed and isn’t are being obfuscated by a politicized SEC that is going for a scorched-earth approach to regulation that is leading to no one wanting to create or experiment on anything that is actually valuable. The hope is that this coming election brings forth a new wave of regulatory clarity that will allow our industry to actually innovate again. 

Second, I sought out and interviewed Austin Campbell to discuss all things stablecoins  — a segment in which I realized there has been substantial positive progress.

The thing is, there hasn’t been much of a way for traders to take advantage of the adoption of an asset that is meant to not ever move, so less people are emotionally excited about it without the associated PnL. 

That said, our talk brought forth a wave of optimism and made me realize things are moving in the right direction. There’s hope. 

These two thought experiments are giving me something to hold onto. I do think we are on the verge of the next big leg of adoption and innovation; there are just some hurdles right now leading to a despondent market that isn’t going anywhere. 

My hope is that this coming election will resolve this. And so, in the meantime, I’m going to continue believing in something, because without that we have nothing.

— Felix Jauvin

47%

The percentage of stablecoin users in Nigeria, India, Turkey, Indonesia and Brazil who said they primarily use the asset class to “save money in dollars,” according to a new report. 

Holding savings in a dollar-backed, (in theory) stable currency is becoming an increasingly common alternative to traditional bank accounts, particularly in regions where banking is difficult to access, researchers noted. 

The survey, which sampled roughly 2,500 individuals, was conducted by Castle Island Ventures, Artemis and Brevan Howard Digital. 

SEC again indicates ETH is not a security 

News dropped this morning that the SEC had reached a settlement with eToro after the trading platform allegedly violated securities laws by acting as an unregistered broker and clearing agency. 

Per the agreement, eToro will pay $1.5 million and cease a chunk of its crypto trading (after giving customers 180 days to sell their assets). US users will still be able to trade bitcoin, bitcoin cash, and most notably, ether. 

eToro, without admitting or denying guilt, will be removing all other crypto assets from its platform — each of which, the SEC said, constitute “investment contracts.” 

Reading between the lines here: The SEC is signaling that ether is not a security. 

eToro’s settlement news comes a day after Prometheum, which is licensed only to custody crypto securities, launched its institutional platform. Prometheum provides custody services for optimism (OP), the graph (GRT), uniswap (UNI), arbitrum (ARB) and ETH. 

I asked the Prometheum Capital team what they think of the eToro settlement and the apparent statement the SEC is making about ether not being a security. This is what CEO Benjamin Kaplan shared: 

“The eToro settlement is another clear example of the transition underway in the US to streamline digital asset trading under the purview of the federal securities laws. We are confident the federal securities laws extend to oversee the custody and trading of ETH.”

We’ll have to wait and see if Prometheum makes any changes to its current list of acceptable crypto securities, but you shouldn’t hold your breath. 

— Casey Wagner 

XRP ETF? Don’t get ahead of yourself.

Grayscale Investments has been busy building out its crypto trust offerings this year while also converting two of them to ETFs.

The investment firm added an XRP Trust on Thursday, giving investors access to a protocol with “an important real-world use case,” Rayhaneh Sharif-Askary, Grayscale’s head of product and research, said in a statement. 

“By facilitating cross-border payments that take just seconds to complete, XRP has the potential to transform the legacy financial infrastructure,” she added. 

Media reports and X posts note this trust is paving the way for a possible XRP ETF. While those statements aren’t wrong per se, I think it’s important to note that could be said for all of Grayscale’s 20+ trusts.

“Each product is intended to follow a four-stage life cycle — with the ultimate goal of uplisting the product to an ETF,” Grayscale notes on its website. “As a product progresses through this intended lifecycle, there is a correlated increase in investor access and transparency.”

So issuers can file for solana ETFs and Grayscale can launch this XRP Trust, which starts a process that could lead to a conversion down the line. But ultimately the SEC will have to approve them (as part of Phase 4), which has historically been the big hurdle.

Nate Geraci, president of The ETF Store, told Blockworks he still believes it will take one of two things for more spot crypto ETFs (beyond BTC and ETH) to launch: futures for the asset to be listed on a CFTC-regulated venue, or Congress implementing a framework clearly defining which crypto assets are securities and commodities. 

“Obviously, neither of those are going to happen overnight,” he said. “In the case of listed futures, history indicates that additional boxes would still need to be checked, including having those contracts develop a trading track record and then having issuers launch futures-based ETFs.”

The upcoming election, and a potentially friendlier administration (if Trump wins, perhaps), remains “the biggest wild card” for accelerating the approval timeline for more spot crypto ETFs, Geraci and others have noted.

So feel free to be optimistic. But it’s important to know the context. 

— Ben Strack

Bulletin Board 

• House Republicans have launched a probe into SEC Chair Gary Gensler’s hiring practices, which the lawmakers allege is unlawfully influenced by political affiliation. Reps. Jim Jordan, James Comer and Patrick McHenry (who is not running for re-election after his term ends this year) claim that under Gensler’s leadership, the SEC has hired “individuals from left-leaning organizations to fill senior roles.” 
• Nearly two-thirds of the 3,600 consumers in the US, UK and Europe surveyed by Deutsche Bank earlier this year said they could see cryptocurrencies replacing cash. 
• Want to hear some hot takes about the disconnect between TradFi and crypto? Tune into the latest episode of the On the Margin podcast here, or wherever you get your podcasts. 

Updated September 13, 2024 at 3:23 pm ET: Adjusted to emphasize that DCG remains fully operational.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.