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Square CEO and former Twitter CEO Jack Dorsey feuds with VCs backing Web3; Uniswap launches on Polygon; Ethereum 2.0 testnet goes live. |
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The total implied network value (market cap) of the digital assets market stands at $2.4tn, up 7.5% from last week (when it stood at $2.23tn). Bitcoin’s network value is 8.16% of gold’s market cap. Over the last 7 days, BTC is up 10%, ETH is up 5.75%, SOL is up 8%, ADA is up 20% and LUNA is up a whopping 44.5%. Bitcoin dominance is 40.28%, down slightly from last week. |
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Data current as of 8:15pm ET on December 23, 2021. Prices and Data via Messari.
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⚔️ Jack Dorsey Slams "Web3" |
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The former CEO of Twitter caused an uproar on social media this week after he tweeted a series of critiques against web3 startups for being predominantly owned and controlled by VCs. Dorsey wrote, “[Web3 is] ultimately a centralized entity with a different label." In the context of cryptocurrencies, web3 refers to a fast-growing industry of blockchain-based applications meant to replace the internet with a decentralized and permissionless alternative. From social media to file storage, web3 is envisioned to host many of the same services as the internet as we know it today, but without centralized entities controlling access and owning the data generated by their users. Given that the very crux of web3 is decentralization, Dorsey’s comments attacking the web3 industry and its main supporters like the VC firm a16z for having single points failure and spewing “corporate controlled lies” were especially poignant and polarizing for the crypto community. Founder of A16z, Marc Andreessen, blocked Dorsey on Twitter and Dorsey in turn unfollowed him and several others, including Coinbase CEO Brian Armstrong and Gemini co-founder Tyler Winklevoss.
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OUR TAKE: The Twitter spat between Dorsey and several high-profile figures in the web3 space represents a growing rift within the crypto community over what a truly decentralized internet looks like. On one hand, supporters of web3 innovations such as Ethereum, Solana, NFTs, and DeFi argue that while the space is not as decentralized as it could be, these applications and networks have the potential to become more decentralized over time. “Web3 at least has a chance,” tweeted Gemini co-founder Cameron Winklevoss when comparing the industry to the current internet, web2. On the other hand, opponents of web3 don’t see that potential as likely if the majority of projects are VC-owned, managed by small numbers of deep pocketed validators, and reliant upon centralized infrastructure for hosting and other operations. CEO of Tesla Elon Musk tweeted that for all the development in web3, the terminology was “more marketing buzzword than reality.”
Dorsey has become increasingly aligned with the Bitcoin community, which prizes decentralization above all else. And Jack’s dispute with prominent Web3 VCs highlighted a schism in the crypto community that’s long existed but has become more noticeable on social media over the last 2 years: bitcoin vs. crypto. During this time, Dorsey has become increasingly aligned with the Bitcoin community, which prizes decentralization above all else. It’s true: Bitcoin does stand in contrast to many other crypto protocols, with its anonymous founder, a fair launch (no “premine” or token allocation for investors), no controlling foundation or devs, a low-weight design that is meant to maximize node distribution, and Proof-of-Work as a more equitable distribution method than Proof-of-Stake. In contrast, much of the cryptocurrency industry’s growth this year has come on the back of projects that leave a lot to be desired in terms of decentralization. But blockchain design and genesis style aside, Web3 founders and advocates see a future with a broader set of applications than the Bitcoin network can offer today, or is likely to offer, and many are earnestly striving to become more decentralized over time, something Jack has pursued in his own ventures. “Twitter started as a corporation. It had corporate incentives from day 1. It’s trying to offset those and it will, through @bluesky [Twitter’s project to create an open, permissionless social media standard],” Dorsey said.
Jack is adamant that the initiatives he began at Twitter, one of the biggest social media platforms of web2, will succeed in creating truly decentralized web3 technologies. If the beginnings of a project like Twitter and BlueSky can shift from being centrally-controlled to progressively more decentralized and community-owned, it would seem not all hope is lost for the VC-backed projects of Web3. Thus, perhaps Dorsey’s comments over the past week should be seen as a warning rather than a permanent condemnation of the concepts of Web3: a warning to web3 builders and users to pay special attention to the risks of relying on the same structures and tactics as Web2 companies in building Web3. More often than not the risks outweigh and undermine the overarching vision. “Know who owns what, and what incentivizes them. That’s all,” said Dorsey.
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🚀 Uniswap Launches on Polygon |
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Uniswap goes live on Polygon as MATIC token reaches ATH. Uniswap V3 has been deployed to the Polygon PoS network. The final approval came last week with 72M UNI tokens voting in support and less than 1% voting against it.
Polygon's Mihailo Bjelic submitted the proposal last month that listed key reasons including: (i) Polygon's strong DeFi ecosystem - second only to Ethereum L1, (ii) numerous benefits to users and to Uniswap as demonstrated by success of other deployed projects like Aave and SushiSwap, (iii) added financial incentives from Polygon through a liquidity mining campaign and a special purpose DAO, (iv) Polygon's proven, battle-tested operating history, and (v) political alignment with Ethereum.
As of Wednesday, all Uniswap V3 contracts had been deployed on Polygon. Both $UNI and $MATIC tokens rose on the day with $MATIC also reaching new all-time highs of $2.70.
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OUR TAKE: It's about time that Uniswap expanded onto Polygon. A prior proposal from May to deploy Uniswap on Polygon was met with reluctance from several community members, who had cited concerns that Polygon PoS chain was not "technically" an L2 and was less secure, especially with the 5-8 multisig setup. Instead, Uniswap V3 had committed to first launching L2 rollups Optimism and Arbitrum. Many had then believed users would flock to L2s to escape Ethereum's high gas fees. But the second half of the year played out differently than many had expected. Optimism had delayed its public mainnet launch several times and limited the projects to those that were whitelisted, while Arbitrum, which had a more complete ecosystem at launch, has also been relatively slow to pick up ($2bn in TVL representing less than 1% share of total DeFi TVL per DeFi Llama). Instead, users opted for alt L1s that were offering massive incentive programs at both the platform and application levels.
Uniswap, still the largest DEX, saw its market share slip as SushiSwap and other Uniswap forks met user demand on these other platforms. All the while, Polygon's growth, with more than 300k daily active addresses and nearly 4m average daily transactions, was drawing more and more token teams and liquidity providers. The narrative had slowly reversed from Polygon needing Uniswap to Uniswap needing Polygon. And with the added financial incentives from Polygon as a sweetener, the decision to deploy to Polygon became a no-brainer.
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Still, Uniswap's near -unanimous vote in favor of the proposal should be viewed as a strong testament to all the work that Polygon has done in the past several months. The team has been executing faster than any other blockchain (e.g. committing $1bn to ZK research and launching several ZK chains including Polygon Hermez, Miden and Nightfall) and is widely viewed as having proven its commitment to the ethos of Ethereum. In addition to more legitimacy, Uniswap immediately brings over liquidity and a large user base to Polygon. Over time, especially with the lower financial barriers from transacting at the base layer, more projects can deploy on Polygon, reinforcing its flywheel effect. |
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🧪 Ethereum 2.0 Testnet Launches |
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Anyone can now experiment and familiarize themselves with the next major iteration of Ethereum by joining the public test network Kintsugi. Named after the Japanese art of mending broken pottery, Kintsugi is one of the final test networks to launch before Ethereum undergoes its transition to a fully proof-of-stake (PoS) consensus protocol. The transition, also called The Merge, will fuse together the current Ethereum network with the Beacon Chain, Ethereum’s PoS network launched back in December 2020. While the original plan for the Merge was to migrate users and decentralized applications to the Beacon Chain, the upgrade will now create a bridge between the two networks so that transactions initiated on Ethereum are finalized on the Beacon Chain. Unlike the four testnets that were launched prior, Kintsugi is the first Merge-specific network that is open for all users to join and it is expected to stay running as protocol developers activate the Merge on long-running, Ethereum-specific testnets such as Goerli and Rinkeby.
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OUR TAKE: The activation of PoS on Ethereum has been under research and development since as early as 2014. After nearly six years, this highly-anticipated upgrade is nearing its final stages of testing and development as Kintsugi represents a stable and live version of Ethereum’s protocol post-Merge. For the most part, users and decentralized application developers interacting with Kintsugi will not see a large difference in their operations compared to current Ethereum given that the Merge will not affect the Ethereum Virtual Machine (EVM), blockchain state, or transaction execution. The Merge will primarily impact Ethereum node operators such as miners and Beacon Chain validators.
Due to the bullish price activity of ETH and the rise of maximal extractable value (MEV) over the past year, mining has become increasingly lucrative on Ethereum. However, post-Merge, miners will no longer be able to compete for rewards on the network and Beacon Chain validators will begin to earn what was once miner revenue from fees and MEV. As such, for miners that have invested in hardware to earn rewards on Ethereum, it is likely that some will repurpose their machines for earning on alternative and compatible blockchains such as Ethereum Classic or Ravencoin. However, given that the earnings from these other chains will not be as lucrative as Ethereum and that the majority of mining hardware on Ethereum is not as specialized as the mining hardware on Bitcoin, there may also be a significant share of miners that re-sell their hardware into the broader chip market for other uses such as gaming.
As for validators, the Merge is likely to boost earnings by as much as 25% from 8% APR though none of these earnings will be liquid until a subsequent upgrade enables transfers and withdrawals of ETH on the Beacon Chain. Despite the ongoing uncertainty over when withdrawals will be enabled for validator rewards, close to $36 billion worth of ETH has been deposited into Ethereum’s proof-of-stake network since its activation back in December 2020. This amount represents just over 7% of total ETH supply. The share of ETH locked in the Beacon Chain is likely to continue growing and becoming a more popular use case for earning yield on Ethereum post-Merge once mining is completely retired and Ethereum’s future as a PoS protocol transitions is finally realized.
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Bakkt President Adam White resigns
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U.S. Senator Cynthia Lummis to pitch Congress on creating a crypto regulatory body
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Crypto companies in Japan are leaving the country due to the country’s tax policies on tokens
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Bitcoin mining company Marathon Digital plans to expand hashrate by 600%
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Spin-off of Telegram’s TON Blockchain gets a surprise endorsement from Telegram CEO
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Decentralized exchanges exceeded $1 trillion in trading volume over 2021
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Transak launches fiat onramps to Ethereum Layer 2s Arbitrum and Optimism
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PODCAST: Alex Thorn on CoinDesk's The Breakdown
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Galaxy's Head of Research Alex Thorn joined NLW on CoinDesk's The Breakdown podcast to discuss the major events of 2021 and make predictions for 2022.
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PODCAST: Amanda Fabiano on What Bitcoin Did
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Galaxy's Head of Mining joined Peter McCormack on What Bitcoin Did to talk all things Bitcoin mining.
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Crypto startups raised more money from venture capitalists in 2021 than in all prior years combined. |
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Alternative Layer 1 smart contract protocols have grown their share of the DeFi ecosystem dramatically this year, with Ethereum’s “dominance” in this category dropping to 63%, its lowest ever. On Monday, Terra (LUNA) flipped Binance Smart Chain (BSC) in DeFi total value locked to become the second biggest behind Ethereum. |
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Thanks for reading this week. Happy Holidays!
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Alex Thorn
Head of Firmwide Research
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