Web3 dancing on knife-edge

Dear member,

With Bitcoin struggling to break the $30,500 mark and trading volumes dropping to their lowest since December '22, the market sentiment seems cautious. Open interest in Bitcoin's futures contracts has surged, yet the shadow of fraud charges against Binance and macroeconomic influences can't be overlooked. The tug of war in the market is mirrored in the surge of DeFi's TVL to over $41B and the pullout of institutional crypto investors. But what does this dance between caution and optimism mean for our readers?

A rebound in the crypto sector to $45.08B, led by Lido Finance's TVL of $15.11B, and Ethereum's dominance in the space, paints an encouraging picture. Moreover, the increase in several large crypto-focused companies' Q2 profits fuels the speculation that crypto winter may be ending.

In funding trends, the interest in crypto gaming, a shift from metaverse and NFTs, and significant funding rounds offer an exciting glimpse into where the investment energies are channeling:

Web2 to Web3 transition is gaining momentum as seen with Amazon's foray into NFTs and Brazil's record numbers in individual and corporate crypto users. Even legacy players like Visa are engaging with off-chain gas fee payments, and significant partnerships like Aptos with Microsoft are forging ahead.

Regulatory actions are not to be ignored. Russia's central bank's digital ruble pilot and Singapore's $112m fund for FinTech and web3 innovation stand out. Yet, the regulatory landscape still seems cautious and uncertain, with measures like the U.S. law requiring information collection for digital asset transactions over $10,000.

This past week reflects a market that's poised on a knife-edge - innovating, experimenting, and growing, but not without its share of risks and regulatory hurdles. For venture funds and startups, the shifting market dynamics represent both opportunities and challenges.

Engaging with this landscape requires a balanced and informed approach, capturing the excitement of a rebounding market while staying attuned to potential pitfalls. The dance continues, and as participants in this complex choreography, your moves in the coming week will be telling. Stay engaged, stay informed.

Best regards from the Future,
RFTF.ai 

Market Intel

Bitcoin unable to surpass the $30,500 mark, with a noticeable uptick in open interest for Bitcoin's futures contracts. The lack of buyers is attributed to reports of fraud charges against Binance and macroeconomic forces. Trading activity in Bitcoin futures surged to $14.5B on Aug. 8, but trading volumes have dropped to their lowest levels since Dec ‘22, averaging below $7B per day.

DeFi market's TVL rebounded to over $41B, with the crypto sector swelling to $45.08B. After nearly dipping below $40B on August 2, it recovered, led by Lido Finance's TVL of $15.11B. Ethereum's TVL dominates at $24.38B, and 10.89m ETH is stashed in 23 liquid staking protocols, accounting for nearly half of the entire amount locked in DeFi.

Institutional crypto investors are pulling out of the market, with Bitcoin seeing the highest weekly outflow since March. Weekly trading volumes in investment products are 36% below the YTD average, with Bitcoin outflows of $111m and Ethereum outflows of $6m. Altcoins like Solana recorded inflows of $9.5m, cushioning the outflows in Bitcoin and Ethereum.

Several large crypto-focused companies reported record profits in Q2 2023, including MicroStrategy, Coinbase, Coinshares, Block, and Robinhood. MicroStrategy increased its BTC holding by 12,333 BTCs, reaching a total of 152,800 BTCs. Coinbase posted total revenue of $707.9m, and the Nasdaq Crypto Index increased by 6.3% quarterly. Analysts speculate that the crypto winter may be over.

About 13% of crypto hedge funds have shut down due to weak performance and banking issues in 2023. Crypto funds generated an average of 15% returns in the first half of 2023, underperforming Bitcoin, which gained 77%. 97 of the 700 tracked crypto hedge funds have closed in 2023, with those employing market-neutral strategies performing the worst, generating only a 6.8% return.

Funding Trends

Investments in crypto gaming surged in July, while interest in metaverse and NFTs fizzled out. The exact figures were not disclosed, but the shift indicates a changing landscape in the crypto investment space. The trend reflects a growing focus on gaming as a promising area within the blockchain industry.

Puffer raises $55m from global investment firm Brevan Howard. The investment will help the crypto infrastructure startup expand its services and enhance its technology, focusing on providing solutions for crypto trading and has attracted interest from significant financial players.

Cube3AI emerges from stealth mode with $82m in seed funding. The investment will be used by the Web3 security startup to develop security solutions for dApps and protocols, aiming to provide robust security measures for the growing Web3 ecosystem, addressing concerns about vulnerabilities and attacks.

Xverse raises $5m in a funding round led by Jump Crypto. The investment will be used to expand the Bitcoin-based web wallet’s services and reach new markets. Xverse offers a decentralized wallet solution that emphasizes user control and security, aligning with Jump Crypto's focus on innovative blockchain technologies.

Helio Protocol receives $10m investment from Binance Labs. The investment will support Helio's transition towards a new staking model, enhancing its DeFi offerings. Helio Protocol focuses on providing scalable and efficient solutions for the crypto space.

FC Barcelona has secured a $132m investment for its blockchain and NFT venture. The investment will be used to explore opportunities in digital assets, including NFTs, and to enhance fan engagement. The move aligns with the growing trend of sports teams leveraging blockchain technology for various initiatives.

Web2 → Web3 Immersion

Better tools needed to connect Wall Street to crypto trading opportunities, said Talos CEO Anton Katz. According to Katz, financial firms are looking for tools that allow them to lock in the best price with the lowest risk. Talos aims to create the "piping" that connects firms with liquidity using tools familiar to them in capital markets. The effort reflects the growing interest from TradFi institutions in the crypto space.

Brazil reported a record 3.3m individual and corporate crypto users in June 2023. The number of individual users reached an all-time high of 3,217,633, a 60% surge from four months prior. The number of registered companies using crypto assets hit a new record of 89,096, marking a 6% increase from May. The data signifies a strong foothold in the digital financial landscape in Brazil.

Aptos partners with Microsoft with the aim to develop blockchain solutions for various industries. Following the decentralized finance protocol partnership announcement, the APT token surged in value, reflecting the market's positive response to the collaboration.

Visa tests off-chain gas fee payments via Visa cards to address ETH balance challenges. The process involves initiating Ethereum transactions via a wallet, calculating the gas fee, and charging it to Visa. The digital signature is then validated and sent to Ethereum, with the gas fee covered by the paymaster.

Amazon offers free NFTs to its Prime subscribers as part of Amazon's exploration into the world of NFTs and digital collectibles. The move reflects the growing mainstream adoption of NFTs and Amazon's interest in leveraging the technology to engage with its customer base.

Leonardo da Vinci's 'Salvator Mundi' painting gets tokenized into an NFT. The NFT is backed by the physical painting and represents ownership of a fraction of the artwork. The tokenization aims to democratize art investment, allowing more people to invest in high-value art pieces.

Coca-Cola and Friends with Benefits are headlining the Base's on-chain Summer Web3 Festival. The event aims to celebrate the intersection of culture and decentralized technology. It will feature various artists, musicians, and speakers from the crypto space, reflecting the growing interest in Web3 and dApps.

The Singapore Red Cross (SRC) started accepting cryptocurrency donations. Partnering with the non-profit platform Giving Block, SRC aims to expand its fundraising channels. The initiative allows donors to contribute using Bitcoin, Ethereum, and other cryptocurrencies, enhancing transparency and reducing transaction costs.

Venom Foundation partners with the UAE government to develop blockchain solutions with the aim to leverage blockchain technology to enhance various sectors, including finance, healthcare, and education. The partnership reflects the UAE's commitment to adopting innovative technologies.

Regulatory Round-up

APAC

Using its G20 presidency, the Indian government is advocating for globally coordinated crypto regulation. Working with the IMF and the Financial Stability Board, India aims to address perceived risks of cryptocurrencies, including potential "spillover" into TradFi, despite the crypto ecosystem being around $1.2T.

Singapore announces a $112m fund to foster FinTech and web3 innovation over 3 years. Though details are limited, this commitment highlights Singapore's intention to become a hub for FinTech and web3 development.

Japanese startup Soramitsu is developing a cross-border payment system using Cambodia's CBDC and stablecoins, targeting Asian countries. Building on its CBDC expertise, Soramitsu aims to reduce transaction fees and plans to establish a Japanese exchange for stablecoins, partnering with Tokyo-based Vivit.

AU

A national Nigerian agency has announced that it will authenticate youth service corps certificates using blockchain technology. The announcement reflects a growing trend of governments leveraging blockchain technology to enhance the security and authenticity of official documents and certifications.

EU
France amends crypto firm registration requirements to align with the EU's MiCA regulation, effective from January 1, 2024. The changes cover security, internal controls, and other aspects, aiming to foster compliance and transparency in France's crypto industry.

International

Russia's central bank to launch a digital ruble pilot on August 15, testing it with banks, consumers, and businesses. This reflects Russia's efforts to explore CBDCs and could lead to broader adoption.

North America

A U.S. law will require businesses to collect personal information for digital asset transactions over $10,000 effective January 1, 2024. This move towards transparency has sparked debates over privacy infringement.

SEC has fined 11 Wall Street firms $289m for failing to maintain electronic communications records. The fines include Wells Fargo Securities ($125 million) and others, reflecting the SEC's regulatory stance beyond crypto.

U.S. Federal Reserve's new guidelines require state banks to seek written "non-objection" before engaging with stablecoins, reflecting growing regulatory focus on stablecoins and compliance efforts.

South America

Brazil plans to launch a CBDC named 'DREX' in 2024, aligning with the global trend of central banks exploring digital currencies to enhance financial systems.

The Raven Also Spotted

PayPal's regulated stablecoin, PYUSD, is expected to impact the Ethereum ecosystem significantly. Issued by Paxos and built on Ethereum, PYUSD aims for a 1:1 peg with the US dollar and will be available for DeFi in the future. Some critics view it as a knockoff of existing stablecoins.

DeFi sector saw its largest loss of the year with $389m stolen in July 2023, bringing total losses to $77B. This highlights growing security and fraud concerns within DeFi.

Top NFT traders have made over $300m in profits, led by Cryptopunks and Blue Chips. The NFT market continues to attract significant investments and interest despite the current crypto market downturn.

Billionaire Mike Novogratz notes that TradFi institutions are reentering the crypto space, reflecting growing acceptance and integration of cryptocurrencies in mainstream finance.

Billionaire David Rubenstein supports Bitcoin's longevity due to growing institutional interest and demand for a government-independent currency. He cites BlackRock's Bitcoin ETF application and laments not buying Bitcoin earlier.