Note from Ethereal 2021

Ethereal 2021 focused in NFT, DeFi and Crypto as hot topics in industry for last few months. Mark Cuban suggested that NFT boom to stick around a bit longer, but eventually calms down to collectors market with continuing to be a gateway for new joiners. In DeFi, Many apps are launching by first imitating existing business model such as lending business which incentivizes the traditional investors to join the market (though ironic that some of them are going centralized structure in decentralized network). It’s easy to predict more talents to move over to the industry by backing with massive money inflow to accelerate the growth, but somehow it feels that some early joiners will get crushed for not been able to handle excessive investment by lacking asset allocation knowhow. For crypto, on going topic will be institutional investors starting with bitcoin then to other cryptos.
Japan is at phase just moving out from crypto focus to researching DeFi where US already started exploring what can be done in DeFi. Like CZ at Binance said, we are to watch and learn then to eventually improve so that no one can copy (survival).

NFT: Boom to stick around for little more while with more joiners to the market.

• In the bubble?: According to Mark Cuban, bubble only occurs where excessive demand over limited supply. As NFT creation could go on infinite, therefore NFT cannot be in bubble whatsoever. Current NFT market is enjoying new joiner (CZ at Binance also mentioned NFT is a great entry point along BTC)to the industry as well as speculator, but that situation shall be corrected and will stabilize to be collectors’ market.
• Legal touch point: Lawyers and professors during their panel discussion noted that winning auction for NFT doesn’t mean you own the IP of bought NFT. Owning right and IP right are 2 separate rights, therefore you cannot create a video clip for commercial purpose with bought NFT.

DeFi: Still in exploring what can be done, but more money is lined up.

• Lack of knowhow in asset allocation: Olaf Carlson-Wee at Polychain capital pointed out that industry is struggling with massive capital accumulated in such short time. DeFi market expanded to $1BN to 75BN in one year. Olaf points DAO with great expectation for the further growth once it establishes a way to govern and effectively allocate the asset which is expected to grow. Vitalik in day 2 also mentioned that maturing decentralized governance system would be a key for further growth in the system as well.
• Regulation/UX improvement: The speed of blockchain growth wouldn’t be halted by one country tightening regulation since it’s spread to the world. Olaf says that next silicon valley doesn’t have be in California and it could be in Beijing. Plus, blockchain is not necessarily zero sum game. Instead, all participants could enjoy the merit. Instead of tightening the regulation, we should proactively welcome the new technology. He also points out that improvement in UX is must have to help the growth, so that regulator and mass would understand what it could benefit easily.
• Going more centralized organization: In the discussion with crypto lenders such as Compound and AAVE, they disclosed the concern of institutional investors being exposed under AML risk. To meet their customer demand, some lenders including themselves and others are taking up the risk for customers by acting more centralized role.
• Concern that institutional investors have:
• Energy foot print: ESG compliant is crucial problem. Proof of stake would mostly solve this issue by eliminating the work of the hashing on proof of work, but more efficiency would require.
• Proprietary programing language: Some of the chains requires proprietary programing language which would make it hard to maintain staffs.
• Standardization of asset classes: There aren’t many standardized measurement in many things. Instead of that individual standards are set in each community level.

Crypto market: Spill over from BTC to ETH and then where?

• BTC/ETH to EHT/BTC: Mark Cuban foresees the growth in ETH demand. Apps in DeFi and NFT are mostly built on Ethereum network so far, and are expected to stay that way. Taking simple example of staking would prove his point by most position are pared with ETH. Novogratz at Galaxy mentioned that ETH to reach $5k with more institutional investors to step in the market though he indicated him taking profit partially.
• Listing/Fund raising for blockchain company: Olaf at Polychain as first employee at CoinBase spoke new way of listing instead of traditional IPO/direct listing. He suggested that on-chain listing to tie the share such as USDT-USD, which might suit the concept the industry.
• Institutional investors now and on ward: Some Hedge-Fund advisories revealed that size of investors that shows care in crypto has grown to $50~100MM now from $2~10MM in a few years ago. Listing ETFs only accelerates this expansion and we could be seeing retirement fund which could be managing $1TN.
• Exchanges on listing guidelines and against regulators: Since CoinBase is listed in traditional market, more and more crypto exchanges would be transparent such in listing guidelines regardless pose to regulators or differentiation to the other exchanges, stated by CoinBase Chief Legal Officer, Paul Grewal. He also said CoinBase will follow Google and Facebook to decline regulators’ disclosure request as much as law allows them.
• Environmental issue: Mark Cuban shared unspecified article (https://bitcoinmagazine.com/culture/comparison-of-bitcoins-environmental-impact; I found this article, not sure talking of same one) states that mining bitcoin is actually less than mining gold or banking. Article interestingly pulls example of banking to consume massive electricity in high rise building, producing bank card, train that employees commuting to work, etc.
• Is privacy coin really private?: Elena Nadolinski at IronFish pointed out that current so called privacy coins are not so private if you are using CEX since CEX will record all transaction. She also disclosed that no matter how private that they claim, there is a tool to enable them tracking the flow in case of bad act.
• Crypto winter again?: Mark Cuban denies the possibility of crypto winter to hit the market again. More and more derivative products been introduced to market as it has in traditional finance industry, market allows us to hedge the risk. He mentioned that there could be a case investor could leverage massively to self bankrupt as Archegos did. He also mentioned that regulators are likely to come up with regulation in name of investor protection under new SEC head Gary Gensler.

Ethereum network: Intervention in app layer.

• Merger of Execution chain and Consensus chain: Vitalik calls the merger will occur towards year end to beginning of 2022. He also emphasized on smooth transaction for users. Although so much technical changes and updates happening on back end, there will be no need of moving data from one to another so that no impact in UX since it is not a replacement and instead it is an incremental upgrade according to Vitalik.
• Intervention/organic growth: According to Aya and Vitalik, they currently concern on lacking ability to allocate funding to some field. As their purpose is to provide solution (real value) for everybody, they are considering to intervene and fund some of the projects at application level instead of leaving as organic growth.
• Spill over to other chain: In DeFi discussion, some apps told that they have moved their platform from Ethereum to others (BSC, Polygon) because of high transaction fee.

Binance network: Continues to be newbie friendly.

• Tool maker for easier access for everyone: CZ called him self as tool maker, so Binance is. Binance as CEX is by far the biggest in terms of trading volume, daily active users, # of app download. And they will continue investing large amount of money in UX. Binance NFT launching in June is one way to increase UX by eliminating complicated transaction and all can be done within their Binance account instead of downloading separate app such as wallet.
• BSC/BNB ramp up: CZ explains BNB capturing attention due to increase demand in BSC. Although some of inflow is simply spill over from Ethereum due to various reason, more and more apps are built on Binance chain which pushing the value of BNB where used to discount token. When moderator pointing out Binance being copy cat, CZ laughed with comment of everything being copy of something else. CZ stated that best way of not been copied is to constantly improving itself.
• Binance America: Brian Brooks, new CEO of Binance US, ex-OCC, mentioned that they continue to expand by acquiring license from all states (currently 41 out of 50). He also mentioned that no listing to stock market for roughly 2 years and priority is to build bigger team by adding 70~100 staffs. Brian emphasized they are short staffed considering their business growth.

Galaxy: Stepping up not only being investors?

• Set up to be an inside player: Michael Novogratz unveiled biggest gain from recent merger on BitGo is 60+ engineers. By acquiring BitGo, they have become 2nd biggest custodian in the industry. Of course getting access to more institutional investors is a plus, but more over blockchain engineers would enables them to be an insider player instead of investors in the industry.