BitGo: Crypto Water Cooler — April 17

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GM. It’s Wednesday, April 17.

Newsmakers

Mega Funding Rounds Reignite Quest to Build a Better Blockchain

Since the launch of Bitcoin, developers have been trying to build a better blockchain. Ethereum broke new ground with the invention of smart contracts, and its Ethereum Virtual Machine (EVM) has become the standard for Web3 development with 96% of all capital in DeFi on EVM apps. But Ethereum’s slow speed and high fees opened the door to so-called Ethereum killers.

None of the would-be assassins succeeded. Solana emerged as a popular, low cost, high throughput option, but traffic growth has brought persistent congestion issues. And so, the quest continues with two new entrants backed by truckloads of venture capital, bringing novel ideas to market.

Monad Labs, the company behind Monad, a layer 1 blockchain that has been in development for nearly two years, last week completed a $225MM funding round. Berachain, another layer 1 in the testnet phase, closed a $100MM Series B. Both plan to leverage the power of the EVM but in different ways.

Monad is rebuilding an optimized EVM from scratch to create a much faster L1 through parallelization, which enables more efficient processing and instant block finality. Because it is compatible with the EVM, developers can easily migrate their applications from Ethereum to Monad.

Berachain, which is built on the Cosmos software development kit and is also EVM-compatible, will differentiate itself by introducing a new consensus mechanism called “proof of liquidity” to incentivize users to contribute liquidity to decentralized exchange pools. It’s a timely entry; there’s been much discussion about how to keep ETH liquid now that nearly one-quarter of supply is staked.

Berachain already has one million followers on X, and its founders have made a name for themselves with their propensity to make appearances in bear masks. Monad has a more buttoned-up online image but still boasts 250K X followers.

Read more → Blockworks

Crypto Funding Giant a16z Crosses Over Into Development

With $42+B of assets under management (AUM), including four crypto funds, Andreessen Horowitz aka a16z is the largest venture capital firm by AUM. Many of its portfolio companies incorporate zero knowledge (ZK) proofs, which it describes as ​​”powerful, foundational technologies that hold the keys to blockchain scalability, and which represent the future of privacy-preserving applications.” Now, to help those companies succeed, a16z is launching Jolt, following an August 2023 release of Lasso. Both open source projects aim to speed up the core tech that supports ZK.

Jolt, an open-source ZK virtual machine written in Rust, is designed to process and verify data at faster speeds while maintaining stringent security protocols. a16z claims that it’s more than five times faster than its nearest competitor, RISC Zero, and uses less than half the number of lines of code as other ZK virtual machines. Underpinning Jolt is a ZK proof type called SNARKs (succinct non-interactive arguments of knowledge), which let blockchains offload computations to be compressed and rapidly verified off chain.

Jolt also uses Lasso, which it describes as a “lookup argument” for a popular open-source ZK proving tool called Halo2. Lasso can increase Halo2’s speed by twenty times, partly by performing a number of lookups in smaller tables. Potential use cases for Jolt include layer 2 blockchains, cross-chain bridges, and other blockchain and non-blockchain applications that can benefit from efficient verification of data.

Read more →a16zcrypto.com

EU Report Details Emerging Concentration Risks in Exchanges, Cryptos

Exchanges where digital assets can be traded and converted to fiat are almost as old as crypto. Guinness World Records recognizes BitcoinMarket, founded March 17, 2010, as the first crypto exchange though dissenters say the honor should go to PayPal, the first organization to exchange Bitcoin for USD. Since then, hundreds of exchanges have been established; CoinMarketCap.com currently lists 245 of them.

In reality, only a small fraction of these have significant activity, prompting the European Securities and Markets Authority (ESMA) to issue a report warning of growing concentration risk. ESMA notes that 90% of global crypto transactions are now being processed in just ten exchanges with nearly half taking place in only one: Binance. Per the Herfindahl-Hirschman Index, the crypto market was “competitive” between 2018–2021; “moderately concentrated” in 2022; and “highly concentrated” in 2023. Liquidity tends to concentrate in a few exchanges but can vary widely; liquidity margins are usually more favorable with frequently traded assets.

Concentration can provide economies of scale but can also create problems if an exchange fails or malfunctions. Exchange concentration is layered on top of digital asset concentration with Bitcoin, Ether, and Tether together accounting for about three quarters of the crypto market cap in December 2023 and more than half of the 2023 annual trading volume. When looking just at stablecoins (which are involved in 60+% of crypto transactions), the message is the same with Tether accounting for 70% of the market cap and 90% of trading volume.

The report, issued in support of the implementation of the EU’s MiCA rules, makes no recommendations but says the agency will continue to monitor the situation.

Read more →ESMA

News In Brief

Business of Crypto

• Trading on Centralized Exchanges Hits All Time High in March — Moneyweb
• South Korean Won Tops Dollar for Crypto Trades in Q1 — Bloomberg ($)
• Deutsche Bank Survey Finds Drop in Skepticism about Crypto — Reuters

Regulation and Security

• U.S. SEC Warns Uniswap of Potential Enforcement Action — Reuters
• HashKey, Bosera Gain BTC and ETH ETF Approvals in Hong Kong — crypto.news
• South Africa Grants Its First Exchange Licenses — CoinDesk

DeFi and Web3

• Startup Beauty Brand Focused on Co-Creation Lands $7MM from a16z -TechCrunch
• Sui to Launch Handheld Web3 Gaming Device — Blockworks
• Avalon Raises $10MM to Develop Eponymous Multiplayer Game — VentureBeat

Midweek Market Pulse

Total Market Cap: $2.25T — 7 day change as of Tuesday 4/16/24 12 PM EST: -13.5%

Chart and quotes via CoinMarketCap

Digital assets and major global equity markets flagged over the past week with the crypto market cap falling to $2.25T, a 13.5% decline as escalating tensions between Israel and Iran ushered in a risk-off mood. Iran said that its drone and missile strikes represent the end of its military action, and most of the drones and missiles were shot down, but the market doesn’t seem convinced that this is the end of hostilities. There are also concerns that the conflict could lead to a spike in oil prices, which could slow down the global economy.

Bitcoin (BTC, -10.5%) held up better than many alt coins but still fell by a double-digit percentage for the week, declining 7% in less than an hour on Saturday afternoon when news of the strikes broke.

Besides geopolitics, there will be no shortage of other catalysts for Bitcoin this week, both macroeconomic and on-chain, including Fed Chairman Jerome Powell’s update and the Bitcoin halving, which is expected to take place on Friday, April 19. The market is eagerly waiting to see how the quadrennial reduction in block rewards, which has historically been a bullish catalyst for Bitcoin, plays out.

While Bitcoin miners will deal with reduced rewards for mining Bitcoin, data from Bernstein and Glassnode shows that Bitcoin miners have been bringing in ~$80MM per day amidst higher Bitcoin prices, somewhat softening the blow.

Ethereum (ETH, -14.4%) followed the market lower, at one point falling below the $3,000 mark before recovering, while major alt coins, including Solana (SOL, -25.5%), XRP (XRP, -21.4%), Cardano (ADA, -26.5%), Avalanche (AVAX, -30.1%), and Polkadot (DOT, -27.4%), were all sharply lower.

Lastly, Uniswap (UNI, -38.4%) sank after receiving a Wells notice about possible enforcement action from the SEC. The news hasn’t stopped trading activity on the platform as volume is approaching $3B a day. Meanwhile, Uniswap raised its swap fee for users swapping through the Uniswap website from 0.1% to 0.25%, leading to record fee revenue on Saturday.

The Last Word

Herfindahl-Hirschman Index (HHI)

Noun

: A measure of the size of firms in relationship to the industry they are in
/ The HHI is most commonly used by antitrust regulators to consider the impact of proposed mergers.

About BitGo

BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.

Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.

Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.

BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.

Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 1500 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.

For more information, please visit www.bitgo.com.

©2024 BitGo Inc. (collectively with its affiliates and subsidiaries, “BitGo”). All rights reserved. BitGo Trust Company, Inc., BitGo Inc., and BitGo Prime LLC are separately operated, wholly-owned subsidiaries of BitGo Holdings, Inc., a Delaware corporation headquartered in Palo Alto, CA. No legal, tax, investment, or other advice is provided by any BitGo entity. Please consult your legal/tax/investment professional for questions about your specific circumstances. Digital asset holdings involve a high degree of risk, and can fluctuate greatly on any given day. Accordingly, your digital asset holdings may be subject to large swings in value and may even become worthless. The information provided herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. BitGo is not directing this information to any person in any jurisdiction where the publication or availability of the information is prohibited, by reason of that person’s citizenship, residence or otherwise.