Cryptonite May 2023
the dawn of a new era: crypto as in cryptography
It’s time for Cryptonite - our monthly roundup of all things crypto - with Dr. Tejaswi Nadahalli.
You can follow Tejaswi on twitter @nadahalli and he blogs at tejaswin.com
ChatGPT Summary
via summarize.tech
The SEC has sued several prominent players in the crypto industry, including FTX, Ripple, Paxos, Binance, and Coinbase. While the details of each lawsuit vary, they all involve allegations of violating securities laws or engaging in fraudulent activities. For example, the lawsuit against Binance alleges that the company commingled funds from its exchange with its trading arm, which is a major red flag. Meanwhile, the lawsuit against Coinbase revolves around the exchange's decision to offer numerous "tokens" that the SEC deems to be securities. While the lawsuits are complex and varied, they demonstrate that regulators are taking crypto seriously and will crack down on bad actors.
While Bitcoin is considered to be a commodity rather than a security due to its lack of yield, Ethereum's staking rewards generate a yield that is currently considered the "risk-free rate in crypto." However, because staking services require users to put up their own funds for rewards, it is unclear whether this constitutes a "yield-bearing asset."
A peculiar phenomenon occurred in Bitcoin over the last couple of weeks, where the transaction fees, which were typically low, went through the roof due to a sudden surge in NFT projects on the Bitcoin network. When such projects emerge on the network, the fees tend to be high. For instance, users found it challenging to carry out regular transactions as fees rose by a whopping 500-600% during the period, causing a ruckus in the Bitcoin community. Though the Lightning network payments went through without a hitch, there were issues with channel closures, and some holders were forced to pay extra fees to execute closing transactions that were pending for days.
Bitcoin may need to rethink how it handles increasing fees as supply remains limited and demand is expected to increase. The Lightning Network is a potential solution, which has been tested in a few countries and can settle payments instantly and without intermediaries. However, payments are not considered sexy and that there are risks associated with payment networks. Much of the infrastructure that supports these networks is for risk management and dispute resolution, and users indirectly pay for these services through taxes and fees.
Instantaneous payments have an impact on the liquidity costs for banks. Previously, banks had earned interest on funds held overnight, but with the move to real-time payments, this has resulted in increased liquidity costs, affecting their bottom line. Additionally, UPI is integrating with other countries, allowing for cross-border payments, and banks are looking to make money by charging fees for foreign exchange conversion and per transaction charges. With the base layer already in place, implementing cross-border UPI payments is feasible, but involves risk-taking and inter-central bank liquidity management. While the future of UPI's global expansion is uncertain, it is clear that banks and merchants are salivating at the potential for more revenue streams through UPI's real-time payments technology.
Despite the ongoing bear market in VC funding, some sectors and long-term focused ideas are getting implemented and funded well. These investments are not limited to crypto or blockchain technology, as some of them are also applicable in the emerging world of AI or privacy.
An example is fully homomorphic encryption, which can have implications for various industries, including personal device security. Homomorphic encryption allows third-party providers to perform computations without decrypting data, making data completely private.
Cryptography concepts like multi-party competition for document signing are getting funding for practical applications, including enforcing privacy by people and governments on Tech players.
Links
Crypto
The SEC has filed a complaint against Binance, various related companies, and Binance CEO Changpeng "CZ" Zhao. They allege that the company has been acting with "blatant disregard" of US securities laws through their operation of unregistered trading platforms, have performed multiple offers of unregistered securities and investment schemes, and have defrauded investors through material misstatements around supposed controls for manipulative trading activity, such as wash trading, on the Binance platforms (web3isgoinggreat)
SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency. Coinbase also charged for the unregistered offer and sale of securities in connection with its staking-as-a-service program (sec)
Robinhood to delist tokens for Solana, Cardano, and Polygon after SEC suits name them as securities (fortune)
Nigeria regulator says local Binance operations 'illegal' (reuters)
Crypto.com to suspend US institutional exchange (blockworks)
Ooki DAO to shut down after ‘precedent setting’ court battle with CFTC (cointelegraph)
Chinese individuals have been engaging in "eyeball speculation": buying biometric data scanned en masse from villagers in Cambodia, Kenya, and elsewhere by people who then sell it for $30 or less, allowing the buyer to receive the associated Worldcoin payout (theblock)
Small businesses and households paid an extra $92 million and $204 million annually in Upstate NY because of increased electricity consumption from cryptominers (NBER)
Research
Among the top 1,000 scorers on the IIT-JEE exam, 36% have migrated abroad, rising to 62% for the top 100 scorers. Students who attended the original “Top 5” Indian Institutes of Technology (IIT) were 5 percentage points more likely to migrate for graduate school compared to equally talented students who studied in other institutions.
Fundamental algorithms such as sorting or hashing are used trillions of times on any given day. We formulated the task of finding a better sorting routine as a single-player game. We then trained a new deep reinforcement learning agent, AlphaDev, to play this game. AlphaDev discovered small sorting algorithms from scratch that outperformed previously known human benchmarks. These algorithms have been integrated into the LLVM standard C++ sort library.
ROIC and the Investment Process (Mauboussin)
Wine-tasting: it's junk science. Experiments have shown that people can't tell plonk from grand cru. Now one US winemaker claims that even experts can't judge wine accurately (theguardian)
Investing
In India more than half of the NSE 500 stocks have generated 10x returns within a 5-year rolling period since 2000. The largest proportion of multi-baggers in the world.
The road to Modi’s ambitious make-in-India goal runs through China (ET)
Morgan Stanley’s report on India is an exercise in cherry-picking (livemint)
Taco Bell’s Innovation Kitchen, the Front Line in the Stunt-Food Wars (newyorker)
TV’s streaming model is broken. It’s also not going away. For Hollywood, figuring that out will be a horror show (vulture)
The entire industry has moved from a world of Newtonian economics into a world of quantum economics, where two things that seem to be in opposition can be true at the same time: You can have a massive hit on your platform, but it’s not actually doing anything to increase your platform’s revenue. It’s absolutely conceivable that the streaming subscription model is the crypto of the entertainment business.
Steven Soderbergh
Markets this Week
More here: country ETFs, fixed income, currencies and commodities.
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