Cover photo

MEMO W24 JUN 2024

The most tragic and most impactful form of poverty is reflected in the mind. - xh3b4sd

In this Powerlaw memo I would like to make one prediction for future events and DeFi integrations. This prediction concerns BlackRock and Citadel. As a reminder, BlockRock is the world's largest asset management firm with roughly 10 trillion USD in assets under management. Citadel Securities specifically, is one of the largest market makers world wide with about 500 billion USD in trading volume every single day. BlackRock and Citadel have just recently filed to incorporate a new stock exchange in Dallas, Texas. The new TXSE competes with the NYSE, which is today's largest stock exchange located in New York. The reason why this is interesting for us here is because BlackRock has been very focused on tokenization for some time already. We have for instance just recently covered BlackRock's onchain BUIDL fund in one of the past Powerlaw memos. Bringing all of the above together, the prediction I would like to make is that tokenized assets will trade on the TXSE offchain, while being integrated with onchain property rights on Ethereum mainnet. The future potential of BlackRock's BUIDL fund is to earn yield by backing trading activities with tokenized collateral. The TXSE will be the first gateway from traditional finance into crypto land that allows to trade tokenized securities while earning tokenized yield at the same time. Today there does no exchange or trading strategy exist that is able to deliver the outlined capital efficiency, and enabling exactly that specific capital efficiency will be a game changer in traditional finance. I think the demand for the described trading strategies will be absolutely massive. And all of the required automation will be supported by Ethereum mainnet, because it acts as programmable settlement layer with all of DeFi's composable liquidity. An architecture like this would represent the next evolution of financial markets that are systemically safer, provide more liquidity and are easier and cheaper to operate, while providing the opportunity to make more money for everyone involved.

Fraud proofs got enabled on Optimism mainnet. That allows any honest actor to contest malicious withdrawals from the chain. Fraud proofs greatly extend the security and reliability of the OP stack. My expectation would be that in time all of the over 20 OP stack rollups follow the same upgrade path and enable fraud proofs for themselves as well. Most notably this includes Base, Blast, Mantle and Fraxtal. The technology advancements here are one thing. The other amazing aspect of this particular improvement is the termination of yet another ani Ethereum talking point. L2 fraud proofs going life across the OP Superchain is another important milestone, and another nail in the coffin of Ethereum FUD. At first, nobody thought those proving systems were needed. Then everybody thought proving systems wouldn't work. Then they said proving systems would never be added to rollups. Well, they have all been wrong again.

We have just recently heard from analysts that the spot ETH ETFs are supposed to start trading on the 2nd of July 2024. That would be about two weeks from the time of writing. To re-iterate, those spot ETFs put BTC and ETH in their own category of digital assets. This kind of institutional greenlight removes any remaining career risk to get involved in the crypto industry. From here on out we can expect years of net positive inflows into those exchange traded products. This kind of institutional bid will help to set a higher baseline on BTC and ETH prices. I do not expect the ETH ETF to be a great success on day one. I do also not think that the ETH ETFs are going to break any records like the BTC ETFs did. I think it is more realistic to expect a slow burn that is sustained for longer periods of time. And that will be just fine. Higher for longer is not a meme!

Coinbase invited to an event this past week, The State Of Crypto Summit. I did not attend myself, but I found some great notes about the event and its various panels. The vibes inside of relevant financial institutions are wildly optimistic now that we can expect fair regulatory clarity from the US government towards the crypto industry. So here are some key takeaways. In the future we can expect every market participant to have crypto exposure due to the simple fact that all assets will be tokenized on top of crypto rails. And today, without taking away from other ecosystems in this industry, to a great extend, that means Ethereum. One vision that I have for the future is that machine learning and blockchain networks are interdependent technologies over the long term. Both technologies will require one another for a future world of fair societies and human welfare. That vision got basically confirmed by panelists saying that the lack of people using crypto is really missing the whole point of blockchain networks entirely. We are in fact building these systems for a machine enabled world, in which autonomous agents operate on behalf of people. And yet another bias got confirmed at The State Of Crypto Summit, that venture capital greatly overallocated the past couple of years to traditional equity funds. There is frankly more money than there are good ideas out there. Crypto as an industry shows us how liquid funds of tokenized startup equity can be managed more transparently and more efficiently, potentially yielding better returns while aligning incentives between founders and investors. There is a new trend towards liquid funds and I think we can expect this trend to pick up some steam in the future. And at this point we have to highlight again that Coinbase is the absolute champion of our industry. Without the tireless work of Brian Armstrong and all the brave people at Coinbase, pushing for fair regulation in the United States, we would all be in a very different place today. Because of the regulatory clarity from the US and the stamp of approval from financial institutions like BlackRock, portfolio allocations towards crypto world wide will effectively go from 0% to 10% within the next couple of years. I am grateful for Brian and everyone at Coinbase putting in the work. Higher for longer!

We have another flippening to celebrate now, because TON flipped DOGE in market cap the first time, at least for a short while. We covered TON here in the Powerlaw memo briefly when it first pushed ADA from the top 10 spot by market cap. Now TON is going for spot number 9. The next one to fall would be XRP on spot 8, but given the relative distance between TON and XRP by market cap today, this catch up will probably take a little longer. I wouldn't even be sure if TON could even flip XRP within this cycle. In any case, there is movement in the top 10 cryptos by market cap!

The number for this week is 4, again!? About 4% of the Turkish GDP is apparently spent to acquire stablecoins. The background here is that the Turkish Lira is inflating away purchasing power. And it does that so much so that Turkish citizens try to protect their purchasing power using USD denominated stablecoins. The protection of purchasing power and the use as an inflation hedge is the original BTC vision. 4% of any country's nominal GDP is a meaningful number. The latest numbers for 2024 show that Turkey's nominal GDP is somewhere above 1 trillion USD. 4% of 1 trillion is 40 billion USD that is presumably mostly sitting in USDT stablecoins, which is still mostly held on Tron. So what is basically happening in comparison, in Turkey people buy USD stablecoins to protect themselves against TRY debasement. And in America people buy BTC and ETH to protect themselves against USD debasement. Time is a flat circle, isn't it?

Powerlaw logo
Subscribe to Powerlaw and never miss a post.