WEEKLY CRYPTO MARKET WRAP – 31 AUGUST 2022
CRYPTO MARKET UPDATE
Federal Reserve Chair Jerome Powell played spoilsport as he announced that the U.S. central bank may well keep raising interest rates. In a time when the global markets were looking at a rebound — the announcement caused markets world over to turn red.
The crypto markets too faced similar price pressure with Bitcoin falling below $19,650 levels. The measure already taken by the Fed to tame inflation will have to continue so that the country can reduce inflation which is at a four-decade high. All major cryptocurrencies are down — however Ethereum investors are hopeful of a quick recovery as they expect a price appreciation post the Merge expected in mid-September.
ETHEREUM MERGE — NEW STAKING AND WRAPPED ETH
With the window of the Merge being officially announced by the Ethereum Foundation between September 10 and 20 — which means it could happen even sooner than expected. The foundation is leaving no stone unturned to make sure the event is successful and doesn’t throw up any lastminute glitches. An enhanced bug bounty of $1 mm against $250k will help ensure that no roadblocks further delay the long-promised transition.
With upcoming merge Coinbase has launched — Coinbase Wrapped Staked ETH (“cbETH”) that is a utility token which represents Ethereum 2 (ETH2), which is ETH staked through Coinbase. Coinbase customers can wrap their locked staked ETH to receive cbETH, which is an asset that
can be traded, moved on-chain, and used in DeFi and other dapps.
cbETH is known as a liquid staking token because it allows holders to get the benefits of staking without lockups or unbonding periods. This is a standard ERC-20 token designed using the cToken model — a model created by Compound Finance to represent depository assets in their protocol. cbETH maintains a conversion rate that represents the amount of underlying ETH2. Holders of ETH2 and cbETH will benefit similarly from Ethereum staking rewards and will receive regular ETH2 payouts.
Due to the conversion rate, the price of cbETH will likely deviate from ETH because cbETH represents 1 staked ETH plus all of its accrued staking interest since initialization. cbETH is not pegged to the price of ETH and there is no expectation of a 1:1 relationship. Wrapping does involve risks as markets may value cbETH less than the staked ETH it represents, which could cause you to lose value by wrapping and selling your cbETH.
COMPOUND III — NEW AND IMPROVED LENDING PROTOCOL
Compound one of the popular decentralized finance (DeFi) protocol for borrowing and lending crypto, has launched a new “streamlined” version of the protocol called Comet; with an emphasis on security, capital efficiency, and user experience. Compound claims to have removed complexity from the protocol to create an efficient tool for borrowers and lenders in the DeFi
space.
The biggest change with the new version is the introduction of a new borrowing model that facilitates a single borrowable, interest-earning asset, with all other supported assets functioning as collateral. Unlike the pooled model from previous iterations, collateral posted was mixed with other collateral. If you borrowed USDC against Ethereum, for example, it was possible that your Ethereum could be mixed with other users’ assets. Users can only withdraw the collateral that they have deposited — it can never be withdrawn by other users.
Since there are separate borrowing collateral factors, and liquidation collateral factors this approach protects borrowers from early liquidation, and helps improve risk management.
With the new version users will not earn interest on collateral anymore, however will be able to borrow more; with less risk of liquidation and lower liquidation penalties; while spending less on gas. To further limit risk, the protocol has introduced market-wide limits on the size of individual
collateral assets.
SYMBOLIC CAPITAL — $50 MILLION EARLY-STAGE WEB3 FUND
Polygon’s Sandeep Nailwal and Cere Network founder Kenzi Wang have raised $50 million to plug into early-stage Web3 companies. Symbolic Capital launched in May is the first VC firm to be run exclusively by crypto founders.
Symbolic plans to focus on backing start-ups building consumer-facing decentralized apps and has already plugged cash into blockchain gaming companies Blinkmoon, Planet Mojo, and Community Gaming.
