COVID-19 is bigger than anything written below. Still, there's substantial activity in crypto that's worth tracking while isolating at home. Stay safe and stay informed.
The State of L2 Investments: Bitcoin
The first part of our two-part series on the progress and investability of L2 solutions focuses on bitcoin.
We start with some analysis on Lightning which is, in aggregate, the most active L2 project. Projects leveraging LN include LN user services, liquidity providers, and consumer-facing apps that use LN under the hood as opposed to ACH/Swift to move money.
Still, some investors are wary of open source scaling solutions' business models. Those who still invest are either buying:
1) The opportunity to get early access/insights to then invest in closed-source 3rd parties that integrate LN.
2) Leveraging their existing BTC position.
In spite of differing viewpoints, skeptics haven't hindered either Lightning Labs or ACINQ from raising healthy series-A funding rounds in the past few months. Lightning Labs raised a $10M round early Feb. ACINQ closed an $8M series-A round last October.
Moving up the stack, here are the LN user services we're tracking:
To read our assessment on the above projects, dive into user activity on bitcoin sidechains Liquid and RSK, and learn about the emerging trends we've seen with interoperable bitcoin sidechains, read the full article here.
⚡️ First Decentralized BTC-collateralized Cross-chain Loans
Last week, Atomic Loans launched their cross-chain borrowing app on mainnet. The app allows bitcoiners to borrow stablecoins, specifically USDC or DAI, on the Ethereum blockchain by locking BTC collateral in a bitcoin-native P2SH script. This represents the first implementation of non-custodial lending using BTC collateral. Although the lending app requires a Ledger hardware wallet to initiate a loan, borrowers have already initiated more than 80 loans, totaling over $100k in less than a week.
⚡️ Bitcoin Volatility Index
Similar to the CBOE Volatility Index (VIX), which represents the predicted volatility of the S&P 500, crypto derivatives exchange FTX is planning to launch two ERC20 tokens that track the volatility of BTC price. The BVOL and iBVOL tokens will use other FTX indices to track the implied volatility of future BTC price.
🔹 Ethereum 2.0 Topaz
In an important step towards the Ethereum 2.0 mainnet launch this year, the Prysmatic Labs team led a new testnet launch, dubbed Topaz, last Friday. Topaz testnet is the basis for a multi-client testnet that is required before the mainnet launch. There's been strong community participation in the testnet launch with the number of active validators approaching 18,000 and increasing.
🔹 dForce: The Largest DeFi Hack So Far
dForce, a protocol backed by Multicoin Capital, was hacked yesterday and $25M was drained from the smart contract. Early analysis shows a link to a hack executed a day before against the Uniswap imBTC pool. The stolen funds quickly made their way to other DeFi protocols to liquidate the proceeds of the hack.
🔹 Maker's Plan to Shutdown Single Collateral DAI (SAI)
The Maker Foundation and community are taking steps towards wrapping the SAI contract. The first step is an executive week next week on 4/24 to decide on the grace period before SAI is completely shut down. The Foundation clarified what would happen to SAI and CDP holders who don't exit SAI before the shutdown. The process is summarized by the following chart:
Binance's Road for Dominance
A few weeks after the CoinMarketCap acquisition, Binance is now directly competing with smart-contract protocols. About a year after the launch of Binance Chain, which focused on decentralized exchange functionality, Binance is eyeing the dApps and DeFi sector with its new Binance Smart Chain (BSC).
BSC will use Ethereum's EVM to build a semi-centralized performant SC platform that competes with Ethereum, EOS, Tezos, etc. Although Binance is trying to downplay the concerns of this competition, the goals are clear. Binance's plans to become the Google or Amazon of crypto may eventually come into conflict with the ethos that initiated the crypto movement to begin with.
Greyscale Record Inflows in Q1
Amidst the economic chaos that accompanied the COVID-19 pandemic, some corners of the traditional investment space have looked to Bitcoin and Ethereum as good investments. Traditional digital assets manager Greyscale recently reported record inflows in Q1 2020. The majority of inflows were into Bitcoin (average ~$30M/week) and Ethereum (average $8.5M/week).
The kicker is that 88% of the investments came from institutional investors.
Disclosure: Volt Capital and/or its partners may have exposure to some of the cryptocurrencies mentioned in this newsletter.