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Token Daily Newsletter #45

A Market Recap

Things have been moving pretty quickly in the crypto space, so here's a summary of the major trends we've seen over the last several months. We've peppered the recap with some of our own perspectives. If there's a topic we missed that you'd like a deeper dive on, just reply directly to this email and we'll try to incorporate it in our next issue.

In Bitcoin
Along with the recent price rally, the last few months have been bullish for bitcoin in several ways.

Regulatory Angle: OCC announcement 

Having to navigate the murky waters of crypto regulation often prevents institutions from diving into digital assets. But the tides are slowly turning. In July, the Office of the Comptroller of the Currency (OCC) published a letter clarifying that national banks have the authority to provide fiat bank accounts and cryptocurrency custodial services to crypto businesses. The OCC regulates, supervises, and charters national banks, so this clarification letter will move the needle for larger financial institutions to provide traditional bank accounts to cryptocurrency companies.

Enterprise Angle: Microstrategy’s quarter billion dollar bet

Microstrategy, a $1.2B publicly traded company, adopted bitcoin as its primary treasury reserve asset and allocated $250M to acquire over 21,000 bitcoin. There are two ways to think about this move:

1) The optimistic view is best summed up by Microstrategy CEO Michael Saylor’s statement on “why bitcoin:”


2) The cynical view is that by allocating 1/5 of the company’s market cap to bitcoin, Microstrategy is effectively turning itself into a publicly-traded bitcoin play. Either way, it’s a strong endorsement for bitcoin.


Trends in Bitcoin Dollarization

A trend we’re increasingly seeing is bitcoin-backed synthetic dollars or “bitcoin dollarization.” 

The goal here is to leverage bitcoin features like global coverage and low fees without the user necessarily knowing they are using BTC or LN. Companies using “bitcoin on the backend, fiat on the frontend” include Valiu, BuyCoins, Afriex, and Zap. We can analogize these services to Cash App or Venmo which use protocols like ACH and Swift under the hood to actually move users' money around. The advantages to using synthetic dollars include instant settlement capability and low fees which could replace traditional payment rails that charge up to 15% of the transaction size. This also solves major problems that hinder BTC adoption in payment systems, including price volatility and unfriendly tax laws around bitcoin payments.


The State of Lightning Investments 

New developments on bitcoin are notoriously slow to incorporate and difficult to change - as one should hope is the case with their money of choice. That doesn’t mean there hasn’t been fast-paced growth on bitcoin layer 2 solutions and sidechains. For a deeper dive on these projects, here’s our article on Bitcoin Layer 2 landscape.

In DeFi

State of Stablecoins

At time of writing, stablecoin market cap is just shy of reaching $16.5B. Stablecoins are increasingly becoming the way money is moved between countries, and institutions are taking notice. When we asked our DeFi alliance partners Jump Trading, Cumberland DRW, and TD Ameritrade what excites them most about DeFi, the answer was the same across the board: the growth potential of stablecoins.


IMF published a report at the end of last year that clearly distills stablecoins’ value prop: “The strength of stablecoins is their attractiveness as a means of payment. Low costs, global reach, and speed are all huge potential benefits. Moreover, stablecoins could allow seamless payments of blockchain-based assets, and can be embedded into digital applications thanks to their open architecture, as opposed to the proprietary legacy systems of banks.” The big question we’re asking over here at Volt is whether stablecoins will continue to remain relevant once bitcoin’s volatility smooths over.


Popular DeFi Projects

As of writing, the top projects in DeFi by total volume locked (TVL) are Aave, Maker, Curve, YFI, and Synthetix. This means the most popular use cases for Ethereum by far are: lending/borrowing, trading, and yield farming. However, there still isn’t definitive clarity around how DeFi will play out on Ethereum 2. Most projects don’t have plans to incorporate Ethereum 2 and are looking to other layer 2 scaling solutions or seriously considering using layer 1 solutions like Polkadot, Solana, or Cosmos.

Carbs and Seafood

If you’ve been following the DeFi space, you’ve seen projects like Yam, Shrimp, Sushi, and Spaghetti launch. We won’t do a deep dive on each project here, but suffice it to say these are economic experiments in flash loans, high-yield, and liquidity provisioning that sit on top of or leverage existing DeFi protocols. Within 2 days of launching, Yam’s market cap soared from $0 to $57M. After a bug was found in its smart contract, Yam’s market cap crashed back to $0. These projects are high-risk, often loosely audited, and are opportunistically riding the wave of recent DeFi hype. Our only comment here is to exercise caution if you decide to participate in these projects.


DeFi has 10x’d in the past year, growing from $500M in total value locked to $5B today. As financial stakes increase so do the opportunities for hacks and bug exploitations. Increasingly, developers are looking for more ways to derisk DeFi. As Fred Ehrsam notes in his essay on crypto-native insurance, “There are 2 empirical data points in crypto today. First, insurance for centralized crypto companies is in the high hundreds of millions to low billions. Second, one crypto-native insurance mutual with manual governance, Nexus Mutual, has grown from $0.5m in coverage a year ago to ~$15m today.”

Themes and Long Reads

Governance tokens

  • DeFi governance tokens offer a unique opportunity to influence the direction of open protocols that are otherwise nearly impossible to control. These tokens authorize holders to vote to change the parameters of underlying protocols. With enough voting power, governance token owners can essentially change the smart contract or roll out newer versions of the protocol. The power allotted to the holders of these governance tokens is not unlike the power allotted to shareholders.

  • Further reading: ReFi vs. DeFi

Yield Farming

  • “Broadly, yield farming is any effort to put crypto assets to work and generate the most returns possible on those assets. At the simplest level, a yield farmer might move assets around within Compound, constantly chasing whichever pool is offering the best APY from week to week.”

  • Further reading: Is Yield Farming bringing new users to DeFi?

Crypto dollarization

  • Crypto dollars, namely stablecoins and synthetic dollars created through derivative contracts, are uniquely positioned to help service the world’s dollar demand and will likely see immense growth in market capitalization as the world looks for easier and more programmable ways of storing, transacting, and financing in dollars.

  • Further reading: Crypto Dollars and the Evolution of Eurodollar Banking

Bitcoin Tokenization

  • Tokenized Bitcoin is a way to use bitcoin on other blockchains. The idea is you lock BTC through some mechanism, mint tokens on another network, and use the BTC as a token on that network. Each token on the other network represents a specific amount of bitcoin. The peg between the two should be kept, and the process should be reversible. In other words, you can destroy these tokens, resulting in the “original” bitcoins getting unlocked again on the Bitcoin blockchain. In the case of Ethereum, this means ERC-20 tokens that represent bitcoin. This allows users to make transactions on the Ethereum network denominated in bitcoin. This also makes bitcoins programmable – like any other token on Ethereum.

  • Further reading: How tBTC’s Coupling of Bitcoin and Ethereum Could Play Out 

Disclosure: Volt Capital and/or its partners may have exposure to some of the cryptocurrencies mentioned in this newsletter.

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