In this issue
- NFTs: OpenSea of opportunity
- Tether: Money in the bank
- Tencent: IOU comes due?
From the Editor’s Desk
Proof counts for everything in the trustless environment of the crypto space, and this past week, we’ve seen plenty of it.
Proof-positive, it seems, that the market for non-fungible tokens is more than just a flash in the pan, as NFT trading platform OpenSea’s Ethereum transaction volume swamped that of long-time league-table leader Uniswap, the biggest decentralized exchange on the network.
Proof also emerged in the stablecoin space, where previously doubt had seemed to be gaining the upper hand.
Tether, the subject of much speculation concerning the nature of the reserves underpinning the token, released an auditor’s report demonstrating that it’s backed by a larger cash pile than was the case a few months ago. Proof of that financial firepower may provide investors with some reassurance as the company faces potential federal enforcement action.
Lastly, as if any were needed, more proof of Chinese authorities’ growing impatience with the influence of the country’s tech giants was offered up this week in the form of an antitrust complaint against a blockchain applet operated by Tencent.
In most such cases in most places, a presumption of innocence might apply. In present-day China’s trust-free climate, however, that burden of proof is likely to fall squarely on the company as Beijing looks to rein in all rivals, theoretical or otherwise.
If in doubt, try asking the founder of Tencent’s longtime competitor, Alibaba. He’s living proof.
Until the next time,
Founder and Editor-in-Chief
1. OpenSea turns tide on Uniswap
By the numbers: NFT Marketplace — over 5,000% increase in Google search volume.
OpenSea, the non-fungible token marketplace, has topped the transaction volume leader board on Ethereum, ending DeFi project Uniswap’s long reign as the network’s top gas guzzler. OpenSea users have collectively pitched in close to US$3 million worth of transactions over the past 24 hours, while Uniswap users have paid US$1.6 million, at press time.
- Uniswap — Ethereum’s biggest decentralized exchange — has typically dominated the peaks of daily transaction fees since the so-called DeFi Summer of 2020, but a downward trend in the number of Uniswap Ethereum transactions began emerging in early June.
- OpenSea, a peer-to-peer marketplace for crypto collectibles and NFTs, last month raised US$100 million in a funding round led by Andreessen Horowitz. The platform’s ETH fees have climbed dramatically since July 24, from 86 ETH to more than 913 ETH on Aug. 10.
- The quantity of monthly U.S. dollar value transferred from seven of the biggest NFT marketplaces reached a total of US$356 million during the first week of August. By Aug. 8, the biggest selling NFT project was Cryptopunks, according to data from Nonfungible.com.
Forkast.Insights | What does it mean?
NFTs are continuing to spark debate over the notion of digital value, with many questioning whether they represent a legitimate new art form and business opportunity, or whether they’re just the latest grift in the crypto asset sector. Whether you believe in the value of the NFT phenomenon or not, the money is very real and the NFT explosion is bringing tangible benefits for Ethereum holders.
After the world’s most expensive NFT was sold by auction house Christie’s in March — digital artist Beeple’s “EVERYDAYS: the First 5000 Days” collage — interest in NFTs surged, and some expected that a bubble was set to burst. However, looking at data from OpenSea, new transaction volume records are still being set monthly.
Following last year’s DeFi Summer, which saw the market grow by some 9,000% in a year, the ability of an NFT marketplace to oust an automated market maker such as Uniswap as the highest gas-guzzler on the Ethereum network in such a short space of time demonstrates how large the NFT sector is becoming.
In China, there is evidence that NFTs are filling the vacuum created by Beijing’s crackdown on cryptocurrencies, which has seen the entire crypto mining sector driven abroad and numerous crypto firms scale down their operations or close entirely. An intense push by celebrities, sports teams, artists and traditional investors is also driving the growth of the NFT market.
That growth appears to be benefiting Ethereum holders, as NFTs are typically held on the Ethereum blockchain. Since the network’s London upgrade went live just a week ago, the new burn mechanism of Ethereum Improvement Proposal 1559 has been getting a workout, with 27,000 Ether destroyed and removed from the overall supply, driving up the token’s value due to its increased scarcity.
According to data from Ultrasound.money, trading volumes on NFT platforms are responsible for most of the burning of Ether so far, with OpenSea leading in the top 10 among Ethereum protocols, followed by NFT marketplace Axie Infinity at No. 3, Vox at No. 6, Space Poggers at No. 7 and COVIDPunks at No. 8.
Since the London upgrade, Ethereum’s price has surged more than 30% to around US$3,220, and, at the current burn rate, around 3 million Ether will have been removed by the end of the year, which bodes well for the cryptocurrency’s value and status as a deflationary asset.
2. Tether’s anchor assets
By the numbers: Tether — over 5,000% increase in Google search volume.
Tether Holdings, issuer of USDT, the world’s biggest stablecoin, has released a report by an auditor showing that Tether tokens are fully backed by the company’s reserves. Moore Cayman’s bean counters reviewed Tether’s quarterly consolidated reserve reports and found that it had met its reporting requirements for the first quarter of the current fiscal year.
- According to the report, Tether’s total assets stood at more than US$62 billion, as of June 30, up from around US$41 billion in March, when its previous attestation report was published.
- Tether first published a breakdown of its reserves in May, indicating that 75.85% consisted of cash and cash equivalents, short-term deposits and commercial paper. The latest report shows that Tether has cut its commercial paper holdings from 65.39% of its cash equivalent assets to 57.72%.
- The new report also indicates that Tether’s cash reserves of roughly US$6.3 billion have increased as a share of its cash equivalents from 3.87% to 11.77%, around 10% of its total assets.
- Tether continues to publish quarterly consolidated reserve reports as part of its US$18.5 million settlement with the New York State Attorney General this year. The company is banned from operating in New York State and is currently being investigated by the U.S. Department of Justice, according to a Bloomberg report that Tether dismissed.
- Although Tether remains the world’s biggest stablecoin, it has lost much market share to rival USD Coin this year, and its total supply has flattened since May, according to Coinmetrics.
Forkast.Insights | What does it mean?
With Circle’s USD Coin eyeing the top spot in the stablecoin space, and as members of the Federal Reserve toy with the idea that a stablecoin could be used in lieu of a central bank digital currency to leapfrog China’s digital yuan, Tether’s issuer may be more motivated than ever to clean house before minting any new coins.
USD Coin has historically scored points against Tether for good governance, thanks to its practice of issuing periodic attestation reports disclosing the value of its issuer’s investments — a practice Tether adopted after reaching its settlement in New York.
After a less-than-impressive reveal of its reserves back in May of this year, Tether’s latest attestation report is garnering praise in the cryptocurrency community for being far more comprehensive and informative. Although the company has been under pressure for some time to come clean about the reserves backing the Tether coin — which trades at 1:1 parity with the U.S. dollar — the transparency of the latest attestation report is likely an attempt to claw back market share as USD Coin gains ground in terms of supply, trading volume and regulatory oversight.
The supply of USD Coin has grown rapidly this year, from approximately 4 billion tokens at the beginning of 2021 to more than 26 billion today. Since the crypto market crash in May, USD Coin’s supply has skyrocketed 75%. For the time being, however, Tether remains the dominant player in the stablecoin market, with a total supply of more than 64 billion coins, even though its growth has flatlined since May.
Tether’s success up to that point can be attributed to its dominance among Chinese traders and investors, who until recently routinely used it as an on-ramp to crypto markets through over-the-counter brokers because fiat-to-crypto trading and buying digital assets with central bank-issued cash was illegal. But although the Tether minting machine’s grinding halt can in large measure be blamed on the crypto crackdown in China, it may also have been part of an effort by Tether’s issuer to pause, take stock of its supply, and present a legitimate breakdown before putting its operations under further scrutiny if it hopes to remain a player in future.
3. Tencent in trouble
Chinese blockchain company RongxinChain has alleged that Tencent’s IOU applet is operating in violation of Chinese antitrust law. A blog post by the Shenzhen Baoan District Credit Promotion Association on Aug. 9 said the company had reported the case to the Anti-Monopoly Bureau and the Anti-Unfair Competition Bureau at the State Administration for Market Regulation as a breach of China’s Unfair Competition Law.
- RongxinChain said it had previously launched a very similar applet named Liaodaibao on the super-app WeChat before IOU was released. IOU remains operational on WeChat, but Liandaibao was removed in March, apparently for “violating the WeChat Applet Platform Operation Specification.”
- IOU went live in July, allowing users to issue legally valid IOUs recorded on the blockchain.
- In the past three months, Tencent has been handed three antitrust fines for practices involving music rights and the second-hand car trading market.
- Tencent has recently been launching NFTs platforms. On Aug. 9, Tencent Music Entertainment, which has previously been fined for antitrust breaches, announced its first NFT music collection. A week earlier, Tencent released China’s first domestic NFT trading platform, an app named Huanhe.
Forkast.Insights | What does it mean?
RongxinChain’s accusation is the last thing Tencent needs. After rival Alibaba was fined US$2.75 billion for abusing its market dominance in China, Tencent has become Chinese regulators’ favorite punching bag as they crack down on anticompetitive behavior in the tech sector.
In February, the SAMR released anti-monopoly rules targeting the country’s internet companies. Although a number of measures appear to specifically target China’s tech giants, antitrust lawyers and market participants have said that the new rules are ambiguous and could make compliance and even enforcement challenging.
Vaguely drafted rules notwithstanding, China has been cracking the whip during the past three months, and Tencent has been caught up in several antitrust cases. Last month, it was fined 500,000 yuan (US$77,129) and deprived of exclusive music rights for acquiring China Music Group in an apparent violation of antitrust law. In April, it received a monopoly penalty of 1 million yuan for acquiring two second-hand car platforms.
By subjecting the technology sector to greater scrutiny for suspected anticompetitive conduct, Beijing is likely seeking to balance security and social stability with growth and innovation. Although its crackdown on the sector, particularly its antitrust dimension, could lead to short-term losses for the industry, the increased oversight may even open the door to additional investment spending as companies seek to grow organically, according to S&P Global Ratings.