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#36: Tether in Coinbase's Crosshairs

GM Architects,

Markets had a mixed week, with Bitcoin regaining its $17.000 footing and Ether trading almost flat. Cryptocurrencies rose by 1.0%, while major protocols went down by 1.1%.

This edition covers this week's market movers, how Web3 unlocks opportunities that are traditionally reserved for VCs, and deep dives into Enjin. Read along.

☕️ This week in crypto

  • Coinbase - one of the leading centralized exchanges advised its users to swap their Tether (USDT) token for USDC. Tether has long been subjected to FUD, with people questioning their reserves. And while they claim that 82% of their reserves are in cash or cash equivalents, most people think their reserves are stored in unsecured banks that could collapse. Will this mark the end of Tether?
  • DeFi and Web3 startups - raised $3B in funding during the third quarter, including projects in the metaverse, NFTs, and DeFi. That's 24% less than the second quarter but $2.7B more than last year's third quarter.
  • PayPal - will expand its crypto service to Luxembourg 'in coming days,' the payments company said. The expansion marks the first rollout of its crypto service to a European Union country.

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We need to talk about Tether

If you checked the "This week in crypto" section above, you probably already know that Coinbase is encouraging its users to swap their USDT for USDC, going as far as eliminating their fees for doing it. If you didn't check it, well, now you know.

And at this point you are probably wondering, why are they doing this? A mix of things, including the fact that Coinbase is a co-founder of USDC. But besides their interests, they might be on to something.

After all, we have been waiting for Tether to share any audit for the past five years. And not only by users but this last September it has also been ordered by a U.S. judge in New York to produce financial records relating to the backing of USDT as part of a lawsuit that alleges Tether conspired to issue their stablecoin as part of a campaign to inflate Bitcoin's price.

Tether doubters have long been saying that there are no reserves or that they aren't what the founders claim they are. But at the same time, Tether has been able to come through during each fall. They kept the $1 peg after Luna's and Celcius's collapse - and that was more than $16 billion redeemed - and with the FTX and Alameda collapse - one of the main Tether users - they also redeemed more than $5 billion without missing a beat (or just missing a couple of beats).

But is this enough to trust in their legitimacy? The answer is a wishy-washy maybe.

According to what they share (and what they share is not an audit), they hold 82% of their reserves in cash or cash equivalents. This means they have it in a mix of cold hard bills, pennies, and bank deposits. And while this seems enough, we need to remember that they hold at least 25% of these reserves in Deltec Bank & Trust, a small bank in the Bahamas with little presence anywhere else.

And with little banks, there's always the risk of bank runs, which are also more possible once people are nervous about their funds and reserves. Like now.

At Arch, we believe in on-chain, verifiable assets. Any progress torwards greater transaparency should be praised. Time will tell if this is too little, too late.

⛓ Cryptocurrencies: $CHAIN is up by 1.03% with all tokens rising

The Arch Blockchains token (CHAIN) traded 1.03% higher than in the last seven days.

  • Solana (SOL) is finally catching a breath after the FTX collapse. Solana’s TVL grew after declining massively in November. Popular Dapps such as Magic Eden and Saber could also be responsible for the growth of the Solana ecosystem. Both witnessed an uptick of 38% and 29.13% in unique active wallets.
  • Polygon's (MATIC) price also saw an uptick after Flipkart, one of India's leading e-commerce marketplaces, announced a strategic partnership with them. Flipkart, 77% owned by U.S. giant Walmart, and Polygon's partnership will result in the setting up of a Blockchain-eCommerce Centre of Excellence (CoE) that will work on research and development of Web3 and metaverse commerce use-cases in India to accelerate the adoption of Web3.
  • Bitcoin (BTC) regains it's $17.000 price point. Something interesting about this is that Bitcoin’s implied volatility - which represents investors’ expectations for price turbulence - has drifted lower this year despite the collapse of several crypto industry leaders.

📈 Protocols: WEB3 is down by 1.1%

At the time of writing, The Arch Ethereum Web3 token (WEB3) traded 1.11% lower than last week.

  • Uniswap (UNI) continued with an upward trajectory after Uniswap Lab's NFT aggregator platform launched. However, after a quick spike, most NFT transactions went down. The daily volume for the NFTs traded on Uniswap went from $246k to $32k since its launch. The number of daily transactions for the same decreased from 445 to 36.
  • Synthetix (SNX) price also saw important price action, jumping more than 13% higher than the last seven days and after weeks of being on a downward trend. This is coming after the launch of an SNX Atomic Swaps V2 proposal. These curve governance proposals will significantly reduce swap fees and expand the number of trades routing through SNX.
  • Frax Finance (FXS) is also having a positive season, and it's now trading over 25% higher than last week. Over the past 30 days, the total supply of frxETH has increased by 870%, and the total supply of sfrxETH increased by 285%, showing their liquid staking solution, similar to Lido, is continuing to grow.

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👩‍🎨 What's Enjin & how it works

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Disclaimer: The opinions expressed are for general informational purposes only and are not intended to provide specific advice or recommendations. The views reflected in the commentary are subject to change without notice.