Kintsugi ResearchESG 8/2/23
KPMG released a report describing bitcoin’s role in the ESG imperative representing a major narrative shift. Tailwinds We acknowledged the energy industry beginning to embrace bitcoin and ESG validation as a critical step on the path towards more institutional adoption in our B34RM4RK3T memo a year ago. It’s refreshing to see BTC finally taken seriously through an ESG lens:Energy: renewable energy, demand response, recycled heat, and methane reductionSocial: Payments, financial inclusion, Ukr...
Kintsugi ResearchDominance
Whether you were celebrating or grieving this week, there are now undeniable tailwinds for Bitcoin and the broader crypto market. Bitcoin’s price broke out of a 10 month range and climbed to a new all-time high -- a level it may never revisit (BTC has never returned to a prior election week price).Time will tell if Trump delivers on his crypto friendly campaign promises. But any combination of these will be a major catalyst for future growth:replace Gary Gensler as head of the SECend Operatio...
Kintsugi ResearchBridges 8/15/23
While operation choke point 2.0 set the industry back months (years?) in the fallout of the FTX collapse by targeting fiat on and off ramps such as the silvergate exchange network and signature bank, there’s been a lot of news the last two weeks about new players making it easier for fiat to flow in and out of the digital asset ecosystem.PayPal, which has 400M+ active accounts, launches stablecoinVisa enables fiat payments for ethereum gas costsEurope approves first spot bitcoin ETFGnosis pay...
Kintsugi ResearchESG 8/2/23
KPMG released a report describing bitcoin’s role in the ESG imperative representing a major narrative shift. Tailwinds We acknowledged the energy industry beginning to embrace bitcoin and ESG validation as a critical step on the path towards more institutional adoption in our B34RM4RK3T memo a year ago. It’s refreshing to see BTC finally taken seriously through an ESG lens:Energy: renewable energy, demand response, recycled heat, and methane reductionSocial: Payments, financial inclusion, Ukr...
Kintsugi ResearchDominance
Whether you were celebrating or grieving this week, there are now undeniable tailwinds for Bitcoin and the broader crypto market. Bitcoin’s price broke out of a 10 month range and climbed to a new all-time high -- a level it may never revisit (BTC has never returned to a prior election week price).Time will tell if Trump delivers on his crypto friendly campaign promises. But any combination of these will be a major catalyst for future growth:replace Gary Gensler as head of the SECend Operatio...
Kintsugi ResearchBridges 8/15/23
While operation choke point 2.0 set the industry back months (years?) in the fallout of the FTX collapse by targeting fiat on and off ramps such as the silvergate exchange network and signature bank, there’s been a lot of news the last two weeks about new players making it easier for fiat to flow in and out of the digital asset ecosystem.PayPal, which has 400M+ active accounts, launches stablecoinVisa enables fiat payments for ethereum gas costsEurope approves first spot bitcoin ETFGnosis pay...
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If you have used Waze, you’ve taken side streets to avoid traffic.
Similar to highways during rush hour, blockchains get congested* too and using a blockchain layer is like taking a side street to avoid congestion.
*Blockchains can settle a finite transaction volume per unit time. When blockspace demand exceeds capacity, transaction fees are used to prioritize which transactions are included in each block. So as fees rise, end users experience delays (congestion), unless they are willing to pay higher fees.
I won’t cover all the different types of layers here. Each deserves its own post: Optimistic rollups. ZK rollups. Sidechains. Bitcoin layers. Fast and cheap alt chains. Multichain networks.
For now, let’s drive the Ethereum side streets and see how Arbitrum and Optimism are helping reduce congestion on a network that’s gone from $0 to $10B revenue as fast as Alphabet and Meta, two of the steepest growth curves in history.
Arbitrum and Optimism are both optimistic rollups on the Ethereum network.
An optimistic rollup is essentially a separate transaction ledger that periodically syncs with Ethereum. so a single optimistic rollup transaction on the Ethereum network represents a large bundle of transactions on the rollup.
This enables use cases that would be prohibitively expensive for end users on Ethereum. For example, it costs $0.04 to send ETH on Optimism and $0.63 (15x) to send it on Ethereum.
So if you are an online merchant that needs to process 10k orders, you’d pay $6.3k to process those transactions on Ethereum and only $400 on Optimism.
There are over 200k daily active users interacting with Arbitrum and Optimism who have paid over $100M in transaction fees in the last 180 days. And the growth trajectory of transactions, active users, and total value locked (TVL) is much steeper on L2 versus Ethereum.
Optimism posted its Superchain thesis in February:
The Superchain seeks to integrate otherwise siloed L2s into a single interoperable and composable system. We need to work towards a future where launching an L2 is as straightforward as deploying a smart contract to Ethereum is today.
It’s safe to say the concept found product-market fit. As described here, Coinbase built its Base chain on the OP Stack and is now doing $200k per week in profit, contributing 30% of Optimism’s profit through the end of August.
The Base x Optimism partnership is a fascinating case study of a publicly traded company codeveloping an MIT-licensed public good, ie. anyone can fork or use it however they see fit, with deeply aligned economics and governance:
Base pays either 2.5% of its revenue or 15% of its profits to the Optimism Collective, whichever is greater. In return, it will receive “up to approximately 118 million OP Tokens,” allowing it to have a voice within Optimism’s protocol governance. This amount will be capped at 9% of the total votable supply in order to maintain balance.
Zora, Public Goods Network, and Aevo are three other promising projects building on the OP SDK.
Rising oil stokes inflation and drags economic growth (stagflation)
Country Garden stressed in China, missed $22.5m interest payment last month
US deficit keeping yields elevated
When rates rise quickly (and unexpectedly), it can take some time for the effects to trickle through the economy. Keep an eye on refinancing cliffs in the years ahead, particularly in a higher for longer scenario.
US has $3 trillion of bonds and loans coming due in 2024-2026, $2 trillion for Europe
$530 billion CRE debt due this year and $2.75 trillion between now and 2027
The banks are in danger of setting off a doom-loop scenario where losses on the loans trigger banks to cut lending, which leads to further drops in property prices and yet more losses.
European mortgage markets less shielded from rate hikes than US
Corporate interest payments are about to rise
The overall volume of corporate debt, coupled with rising corporate bond yields, is a good predictor of the interest paid by corporations. Corporations, laden with debt and facing high rates, are on the brink of significant increases in interest payments.
Market depth stable since FTX collapse
Short term holders below cost basis corresponding with a negative shift in sentiment
YTD Sharpe Ratio attractive relative to S&P500
Stablecoins > Bitcoin as medium of exchange
Will stablecoins serve or subvert US interests?
Stablecoin transaction value catching up to Visa and Mastercard
Visa expands stablecoin settlement capabilities
there has been significant demand to leverage newer, high performance blockchains that can send and receive stablecoins with higher speed and lower costs. For these reasons, Visa chose to add support for Solana as a high performance blockchain that its partners can choose to send or receive USDC settlement payments.
3rd Annual ArtBlocks Marfa Weekend
Pudgy Penguin toys in Walmart licensed from holders via OverpassIP
Tyga x RTFKT
New era of immersive entertainment
NFTs are worthless
Storing value in digital objects
Art market volatility
9.21.23
9.14.23
9.7.23
If you have used Waze, you’ve taken side streets to avoid traffic.
Similar to highways during rush hour, blockchains get congested* too and using a blockchain layer is like taking a side street to avoid congestion.
*Blockchains can settle a finite transaction volume per unit time. When blockspace demand exceeds capacity, transaction fees are used to prioritize which transactions are included in each block. So as fees rise, end users experience delays (congestion), unless they are willing to pay higher fees.
I won’t cover all the different types of layers here. Each deserves its own post: Optimistic rollups. ZK rollups. Sidechains. Bitcoin layers. Fast and cheap alt chains. Multichain networks.
For now, let’s drive the Ethereum side streets and see how Arbitrum and Optimism are helping reduce congestion on a network that’s gone from $0 to $10B revenue as fast as Alphabet and Meta, two of the steepest growth curves in history.
Arbitrum and Optimism are both optimistic rollups on the Ethereum network.
An optimistic rollup is essentially a separate transaction ledger that periodically syncs with Ethereum. so a single optimistic rollup transaction on the Ethereum network represents a large bundle of transactions on the rollup.
This enables use cases that would be prohibitively expensive for end users on Ethereum. For example, it costs $0.04 to send ETH on Optimism and $0.63 (15x) to send it on Ethereum.
So if you are an online merchant that needs to process 10k orders, you’d pay $6.3k to process those transactions on Ethereum and only $400 on Optimism.
There are over 200k daily active users interacting with Arbitrum and Optimism who have paid over $100M in transaction fees in the last 180 days. And the growth trajectory of transactions, active users, and total value locked (TVL) is much steeper on L2 versus Ethereum.
Optimism posted its Superchain thesis in February:
The Superchain seeks to integrate otherwise siloed L2s into a single interoperable and composable system. We need to work towards a future where launching an L2 is as straightforward as deploying a smart contract to Ethereum is today.
It’s safe to say the concept found product-market fit. As described here, Coinbase built its Base chain on the OP Stack and is now doing $200k per week in profit, contributing 30% of Optimism’s profit through the end of August.
The Base x Optimism partnership is a fascinating case study of a publicly traded company codeveloping an MIT-licensed public good, ie. anyone can fork or use it however they see fit, with deeply aligned economics and governance:
Base pays either 2.5% of its revenue or 15% of its profits to the Optimism Collective, whichever is greater. In return, it will receive “up to approximately 118 million OP Tokens,” allowing it to have a voice within Optimism’s protocol governance. This amount will be capped at 9% of the total votable supply in order to maintain balance.
Zora, Public Goods Network, and Aevo are three other promising projects building on the OP SDK.
Rising oil stokes inflation and drags economic growth (stagflation)
Country Garden stressed in China, missed $22.5m interest payment last month
US deficit keeping yields elevated
When rates rise quickly (and unexpectedly), it can take some time for the effects to trickle through the economy. Keep an eye on refinancing cliffs in the years ahead, particularly in a higher for longer scenario.
US has $3 trillion of bonds and loans coming due in 2024-2026, $2 trillion for Europe
$530 billion CRE debt due this year and $2.75 trillion between now and 2027
The banks are in danger of setting off a doom-loop scenario where losses on the loans trigger banks to cut lending, which leads to further drops in property prices and yet more losses.
European mortgage markets less shielded from rate hikes than US
Corporate interest payments are about to rise
The overall volume of corporate debt, coupled with rising corporate bond yields, is a good predictor of the interest paid by corporations. Corporations, laden with debt and facing high rates, are on the brink of significant increases in interest payments.
Market depth stable since FTX collapse
Short term holders below cost basis corresponding with a negative shift in sentiment
YTD Sharpe Ratio attractive relative to S&P500
Stablecoins > Bitcoin as medium of exchange
Will stablecoins serve or subvert US interests?
Stablecoin transaction value catching up to Visa and Mastercard
Visa expands stablecoin settlement capabilities
there has been significant demand to leverage newer, high performance blockchains that can send and receive stablecoins with higher speed and lower costs. For these reasons, Visa chose to add support for Solana as a high performance blockchain that its partners can choose to send or receive USDC settlement payments.
3rd Annual ArtBlocks Marfa Weekend
Pudgy Penguin toys in Walmart licensed from holders via OverpassIP
Tyga x RTFKT
New era of immersive entertainment
NFTs are worthless
Storing value in digital objects
Art market volatility
9.21.23
9.14.23
9.7.23
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