Ethereum’s EIP-1559
There has been so much action in the regulatory sphere lately (see below for an update on that) that one of the most significant technical advances of the year has snuck right up on us: Ethereum’s London upgrade, featuring notably the implementation of EIP-1559.
EIP-1559 was first proposed in April 2019, and is largely focused on improving the user experience around transactions. One dimension of this is that the block size can scale up or down based on demand to keep transaction fees more consistent.
Another piece of this has to do with how fees are organized. Currently, transactions include a base fee and a priority fee or tip. This encourages users to overbid for their transactions to be included, and when they do, that overpayment is given to miners. In the new system, users include the base fee, which is determined by the protocol, a priority fee or tip, and a max fee. When the winning bid comes in less than their max fee, the difference is refunded to them, creating better alignment within the system.
Perhaps a bigger deal, however, is the fact that in the new model, the base fee is burned, rather than given to the miners. That means for every transaction on the Ethereum network, some amount of ETH is burned. If more ETH is burned than is issued, that makes the overall supply of Ethereum deflationary.
Many in the Ethereum community think this could be transformative for how the world sees ETH as a store of value. Will that come to pass? Only time will tell, but for now, deflationary blocks are being produced, the community is jazzed, and the next big change on the horizon is eth2.
The Crypto Lobby
Last week, we told you about the last minute provision that was shoved into the US Infrastructure Bill that would classify a wide range of crypto actors – including miners, validators, and other noncustodial players – as brokers. Over the weekend, the nascent crypto lobby in Washington sprung into action and by Sunday, some light was emerging: the language had softened but remained furiously ambiguous.
On Wednesday, Republican and Democratic Senators introduced an amendment that would refine the language to explicitly exclude this set of actors. Given how much crypto had been trending towards a partisan issue in the US, this show of bipartisanship was extremely encouraging. It’s a fascinating story with much still to be determined, but what’s inescapable is that in a very short time, the crypto industry has built a lobby that is exerting significantly more influence than opponents likely thought possible.
Payments
It was a pretty active week in the world of crypto payments. Perhaps the banner headline was that North American sandwich chain Quiznos will be launching a pilot program to allow customers to use Bitcoin to pay. That will start with select locations in Denver, including the airport, and will be available to win rewards if they use the app of one of our custodians, Bakkt. In addition, Binance has launched a new partnership with Alchemy Pay, which is a crypto-fiat payment gateway that will help users pay on sites including e-commerce giant Shopify.
DeFi
We’ll be discussing the wild NFT markets in the Data story, but there were a couple really interesting events that happened in DeFi more broadly. Crypto investment firm Arca is launching a new fund which is the first actively managed yield fund. Second, there has been huge growth in DAOs – decentralized autonomous organizations – this year. According to a recent DeFi report from ConsenSys, the 20 biggest DAOs hold $6B worth of digital assets. Expect a lot more chatter about DAOs in the months ahead.
Nexo in the Media
No TV? No problem. Some of Nexo’s and Antoni’s noteworthy appearances have been beautifully wrapped up in our most recent “In the Media” recap, including:
* “Crypto is volatile and that’s why we like it,” Antoni to CNBC
* An extended piece on the potential of blockchain governance in Information Age
* Some reality-check commentary on the value of Coinbase’s stock in Cointelegraph
NFTs Wild Week
NFT mania is BACK. Last week saw an absolutely wild pump in the NFT markets. NFTs on Ethereum reached $171M – up 338% month over month. Overall volume hit $376M. Perhaps even more fascinating was the excitement around a crop of “blue chip” digital art projects. The average price of a CryptoPunk surged massively to a new all-time high of $121,000. Across numerous projects including Bored Ape Yacht Club and ArtBlocks Curated, the price floors and the average price skyrocketed.
The action wasn’t just driven by retail investors but by institutional investors who had finally started allocating to the space – for example buying 88 cryptopunks at once over the last weekend. NFT partisans say that this is the beginning of the inevitable – a recognition on the part of top investors that NFTs are here to stay and that there is going to be significant value stored in large community OG projects.