The Digital Asset Insider is your monthly recap on what’s been going on in the digital asset space. Brought to you by Andrew Han, Director of Business Research at Fireblocks.
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Trends & Focus
Tokenization innovations have proven that blockchain technology can handle high transaction volumes. As blockchain protocols continue to improve stability and interoperability and increase the number of applications developed within their ecosystems, digital asset infrastructure will expand to support real worlds assets in the near future.
Digital asset infrastructure will need to significantly scale to have the capacity to handle billions of dollars of daily trading volumes supported in the traditional financial markets.
- Stablecoins: Foreign exchange markets $7.5 trillion daily trading volume (April 2022)
- Securities: U.S. equities $11 trillion average daily volume (Last 30 days Jan 3-Feb 6 2023); U.S. Bond markets $613 billion average daily volume (December 2022)
- Commodities: Gold $131 billion average daily volume (December 2021)
Blockchain technologies are being used in parts of the carbon markets to support global climate change goals outlined in Article 6 of the United Nations Climate Change Conference’s Paris Agreement, to reduce carbon emissions to Net Zero by 2050, and include the use of carbon offsets to achieve this objective. There is an opportunity for growth in tokenization technologies to scale carbon markets, driving efficiencies, lowering cost, and enabling broader use of carbon offsets.
- Carbon credits: $2 billion voluntary carbon credits were issued in 2022, with potentially $30 to $50 billion issued annually by 2030 (McKinsey, Taskforce on Scaling Voluntary Carbon Markets, 2021)
- Green financing: In 2022, green bonds issued reached $487 billion, representing 5% of the global bond market. Volumes traded totaled $863 billion in value. Climate Bonds Initiative targets $5 trillion in green bonds issued annually by 2025.
Digital Asset Markets Commentary
Digital Asset Markets
- Binance Holdings Limited has reentered the South Korean digital asset market through a reported 41% equity stake in GOPAX Exchange. Binance exited the South Korean market in 2021 due to low trading volumes. GOPAX is one of the five major South Korean exchanges that service fiat-to-crypto transactions, including Upbit, Bitsum, Coinone, and Corbit.
- In January, Genesis Global Capital filed for bankruptcy protection and could not find additional funding to keep the centralized lending platform operational. Genesis joins other lending firms BlockFi Inc., Celsius Network, and Voyager Digital, which had filed for bankruptcy in 2022 following the problems suffered by Three Arrows Capital.
- The South Korean city of Busan is reportedly launching the Busan Digital Asset Exchange with a focus on commodities tokens that will include gold, real estate and intellectual property. Busan’s blockchain hub initiatives have been supported by Binance and Huobi.
- Goldman Sachs has developed a tokenization platform, the Goldman Sachs Digital Asset Platform or ‘GS DAP’, that facilitates digital securities creation, issuance, and management. In November 2022, the firm partnered with the European Investment Bank (EIB) to issue a €100 million digital bond using GS DAP.
- Sales volume for Polygon non-fungible tokens (NFTs) sold through OpenSeas increased 15% month-on-month in January 2023 (1.5 million sales) versus December 2022 (1.3 million sales). NFTs are seen as having the potential to become standalone brand assets through several marketing strategies that turn physical products into a NFT to attract brand awareness, generate cross-selling opportunities, and spark stronger perceived ownership of certain brand elements. NFTs allow brands to form a highly engaging brand community that can support the brand, blend online and offline product ownership, and create a bond between the brand and consumers. Three trends are forming in Web3:
- Brands engaging consumers in the phygital (intersection of the physical and digital) world.
- Tokenization of hybrid collectibles that live in both the physical and virtual worlds.
- Omnichannel marketing involves NFTs, the metaverse, augmented reality, and gaming.
- Blockchain protocol MakerDAO has partnered with asset manager BlockTower Credit ( specializes in institutional credit), and token issuance platform Centrifuge to deploy four vaults to fund investments in real-world assets, with a total value of $220 million. The partnership enables credit intermediation connecting lenders using MakerDAO’s DAI to BlockTower’s borrowers using tokens issued by Centrifuge. DAI is a stablecoin pegged to the U.S. Dollar, backed by collateralized debt, and issued on the Ethereum blockchain.
Digital Asset Infrastructure
- Architect Financial Technologies Inc. announced the closing of a $5 million pre-product financing round to develop adaptable infrastructure products that enable institutions to trade across centralized and decentralized digital asset markets. Seamless and interoperable trading across venues will allow trading desks the ability to execute their strategies with a higher degree of efficiency than through multiple systems maintained to connect to multiple venues.
- Hackers exploiting weaknesses in cross-chain bridges has been highlighted by Chainalysis as the major source of loss by decentralized platforms contributing $3.1 billion (64%) out of the $3.8 billion lost in 2022. Cross-chain bridges store crypto assets in smart contracts, or with a centralized custodian, which are targeted by hackers. Strengthening the cyber security process would include simulating attacks, and improving smart contract audits.
Regulation & Regulators
- United Kingdom HM Treasury announced plans to lay out its first set of rules to regulate crypto assets. The new rules would cover crypto-related admission to a trading platform, making a public offer, executing payment transactions or remittances, arranging deals, operating a platform, custody, and mining transactions, or operating a node on the blockchain. The rules will cover crypto firms domestically or those providing services to the UK from overseas. Firms would need a license, along with minimum capital and liquidity requirements.
- Numerous countries have released updates to announcements made in 2022 on their approach to regulating crypto assets, or further insights into their approach to regulation.
- Australia releases token mapping consultation paper.
- Hong Kong Monetary Authority does not find a place for algorithmic stablecoins.
- The Monetary Authority of Singapore Chairman believes regulators need to be careful to avoid legitimizing ‘purely speculative’ activity in their rush to regulate the industry.
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This reCap is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting, or investment advice. For other important disclosures.