Commentary from the Desk: April 17, 2023

While it was a fairly quiet weekend, that’s being viewed by most as a strong positive, as ETH hung around its local high through the weekend and has been able to make a new high with just a 1% rally this morning. ETH has performed well since the Shapella upgrade, while BTC has moved essentially sideways. ETH withdrawals have been flowing but nothing meaningful seems to be hitting the market. According to Nansen’s dashboard (LINK), over 60% of withdraws have been made by US exchanges, which are effectively mandatory regulatory with-draws.

Unlike prior weeks, last week saw outperformance by alt-L1s, as we saw many traders looking to play the catchup game. With BTC +7% over a week and ETH +14%, SOL rallied 25%, AVAX +17%, NEAR +17, and ATOM +16%. Solana launched its phone last week, with a free dApp store. SOL actually trad-ed higher than this level in Feb, up to $27, before ticking back below $20; cracking through that level will open it up to the levels seem pre-FTX (around $33). Avalanche announced its Evergreen subnet testnet “Spruce”, which will have participation from T Rowe Price, Wisdom Tree, Wellington, and Cumberland. Spruce is a permissioned subnet, with full KYC on any participants. (LINK)

This weekend, the US House released a discussion draft for its stablecoin legislation. While it’s just a draft as of now, leaving room for refinement, there is a lot of content in here showing how legislators are thinking about stablecoins. The bill lays down a process for issuers to gain approval, and a set of standards for those issuers to maintain. For example, it requires that stables are backed one-to-one, and describes what assets are eligible to be held. It has a requirement of monthly balance sheet up-dates as well as requirements that issuers are well-supported from a managerial and technical stand-point. There is a key concept of extraterritoriality in the document, which means it doesn’t matter from where a stablecoin is issued; if it trades in the US, it is still subject to the policies in the bill. And it puts a moratorium on all exogenous stablecoins, which it defines as any coin depending on another asset for stability. While this was clearly designed to apply to algorithmic stablecoins such as UST, it also seems to apply to DAI as currently written. Finally, it calls for the Fed to produce a study on CBDC in the next six months.

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