Merge Week
White Star Capital Digital Asset Fund - newsletter #97
The crypto market is abuzz. The biggest event in crypto history, Ethereum’s Merge, is finally happening. It has been likened to changing out a plane’s engine mid-flight. This has been eight years in the making, and has involved many testnets. A failed merge could cause a market crash as thousands of associated crypto projects depend on it.
Reminder: what exactly is the Merge?
The merge combining Ether’s current mainnet chain with the Beacon chain essentially changes Ethereum from a proof-of-work system to a proof-of-stake one. It will mark the world’s biggest smart contract blockchain’s transition to the PoS consensus mechanism. Put simply, PoS requires market participants to hold enough coins to validate transactions, rather than use power to solve computational problems. It therefore reduces the number of miners and computing power needed to add another block to the Ethereum chain.
What does this mean for miners?
The merge prevents miners, some of which have invested thousands into equipment, from operating as validators on the Ethereum network. Many have therefore come together in support of the proof-of-work fork in which the chain will continue under the old consensus mechanism that required miners.
The PoW Fork is expected to commence 24 hours after the Merge. It will begin processing transactions 2049 blocks after the merge if all goes to plan. The specific time, node info, RPC and other details will be revealed one hour before the Merge.
However, the broader market is not so bullish. Many crypto exchanges have refused to support forked tokens, and the market currently values it at around $30- a fraction of ETH’s current price.
Will the Merge make ETH deflationary?
The merge significantly reduces the block rewards paid to miners for security. The hope is that this would make ETH a deflationary cryptocurrency, enhancing its longterm prospects as a sustainable and scalable digital currency.
Miners currently receive around 5 million ETH annually in rewards. QCP estimates that after the Merge, this will drop to around 1 million ETH. This will undermine the supply-side pressures, although is still an inflationary system as new tokens are issued as rewards to stakers.
For ETH to become deflationary, however, more tokens need to be burnt than issued. This requires the burn rate- the number of tokens taken out of circulation as the protocol burns a portion of transaction fees- to also increase. However, this may not immediately occur as the burn rate is inherently tied to network usage. In the current bear market, this burn rate is quite low. The average daily burn recently hit a record low of 1,206 ETH per day, which translates as about 9% of the record daily burn of 13, 269 ETH in January.
So for ETH to truly become a deflationary currency, we need to wait for the market to pick back up again and for a dramatic increase in DeFi and NFT activity.
Nonetheless, this is still a monumental event marking the beginning of a hopeful future for crypto.
🔦 White Star & Portfolio Spotlight
Index Coop is now available in the Coinbase app
Customers can now access diversified exposure to top crypto themes & simplified DeFi strategies via the dApp browser.
Multis announced a new key functionality: offramp
Web3 teams can now spend on goods and services from directly their crypto treasury thanks to Multis.
Lighthouse launched an event called ‘weekly Meet the Metaverse’
The goal is to get a lot of insights from passionate people working in the Metaverse.
Liquality has been integrated with Avalanche
Using the Liquality wallet, you can send, receive and make swaps to and from a native Avax address in your wallet.
🏦 Enterprises & Institutions
Square Enix becomes validator on gaming blockchain Oasys
Final Fantasy publisher Square Enix has joined gaming blockchain Oasys as its final initial validator ahead of its public launch later this year.
KKR experiments with listing private equity investments on Avalanche
The move will expand individual investors' access to private investment vehicles.
Fidelity Considering Offering Bitcoin Trading to Users
Fidelity is considering offering crypto trading to its users, including Bitcoin trading, according to the Wall Street Journal.
Starbucks Brewing Revolutionary Web3 Experience for its Starbucks Rewards Members
New Starbucks Odyssey experience will offer members the ability to earn and buy digital collectible stamps (NFTs) that will unlock access to new, immersive coffee experiences.
NFT marketplace Rarible partners with Immutable
Rarible now sells assets from one of the most popular protocols for blockchain-based gaming on its platform.
Google Cloud to Validate Transactions on Axie Infinity’s Ronin Network
Sky Mavis has added Google to its growing roster of firms to help secure the gaming-centric Ethereum sidechain network.
⚖️ Government & Regulation
Norwegian central bank uses Ethereum to build national digital currency
Norway is moving forward with CBDC testing plans, releasing the open source code for the country’s CBDC sandbox on GitHub.
Crypto Exchange Huobi to Delist 7 Privacy Coins, Citing ‘Latest Financial Regulations’
Seychelles-based crypto exchange Huobi plans to delist seven privacy-centric cryptocurrencies, including Monero and Zcash.
Abra Launching First US Regulated Crypto Bank
The digital asset company hopes to offer crypto yields with TradFi safeguards.
💰 Funding & Exits
Mysten Labs, creator of the Sui blockchain, closes $300 million raise led by FTX Ventures
Mysten Labs has closed a $300 million fundraise at a valuation that tops $2 billion.
Reddit’s Ohanian Leads $54 Million Doodles Capital Raise
Creator of colorful NFT profile pictures, blossoming despite crypto winter, seeks to branch out.
Pantera Capital leads $4.5 milllion round for NEAR-based wallet Sender
Crypto hedge fund Pantera Capital led a $4.5 million investment that valued Sender, a web3 wallet for the NEAR ecosystem, at $45 million.
Web3 game dev Revolving Games closes seed funding at over $25 million
The firm will use the funding to create original and fully decentralized web3 games over the next two years.
Web3 Startup SpiceAI Cooks Up $13.5M Raise To Make Data More Accessible
SpiceAI's latest round was led by Madrona Venture Group with participation from multiple venture capitalists and angel investors.
Hubble Protocol raises $5 million in a strategic round led by Multicoin Capital
This latest round brings the protocol’s total financing to date to $15 million. It raised its first round when it launched in January this year.
Former Revolut employees raise $78 million for web3 energy startup
Former Revolut employees have raised a $78 million round for Tesseract, a web3 startup that aims to tokenize the energy business.
🚀 Project Launches & Updates
UK venture firm Northzone eyes web3 startups with new €1 billion fund
London-based venture capital firm Northzone launched a €1 billion fund with an eye on investing in crypto and fintech startups.
NEAR Foundation launches $100 million VC fund and lab for web3
Swiss non-profit the NEAR Foundation has launched a $100 million venture capital fund and venture lab for web3.
🔥 Other Bits We're Excited About
Bored Ape NFT Metaverse Band Taps Beyoncé, Bruno Mars Producers
Universal Music Group’s Kingship, a band based on Bored Ape NFTs, just recruited a hitmaker producers Hit-Boy and James Fauntleroy.
NFT mints on Solana have surged to an all-time high
Solana NFT mints surged above 300,000 this week despite a slump in the overall non-fungible token market.