Research Summary
This report covers significant developments in the cryptocurrency and blockchain space for the week of August 25, 2023. Key topics include the dissolution of the Centre Consortium, which leaves Circle solely in charge of USDC, OpenSea’s decision to remove mandatory NFT creator royalties, and a critical vulnerability discovered in the DeFi application Balancer. The report also discusses the implications of these events for the broader crypto market.
Key Takeaways
Centre Consortium Disbands, Circle Takes Over USDC
- Circle’s Full Responsibility: Following the dissolution of the Centre Consortium, Circle will now have full responsibility and accountability as the issuer of USDC. This change simplifies the management of USDC and could be beneficial for both Coinbase and Circle as they navigate their respective regulatory challenges.
- USDC Expansion: Circle plans to launch USDC on six new blockchains over the next two months, bringing the total to 15 blockchains with native USDC issuance. This expansion could increase the demand for fee-less CCTP transfers.
- Impact on Users: Despite Coinbase’s departure from the Centre Consortium, USDC will still feel very much like a Coinbase product for its users. The separation could also help legislators establish better operating guidelines for US crypto companies.
OpenSea Removes Mandatory NFT Creator Royalties
- Royalties and the Web3 Creator Economy: Royalties have played a crucial role in incentivizing Web2 creators to transition to Web3. The removal of mandatory royalties could deter traditional brands from launching NFT initiatives and potentially leave the fate of NFTs in the hands of Web3 native brands alone.
- Impact on NFT Marketplaces: If royalties disappear, creators and studios may be compelled to launch their own in-house marketplaces that enforce royalties. This could fragment liquidity and counteract some of the primary benefits of building digital collectibles on open blockchain architecture.
- Yuga Labs’ Potential Move: Yuga Labs, which has earned a significant amount from NFT royalties, may launch its own royalty-enforcing marketplace. This could significantly impact the future of the NFT market.
Balancer Discloses ‘Critical Vulnerability’
- DeFi Vulnerabilities: Despite being audited by multiple blockchain security firms, Balancer reported a “critical vulnerability” in their code. This highlights that unexpected loopholes in smart contract code are seemingly unavoidable in DeFi.
- Response to Vulnerabilities: Balancer’s development team has established a process to address failures through well-timed, well-communicated disclosures to their users and the members of the Balancer Emergency SubDAO.
- Centralization vs. Security: The evolution of DeFi apps to become more effective at handling vulnerabilities has led to higher levels of centralization. DeFi users and developers need to consider the value proposition of DeFi and the limits to a DeFi application’s code complexity.
Actionable Insights
- Monitor Circle’s Management of USDC: Stakeholders should closely watch how Circle manages USDC following the dissolution of the Centre Consortium. This could provide insights into the future direction of stablecoins and their governance.
- Assess Impact of Royalty Changes: The removal of mandatory NFT creator royalties by OpenSea could have significant implications for the NFT market. Stakeholders should assess the impact of this change on creators, marketplaces, and the broader Web3 creator economy.
- Consider DeFi Security Measures: The vulnerability disclosed by Balancer underscores the importance of robust security measures in DeFi. Stakeholders should consider the trade-offs between decentralization and security in DeFi applications.
