Market Summary

Bitcoin Price: US$ 21,783.54 (-0.36%)
Ethereum Price: US$ 1,514.83 (-1.54%) 

Exploring Land-Based Web3 Gameplay

• Illuvium: Zero (IL:Z) is the last of three initial titles to be included in the Illuvium ecosystem or Illuvium IBG (Interoperable Blockchain Game). The game is currently available on PC and will launch on mobile devices in the future. It resembles other city-building/resource-management games such as FarmVille and will have players build, manage production lines, and produce and trade resources. What’s fairly unique about IL:Z is that not only can landowners produce NFT resources that can be openly traded for real-world money, but these resources can also be used in other games within the ecosystem such as Illuvium: Arena (a PvP auto battler) and Illuvium: Overworld (an open-world adventure game), which launched their public betas on September 28th and December 12th, respectively.
• Crypto Unicorns (CU) is a browser-based digital-pet collecting and farming game created by Laguna Games built on Polygon. The core land game, which launched in May 2022 (in early access), includes a number of basic farming and breeding mechanics, allowing players to collect resources, produce NFTs, and earn in-game tokens that will eventually be used within all other games in the ecosystem. As of writing this report, there are currently four additional mobile-first titles in development that are expected to launch throughout 2023, with Unicorn Jousting being the first.
• Axie Homeland is the latest flagship title to come from the Sky Mavis team that further expands the Axie Infinity ecosystem. The game was launched in early access at the end of December 2022, three years after the release of Axie land-based assets. Homeland is described as having a mix of RPG, resource management, UGC, farming, and base-building elements. In this early-alpha build of the game, players will spend their time farming off-chain resources, optimizing production, and acquiring off-chain items that can be equipped to adventurers who will then go out and battle in idle raids. Homeland will receive several updates in the coming years split across four phases that will end by 2026, when the game is expected to have its full launch.
• We can, however, draw some conclusions from the available information. Out of the three games highlighted in this report, IL:Z raised the most capital from its first public land sale (even factoring out sales made with sILV2), which would suggest a combination of good timing and relatively good consumer sentiment towards the project. However, over the past year, Axie Infinity has remained the most searched project out of the three.
• Despite scoring low on Google Trends, CU has set the standard for retaining an engaged player base that reinvests more tokens than are taken out of the ecosystem as profits. This will be a big test for Homeland in particular during its next season when AXS token rewards are implemented. Existing holders (some of whom bought in when prices were much higher) have been waiting for three years and will have certain expectations based on previous experiences during the height of the P2E era. It is still too early to tell how IL:Z and Homeland will balance their in-game economies, but this will be a defining metric to better determine their potential for long-term success.
• Finally, we can state that timing is extremely important when launching any game. All three games received increased demand for their respective NFT collections in the months leading up to launch. CU demonstrated that a subpar launch that fails to meet customer expectations can have significant implications on the actively traded in-game assets. A key takeaway is that delaying launch until external market conditions are more favorable and the game is free of significant bugs will help improve asset performance and user sentiment.
• Cropped, continue to Delphi Digital for the full research…

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Polygon Exploring Use of ZK Technology for Main Chain, Co-Founder Bjelic Says

• Polygon, an Ethereum scaling project, is exploring ways to bring “zero knowledge,” or ZK, technology – seen by many experts as a major advancement in cryptography’s use in blockchains – to its main chain.
• The effort is in addition to Polygon’s ongoing and previously disclosed plans to release a “ZK rollup” – a type of layer 2 scaling system that aims to increase the speed of blockchain transactions and reduce their cost.
• Mihailo Bjelic, Polygon’s co-founder, disclosed the exploratory work in an interview with CoinDesk, underscoring just how crucial ZK technology has become for the project’s development road map. He said that some ZK-based enhancements could eventually be made to Polygon’s main proof-of-stake (POS) chain – a sidechain off Ethereum – as a way of improving transaction security.
• By exploring how ZK technology can be integrated into Polygon’s mainchain, the blockchain is betting big that this scaling technique could drive its ecosystem.
• “One of the things that we are experimenting with is upgrading the Polygon POS chain to become ZK-secure, so as to include the zkEVM into the Polygon POS chain itself,” Bjelic said in an interview with CoinDesk.

Stablecoin Issuer Tether’s Reserves Partly Managed by Cantor Fitzgerald: WSJ

• Tether has been using Cantor Fitzgerald to manage more than half of the $67 billion in bonds, cash and loans backing its tether stablecoin (USDT), reports the WSJ.
• Privately held and led by Howard Lutnick, Cantor Fitzgerald is among the best-known bond trading houses on Wall Street, and one of 25 primary dealers for U.S. Treasurys, allowing direct trade with the Federal Reserve.
• Tether earlier this week reported assets at year-end 2022 of $67 billion, $39.2 billion of which were in U.S. Treasury bills. The rest of the assets were in money market funds, cash and other items.
• According to the WSJ report, Cantor is managing a $39 billion bond portfolio for the stablecoin issuer.

Tether’s Attempt to Block CoinDesk’s Request for Stablecoin Reserve Records Dismissed by New York Court

• A New York judge on Friday rejected an attempt by iFinex and related companies, which include cryptocurrency exchange Bitfinex and stablecoin issuer Tether, to block CoinDesk’s request for information about the financial reserves backing the USDT token.
• New York Supreme Court Justice Laurence Love ruled that he would deny and dismiss the companies’ petition to block CoinDesk’s Freedom of Information Law (FOIL) request to the New York State Attorney General’s (NYAG) office for documents. The NYAG’s office investigated Tether and Bitfinex on allegations that USDT, the dollar-pegged stablecoin that Tether issues, was not sufficiently backed by reserves from mid-2019 to early 2021, settling charges with the company at the end of that period.

Uniswap Vote on BNB Deployment Ends With Silicon Valley’s A16Z on Losing Side

• Community members of Uniswap, the leading decentralized crypto exchange (DEX), voted to deploy to Binance’s BNB blockchain using the Wormhole bridge, the culmination of a behind-the-scenes political battle that ended with the big Silicon Valley venture-capital project backer Andreesen Horowitz (a16z) on the losing side.
• This week’s vote by the Uniswap DAO – a decentralized autonomous organization that allows Uniswap (UNI) token-holders to weigh in on protocol changes – closed Friday with 66% in favor of deploying Uniswap onto BNB Chain, and 34% opposed.
• The lead dissenter was a16z, Uniswap’s largest investor, which had pushed instead for one of its own portfolio companies, LayerZero, to be used as the cross-chain bridge. LayerZero lost a previous community poll to become Uniswap’s official Ethereum-to-BNB bridge service – a piece of infrastructure necessary to keep Uniswap’s governance process up and running on BNB Chain.
• This week’s followup vote, which was open from Feb. 2-10, officially ratified Wormhole, a LayerZero competitor, as Uniswap’s partner. The vote turned contentious after a16z elected against it and raised issues with Wormhole’s security in a Uniswap community forum post. Separate allegations were made about deficiencies in LayerZero’s security.
• “[W]e do not believe Wormhole offers the most secure or decentralized bridging option,” wrote Porter Smith, a partner at a16z Crypto, citing last year’s $326 million hack of the Wormhole platform as a key factor in the firm’s opinion. An a16z representative also told CoinDesk the firm took issue with the process the DAO used to assess different bridge options, suggesting the community re-do the vote after completing a more formal review of the bridge contenters.
• A16z’s 15 million “no” votes did not ultimately block the BNB-deployment from passing, but they nonetheless raised questions in the broader crypto community around the venture firm’s influence within Uniswap’s governance system.

PayPal Held Over $500M in Bitcoin, Ethereum Last Quarter

• Payments giant Paypal held over half a billion dollars worth of the two largest cryptocurrencies as of December 31, 2021, according to its year-end report to the Securities and Exchange Commission (SEC).
• That included $291 million in Bitcoin (BTC), and another $250 million in Ethereum (ETH).
• Another $63 million in assets were held in both Bitcoin Cash (BCH) and Litecoin (LTC), bringing PayPal’s total crypto held on behalf of its customers to $604 million. 
• The figure is lower than the previous quarter’s, which logged $694 million in crypto as of September 31, back when Bitcoin traded at  $19,400. That was also before the collapse of crypto exchange giant FTX, whose resulting contagion battered the lead crypto’s price down to $16,600 by the end of the year. 

SushiSwap Acquires Cosmos-Based Trading Platform Vortex Protocol

• SushiSwap is making good on its January promises to launch a derivatives trading platform. But instead of building it from scratch, it’s gone out and bought one.
• The popular Ethereum-based decentralized exchange (DEX) announced the acquisition of Vortex Protocol today for an undisclosed amount.
• Built atop Sei Network, a blockchain using Cosmos’ tooling, the on-chain trading platform will come under the SushiSwap umbrella as another product and will take a new name.
• Vortex Protocol is a not-yet-launched decentralized derivatives exchange and will offer users 10x margin trading on a variety of assets. Sei Network and Sushi’s newly-acquired Vortex Protocol will both launch on mainnet in Q2 of 2023.
• “This acquisition is a direct partnership between the SEI, Vortex, and Sushi teams to help bring to market the first fully on-chain perpetual DEX via Sushi,” SushiSwap’s CEO Jared Grey told Decrypt.

SEC to Sue Crypto Trust Co. Paxos Over Binance Stablecoin: WSJ

• The U.S. Securities and Exchange Commission (SEC) intends to sue stablecoin issuer Paxos, which is behind the Pax Dollar (USDP) and Binance USD (BUSD) tokens, over the latter stablecoin, the Wall Street Journal reported Sunday.
• An SEC spokesperson told Coinesk the commission does not comment on the existence or nonexistence of a possible investigation.
• The SEC is alleging that BUSD is an unregistered security, according to the report. The news comes days after CoinDesk reported Paxos is under investigation by the New York Department of Financial Services, though the scope of NYDFS’ investigation is unclear.
• BUSD is a Binance-branded stablecoin issued by Paxos, a New York-regulated trust company that also enjoys a provisional charter from the Office of the Comptroller of the Currency, a federal bank regulator.
• Spokespeople for Paxos did not immediately return requests for comment.
• Sunday’s news comes right after the SEC settled charges with crypto exchange Kraken, when the regulator alleged its staking services were an offering of unregistered securities. Kraken did not admit or deny the charges under the terms of the settlement, but did shut down all of its U.S. staking programs.

Brazil’s oldest bank says you can now pay your taxes with crypto

• Banco do Brasil, the South American country’s oldest bank, says it’s now possible to do what many blockchain enthusiasts have long wanted — the ability to pay the taxman in crypto.
• Through a partnership with Bitfy, a startup that was funded by the bank’s VC arm, clients can use the app to instantly convert crypto in their account into the local currency to pay and settle a tax bill.
• “This partnership makes it possible to expand the use and access to the ecosystem of digital assets with national coverage,” Bitfy CEO Lucas Schoch said Friday in a statement from Banco do Brasil, which is partially owned by the state. 
• Brazil has been a leader in digital payment innovations with its PIX system and passed new crypto-friendly legislation last year. The central bank is currently testing a digital currency it plans to issue next year.

Nexo will stop its Earn Interest Product for US clients in April

• Following a settlement with the U.S. Securities and Exchange Commission announced last month, crypto lending platform Nexo will stop its Earn Interest Product for all U.S. clients, which include both citizens and residents, on April 1.
• “We ask that you begin planning the withdrawal of your funds at a convenient time by this date,” the company said in a blog post, adding that no other Nexo services will be affected. Clients with outstanding credit will be given “ample time and notice” to repay loans and withdraw collateralized assets.
• Non-U.S. clients who believe their accounts have been wrongfully flagged must update verification details by providing documents such as bank statements or utility bills. 
• Nexo agreed to pay $45 million after being charged by the SEC for failing to register the offer and sale of the retail crypto asset lending product, which was first offered in the U.S. in 2020. Without admitting or denying the charges, Nexo agreed to an order to block it from violating registration provisions under the Securities Act of 1933.
• The course of action “reflects our belief that the development of clear regulatory frameworks is the best way to protect the crypto industry and usher it into the mainstream safely and compliantly,” the company said.

Binance says it’s adjusting Tron network withdrawal fees to previous levels

• Binance, the leading crypto exchange by trading volume, said Saturday that it had reverted withdrawal levels on the Tron network to previous levels after feedback from the community.
• “Binance has worked with the Tron project team to arrive at a solution for reducing withdrawal fees on Tron network,” the exchange said in a statement.
• The exchange said Friday that it was increasing fees after the Tron community voted to change the energy charging mechanism on the network to a dynamic energy model designed to more reasonably energy resources on the chain and prevent “excessive concentration of network resources on a few contracts.” After the change, the withdrawal fee for USDT and USDC more than doubled, while the fee to withdraw TRX increased 15 times.
• Tron founder Justin Sun said earlier Saturday that he was working with Binance to reduce the fees.
• “We remain committed to making crypto trading more affordable for everyone,” he tweeted.

El Salvador’s bitcoin risks ‘have not materialized,’ IMF says

• The International Monetary Fund said the risks of El Salvador’s bitcoin adoption “have not materialized” — primarily thanks to its “limited” use — but caution is warranted.
• “Given the legal risks, fiscal fragility and largely speculative nature of crypto markets, the authorities should reconsider their plans to expand government exposures to bitcoin,” the IMF said in a statement on Friday.
• The words follow an annual visit to El Salvador from the United Nations’ financial agency, which followed last month’s $600 million bond payment by the Central American nation.
• Much to the IMF’s chagrin, El Salvador made bitcoin legal tender in September 2021, and its president, Nayib Bukele, has been a vocal bitcoin proponent on Twitter. Still, his bullishness hasn’t exactly paid off, with paper losses on the nation’s bitcoin investments currently estimated at a minimum of 50%.
• Because of El Salvador’s opaque purchases and holdings, exact investment figures are unknown. “Greater transparency over the government’s transactions in bitcoin and the financial situation of the state-owned bitcoin-wallet (Chivo) remains essential,” the IMF said.
• Though its bitcoin investments have yet to pay off, El Salvador’s economy has experienced a “full recovery” to pre-pandemic levels, the IMF said, thanks to “the effective government response to the health crisis.”

Coinbase says its staking services are not securities

• Missteps in regulating the technology underlying staking ecosystems may have serious — and negative — consequences, including forcing U.S. consumers to less-regulated foreign platforms,  Coinbase Chief Legal Officer Paul Grewal argued in a blog post.
• Grewal was adamant that Coinbase’s staking services are not securities. The post came one day after the Kraken exchange shut down its staking services in the U.S. in response to a Securities and Exchange Commission enforcement action. 
• “Given the importance of this technology, getting regulation wrong could do serious harm to the development of the crypto industry in the U.S.,” Grewal wrote. By presenting “aggressive mandates” and superimposing securities laws onto the staking ecosystem, regulators may “prevent U.S. consumers from accessing basic crypto services and push users to offshore, unregulated platforms,” he added.
• “Staking is not a security under the U.S. Securities Act, nor under the Howey Test, which the SEC uses to determine whether an investment contract is a security,” said Grewal, adding that the topic of whether it should even be applied to crypto at all merits a separate discussion.
• Since staking customers “retain full ownership of their assets at all times, as well as the right to ‘unstake’ those assets consistent with the underlying protocol,” the related services “do not constitute an investment of money, even under an expanded definition,” Grewal said.
• Staking also fails to meet Howey’s criteria for common enterprise “because assets are staked on decentralized networks” and transactions are validated “through a community of users, not a common enterprise,” Grewal said. Nor do staking services meet the Howey Test’s “reasonable expectation of profits,” he added. 
• Staking rewards are determined via protocol, not Coinbase. “Therefore, this does not meet the case law definition of common enterprise,” said Grewal.
• “Finally, staking services do not pay rewards based on the ‘efforts of others,'” Grewal said. “Service providers’ staking services are not entrepreneurial, managerial, or a significant factor in whether customers receive staking rewards or the amount of rewards received.”
• “These are IT services, not investment services,” he said.