Casey Wagner

Prometheum Capital has plans to add Uniswap’s UNI and Arbitrum’s native ARB to the custodial platform it intends to launch in the coming weeks, the company said Wednesday.&nbsp;



Prometheum became the first company to receive a special-purpose broker-dealer license to custody digital assets in May 2023. Per the license, Prometheum is permitted to custody crypto securities.&nbsp;



When asked why ETH, ARB and UNI are securities and not commodities, a representative from Prometheum told Blockworks that the company has a compliance team that reviews tokens and determines which meet the qualifications of a security.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/ether-commodity-or-not">Ether is the Schrödinger’s cat of crypto</a>



“The determination of whether a digital asset is a security or a <a href="https://blockworks.co/tag/commodities">commodity</a> is a nuanced and complex legal matter that is ultimately within the purview of regulators,” the representative said. “Prometheum Capital’s focus is on ensuring that we comply with all applicable regulations and provide a platform for investors to responsibly participate in the digital asset space.”&nbsp;



Representatives denied having any assurance from the Securities and Exchange Commission that regulators view these three tokens as <a href="https://blockworks.co/tag/securities">securities</a>, but added that should regulators come out with a contradicting stance, they will delist tokens and comply as needed.&nbsp;



The SEC in April 2024<a href="https://blockworks.co/news/sec-issues-uniswap-wells-notice"> served Uniswap a Wells notice</a>, which typically precedes an enforcement action. Uniswap in May moved to drop the pending action, arguing in a <a href="https://blog.uniswap.org/the-fight-for-defi-continues">blog</a> post that regulators have expanded their jurisdiction “beyond securities to all markets.”



The SEC <a href="https://blockworks.co/news/sec-drops-ethereum-consensys-investigation">dropped its investigation into Ethereum 2.0</a> in June — noting it would not bring charges related to the blockchain ecosystem’s sales of ETH as securities transactions, according to <a href="https://x.com/Consensys/status/1803230653120659641?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1803230653120659641%7Ctwgr%5E13f38885b38b0a7bf15a4e8daf5fb41a6d0a5dd4%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fblockworks.co%2Fnews%2Fsec-drops-ethereum-consensys-investigation">Consensys</a>. The decision, which the Ethereum community took as a massive win and a sign the SEC in fact sees ETH as a commodity, did not deter Prometheum.



Read more: <a href="https://blockworks.co/news/consensys-files-lawsuit-against-sec">SEC seeks to regulate ETH as a security, Consensys alleges in lawsuit</a>



The <a href="https://blockworks.co/tag/sec">SEC</a> in May also approved spot ETH exchange-traded funds under the rules for commodity-based trust shares, an encouraging sign for those hoping the regulator views the asset as a commodity rather than a security.&nbsp;



Prometheum told Blockworks there are no plans to remove ETH from its list of available tokens.&nbsp;



The firm’s approval by the SEC and Financial Industry Regulatory Authority last year came as a surprise to other crypto companies, including Robinhood, which said it had been trying to earn the same SPBD license.&nbsp;



“When [SEC Chair Gary] Gensler said ‘come in and register,’ we did,” Dan Gallagher, Robinhood’s chief legal, compliance and corporate affairs officer, <a href="https://blockworks.co/news/coinbase-in-house-hot-seat">told lawmakers at a House hearing</a> last July. “We went through a 16-month process with the SEC staff trying to register as a special-purpose broker-dealer and then we were…told in March that that process was over and we would not see any fruits of that effort.”&nbsp;



The Blockchain Association previously called Prometheum’s license a “<a href="https://blockworks.co/news/republicans-ask-doj-sec-investigate-prometheum">sweetheart deal</a>” and four Republican Congressional leaders <a href="https://blockworks.co/news/prometheum-sec-broker-dealer-investigation">demanded</a> a DOJ investigation into how and why the company got the regulatory green light.&nbsp;



Prometheum co-CEO Aaron Kaplan has defended the SPBD license, saying in July 2023 that crypto firms not registered with the SEC and FINRA are “simply not willing to comply.”&nbsp;



The custodial platform is set to launch by the end of next month, representatives told Blockworks. 



A modified version of this article first appeared in today’s On the Margin newsletter. Subscribe <a href="https://blockworks.co/newsletter/onthemargin">here</a> so you don’t miss tomorrow’s edition.



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Arbitrum

Prometheum to add ARB, UNI to custody platform launching next month

Bessie Liu

The Uniswap Foundation, a non-profit organization dedicated to supporting the growth of decentralized exchange Uniswap, is proposing an upgrade to the Uniswap Protocol Governance so that its fee mechanisms will reward UNI token holders.



Specifically, the Foundation is looking to upgrade the protocol governance to enable the collection of protocol fees, distribute these fees pro-rata to token holders who have staked and delegated their UNI votes and continue to enable governance to be in charge of core parameters around fees.



Following the announcement of this proposal, Uniswap’s native token (<a href="https://blockworks.co/price/uni">UNI</a>) has seen its price jump by over 40% from $7.24 to $10.22 in less than an hour, information on CoinGecko <a href="https://www.coingecko.com/en/coins/uniswap">shows</a>.



Read more: <a href="https://blockworks.co/news/uniswap-dao-voting-proposal-power-boost">Uniswap DAO to weigh giving ‘underrepresented’ delegates more voting power</a>



Erin Koen, the governance lead at Uniswap Foundation, <a href="https://twitter.com/eek637/status/1761029354014802023">wrote</a> in a post on X that if approved, this proposal will help increase the resilience and decentralization of Uniswap Governance.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">🧵 Biggest week in Uniswap Protocol Governance&#8230; ever? I just proposed a large-scale upgrade to the system. Specifically, I believe we should upgrade the protocol so that its fee mechanism rewards UNI token holders that have staked and delegated their tokens. 🦄&mdash; Erin Koen (@eek637) <a href="https://twitter.com/eek637/status/1761029351263318151?ref_src=twsrc%5Etfw">February 23, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Koen notes that the <a href="https://blockworks.co/tag/uniswap">Uniswap</a> Protocol has become a market share leader with very little governance in place.



“Maintaining this lead is only going to get more difficult. <a href="https://blockworks.co/tag/liquidity">Liquidity</a> is fragmenting across many chains, intents are a thing, <a href="https://blockworks.co/tag/mev">MEV</a> is a thing, competition is very smart, etc,” Koen wrote.&nbsp;



In order to maintain this lead, Koen thinks that it will be necessary to make some <a href="https://blockworks.co/tag/governance">governance</a> shake-ups, which include making delegation necessary for UNI token stakers.&nbsp;



Devin Walsh, the executive director of the Uniswap Foundation, says that this upgrade will allow Uniswap to create a more resilient governance system.



“This proposal aims to incentivize active and thoughtful delegation, which we believe will lead to the long-term success and sustainability of the Protocol,” Walsh told Blockworks. “We’re also grateful to have been able to work with top-tier grantees like Scopelift, Gauntlet, Avantgarde, Agora and more on the components of this proposal, and we believe their cumulative output is world-class.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The UF just posted proposal which we believe will not only invigorate Uniswap governance in the short term, but also ensure the long term success and resilience of the Protocol. If every company building on Uniswap disappeared tomorrow, it would be up to its delegates to… <a href="https://t.co/snbsypU49f">https://t.co/snbsypU49f</a>&mdash; Devin Walsh (@devinawalsh) <a href="https://twitter.com/devinawalsh/status/1761031537095745753?ref_src=twsrc%5Etfw">February 23, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Weighing in on the likelihood of whether or not this proposal will pass, Blockworks research analyst Matt Fiebach said that “although past attempts at turning on the fee switch have failed, I am confident this time is different, and the proposal is poised to succeed.”



He adds “the Foundation&#8217;s support combined with proceeding research and development work gives this fee switch proposal more credibility. It is unlikely the Foundation would have taken these steps without doing vigorous sentiment checks of the largest stakeholders.”



Disclaimer: Blockworks Research is an active delegate in the Uniswap DAO. Stakeholders have delegated 500k UNI tokens toward Blockworks Research to participate in Uniswap governance. Members of Blockworks Research also serve in positions on the Uniswap Deployment Committee, responsible for strategic growth of the protocol. The Blockworks newsroom is a separate entity and does not participate in these processes.



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governance

Uniswap token pumps following governance fee switch proposal

Jack Kubinec

A group of seven Uniswap DAO delegates who vote over 80% of the time — but possess marginal voting power —&nbsp;moved closer to receiving a voting power boost after a Wednesday temperature check vote.&nbsp;



The proposal would split 10 million uniswap, worth around $60 million at current prices, among “underrepresented” DAO delegates with less than 2.5 million uniswap. A DAO borne out of Georgia Tech’s blockchain club and the trading firm Wintermute were the two most popular delegates in the temp check. 



The <a href="https://gov.uniswap.org/t/temperature-check-delegation-of-uni-to-active-but-underrepresented-delegates/22238?u=doo_stablelab">proposal</a> now faces an on-chain vote before delegates would receive uniswap (<a href="https://blockworks.co/price/uni">UNI</a>) from the DAO’s treasury. To be clear, the UNI would not be funds the delegates could spend or trade, but would bump up their share of voting power on future governance matters.&nbsp;



As with many <a href="https://blockworks.co/tag/daos">DAOs</a>, Uniswap’s DAO allows token holders to either vote themselves or <a href="https://docs.uniswap.org/concepts/governance/guide-to-voting#:~:text=Delegation%E2%80%8B&amp;text=Delegating%20UNI%20binds%20the%20voting,best%20interest%20of%20Uniswap%20Governance.">delegate</a> their voting power to another wallet address. There are more than 30 delegates with at least 2.5 million delegated votes, the line the proposal sets for “underrepresented.” Variant Fund general partner Jesse Walden is the second-<a href="https://sybil.org/#/delegates/uniswap">largest</a> delegate with around 8 million tokens.



Read more: <a href="https://blockworks.co/news/uniswap-dao-vc-governance">Uniswap’s DAO poised to try its hand at venture capital</a>



The governance service provider StableLab authored the delegation proposal and would also receive governance tokens were it to pass. StableLab also proposed and <a href="https://www.tally.xyz/gov/rari-foundation/proposal/66726109600671652856639226642372993908424788433801728846371611962551475607579?chart=0">passed</a> a delegation incentive program this week at Rari DAO.



Doo Wan Nam, chief operating officer of StableLab, told Blockworks that the experiment in recognition for active delegates is important for accountability, as delegates who failed to maintain 80% participation would lose the extra votes.&nbsp;



Wan Nam acknowledged the difficulty in subjectively analyzing whether an active voter is a good voter, though. Are delegates voting flippantly or deeply researching both sides of a proposal?&nbsp;



“We have to start with something that’s objective,” Wan Nam said. 



The move comes as Uniswap’s voting delegation has been slowly consolidating. A Dune Analytics dashboard <a href="https://dune.com/butterd/uniswap-governance-power-structure">shows</a> that in 2023, the number of votes cast per governance proposal has stayed more or less constant while the number of voters participating has generally declined.



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DAOs

Uniswap DAO to weigh giving ‘underrepresented’ delegates more voting power

Michael Bodley

With decentralized crypto exchange Uniswap leapfrogging the $1.5 trillion mark in terms of trading volume, digital asset industry participants are once again getting bullish on Web3 liquidity solutions.&nbsp;



The sentiment shift of crypto traders increasingly tapping <a href="https://blockworks.co/tag/uniswap">Uniswap</a>, the world’s largest decentralized exchange (DEX), may have spillover effects to competing crypto-native products.&nbsp;



The $1.5 trillion volume milestone for Uniswap (<a href="https://blockworks.co/price/uni">UNI</a>) reflects a $500 billion cumulative volume increase for the DEX since April 2022 — when it passed $1 trillion in total trading volume since launch.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The Uniswap Protocol has officially passed $1.5T in trading volume 🚀 <a href="https://t.co/Fjd8IP7ngc">pic.twitter.com/Fjd8IP7ngc</a>&mdash; Uniswap Labs 🦄 (@Uniswap) <a href="https://twitter.com/Uniswap/status/1650565791291518976?ref_src=twsrc%5Etfw">April 24, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Uniswap Labs did not make a representative available for comment. Early this month, <a href="https://blockworks.co/news/uniswap-mobile-app-in-apple-store">Apple approved the developer’s iOS mobile app</a>, an initiative that had been long in the making.&nbsp;



Uniswap eclipsing $1.5 trillion total trading volume comes at a time when crypto native and Wall Street traders of digital asset products alike are paying close attention to the regulatory landscape in the US and beyond. And it hits when a number of crypto-native DEX competitors are seeing opportunities to compete in a crowded sector by offering innovative incentives to traders, according to a <a href="https://www.blockworksresearch.com/research/a-solidly-study">recent Blockworks Research report</a>.&nbsp;&nbsp;



Read more: <a href="https://blockworks.co/news/sec-defi-proposed-exchange-definition">What the SEC’s Proposed ‘Exchange’ Definition Could Mean for DeFi</a>



Markus Levin, the co-founder of XYO, told Blockworks in an exclusive statement that Uniswap’s rise is indicative of trader appetite for top DeFi products remaining strong, adding that DeFi is “truly unstoppable” at this point in the market cycle.&nbsp;



The $1.5 trillion volume mark, Levin said, demonstrates the desire for decentralized trading setups that “[cut] out the middleman and excessive fees, creating billions of dollars in advantage for investors and users — billions not sucked up by some obscure fee-charging scheme.”



DeFi adherents may take issue with centralized crypto exchange counterparties — the likes of Coinbase and Kraken — as well as Wall Street trading solutions for digital asset products, which they say impose prohibitive fees on their provisions for Web3 liquidity.&nbsp;



Levin’s XYO oversees the <a href="https://blockworks.co/price/xyo">XYO</a> protocol and related projects within its ecosystem. He positioned the Uniswap’s volume bump as yet another indicator that it is “high time” that lawmakers in Washington, DC, pass DeFi legislation that “protect innovation within our countries alongside its investors.”



Added Levin: “The SEC is attempting to enforce against DeFi without creating new laws.”



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decentralized exchanges

All Eyes on US Regulation as Uniswap Eclipses $1.5T Trading Volume

Sebastian Sinclair

Venture capital firm <a href="https://blockworks.co/tag/a16z">a16z</a> voted against a governance proposal on Friday that, if passed, would deploy Uniswap V3 to Binance’s BNB Chain, connected to Ethereum via the cross-chain bridging solution Wormhole.



The vote is active for a total of one week, ending Feb. 10.



Wormhole, initially created by Certus One, is an interoperability protocol that allows users to bridge assets across blockchains.&nbsp;



The <a href="https://www.tally.xyz/gov/uniswap/proposal/31">proposal</a> will later seek to provide Uniswap V3 users the ability to partake in Uniswap DAO’s Ethereum-based governance on BNB Chain.



The bridge built atop the Wormhole protocol, previously lost <a href="https://blockworks.co/news/in-second-largest-defi-hack-ever-blockchain-bridge-loses-320m-ether">$325 million</a> in DeFi’s second-largest-ever exploit, at the beginning of last year, and <a href="https://wormholecrypto.medium.com/wormhole-protocol-vs-portal-bridge-whats-the-difference-a9ad98696e64">rebranded</a> to Portal.



Portal is a major competitor to LayerZero’s offering — an a16z-backed company whose solution the venture capital firm is hoping will handle the job instead. A16z, Sequoia Capital and FTX <a href="https://www.crunchbase.com/funding_round/layerzero-labs-series-a--7212c4e5">led</a> a $135 million investment round into LayerZero in March of last year with a valuation of $1 billion.



A16z’s 15 million votes cast against the measure has led some <a href="https://twitter.com/ChrisBlec/status/1622201701921964035" target="_blank" rel="noreferrer noopener">skeptics</a> to question the ability of Uniswap governance&#8217;s ability to act in the protocol&#8217;s best interest.



Typically, those holding more tokens have a greater share of voting power and are able to greatly affect the direction of a given proposal.



In a16z&#8217;s case, the firm owns roughly 64 million UNI, but many of those tokens are delegated to third parties. For instance, the venture fund <a href="https://twitter.com/UMichBlockchain/status/1402832670191669255" target="_blank" rel="noreferrer noopener">has delegated</a> to a blockchain group at the University of Michigan, which was one of the governance representatives voting in favor of the proposal.



The ‘for’ votes outnumber the ‘against’ by 62% to 38% as of Monday at 9:00 am ET, but a quorum threshold has not yet been reached.



Blockworks attempted to contact a16z, but did not receive a reply by press time.



<h2 class="wp-block-heading">Bridging Uniswap</h2>



After a prior debate and <a href="https://snapshot.org/#/uniswap/proposal/0x6b8df360fdf73085b21fdf5eef9f85916fbde95621a3d454cb20fbe545ffc852" target="_blank" rel="noreferrer noopener">Snapshot vote</a>, the community selected the Wormhole bridge for the Uniswap V3 deployment on the BNB Chain, receiving 28 million votes. The solution provided by the LayerZero team came in second at 17 million.



Uniswap’s aim is to capitalize on the growing interest in DeFi within the Binance ecosystem by allowing more capital to flow across various ecosystems, according to the proposal on Tally. Wormhole is designed to shore up the security involved in the bridging of digital assets, despite its exploit woes last year.



Total value locked on BNB Chain has ballooned roughly $1 billion this year to $5 billion, data at <a href="https://defillama.com/" target="_blank" rel="noreferrer noopener">DeFi Llama show</a>. That still pales in comparison to Ethereum’s $29 billion claim to the overall $48.5 billion locked across leading DeFi protocols. Still, authors of the proposal said Friday that Uniswap should be pursuing the more than 750,000 weekly users on BNB Chain.



BNB Chain has a large and growing user base, fast transaction speeds, low fees, staking, cross-chain support and an active community making it a suitable platform for Uniswap v3, they said.



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a16z

A16z Delegated to Group that Opposed Its Vote on Uniswap for BNB Chain

Sam Martin

<div id="highlights-block_617725d07bf3f" class="highlights">
 <ul>
 <li>Bitwise released its outlook on DeFi, calling for Amazon-like disruption to the current financial system</li>
 <li>Coinbase Cloud aims to be the Amazon Web Services of digital asset infrastructure</li>
 </ul>
 
</div>



Bitwise released its outlook on decentralized finance (DeFi) in <a href="https://s3.amazonaws.com/static.bitwiseinvestments.com/Research/Decentralized-Finance-DeFi-A-Primer-for-Professional-Investors-11-16-2021.pdf" target="_blank" rel="noreferrer noopener">a recently published report</a>.



DeFi provides anyone in the world with an internet connection and smartphone low-cost, high-speed, and instantaneously settled financial markets.



Borrowing and lending protocols, as well as decentralized exchanges (DEXs), currently make up a vast majority of DeFi activity, as regulation around the space remains largely uncertain.



Coinbase Cloud aims to be the Amazon Web Services of crypto by supporting digital asset infrastructure through its subsidiary, Bison Trails.



Ethereum NFTs are officially live on FTX US, <a href="https://twitter.com/Brett_FTXUS/status/1466075424010604547?s=20" target="_blank" rel="noreferrer noopener">according</a> to the company&#8217;s president, Brett Harrison.



<h3 class="wp-block-heading">Latest in Macro:</h3>



<ul class="wp-block-list"><li>S&amp;P 500: 4,513, -1.18%</li><li>NASDAQ: 15,254, -1.83%</li><li>Gold: $1,784, +0.46%</li><li>WTI Crude Oil: $65.48, -1.06%</li><li>10-Year Treasury: 1.405%, -0.036%</li></ul>



<h3 class="wp-block-heading">Latest in Crypto:</h3>



<ul class="wp-block-list"><li>BTC: $56,666, -.63%</li><li>ETH: $4,546, -1.54%</li><li>ETH/BTC: 0.0800, -1.51%</li><li>BTC.D: 41.73%, +0.28%</li></ul>



<h3 class="wp-block-heading">DeFi versus TradFi</h3>



<a href="https://bitwiseinvestments.com" target="_blank" rel="noreferrer noopener">Bitwise</a> released a report titled <a href="https://s3.amazonaws.com/static.bitwiseinvestments.com/Research/Decentralized-Finance-DeFi-A-Primer-for-Professional-Investors-11-16-2021.pdf" target="_blank" rel="noreferrer noopener">&#8216;Decentralized Finance (DeFi): A Primer for Professional Investors&#8217;</a>, which notes that though many industries have been reshaped by digital technologies, finance has not. Though there have been improvements to the user experience through apps like Venmo or Cash App, it adds, the underlying infrastructure behind payments has remained stagnant for decades.



&#8220;DeFi replaces traditional financial intermediaries with software: self-executing &#8216;smart contracts,&#8217; secured by blockchain technology, allow innovators to reimagine everything from lending to trading, asset management, and more,&#8221; the executive summary of the <a href="https://s3.amazonaws.com/static.bitwiseinvestments.com/Research/Decentralized-Finance-DeFi-A-Primer-for-Professional-Investors-11-16-2021.pdf" target="_blank" rel="noreferrer noopener">report</a> states.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="488" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Defi-1024x488.jpg" alt="" class="wp-image-12005" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Defi-1024x488.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Defi-1024x488.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Defi-1024x488.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Defi-1024x488.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Defi-1024x488.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Defi-1024x488.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Defi-1024x488.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Defi-1024x488.jpg?w=1119 1119w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Bitwise</figcaption></figure>



<h3 class="wp-block-heading">DeFi advantages</h3>



<ul class="wp-block-list"><li>Lower cost and speed<ul><li>DeFi services are able to cut out the costs of middlemen (employees, offices, transaction fees, etc.) because they utilize public infrastructure (blockchains) that execute smart contracts on behalf of the users.</li></ul></li><li>Composability<ul><li>Innovation occurs much faster in DeFi because problems solved for one protocol may be applied to a different set of problems. </li></ul></li><li>Two-sided markets<ul><li>Just as Uber aligns the supply of willing drivers to the demand of potential passengers needing to get from point A to point B, DeFi connects liquidity providers looking for yield to traders willing to pay swap fees on an automated market maker, such as <a href="https://app.uniswap.org/#/swap" target="_blank" rel="noreferrer noopener">Uniswap</a>.</li></ul></li></ul>



There are nearly 4 million users and more than <a href="https://s3.amazonaws.com/static.bitwiseinvestments.com/Research/Decentralized-Finance-DeFi-A-Primer-for-Professional-Investors-11-16-2021.pdf" target="_blank" rel="noreferrer noopener">$200 billion of assets</a> in DeFi protocols today. The main difference between most applications consumers use today and DeFi is the lack of a centralized authority behind them. This ensures that anyone with an internet connection is free to use any application they desire.



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="945" height="867" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/defi-eco.jpg" alt="" class="wp-image-12007" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/defi-eco.jpg?w=945 945w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/defi-eco.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/defi-eco.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/defi-eco.jpg?w=280 280w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/defi-eco.jpg?w=284 284w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/defi-eco.jpg?w=239 239w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/defi-eco.jpg?w=80 80w" sizes="auto, (max-width: 945px) 100vw, 945px" /><figcaption>Source: Bitwise</figcaption></figure></div>



<h3 class="wp-block-heading">Primary applications today</h3>



Of the roughly <a href="https://defillama.com" target="_blank" rel="noreferrer noopener">$280 billion of total value locked</a> in DeFi protocols, a vast majority of the liquidity revolves around two product markets: borrowing and lending protocols, and decentralized exchanges, according to DeFi Llama data.



<h4 class="wp-block-heading">Borrowing and Lending</h4>



<a href="https://app.aave.com/#/markets" target="_blank" rel="noreferrer noopener">Aave</a>, which boasts more than $16 billion of liquidity, enables participants to lend out their assets in exchange for passive income. Borrowers can lock up collateral to take out loans at various annualized rates.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="823" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg" alt="" class="wp-image-12013" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg?w=320 320w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg?w=325 325w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg?w=272 272w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/aave-1024x823.jpg?w=80 80w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Bitwise</figcaption></figure>



<h4 class="wp-block-heading">DEXs</h4>



Network participants are able to provide liquidity via asset pairs to a DEX in exchange for rewards that come in the form of swap fees generated and liquidity provider incentives. DEXs are similar to a brokerage account or the New York Stock Exchange, except they are run by self-executing smart contracts.



Today Uniswap, one of the largest DEXs built on top of Ethereum, has trading volumes that rival those seen by centralized crypto exchanges such as FTX and Coinbase.



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="570" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/uni-1024x570.jpg" alt="" class="wp-image-12011" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/uni-1024x570.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/uni-1024x570.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/uni-1024x570.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/uni-1024x570.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/uni-1024x570.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/uni-1024x570.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/uni-1024x570.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/uni-1024x570.jpg?w=1460 1460w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Bitwise</figcaption></figure></div>



<h3 class="wp-block-heading">Threats</h3>



&#8220;JPMorgan, the world&#8217;s largest bank, boasts a market cap of [about] $508 billion, more than 3x the combined value of all DeFi apps combined,&#8221; Bitwise Research Analyst Ryan Rassmusan <a href="https://twitter.com/RasterlyRock/status/1461406941004115969?s=20" target="_blank" rel="noreferrer noopener">said</a> in a Nov. 18 Twitter post. &#8220;DeFi is tiny compared to the size of the industry that it aims to disrupt: [less than] 1% of the $24 [trillion] legacy finance market.&#8221;



The President&#8217;s Working Group on Financial Markets, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency recently released a <a href="https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf" target="_blank" rel="noreferrer noopener">report</a> on stablecoins and the need to regulate them. Lyn Alden, founder of Lyn Alden Investment Strategy, <a href="https://twitter.com/LynAldenContact/status/1465375630556553228?s=20" target="_blank" rel="noreferrer noopener">recently</a> pointed out that the fate of DeFi is in large part decided by centralized stablecoin issuers such as Tether and Circle, which are subject to the US&#8217;s jurisdiction.



The Fed <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20211123a.htm" target="_blank" rel="noreferrer noopener">stated</a> earlier this week that it would issue guidance for crypto regulation in the first half of 2022, which could prove to have a negative effect on the digital asset space during a time that coincides with <a href="https://cms.blockworks.co/powell-we-can-retire-the-term-transitory-inflation/" target="_blank" rel="noreferrer noopener">tighter monetary policy</a>.



SEC Chairman Gary Gensler <a href="https://cms.blockworks.co/gensler-says-centralized-regulation-is-path-for-crypto/" target="_blank" rel="noreferrer noopener">said today</a> that further enforcement against DeFi protocols is coming sooner rather than later.



<h3 class="wp-block-heading">Coinbase Cloud</h3>



&#8220;We&#8217;ve deployed 60,000 nodes that run your favourite crypto applications without interruptions and support over $30 [billion] assets staked to secure the world&#8217;s leading blockchain networks,&#8221; <a href="https://twitter.com/maraschmiedt/status/1466067585968054273?s=21">wrote</a> Mara Schmiedt, business and corporate development manager at Coinbase. 



Coinbase is aiming to become the Amazon Web Services of crypto, Coinbase Chief Product Officer Surojit Chatterjee told <a href="https://www.forbes.com/sites/stevenehrlich/2021/12/01/inside-coinbases-budding-plan-to-become-the-aws-of-crypto/?sh=224091c7415c" target="_blank" rel="noreferrer noopener">Forbes</a>, making decentralized applications easier to launch through their product line at <a href="https://bisontrails.co">Bison Trails</a>. While there are other competitors in the infrastructure space, no other exchange in the US boasts more than 73 million verified users to leverage.



Ali Yahya, a general partner at a16z, compared Coinbase&#8217;s full suite of offerings to &#8220;just read/write infrastructure, which is what Alchemy does,&#8221; according to the Forbes article.



&#8220;All of the other products and services that Coinbase uniquely can bring to developers such as trading, fiat on-ramps, we offer a single place for people to build the full end-to-end experience that really doesn&#8217;t exist today,” he added.



<h3 class="wp-block-heading">Non-Fungible Tokens (NFTs)</h3>



Ethereum NFTs are officially live on FTX US, <a href="https://twitter.com/Brett_FTXUS/status/1466075424010604547?s=20" target="_blank" rel="noreferrer noopener">according</a> to Brett Harrison, the company&#8217;s president. Industry participants are unsure how the increased competition in secondary marketplaces for NFTs will affect OpenSea&#8217;s historically dominant marketshare.



Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found below:



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="329" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.32-PM-1024x329.png" alt="" class="wp-image-12015" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.32-PM-1024x329.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.32-PM-1024x329.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.32-PM-1024x329.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.32-PM-1024x329.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.32-PM-1024x329.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.32-PM-1024x329.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.32-PM-1024x329.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.32-PM-1024x329.png?w=1227 1227w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Ethereum Projects</figcaption></figure></div>



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="285" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.41-PM-1024x285.png" alt="" class="wp-image-12016" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.41-PM-1024x285.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.41-PM-1024x285.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.41-PM-1024x285.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.41-PM-1024x285.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.41-PM-1024x285.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.41-PM-1024x285.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.41-PM-1024x285.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-01-at-3.49.41-PM-1024x285.png?w=1200 1200w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Top Solana Projects </figcaption></figure></div>



If you made it this far, thanks for reading! I am looking forward to catching up tomorrow.



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