This is a quarterly update on the Crypto Macro series. The last post was from March 2022 and can be found here.
I have added a Definitions page which will include all of the terms and abbreviations that I use from now on and will be referred to on every post.
Be sure to check out the substack site or download the substack app if you have an apple product or iPhone. For you Android users I have news. I recently had the chance to speak to members of the substack team and they have told me that the Android app is currently nearing completion, and they will also be deploying a functionality to read text out loud for those of you on the go. I don’t know if you will be tormented with the Tik-Tok woman’s voice or if a more pleasing experience awaits us, but we’ll find out soon.
Table of Contents
Trends and Developments
Interoperability Update
$ATOM
$DOT
$ICX
$LINK
The problem with Bridges
US Regulatory Update
Ethereum 2.0 Update
Conclusion
1. Trends and Developments
So the big thesis about which trend I expect to emerge this year has been about Interoperability. As a refresher, this is the ability of one blockchain to talk to another blockchain without having to go through a centralized intermediary. This presents a large number of benefits to users, dApps, and protocols, and also allows for users to escape the regulatory capture that individual blockchains are immune to but that centralized entities are subject to. The current solution to this is to use centralized bridges, but these have a gigantic security problem and are constantly being exploited for hundreds of millions of dollars worth on a frequent basis. It’s becoming more and more obvious to everyone that bridges are not the long term solution.
From the onset of this substack I have been talking about legislation and regulations coming to the US that will essentially necessitate interoperability (Section 3 - Dec 2021 Macro Update). This regulation was introduced into the US legislature on 6/7/2022 and we will discuss it’s contents and it’s impacts in Section 4 of this post. I don’t think it will pass due to the current gridlock in the US legislature, but such gridlock may lift in Jan 2023, or after the 2024 presidential election. At some point such legislation will pass here in the US and will severely hamper your ability to use a centralized exchange. This is the kind of thing I have been discussing as a possibility here since the beginning of this substack. The US legislature will keep trying to push something like this through until they succeed, even though this one is likely to fail.
There have been several points of progress made in the ETH2.0 update, which I’ll discuss in Section 4, and the death of $LUNA (Section 3 of this post) had a significant impact on the interoperability protocols in the running. Not to mention the other competitors ($DOT and $ICX) have further advanced along the path to making interoperability a reality. I genuinely expect trustless interoperability to be fully functional before some of the legislation I’m talking about is in place, and these protocols have been making consistent moves.
Trends are often extremely clear when observed in hindsight, while it’s much harder to look into the future and put the pieces together. The ability to look into the future and see these trends is where the potential for a moon comes into play. If you take a read-through of my original macro post in the context of what has happened since then you can see the rough path I expect us to be on and the dominos I expect to fall.
Regulation of centralized exchanges and centralized end-points
Vulnerability of Centralized Bridges
User desire to avoid taxation and visibility of transactions to authorities
User desire for financial anonymity
User/Developer desire for efficiency of asset deployment across chains
User desire for their funds to not be siloed on individual blockchains
All of these domino’s combined lead to one solution. One or multiple interoperability protocols will arise to fulfill the needs and desires created by the above market conditions. I’m not trying to pretend that you will be able to retire off of any of these investments (you won’t), but if you allocate a small portion of your crypto investments to protocols like these, you have a chance to be able to outperform the market, and if you gain familiarity with the protocol you can be ahead of the market as the rest of the market attempts to catch up to you. As I’ve said before about being ahead of US legislation, you don’t want to be scrambling in the last few weeks to learn, you want to already know or be ahead of the regulation entirely.
Now, lets jump in and discuss updates to the interoperability protocols we have been following.
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