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Pantera Capital reflects on FTX situation and importance of DeFi in latest Blockchain Letter update

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Pantera Capital reflects on FTX situation and importance of DeFi in latest Blockchain Letter update

Pantera Capital reflects on FTX situation and importance of DeFi in latest Blockchain Letter update Josh O’Sullivan · 6 hours ago · 2 min read

An official Pantera Capital ‘Blockchain Letter’ addresses FTX impact on the firm and the importance of DeFi.

2 min read

Updated: November 12, 2022 at 7:18 pm

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Cover art/illustration via CryptoSlate

Pantera Capital CEO, Dan Morehead, posted a tweet late last night addressing the fallout of the ongoing FTX situation and how it highlights the importance of what Pantera is building.

FTX underscores the importance of what we are building here – a more efficient, decentralized, and open financial ecosystem.

As my co-CIO @joeykrug writes: “The journey may not always be easy or smooth, but it is necessary.”

Thoughts on this week: https://t.co/WH3YJLBeVD

— Dan Morehead (@dan_pantera) November 11, 2022

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Morehead’s statement is elaborated upon in the latest update to Pantera’s ‘Blockchain Letter’ — a monthly letter that covers a range of topics focused primarily on and around the blockchain ecosystem.

Updated Nov 11 by Pantera co-CIO Joey Krug, the latest addition to Blockchain Letter summarizes the FTX and Alameda Research fallout and the mitigations of permanent capital loss.

“Our approach towards situations like these first focuses on safeguarding the portfolio as much as possible.”

Pantera aims to minimize “exposure to centralized counterparties in general” while ensuring that trade flexibility is maintained.

Addressing the concerns surrounding their exposure to the FTX event, the firm explains that their main “risk/losses” are derived from their Blockfolio acquisition proceeds — denominated in FTT and FTX stock.

“We liquidated as much of this FTT as possible on Tuesday, November 8th. Prior to the collapse, on Monday night, our FTX equity and FTT token positions totaled under 3% of our total firm AUM.”

Having swiftly implemented precautionary measures after the FTX and Alameda fallout, Pantera speculates the likelihood of a regulatory response — though they are “cautiously optimistic it will yield medium- and long-term positive results.”

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Reflecting upon the situation, Pantera highlights the “need for decentralized, trustless protocols that allow users to trade, hold, and transfer their assets without relying on entities like FTX, Celsius, or Voyager.”

The need for centralized intermediaries is acknowledged within the Blockchain Letter, suggesting the likely event that such entities will be “subject to stricter oversight of reserves, audits, and risk controls.”

“On a personal level, the implosion of FTX has reminded us of what we’re doing here. Our mission – as a firm and as an ecosystem – is not to replicate the risks and inefficiencies in traditional finance. It is to build a more efficient, decentralized, and open financial ecosystem.”

Analysis

Huobi predicts crypto market bottom in early 2023

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Huobi predicts crypto market bottom in early 2023

Huobi predicts crypto market bottom in early 2023 Christian Nwobodo · 15 mins ago · 2 min read

According to Huobi Research, Bitcoin may reach the bottom of $15000 around March 2023, which will signal the next crypto market rebound.

2 min read

Updated: December 8, 2022 at 8:46 pm

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Cover art/illustration via CryptoSlate

Leading crypto exchange Huobi Global in its 2022-2023 annual report, has predicted that the current bear cycle may soon be over, as it expects the crypto market to reach its bottom in early 2023.

On Jan. 1, 2022, the global crypto market had a total market capitalization of approximately $2.2 trillion. However, the heat of the bear market has flushed out almost $2 trillion of its value, dropping to a low of $847.6 billion as of press time.

The 2022 bear market was worsened by macroeconomic distortions resulting from interest rate hikes and surging inflation. In addition, the Terra-Luna, Three Arrows Capital, and FTX collapses led to widespread contagions that have forced many crypto companies into bankruptcy and put investors at a considerable loss.

According to Huobi’s report, the decentralized finance (DeFi) ecosystem was worse hit as the total value locked (TVL) across chains declined by over 70%. According to DefiLlama data, the TVL of DeFi protocols fell from $171 billion in January to roughly $55 billion at the end of October.

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The Non-fungible token (NFT) bubble seemed to have busted as its number of active users fell by 88.9% and the total market cap declined by 42% from a high of $35 billion to $21 billion.

Layer-2 scaling solutions witnessed more growth than other ecosystems over the year. As a result, the total value locked in Layer-2 protocols reached a peak of $7.5 billion and bottomed at $ 3.7 billion. However, since the July crash, it has gradually surged to $5.32 billion.

The light ahead for crypto

The crypto market has evolved significantly over the year, with new fields like GameFi, NFTfi, and Metaverse gaining mainstream attention. For example, the GameFi industry reportedly raised about $2.9 billion over the period.

The much-anticipated Ethereum merge was completed on Sept. 15 and introduced a new era of staking-as-a-service to the industry. As of October 2022, about 15 million ETH has been staked on the PoS chain, representing  12.56% of the total ETH supply.

In concluding the market performance segment of the report, Huobi considered the 200-Week SMA indicator, Fed’s interest rate hikes, and deleveraging of risky financial institutions to predict that the crypto market may likely find its bottom by the end of March 2023.

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Considering Bitcoin’s price action, the current $16,945 falls below the 200-Week SMA Indicator. A trend pattern is observed by juxtaposing the 2022 price cycle with 2014, 2015, 2019, and 2020 cycles. If historical data is anything to go by, Huobi predicts that Bitcoin may see a rebound soon and will lead other crypto assets out of the current bear market.

On the macroeconomic front, after four consecutive interest rate hikes of 75bp, the U.S. Federal Reserve is expected to lower rates starting from Dec 2022, likely lowering inflation significantly around March 2023. With the monetary policy reaching its bottom in early 2023, the crypto market may as well find its bottom.

The recent FTX implosion saw many overleveraged financial institutions wiped out. The overall effect of the collapse is expected to last until the first quarter of 2023.

If Huobi’s parameters play as predicted, the crypto market is expected to reach its bottom when BTC and ETH prices trade at $1,500 and $1,000, respectively.

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Bear Market

Polygon co-founder addresses criticisms the project is just as bad as Solana

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Polygon co-founder addresses criticisms the project is just as bad as Solana

Polygon co-founder addresses criticisms the project is just as bad as Solana Samuel Wan · 4 hours ago · 2 min read

Sandeep Nailwal defends Polygon against claims it is a VC influenced, centralized project worse than Solana.

2 min read

Updated: December 7, 2022 at 5:20 pm

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Cover art/illustration via CryptoSlate

Polygon co-founder Sandeep Nailwal went on the defense against “ecosystems who are feeling defeated & jealous.”

The comment was motivated by a tweet from Mert Mumtaz, the co-founder, and CEO of Helius Labs, who pointed out Polygon had received more VC money than Solana and had used the funding to “pay people to use the chain and acquire companies.”

Polygon has received over 130M more in funding than Solana

Polygon uses the money to pay people to use the chain and acquire companies

Solana uses it to improve the tech and build the community and has *thousands* of more nodes

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do with this information what you will pic.twitter.com/ZOG6vs63hR

— mert | Helius (🧱, ⚡) (@0xMert_) December 6, 2022

Helius creates application programming interfaces (APIs) to simplify on-chain data for Solana developers. The idea behind this is to make Solana project development quicker and more efficient.

Polygon is worse than Solana, claims Mumtaz

Since the FTX collapse, the narrative around Solana has taken a big hit.

Former FTX CEO Sam Bankman-Fried (SBF) had backed Solana to usurp Ethereum. This extended to SBF developing the SOL-based Serum DEX to bolster the chain’s reach and appeal.

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Bankruptcy filings show the exchange held $982 million worth of SOL on its balance sheet. However, the recently appointed CEO John Ray III, who was brought in to “clean up” the company, said the complete failure of corporate controls he inherited meant he lacked confidence in the accuracy of the financial statements.

Mumtaz thought it relevant to point out Polygon had received $50 million from FTX’s sister company Alameda, yet does not suffer the same put-downs as Solana.

What’s more, on the primary criticisms leveled at Solana, including its conflict of interest via VCs and centralization issues, the situation is much worse when the same arguments are applied to Polygon, said Mumtaz.

it’s absurd that somehow Solana gets painted as the centralized VC chain while Polygon literally has 1) 10x the VC involvement 2) has thousands of less validators 3) can literally be stopped by the core team at any time 4) still has much less TPS while being 100x more centralized

— mert | Helius (🧱, ⚡) (@0xMert_) December 6, 2022

Nailwal disagrees

In response to Mumtaz, Nailwal said “Polygon won” not because of wielding VC money to buy favor; instead, it “won” because of the “power & pull of Ethereum.”

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He said that entities want to build on Ethereum, “not on half-baked L1s.” Put simply, Polygon’s attraction boils down to it providing access to the Ethereum chain.

Addressing the matter of VC influence, Mailwal said investments were made at a time when Polygon was valued at $8 billion. This meant VCs controlled around just 5% of the MATIC token supply.

The thread ended with Nailwal conceding that no ecosystem is perfect. But he prefers to focus on improving and encouraging others, rather than bad-mouthing the competition.

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Bankruptcy

Alameda’s capital portfolio reveals highest investments in Polygon, Hole, and Port Finance

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Alameda’s capital portfolio reveals highest investments in Polygon, Hole, and Port Finance

Alameda’s capital portfolio reveals highest investments in Polygon, Hole, and Port Finance Soumen Datta · 3 seconds ago · 2 min read

According to FTX/Alameda’s spreadsheet, the portfolio of FTX/Alameda contains nearly 500 illiquid investments spread across 10 holding companies.

2 min read

Updated: December 6, 2022 at 7:50 pm

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Cover art/illustration via CryptoSlate

The capital portfolio of the fallen quantitative cryptocurrency trading firm Alameda Capital was recently released by Financial Times, revealing some interesting investments.

According to the spreadsheet, there are nearly 500 illiquid investments spread across ten holding companies in the portfolio of FTX/Alameda worth $5.4 billion. 

Source: Financial Times

Two of the most significant investments were cryptocurrency mining firm Genesis Digital’s $1.15 billion investment and Open AI founded Anthropic’s $500 million investment. Crypto influencer Wu Blockchain thinks the investments were “ridiculous. “

The two largest investments, the $1.15 billion investment in Genesis Digital, a cryptocurrency mining company, and the $500 million investment in Anthropic, founded by OpenAI employees, are ridiculous.

— Wu Blockchain (@WuBlockchain) December 6, 2022

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Investments in Sequoia and Skybridge

A  $200 million investment in Sequoia, the venture capital firm that wrote down its FTX stake to zero earlier, is also included among the fallen trading firm’s holdings.

Further, the Alameda document lists an investment of $45 million in Anthony Scaramucci’s SkyBridge Capital. Per the spreadsheet, FTX transferred 30% of its stake in SkyBridge to Alameda to protect investors’ assets. Later, its founder Anthony Scaramucci revealed that SkyBridge had lost money on its holdings of FTX’s FTT tokens.

Additionally, the portfolio revealed the largest token investments in the form of HOLE – $67.5 million, Polygon – $50 million, NEAR (FTX) – $50 million, Port Finance – $33.5 million, and NEAR (Alameda) – $30 million.

Last month, FTX announced filing for Chapter 11 bankruptcy along with its sister entity Alameda Research and approximately 130 other companies related to FTX.

However, an analysis by Arkham Intelligence on Nov. 25 revealed that Alameda Research withdrew over $200 million from FTX.US before the company declared bankruptcy. In addition, Arkham disclosed in a Twitter thread that Alameda Research, FTX’s sister company, had collected $204 million from FTX US in the final days before the collapse of various crypto assets.

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