Ethereum is not WETH or stETH. But jokes still move markets
Good morning. Here’s what happens:
Prices: Crypto prices are rising of late, despite crypto lender BlockFi filing for bankruptcy protection and ongoing protests in China over Covid restrictions.
Insight: What is the price of disrespect on crypto Twitter? A joke about wrapped ether spooked investors.
CoinDesk Market Index (CMI)
+5.7 ▲ 0.7%
+122.8 ▲ 0.8%
+15.3 ▲ 1.3%
S&P 500 daily close
-62.2 ▼ 1.5%
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Treasury Yield 10 years
BTC/ETH prices per CoinDesk indices; gold is the COMEX spot price. Prices from approximately 4:00 PM ET
Bitcoin rallies late despite BlockFi bankruptcy protection filing, China protests
By James Rubin
Crypto markets spent much of Monday in the red before a late-day rally sent most major tokens into positive territory, even as the industry continued to deal with the two body blows of crypto lender BlockFi’s Chapter 11 bankruptcy protection and widespread protests in China over severe Covid restrictions .
Bitcoin recently traded around $16,250, up the better part of a percentage point over the previous 24 hours, but still at the $16,500 weekend mark. The biggest cryptocurrency by market cap’s resilience matched a broader slowdown in asset activity of all stripes as the US celebrated its annual Thanksgiving holiday and a lull in bad news related to crypto exchange FTX’s implosion. The latter break ended with BlockFi’s petition.
“We’ll have to see if there’s going to be more contagion,” Marco Sampaio, co-founder and CEO of Hashdex, told CoinDesk TV’s First Mover program. “We know that the macro also plays a role in this. The pressure from China is also putting pressure on crypto or risky assets in general.”
But Sampaio cautiously added: “We have to see what’s going to happen. We have many chapters to follow [in] the coming weeks.”
Ether has recently changed hands at about $1,175, also up 1.3% from Sunday at the same time. Ether’s price fell about 3% earlier in the day after a “whale” address moved 73,224 ETH, worth $85.7 million, to Binance in Asia trading hours, according to an analysis by chain researcher Lookonchain. Investors usually transfer coins to centralized exchanges when they intend to sell or use the coins as a margin in derivatives trading.
Most other cryptos in CoinDesk’s top 20 by market cap recently traded in the green with popular meme coin DOGE up more than 5%, continuing a near-weeklong rally whose spark remains elusive. DOGE alternative SHIB was up approx. 3%. The CoinDesk Market Index (CDI), an index that measures crypto’s performance, was roughly flat.
News of continued demonstrations in China, the world’s second largest cryptocurrency by market capitalization and hawkish comments from US central bank officials on Monday sent equity markets tumbling with tech-heavy Nasdaq, the S&P 500 and the Dow Jones Industrial Average (DJIA) closing up around 1.5%.
Hashdex’ Sampaio noted that institutional investors focused on crypto’s long-term potential have been less affected by the industry’s recent debacles than companies that have traded and “dis-allocate” their assets. “We know markets come and go,” he said. “I would say ‘give it time.’ It hurts now, but we don’t think it’s going to be the scenario forever.”
There are no losers in the CoinDesk 20 today.
What is the price of irreverence on Crypto Twitter
By Sam Reynolds
Over the weekend, an inside joke packing Ether (wETH) on the brink of insolvency alarmed crypto Twitter.
Crypto Twitter is understandably fuming these days, given the rapid market-moving news cycle of the past month. With so many institutions in the crypto-economy on the brink of insolvency, the failure of another would not be surprising. DAOs, protocols, and everything in between seem to have been tapped or hacked in recent months.
So when a joke appeared suggesting that WETH might be next, the gallows humor was apparently genuine enough to be taken seriously by some readers off their guard.
Ether sank 4.8% in the following 24 hours, outpacing bitcoin’s fall, although there is no evidence that the decline stemmed from the gag. Token price drops often stem from various factors.
More to the point: the idea of WETH failing is really not something that would happen, at least in any traditional sense.
What is WETH?
First we need to understand what WETH is. The ‘w’ in wETH stands for ‘wrapped’, meaning a token that represents a fixed amount of another token, usually on a one-to-one basis. ‘Wrapping’ is often used to describe representing assets on another blockchain, as when ‘wrapped’ BTC (wBTC) is created to represent Bitcoin on Ethereum (although wBTC and wETH are very, very different creatures). Wrapping an ether token on the Ethereum network might seem strange then.
To summarize a long, technical issue: Ether, the token, does not support the ERC-20 standard that virtually all DeFi protocols use. Ether came before ERC-20; it’s Windows 3.1 in an age of apps and smartphones. So instead of fixing ether, it’s faster to just wrap it in a modern ERC-20 token.
But it’s still essentially another form of ether on the Ethereum blockchain.
Why can’t wETH go insolvent?
Unlike staked ether (stETH), or bridge protocols that allow you to “transport” tokens to different protocols (ie send Solana-based tokens to Ethereum via Wormhole), wETH does not have a centralized entity. Immutable open source smart contracts govern how wETH and ETH interact, and it is easy to verify that the wETH contract is fully supported at all times. There is a risk that the smart contracts behind wETH could be hacked. WETH is linked 1:1 and thanks to block explorers you can easily validate this.
It is transparent, decentralized and all in the same chain. So basically there is almost zero risk and a depeg is really a problem, although wETH may trade at a slight discount to ETH from time to time in digital asset markets.
Provided it is always possible to unwrap ether, which the smart contracts will do without a centralized authority, wETH will continue to function properly.
Data from Dune Analytics shows that there was an increase in unwrapping over the weekend when the joke went viral.
To be sure, this is not a bank run. Given that wETH currently trades at a slight discount to ETH, this may have generated more revenue for the protocol. For traders, the irritation will primarily come from the gas taxes. People may have lost $100, not their entire savings.
Sometimes jokes go too far
WETH is a confusing subject and in theory there shouldn’t be a need for it and eventually Ethereum will evolve to a point where it won’t be needed.
But this has less to do with WETH and more to do with how a news cycle based on flashy tweets can cause panic. This joke was a complicated one that required a reader to have technical context to properly understand it and find it funny. In the steamy world of crypto-twitter, it’s easy to make mistakes.
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21:00 HKT/SGT(13:00 UTC) European Union Harmonized Index of Consumer Prices (YY/Nov)
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In case you missed it, here’s the latest episode of “First Mover” on CoinDesk TV:
Bahamian Attorney General Defends Actions in FTX Case; Bitcoin and Ether Trade lower
Bitcoin and Ether traded lower as fears of FTX contagion and Fed rate hikes continued to weigh on markets. Hashdex CEO Marcelo Sampaio shared his outlook for the crypto markets. Nikhilesh De had the latest from the Bahamas where Attorney General Ryan Pinder speaks out on the FTX case and draws attention to his former role at a bank with ties to FTX. Plus a transition period for Time’s Keith Grossman who joined “First Mover” to discuss his upcoming job at MoonPay.
BlockFi files for bankruptcy as FTX infection spreads: BlockFi received a $400 million line of credit from FTX earlier this year.
Wrapped Bitcoin trades at a discount amid market contagion: WBTC’s discount fell to as low as 1.5% as questions swirled about whether the token is fully supported. Custodian BitGo clarified that it is.
Buy dip, sell bounce, crypto fund has biggest outflow in 12 weeks: Total assets under management (AUM) in digital asset funds fell to a new two-year low of $22.2 billion, according to CoinShares.
Centralized crypto exchanges will remain dominant despite FTX collapse, JPMorgan: DeFi protocols rely heavily on centralized exchanges to function, and it will likely take a long time for price discovery to shift from centralized to decentralized exchanges, the bank’s analysts said.
Ethereum Staking-as-a-Service Startup Kiln Raises $17.6M: The Paris-based firm is banking on the growth of staking services following Ethereum’s merger.