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SEC Considers Appeal of Ripple Decision ⚖️

The agency said the Ripple decision was wrong in a filing for a different court case against Terra -- plus the top news, stats, and reports of the week.

Author

Ryan Allis
July 26, 2023

Social Links: Twitter | Telegram | Newsletter

Issue Summary: Welcome back to Coinstack, the weekly newsletter for institutional crypto investors and industry insiders. We review the top news, stats, and reports in the digital asset ecosystem for our 115k weekly subscribers. This week we cover the SEC hinting at an appeal to Ripple ruling, the US DOJ needing 6-8 weeks to produce evidence against Mashinsky at Celsius, and big new venture rounds for Flashbots ($60M) and RISC Zero ($40M).

Price performance since we began writing Coinstack in January 2021

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💵 Weekly Crypto Fundraises & Deals

Here are all the crypto fundraises we heard about this week, ranked by size…

🗞️ Crypto News Recap: The Top 5 Stories

Welcome back to This Week in Crypto… everything you need to know in one scannable format. Here are the top 5 stories of the week…

  1. 💰 SEC postures to appeal Ripple ‘secondary markets’ ruling- SEC lawyers said Judge Torres’ ruling about XRP sold on secondary markets was “wrongly decided” and may soon call for a review.

  2. ⚖️ U.S. DOJ Needs 6-8 Weeks to Process Evidence Against Celsius's Former CEO, Attorneys Tell Judge- The U.S. Department of Justice (DOJ) asked a federal judge for six to eight weeks to produce evidence for its case against Alex Mashinsky, the founder and former CEO of crypto lender Celsius.

  3. 🎭 Binance, CEO Zhao flag motion to dismiss CFTC lawsuit- Binance intends to file a motion to dismiss a CFTC lawsuit, which alleges it knowingly allowed US-based traders access to crypto derivatives.

  4. 🔍 Avalanche Foundation creates $50 million incentive program to purchase tokenized assets- The Avalanche Foundation will use up to $50 million to purchase assets tokenized on the Avalanche blockchain in a move meant to showcase the utility of creating on-chain digital representations of "real world" things.

  5. ⚖️ Worldcoin is here — just not here in the US- Worldcoin is here, but only for people outside of the United States. OpenAI CEO Sam Altman co-founded Worldcoin, a cryptocurrency project complete with a token and “World ID,” designed to act as a digital passport. The project launched Monday.

💬 Tweet of the Week

Source: @RyanSAdams

📊 Key Stats of the Week

Here are the most important and interesting stats in crypto this week...

1. The recent failure of the Multichain bridge had a severe impact on the Fantom ecosystem. TVL in Fantom's DeFi protocols dropped by 67% as a result in just a few weeks.

Source: @TheBlockPro__

2. New Adoption Rate has been on the rise of #ChainLink. This metric shows the activity share of new addresses out of the total activity. An increasing value suggests new users and increasing adoption

Source: @TheBlockPro__

3. Ethereum revenue grew 85% QoQ to $847m, driven by meme coin trading

Source: @ph0rt0n

4. After the upcoming halving in ~8 months, Bitcoin will have a higher stock to flow ratio than Gold

Source: @WClementeIII

5. Approximately 2% of Aave’s total fees since the beginning of Q3'23 were generated by flash loans.

Source: @TokenTerminal

📝 Highlights from the Top Crypto Reports

Here are the top highlights from the best crypto research reports this week…

About the Author: Messari brings transparency to the crypto economy. Messari wants to help investors, regulators, and the public makes sense of this revolutionary new asset class and build data tools to drive informed decision-making and investment. This is an excerpt from the full article, which you can find here.

Introduction

Since the DeFi summer of 2020, token incentives have risen to prominence as the primary driver of growth within the cryptocurrency ecosystem. They work by rewarding users with protocol tokens for specific actions. Rather than exchanging equity for venture capital and repurposing that cash to stimulate user growth, crypto protocols have pioneered a more direct approach: They reward users with protocol tokens, thereby circumventing the challenging process of capital acquisition.

Theoretically, token incentive models are meticulously designed to align users with the long-term growth of the protocol and to attract new users without resorting to traditionally capital-intensive growth strategies. Additionally, such programs have the dual objective of progressively decentralizing token governance power and ensuring the perpetual engagement of users within a close-knit community.

However, various token incentive model experiments have resulted in a wide range of outcomes, ranging from simply ineffective to market changing. Broadly speaking, there are three classes of token models:

  • One-Time Airdrops: Single, large-scale distribution of tokens to users at a specific moment.

  • Ongoing Rewards: Continuous or periodic allocation of tokens to users for their engagement and contributions.

  • Campaign Models: Carefully planned, targeted incentivization campaigns that reward users for particular actions or during specific periods.

Each broad model has tradeoffs and a wide variance in sustainability and success. To assess the viability of each model, case studies of prominent protocol examples can be examined such as:

  • Uniswap: The trailblazer of the airdrop model.

  • NFT Marketplaces: Executed a token distribution campaign targeting users of rival platforms.

  • Arbitrum: Adopted a one-time token distribution strategy.

  • Blur: Effectively publicized a gradual token release approach.

  • dydx: Implemented a dual strategy encompassing both lump-sum distribution and cyclical token allocation.

  • Optimism: Devised targeted incentivization campaigns.

Uniswap: Airdrop Trendsetter

In September 2020, Uniswap existed without a proprietary token, despite being a dominant player in the DeFi space. Instead, it merely rewarded liquidity providers with a percentage of trading fees. The team behind SushiSwap recognized this as an opportunity. Capitalizing on Uniswap's open-source code, they forked the project and added a native token. They enticed Uniswap's liquidity providers with the prospect of earning SUSHI tokens if they migrated to the newly launched SushiSwap platform. Then, afterSushiSwap's launch, they planned to gradually transfer liquidity from Uniswap to their own platform.

In a strategic response, Uniswap initiated the launch of its own token, UNI. As part of this landmark campaign, a minimum of 400 $UNI tokens were allocated to over 220,000 wallets, with the distribution based on each wallet's trading volume.

However, the aftermath of the airdrop revealed mixed results in terms of user retention and engagement. Post-airdrop, the majority of recipients chose to cash in their tokens, suggesting an inclination for immediate gain. Following the launch of the UNI token, airdrop recipients initially made up 60% of all Uniswap traders. However, within just a few months, this figure dramatically declined to less than 5% and has since maintained this level.

The effort to decentralize governance through the airdrop encountered limited success, with nearly 98% of recipients abstaining from governance activities. Thus, while the Uniswap airdrop effectively kindled short-term excitement and momentarily bolstered user interaction, it fell short in other ways. It failed to directly cultivate long-term user retention, motivate tokenholders to augment their positions, and foster widespread participation in protocol governance. Nevertheless, the airdrop did yield notable indirect benefits. Aside from bolstering Uniswap's prominence in the DeFi sector and enticing new users, it also established a blueprint for future airdrop strategies.

Uniswap's airdrop subsequently served as a touchstone for other DeFi protocols, igniting an industry-wide anticipation for such initiatives. The role of airdrops has evolved from a token gesture of gratitude to a means of nurturing user loyalty. As such, the strategy has sparked debates about its enduring viability and influence on the decentralization ethos of protocols.

The lessons gleaned from this event are dual-faceted. On one hand, the promise of “free tokens” via an airdrop may be insufficient to assure long-lasting user engagement or governance participation. On the other hand, upcoming airdrops should consider the insights gleaned from Uniswap's venture. It provided a playbook on innovative approaches and mechanisms to accomplish enhanced results in user retention, engagement, and decentralized governance.

To this point, a number of protocols have adeptly engineered an array of token incentive strategies, each adopting its unique distribution methodology. Predominantly, these token incentive models can be split into two distinctive approaches: one-time token distributions and incremental release programs.

While the objectives of these strategies appear largely comparable, the impact they have on their respective protocol's user base varies substantially. Gleaning valuable insights about this impact requires a thorough analysis of user behavior and retention within the unique characteristics of each campaign. These insights could help shape the optimal token incentive strategy—one that not only bestows rewards upon early adopters but also cultivates a robust loyalty program. Such a strategy would not only ensure user retention but also pave the way for enduring platform success.

One-Time Token Distributions

Single-instance token distributions, also known as lump-sum airdrops, are based on the notion that early adopters—often the most active participants in a protocol—have a vested interest in the growth and development of the platform they support. These distributions aim to reward these pioneers, thereby decentralizing governance and fostering a protocol that is more user-focused by allocating decision-making power to its most dedicated users. The following case studies will explore the application and impacts of this model within two distinct environments: NFT marketplaces and Arbitrum.

NFT Marketplaces

OpenSea, an undisputed leader in the Ethereum NFT marketplace sector, has maintained a firm grip on majority user and volume share, despite its conspicuous lack of a token. Seeing this as a strategic gap, rivals LooksRare, X2Y2, and sudoswap launched their own tokens in a swift move to incentivize users to switch platforms.

🎧 Top Crypto Podcasts of The Week

Here are the crypto podcasts that are worth listening to this week...

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📰 The Coinstack Newsletter:

Tracking the most important blockchain stories of the 2020s, including a decentralized internet and the creation of a new open global monetary system that works for everyone. As always, published for informational purposes only. Please do your own research. Just our opinions. Not intended as financial advice as we are not financial advisors. We may own some of the digital assets we write about as we believe strongly in the sector. Please do your own research. Published and written weekly by Ryan Allis and Mike Gavela.

Coinstack is a news and analysis newsletter for the digital asset industry. None of the information here is a recommendation to invest in any securities or other types of investments. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All investments involve risk and may result in loss.

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