Is TradFi reshaping crypto?

Plus revisioning Ethereum staking

Author

Angelina Berger
June 27, 2023

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Today: TradFi’s new favorite crypto exchange, a new plan for Ethereum validators, and insights into BTC’s recent upswing. Let’s dive in.

—Angelina

The New Exchange on the Block

By now, everyone and their dog knows that U.S. regulators are making life hard for crypto exchanges. Launching a new crypto exchange amidst this harsh regulatory environment seems like a…suboptimal thing to do.

EDX Markets doesn’t seem to mind.

What is EDX? Launched on June 20, EDX Markets is a U.S.-only crypto exchange that promises high liquidity, competitive quotes, and reduced conflicts of interest compared to existing exchanges. EDX’s founding investors include TradFi titans like Charles Schwab, Citadel Securities, Fidelity Digital Assets, and Sequoia Capital.

EDX’s business model is the biggest differentiating factor that sets it apart from established crypto exchanges. How is EDX different?

  1. Unlike Coinbase or Binance, which act as custodians for their customers’ crypto, EDX is a non-custodial exchange. This means that customer assets will be held at third-party banks acting as custodians, which reduces the concern about potential misappropriation or commingling of funds. FYI: This is similar to how trades work on the NASDAQ or the New York Stock Exchange.

  2. So far, EDX only supports four tokens: Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH). “We have a limited set of tokens because until there is more regulatory clarity, we don’t want to trade something that’s potentially a security,” EDX CEO Jamil Nazarali explained to Coindesk in April. “Regulators really like that we don’t take that risk.”

Peculiar timing: EDX is the latest push of TradFi titans into crypto amid the SEC’s regulatory crackdown—BlackRock and Deutsche Bank are two examples from last week alone. Seems like TradFi institutions are betting on their reputation and ability to garner regulatory support to establish themselves as the trusted alternatives to crypto-native companies like Coinbase and Binance.

Big picture: The TradFi-ification of U.S. crypto could help onboard new investor demographics by building trust and shrinking the risk of trading crypto—but a key concern for many crypto proponents is that it would also completely restructure U.S. crypto in a way that goes against its decentralization ethos.

63x on Staked ETH?

Ethereum might experience a 6,300% increase—not in price (that would be nice), but in the maximum amount of staked ETH required to become a network validator.

During the Ethereum core developers meeting earlier this month, Ethereum Foundation researcher Michael Neuder proposed to raise the current staking cap of 32 ETH per validator to 2,048 ETH.

Why? To put the brakes on the rapidly growing number of Ethereum validator nodes. Raising the max staking threshold would mean that validators with big pockets wouldn’t have to spin up as many new nodes to earn staking rewards beyond the current 32 ETH limit.

But the Ethereum community’s reactions to the proposal were mixed…

Those in favor argue that raising the cap would:

  • Enhance the network’s performance

  • Allow validators to make more money on their staked ETH via auto-compounding

  • Simplify the operations of large-scale node operators like Coinbase that currently run thousands of nodes under the 32 ETH limit

Those against fear that raising the cap would:

  • Foster the centralization of the Ethereum network

  • Favor corporate entities and rich individuals at the expense of smaller “home stakers” with less ETH to spare

Looking ahead: The proposal is still under debate by Ethereum core devs, who have agreed to continue discussing its implementation details on various social platforms.

TradFi Pumps Bitcoin Past $31K

Bitcoin soared past $31,300 on Friday, hitting a one-year high…largely thanks to TradFi. FYI: BTC last changed hands above $31,050 in June 2022.

What gives? The upswing began earlier last week, just days after BlackRock applied for a Bitcoin spot ETF and two other big investment firms, Invesco and WisdomTree, followed suit. The launch of EDX (see our first story) and Deutsche Bank’s recent move into crypto added to expectations of an institutionally driven price rally.

Zoom out: Markets are hoping that institutional interest in BTC can outweigh the potentially crippling effects of the U.S.’ regulatory crackdown on crypto. But does the push past $31,000 mark crypto’s exit from 2022’s market slump? Only time will tell…

In other news:

  • Do Kwon was sentenced to four months in jail for forging passports.

  • The 3AC co-founders are back with a new crypto VC fund—similar name, same logo, same people.

  • The German intelligence agency dropped an NFT collection in an unconventional recruiting stunt.

  • The International Monetary Fund doesn’t think banning crypto is the right approach.

  • Over 50% of Fortune 100 companies have reported dabbling with blockchain initiatives.

Crypto Job Board

And that’s what you need on your radar today in crypto. Do you think TradFi’s move into crypto is a blessing or a curse for crypto in the long-term? Shoot me a reply with your thoughts. Catch you back here in two weeks!