Ethereum's March Madness

🌐 Ethereum March Madness

It’s been an eventful month for Ethereum. Maybe the most important month in the relatively short history of the network.

Let’s break down the happenings, why they’re important, and what it all means for you.

Dencun Upgrade

The Dencun upgrade was the biggest change to the network since the merge in 2021. It was actually 2 upgrades in one.

One upgrade was to the settlement layer, and one to the transaction layer.

Basically the new version of Ethereum will allow for transactions to consume or require less data lift to complete and then settle.

Contrary to what some are saying, this will not lower fees on Ethereum Mainnet. However, it theoretically lowers fees for Layer 2s which are processing transactions.

It also makes for less intense lift for the validators to get started.

So what could happen as a result?

First with lower fees on L2s, we could see more of that mainstream adoption we’ve been hearing about. The reason we can’t pay for everything in USDC from our wallets has been that its too expensive and slow.

Lowering costs = more adoption.

PayPal USD, USDC, even Tether.

More adoption + more use cases = higher demand for ETH and higher price.

It also means more clients with native digital wallets. Part of your job will be to help with safety, security, cash flows, etc. when more of your clients are dealing in straight digital assets.

BlackRock’s Tokenized Fund

To me this is monumental! The world’s largest asset manager moving past just holding BTC for you in their regulated entity.

This is BlackRock using the tech for so many of its benefits. I need to go into a much longer discussion of this.

So, what happened?

BlackRock filed a Reg D for their BUIDL fund. Only for qualified investors. It will be worth $1 each, and BlackRock will invest the funds in treasuries.

Not exciting, right? It’s exciting if you’ve been talking about tokenized assets since 2019.

The ownership will be denoted with tokens on the Ethereum Blockchain. The investors will be able to hold them in their own wallets, and trade them 24/7/365.

Dividends will be paid monthly to the wallets of the token holders. So BR won’t have to write checks or direct deposit into bank accounts. This makes liquidity so much more efficient.

The issuer and Alternative Trading System (ATS) is Securitize. This means the marketplace for the BUIDL tokens wil be via Securitize. They will have to perform KYC/AML on the potential holders to ensure they’re qualified.

So…no degen activity. Not permissionless like we would hope.

But a monumental step. Let’s discuss what it means for the financial services industry.

BlackRock is pushing the TradFi industry to learn wallets, tokens, 24/7/365 transfers, transparency. Think of it like the push Tesla made with electric vehicles. Once there was demand, we saw more new EV companies, more old school auto makers add EVs, and more charging infrastructure.

The applications and infrastructure will continue to grow.

Also, as part of the deal, BlackRock has made an investment in Securitize, so we can be pretty certain there will be more of these funds coming. And they’ll move down to accredited investors, which opens up more investors to holding asset onchain.

I wouldn’t be surprised to see BlackRock just acquire Securitize sometime this year.

Of course, the potential to bring in billion to trillions of dollars through tokenized asset increases the demand for scarce blockspace, potentially increasing the demand for ETH to purchase that space. All the payments to tokenholders via their wallets are just more transactions on the Ethereum network.

I think we’ll see more TradFi companies issuing tokenized funds before the end of the year, and doing so in a native manner, rather than just using the public chains as a glorified database. We’ll see payments to wallets, transfer ability, and self-custody.

SEC Investigation into Ethereum and ETH

We obviously have to acknowledge the negative event as well. The SEC has been looking into the the Ethereum Foundation, possibly to determine if ETH is a security.

I’m not an attorney, but I follow plenty of them. It seems we are past the statute of limitations regarding the Ethereum ICO. Gary Gensler has hinted that the move to Proof-of-Stake might have turned ETH into a security, but they have already lost a court case (XRP) in which the court said even if the initial offering is an investment contract, that doesn’t make the underlying asset a security in all cases.

We also have the CFTC claiming BTC and ETH are both commodities, and it would be hard to have competing regulatory bodies in an election year.

Add to that the fact that the SEC approved ETH futures ETFs AFTER Ethereum moved to PoS, and it seems they don’t have many legs to stand on.

Of course, they may be hitting all the possible points before approving a spot ETH ETF.

For the industry, its more regulatory uncertainty, but unlike early 2023, this time the SEC is playing defense instead of offense. It does look now like the ETH spot ETF migh tbe denied in May, and pushed to end of year or beginning of 2025.

The above-mentioned BlackRock news does paint the SEC into an interesting corner. They approved the spot BTC ETF, they approved BlackRock using the Ethereum network for their fund. How can they then make it to where BlackRock has to use a security to pay for the transactions for their fund?

Summary

Overall, and very interesting and important month for Ethereum already. The network and the cryptoasset is clearly not going away, and it building momentum on the institutional side. And much of that momentum is centered on usage and adoption rather than just interest in the asset.

The big TradFi boys are pushing the narrative faster and harder, and best for us to be prepared to help clients navigate.

See you next week!

-Adam