Crypto Fundamentals #65

🌞 Circle discontinues support for Tron

This week, Circle publicized that it was discontinuing support for USDC on the Tron blockchain. This move by Circle is part of a broader risk management framework to ensure the trust and integrity of USDC. The decision to cease minting on the Tron network comes amidst concerns about regulatory compliance and potential security issues related to Tron and its founder, Justin Sun.

The ramifications of this decision for the Tron network are significant. Tron, known for its low fees and quick settlement times, has been home to a thriving stablecoin business. With Circle pulling support for USDC on Tron, it may impact the ecosystem's stability and liquidity. This move also reflects a growing trend in the crypto industry where regulatory-compliant entities are distancing themselves from potentially risky or controversial projects. The decision by Circle to end support for USDC on the Tron blockchain could have implications for other stablecoin issuers, particularly Tether (USDT), which has a significant presence on Tron with approximately $51 billion worth of USDT compared to USDC's $380 million (according to Artemis data). However, the decision appears to be more reflective of USDC's performance and competitive positioning within the stablecoin market rather than specific issues with Tron itself. Factors such as USDC's growth trajectory compared to USDT and past challenges like a depegging event in 2023 may have influenced Circle's choice. This move underscores the increasing emphasis on regulatory compliance in the stablecoin space, with firms like Circle prioritizing risk management and regulatory alignment.

Transfer volume of various stablecoins across all chains (Artemis):

Of USDT’s roughly 100m supply, about half of that is on Tron (Artemis).

Overall, Circle's decision to end support for USDC on the Tron blockchain underscores the increasing importance of regulatory compliance and risk management in the cryptocurrency space. It highlights the complexities and considerations involved in maintaining trust and transparency within the industry.

🌞 Uniswap governance proposal aims to activate fee switch

UNI spiked 60%+ on Friday morning following a new governance proposal from the Uniswap foundation’s governance lead, Erin Koen. The proposal aims to activate the fee switch, meaning UNI holders that have staked or delegated their tokens would receive a portion of fees generated on the protocol. This change is expected to reinvigorate governance by incentivizing active and thoughtful delegation by tying delegation to protocol fees. Governance will be able to control the protocol’s core parameters: which pools charge a fee and the fee’s magnitude. Protocol fees are expressed as a fraction of LP fees which is currently set to zero. Fees are set on a pool by pool basis, and are accrued in both tokens that comprise the pool.

Uniswap is a decentralized exchange (DEX) that operates by allowing users to swap different types of tokens through liquidity pools. These pools are funded by liquidity providers (LPs) who deposit pairs of tokens and earn fees from the trades that occur within their pool. The fee switch refers to a mechanism within the Uniswap protocol that, when activated, can redirect a portion of the fees that normally go to liquidity providers to a different destination, which could be the Uniswap treasury, a governance-controlled fund, or another specified address.

For a deeper understanding into the effects of the Uniswap Protocol fee, check out Gauntlet’s recent report. Gauntlet notes a key disadvantage of the protocol fee: it would take revenue away from liquidity providers which would likely cause them to withdraw liquidity. Less liquidity means greater trade slippage and a worse experience for traders. This could potentially drive liquidity and trading volume Uniswap’s competitors if they manage to provide a better trading experience through lower slippage and greater liquidity relative to Uniswap. The Gauntlet team ran a series of simulations to estimate the effect of different protocol fees. Some key conclusions are that liquidity and MEV volume decrease significantly as protocol fees increase, although core volume is less affected until fees are set towards the high end of the allowed range (fees can only be set between 10-25%). Gauntlet ultimately recommends an incremental phasing of protocol fees, starting with low fees on select pools and subsequent extensions to additional pools and increasing fees on existing ones. We will continue to track how Uniswap approaches the issue.

🌞 Bitso finds that Bitcoin makes up 53% of total crypto holdings in Latin America

Mexico’s Bitso is Latin America’s largest crypto exchange boasting ~8 million users. The company recently released the first edition of their biannual LatAm Crypto Report. It takes a broad overview of the region before diving into some of their top markets: Argentina, Brazil, Colombia, and Mexico. The key takeaways from the report are that bitcoin and stablecoins continue to dominate the Latin American markets, the engagement of women in the space is increasing, and that crypto adoption has continued to increase in spite of industry turbulence.

Bitso notes that bitcoin continues to dominate user balances and makes up 53% of total holdings and was the most preferred crypto to buy across all geographies in H2 2023. Meanwhile, USDC and USDT became the fastest-growing cryptocurrencies in terms of user ownership. Argentina was the only country in the region in which the acquisition of digital dollars (USDC and USDT) exceeded that of other cryptocurrencies (by almost 5x), with 60% of total purchases, compared to 13% for bitcoin.

This does not come as a surprise considering that the nation faced triple digit inflation in 2023, reaching above 200% at times. Data on Argentina also showed that users were more likely to make cryptocurrency purchases in the first week of the month, which lines up with when salaries would be received. Colombia comes in second place in terms of stablecoin purchases at 31% for the period.

Colombia also saw ~60% YoY growth in users on Bisto in FY 2023, the largest gain amongst its peers. Meanwhile, Brazil was slated as the altcoin and memecoin capital of the the region as users have 17% of their holdings in altcoins other than ETH and XRP, of which 17% is in Shiba. Brazil also has the lowest ETH penetration rates at 9% compared to 20% across the broader region. Bitso found that Mexico holds twice the amount of XRP compared to the rest of the region, and that XRP/MXN is the third largest book of liquidity in the market. Bitso estimates this is because of international transfers and remittances that are powered by cryptocurrencies between the US and Mexico.

Detailed dashboard for people who love more numbers in smaller font:

Note: Revenue represents fees that go to the protocol’s treasury or are returned to tokenholders via a burn mechanism (source: Token Terminal). Weekly commits and weekly dev activity as of 2/3/24.

The content is for informational purposes. None of the content is meant to be investment advice. Use your own discretion and independent decision regarding investments.