Words by Maven 11 Venture

The year 2023 introduced groundbreaking developments in the cryptocurrency and blockchain industry, leading up to the approval of the first spot Bitcoin ETFs, signalling a major leap in institutional acceptance and regulatory progress. Alongside, Ethereum's Dencun upgrade introduces promising transaction efficiencies, while the ongoing SEC vs. Coinbase case could redefine legal perspectives on cryptocurrencies. The industry also sees significant innovations and regulatory shifts, with Alphabet's cryptocurrency advertising, advancements in Web3 protocols, and new measures against AI misinformation. These milestones highlight a critical growth phase for the sector, showcasing both its expanding influence and the complexities of navigating its future.

Historic spot Bitcoin ETF approvals

The new year started off with the most anticipated event of 2023: the approval of the spot Bitcoin ETFs. After the SEC and SEC Chair Gary Gensler himself voted in favor, the first eleven candidates with approved applications launched their ETF products on January 11th. The Blackrock and Fidelity spot Bitcoin ETFs each saw an impressive inflow of $2 billion in the first 12 days. The cumulative ETF inflows of all newly-launched products overwhelmed the outflows of the Grayscale Bitcoin Trust which were expected on the back of the conversion of their closed-ended fund structure to the ETF.

Fundamentally another milestone development for the space is the highly anticipated Dencun upgrade for Ethereum which is now live on both the Goerli and Sepolia testnets. The central feature of the Dencun upgrade is the introduction of EIP-4844, also referred to as proto-danksharding, which introduces a novel transaction mechanism which is expected to reduce fees paid by rollups for Ethereum block space, although skepticism remains around the actual impact that proto-danksharding will have on their fees. A final mainnet implementation is expected at the end of Q1 this year.

Court hearings in the lawsuit between the SEC and Coinbase have unveiled new developments in the regulation of cryptocurrencies. Importantly, during the hearings the judge seemed inclined to believe that the well-known Howey Test may not be easily applicable to determine the legal status of cryptocurrencies - something which many in our industry have long argued for. A potential Coinbase victory in the long drawn-out case would be considered a significant industry-wide victory.

More developments in the institutional Web3 world is Circle filing for an IPO with the SEC. Previously having tried to go public in 2022 at a valuation of $9 billion, the firm is now planning a blank-check deal IPO.

The delisting of privacy coins and increased scrutiny

Finally, regulatory pressures saw many of the bigger crypto exchanges start delisting privacy coins such as Monero and Zcash. Binance went as far as to place monitoring tags on ten such assets, warning of higher volatility and risks; tokens with these monitoring tags are monitored closely and are at risk of being delisted from the platform.

Web3 social graph protocol Farcaster introduced ‘Frames’ in their latest upgrade. It enables developers to embed interactive experiences within Farcaster posts, called Casts, meaning users can turn any cast into an interactive app. While Farcaster has been able to boast consistently growing user numbers, hype around the social protocol exploded in conjunction with this latest release.  

Alphabet embraces cryptocurrency

Furthermore, Alphabet has allowed the advertising of certain cryptocurrency products on its advertising network, which includes the Bitcoin ETFs. The Google search engine and YouTube already have advertised these products. Instagram and Facebook have expressed their consideration in doing so as well, with many seeing crypto advertising in traditional digital media as a clear indicator of the evolving (regulatory) landscape of digital assets.

Fox Corporation has partnered with Polygon to develop “Verify”, a Proof-of-Stake blockchain to combat AI-generated media stories and deep fakes. The tool is designed to authenticate bona fide articles and images, allowing readers to verify the origin of certain media content. Solana announced the upcoming second edition of the Saga Phone called Chapter 2, which comes after the  success of the first Saga Phone which sold out beyond expectations. Furthermore, MetaMask announced  their new SaaS feature upon depositing 32 ETH, Metamask will spin up a users’ personal validator self-custodial node.

Celestia continues to solidify itself as the foundational pillar in the modular space. After it integrated with Arbitrum Orbit chains, they are now going to utilize the custom gas tokens feature they offer. Celestia also partnered with Lyra to serve as their DA layer, scaling the Lyra chain to compete with centralized infrastructures in crypto options. Additionally, options trading platform Aevo decided to migrate their L2 application to Celestia to leverage their DA layer. Manta Network introduced their zkApp Accelerator program, designed to enhance innovation in web3 and adoption on Manta. This accelerator is also partnered with Celestia giving promising start-ups early access to Celestia integration and support. Furthermore, portfolio company Socket and its bridging platform Bungee was unfortunately exploited through a targeted attack. The incident was quickly handled by the team, being able to successfully recover the vast majority of the misappropriated fund and announcing a 100% reimbursement for all affected users. Lastly, one of the latest additions to our portfolio is Renzo Protocol, which is a liquid restaking token and EigenLayer strategy management protocol. Renzo has seen continuous growth in TVL, currently sitting around $200 million worth of ETH that will be utilized to secure EigenLayer’s actively validated services (AVSs).