ETH liquid staking, FTX, inflation and macro update

1. Liquid Staking Derivatives Tokens on the rise

The Facts:

• Liquid Staking Derivatives Tokens (LSD) are received in return for staked ETH and allow the stakers to still use their “liquid” ETH, while simultaneously securing the network and receiving staking rewards.
• When staked with a liquid staking provider, users receive a staked-ETH in return for their ETH (pegged 1:1), which allows for the continued use of ones “ETH” for trading, liquidity or DeFi, allowing continued usage.
• With the Shanghai upgrade date being fixed for march, enabling the actual withdrawal of staked ETH, especially liquid staking has been growing tremendously in popularity recently.
• Roughly 72% of ETH staked is held at a loss, implying only one in three ETH currently staked has been purchased at lower prices.

Why it’s important:

• As of now, roughly 55 percent of ETH staked are controlled by only four staking platforms, with Lido being the leader with roughly 30%.
• Still, Lido is consisting of 29 individual operators, so the actual “concentration” of staking platforms is less severe than it might appear.
• The recent rise in liquid staking might offer a much-needed solution to the “centralization problem” with its potential to help level the playing field of Ethereum staking if more users are incentivized to participate in staking.
• With 32 ETH being required to solo-stake, Ethereum will rely mostly on staking pool operators, so new innovations and incentives for staking with various services is a favorable development.
• With LSD’s Ethereum might have found a viable incentive to boost its staking ratio (supply staked/total supply), as it currently has one of the lowest amounts staked compared to other popular Layer 1 chains (BNB with 97%, ADA 72%, SOL 71%, AVAX 63%, DOT 46%).
• It remains to be seen which way Ethereum’s staking landscape will develop after the Shanghai upgrade.
• On the one hand, enabled withdrawals might see ETH’s staking ratio decline, whereas on the other hand the long-awaited opportunity to withdraw ETH, and the rise in liquid staking providers could add tremendously to the appeal of staking ETH as users can continue to use their ETH, through a staking derivate.
• Also, the enabling of un-staking ETH could lead to more activist staking, as for the past years ETH holders have been locked with their respective staking provider, whereas soon they might choose to stake with pools that represent their interests more closely.

2. Update on the FTX saga

The Facts:

• The U.S. Government recently seized SBF´s Robinhood shares worth roughly $465 million, while the new FTX management recovered over $5 billion worth of liquid assets.
• Furthermore, a total of $425 million was seized by the Securities Commission of the Bahamas and recently, the U.S. and Bahamas agreed on cooperating in the bankruptcy proceedings.
• The crypto assets that were previously seized by the Bahamian Securities Commission are estimated at a value of $3.5 billion.
• Also, FTX is currently attempting to recoup donations made to charities and politicians.
• FTX´s head of engineering is set to testify in an attempt to cut a plea deal, whereas SBF defended and justified his actions once more in a post on Substack yesterday, stating excess leverage, insufficient hedging and a coordinated attack by Binance as the cause of FTX’s implosion.
• Furthermore, he believes that there is a real possibility that investors can be made whole, if the business where to be sold in its entirety.

Why it’s important:

• Despite more funds recovered being good news, the new FTX management argues that due to substantial FTT token holdings, FTX´s native token, the crypto holdings should be valuated at $167 million, rather than $5 billion.
• In total an estimated 9 million FTX customers deposited a total of more than $20 billion, which puts the recovered $5 billion in perspective, as a bit more than a drop in the bucket.
• Still, FTX indeed did function well as an exchange itself, so it remains to be seen whether losses for investors and customers could be reduced even further if sold successfully, as stated by SBF.
• The FTT token, issued by FTX, increased roughly 80% since its December lows, potentially due to the slightly positive news, amidst the drama.
• With FTX customers and investors globally being affected, and ambiguous legal jurisdictions being involved, clear guidance and indications from the Bahamas and U.S. on a cooperative initiative could prevent excessively long bankruptcy processes.
• Sharing and exchanging necessary documents and data is paramount to speed up the bankruptcy processing and improve chances for recovery of funds, making investors and creditors whole as much as possible.
• If FTX´s head of engineering does testify, there will be a total of three high tier employees and executives who testified, alongside co-founders Gary Wang and Caroline Ellison, with Ellison also being the CEO of Alameda Research.
• This should help bring more clarity and new evidence into what happened, though it will not help making investors whole.
• On a positive note, the bankruptcy judge ruled that FTX customer’s names remain concealed for another three-months period, avoiding further image loss and a potential decrease in its remaining valuation as a business and also reducing personal risks for clients.
• Overall, the consequences of the ongoing debacle is a severely damaged image not only for FTX but also crypto, with the 19-year deal of the Miami Heat arena, settled for $135 million, being cancelled, erasing the branded “FTX Arena”.

3. Inflation report, job market and macro update

The Facts:

• The YoY U.S. CPI of December came down surprisingly low at 6.5%, matching the consensus estimate of 6.5% and 0.6% lower than previous month’s rise of 7.1%, as energy costs and especially gas slumped further.
• Even the rather sticky core U.S. CPI, excluding food and energy, came in matching consensus expectations too, at 5.7% YoY in December, 0.3% lower than previous month’s YoY core CPI, for the second month in a row.
• MoM U.S. CPI in December came in at -0.1% (estimated at 0%), while core MoM U.S. CPI rose to 0.3% (also estimated at 0.3%) up 0.1% from November.
• Primarily food prices and import prices have been declining, whereas rent inflation is continuing to move higher sharply.
• Notably, the job market has proved itself to be extremely strong, with jobless claims sustaining their previous level despite inflation cooling off, with the four-week average even on decline.
• The report was received relatively neutral by markets, with both inflation meeting expectations, core CPI almost matching its expectations.
• The final FED Funds target rate for 2023 now stands at 4.50% to 4.75 %, according to market expectations.
• World Bank set its global growth target for 2023 to 1.7%, down from 3%, due to overall macro conditions.
• However, there is still negative real yield with the 2y and 10y treasuries trading at 4.23% and 3.53% in the U.S., in the EU the 10y is trading at 2.17%.

Why it’s important:

• Overall the macro environment seems to ease for the moment, with inflation cooling off, while the job market remains solid.
• This “mild recovery” has been reflected in the market, with both equities and crypto markets rising from their recent lows.
• Fundamentally and from a market sentiment perspective it is still a long way to recovery, both from a macro perspective, as well as from a price perspective.
• It remains to be seen, whether the recent “recovery” from the lows will be sustained, as the risk of two recessions within one decade, which last happened more than 80 years ago, is still looming on the horizon.
• Nevertheless, the recent data was a much-needed breather for all markets and the economy, which might be a hint for market participants that the worst has been seen.
• Still, it might be wise to remain cautious and to refrain from putting on “the bull market hat” just yet, as prices and macro data are still far from healthy levels and recent price all-time-highs.

In other news

• El Salvador about to issue “volcano-bonds” backed by BTC (via The Bitcoin Office)
• DOJ and SEC are investigating DCG (via Coindesk)
• Bithumb investigated by Korean tax authorities (via Cryptonews)
• Vauld rejects acquisition offer from Nexo (via Cryptoslate)
• Metamask warning of address poisoning scam (via Cointelegraph)
• Hong Kong crypto regulation to come into effect June 2023 (via BeInCrypto)
• Bitcoin´s energy efficiency increasing with network adoption (via LynAlden)
• Crypto payment platform Wyre limiting daily withdrawals (via Coinmarketcap)
• Coinbase will cut 25% of its staff, a total of roughly 950 employees (via Coinbase)
• ConsenSys will lay off 100 out of it 900 staffers (via Coindesk)
• Binance`s BUSD has been undercollateralized in the past (via Bloomberg)
• Bulgarian police raided Nexo offices over money laundering allegations (via Cointelegraph)

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