These are strange times in cryptoland.
On the one hand, the number of projects and businesses that have either crashed or are in danger of crashing has multiplied. But that increasing list hasn’t stopped investors from throwing money at startups in the sector or bidding up their valuations.
Magic Eden Achieves Unicorn Status
Magic Eden, an online NFT marketplace, recently received an infusion of $130 million from venture firms and a unicorn valuation of $1.6 billion in private markets. The latest funding round comes slightly more than two months after it raised $27 million in a series A round in March. This means that it achieved unicorn status in nine months after launch.
The San Francisco-based startup claims to have revenues of $7.5 million and surpassed transaction volumes for OpenSea, the world’s biggest NFT marketplace, for a single day in May.
Of course, since this is crypto, those claims must be taken with a heavy dose of skepticism. Magic Eden’s volumes and revenues rose during a downswing in the NFT market. The median sale price for an NFT has crashed by 93.41% since the start of this year. Transaction volumes are on NFT platforms are also down.
According to a Q1 performance report issued by the website NonFungible, the total number of sales on NFT platforms fell by almost 47% as compared to the previous quarter. It is easy to inflate transaction volumes by using wash trading, or the practice of conducting algorithmic sales between anonymous users, a practice that is is rampant in the crypto universe.
Magic Eden’s valuation at such a time is a sign of froth or a bet on the future of NFTs. Or maybe it’s just a bunch of bored dudes (crypto bros?) spewing meaningless jargon and bidding up prices for profits.
Governance Issues on Solana
Magic Eden accounts for the highest transaction volumes on Solana – a sidechain connected to Ethereum. Solana was also in the news earlier this week for a governance fracas concerning Solend – a decentralized finance (DeFi) app for borrowing and lending.
A whale – an account with a large holding – had an “extremely large margin position” that could saddle the blockchain with bad debt, if there was a margin call. The holding amounted to 95% of deposits for SOL – the blockchain’s native token. “This could cause chaos, putting a strain on the Solana network,” the firm told CNBC.
So, its ‘decentralized’ governance board voted to take over the account and liquidate (that word has become extremely popular in crypto nowadays) it through over-the-counter transactions instead of exposing them on-chain.
A backlash followed on Twitter (where else could it have happened, apart from Discord or Telegram) and another vote was conducted to overturn the earlier proposal. Both proposals were passed with votes in excess of 1 million votes and a single voter provided 1 million votes in both instances. Another proposal to limit the total amount that can be held by a single account was also passed.
There have been more DAO shenanigans since, but it could be a waste of time to write about them. The key point to remember here is that DAOs are not really decentralized. Anonymous blockchain addresses cannot stand in for real people and chat apps or Twitter are not really places for thoughtful deliberations.
Other spheres of crypto will also face similar issues with ‘decentralization.’ For example, the move from energy-intensive Proof of Work (PoW) mining mechanisms to Proof of Stake (PoS) means that individuals or outfits with the biggest crypto holdings will call the shots on block mining.
Saylor Says It Like It Is
SEC chief Gary Gensler might have an unlikely ally in MicroStrategy CEO Michael Saylor. The latter complained about “unregistered securities” in cryptocurrency markets, a point that Gensler has repeatedly stressed in interviewers and hearing, during a webcast. Saylor urged the government to step in and regulate cryptocurrencies in a webcast.
“What you have is a $400 billion cloud of opaque, unregistered securities trading without full and fair disclosure, and they are all cross-collateralized with Bitcoin,” he told Sven Heinrich during a podcast. According to Saylor, mainstream investors are wary of investing in bitcoin because of the “slime” that gets onto the asset class from all the unregistered securities.
Saylor’s firm holds the biggest stash of bitcoin in its treasury among publicly traded firms. It has been hit with margin calls as the original cryptocurrency’s price repeatedly tumbled this year. A spate of stablecoin crashes has further added to the selling pressure on traders. MicroStrategy’s price shot up by more than 600% after it disclosed investments in Bitcoin in October 2020. This year, it is down by almost 70%, as of this writing.