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Also: learn what Vitalik has to say about AI and crypto

GM GM to our fellow Web3 connoisseurs! We’re here again with a fresh newsletter, and it’s time to talk about what happened in crypto last week.

But hold on, before we go any further...

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Today, we’re also discussing:

  • 🤖 Vitalik: Crypto and AI can and should coexist

  • 📜 New DeFi law proposal from Polygon

  • 🪙 Tether sales break records

  • ✉️ ETH ETFs are coming: a new deadline

Here we go…

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Vitalik: Crypto and AI can and should coexist

On his 30th birthday, Vitalik Buterin, the co-founder of Ethereum, reflected on his achievements in mainstreaming NFTs, dapps, and DeFi in his 20s.

He also shared an exciting outlook on the future, with a particular focus on the potential intersection of AI and crypto, which he believes will shape the coming decade.

While there are numerous possible ways of integrating AI and crypto, Buterin finds the most promising application in individual-level systems, such as autonomous trading bots on decentralized exchanges. However, he raises concerns about using AI for decision-making and how blockchain technology can assist in training AI decision-makers.

  • He suggests that prediction markets, such as Polymarket, could help combat false information by incentivizing AIs to provide accurate information.

  • This concept of "info defense" can be achieved without relying on a centralized authority.

  • One potential issue with integrating crypto technology into AI development is the resource-intensive nature of AI models.

  • Vitalik estimates that using cryptographic methods on certain layers of these models could increase the resource drain by a factor of 200.

He also addresses concerns about adversarial machine learning, where someone can manipulate an AI's behavior 👇️ 

Vitalik proposes hiding access to the model and training data as a solution and suggests that a DAO could govern the training and access to AI models.

These concerns raised by Vitalik regarding AI and crypto are similar to those often brought up about Ethereum's computational intensiveness and potential attack vectors.

Despite his worries, he believes that experimenting with AIs in the blockchain community is worth exploring, especially in a world where AI is already centralized and opaque.

As we enter a new era, the relationship between AI and crypto will continue to be an issue that garners attention and interest in the tech community.

It's totally normal to have different opinions on AI. But hey, let's take a moment to appreciate and celebrate Vitalik's amazing achievements and significant contributions to the world of blockchain and tech as he turns 30.

Cheers and a very Happy Birthday to you Vitalik! 🎉🎂

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New DeFi law proposal from Polygon

Polygon Labs said, in a newly released paper, that decentralized finance (DeFi) protocols should be considered critical infrastructure and monitored by federal cybersecurity agencies in the U.S. 🤔 

  • The paper, titled "A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance," was published on Jan. 29 by Rebecca Rettig and Katja Gilman of Polygon Labs, and Michael Mosier of law firm Arktouros.

  • According to the proposed framework, truly decentralized DeFi protocols should be designated as critical infrastructure and overseen by the Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) within the U.S. Treasury.

Makes sense:

The paper also acknowledges that not all DeFi protocols are truly decentralized, and those with significant centralization points should fall under existing financial regulations.

The team also suggests creating a new category called "critical communications transmitters," which would have tailored obligations to protect national and economic security without being classified as "financial institutions" under the Bank Secrecy Act.

The document also distinguishes centralized finance, or TradFi, as a separate entity with its own control and guidance from the Financial Crimes Enforcement Network within the U.S. Treasury.

The paper also highlights the importance of promoting lawful activity while protecting against illicit finance. It is an important step towards addressing these concerns and finding sustainable solutions for the crypto industry's further development.

You can take a peek here 👈️ 

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Tether sales break records

Tether, the company behind USDT, has reported a record-breaking profit of $2.85 billion in the last quarter alone, bringing its market capitalization to near $100b 💰️ 💰️ 💰️ 

  • The vast portion of the profits came from interest earned on the company's investments in U.S. Treasuries, reverse repo, and money market funds, which back USDT.

  • The remaining profits were primarily generated from the appreciation of Tether's other investments like Bitcoin and gold.

In 2023, Tether recorded a remarkable net operating profit of $6.2 billion, with $4 billion coming from interest earned on its Treasury holdings 👇️ 

Tether has greatly benefited from the Federal Reserve's efforts to increase interest rates in order to combat inflation, which in turn has boosted the payouts from Tether's fixed-income investments 📈 

According to the latest quarterly attestation report signed by BDO Italy, Tether disclosed $97 billion of assets held in reserve against $91.6 billion in liabilities as of December 31st. This implies that Tether has $5.4 billion in excess reserves backing its stablecoins.

Is crypto safe?

  • USDT is the most widely used stablecoin and plays an indispensable role in the crypto market. With an all-time high market capitalization of $96 billion, USDT has added over $10 billion since late October, following a significant market pump.

  • Tether's strong financial performance and transparent approach continue to solidify its position as a key player in the crypto market.

So far, they have managed to weather any doubts or criticisms with their impressive profits and strategic investments, making them a force to be reckoned with in the crypto world.

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ETH ETFs are coming: a new deadline

The US Securities and Exchange Commission (SEC) is expected to follow a similar approach in approving Ethereum exchange-traded funds (ETFs), as it did with BTC ETFs 🧙 

This means:

Initial rejections followed by eventual approval before the final deadline of May 23.

According to Standard Chartered Bank's head of digital assets research, Geoffrey Kendrick, this timeline aligns with the approval process for Bitcoin ETFs, which took place on January 10 ⌛️ 

  • In a report released on Tuesday, Kendrick stated that if Ethereum prices follow a similar trend to Bitcoin in the lead-up to the ETF approval, ETH could potentially reach as high as $4000 by May 23 💎 

  • Kendrick's predictions of spot Ethereum ETF approvals are based on the fact that the SEC has not classified Ether as a security in its legal actions against crypto companies.

  • The regulation of ETH as a futures contract on the Chicago Mercantile Exchange adds further credibility to this expectation.

Grayscale's ETH trust is also seeking to become an ETF, and Kendrick believes that if their application is denied, it will most likely result in another appeal by Grayscale. In his opinion, the SEC has no fundamental reason to view ETH differently than the CME already does.

After the approval of spot ETFs, Bitcoin's price fell sharply, mainly due to outflows from the Grayscale Bitcoin Trust (GBTC) 💸 

Despite the dip, Kendrick remains optimistic and says we should expect the bullish trend to continue. Let's hope he is right.

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Other worthy reads:

Narrative Report (Jan 2024) by Crypto Koryo:

MIM exploit recap by Curvecap:

Some other small (but important) headlines:

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Keeping faith here 😿 

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That's all for now, frens.

We'll meet in a week! And remember, the market conditions are temporary, but our commitment to building a better DeFi is here to stay. Thanks for joining us, and we look forward to seeing you back next week. Cheers!

Yours, The 🔥 Team

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