The next crypto narrative

Q: What’s the next narrative??

There was a lot of talk about narratives at DAS, and tokenization seemed to be mentioned most.?

As Sabrina Wilson of Copper.co asserted, “The next frontier is tokenizing everything.”

?Guillaume Chatain from Coinbase similarly predicted, “DeFi 2.0” will be about using tokenized assets as collateral to borrow funds on-chain.

But there was some conflicting evidence on how close we are to it actually happening.

Tyrone Lobban of Onyx by JPMorgan said the bank has already tokenized Treasurys and is trading $1 billion. Daily.

That was news to me, likely because things that happen on permissioned blockchains don’t get much attention.?

They should get more: Michael Anderson of Framework Ventures said, “KYC’d, permissioned DeFi” is coming, and he expects it’ll be a good thing — decentralization is a spectrum.

Another real-world practitioner of tokenization, Wayne Hughes, went into some detail on how BNP Paribas experiments in getting RWAs on-chain. He thinks use cases from tokenized assets will scale up over the next few years, but judging from the herculean efforts it took BNP to issue an Ethereum-based bond, I’d guess “a few years” is on the optimistic side.?

Martha Reyes of BEQUANT noted that crypto narratives are constantly changing, because the technology itself is constantly changing.

The technology of zero-knowledge proofs is “a fundamental requirement” to moving everything on-chain, according to Anderson of Framework.

?And ZKs are about here, so expect the tokenization narrative to heat up — and the reality to heat up a little more slowly.

Q: Are the instis coming?

Everyone at DAS had an opinion on this, and the correct answer seems to be: yes, no or maybe.?

David Fauchier said institutional money “has arrived and [is] being deployed,” but no one is talking about it.?

“It’s happening, but no one’s as excited about it as they were in 2017 when it wasn’t happening,” Fauchier said.?

Tara Mac Aulay of Lantern Ventures agreed: “We’ve spent years saying the institutions are coming: They’re here.”

But others were not convinced: Tim Grant of Galaxy said, “There’s a lot of institutional money looking at this space that is not entirely sure.”

And David Mercer of LMAX Digital similarly said institutions are only just “starting to get themselves ready” for crypto summer.?

Mark Richardson of Zodia Markets split the difference, reporting that institutional clients have so far allocated only small amounts to crypto, just so they’re ready for when equity gets tokenized.

Big asset allocators now have approval to invest in crypto, he said, but, for now, they are mostly on the sidelines, awaiting the next upturn.?

Several speakers noted institutions are still waiting on regulatory clarity, as well.

And for all the progress evident at DAS, the infrastructure may not be quite there yet, either: Tim Grant said solving for crypto prime brokerage is the key to unlocking institutional money, and Jason Nabi of Bosonic argued real institutional adoption is waiting on custody infrastructure.?

When it all comes together, there will be “a lot of dry powder” to be deployed, per more than one panelist.?

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Q: What did you have for lunch?

I had a Pret-a-Manger tuna and cucumber baguette for lunch, just because I can’t resist a good arb trade.?

Patrick Perret-Green of PPG Macro had cited the relative cheapness of Pret baguettes in the UK as evidence of just how extreme the move in the US dollar has been.?

Lunch has gotten a little more expensive since Perret-Green’s last trip to Pret: A tuna and cucumber baguette is up to ￡4.25 now.?

But in the US, the same sandwich will set you back $9.99 (plus tax) … with the pound trading at $1.12, which makes lunch in New York 125% more expensive than lunch in London.

I never imagined anything in New York could ever be 125% more expensive than it is in London.??

As data points go, this one is a bit of an outlier, but representative of the trend: I did a little lunch-time research and found an almond croissant is 72% more expensive in a US Pret than a UK Pret, and a banana is (just) 45% more.?

There’s something peculiar about Pret, however: A Starbucks latte is only 25% cheaper in the UK.??

Still, the UK is not supposed to be more expensive than the US.??

When I lived here in the early aughts, the Economist’s Big Mac index indicated things were about 30% more expensive in the UK relative to the US (and that felt understated).?

Perret-Green’s new Pret Index suggests it’s now the exact opposite. And it feels that way, too: Spending dollars in the UK now has the same effect as spending pounds in the US used to — it makes you feel like Superman going from Krypton to Earth.?

As economic indicators go, it’s not exactly science.?

But the Pret Index is a telling measure of the extreme macro time we’re currently navigating.

Q: Did someone buy a house on OpenSea?

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I heard that from a panelist on stage at DAS, and then I missed the rest of the talk because I was too busy pondering all of the implications: If my wallet got hacked, would the police evict me? What if I lose my seed phrase? Or if I accidentally send my house to the wrong address??

I’ve since done some Google-sleuthing to see if you really can buy a house on OpenSea and my conclusion is:?Hmmm. Not sure.?

OpenSea did, in fact, facilitate a transaction that moved $175,000 USDC from one Ethereum address to another in exchange for an NFT.??

What did not move, however, is the title to a house.

The title of the?Columbia, South Carolina house?in question has not been tokenized: What was exchanged was an NFT representing ownership of an LLC, which in turn owns the title to the house.

That’s still pretty neat!?

But it comes with some limitations: Your bank may not want to give you a mortgage, considering the LLC limits your liability. And lenders don’t like when your liability is limited.

?If you do get a mortgage, it’ll be more expensive because it will be “non-conforming” (i.e., not eligible to be sold to Fannie Mae or Freddie Mac).

And when you sell your NFT’d home, you won’t get the big tax break on capital gains available to all the rest of us selling our primary residences.

But let’s say you don’t need a mortgage and you enjoy paying taxes: Can you go on OpenSea to buy an LLC that owns a house?

I’m still not sure.?

You can definitely buy an NFT that represents ownership of an LLC that owns a house.?

But, at the risk of being pedantic, I’m not sure that’s exactly the same thing as buying the LLC itself.?

It seems to me like what you’re doing is sending money straight to a seller and then trusting some paperwork to happen in the background.??

Probably it will and probably it’ll be fine.

But that’s not how it works when you buy a house.?

You send your money to a lawyer who holds it in escrow, and then you sit in a room and sign some papers and, when all the papers are signed, the lawyer sends the money to the seller.?

The fees add up and it takes time, but I’m not sure I want that process to be disintermediated — and I’m not sure it has been in this case.

I don’t think everything in this transaction is happening on-chain. There appears to be trust involved, trust that the paperwork gets done in the background.??

Genuine on-chain transactions are meant to be trustless, so I’m not sure how much we’ve accomplished here.?

But maybe it’s a large step in the right direction??

If you could fractionalize your house or use it as collateral on-chain or wake up in the middle of the night and spontaneously sell it on OpenSea, that would be pretty great.?

I won’t be doing any of that myself, but I hope other people do.

And if we could replace the 6% realtor fee with the?$9.57 gas fee?charged for this transaction, I’d certainly be interested.

That’s it for today — I've got to go get my second tuna and cucumber baguette of the day.

I’ll see you tomorrow for some cheap Friday Charts.

—?Byron Gilliam

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