Cover image
OCT 15, 2023

US Bonds are crashing, JP Morgan leading the RWAs, and more.

by Meta Investor

Week 41 - what's moving the markets?
Everyone in Web3 is talking about SBF and the trial. Meanwhile, traditional media is trying to bring more light on the raging war in the Middle East.
We will avoid both and focus on what you might have missed this week.

Bond market turmoil

  • Bonds are crashing, the yield is the highest in 16 years, and Junk-rated debt now exceeds top-rated AAA debt for the first time in history (article).
  • I have written a thread on what does it mean here.
TL;DR version:
  • Bond prices are down, which brings yields up (inverse relationship).
  • Rising yields mean the government faces higher borrowing costs when issuing new debt.
  • This increases the risk for significant stakeholders in the U.S. bond market, such as banks and pension funds - remember SVB from March?
  • Further pressuring the government and FED to react —> lowering rates or printing money/bailing out.
  • For investors: High yield on bonds with further potential losses in bond prices in the short-run, and higher potential gains in the mid-long run.
My take: There is a lot of uncertainty, especially because of the war (if the US gets involved, it would highly affect the debt structure and introduce political “fixes”), but I feel this is an opportunity that I want to explore and get a bigger position in the US bonds.

JP Morgan stepping further into the financial RWAs (article, article, article)

  • JP Morgan made its first blockchain-based collateral transaction - tokenized BlackRock shares as collateral with Barclays.
  • This process usually takes days. In this case, it took less than 10 minutes.
  • JP Morgan already tokenized shares of BlackRock fund in May 2022, but this time they even used it as collateral with a different major bank.
This is a huge deal, not just because of faster margin calls, but because: “Now with the launch of TCN (Tokenized Collateral Network), clients can benefit from additional utility from their MMF investments by posting tokenized MMF shares as collateral – a faster, more cost-effective way of meeting margin requirements.” ~ Tyrone Lobban, JPMorgan’s Head of Onyx Digital Assets

Background

JP Morgan started testing blockchain for clearing and settlements back in February 2016. Only 6 months after Ethereum launched (July 30, 2015).
In October 2016 they launched their private ETH fork called Quorum, later selling to ConsenSys.
Today, they run the Onyx blockchain leveraging Quorum, which is an open-source protocol layer that enables enterprises to leverage Ethereum for their private or public blockchain applications (s).
My take: I’ve been bullish on JP Morgan for a few years now, and seeing how much they are stepping into blockchain made me even more optimistic. With a live and tested solution (Onyx), I see JP Morgan as a very good candidate in the RWA market. They have the infrastructure and the clients to make an impact in this area. The big question is, how much the regulators will let them.
Side note, JP Morgan also directly invested in ConsenSys (article).

Regulatory updates

  • U.S. state regulators have joined the SEC in alleging Coinbase's operation of an unregistered exchange (article).
  • Meanwhile, Bitcoin Spot ETF is on a good track with ARK Invest dealing with all comments from the SEC, and the SEC did not appeal against the recent court ruling (article).
  • Crypto exchange Bitstamp is in talks with several big European banks about offering cryptocurrency services (article).
  • Japanese yen-backed digital currency, DCJPY, to go live in July 2024 (article).
My take: It feels like Coinbase is under pressure all the time. There is speculation that airdrop is coming. Maybe, but with all of this pressure, it could hardly be more difficult to come up with BASE currency.
On the bright side, the SEC seems to be slowly accepting that there will be a spot-based ETF very soon and they won’t stop it. As soon as this happens, the SEC might put more pressure on a different asset - Ethereum?

CoinMarketCap is launching its ChatGPT plugin (tool).

  • It leverages CoinMarketCap's real-time data to help answer basic market questions.
  • There are 8 test prompts on the site, like: “Analysis of the price behavior of the top 5 most popular meme coins”, or “How do variations in token distribution models (ICO/IDO/launchpads, etc) correlate with observed price volatility?”
  • Tested it, and it has a hard time analyzing news, but for the basics, it’s a viable tool.

Arkham partners with Chainlink to bring the data on-chain (article).

  • “part of our API that takes a blockchain address as input, references our database, and then outputs any applicable intelligence from the Arkham database, namely, the real-world owner of the address.”
  • Outcome? Multi-wallet airdrop hunting is harder than ever; Big Brother checking your transactions and linking them to real people; possibly very tailored marketing campaigns.
  • As a side note, Arkham claims to figure out Grayscale BTC Trust’s addresses (tweet, tool).
  • Mentioning they use >1750 addresses, holding in total >$21B of assets, out of which $16B in BTC.

Stablecoin $USDR loses its 1:1 USD Peg (twitter, article)

  • Real USD, a stablecoin issued by TangibleDAO, is backed by a basket of DAI stablecoins and U.K. real estate.
  • On Oct. 11, 10M USDR was requested for redemption.
  • This sparked a liquidity issue resulting in a ~50% price drop to $0.5
  • It shows us how difficult/unwise it is to back a liquid asset with illiquid collateral (real estate in this case). This is the case for Stablecoins, not challenging usage of RWAs
In the last article, we discussed SoFi for which you voted.
Next, we will dig deeper into the reasons why to invest in Web3 today.
Wish you a great week ahead.
Matt.
Comments
To comment, please sign in.
Article has no comments yet.