Risk off Markets and Centralization Debates — Week in Review
Key Takeaways:“Listen to the recent podcast with Haseeb and Santiago on why they think “tokens are dead.” Santiago argues tokens don’t capture real value, while Haseeb points out that the current marginal buyers are institutions, and institutions, by and large, don’t buy tokens.”
The institutions seem to be having a great time. Franklin Templeton didn’t just create another crypto product; they launched a dedicated crypto division. Long-time skeptic Morgan Stanley appears to be making final tweaks to launch their spot Bitcoin ETF next week.
This institutional and corporate creep isn’t always pretty. Coinbase was allegedly lobbying against a de minimis tax exemption for Bitcoin while pushing for one that benefits USDC. Meanwhile, Sam Altman’s Worldcoin Foundation opted to dump $65,000,000 worth of WLD in OTC sales right at the all-time low.
The biggest crypto story this week came from a bombshell Google quantum research paper that claims a 20x reduction from earlier quantum systems to execute attacks on elliptic curve cryptography, the backbone of Bitcoin, Ethereum, and most blockchains. Nic Carter, Haseeb Qureshi, and Coinbase CEO Brian Armstrong are taking this research seriously. If one quantum paper wasn’t enough, Nic Carter and Justin Drake pointed out that another breakthrough paper landed the same day.
The Bitcoin community, however, seems largely stuck in denial. Mert Mumtaz called out one of the main methods of doing so: whataboutism. Jordi Visser, who argued we should ignore the quantum threat to Bitcoin because AI agent swarms will break TradFi banks first, provided a great example of whataboutism.
An even more common form of denial has been the use of ad hominems. Bitcoiners attacked the Google paper because a co-author “actually works for the Ethereum Foundation.” Nic Carter’s concerns can be dismissed, apparently, because he invested in a company focused on making products quantum-resistant. These are not serious people if they go after the character or motives of people with quantum concerns instead of their claims.
Jonas Schnelli told the people with quantum concerns that they are the devs and need to step up. I hope Nic Carter isn’t right when he replied:
“For a BIP to go through, one of about 5 people have to champion it. We both know who they are. No BIP has gone through without them in the last decade.”
The quantum security threat is in the future, but we’re dealing with an uptick in defi hacks right now. Mr. Qureshi posted that the uptick in exploits will likely get worse before they get better, as attackers utilize the latest AI tools while defenders lag behind.
As if to prove a point, hours later, a $260 to $285 million exploit on Drift Protocol happened. The hacker systematically drained mostly JLP and stablecoins and actively swapped the stolen assets for ETH. Austin Campbell noted this is exactly the scenario where Circle should have been required to freeze the USDC. ZachXBT shared his frustration that Circle was so slow to act. He wasn’t the only one.
Last week into this week saw a classic crypto discussion between centralization and decentralization. This time centered around Canton, which many within the crypto community feel is too centralized.
Canton’s Director of Sales claimed Canton has the “deepest pool of institutional liquidity.” Omid Malekan replied that no one is trading on Canton, and there’s no verifiable economic activity. Austin Campbell agreed that nobody is trading at scale on the chain.
On verifiability, Shaul Kfir, co-founder of Digital Asset, the company that designed, built, and continues to develop the Canton Network, admitted that a supply cap cannot be verified on Canton.
Rebecca Rettig of Jito Labs wrote a thread framing the debate as one between permissioned v. permissionless chains, and permissionless wins. Omid Malekan wrote Canton’s permissioned governance model is the same model as every privately-owned system in tradfi.
Helius’s Mert Mumtaz quipped, “Canton is a very fun way of spelling ‘web 2 database with a token’”. Basically, it’s not a blockchain.
Solana underwent its own internal centralized v. decentralized debate this week about the blockchain’s ongoing consensus evolution. FCFS (First-Come-First-Served) and MCP (Multiple Concurrent Proposers) are two contrasting approaches to block production and transaction ordering. To simplify, FCFS is faster, simpler, and more centralized than the current consensus setup, while MCP is slower, more complicated, preserves pricing, and is more decentralized.
Solana co-founder Anatoly Yakovenko favors MCP, but thinks the current hybrid setup is the worst of both worlds.
Finally, AI x crypto is getting a lot less attention compared to a month ago, but Algod continues his relentless Bittensor bull-posting, predicting multiple breakout subnets this year and an exponential increase in quality driven by frontier lab talent.
-David Sencil
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