We were at Pay' Tech Day in Paris last week. What we heard during the sessions is that “credit card will still exist in 10 years”. Really? Good news if you are not yet in Web 3, you are early. Why should it be this way when we look at the pace of innovation in the space and specifically in web3. The majority of players were still concerned with the management of the various electronic invoice formats. No, electronics and digital are not technological revolutions, they have just replaced paper. The international payment system is broken and adding band-aids won't change anything. The security needed to maintain these old payment systems is increasingly to the detriment of the user. The Blockchain is there to answer these issues, the Web3 allows interoperability between any third party, no format worries. No, the bank has not yet known its revolution. Please think outside the box. The solution is not in the past.
Thanks to GMX, volume on Arbitrum is exploding
Arbitrum is a layer 2 network based on Ethereum, a type of technology known as an optimistic rollup. Layer 2 solutions aim to reduce network congestion and transaction fees without sacrificing security or decentralization. Rollups solution validate large batches of transactions off-chain and post the minimum amount of data back to the main network. There are two main types of rollups: optimistic rollups and zero-knowledge (ZK) rollups. Optimistic rollups assume all new additions to the chain are valid unless challenged by a participant within a week, while ZK-rollups rely on cryptographic proofs to validate every block added to the network. Arbitrum saw a new all-time high of 700 000 daily transactions on February 17 versus a 800 000 ATH for Optimism. The flippening is close. The volume on Arbitrum has increased by 34% week over week at $2,7B, beating out rivals like Polygon or Optimism. It’s also better than other top infrastructure blockchains like Avalanche, Solana or Binance Smart Chain. The recent traction of decentralized trading platforms have clearly played a major role. Arbitrum has the best technology to handle regular trades based on oracles. It is often the native blockchain for this kind of project. GMX and Camelot, Perpetual trading DEX have been the two protocols attracting the most volume last week. This confirms the trend identified in our first letters.
Green bonds enter the dance
The benefits of blockchain technology in bond issuance are significant. Greater transparency can build trust, reduce fraud, and lower costs by eliminating intermediaries and automating processes. Hong Kong's government recently issued $102 million of green bonds using a blockchain platform to advance sustainability in financial and bond markets. Underwritten by four banks and priced at a yield of 4.05%, the bonds were settled using a tokenisation protocol developed by Goldman Sachs, demonstrating a shift towards adopting blockchain technology in finance. This development could open up new opportunities for sustainable finance practices globally. The use of blockchain technology can also enhance security by providing a tamper-proof record of all transactions, thereby reducing risks for issuers and investors. Institutional investors are increasingly drawn to this technology and its capacity to facilitate impactful engagements, such as green bond issuance. This development could provide traditional finance players with significant advantages, especially in bond issuance. Additionally, it could help reduce barriers to entry for smaller issuers, promoting sustainable finance practices worldwide.
Western Union is in trouble if they didn’t think about it. The mode of sending money across borders for individuals is changing. Mexico has become an ideal destination for cryptocurrency and blockchain innovations in the remittances industry. Mexico became the second-largest recipient of remittances in the world in 2021, with the US-Mexico remittance corridor being the largest globally. As the COVID-19 pandemic has been a big driver for people to seek alternative ways to send remittances, many traditional service providers closed their doors to the public, and people tried out new digital solutions. Cryptocurrency remittance platforms are now looking to capture this market, providing cost and speed advantages. Mexico is considered a prime territory for fintech and neobanks due to its young population and favorable regulatory landscape. Bitso is the leading cryptocurrency exchange in Mexico, having processed around $1.2 billion in crypto remittances in 2020, equivalent to 2.5-3% of the annual remittances volume between the US and Mexico. Other major players in the market include Bitso, Ripple, and BitPay, which are partnering with traditional remittance providers to offer digital currency solutions. However, despite this, only 20% of remittances sent from the US to the Latin America and Caribbean region are digital, with the remaining 80% still being sent via cash.
Good news is bad news, again
The GDP figures are better than expected. Inflation has fallen. Employment has never been stronger. Bullard told us last week that a 50 basis point rate hike for the next month was still on the table. It's the cold shower. Good news is bad news, again. The market is always in a short view and thinks only of Fed support. However, if we have to look for warning signals, there are some, and not just one :
- We already told you but the price of production commodities is still so high. This has also led to a significant rise in the producer price index in the USA in January (PPI published last week)
- The Yield curve is still inverted, this has never been a good omen.
- Money supply (M1) is decreasing in both the US and in Europe. It is the first time that it has been in contraction for over a year since 2006.
- It is not only in France that credit is oppressed with a “taux d’usure” Bank lending standards have tightened and this is general in most of the countries. Not really easy money in the street.
Sources: FXCintelligence , DeFiLlama, The Block, beincrypto, DBS Bank, JPMorgan Chase Bank, SBI Digital Asset Holdings