GM and welcome to another edition of THE W3EKLY, your one-stop shop for all things regulation crypto.

For those of you new here, I’m happy to have you along for the ride! Here’s a quick rundown for how things work: Section 1 gives you a quick snapshot of the most important developments in the space, Section 2 is a headline roundup from last week, and I wrap up the newsletter with thoughts on a trending topic. Feel free to hop around. Now to the good stuff.

EXEC SUMMARY:

The SEC continues to crack down on crypto. The initiative seems to be part of a broader push to regulate the space as quickly as possible, without the use of any clear rules:

• SEC to sue Paxos over Binance stablecoin

• SEC proposed changing crypto custody rules

• The agency is signaling that it views crypto products as securities 

• The agency charged Terra founder Do Kwon with fraud over its $40B crypto crash; Kwon is currently in hiding

Although regulation is heating up, the NFT space is seeing an elevated amount of development and positive activity:

• Sony’s latest patent hints at NFTs in their gaming ecosystem

• Square Enix, the team behind the Final Fantasy series, announced plans to build on the Polygon Network

• WalMart filed a trademark application for Sam’s Club NFTs

• Magic Eden partners with Moonpay to allow users to purchase NFTs with their credit card

TOP HEADLINES:

MACRO:

• ECB: The Central Bank is considering a digital currency in response to US / China tech dominance

• IMF: The international group raises concerns about El Salvador’s appetite for Bitcoin

• Abu Dhabi: Hub71, Abu Dhabi's tech ecosystem, has started a new $2 billion initiative to back Web3 and blockchain technology startups in the region. 

POLICY/LAW:

• US Consumer Protection: 25 states have introduced more than 60 bills in the aftermath of FTX

• Hong Kong: The international financial hub to legalize crypto trading for all citizens on June 1, 2023

• EU: New EU banking regulation assigned highest risk score to crypto

• UK: The UK's financial regulator raided crypto ATM operators

PRODUCT:

• Siemens: Team issues $60M on-chain bond using the Polygon network

• Caviar: The NFT Aggergator officially launched their Beta

• Rarible: The NFT Marketplace expanded their aggregation tool to now be Tezos compatible

• Lido: The Liquid Staking Derivative protocol announced their V2 upgrade in anticipation of the Ethereum Shanghai upgrade

• Arbitrum: The L2 announced Stylus, an EVM+ developer upgrade

• StarkWare: The L2 plans to opensource the StarkNet Prover, a crucial component of its Layer 2 solution

CORPORATE ACTIVITY:

• Visa: Cryptocurrency payments app Wirex and Visa will expand their partnership to 40 countries

• Shopify: The E-Commerce platform integrates Ethereum sign-in functionality

• Binance: The Crypto Exchange endured over $830M of outflows last Monday in worst day since December 

• Microsoft: The Tech Giant cuts metaverse core team 

• Open Exchange: The founders of bankrupt crypto hedge fund Three Arrows Capital launched Open Exchange, a $25M crypto-exchange venture that will let users trade bankruptcy claims from insolvent platforms / funds

NFTs:

• Blur: The NFT Marketplace dropped over $360M in tokens for their first airdrop

• OpenSea: The NFT marketplace will temporarily eliminate its marketplace fee and move to optional creator earnings

• NFT Sales: Ethereum blockchain NFT sales jumped 42% MoM to $780.2M in January

• Marilyn Monroe: The iconic actress’s estate partners with ZeBlocks to launch Monroe NFTs

FUNDING/ INVESTMENTS:

• Monad Labs: The project building an EVM-compatible Layer 1 raises $19 million from Dragonfly Capital, Naval Ravikant and others

• Blur: The NFT Markeplace aggregator is rumored to have raised 15-30M at a $1B valuation

• Sending Labs: The web3 communications stack startup, raised a $12.5M seed round led by Insignia Venture Partners, MindWorks Capital, and others

• Alongside: The crypto index platform raised an $11M seed round led by a16z

• Caldera: The no-code web3 infrastructure platform raised $9M across two rounds led by Sequoia Capital and Dragonfly Capital

• Stelo Labs: The web3 security startup raised a $6M seed round led by a16z

• Unagi: TheWeb3 gaming startup  raised a $5M seed round led by Sisu Game Ventures

• Orb Labs: The blockchain interoperability startup raised a $4.5M seed round led by Bain Capital Crypto

• Aura Network: The startup building an ecosystem to accelerate global NFT adoption, raised a $4M pre-Series A led by Hashed and Coin98 Ventures

MY 3 CENTS:

As it relates to crypto, it’s becoming more apparent by the day that the SEC means business. I’m all for proper regulation, but their actions don’t seem fully aligned with investor protection… Not only are Gensler and Co. cracking down on staking and stablecoins, but they’re also coming down on custody rules and bank charters. Instead of working with the industry on issuing thoughtful (or any) guidance, they’re dishing out fines and Wells notices like it’s Halloween and they’re the biggest house on the block…

This is easily the hottest topic in the space; you can google crypto regulation and read thousands of opinion pieces that are all thoughtful in different ways. So as much as I want to, I won’t bother throwing my 3 cents into that fountain. Instead, today I’ll speak to a counter narrative: Shopify, the web3 sleeping giant.

The E-Commerce platform..? Exactly. Their team just gets it. Like everyone else, when things were good, Shopify invested heavily into the space. Their first big foray into NFTs came in July 2021, right around the time the market was taking off. At that point, Shopify announced that they would support NFT sales though merchant storefronts. When sales on OpenSea were reaching more than $3.4 Billion in August, launching a storefront was almost a no-brainer. Their next big splash came at SXSW, where the team partnered with a major NFT project to bring a token-gated retail experience to life. This was one of the first examples of token gating merchandise, which could have the potential to upend brand commerce programs as we know it. Next, Shopify dipped their toes in crypto payment integration, partnering with Coinbase, Crypto.com and BitPay. Although newsworthy, this was a fairly obvious move for a major e-commerce player to make. Then the web3 world started to go up in flames.

Traditional brands and institutions paused development, laid off teams, and abandoned the space, especially in 2023. But not Shopify. Instead of bowing out, the team saw an opportunity to double down. Shopify has been building through the bear market, and their 2023 announcements articulate just that. At the turn of the year, the team announced a partnership with Avalanche, giving merchants with “minimal technical knowledge” the chance to sell NFTs. A month later, they rolled out a MetaMask wallet integration for storefront sign-in functionality and additional blockchain commerce tools for merchants. Shopify has now created the infrastructure for anyone using their platform to almost seamlessly integrate web3 features into their storefront. And they’ve done this without alienating their core customers. To spell it out, more than 4.4 million companies can now accept crypto payments, sell NFTs and offer cross-promotion deals based on the contents of user wallets.

Great, more monkey jpegs… How does that help society? Enter Punk #6529. On a recent podcast, this prominent personality did a fantastic job of spelling out the opportunity. His argument is as follows:

Blockchains are basically just infrastructure for a read, write, own world. No one cares whether you’re using Oracle as a backend or that your website was built using Python versus JavaScript. So why care whether you’re using Ethereum, Solana or Avalanche? Obviously most have an opinion here, but it’s a harbinger for the fact that we’re too focused on the tech to reach a Product-Market Fit world. When you talk about applications instead of the tech, that’s when you’re at the beginning of consumerization. NFTs are just this: applications. Sure, there are scams and frauds, but at the end of the day, NFTs are generic carriers for intangible assets. Brands are starting to buy into this definition, especially in the fashion retail space, even in the midst of a bear market. As long as there isn’t legislation that makes crypto unusable, NFTs are inevitable. 

By distancing the use case from the application, it seems apparent that liquid, transparent, intangible ownership is something that could be massively valuable. Shopify understands this, and looks to be building a flywheel for the future. Right now, they might not be looked at in the same vein as an OpenSea or a ConsenSys. But make no mistake, Shopify is all in on web3. And they’ve done it in a composable way, letting customers choose whether or not to use/build on those tools at their disposal. We’re found ourselves at a moment in time where others think the tech is a joke. Barring Gary Gensler ruining it for everyone, there is a massive opportunity to win the technology shift. Shopify simply gets it.

Until next week.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.