The AB Newsletter is for informational purposes only. Do not construe any of the following as investment, financial, or other advice. You make your own decisions.
The AB Moonletter🚀 is a culmination of research & perspectives from the diverse minds of the AB Team. Ultimately our focus & mission is financial freedom. Letter #8🧑🏽🚀 includes:
Highlights:
Mass Adoption vs Mass Confusion: The Pendulum
DeFi Hacks: Reentrancy Attacks
Superstate: Bringing Mutual Funds On-chain
Macro Global Finance: Impacting Macro Crypto Markets
Altcoins: Buys & Watchlist
1. Mass Adoption vs Mass Confusion
Week after week, the pendulum continues to swing between hope and hesitancy for U.S. crypto investors as the ongoing fight with U.S. regulators intensifies.
At one moment, it seems as if the inevitable process of mass adoption is underway as the BlackRock's and Fidelity's of the world eagerly await approval for their newly filed Bitcoin (BTC) ETFs, and U.S. lawmakers begin to pass legislation to legitimize the industry. In a major win for the industry, a bipartisan bill was approved last week by a key congressional committee with the aim of adding additional clarity and protection for crypto investors. "The bill passed by the House Financial Services Committee would define when a cryptocurrency is a security or a commodity and expand the Commodity Futures Trading Commission's (CFTC) oversight of the crypto industry, while clarifying the Securities and Exchange Commission's jurisdiction."
But swing as the pendulum does…almost simultaneously, the Securities and Exchange Commission (SEC) continues to dig in its heels on its anti-crypto rhetoric and policies, warning cryptocurrency exchange giant Coinbase (COIN) to delist all of the assets on their exchange other than BTC. Coinbase CEO Brian Armstrong weighed in with the Financial Times, saying, "They came back to us, and they said... we believe every asset other than bitcoin is a security," Armstrong continued, "And we said, well, how are you coming to that conclusion, because that's not our interpretation of the law. And they said, we're not going to explain it to you, you need to delist every asset other than bitcoin."
For the AB team, it’s easy to remain extremely bullish on our crypto portfolio & the leading developer communities in the blockchain industry. Why? We have boots on the ground constantly tracking the compounding wins. We understand this is not the case for most people, and we are saddened that the masses participation is greatly impacted by seemingly silly negative narratives pushed by uninformed government agencies. We hope to help educate such agencies and masses towards better understand the positive impact of good blockchain technology. Ultimately, this is the beginning of what is likely to become a multi-year back-and-forth between a blossoming industry and the seemingly antiquated powers that be.
Meanwhile, outside of the United States, many countries have continued to massively increase adoption in crypto investing and Web3/on-chain activity. Japanese Prime Minister Fumio Kishida has recently come out and endorsed the country's commitment to the industry, stating, "Web3 is part of the New Form of Capitalism." Proliferating Asian mass adoption similarly, China has announced plans to implement a blockchain infrastructure in Shanghai by the year 2025.
It seems as though the United States is standing in the way of its own potential financial prosperity and innovation, while simultaneously handing the keys to its geopolitical adversaries.
Authors: 8-Bit, AB Rocket Pilot
2. DeFi Hacks: Reentrancy Attacks
Over the weekend several decentralized finance protocols were hacked using reentrancy attacks with the biggest being Curve Protocol. Some other protocols affected include Alchemix, JPEG’d, and MetronomeDAO. Over $70M was drained from Curve pools due to a bug within an older version of the Vyper compiler used in a few different pools.
A reentrancy attack is a type of smart contract vulnerability where a hacker can essentially re-enter duplicate withdraw requests that actually get filled. More technically, an exploiter contract leverages the loophole of the victim contract to continuously withdraw from it until the victim contract goes bankrupt. This specific reentrancy attack seems as though it could have been prevented with some “multi-method reentrancy testing” that appears to have never been one on the Curve contracts.
The affected pools are as follows:
pETH/ETH | 6,106.65 WETH (~$11M)
msETH/ETH | 866.55 WETH (~$1.6M) and 959.71 msETH (~$1.8M)
alETH/ETH | 7,258.70 WETH (~$13.6 m) and 4,821.55 alETH (~9M)
CRV/ETH | 7,193,401.77 CRV (~$5.1M at time of exploit), 7,680.49 WETH (~$14.2M), and 2,879.65 ETH (~$5.4M)
There may also be issues with Arbitrum’s Tricrypto pool, but so far researchers and devs are unable to find a profitable exploit. Curve has recommended LPs to exit the pool just to be safe.
Heres an in depth post-mortem by Llama Risk detailing the entire hack further.
Remember kids — always do your own research, and never risk more than you’re willing to lose.
Author: UEV Guy
3. Superstate
Created by Compound Labs and Compound Labs Founder Robert Leshner, Superstate is an investment manager looking to create mutual funds consisting of government bonds. The difference between existing mutual funds and what Superstate is doing is how the record keeping will be handled.
Superstate will put the records of their bonds on both the Ethereum blockchain and on traditional finance record keeping systems, advancing record keeping and accessibility. Primarily the goal is to bring better real world assets onto the blockchain. If you look at current stablecoin products, the user doesn't get to pocket any of the native interest from the underlying activity in traditional finance — rather those yields go straight to the issuer/custodian.
This of course begs the question of how the regulatory framework will look to make sure retail end-investors are safe/protected when interacting with such a product. Superstate is working with regulators to help educate them on how exactly this will look and work on a public blockchain. Robert Leshner looks at this as a stepping stone because the assets on the blockchain will not be the primary source of “truth” for record keeping, but rather a complimentary receipt along with a SEC registered transfer agent in the middle.
It will likely take several years before a strictly onchain bond product is live and registered with the currently required agencies. In its current framework, this model may be fairly inefficient because of the dual record keeping, but the hope is that the education and standardization of this process will lay the groundwork for better products in the future.
Author: UEV Guy
4. Macro Global Finance Impacting Macro Crypto
Macro Traditional Finance (TradFi)
Earlier this year, the market anticipated that the Federal Reserve would cut rates by summer. However, with the recent banking crisis somewhat resolved and economic data continuing to improve (highlighted by low unemployment and a decreasing Consumer Price Index), the Federal Reserve has instead raised rates to between 5.25% and 5.50%. Now, the market is projecting rate cuts to commence in May of next year.
So, has the Federal Reserve managed to engineer a soft landing, effectively controlling inflation without triggering a recession? The macroeconomic picture seems to be promising. Major U.S. stock indexes are approaching all-time highs, and current economic indicators do not point to an impending recession.
Still, there looms a major concern: the inverted yield curve. This curve, a plot of U.S. Treasury durations and their respective yields, typically slopes upward from left to right. When it's inverted, meaning it slopes downward, it's commonly interpreted as a signal that a recession is on the horizon.
The yield curve has been in this inverted state for over a year now, leading to three widely considered possible interpretations:
Possibility 1: During 2022, the U.S. economy experienced two consecutive quarters of declining growth, meeting the conventional definition of a recession. Despite this, unemployment levels remained stable, and neither the government nor the media officially designated this period as a recession. Perhaps the inverted yield curve was a subtle signal of these two quarters of slowed growth.
Possibility 2: A recession or unforeseen black swan event could still be looming, even though no immediate signs are pointing in that direction.
Possibility 3: The yield curve might be incorrect this time around, and no recession will occur.
Macro Impact on Crypto?
What does this current financial landscape mean for crypto? From a macro lens, as risk-on assets, the crypto markets generally respond negatively to Federal Reserve tightening, and positively to easing. Now, with the worst of the tightening phase likely behind us and no more rate hikes expected, the crypto markets should experience a tailwind as the Federal Reserve pauses and prepares for cuts next year.
But what if a recession occurs? The potential impact is likely already priced into the currently depreciated crypto market. Major crypto assets (like BTC, ETH) remain 50%+ or more below their highs, while most altcoins are down by 80%+ or more. In addition, many companies in the crypto space have instituted substantial layoffs, preparing for tougher times.
Considering the likelihood of Federal Reserve cuts in the coming year, the impending Bitcoin halving in May, and ongoing technological innovation within the industry, it is clear the market is in the accumulation phase. This phase is the best time to invest in crypto, as the market goes sideways and forms a bottom before another bull cycle occurs.
AB Fund continues to buy ETH sub $2K, primarily looking for entrances sub $1,600 per ETH. Since selling ETH at an average price of ~$3,500 in 2020-2021, our current average ETH buy-price is $1,337. We are very proud of this accumulation. In the meantime, we continue to increase our research and investment positions in alternative projects and assets that are revolutionizing various sectors of the blockchain industry, technology industries and global financial system.
Author: Digital_Douk, AB Rocket Pilot
5. Altcoins: Buys & Watchlist
Disclaimer: Our buys/watchlist should not be takin as financial advice/investment suggestion. We share this information in the nature of education & transparency. We value the ability for our network to be aware of new projects & ecosystems we are actively researching & participating in. Always invest responsibly. Remember… Fundamentals > Pumpamentals !
Recent Buys
Optimism (OP) @ $1.63
Osmosis (OSMO) @ $0.49
GMX (GMX) @ $55.00
Uniswap (UNI) @ $5.98
Ethereum (ETH) @ $1,693