Ethereum Nears Shanghai, L2s Expand Capabilities
Ethereum continues to speed towards its Shanghai upgrade, which will give users access to their staked ether. The Shapella update, a practice run for Shanghai, was successfully deployed on the Sepolia testnet, the second successful practice run this month. The next step will be to deploy a practice update on the Goerli testnet, before executing the full update on the Beacon chain in April.
In other Ethereum news, trading platform Coinbase launched their own Ethereum Layer 2 solution, Base, becoming the first publicly traded company to launch a Layer 2 solution – shares in the company rose 10% on the news. The Base network is designed primarily for DApp developers and aims to make Ethereum transactions 10x less expensive. Coinbase invited a select group of big industry names, including Aave, Covalent, and Euler, to participate in their testnet.
Fellow Ethereum scaling solution Polygon announced the launch of Polygon ID, which will leverage zero-knowledge-proofs to allow users to prove their identity without revealing any sensitive information. Polygon aims to assist developers with user authentication and regulatory compliance, while simultaneously improving privacy for Polygon users. Polygon will release a Polygon ID wallet app and an SDK for developers.
Silvergate, SVB, and Signature Bank Woes Spook Crypto Industry
All eyes turned to Silvergate as the crypto-friendly bank suspended its Silvergate Exchange Network (SEN), a 24/7 internal settlement tool that catered to crypto clients. All other deposit-related services remain operational. Silvergate was one of the few top-tier banks willing to engage with the crypto industry, and while most retail traders have likely never encountered its tools, its services played a key role in DeFi, allowing stablecoin issuers and exchanges to safely store funds and quickly move them at any time.Most believe Silvergate’s demise stems from its entanglements with FTX – the firm suffered over $1B in net losses and $8B in outflows in Q4 2022 after FTX collapsed – although there is no indication of any fraud.
Silvergate’s struggles were quickly dwarfed by the collapse of Silicon Valley Bank (SVB), the tech-focused bank that controlled $209B in assets at the end of 2022. The bank had placed a large number of user deposits in long-duration US treasuries, taking advantage of low interest rates at the height of the pandemic. This bet quickly turned sour when the Federal Reserve hiked interest rates, leaving the bank short on liquidity. When SVB announced on March 8 that it was selling a group of securities for a loss of $1.8B and issuing $2.25B in new shares, investors panicked, causing the bank’s stock price to tank. By March 10, trading had been halted entirely, and the FDIC announced that it would seize control of the bank. The collapse was the second-largest banking failure in US history.
Silicon Valley Bank’s collapse also impacted Signature bank, a fellow tech-friendly institution famous for its crypto partnerships and internal settlement tool, Signet, which functioned similarly to SEN. Signature Bank faced a whopping $10B in withdrawals on March 10 as investors spooked by the SVB collapse rushed to pull their funds. On March 12, the FDIC announced it was taking over the bank.
Regulators have been paying close attention, determined to minimize fallout and protect depositors. On March 12, the Federal Reserve and FDIC released a joint statement confirming that all deposit accounts at both SVB and Signature bank would be guaranteed, and customers regained access to their accounts on March 13. President Biden promised swift action, releasing a statement that read, “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.” Most do not expect fallout to lead to further banking collapses.
Crypto companies will have to quickly find new banking partners and shore up confidence in the space – a task which may prove daunting and might drive the industry to look for banking partnerships outside of the United States. However, the failure of traditional banking institutions also presents an opportunity for crypto to prove itself as an effective alternative. The industry – born in response to the 2008 financial crisis – will now get to prove its mettle on the world stage.
Payment Processors Wary of Web3, Gaming Companies Full Speed Ahead
Amid heightened regulatory scrutiny and market turbulence, both Visa and Mastercard decided to put crypto partnerships on pause until market and regulatory conditions improve, although a spokesperson for Mastercard later reaffirmed the company’s commitment to the space, telling Reuters, “our efforts continue to focus on the underlying blockchain technology and how that can be applied to help address current pain points and build more efficient systems.”
In contrast, Web2 gaming behemoths seem eager to explore the Web3 space. Both Unity and Tencent announced agreements with Web3 companies that will bring new blockchain tools to game developers. Unity will work with major industry players including Metamask, Solana, and Aptos Labs to provide verified APIs and SDKs through the Unity store. Tencent, one of the most valuable companies in the world, announced a collaboration with Ankr, Avalanche, Scroll, and Sui to accelerate the adoption of Web3 applications and provide new tools for developers. This commitment to Web3 from a leader in traditional gaming will put decentralized tools in the hands of thousands of new game developers and jumpstart the development of Web3 games.
Blockchain, Emerging Tech Development Continues
Cardano announced the launch of its own stablecoin, USDA, which will provide an audited and regulated 1:1 US fiat-backed stablecoin to its users. The move is especially important for Cardano DeFi users, who will gain an indispensable tool for financial management, and newcomers, allowing for access to simple on/off ramps.
Solana was less fortunate this month, struggling with a network outage that began on February 25 and lasted a full day. The chain was only able to recover once validators restarted the network. The root cause of the outage is still unclear and Solana developers are actively investigating. Solana CEO Anatoly Yakovenko assured users that the outage was not caused by an increase in network voting.
OpenAI announced the release of GPT-4, the latest version of its wildly popular AI software. GPT-4 will succeed GPT-3.5, which gained mainstream popularity earlier this year through the release of Chat-GPT, a new method to interact with the software using a chat-based interface. GPT-4 is a multi-model AI and will bring a host of improvements that will make the AI more nuanced and give users greater control over style. The latest version is also more adept at human tasks, scoring in the top 10% of test takers on the bar exam, a dramatic improvement over GPT-3.5, which scored in the bottom 10%. The software is also capable of accepting images as an input, but this feature will not yet be available to the public due to concerns of abuse. Several mainstream brands including Morgan Stanley, Stripe, and Duolingo have already announced they will leverage the software.
OpenAI’s improvements could have big implications for startups in the emerging tech space and beyond. Users have been excited by the software’s ability to perform copy edits, write simple code, draft adverts, and other tasks that might otherwise be prohibitively expensive for an early stage company.
Overall, we’ve seen important strides made to improve backend tech, developer tools, and DeFi capabilities over the past month – key updates to the foundation of Web3 that will pave the way for future enhancement and adoption.