A Historic Week, Starbucks NFTs, & Coinbase to the Rescue?

Issue #236 September 14, 2022 | Issue #236 MUST READS A Crucial Week [The Merge]( Ethereum’s transition to proof-of-stake, is scheduled to happen within the next 12 hours. However, its success is far from guaranteed with so many moving parts. And, as if we needed more drama, we also received a fresh CPI report on Tuesday. Considering the correlation between inflation and crypto prices, this is one of the most significant events of the month. The Merge At Last The final countdown for The Merge is here. Not just figuratively, but if you search “the merge” in [Google]( literally. We’ve covered The Merge extensively ([here]( [here]( [here]( and [here]( so we won’t discuss what it is in this article. Instead, let’s talk about what you should be looking out for leading into The Merge. - First and foremost, keep [track of whether it is successful](. If it fails or is delayed, the price of ETH will take a hit. However, if it is successful, [we could see a short squeeze that rockets the price up](. - It could also be fun to keep an eye on the EthPoW fork, scheduled to go live [24 hours following The Merge](. We don’t recommend interacting with the PoW chain because the potential [profits do not outweigh the risk]( but it’ll be interesting to see how it does. - Finally, [follow how much ETH]( is staked in the weeks and months following The Merge. This is key for two reasons. First, it determines the yield for staking ETH, which is vital for the future of Ethereum security. Second, the platform or project that wins the staked ETH battle will likely profit handsomely. Hopefully, you are just as excited for The Merge as we are. It’s not every week that an event of this magnitude takes place. Let’s hope it goes smoothly. New CPI Print Runs Hot It is well-established at this point that crypto prices follow the Fed. When the Fed hikes interest rates, crypto prices decrease. When the Fed lowers interest rates, crypto prices increase. It is also well-established that the Fed makes interest rate decisions based on the Consumer Price Index (CPI), a measure of U.S. inflation. The hotter the CPI is, the more hawkish the Fed becomes. For us crypto investors, this means that we want the CPI to be as low as possible. Unfortunately, that was not the case this month. Even with falling gas prices, [the CPI came in at 8.3% for August](. Biden is [attempting to spin this positively]( but this is disappointing to see when the [expectation was 8.0%](. Besides the crippling effects of persistent inflation on the average American, the hot inflation report also led to a stark sell-off in stocks and crypto. The Dow dropped 4%, the Nasdaq 5%, bitcoin 10%, and Ethereum 6%. It doesn’t look like relief will come anytime soon either, with investors now [pricing in]( at least a 75bps interest rate hike. A lousy day any way you slice it. Between a Rock and a Hard Place The contrast between positive fundamentals from The Merge and the bad macro environment from hot inflation has resulted in a very tricky situation for investors. Our opinion is that it is best to stay safe right now. Fighting the Fed is not often a good bet, and attempting to trade The Merge is risky, considering it is not yet successful. The tides will eventually turn, but it is best not to try to force anything right now. Starbucks Teams Up With Polygon The NFT craze has officially hit the [world’s largest coffeehouse chain](. Starbucks, a multinational company with [$29 billion in revenue]( in 2021, announced the launch of [Starbucks Odyssey]( on Monday. Under the program, participants can access “new, immersive coffee experiences” by earning and buying special Polygon NFTs. Much to the delight of NFT investors and Polygon (MATIC) holders. The Starbucks Odyssey Starbucks already has a strong loyalty program in place. What Starbucks Odyssey does is enhance it through web3 technology. Specifically, Polygon NFTs. Reward program members have the opportunity to participate in Starbuck Odyssey “journeys.” Journeys can be a range of things, such as playing a game or taking coffee knowledge quizzes, but they all have the same prize: a “journey stamp” NFT. Journey stamps come in varying rarities. The rarer the stamp, the better the benefits. Benefits include everything from virtual martini-making classes to trips to the Starbucks coffee farm in Costa Rica. All journey stamps are also tradeable on Starbucks’ built-in NFT marketplace. This means that if you aren’t keen on taking coffee quizzes, you can simply buy the stamp. Likewise, if you don’t care about virtual cocktail classes, you can sell the stamp and potentially make a nice profit. We have to give credit where credit is due. This is a pretty cool idea. With partnerships like these, it is hard not to be bullish on the future of Polygon NFTs. And with Starbucks bringing NFTs and crypto to potentially millions of new users, it's one more positive sign for crypto as a whole as well. SPONSORED A Return to Normal? PhD Economist: “Don’t Bet on It...” According to former Goldman Sachs executive, Nomi Prins... Americans who are hoping for a ‘return to normal’ are going to be shocked when they see [what happens next in America](. She says, “If you’re betting your job, savings, or retirement accounts on a return to ‘normal’ you’re about to be left behind by a brand-new crisis few see coming.” [Watch her bombshell prediction for America’s economy here](. DEEP DIVES MakerDAO Considers Coinbase Partnership [MakerDAO]( the creator of the dollar-pegged stablecoin [DAI]( is at a crossroads. The Tornado Cash sanctions, which we covered [here]( and [here]( have raised concerns over DAI’s exposure to [USDC](. Understandable, considering the new precedent of the government shutting down code at will. How concerned are people? Rune Christensen, Maker’s founder, is advocating[for Dai to “free-float” (have no peg)]( within the next three years. This would be unimaginable as recently as six weeks ago. However, not everybody thinks that ditching USDC as soon as possible is the best way forward. The latest battleground in the fight for the future of DAI is an intriguing offer from Coinbase. What Maker ends up doing carries immense consequences not just for DAI, but the entirety of DeFi. Dai and USDC MakerDAO allows people to deposit collateral and mint the dollar-pegged stablecoin DAI. The most popular form of collateral used is USDC, the centralized stablecoin from Circle, and it’s not even close. [More than half of all DAI was created from USDC](. This reliance means it would be game-over for Dai should USDC receive the Tornado Cash treatment. That doomsday scenario is scary enough for Rune and his supporters to pitch for the removal of USDC from DAI. As expected, not everybody agrees. Many envision Maker as a bridge between TradFi and DeFi. They want to increase exposure to USDC and related real-world assets (RWAs), not reduce it as Rune wants. An unpegged DAI would hinder this quest. These are the two sides in Maker’s civil war: (A) Those who prioritize DAI’s security and (B) those who prioritize growth and revenue. Coinbase’s Proposal Last Wednesday, [Coinbase proposed]( that Maker loan $1.6 billion of its USDC reserves into Coinbase Prime in exchange for an annual 1.5% return, which would net Maker a cool $24 million a year in revenue. Predictably, the two warring sides had differing opinions of the proposal. The anti-USDC party opposes the proposal. They argue that not only does this proposal not help wean Maker off USDC, but it exposes Maker to another real-world counterparty risk. Now, the government could destroy Maker by leaning on Circle or Coinbase. To them, that existential risk is not worth the financial gain. The pro-USDC party liked the proposal. To them, an unpegged DAI is impractical in the short-medium term. Rune even admits that it will take years for his plan to bear fruit. Their argument is if Maker is going to hold USDC anyway, they might as well make some money in the meantime. Going Forward We’re not sure if Maker will accept Coinbase’s offer. What we are sure of is that it’s an important decision. DAI is a foundational stablecoin. A failure in DAI would be disastrous for other DeFi protocols. This is an outcome that DeFi, [still recovering from Terra]( can ill-afford. We’re living in uncertain times, but as [Rekt]( puts it, “crypto’s original crypherpunk ethos may prove to be a lifeline as we spiral into an ever more volatile future.” SPONSORED Starting a New Business is Hard… Trends Makes it Easy When new trends (like crypto) enter the market, it’s easy to laugh them off as just another fad. But those that take advantage of [these early trends]( have the potential to hit gold. That’s why [Trends]( from The Hustle is such a game changer for those looking to start a new business. They give you a head start in starting a business by: - Alerting you to new ahem… trends in the market - Providing 1,000+ fully vetted business ideas you can start in a weekend - Hosting live, virtual business trainings and Q&A sessions with entrepreneurs, investors, & industry leaders - Giving access to the Trends’ community, which contains thousands of ambitious business-builders just like yourself But here’s the thing, Trends isn’t only for those looking to start their first business. It’s also the perfect tool for those looking to grow an existing business. That’s why we – the founders of CoinSnacks – have been members for years. A membership normally costs $299, but CoinSnacks readers can [try Trends out for 7 days for just $1](. REGULATORY FRONT New Report Casts Fears Over Bitcoin Mining The energy usage of proof-of-work mining, which crypto king bitcoin uses, has been highly criticized since the Biden Administration took over. This was made even more apparent thanks to a new [report]( on crypto’s energy usage by The White House Office of Science and Technology. A Concerning Report The report was created per President Biden’s [March executive order]( to explore crypto and the possibility of a central bank digital currency (CBDC). The report’s goal is simple: examine crypto’s impact on the environment and America’s climate change goals. Unfortunately, their findings were not great for us crypto enthusiasts. The report singled out bitcoin mining as detrimental to America’s environmental goals. This isn’t surprising, considering the [prevailing narrative]( around bitcoin mining, but it still is not what you want to see. The report’s stance on crypto’s impact on electrical grids, in which it is argued that crypto mining puts undue stress on the grids and could raise consumer electrical costs, was slightly more surprising. Miners argue that by providing a base level of electricity demand, they actually make electrical grids more reliable. The report was unconvinced of this argument. Some Good News Thankfully, the report wasn’t all bad. The report’s final section discussed crypto’s potential to assist climate efforts through vented methane equipment. Basically, miners that power themselves through methane-capturing machines are helpful to the environment. It’s not much, but it does provide some guidance going forward on what the U.S. government wants to see from crypto miners. Coinbase Takes Stand For Crypto’s Privacy Chalk one up for the good guys. On Thursday, [Coinbase announced]( they are funding a lawsuit brought by six individuals challenging the U.S. Treasury's sanction of the Tornado Cash smart contracts. The announcement is a strong statement that regardless of their faults, Coinbase has crypto's best interest at heart. Tornado Cash TLDR If you're a bit behind the Tornado Cash situation, we previously covered it [here]( and [here](. For those strapped on time, here's a quick TLDR: - Tornado Cash (TC) is an app on Ethereum that allows users to transfer funds privately and anonymously. This appeals to law-abiding citizens seeking privacy and criminals looking to launder money. This also appeals to people around the world without an ounce of financial freedom, who are perhaps attempting to evade the powers of an authoritarian regime - The U.S. Treasury Department, however, has decided that criminals using TC were enough of a problem to warrant putting it on the OFAC SDN (Office of Foreign Assets Control Specially Designated Nationals And Blocked Persons) list - This makes it illegal for U.S. citizens to interact with TC in any way The Lawsuit Nobody is against the government-sanctioning bad actors. Coinbase explicitly states its support for law enforcement in this quest. The problem with the Tornado Cash sanctions is that they sanction an entire technology instead of specific individuals. This is unprecedented and, in [Coinbase's view]( beyond the Treasury's authority. Should the lawsuit be successful, the sanctions will be reversed, and the six otherwise law-abiding plaintiffs will be removed from the SDN list. Even if the lawsuit isn't successful, it is wonderful to see Coinbase taking such a strong stand for the defense of privacy in crypto. It's hard not to be encouraged hearing, "as one of the largest companies in crypto, we have a responsibility to defend the crypto industry against actions that go too far." It's much easier to be optimistic about crypto's future when you know that the big wigs are willing to fight for it. Good on Coinbase for setting the example. Related: Starting today, Coinbase will begin [integrating crypto policy efforts right into the app](. TWEET OF THE WEEK Other Content You Might Enjoy - FTX Ventures [Buys 30%]( Stake in Scaramucci's SkyBridge Capital - Y Combinator is [doubling down]( on crypto founders despite market volatility - IRS [data leak]( exposes personal info of 120,000 taxpayers - Bolt's $1.5 billion deal to buy Wyre [dies]( - A [Web3 product studio]( to build your Web Applications, NFT-Marketplaces, Tokens, and Smart Contracts ** - Can Mike Novogratz’s [Comeback Narrative]( Survive the Crypto Crash? - Defiance [Debuts ETF]( To Short Blockchain Companies - Doodles has [raised $54M]( at a $704M valuation **Sponsored Copyright © 2022 CoinSnacks, All Rights Reserved. Our mailing address is: CoinSnacks 5500 Military Trail Suite 22-250Jupiter, Florida 33458 [Add us to your address book]( [Sponsor]( | [Unsubscribe]( | [View in Browser](