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 🎵 Onchain melody

The exchanges are decentralizing.

Kraken is positioning its upcoming Ethereum layer-2, Ink, as a venue built specifically to onboard new users to the DeFi space. Existing Kraken customers would form the bedrock of that brave new world.

Coinbase’s own blockchain, Base, meanwhile has carved out its existence by encouraging anyone to build anything and everything onchain — “literally anything under the sun,” as Ink founder Andrew Koller put it to Jason Yanowitz on today’s Empire podcast.

Rather than shaping a place to run your ice cream truck or dog walking service onchain, Ink is opting to focus more on specific DeFi use cases.

“We want to take our decade-and-a-half experience of centralized order books and get those things onchain somehow, make it so that onchain users tap into that, and vice versa,” Koller said. 

That means good UX, less clicks and increased security. 

“Sequencer-level security so that people don’t even know that rugs exist, or don’t even know that drainer contracts exist. That would be an absolute dream come true, so I think the hyperfocus on the DeFi theme first is where we’re going to take ours.”

It could all lead to blurred lines between CeFi and DeFi. Perhaps offchain and onchain balances could be connected in some way, so that Kraken users could use their CEX balances as collateral in DeFi lending apps running on Ink, for example. 

We’ve seen the early effects of this convergence already. Coinbase began shifting all user USDC deposits over to Base earlier this year, pushing the network’s stablecoin supplies from under $1 billion to almost $4 billion today. 

And so begs the question: Could exchange chains grow so successful that they accidentally render their parent exchanges obsolete? 

Going by trading volumes, it’s not such a crazy thought. 

Base DEX volumes — which mostly come from Aerodrome and Uniswap — have actually now eclipsed Kraken’s, as shown on the chart above.

The 30-day moving average of Base DEXs (in blue) is currently about $873 million, compared to $630 million for Kraken (in purple), per CoinGecko data. 

Granted, reading too much into trading volumes on super-cheap chains like Base can be a bit silly, given how prevalent wash trading can be (one academic paper claims to have identified $27.5 billion in wash trading on Uniswap v2 and v3 Ethereum pools — where it’s much more expensive than Base).

User assets could be another way through. We probably won’t get to see how much cash and crypto Kraken custodies on behalf of its users until it potentially goes public. 

From SEC filings, we know that Coinbase safeguarded user assets worth over $273 billion at the end of June. 

Barring $4.2 billion in cash, practically all of it was digital assets, the equivalent of over 11% of all cryptocurrency in existence at the time. 

Base, meanwhile, had $7.2 billion economic value onchain — equal to 70% more than the Coinbase user cash, but less than 3% of the crypto kept on the exchange itself.

It’s not exactly possible to port the entirety of Coinbase user crypto over to Base, considering how much of it would be in bitcoin, ether and other layer-1 assets. 

Still, it’s not unrealistic to see the gap closing more rapidly from here. Especially now that Kraken is spurring renewed a competitive and friendly rivalry. 

And if just one of them succeeds, it could make CEXs a Web2 relic, just like the rest of it.

— David Canellis

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• BTC and ETH are up 4% on the day (BTC: $71,440; ETH: $2,630).

• Only two front-page tokens are down. RAY and KAS have shed 5% and 3%, respectively, with the former still up 22% over the week.

• Liquidations on CEXs are at $224.6 million in the past day, with 75% coming from short positions.

• BTC open interest reached a new all-time high of $43.08 billion, according to CoinGlass.

• Despite BTC nearing its own price record, there’s been no big uptick in transaction counts thus far, per Blockworks Research data.

➡️ HODL the line

$71,000.

Bitcoin’s managed to retake $70K after months of trying. We haven’t seen it above this level since it carved out a fresh all-time high in spring.

And now — just a week before the US election — we’re enjoying a small breakout. However, Ledn’s John Glover believes that we need to see a two-day close above $73,000 before he expects any real moves higher. 

But if bitcoin manages to hold on to that level, expect a “rapid move towards $80,000.”

Still, he’s not so sure we’ll go any higher. When we previously chatted with him, he thought he could see a move toward $87,000. That’s off the table as of right now, though he still believes there’s a possibility of hitting $100,000 by the end of Q1 next year, or into the start of the second quarter.

Here’s the thing though: There’s a lot of volatility to digest. 

“Notably, option premiums and estimated daily volatility for both the US stock market and bitcoin are projected to rise significantly around 6-8 November, when the results of the elections are expected to be delivered,” Bitfinex analysts wrote in a report yesterday. 

“Bitcoin, in particular, may experience even greater volatility than other risk assets, largely due to its perception as the ‘Trump Trade.’ This term, which has gained considerable traction in recent weeks, serves to reflect the market’s view of how BTC will fare dependent on the outcome of the election,” they continued. 

According to a Kaiko report, a sentiment shift recorded in September could show a potential price move just days after the election.

In the chart above, “a steeper right skew on the November 8 expiry (orange) suggests increased demand for call options and expectations of rising prices,” Kaiko analysts said.

One thing’s for sure, with just one week until the election, there’s still a lot of time to see some serious price action.

— Katherine Ross

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• Dogecoin carved out big gains Monday after being mentioned at a campaign event for Donald Trump.

• World Liberty Financial, the Trump-backed crypto project, is plotting its own stablecoin, according to a Decrypt report.   

• After a Wall Street Journal report last week, Tether CEO Paolo Ardoino told CoinDesk that the stablecoin issuer is doing “the best” it can to prevent illegal usage of USDT. 

• US prediction market Kalshi is launching crypto deposits ahead of the election, Fortune reported. 

• Speaking of prediction markets, Robinhood is looking to gain exposure by deploying its own contracts speculating on the outcome of the US presidential election.

Q: How are you preparing for a potential bull run?

Lots and lots of chitchat. 

Hopping on tons of calls with folks from around the space is my personal way to prepare. And, if it’s not obvious by what I write, digesting various reports on datasets from around crypto.

Honestly though, preparing for a bull market — whether it be stocks or crypto — is pretty easy. It’s when the bull starts to wane that makes things tricky. I’ve done a lot of reporting on what happens when things go sideways, and that’s what I’m always preparing for in the back of my mind. 

After all, I’m a millennial and I’ve been through a few too many unprecedented events to really stay optimistic for long.

— Katherine Ross

What’s most challenging is just how fast the bull runs can occur. 

It took less than 90 days for bitcoin to rally from $3,500 to nearly $20,000 in 2017. It ran from under $19,000 to over $60,000 across a similar time frame in 2021.

It’s been said that bear markets are for right curve thinking — long-term strategies built on a resemblance of fundamentals. Bull markets would then be for the left-curves.

So, if we’re truly headed for a bull run, what better time to cosplay as the dumb money. Just don’t forget to flip back the switch once it’s all over.

— David Canellis