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June 06, 2022

Ember Nuggets #35 | The Tokenizing of Real-World Minerals

Nugget #1: Cross-Chain Bridges

Cross Chain Bridges have become a growing need in crypto with the explosive growth seen across different Layer-1 chains (i.e. ETH, SOL, AVAX, MOVR). However, many of these are segregated ecosystems with different technology and code, and although you can “port over” code when compatible (e.g. EVM compatible chains) it leaves fragmented liquidity across various ecosystems. This hurts the velocity of tokens, general ecosystem liquidity, and proliferation of assets.

One of the biggest examples of this is non-ERC20 tokens – many investors want access to tokens like SOL, ATOM, DOT, and many others, but these tokens do not exist in a native form on ETH and have been difficult to attain on DEXes like Uniswap. Most investors have had to bridge capital to the native chain or buy with a custodial exchange like Coinbase. Cross-Chain bridges hope to make assets more accessible and improve liquidity by allowing users to port over assets to various chains. For example, I could send my SOL from Solana to a wSOL on ETH via Wormhole Bridge.

So the basic concept: On the origin chain, the bridge would accept crypto assets in the native format and then issue a synthetic asset on the destination chain. In the above example, wSOL is wrapped-SOL that you would theoretically be able to redeem on SOL chain for 1 SOL. However, bridging is not that simple from smart contracts to various security risks. Wormhole and Multichain have both been hacked for $100M+ in damages – where the staked tokens to support the bridge were drained and people holding synthetics could no longer redeem for the native asset. Most recently, Ronin Bridge was hacked for $650M – if you had ETH on Ronin, you likely lost out as you could no longer bridge that back to the main chain.

Cross-Chain bridges are in their infancy and there is a lot of risk involved depending on technology, liquidity methods, and general backing but they will become important as crypto evolves. Just like we have exchange kiosks at the airport for currencies, we will need cross-chain bridges to be able to explore and utilize various chains, especially when chains become specialized for certain categories.


Nugget #2: Tokenizing Real-World Minerals

The Central African Republic became the second country, after El Salvador, to make Bitcoin a legal tender. However, the more interesting story is the country’s work toward tokenizing its resources. The country is known for its petroleum, diamonds, copper, and rhodium. CAR’s effort in tokenizing its minerals and fuel shows a growing trend in how crypto, and specifically, NFTs could change up the commodities market.

The technology could make spot/future contracts automated via blockchain, give users NFTs that would dictate the price and time they could purchase, and add a new level of transparency, efficiency, and innovation. The president hopes it will drive new foreign direct investment, especially if users can invest in assets under the ground. My thoughts lead to token sales for mines that operate, but who knows…


Nugget #3: Regulation is starting to roll out for Stablecoins

After the fallout of UST in the Terra ecosystem, all eyes have been on stable coins and how we can regulate them to protect investors and the ecosystems that build around them. Japan seems to be one of the first countries trying to build a legal framework for stable assets. This week the Japanese Parliament introduced a legal framework for stablecoins that they need to be linked to yen or other fiat currencies and holders have the right to redeem at face value. The framework will take effect in a year.

The parliament further clarified that stablecoins were digital money and can only be issued by banks, registered money transfer agents and trusts. It will be interesting how other countries act and what impact this may have with entities like USDT or algorithmic stablecoins like DAI.

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June 27, 2022

Ember Nuggets #37 | The Fallout of CeFi Crypto Platforms 📉

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