First Mover Asia: Ethereum isn’t WETH or stETH. But jokes still move markets
Sam Reynolds writes that irreverent posts about lesser-known altcoins – and more significant tokens – can be destructive. Especially if people don’t get the irony. ALSO: Bitcoin drops as BlockFi files for bankruptcy protection.
Good morning. Here’s what’s happening:
Prices: Crypto prices rally late, despite crypto lender BlockFi filing for bankruptcy protection and ongoing protests in China over Covid restrictions.
Insights: What’s the price of irreverence on crypto Twitter? A joke about wrapped ether spooked investors.
BTC/ETH prices per CoinDesk Indices; gold is COMEX spot price. Prices as of about 4 p.m. ET
Bitcoin Rallies Late Despite BlockFi Bankruptcy Protection Filing, China Protests
By James Rubin
Crypto markets spent much of Monday in the red before a late-day rally sent most major tokens into positive territory, even as the industry continued to process the dual body blows of crypto lender BlockFi’s Chapter 11 bankruptcy protection filing and widespread protests in China over severe Covid restrictions.
Bitcoin was recently trading at about $16,250, up the better part of a percentage point over the previous 24 hours but still below its weekend perch of $16,500. The largest cryptocurrency by market capitalization’s resilience dovetailed with a wider slowdown in asset activity of all stripes as the U.S. celebrated its annual Thanksgiving holiday and a lull in bad news related to crypto exchange FTX’s implosion. The latter pause ended with BlockFi’s petition.
“We need to see if there’s going to be more contagion coming,” Marco Sampaio, co-founder and CEO of Hashdex, told CoinDesk TV’s First Mover program. “We know the macro is also playing a role in this. The pressure coming from China is also putting pressure on crypto or risky assets in general.”
But Sampaio added cautiously: “We need to see what’s going to happen. We have many chapters to follow [in] the coming weeks.”
Ether was recently changing hands at about $1,175, also up 1.3% from Sunday, same time. Ether’s price fell roughly 3% earlier in the day after a “whale” address moved 73,224 ETH, worth $85.7 million, to Binance during Asia trading hours, according to an analysis by on-chain researcher Lookonchain. Investors typically transfer coins to centralized exchanges when they intend to sell or use the coins as a margin in derivatives trading.
Most other cryptos in the CoinDesk top 20 by market capitalization were recently trading in the green with popular meme coin DOGE up more than 5%, continuing an almost week-long surge whose spark remains unclear. DOGE alternative SHIB was up about 3%. The CoinDesk Market Index (CDI), an index measuring cryptos’ performance, was roughly flat.
News of continued demonstrations in China, the world’s second largest cryptocurrency by market capitalization and hawkish remarks by U.S. central bank officials on Monday sent equity markets tumbling with the tech-heavy Nasdaq, S&P 500 and Dow Jones Industrial Average (DJIA) closing off about 1.5%.
Hashdex’s Sampaio noted that institutional investors focused on crypto’s long-term potential have been less affected by the industry’s recent debacles than companies that have been trading and are “dis-allocating” their assets. “We know that markets come and go,” he said. I would say ‘give it time.’ It’s hurting now but we don’t think that’s going to be the scenario forever.”
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There are no losers in CoinDesk 20 today.
What’s the Price of Irreverence on Crypto Twitter
By Sam Reynolds
Over the weekend, an inside joke that wrapped ether (wETH) was on the verge of insolvency spooked crypto Twitter.
As a humble member of the crypto industry, I personnally have discussed with my BFF @VitalikButerin and together we will invest $2b into WEF to recover all the funds. Stay #SAFU! Stay strong! https://t.co/UmjtljyRNz
— H.E. Justin Sun (@justinsuntron) November 28, 2022
There’s a joke going around about #WETH depending from #ETH. All the big names are playing with it including vitalik. I am not because I don’t think joking about things that could get the silliest of users rekt is funny. Thus my jokes suck a bit more, but save more lives.
— Richard Heart (@RichardHeartWin) November 28, 2022
Crypto Twitter is understandably twitchy these days, given the rapid market-moving news cycle of the last month. With so many institutions in the crypto economy on the verge of insolvency, the failure of another wouldn’t be surprising. DAOs, protocols and everything in between seem to have been drained or hacked in the last few months.
So when a joke popped up suggesting wETH might be next, the gallows humor was apparently real-sounding enough to be taken seriously by some readers without their guards up
Ether sank 4.8% in the ensuing 24 hours, outpacing bitcoin’s drop, although there’s no proof that the decline stemmed from the gag. Token price drops often stem from different factors.
More to the point: the idea of wETH failing is really not something that would happen, at least in any traditional sense.
What is wETH?
First, we need to understand what wETH is. The ‘w’ in wETH stands for ‘wrapped’, which means a token representing a fixed amount of another token, usually on a one-to-one basis. ‘Wrapping’ is often used to describe representing assets on a different blockchain, as when ‘wrapped’ BTC (wBTC) is created to represent Bitcoin on Ethereum (though wBTC and wETH are very, very different creatures). Wrapping an ether token on the Ethereum network might seem strange then.
To summarize a long, technical problem: Ether, the token, doesn’t support the ERC-20 standard that virtually every DeFi protocol uses. Ether came before ERC-20; it’s Windows 3.1 in the era of apps and smartphones. So instead of fixing ether, it’s faster to just wrap it in a modern ERC-20 token.
But it still is, in essence, another form of ether on the Ethereum blockchain.
Why can’t wETH go insolvent?
Unlike staked ether (stETH), or bridge protocols which allow you to “transport” tokens to different protocols (ie, sending Solana-based tokens to Ethereum via Wormhole), wETH doesn’t have a centralized entity. Immutable, open-source smart contracts govern how wETH and ETH interact, and it’s simple to confirm that the wETH contract is fully backed at any given moment. There’s a risk that the smart contracts behind wETH could be hacked.. WETH is pegged 1:1, and thanks to block explorers you can easily validate this.
It’s transparent, decentralized and all on the same chain. So there’s basically near-zero risk, and a depeg is really an issue, even if wETH might trade at a slight discount to ETH from time to time in digital-asset markets.
Provided that it’s always possible to unwrap ether, which the smart contracts will do without a centralized authority, wETH will continue to properly function.
Data from Dune Analytics shows that there was a spike in unwraps over the weekend as the joke went viral.
To be sure, this isn’t a bank run. Given that wETH andcurrently trades at a slight discount to ETH, this might have generated more revenue for the protocol. https://coinmarketcap.com/currencies/weth/weth/eth/) For traders, the annoyance would primarily be from the gas fees. People might have lost $100, not their entire life savings.
Sometimes jokes go too far
WETH is a confusing topic, and in theory there shouldn’t be a need for it, and eventually Ethereum will evolve to the point where it won’t be needed.
But this is less to do with wETH and more to do with how a news cycle based on flashy tweets can cause panic. This joke was a complicated one that required a reader to have technical context to properly understand it, and to find it funny. In the twitchy world of crypto twitter, it’s easy to misfire.
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