Cardano Spotlight: CEX listings, Full P2P, and Eth a Security?

Hi,

What's Spotlight? Every week, we highlight the most interesting events happening around Cardano. We want to help you cut the noise and find the signal.

Cardano Native Tokens are growing through a phase where they must expand their reach and onboard new users. This requires more access & avenues like CEXs.

We also do a deep dive on Ouroboros genesis & Full P2P and the SEC's stance towards Ether.

CEX Listings

Cardano DEXs are doing <$250M monthly volume, which is 1/200th of Ethereum or Solana's volume. According to DappsonCardano, the defi user numbers have remained relatively flat in the past year.

We require new inflows and users, which require CEX listings. Why would it help? Well, simply because it improves access. Millions of users trade exclusively on CEX and far outweigh onchain users by order of magnitude.

CEX listings are a Trojan horse, so we onboard users from that platform onto DeFi. The good thing is that there is much to look forward to. We look forward to T1/T2 exchange listings, derivatives, options, and structured products.

However, there is a catch-22, where exchanges look at volume before listing tokens. Without those listings, it would be tough to have volumes. This has resulted in making this process slow and expensive. Teams are required to pay CEXs hefty listing fees.

The game is simple - it is pay-to-win. It's not fair, but it is what it is. Cardano projects have decided to bite the bullet and are now actively working on CEX listings:

• Axo: They have signed up with XBTO, an established leader in providing trading and market-making operations. The firm was involved in offering the first BTC futures product in 2019!
  
  With this partnership, they are working on getting Axo listed on CEXs. Starting with Bitmart and MEXC.
  

• Snek: Snek is listed on over seven exchanges, including Gate and MEXC. The team is now working to integrate with more established CEXs.

Other teams like Indigo, Iagon, Copi, and Minswap have indicated working with CEXs to get the tokens listed.

This could be beneficial and help turn the tide for the Cardano Native Token market!

Ouroboros Genesis & Full P2P

The Cardano core dev team is working to move the networking layer to a full P2P setting. This further decentralizes Cardano and removes any central dependencies. Validators or any new node are required to sync the Cardano Blockchain from Genesis. Currently, this requires connecting to a trusted validator, which introduces a trust factor that can be an attack vector in an adversarial situation.

The goal is to move toward Ouroboros Genesis, which introduces a trustless and autonomous way to sync the chain from Genesis. In Mar'23, we had Dynamic P2p, which lets you find peers automatically without any manual inputs/trusted entities.

Gradual changes are being made to transition from this hybrid model to full P2P. As a temporary measure, nodes can be bootstrapped through a network of 20 trusted nodes known as Genesis Lite. This was rolled out last week through a node upgrade and is still being adopted by SPOs.

Ouroboros Genesis is currently being worked on by IOHK & Tweag and is expected to launch in mid-2024. Genesis introduces dynamic availability, the first for a PoS-based protocol. With dynamic availability, the protocol eliminates the threat of long-range attacks and the issue of costless simulation.

In PoS, a network fork can be created for almost no cost. Thus, any validator who wants to join the network could end up on the wrong chain fork. PoS protocols generally use checkpoints to solve this, but that requires some trust. With Genesis, nodes can sync from Genesis without requiring checkpoints or trusting a specific peer. This prevents the network from being split into competing forks!

Genesis will be a major step towards improving network resilience & decentralization.

Read: Approaching Full P2P by IOHK

Ether a security?

The spot Bitcoin ETF in January was a ray of hope that the SEC and the US government would be more accepting of digital assets. This is proven untrue now.

Last year, Vaneck, Grayscale, BlackRock, and other ETF providers filed for a Spot Ether ETF. The final deadline for this decision will be on 23rd May, 2024. The applicants have argued that the spot Ether ETF should be approved due to its similarities with Bitcoin applications.

Let's look at the deciding factors for Bitcoin ETF and how they compare to Ether:

Futures ETF: The SEC approved ETH futures ETF during Oct '23. This allows users to buy exposure to Ether price action by buying an ETH derivate. This is similar to the spot Bitcoin ETF.

Correlation Analysis: The argument here is that a spot ETF should be approved if a futures ETF is being approved. The futures and spot assets have a ~99% price correlation; this rules out the case that a spot market is manipulated more so than the futures market. This was the reason for the rejection of the BTC ETF in 2021, which was overturned in court and led to the approval of the BTC ETF.

CFTC: The CFTC government agency considers both Bitcoin & Ether as commodities and is under their jurisdiction.

However, the SEC has decided to take the nuclear approach and to make a case for ETH being a security. They have sent inquiries to the Ethereum Foundation & companies that have interacted with them. We don't have specifics, as companies cannot discuss ongoing investigations.

There are two points of contention - ETH ICO in 2014 and PoS in 2022. The ETH ICO was nearly ten years ago, after which SEC officials like Hinman commented that ETH is not a security. Regarding PoS, the SEC approved futures ETF after the Merge. In this case, ETH was an unregistered security that shouldn't have been approved.

Even if we disregard provenance, PoS doesn't make a commodity a security. Security requires a common enterprise that takes an investment with a promise of a profit. Staking can be done by an individual or by validators of the network. The validator set is permissionless and doesn't constitute a common enterprise!

However, it's still an uncertain situation that can wind up in court. The chances of an ETH ETF are significantly reduced, with the market placing it at <20%.

Read: SEC probing ETH, ETF hopes dim by Fortune.

Best content of the week

Watch: USDM on Cardano.

Read: Talking Cardano with Rick McCraken

Meme of the week

There is no meme, we are waiting for you :)

This week, we’re hosting a memecoin competition where the top 5 memes will each win 100 ADA!

Follow the simple rules mentioned in this post. The deadline is 5th April, so start meme-ing now!

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