After the incredible success of tokenized BTC on Ethereum, other foreign crypto-assets are now scrambling to wrap themselves up and head on over to crypto’s most used blockchain. But there are a few open questions - why are these assets coming over to Ethereum? Who is demanding it? Will people even care?
Wrapped, a new initiative from Tokensoft and Anchorage, was announced a couple of days ago with the aim to tokenize or “wrap” all kinds of non-Ethereum based assets to hopefully replicate the success that tokenized BTC has seen. They’ll be starting with wrapped Zcash (WZEC) and then moving onto to tokenizing the assets of other blockchains.
I can understand the need and demand for tokenized BTC but I’m not sure what the appeal is of something like tokenized LTC or tokenized BCH. As for WZEC - Tokensoft and Anchorage are claiming that wrapping Zcash will actually make the “privacy coin” more palatable to regulators because in order to wrap the asset, customers need to complete KYC and WZEC adheres to the ERC-1404 standard which has “compliance functions” baked in. Though, this kind of defeats the entire purpose of a privacy coin, right? Well, Anchorage argues that the “goal with zcash was never to shield from authorities, regulators or your financial providers” and “the shielding of zcash came as a response to the fact that bitcoin is pseudonymous. So who you’re shielding from is the public at large and the internet at large.” I think this is a weak argument because the killer use-case for any privacy coin is being able to do transactions privately that you otherwise wouldn’t be able to do due to laws and regulations. In saying that, there have been fears lately that ZEC will be delisted from centralized exchanges because of its privacy features so maybe WZEC will find a home on Ethereum within the decentralized exchange space.
On top of this, bringing these assets over to Ethereum does more to help them than it does to help Ethereum. This is because most of these other crypto-assets are currently living on dead or dying chains and haven’t really found product market fit within crypto. To attempt to remedy this, they’ll make the move over to Ethereum with the hopes of finding some demand (such as use as collateral within DeFi). This would be analogous to a family from a dying rural town moving to a bustling metropolis in the hopes of finding economic opportunity. They may or may not succeed but they’re better off trying than staying where they are.
I know I bring it up a lot, but this initiative just further speaks to my theory of Ethereum becoming a global economic nexus. It will quite literally continue to suck any asset that it can find into its liquidity vortex which will further strengthen Ethereum’s network effects and ETHs position as the only trustless store of value asset besides BTC.
Have a great weekend everyone,
Enjoyed this newsletter? You can get a fresh one sent straight to your inbox every week day by simply hitting that subscribe button below!
All information presented above is for educational purposes only and should not be taken as investment advice.