A review of the eight major hotspots in industry progress and new applications in Q3

Author: SUSS NiFT Researcher @Jesse_meta

The market was relatively sluggish in the third quarter, experiencing a brief correction after a period of low volatility. This was expected, as the third quarter has historically performed poorly. Only a deep cleansing can concentrate chips into the hands of believers with diamond hands. Even in a quiet financial market, we still saw exciting industry progress and new applications. Let's review the eight major hotspots of Q3.

Ripple --- A Milestone Victory for the Crypto Market

On July 13, the U.S. District Court for the Southern District of New York ruled on the SEC's allegations against Ripple, stating that XRP, as a digital token, does not constitute a "contract, transaction, or scheme" as required by the Howey test, meaning XRP is not a security. Investments using XRP, funding grants, transfers to executives, and sales on order books are not considered securities. However, securities are those sold through institutional sales, OTC, ICO, and IEO.

If the relatively centralized XRP is not a security, then other more decentralized cryptocurrencies are even less likely to be securities. Following this news, XRP surged by 90%, with BTC and ETH also rising, while previously classified as securities by the SEC, SOL, MATIC, and others saw significant gains. Coinbase subsequently re-listed XRP. This marked a significant victory for the cryptocurrency industry in the face of the SEC's stringent regulations in recent years, temporarily clearing the gloom for the crypto industry and indirectly supporting the legality of token trading by cryptocurrency exchanges. (Previously, the SEC sued Binance and Coinbase for offering unregistered securities trading.)

The SEC later filed an appeal against the ruling. The showdown between the SEC and Ripple is ongoing. The lack of clarity in regulatory policies continues to cast a shadow over the crypto market. The market urgently needs clear regulatory guidelines to reduce confusion. Only clear legislation can better protect investors. Industry practitioners should also actively engage in dialogue with regulators to help them better understand the market and achieve a win-win situation.

Layer 2 --- Not Enough ETH Tokens in Hand!

The enthusiasm for Ethereum's Layer 2 networks remains high, developing rapidly, with many L2s launching, and even some competitors like Celo leaning towards the Ethereum L2 camp. Airdrop hunters are expressing that their ETH tokens are insufficient given the multitude of L2s available.

According to L2Beat, there are 31 L2s listed, with 18 having a TVL exceeding $10 million. Currently, Arbitrum leads with a TVL of $5 billion, capturing 54.31% of the market share, far surpassing Optimism's $2.42 billion TVL (25.31% market share). ZkSync Era, based on ZK Rollup, ranks third with a TVL of $428 million but only holds 4.47% of the market share. This clearly shows the first-mover advantage of OP Rollup. However, this does not mean that OP Rollup will have better development prospects or that it will develop separately from ZK Rollup. Some projects, like Polymer, are attempting to combine the advantages of ZK and OP to provide new solutions. L2s currently using OP Rollup may also transition to ZK Rollup in the future.

Polygon co-founder Sandeep Nailwal stated at TOKEN 2049 that today's Ethereum resembles a user-to-chain model, transitioning to a chain-to-chain model. In the next 2-4 years, Ethereum will become the foundational settlement layer, providing security, settlement guarantees, and safety features to these chains.

Worldcoin --- The Savior of the AI Era?

On July 24, Worldcoin released an open letter signed by OpenAI co-founder Sam Altman, announcing the official launch of the WLD token, with major exchanges listing it immediately.

Worldcoin aims to create a new identity system and financial network owned by everyone. It seeks to increase new economic opportunities in the AI era and provide solutions to distinguish between AI and human identities. Under the premise of protecting privacy, it explores a possible path to achieve a global basic income funded by AI by distributing tokens to verified unique human identity wallet addresses.

In the AI era, it is foreseeable that a large number of workers will become unemployed due to productivity improvements, while AI companies will reap substantial profits. Worldcoin hopes to redistribute the profits from AI so that every verified unique human individual can receive a basic income.

To realize Worldcoin's ideals, it is essential to achieve unique identity verification for everyone to prevent fraud and duplicate applications. After considering government IDs and online trust models, Worldcoin ultimately chose iris-scanning biometric technology. Worldcoin uses a specialized device called Orb to detect whether the subject is a real person and ensure that one real person can register one identity on Worldcoin. The Orb uses specially designed cameras and algorithms to extract iris feature information, completing all processing on local devices, not storing user images, and only outputting signed iris codes. By decoupling from user wallets through zero-knowledge proofs, it avoids leaking user privacy. As of September 15, 2.298 million people have been verified on Worldcoin.

This is a highly challenging and forward-looking project that has attracted widespread attention from the community. However, there are also criticisms, with Vitalik questioning the project's privacy, centralization, security, and accessibility. Additionally, some residents of economically underdeveloped countries have sold their irises at low prices, which contradicts the original intention. In August, Kenya, one of the first countries to launch Worldcoin, suspended registrations due to security, privacy, and financial issues.

Telegram Bots --- Innovation and Speculation in Crypto Trading

Unibot is a trading bot on Telegram, with its token market cap skyrocketing from around $30 million on July 7 to $2 billion on August 10, drawing widespread attention from crypto market players towards Telegram bots and related tokens.

Unibot allows users to interact with the bot, monitor liquidity pools, receive alerts for newly minted tokens, trade tokens, and perform copy trading. Unibot's trade execution speed is six times faster than Uniswap. Token holders can earn 40% of trading fees and 1% of the total $UNIBOT trading volume as dividends. Unibot's high-speed execution, innovative features, and robust revenue-sharing model make it stand out among numerous competitors. Especially in the current phase of low mainstream market activity without new technological innovations, some crypto users are seeking to trade altcoins or meme coins for high profits, and Unibot conveniently provides these users with services akin to centralized exchanges.

While these bots meet the needs of degenerate players, their centralization has led to the emergence of various types of trading bots in the market, such as LootBot, Bridge Bot, and MEVFree bots, offering different crypto services. The security risks cannot be ignored, as importing private keys into bots may lead to asset theft.

According to CoinGecko data, Unibot's token $UNIBOT surged 27 times at its peak, but just 27 days later, it plummeted by 70.47% from its all-time high. This once again confirms that the crypto market is filled with financial speculation while undergoing technological innovation.

Friend.tech --- Reconstructing Web3 Social

Friend.tech is a new social application launched on Base on August 10, allowing users to purchase tokenized stocks of KOLs on Twitter to gain exclusive access to private chats with these social celebrities.

In just the first week after its launch, Friend.tech's trading volume exceeded 7,000 ETH, demonstrating its strong market appeal. By September 12, over 210,000 users had completed 3.734 million transactions on the platform. This rapid growth is attributed not only to its close collaboration with crypto Twitter KOLs but also to its unique progressive web application (PWA). Users can experience it directly in their browsers without downloading, making it easy for newcomers unfamiliar with cryptocurrencies to use.

The innovation of Friend.tech lies in utilizing tokens as ownership when interacting with crypto individuals. Holding a token is akin to owning shares in a specific company. The increase in the number of token holders on Friend.tech leads to a rise in the token's value. Trading tokens incurs an additional 10% transaction fee, with 5% going to the protocol and 5% to the creator. In just one week, the total income for creators reached $13.25 million. On August 19, Friend.tech announced it had secured exclusive $100 million funding from Paradigm and introduced a points system to incentivize user participation.

Although user growth has slowed, Friend.tech is still in its beta testing phase, and the introduction of new features is expected to further stimulate user growth. Additionally, subscription-based content platforms have proven their commercial value, allowing fans to participate in the creator economy. However, the sustainability of fan token growth requires specific case-by-case analysis.

On August 21, it was reported that Friend.tech's API could directly query users' wallet and Twitter information, leading to a data leak of over 100,000 users. Privacy issues still need improvement. Furthermore, tokenized stocks may attract SEC scrutiny.

PYUSD --- Web2 Financial Payment Companies Entering the Stablecoin Arena

Stablecoins are important tools for cryptocurrency investors to preserve value and play a crucial role in the DeFi ecosystem. In addition to Tether and Circle, which have a first-mover advantage based on fiat currencies, DeFi-native protocols like MakerDAO, Aave, and Curve compete for market share by minting decentralized stablecoins through over-collateralized cryptocurrencies. After abandoning BUSD, Binance began supporting the stablecoin FDUSD issued by a Hong Kong trust company.

Companies and protocols issuing stablecoins can enjoy interest income generated from underlying assets or minting. Currently, the risk-free yield on short-term U.S. Treasury bonds is as high as 5%, which also attracted PayPal to announce its entry into stablecoin issuance on August 7, becoming the first major financial company in the U.S. to issue its own stablecoin.

PayPal uses Paxos as its issuer, with underlying assets fully supported by dollar deposits, short-term U.S. Treasury bonds, and similar cash equivalents. Therefore, PYUSD can be seen as a centralized dollar stablecoin similar to USDT and USDC. However, unlike USDT, which does not provide services in the U.S., PayPal is open to U.S. users.

As a long-established electronic payment company from Web2, PayPal has distribution channels that Web3 companies cannot match. Even if the on-chain use cases are limited at first, given its good reputation in the payment field, if PayPal takes strong measures to encourage its existing massive user base to use PYUSD or lowers merchant fees to incentivize merchants to support PYUSD payments, then PYUSD could rapidly gain more users than the stablecoin pioneers in the short term. On September 12, PayPal launched a cryptocurrency-to-dollar exchange service for U.S. users, providing a safe exit option for crypto players. Therefore, we see that PayPal may promote further adoption of cryptocurrencies, making stablecoins a commonly used payment method.

Considering the high pressure of U.S. policies on DeFi in recent years and the regulatory uncertainty surrounding stablecoins, the development of PYUSD remains to be observed.

FTX Liquidation --- Can the Market Absorb the Selling Pressure?

On September 14, according to CoinDesk, a judge ruled that FTX could sell, pledge, and hedge its held cryptocurrencies to repay creditors. Currently, FTX has about $3.4 billion in liquid A-class cryptocurrency assets, including approximately $1.2 billion in SOL, $560 million in BTC, and $192 million in ETH. Additionally, B-class assets like SRM and MAPS are difficult to monetize due to low liquidity.

In addition to cryptocurrencies, FTX has about $4.5 billion in venture capital. Equity investments include $500 million in AI star company Anthropic and $1.1 billion in major Bitcoin mining company Genesis. Beyond equity investments, FTX also collaborates with multiple funds for asset management and provides loans to fintech companies. Given that some of FTX's investment projects have solid fundamentals, there is potential for high valuation returns in the future.

According to Messari's statistics on September 11, BTC and ETH held by FTX and Alameda account for about 1% of weekly trading volume, which is expected to have a minimal impact on the overall market. FTX's holdings of SOL and APT account for 81% and 74% of weekly trading volume, respectively, but these assets are currently still in the unlocking period, meaning there may be long-term selling pressure in the future. Additionally, the liquidation will also have a certain degree of impact on TRX, DOGE, and MATIC, with FTX's holdings accounting for about 6% to 12% of weekly trading volume. Reports indicate that FTX's weekly liquidation limit is $100 million, making it unlikely to liquidate a single cryptocurrency completely within a week, and the actual impact of liquidation on the market has already been somewhat priced in.

From the liquidation assets of FTX, investors are once again reminded to pay attention to the liquidity of their investment varieties. Although altcoins may have higher price increases than mainstream assets like Bitcoin during a rally, their liquidity should be closely monitored; otherwise, they are merely paper wealth. Decentralization is the value of Web3, and only with sufficient decentralization can it be safer.

Snaps --- MetaMask's Self-Disruption

The MetaMask wallet, an essential tool for crypto players, undoubtedly holds a significant position in the Ethereum ecosystem, providing users with the ability to access EVM chains via RPC. Some non-EVM chains, such as Cosmos, Solana, Sui, and Starknet, are favored by users and developers due to their unique technical advantages and ecological applications. However, when using these chains, users often need to use corresponding specialized wallets, which greatly affects the interaction experience.

To address this pain point, MetaMask has launched the Snaps API integration specification, incorporating wallets for non-EVM chains, allowing MetaMask users to experience non-EVM chains within their existing wallet, opening up a new multi-chain world.

In addition to non-EVM interoperability, Snaps can also provide clear transaction insights, allowing users to understand potential security risks before interacting. This can significantly reduce the likelihood of falling victim to phishing attacks during self-custody. Snaps can also retrieve specific information that users need to know, adding communication functionality to the wallet.

Snaps represents MetaMask's self-disruption, transforming from a dominant EVM wallet to a gateway for all-chain wallets and decentralized applications. Developers can unleash their imagination on MetaMask to expand functionalities and create a brand new Web3 experience for users.

Although MetaMask has conducted self-audits and third-party audits, there are still inherent potential code risks in Web3. However, Snaps is currently only operating in a sandbox testing environment, unable to access MetaMask account information, and has isolated original MetaMask assets.