Weekly Recap
December 16, 2023

Crypto Fundamentals #56

FASB changes rules to allow for fair-value accounting of cryptocurrencies including Bitcoin on corporate balance sheets

Jimmy Zheng

This week, Bloomberg puts out article about the rise of Memecoin “Bonk”, the SEC denied Coinbase’s requests for digital asset regulation, and Arbitrum hit by partial outage due to surge in inscription transactions.

🌞 FASB changes rules to allow for fair-value accounting of cryptocurrencies including Bitcoin on corporate balance sheets

💫 Arbitrum Network Outage and Elevated Ethereum Gas Prices

Artemis Data Insights

  • Stablecoin Flows on Solana vs. Other Major Blockchains

The week saw a pullback in majors such as BTC and ETH while smaller altcoins brought up average and median W/W prices by 10.1% and 2.7%, respectively. This week saw alt L1s such as AVAX and FTM continue to see mid double digit growth with ~35% and ~23% WoW gains, respectively. Both equity markets and risk-on assets were buoyed with the Fed indicating that it intends to cut rates 3 times in 2024 in the anticipation of continued macro weakness. The S&P 500 and Nasdaq Index reacted by increasing 2.7% and 3.3% WoW, respectively, with the S&P 500 extends its longest weekly win streak in over 4 years.

🌞 FASB changes rules to allow for fair-value accounting of cryptocurrencies including Bitcoin on corporate balance sheets

This week, the Financial Accounting Standards Board (FASB) announced new crypto accounting regulations that would allow for crypto to be measured at fair value on corporate balance sheets. Per Bloomberg Tax, “crypto companies and any other companies that hold Bitcoin or Ethereum will be required to record their coins at fair value, a measurement technique that aims to capture their most up-to-date value, the FASB said in its first crypto accounting rules.”

Existing regulations have only allowed companies to record downward movements in token prices because cryptoassets were previously treated as “intangible assets,” where coins are marked at the initial price they were purchased at and are subsequently marked down permanently if their value decreases. When the asset is marked down in this manner, the loss is immediately booked as a hit to Net Income. A company is only able to record gains if they sell their crypto holdings at a profit. This accounting practice regularly drags down earnings of companies such as MicroStrategy, the largest public company holder of Bitcoin. The unclear regulation around markdowns / impairment of crypto holdings has also caused inconsistent accounting at various public Bitcoin mining companies including Marathon Digital, Bit Digital and Riot Platforms, which have all been forced to restate past financial statements to correct their digital asset accounting.

Importantly, the new regulations only cover a narrow range of digital assets. NFTs, stablecoins, wrapped tokens and issuer-created tokens (i.e. FTX’s FTT tokens) are not included in this round of accounting rules. With that said, FASB has indicated that they would be open to addressing additional crypto issues if usage becomes more prevalent in practice.

💫 Arbitrum Network Outage and Elevated Ethereum Gas Prices

Today, the Arbitrum One Sequencer saw a network outage after a surge in on-chain activity stemming from inscription transactions.

Post from Arbitrum Foundation

Inscription transactions are transactions that submit “hex data” on chain, which typically comprises of images and metadata. Inscriptions are more computationally intensive transactions that consume meaningful network resources vs. ordinary transactions.

Inscriptions have become increasingly prominent among a range of different blockchains. Over the last week, inscriptions on the Polygon, BNB Chain, and Avalanche blockchains accounted for 57% of traffic across these networks, per blockchain analyst Hildobby. Hilldobby also noted that 90% of transactions leading up to the Arbitrum outage were inscription transactions, and hourly inscriptions on Arbitrum ramped up heavily prior to the halt.

cygaar on Twitter provided a great summary of the chain of events: As people spammed inscription transactions on Arbitrum, the sequencer was overwhelmed which prevented Layer 2 transactions from being executed. Because Arbitrum posts compressed transaction data back to Ethereum, the vast number of inscription transactions caused an elevated number of calldata batches to be posted back to Ethereum L1. When there are more transactions posted to Ethereum L1, gas prices are elevated. So as gas prices continued to go higher, the backlog of Arbitrum batch transactions continued to grow. Finally, as gas prices increased, the Arbitrum sequencer had to resubmit many transactions at a higher gas price in an attempt to validate the transactions.

As a result, the Arbitrum Sequencer inbox contract saw the 2nd highest gas consumption over the past 24 hours. The Arbitrum Sequencer was ultimately down for about 90 minutes and is back up and running as of 12 pm EST. The team indicated that they will provide a full post-mortem as soon as possible.

Artemis Data Insights: Stablecoin Flows on Solana vs. Other Major Blockchains

As the Solana blockchain has enjoyed an influx of activity in conjunction with its upwards price movement, the network has also seen an increase in stablecoin activity. The number of wallet to wallet transfers of stablecoins has increased dramatically, with a daily high of ~18mm transactions seen in the past week.

Solana Wallet to Wallet daily # of stablecoin transfers have grown to ~12-18mm over the past week

Daily transfer volumes (total value of stablecoins transferred between accounts) have also jumped in value to take meaningful transfer volume market share from heavyweight chains such as Tron and Ethereum.

Solana saw $19bn in transfer volume on December 11th vs. $34bn settled on Ethereum and $33bn settled on Tron

Solana is also seeing this massive transfer traction with a much smaller supply of stablecoins. Today, Solana has ~$1.6bn of stablecoins sitting on its network vs. $48bn and $69bn for Tron and Ethereum, respectively.

Solana stablecoin market cap still dwarfed by Ethereum and Tron, and continues to lag behind BNB Chain and Arbitrum

Finally, Stablecoins on Solana are primarily made up of USDT and USDC. USDT is still the bulk of stablecoin supply at ~$900mm while USDC makes up $700mm (56% USDT dominance). This differs vs. both Ethereum and Tron which see much heavier levels of the USDT stablecoin (67% and 99% USDT dominance, respectively).

Detailed dashboard for people who love more numbers in smaller font:

Note: Revenue represents fees that go to the protocol’s treasury or are returned to tokenholders via a burn mechanism (source: Token Terminal). Weekly commits and weekly dev activity as of 11/20/23.

The content is for informational purposes. None of the content is meant to be investment advice. Use your own discretion and independent decision regarding investments.

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