💰 1 big thing: Goldman backs institutional crypto

A glowing cube or block, with money in it.

👯‍♀️ 2. Charted: ETH and stETH

🤔 3. VC firm explains the crypto hype cycle

🏃 4. Catch up quick

🔓 5. Culture hash: TVL, GTFO

Top coins

Welcome to Tuesday! We're dealing with big entities today: Goldman Sachs, Andreessen Horowitz and the Ethereum blockchain.

💡 Situational awareness: Axios has a big staff retreat this week, so we will be filing our Thursday, Friday and Monday editions from D.C. We still love to hear from you: crypto@axios.com.

This newsletter was edited by Pete Gannon and is 1,102 words, a 4-minute read.

Yes, we are going to cover things besides shattered stablecoins again.

National

Follow how cryptocurrency and blockchain are upending markets and the regulatory shifts. With Brady Dale.

Axios Crypto

🤨 1 big thing: Coinbase's perplexing returns

Illustration of a sphere with the Coinbase logo rolling down a downward pointing trend line

⚖️ 2. Charted: Supply drop

🔒 3. Terra locks in its leadership

Illustration of an index finger emoji wagging back and forth.

🏋️ 5. Culture hash: The Degenbox

Hi, hi, hi! We promise this isn't going to become a depressing newsletter, but we're not going to hide from the market realities. Things are rough out there.

📧 Meanwhile, everyone on here who uses Twitter should follow our new co-writer, Crystal Kim. And as ever, send your tips, story ideas and questions to crypto@axios.com.

This newsletter was edited by Pete Gannon. It is 1,205 words, a 4.5-minute read.

Try to make your weekend less weird than Elon Musk is being about the Twitter deal! —Brady

🐻 1 big thing: How bear markets work

Illustration of a bear claw holding a crypto coin.

🏹 2. Not so stable

💸 3. Unpacking TerraUSD

🚴‍♀️ 4. Catch up quick

🥸 5. Culture hash: Dark humor gets you through

A reddit post joking about how BTC price hit $100,000, if you denominate in TerraUSD.

Hey everyone! I'm back. What a time to be away, huh? Fortunately, my coworkers here at Axios did a very good job in a market that went... very bad. 😳

🚨 And we have big news here at Axios Crypto. We see you, Crystal Kim!

Please keep thoughts and questions coming: crypto@axios.com.

This newsletter was edited by Pete Gannon. It is 1,073 words, a 4-minute read.

Keep coming back. The next few days are likely to be very exciting. —Brady

👨‍⚖️ 1 big thing: Political player

A woman in a suit with a digital coin on her lapel.

🐳 2. Whale watching

📈 3. Crypto.com passes 50 million users

an illustration of digital coins in the shape of an arrow.

🧦 5. A $40,000 pair of socks

Hayden Adams giving Will Price a pair of Uniswap socks in exchange for SOCKS token

💼 Hello, Friday! Today we're talking political donations, whales and a $40,000 pair of socks.

This newsletter was edited by Pete Gannon. It is 1,006 words, a 4-minute read.

🌛 1 big thing: Terra's do-over

🚪 2. Charted: Stablecoin holders to the exit

🏴‍☠️ 3. The death spiral

Animated illustration of a pixel skull blinking angrily. 

🏃‍♀️ 4. Catch up quick

🐳 5. Culture hash: Save the minnows

Persian Capital proposes finding ways to refund the small UST holders first 

Happy Monday! We are continuing to cover the collapse of the Terra blockchain, because last week was something the industry will talk about for potentially years to come. 

Who knows what this week will bring? If you see things, email: crypto@axios.com. 

Do you know about companies or funds that are looking sharky? The sooner the public knows the better. 

This newsletter was edited by Javier E. David and is 1,137 words, a 4-minute read.

Welcome today to the new co-writer of this newsletter, Crystal Kim! You'll see her writing here soon! —Brady

With the whole world talking about stablecoins, we've been keeping an eye on tether, the oldest and largest stablecoin.

Be smart: Stablecoins are important to traders because they give them an easy way to lock in gains. If you just made a smart trade on a temporary imbalance in the market, you don't want to put those gains in bitcoin, which could drop in value suddenly and wipe out your cleverness.

Why it matters: Questions have always swirled around tether, which says it has its tokens fully backed with more than adequate reserves, but its relationship with banks has always been shaky, and it's never submitted to a full audit.

Amid the market drama this week, CoinGecko and Messari data show about 2 billion tether (roughly $2 billion worth) being removed from supply between yesterday and today.

Tether early Thursday announced a reshuffling of supply across various blockchains.

Of note: When reached for comment, a spokesperson for Tether said it would soon issue a response to clarify this.

We have sourced the numbers from two different data sources, and as of now they have not been disputed by Tether. But we will update this story with any supply clarifications from the company.

Tether appears to shed 2 billion in supply since yesterday

The numbers follow an announced reshuffling of supply across various blockchains.

Cryptocurrencies

With the whole world talking about stablecoins, we&#x27;ve been keeping an eye on tether, the oldest and largest stablecoin.<ul><li>Be smart: Stablecoins are important to traders because they give them an easy way to lock in gains. If you just made a smart trade on a temporary imbalance in the market, you don&#x27;t want to put those gains in bitcoin, which could drop in value suddenly and wipe out your cleverness.</li></ul>

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

For cryptocurrency, 2021 was a very exciting year. For Coinbase, the best known cryptocurrency company that's publicly traded, it was so-so. Strangely, Coinbase seemed unable to capitalize on frothiness in the very financial market it was built to serve.

Why it matters: There's an old investor adage: in a gold rush, the guy selling shovels gets rich even if there's no gold. Coinbase should be a shovel company, but somehow it hasn't been.

Driving the news: On Thursday afternoon, Coinbase (COIN) was trading at $58.50, that's down 83% from its first day of trading in April 2021.

Of note: COIN price did rally with the rest of the crypto market as Bitcoin hit its most recent all time high. COIN hit $343 on Nov. 7, just ahead of Bitcoin hitting $69,044.77 on Nov. 10.

What they're saying: "It has underperformed relative to cryptocurrency markets," Michael Miller, a Coinbase analyst with Morningstar told Axios. "I think a lot of it comes down to expenses." 

The company has increased expenses dramatically to scale, Miller argued. "They are up about 70% over the last 6 months."

Coinbase has faced a lot of scaling issues. Longtime crypto denizens know it has a bad reputation for customer service, though it is trying to catch up, and Miller said that's what some of the current spending is going toward. 

Yes, but: Coinbase would argue that this spending has been an intentional choice. In an investor call following the earnings release, Alesia Haas, the CFO, said: "We're choosing to make 2022 an investment year. And that's because we believe that investing now is key to our future of becoming a multi-product platform serving a diverse customer base."

By the numbers: Despite his critiques, Miller puts the fair value of Coinbase stock at $131 right now, well above the market's price.

Coinbase reported revenue of $1.17 billion and a net loss of $430 million, for the first quarter of 2022.

"You've seen the market really shift away from being willing to give low profit or high multiple companies the benefit of the doubt," Miller said.

Coinbase is also expensive to use. Miller said the cost to transact on Coinbase averages about 1.3% of trade value, Miller estimated. For comparison, FTX charges 0.10% between the two parties in any given trade. 

"The overarching long term risk to Coinbase is fee compression," Miller said, but he also says that's not the problem now. Users are coming to Coinbase, perhaps due to name recognition. It's just spending a lot of money. 

Bottomline: The crypto market is looking bad right now, and that's going to dampen trading. Miller said, "They've positioned themselves for good times, but it seems right now that we're going into bad times."

Coinbase never capitalized on the good times in crypto

In a gold rush, the guy selling shovels gets rich even if there's no gold.

For cryptocurrency, 2021 was a very exciting year. For Coinbase, the best known cryptocurrency company that&#x27;s publicly traded, it was so-so. Strangely, Coinbase seemed unable to capitalize on frothiness in the very financial market it was built to serve.Why it matters: There&#x27;s an old investor adage: in a gold rush, the guy selling shovels gets rich even if there&#x27;s no gold. Coinbase should be a shovel company, but somehow it hasn&#x27;t been.

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Technology

The Terra blockchain was halted for almost two hours today amid widespread turmoil in the cryptocurrency market, with investors challenging the presumed 1-to-1 pegs that underpin stablecoins.

Driving the news: The blockchain runs the algorithmic stablecoin Terra USD, alongside its partner Luna, the governance token. Both coins have crashed in a dramatic fashion in the last few days, while another called Tether has also come under pressure.

Why it matters: Blockchains are intended to be decentralized, meaning that lots of people run them. It means that with many people across multiple locations, it's hard for those running them to even communicate. The chain stopping this suddenly, and without warning, suggests a high level of coordination. 

Underpinning blockchains is a notion of "trustlessness" enabled by decentralization. Bitcoin was built so people could transact without ever worrying about trusting anyone, even knowing that there are many sketchy actors on the network. 

A screenshot from the official Terra Twitter account, announcing a blockchain stoppage. 

The latest: The official Terra Twitter account said that stoppage was opted for to prevent "governance attacks." 

Terra is governed by those who hold the Luna token. 

As of this writing, Luna is trading at around one penny, which puts the overall market cap at just under $60 million. That's down from around $30 billion at the start of May (yes, billion — not a typo). 

In other words, it's theoretically quite cheap to buy up lots of Luna, and then influence decisions on the platform. 

If someone really tried to buy half the supply of Luna, it would drive the price way up. Still, with the price that low, it's much easier to get a meaningful position.

Once the chain fully restarts, Luna holders will no longer be able to make new delegations of their coins. This means that the validators who were running the blockchain before it was halted should remain in that position, until delegations are reenabled.

It essentially locks in the people that are in charge.  

What they're saying: "Not sure it matters at this point either way," Michael Arrington of Arrington Capital, a fund that has both backed Terra and multiple applications built on the blockchain, told Axios via text message. 

Of note: Staying live is crucial for decentralized finance applications. Most of them stay solvent by liquidating bad debt as soon as collateral loses value. With the blockchain shut down, it can't do that.  

Our thought bubble: Such a chain stoppage will be hard to justify in the minds of most people in crypto. It is likely to be a cure much, much worse than the disease.

That said, it probably won't be the end of Terra. EOS, an older blockchain that went live in 2018, has always been controlled by a small and well coordinated set of validators, and it has persisted. 

What we're watching:  Tokens on an exchange from a halted blockchain are sort of like a man in an international airport terminal whose country just evaporated. 

Even with the chain restarted, users might not have much faith in the coins any longer.

Terraform Labs, the company that built the Terra blockchain, was not immediately available for comment. 

Terra briefly halts blockchain amid stablecoin uproar

investors are challenging the presumed 1-to-1 pegs that underpin stablecoins.

Top Stories

The Terra blockchain was <a class="gtmContentClick" data-vars-link-text="halted for almost two hours " data-vars-click-url="https://twitter.com/terra_money/status/1524812171179327488" data-vars-content-id="d800d7fc-677b-4125-b5fd-8f2f512c2d12" data-vars-headline="Terra briefly halts blockchain amid stablecoin uproar" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://twitter.com/terra_money/status/1524812171179327488" target="_blank">halted for almost two hours </a>today amid widespread turmoil in the cryptocurrency market, with investors challenging the presumed 1-to-1 pegs that underpin stablecoins.<ul><li>Driving the news: The blockchain runs the algorithmic stablecoin <a class="gtmContentClick" data-vars-link-text="Terra USD" data-vars-click-url="https://www.axios.com/2022/05/12/broken-stablecoin-could-intensify-crypto-regulation-push" data-vars-content-id="d800d7fc-677b-4125-b5fd-8f2f512c2d12" data-vars-headline="Terra briefly halts blockchain amid stablecoin uproar" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/05/12/broken-stablecoin-could-intensify-crypto-regulation-push" target="_self">Terra USD</a>, alongside its partner Luna, the governance token. Both coins have crashed in a dramatic fashion in the last few days, while another called <a class="gtmContentClick" data-vars-link-text="Tether has also come under pressure" data-vars-click-url="https://twitter.com/Tether_to/status/1524652531170881537?s=20&amp;t=TKJdoVzkZNsWkLX6OLWLmg" data-vars-content-id="d800d7fc-677b-4125-b5fd-8f2f512c2d12" data-vars-headline="Terra briefly halts blockchain amid stablecoin uproar" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://twitter.com/Tether_to/status/1524652531170881537?s=20&amp;t=TKJdoVzkZNsWkLX6OLWLmg" target="_blank">Tether has also come under pressure</a>.</li></ul>

Bear markets are not fun, but they are also not the end (usually).

The big picture: The crypto market is still very new. There are risks and shaky technologies, many of which are failing in spectacular attention-grabbing fashion this week. But at the same time, the industry is on firmer footing today than it was in 2018's Crypto Winter, the last bear market.

A bear market is traditionally thought of as a time when an asset trades below its prior high by 20% or more, usually accompanied by a lot of pessimism about the near-term future.

But this is a nonsensical way to think about crypto. A 20% drop could be just a weird Tuesday.

Nevertheless, we may have arrived at bear. The mood needs to shift, and we might be there.

Bitcoin has fallen to less than half of its most recent all-time high of $69,045 from Nov. 10. That alone is probably enough to call this a bear, but if it goes below $20,000 (the prior bull's all-time high), that will be symbolically powerful.

But in crypto, it's not truly a bear market until there are real consequences, such as:

"Established" crypto companies start announcing layoffs 

Be smart: This is where things are different this time. Billions of dollars are committed to building out the industry. Just this year, venture funds with over a billion dollars under management have been announced, including Haun Ventures, Electric Capital, Andreessen-Horowitz's new fund, FTX Ventures and others.

That's enough to launch many companies as well as shore up their best bets in rough times.

Brady's thought bubble: Crypto will not be "dead" after a severe downturn, but it might drop out of the national conversation again. Regardless, the sector will carry on.

One of these days, something will get folks excited again, and the market will perk back up. 

Context: In 2018, the bear market kicked in when word started going around that the U.S. Securities and Exchange Commission was knocking on the doors of startups funded by initial coin offerings (ICOs). 

Back then, it was hard to buy anything but bitcoins with dollars. So eager investors bought bitcoins, traded them for ethers, and then bought into ICOs. That drove up the price for everything. 

Demand for ICOs was basically the whole demand for cryptocurrency, so when it dried up, the whole industry dried up.

Today, there's no such clear single cause, in part because the cryptocurrency market has more use cases and more operational companies now.

Having learned from 2018, crypto companies have been prepared. 

As early as 2021, projects started hedging their volatile treasury holdings by shifting part of their funds into dollar-backed stablecoins, so they could ride out a downturn.

The bottom line: Bear markets are familiar. No one likes them, but they come often enough that the established leaders know how to ride them out. 

Go deeper: Teach yourself crypto in 10 steps with $100

How crypto bear markets work

The industry is on firmer footing today than it was in 2018's Crypto Winter.

Bear markets are not fun, but they are also not the end (usually).The big picture: The crypto market is still very new. There are risks and shaky technologies, many of which are failing in spectacular <a class="gtmContentClick" data-vars-link-text="attention-grabbing fashion" data-vars-click-url="https://www.axios.com/2022/05/12/broken-stablecoin-could-intensify-crypto-regulation-push" data-vars-content-id="dff0d9e8-a525-481b-8e02-6ff2aeefaa0d" data-vars-headline="How crypto bear markets work" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/05/12/broken-stablecoin-could-intensify-crypto-regulation-push" target="_self">attention-grabbing fashion</a> this week. But at the same time, the industry is on firmer footing today than it was in 2018&#x27;s Crypto Winter, the last bear market.

Venture capital giant Andreessen Horowitz argues that what seems like a boom-and-bust cycle in crypto has an underlying logic.

Driving the news: In a blog post accompanying the first of what it promises will be an ongoing series of annual reports on cryptocurrency, several members of the firm explained why crypto is different.

"Whereas prices are often a lagging indicator of performance in some industries, in crypto they are a leading indicator. Prices are a hook. The numbers drive interest, which drives ideas and activity, which in turn drives innovation."

"Yes, but: The post and the report are unabashedly booster-y. It should be read as a report written by a company that's massively invested in the sector's success. Nevertheless, it provides some points of illumination:

Web3 could be great for creatives. It points out that creators on OpenSea, the leading marketplace for NFTs, have generated an estimated $3.9 billion in sales. 

Our thought bubble: That said, it might be worth asking how much of that went to lone artists or small teams versus well-resourced startups that farmed out much of the creative work. 

Ethereum is leading in smart contracts, but other chains are chasing it. It notes that Ethereum's commitment to remaining decentralized has held it back in terms of efficiency. 

It's still early. "We estimate there are somewhere between 7 million and 50 million active Ethereum users today, based on various on-chain metrics," the blog post states. So, it's somewhere between the population of Paraguay and Spain, roughly. 

The bottom line: The authors remain bullish on their bets. "Consider that any prospective founders who swore off tech and the internet in the aftermath of the early-2000s dot-com crash missed the best opportunities of the decade," they write. "Now is the time to consider what the equivalent successes will be in web3."

Andreessen Horowitz explains the crypto hype cycle

In the first of what it promises will be an ongoing series of annual reports on cryptocurrency, the firm explains why this industry is different.

A wallet with numbers coming out the top.

Venture capital giant Andreessen Horowitz argues that what seems like a boom-and-bust cycle in crypto has an underlying logic.Driving the news: In a blog post accompanying <a class="gtmContentClick" data-vars-link-text="the first" data-vars-click-url="https://a16zcrypto.com/state-of-crypto-report-a16z-2022/" data-vars-content-id="f7cb7227-7b98-475a-8d13-ac93e15c8969" data-vars-headline="Andreessen Horowitz explains the crypto hype cycle" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://a16zcrypto.com/state-of-crypto-report-a16z-2022/" target="_blank">the first</a> of what it promises will be an ongoing series of annual reports on cryptocurrency, several members of the firm explained why crypto is different.

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Andreessen Horowitz explains the crypto hype cycle

Coinbase never capitalized on the good times in crypto

Tether appears to shed 2 billion in supply since yesterday

How crypto bear markets work

Terra briefly halts blockchain amid stablecoin uproar

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☠️ Death spiral

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💖 Whales!