Top Stories of the Week - 7/21
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MIT Researchers Showcase Bitcoin Mining’s Environmental Benefits
MIT's Climate Portal released their report on Bitcoin Mining, casting a spotlight on the industry's potential benefits.. The paper underscores Bitcoin mining's significant role in supporting the Electric Reliability Council of Texas' (ERCOT) curtailment program for large flexible loads (LFL) - a program implemented formally in 2022. The role of Bitcoin miners in managing energy consumption during unexpected demand surges emerges as a critical contribution to maintaining grid stability. A notable instance of this occurred on December 24th, 2022, when Winter Storm Elliott swept across North America, causing Bitcoin miners to curtail approximately 100 EH/s at peak. This amounted to 38% of the total Bitcoin network hashrate for that day, showcasing their role as dependable flexible load sources for energy grids within the U.S.
The report focuses on the climate advantages potentially offered by Bitcoin mining. One significant benefit, as indicated by MIT researchers, is the capacity of Bitcoin mining to reduce global methane emissions, a byproduct of Natural Gas extraction often deemed uneconomical for oil producers to use or transport due to costly and insufficient infrastructure. As a result, this gas is often vented or flared on-site, releasing detrimental methane into the atmosphere. However, the report proposes that if this gas were to be combusted in electrical generators, the Bitcoin mining sector could reduce equivalent CO2 emissions by up to 25%, with potential reductions of up to 63% if accounting for flare outages.
Another positive environmental impact put forward by the researchers is Bitcoin mining's potential utilization of abandoned oil and gas wells. The report states that 59% of the 3.7mn abandoned wells in the U.S are left unplugged, emitting 6.9mn tons of CO2 annually. By establishing operations near these orphaned wells, Bitcoin miners could subsidize the cost of sealing these wells, harnessing the otherwise wasted energy to generate electricity. This strategy could generate revenue to fund well-sealing initiatives, consequently mitigating climate impact. Given its location-agnostic requirements, Bitcoin mining is ideally positioned to leverage flared gas and abandoned oil wells, marking a transformative moment in the industry's trajectory towards sustainable operations.
The report also highlights the increasing incorporation of renewable energy into Bitcoin mining activities, which suggests that the industry could play a pivotal role in bolstering the renewable energy market by driving up demand. Concrete evidence of this trend is the landmark partnership between Tesla, Block, and Blockstream, who collaborated to establish a 3.5 MW off-grid, solar-powered Bitcoin mining operation in Texas. MIT researchers state that through creating partnerships like these, investments in new renewable energy infrastructure can become more economically feasible.
OUR TAKE:
While the report from MIT doesn't present any new groundbreaking positive or negative catalysts linked to Bitcoin mining, the coverage of Bitcoin's environmental benefits from one of the world's leading academic research institutions cannot be understated. The mere fact that this report regurgitates the known benefits of Bitcoin mining is a win for the industry. Our mining team at Galaxy have been publicly highlighting Bitcoin mining's role in contributing to grid stability since 2021. Additionally, prominent Bitcoin mining researchers like Nic Carter have been extensively writing about mining operations using flared gas since 2021.
Nonetheless, regulators have consistently overlooked high-quality research pointing out the climate advantages offered by Bitcoin mining. Instead, they have opted to publish unfounded criticisms against the industry. A notable instance of this is a report published by the White House Office of Science and Technology Policy in September 2022, alleging that Bitcoin mining would hinder the United States' efforts to mitigate climate change. This report omitted any reference to the beneficial impacts of Bitcoin mining, such as grid stability and methane emissions mitigation. More recently, these unfounded allegations were echoed again in the White House's Economic Report released in March 2023.
Evidently, enlightening regulators about Bitcoin's environmental advantages remains a considerable challenge for this burgeoning industry. Nevertheless, the growing transparency surrounding the locations and energy sources of large, publicly listed Bitcoin miners—which account for a quarter of the total hashrate—underscores the importance of disclosure in countering unfounded industry allegations. Ultimately, enhanced transparency within the industry, coupled with innovative research on mining energy consumption, such as nonce fingerprinting to estimate Bitcoin's electricity usage, could provide regulators with much-needed direction. This could steer regulators in the U.S. towards a better understanding and acceptance of Bitcoin's environmental benefits, leading to a more informed dialogue on the future of the industry. - Gabe Parker
Uniswap Labs Releases non-AMM Offering UniswapX
Uniswap Labs announced the launch of UniswapX, “a new permissionless, open source, auction based protocol for trading across AMMs & other liquidity sources.” UniswapX expands Uniswap’s product offerings beyond solely AMMs by adding an off-chain order routing protocol.
The new protocol introduces a unique ecosystem actor called “Fillers.” When users submit orders through UniswapX, they initiate a Dutch auction prompting Fillers to compete to provide best execution. Unlike traditional auctions, the Dutch auction starts at the user's desired price and gradually decreases until the order is completed. Additionally, the protocol features a request for quote (RFQ) system, enabling users to query execution prices before placing their orders.
Because UniswapX relies on an off-chain routing system, users do not need to pay gas when submitting their transaction. Instead, Fillers incorporate gas costs into the execution price. Users retain the option to switch between utilizing Uniswap's AMM offerings and the new off-chain routing protocol. UniswapX is also set to include a cross-chain swap mechanism, streamlining the process and eliminating the need for users to bridge assets on their own. The release date for this feature is yet to be confirmed.
The announcement comes just over a month after Uniswap announced development of Uniswap V4, a Uniswap upgrade that enables further LP customization and functionality. UniswapX is currently in an opt-in beta mode with no full-launch date confirmed.
OUR TAKE:
The introduction of UniswapX will help solve inefficiencies impacting Uniswap’s AMM model. AMMs have been critical for providing liquidity to long-tail digital assets, but they are inherently less efficient compared to alternatives like closed limit order books and can expose users to issues like slippage and MEV exploits.
By introducing an off-chain Dutch Auction process, UniswapX aims to alleviate some of these challenges and enhance the user experience. A larger share of MEV can be redirected back to users instead of being retained by block builders and validators. Fillers can also use methods such as batching orders or sourcing DeFi-CeFi swaps to optimize gas prices and improve overall execution. This will create a more seamless trading experience for users and reduce reliance on automated routers.
The introduction of the cross-chain swap feature is one solution towards mitigating risks associated with bridges, which are frequent targets of hacks. It reduces the need for passive liquidity to remain in bridges to facilitate swaps, offering users increased security. All these improvements, however, come at the cost of a more centralized off-chain ordering process.
Uniswap is already the dominant DEX across the EVM ecosystem, accounting for nearly 50% of swaps on Ethereum alone. Better execution and more functionality will only further enhance its market share at the expense of other DEXs and increasingly popular DEX aggregators. - Lucas Tchyan
Chainlink’s CCIP: Connecting Banks to Public Blockchains
Chainlink launches Cross-Chain Interoperability Protocol (CCIP) on Mainnet. Chainlink, the leading oracle network that supports data feeds and messaging across blockchains, launched its Mainnet Early Access for CCIP for users on Ethereum, Polygon, Optimism, and Avalanche. CCIP is a new cross-chain communication standard built on top of Chainlink's consensus and transport layer that is powered by its oracle network. CCIP facilitates arbitrary messaging and programmable token transfers between different blockchains, enabling developers to program more complex multi-chain tasks. CCIP is built with security features including an Active Risk Management (ARM) Network with a distinct set of nodes separate from the primary CCIP system that monitors for malicious activity.
In June, SWIFT announced it was partnering with major banking partners (e.g., DTCC, BNY Mellon, Citi, BNP Paribas and more) to test tokenized value transfers with blockchains using the combination of the existing Swift infrastructure and Chainlink's connectivity across public and private blockchains. Several DeFi protocols have also adopted CCIP - Synthetix launched the Synthetix Teleporter which uses CCIP to enable efficient, secure cross-chain transfers of sUSD between Ethereum and Optimism, and BGD Labs is using CCIP to power the upcoming Aave Delivery Infrastructure for native cross-chain governance for Aave v3. Chainlink founder Sergey Nazarov explained the longer-term vision for Chainlink and CCIP is to help enable more traditional financial assets to flow into blockchains: “You have this public blockchain and internet of contracts primarily defined by DeFi, and you have this bank-chain world, which I think will be primarily defined by real-world asset tokens. The next stage will be getting these two worlds to overlap. And when that happens, beyond the efficiencies and the gains for each of these groups, then you will see the blockchain industry as a whole, I think grow very, very rapidly by trillions of dollars.”
The price of LINK rallied by over 20% since the start of the week to ~$8.20 as of Thursday afternoon.
OUR TAKE:
Tokenization of real-world assets (RWAs) has been a major trend this past year, spurred by demand to bring Treasury yields on-chain following a decline in DeFi yields - for example, RWAs now comprise over 50% of MakerDAO assets and generate the majority of Maker's revenues. A recent report by Bank of America estimates that traditional asset tokenization could reach $16T+ over the next 5-15 years. Oracles are an important facilitator for tokenization as the middle-ware connecting smart contracts with off-chain data and Chainlink has emerged as the leading standard for off-chain and cross-chain compute with CCIP. Chainlink's position is reinforced by its partnership with SWIFT and its network of 11,000+ banks. However, this partnership, as well as tokenization of traditional financial assets in general, are still largely in the proof of concept stage and will require significantly more development on the infrastructure and regulatory fronts before the total addressable market for tokenized financial assets can be realized.
Outside of just tokenization, CCIP has the potential to transform and accelerate adoption of DeFi - it can reduce user frictions and empower protocols to meet user needs by securing cross-chain messaging, unlocking more liquidity, and enabling greater asset composability. Aave and Synthetix showcase a few of CCIP's encouraging use cases and their adoption of CCIP can spur further adoption by other leading DeFi protocols. In an increasingly multi-chain universe, cross-chain messaging like CCIP's solution are clearly in demand. One potential concern with CCIP is DeFi's significant reliance on Chainlink's services - it will be important to uphold the values of security and decentralization as we usher in this next evolution of DeFi. Still, CCIP is a promising development that could lead to a significant increase in value transferred across blockchains. - Charles Yu
Other News
Lightning Network Bitcoin Deposits Now Live on Binance
Senate bill would tighten money laundering and sanctions rules for DeFi
Solana Labs rolls out Solang compiler to enhance Ethereum compatibility
Starknet unveils 'appchains' framework, eyeing multi-chain ecosystem
FSB finalizes its recommendations for a global crypto framework
OpenSea Makes ‘Deals,’ Launches Peer-to-Peer NFT Swaps
Compound's outstanding debt on Ethereum hits $1 billion
Ethereum Layer 2 Mantle Network unveils mainnet alpha at EthCC
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