Weekly Market Highlights (Aug 5, 2022)

🔎 Macro / Tradfi

• The latest US Institute for Supply Management (ISM) Services Prices Paid Index, which represents a gauge of prices paid by services industries for inputs, declined from 80.1 in June to 72.3 in July. This indicates slowing inflation and is the lowest reading since February 2021. The upcoming CPI release on 10 August will be a widely-watched event as investors look for signs of softening inflation data that could support a pivot in the Fed’s monetary policy to be more dovish. That said, remarks by different Federal Reserve presidents this week remain hawkish.
• The Bank of England (BOE) unleashed its single biggest interest rate hike since 1995, raising rates by 0.5% to 1.75%. Interest rates are now at their highest level since December 2008. Officials predict that recession will begin in the fourth quarter, and last all the way through next year.

🔎 Crypto

• As the Ethereum merge draws closer, there have been increasing discussions about a potential proof-of-work (PoW) fork. If this happens, the Ethereum network will be split into two forks - a proof-of-stake (PoS) chain supported by validators and developers, and a PoW chain run by miners. While two forks can technically co-exist, forking the network may not preserve the network effects of Ethereum today given that it does not necessarily bring along with it the ecosystem of apps, developers, and users that are currently on the mainnet. For example, the Chief Technology Officer of Tether has expressed that he would support the PoS chain over a possible PoW chain. Additionally, the core team at Frax has also submitted a proposal to commit Frax DAO to select PoS Ethereum mainnet in place of any PoW alternative fork after the merge. The merge will be a key event to watch and we will provide relevant updates in the coming weeks.
• There were several notable exploits this week, highlighting the importance of instituting robust security measures in the face of continued threats. Firstly, the Nomad bridge was exploited for $190M, bringing to fore the potential vulnerability of cross-chain bridges. While bridge designs vary, bridges generally work by locking up assets on one chain and issuing a wrapped version of the token on another chain. If the assets get drained in an attack, then the wrapped tokens will not be fully collateralized and can be rendered worthless. According to an analysis by Chainalysis, attacks on cross-chain bridges account for 69% of total funds stolen so far this year. Separately, over 7,000 wallets have been exploited on the Solana network. While the investigation is still ongoing, initial findings attribute the likely root cause to the use of the Slope wallet. Hardware wallets were not affected. This serves as a good reminder to consider getting a hardware wallet to add an additional layer of security in protecting one’s assets.

🔎 Latest Binance Research Publications

• The Rise of Decentralized Autonomous Organizations
• Half-Year Report 2022
• Algorithmic Stablecoins