ESMA's crypto preparations, Ether 'flips' Bitcoin; Aave's stablecoin

Despite us moving into a traditionally quiet time of year, the world of crypto is still undergoing key changes in terms of market dynamics as well as regulation. I reflect on three key developments below that emerged this week:

• EU regulator ups the stakes on crypto regulation
• Ether flips bitcoin in options markets
• Aave stablecoin is a natural progression

ESMA ups the pace of crypto regulatory preparations

The European Securities and Markets Authorities (ESMA) has issued requests to companies to provide trading data on crypto asset transactions including spot trades and derivative products. This is not unexpected in the context of recently agreed legislation at an EU level, but is certainly evidence that the regulator is now beginning to flex its muscles.

This is not, in principle, a bad thing. The DeFi and crypto space more widely has been under considerable pressure in recent months owing to market falls. As some less stable projects fail as a result, more scrutiny is going to be placed on the sector and this should be welcomed. 

Of course, there are limits to the balance of power with regulatory oversight but broadly it is a good thing for businesses, consumers and investors seeking to take advantage of the opportunities in the space. We’re at a really important inflection point where the addition of regulatory oversight is going to provide key confidence and assurance that DeFi has an exciting long-term future.  

Ether ‘flips’ bitcoin options - is a full flippening around the corner?

Talk of The Merge taking place has put a lot of speculation on whether ether - the native token of the Ethereum network - is capable of overturning bitcoin in terms of market capitalization and token price. 

Per reports in various media, ether has in fact flipped bitcoin in certain options trading markets for the first time ever. But while both tokens in effect represent crypto numbers one and two respectively, both exist as quite different things making comparison not straightforward. 

Ether for its part is being watched extremely closely as The Merge approaches. The move from proof-of-work to proof-of-stake protocols, at this scale, could be nothing less than ground shaking. Ethereum as a network and platform is highly influential, so the ripple effect in DeFi and crypto more broadly should not be underestimated. 

That being said, with the DeFi space growing and developing every day, Ethereum is now just one of many options for users, investors and businesses. As the sector works to emerge from the current tough climate stronger than ever, we’ll see some real winners emerge and competition will remain robust. 

Aave stablecoin is a natural progression

The Aave DAO has approved the launch of a stablecoin, named GHO, for the protocol. It is a positive democratic development and a natural progression for the platform. 

The stablecoin market is a growing space, both in terms of market cap and influence in the crypto asset and DeFi arena. Stablecoins provide key onramps for users so it's no surprise to see the space grow exponentially. Interoperability between DeFi and TradFi is of growing importance too, with stablecoins the best solution to this. 

As DeFi develops further this is only going to grow. Long term we see the two spaces becoming so enmeshed that the point at which TradFi ends and DeFi begins will be pretty hard to establish. The fulcrum of this will be stablecoins. 

Aave’s stablecoin will be backed by a basket of crypto assets, which is important especially in the current environment which has seen some algorithmic stablecoin failures. Ultimately projects such as Aave are only as strong as their technology so building a stablecoin that is robust and sustainable is key here.