Hello and welcome back to the Web3 Rewind! Per usual with the industry, lots has happened this past week so without further adieu, let’s dive into this week’s news.

The Latest

I’m not sure when I first began to understand this but I heard it expressed for the first time recently — the idea that the new year doesn’t begin on Jan. 1 but later in the month once things seem to get going again. The first is such a terrible day in most cases, one for hangovers, regrets and that sinking feeling that the holidays are now as far away as can possibly be (I like them).

So I’m marking it here, 2023 started for me this past week. The reason became clear through some of the reporting we’ve done at Decential recently and the stories in this newsletter. Their common theme is green shoots, a turning away and an invigorating feeling of right, let’s go again. It feels cautiously optimistic for the first time since the wheels began to come off crypto last April.

Maybe the deluge of rain we’ve had here in California has soaked my head, but the year ahead was put into a nice context by Joey Krug recently. The co-chief investment officer at Pantera Capital, a fund which goes back about as far n crypto as one can, sounded a note of caution but also one of concrete problems that can be solved to evolve digital asset markets even further. Ethereum as a community is working to solve similar problems. It’s upcoming Shanghai upgrade will allow network validators to withdraw the ETH for the first time (let’s see what that does to the price, gulp.) NFT sales over the last week drove Ether deflationary again.

Problems abound, still, don’t get me wrong. Trust has far too much sway in this industry still, and goes against the beautiful hack that allowed for trustless guaranteed transactions via Bitcoin. And in the Western World, at least, there still isn’t much of a compelling entry point for crypto mass adoption.

Ok, fine, but I’m still optimistic. Let the new year ring. — Matthew Leising, Editor in Chief, Decential Media

Upgrade dept.

Ethereum Shanghai Mainnet Shadow Fork Goes Live

On Monday “Ethereum’s core developers announced the successful deployment of the first mainnet shadow fork designed to test the readiness of ETH staking withdrawal capability,” per Decrypt reporting. The validators now securing the Ethereum network with their 32 ether are currently unable to withdraw their funds, a design decision to stabilize the pool of staked ETH as the Merge went into effect last year. The Shanghai upgrade, set for March, will change this with the shadow mainnet seen as a positive indicator.

With around $26.5 billion in ETH staked, the ramifications for the upgrade are huge. Should it go as planned, Shanghai will be the latest upgrade to ETH following The Merge. Decrypt also notes that Proto-Dank Sharding and EOF, two anticipated features to come with Shanghai, will likely be delayed. ETH’s developers have considered these delays to be acceptable as they are prioritizing the upgrades needed for stakers to make withdrawals. — Parker Dresdow, Decential Media

Quick Bits

Ether Turns Deflationary Again, Led by Spike in NFT Sales

• Following the EIP-1559 upgrade in August 2021, questions around triggers for ETH’s deflationary mechanism have been studied, and with the current revival in ETH transactions, the blockchain is yet again deflationary.

• In terms of causes, it appears that much of the prior week’s burn can be traced to increased NFT transactions, which accounted for roughly 23 percent (3,400 ETH) of the 14,600 ETH burned, according to CoinDesk. Another key is that of the $244 million in NFT sales taking place over the last week, 81 percent of total sales were based on Ethereum, according to data from CryptoSlam.

Brett Harrison raises $5 million for DeFi company aimed at institutions

• Is it possible for a phoenix to rise from the ashes of FTX? Time will tell, but the company’s former president Brett Harrison is making a play to be that phoenix, announcing that he’s raised $5 million in funding from Coinbase Ventures and Circle Ventures to launch his new firm, Architect.

• The goal of Architect is to provide a standard infrastructure that will allow people who may currently lack tools to trade significant volumes of crypto with a connectivity layer that “helps bridge decentralized venues and players such as qualified custodians.”

Kevin Rose's NFT Wallet With 40 High-Value Collectibles Hacked

• In light of the high transaction volumes and recovering prices, it’s important as ever to be mindful of hackers and scammers. Kevin Rose, the Proof CEO and venture capitalist, was an unfortunate victim of such a scandal.

• Rose’s personal OpenSea wallet was hacked using a method of signature forgery. The hacker managed to abscond with “40 NFTs, including one Autoglyph; 25 Chromie Squiggles; one QQL Mint Pass; one Admit One pass from gmoney; one Cool Cat NFT; one The Currency NFT by Damian Hirst; one Quantum Key; and several OnChainMonkeys,” according to CoinDesk. CoinDesk also notes that the wallet potentially contained over $1 million in various NFTs. The trend of hacking or attempting to extort influencers and celebrities is growing as hackers grow more capable and bold in their schemes.

Binance Acknowledges Storing User Funds With Collateral in Error

• Are we really surprised at this point that centralized exchanges (CEXs) “don’t know how” to decipher between user funds and exchange funds? In what is unfortunately a not-so-shocking revelation, Binance has “accidentally” mixed-use funds and collateral funds. “Reserves for almost half of 94 coins that Binance issues… are stored in a single wallet,” Bloomberg reported. Furthermore, this “minor” blunder now makes it close to, if not impossible, to segregate the actual reserves from user funds.

• With $539 million in Binance-issued coins using the aforementioned wallet as their reserve, it begs the question as to what the real reason was for the Mazars audit being never fully fleshed out. Bloomberg aptly pointed out that “the rise in crypto literacy among investors would likely result in more errors like this one being discovered in the future.” Reserves are no joke, and after the many atrocious mistakes committed by CEXs last year, we must demand better from these institution-lite players who orchestrate so much of the broader ecosystem.

Latest Podcast

DeCent People Podcast With Alex Van de Sande

On the latest DeCent People podcast, we hear what an Ethereum OG thinks about today’s crypto landscape. Alex Van de Sande was one of the first people in South America to devote himself to Ethereum in its very early days. He helped build Mist, one of the first browsers on the new blockchain and was instrumental in helping resolve the DAO hack that occurred in June 2016. He's since gone on to champion the Ethereum Name Service, or ENS.

You can download and subscribe to the podcast here on Spotify, Apple Podcasts or Amazon Music and Audible.

Lights Camera Crypto With Azeem Khan

On the latest episode of Lights Camera Crypto, Fundraising and Partnerships Lead at Gitcoin Azeem Khan chats about his early entrepreneurial activities, dropping out of med school after a near death experience and getting immersed in tech with artists. He discusses landing in web3 all the while pursuing his interests, controlling what he could control, and letting go of the rest.

You can listen and subscribe Apple Podcasts and Spotify.

And last but not least

Venture capital investments into blockchain continue to free-fall: Report

As the trends of fear, uncertainty and doubt — lovingly known as FUD — that characterized 2022 have led into 2023, Cointelegraph Research shows this year may not be much better.

In terms of VC dollars allocated to the space over the quarter, roughly $2.3 billion was invested across 182 deals. This is a far cry from the high point of $6.83 billion in April.

Cointelegraph Research notes, “The focus stayed within the Web3 sector — which comprises subcategories like metaverse, GameFi, identification and a host of others — followed by infrastructure and DeFi. NFTs and CeFi were the least popular in terms of the number of deals…”

Web3 was the most popular sector by deal count with 616 deals over the course of 2022 and CeFi was the least popular with only 201 deals.

Out of the Ether: Special NFT Edition

Have you read the definitive history of Ethereum? No? Well then get your special edition of Out of the Ether while you can. There are only 1,000 that were printed and each copy is an NFT that can be registered on the Lukso blockchain’s Universal Profile protocol.