Three Arrows Capital Insolvency, JPMorgan Bringing Trillions to DeFi , 72% Chance US going into Recession
JPM Permissioned DeFi, Powell's Semi Annual Policy to curb high inflation, 2024 Outlook
By Terrence Hooi
Chief Investment Strategist
This Substack Post does not take into account nor does it provide any tax, legal or
investment advice or opinion regarding the specific investment objectives or
financial situation of any person.
1.) JPMorgan Bringing Trillions of Dollars of Tokenized Assets to DeFi
JP Morgan’s recent tokenization with BlackRock is aiming to bring trillions of dollars of tokenized assets led by the Monetary Authority of Singapore.
Head of Onyx Digital Assets at JPMorgan Tyrone Lobban plans to tokenize US Treasurys and money market fund shares to be used as a collateral in DeFi pool.
According to Bloomberg, JPMorgan has already been using Blockchain technologies in trading and lending last month. The next step is to launch a pilot led by Monetary Authority of Singapore which will include JPMorgan, DBS Bank and Marketnode called “Project Guardian”. The difference between JPM’s permissioned DeFi and permission less DeFi like the current Aave model is verifiable credentials can be held off-chain removing the need of paying paying high gas fees (Ethereum transaction fees).
Earlier in 2019, JPMorgan launched JPM Coin that uses blockchain technology to facilitate transfers of payments between institutional clients. JPM has been secretly using blockchain technologies to address the current inefficiencies in centralized finance systems. Permissioned decentralized finance (DeFi) could unlock trillions of dollars of assets into DeFi pools in the near future.
Singular’s Take: Institutional players like JPM and regulatory authority like Monetary of Singapore promoting DeFi Innovation, this will accelerate permissioned liquidity pools made up of tokenized bonds and deposits. Think KYC-based DeFi without gas fees that is 10x more efficient and faster.
2.) Crypto Downturn Puts Three Arrows into Insolvency
Crypto markets is seeing red and prices are down bad in recent weeks. Projects like Terra and Celsius has been exposed and disemboweled by market forces in a matter of days.
This week, it is rumored that Three Arrows Capital (3AC) is facing the same fate of insolvency. Founded by two former schoolmates Su Zhu and Kyle Davis with an AUM of approximately $10-18billion at its peak in 2021, 3AC’s holdings include bitcoin, GBTC to Ethereum and Solana.
The contagion effect started with Terra, where 3AC had a position worth $600 million that went down to $0 in a couple of days prompting its remaining positions to get margin called with further market sell-off. 3AC liquidated positions on FTX, Deribit, BitMex, Genesis and BlockFi exposed that 3AC could not meet its margin calls.
Last week, the $2trillion crypto market crash has also prompted Celsius to pause all account withdrawals sparking fears it would go bust like Terra.
Singular’s Take: The collateral damage of Terra (LUNA) and 3AC’s insolvency remains unclear for now as 3AC is still working with creditors to reach an agreement. If that fails, the crypto markets will likely see further decline and selling pressure.
Singular’s Action: We will continue to monitor the development in DeFi as more institutional players mentioned in 1.) are stepping in to accelerate innovation in this space.
3.) 72% Chance the US going into Recession
This week, Powell semi-annual monetary policy testimony to Senate Banking Committee is looking to cure soaring prices that are hurting Americans. Chevron CEO urged Biden to take a new approach to reduce fuel prices as US inflation high 40-year high with high fuel prices.
As refineries are struggling to keep up with the demand for diesel and gasoline. The oil industry needs urgent clarity and consistency on policy matters.
Bloomberg Economics model predicts a 72% chance that the US could go into recession in 2024. The Federal Reserve controversial approach to tackling high inflation is the main reason financial markets (including crypto) drove this crash recently.
Singular’s Take: Markets are scared and people are scared with the the SPX dropping -21.51% and Nasdaq -30.09% YTD. The core drivers in recent months has been the Fed and we need to recalibrate risk expectations both in the financial and crypto markets.
Singular’s Insights:
OPEC+ final production hike will resume product to pre-Covid levels in August.
Biden visiting Saudi Arabia in Mid July with Riyadh and Abu Dhabi with a 2 million barrels spare capacity.
China refineries running below utilization levels ~70% now our to weak demand, and 4.5 million tonnes of quotes for refined fuel exports. Potential China refined products to the US to stabilize high oil prices.