The Fed’s New Tactic to Stop Inflation: The Digital Dollar

The Blend: You’re Helping Google Take Over the Internet; Uniswap Makes Blockchain Business-Friendly

The Fed’s New Tactic to Stop Inflation: The Digital Dollar

How FedNow Helps Fight Inflation

Enter FedNow, stage right.

If you follow Espresso, you know I started talking about FedNow many months ago.

For newer readers, FedNow is a new, 24/7/365 instant payment system. And it launches tomorrow.

Already, the system has 57 “early adopters” who will support the service. They include major banks like U.S. Bank, JPMorgan Chase, Wells Fargo, BNY Mellon, and many others.

These banks and organizations will use FedNow, so businesses and consumers can have instant payments any time of the day.

It’s quite the list of entities. Which means FedNow has institutional adoption from Day One. The ultimate dream of any developer, right?

Eh, if I were at the Fed, I’d be beyond nervous. From Day One, this product will have the largest target on its back ever – it represents quite literally the biggest honeypot of all time. I would be surprised if this software is not exploited within the first week of its existence. It may even have already happened.

But will we hear about such things? Likely not. That’s Web2 transparency for you.

It’s something I’ve mentioned to Molly White in her constant bashing of Web3 over the hacks taking place: How much has Web2 lost? That’s right, we don’t know – because there is zero transparency.

Regardless of what we think about the honeypot attracting hackers, we should note the product fills the void of a unified, nationwide instant payment system.

It was being filled by private sector providers like Zelle and Venmo. Meaning this service will offer competition to those providers. But due to the ease of using those apps, I expect FedNow to work in the background of these apps and not necessarily replace them.

We’ll see. Details are still pretty scant, so we are left to our imaginations for the most part.

But what’s clear here is the U.S. central bank is one step closer to a central bank digital currency (CBDC). And with that, we are getting closer to the dollar becoming a CBDC that can be used on new technological platforms.

As you’ll see soon (and as I recently discussed on Alpha Bites), these technological innovations are recipes for higher inflation and the dollar becoming less dominant as a reserve currency.

What’s funny is that the FedNow system will combat this concern, whether intentionally or not. Because it will create a more direct demand for dollars.

You see, when it comes to dollars in the ecosystem, not all are created equal. We have multiple definitions of money supply, such as M0, M1, M2, etc. I like to view them as varying levels of liquidity, since the higher the number, the less liquid the dollar is.

M2, for instance, includes time deposits like certificates of deposit (CDs) while M1 does not. What tends to not be discussed is that savings that are dollar-denominated in non-bank chartered entities are not showing up on M2. Eurodollars are the best example here. Crypto stablecoins are another.

Through FedNow, more dollars will likely come out from this “shadow banking” system.

With that, the Fed creates more usage of its pristine dollars. More demand for the dollar can help combat inflation.

This is an interesting consideration given what I will hit on soon, which is the fact that nobody seems to be discussing this issue outside of how FedNow will help reduce inflation.

In the meantime, let’s get ready to see how FedNow performs on its first day tomorrow.

Google and Web3 Are Not Friends

Google is showcasing why Web3 is needed.

Think of Google like a black hole. Any piece of data that comes within its vicinity is sucked in. If you click something while using its Chrome browser, or watch a video on YouTube, that’s data. And Google is probably already pushing that data to a marketplace to make a penny off you.

It also scrapes pretty much the entire internet to improve its search engine. Meaning it has some of the most built-out scraping tools in existence.

That’s what makes this next part rather unsettling…

The tech giant recently made some changes to its terms and conditions. It now says your “publicly available information” will be used to enhance features such as Google Translate, Bard, and Cloud AI capabilities.

In other words, your public content is now being used to train Google’s AI models.

And with its scraping capabilities and tentacles reaching nearly every corner of the internet, nowhere feels safe.

Sure, a richer dataset will improve AI capabilities. But before I know it, Bard will be calling itself Ben… and pushing out far more delicious servings of Espresso to you before I even wake up in the morning.

OK, maybe it won’t replace me, but it could become good enough to garner more than four or five likes on a post. Regardless, if it’s generating that content by ingesting the work of others, the copyright issues and privacy concerns should be relevant here.

And while Arkham, the crypto data firm, might be OK with such techniques, I’d argue most of crypto is not OK with them.

It’s why Web3 resonates with many in the industry. The ethos behind it means data ownership, privacy when and how you want it, and compensation for your digital activities.

Google scraping every Joe Rogan podcast to then whip up its own podcast series that imitates Joe Rogan feels rather wrong. I mean, I get it, the information is public. But the content is from Rogan. There should be consent given first, otherwise all this scraping without consent seems like… Let’s not go there.

Anyways, it seems IP rights will become a hot topic. And Web3 may be able to help deliver solutions here.

For anybody well aware of Google and its ad business, it helped destroy online news. It’s in part why revenues for papers like The New York Times are down so much. Google started to front run news sites like the Times. This means profits from targeting ads that were once being captured by the online newspaper were now gone.

This is an area of interest for me and the Jarvis Labs team in our work with Sigle. Quite literally any day now, this blog will be powered by Sigle. The posts will be stored via IPFS. And there will soon be optionality for Arweave and even token-gating features.

The beauty here is Sigle leverages Ceramic, a social graphing layer that allows Sigle to be multi-chain. Right now, Ceramic has functionality on Bitcoin, Stacks, and Ethereum, and soon Polygon. It can also add any EVM-compatible chain if the demand is there. All of this is open-source and fully documented.

I think some of you reading this would be surprised to learn right now or at one point hosted all articles in a single Arweave wallet. I’m guessing it’s moved away from that, but the point is not all its solutions are documented.

Anyways, the Sigle team has a lot coming down the pipeline, including addressing this ad revenue issue. As the team’s work becomes tested enough to run a larger newsletter like ours, we will showcase it here in Espresso.

In doing so, maybe we can help push back against unconsented scraping and the ad monopoly run by Google… And bring back the originality, creativity, and independence of writers and journalists – by letting them own and earn from their content.

Web3 for the win.

Uniswap v4 Is a New Dawn for Blockchain Businesses

I admit that when Uniswap announced v4, I sort of dismissed the upgrade in favor of Ambient’s just-in-time liquidity feature. But after taking a second look, my opinion is shifting.

This shift is mostly because the clients we serve here at Jarvis Labs ask for onchain solutions. We are constantly seeking them out. And with Uniswap’s v4 upgrade, a few things caught my eye as ways for entities like ours to start building on its new features.

The feature I’m alluding to is "hooks." They’re externally deployed contracts that allow for flexible and customizable execution within Uniswap's concentrated liquidity pools.

It makes it possible for a user to execute a large order over time and fill limit orders at tick prices. That’s the precision we like to see and hear about.

From the business side, hooks allow an entity to customize liquidity to be used in unique ways such as Time-Weighted Average Market Maker (TWAMM) functions. These essentially allow traders to break up a large order into multiple smaller trades that don’t affect the price as much.

Hooks can even capture a portion of Miner Extractable Value (MEV) for themselves or pass it along to their users. Even managing fees becomes customizable.

While we likely won’t be doing any of these things at Jarvis Labs anytime soon, I can see the potential. This is the sort of upgrade that incentivizes individuals to create businesses on Uniswap. In doing so, innovation can happen fast.

A good example here, while not built using v4 since it’s not out, is Unibot. It’s a trade bot that uses Web2 infrastructure Telegram to trade assets on Uniswap. This is a very niche approach to trading on Uniswap. And with hooks, we will see niche situations explode. Meaning we can expect many projects to realize their own success due to the many ways of customization.

Then on the token design side of things, we were excited to see volatility-shifting dynamic fees. These make sense because liquidity should be at a premium during periods of higher volatility. And liquidity providers should be compensated accordingly. Also, this opens up the possibility to change fees in order to create additional price stability into a token.

I’ll also add for the data hoarders like us, Uniswap v4 has reintroduced support for native ETH, reducing the gas cost of transfers.

I don’t know how many times our team has discussed whether to showcase something as “wETH” or “ETH.” I’m happy to see that listing “ETH” will soon be technically accurate when it comes to volume. This will make it easier to report onchain ETH transaction volumes more accurately (that sound you hear is me breathing a sigh of relief).

Main takeaway here for hooks is we can expect to see a surge in unique and diverse offerings within the DeFi space.

The timing could not be any better either. We have innovation happening at the CEX level as we mentioned with Coincall last week, as they offload custody to more institutional-like providers… And at the DeFi level enabling higher execution and customization.

The future is bright for both these realms.

Until next time…

Your Pulse on Crypto,

Ben Lilly