This article was originally posted at Faybomb.Substack.com.
PayPal has entered the crypto arena with a new stablecoin and Zcash is at a crossroads.
I don’t like PayPal PYPL -1.05%↓ . It’s why I deleted my account long before doing so was trending on social media. I think the company’s policies are baffling and I believe the business extracts way too much value from its customers. But gosh darn it, I respect the double birds the company just flipped the government, particularly the SEC.
Here’s a brief rundown of the recent events:
The SEC sends Paxos Trust a Wells Notice for the Binance-branded BUSD stablecoin.
Paxos Trust halts minting of BUSD.
PayPal launches a fundamentally identical stablecoin through… Paxos Trust.
I can’t knock the hustle, PayPal. Soon-to-be 85 year old congresswoman, and notorious SBF Kiss-blower, Maxine Waters is very upset about all of this. Tough berries. Innovation is coming whether these people and their donors like it or not. Say it with me now…
We’re not asking for permission.
The government will do what it always does. It will adjust its stance on stablecoins in a way that reflects what the market has already decided. And it will probably do it relatively quickly so it can pretend it’s leading the parade rather than simply marching in front of it.
Of course, none of this means I’m actually endorsing usage of PYUSD, PayPal’s new Ethereum-based stablecoin. But I will give PayPal some credit on this; it could have white-listed this coin and it didn’t choose to do that. Meaning, it could have required full KYC-compliance simply to use the token even on-chain and it isn’t doing that (yet). For now, PYUSD appears to function like any other fiat-backed stablecoin. Which for me, is still enough to avoid it entirely.
The central manager of the coin can turn you off if it chooses to do so. And PayPal’s record here is… bad. PayPal has historically wielded its power to de-platform Big Pharma adversaries and frozen the funds of comic book writers because rULeS. So no, I wouldn’t touch this thing if I were you. And while it warms my heart that there is so much pushback against CBDCs currently in the zeitgeist, the reality is the CBDC is born from crisis. Before that crisis happens, the real attack vectors for punishing wrongthink are the centrally managed and controlled banking system and the fiat-backed stablecoins on crypto rails.
Don’t Fail Me Now, Zcash
Of course, the way we combat centralized, fiat-backed stablecoins is with truly permission-less, privacy-persevering native crypto assets. One such asset is Zcash (ZEC-USD). I admittedly haven’t written a lot about ZEC lately on this blog as I feel I’ve made my case somewhat thoroughly already.
However, despite the lack of a real update here, I’ve been keeping up with what has been happening in that arena. Those writings have just lived on Seeking Alpha and in the now defunct BlockChain Reaction research service. Here’s what has happened over the last 12 to 18 months in a nutshell:
The price of ZEC has dropped dramatically from over $200 in early 2022 to $29 as of posting… it’s been brutal.
I believe a big part of the drop has been in response to a spam attack that took place on the blockchain last year. That attack created an explosion in Zcash block size and made the shielded pool very difficult to use.
Electric Coin Company, the core developer behind Zcash, has laid off roughly half its staff.
Things don’t look great for ZEC. But, I haven’t sold a single coin. I maintain ZEC, and privacy coins in general, are one of the more asymmetric bets in crypto given the privacy failings of the more popular chains. This will be a relatively quick update for ZEC, but I think it’ll be useful.
Source: Messari, 8/11/23
First, the hash rate trend is getting a bit ugly and I’m hopeful that we’ll see a recovery there but it’s not looking great. Hash rate is the amount of computing power that is being used to secure the network. Bitcoin’s hash rate has notoriously been a juggernaut because there is so much demand for the block reward as the coin price increases. The problem for ZEC is the price isn’t going up.
Source: CoinWarz, 8/11/23
This means it is currently unprofitable to mine ZEC unless you’re getting insanely good electricity prices. Miners are not in business to lose money. When miners aren’t profitable, they turn machines off or mine different currencies. The indirect impact here is the network could be more at risk of a 51% attack as hash rate comes down.
Source: BlockChair, 8/11/23
All this said, from an actual utility standpoint, ZEC still works very well. It’s fast, it’s easy, it doesn’t require a custodian. At just under 1.3 million ZEC, the shielded pool is still near an all time high - an indication that holders intend to use it for it’s created purpose. Finally, one of my favorite valuation multiples in crypto is the 90 day NVT ratio. Without getting too into the weeds on this, it essentially measures how much value is transacted on a blockchain network against what the market cap of the native coin is. The higher the ratio, the more overvalued a coin theoretically is.
Source: CoinMetrics, 8/11/23
Though I should stress that there is no real standard way to look at this yet. It’s how one chooses to interpret the data. But if you can get past the slight messiness of the chart, what it tells us is that ZEC is the second most undervalued PoW payment-focused coin after only Litecoin (LTC-USD). ZEC’s 90 day NVT ratio is 69. LTC is 58. Bitcoin (BTC-USD) is 154. LTC went from the most overvalued of these coins last August to the most undervalued from March through June of this year.
Source: LunarCrush, 8/11/23
And there’s no social interest in ZEC at this point. Engagement has absolutely fallen off a cliff over the last year according to LunarCrush data. It admittedly looks rough for ZEC right now. But re-pricing heals what ails Zcash. It just depends on if people want a hedge against financial weaponization that actually preserves privacy or not.