Hey there, hedgies, this is Colton from Hedgehog. We offer one of the easiest ways to get broad exposure to digital assets as a sector–but what else should we be building?
I want to take today to talk frankly about how I see the industry and ask you where we should go next. If you’re not gonna read all that (happy for u tho, or sorry that happened), please reply to this letter and let us know why you would or wouldn’t recommend Hedgehog to a friend.
Quite the run of trends in 2023…
Several institutions have been looking to tokenize assets like stocks, mutual funds, and treasury bills to put them on-chain. This can be useful because once the assets are tokenized you can take advantage of on-chain primitives like flash loans, atomic swaps, and rehypothecation via wrapped tokens, but at the end of the day the tokens are tied to a real-world entity whose assets can be frozen by a government, seized by militants, extorted by criminals, or otherwise become subject to the trust company’s insolvency. So you still have to choose your tokens (and their sponsoring corporations) wisely!
We’ve had some of you express interest in holding on-chain treasury bill tokens representing US treasury debt in an on-chain wallet. Would you be interested in having Hedgehog manage these tokens on your behalf to get 4% annual yield in a self-custodial wallet that you control? Let us know!
Layer 2 Networks
Everyone and their mother wants to release their own Layer 2 network now that Coinbase has had such nominal success with their new Base chain. Technically Binance was the first to release their own L1 with Binance Smart Chain, but now Kraken is reportedly looking to release their own L2.
Don’t forget, these L2s join a long list of incumbents like Polygon, Arbitrum, Optimism, Avalanche, Loopring, Starknet, ZKSync, and others. Perhaps one day there will be enough consumer demand to fill all this compute capacity, but I’m beginning to wonder if we really need all these sub-chains. The unfilled capacity is starting to look like China’s infamously empty commercial real estate megaprojects: impressive feats of human engineering with nobody to live in them.
And are we really winning anything on the decentralization front if we’re just going to use computer networks owned by major private brands like Coinbase and Kraken? Please chime in if you think I’m wrong, but I tend to think that users don’t care what network gets used as long as the gas is cheap, so these L2s seem destined to be disintermediated by smart routers and arbitrageurs acting on end-users’ behalf.
It's the cool kid lingo for hiding away all the cryptographic bits that make web3 work. Instead of getting a private key and a secret phrase, a provider like Privy takes your email address and sandboxes your key securely on your device in the background. Or maybe ArgentX creates a smart contract that holds all your secret material and you just send messages to the smart contract like you send messages to any app provider. Or alternatively, you can take accounts and attach them to NFTs you own, so the NFT can hold its own currency and NFTs which can each be their own account…NFTs all the way down!
We like these new primitives, but they’re limited because you end up being only able to transact on one network at a time. It’s hard to make sure that account abstraction standards get shared across Ethereum, Cosmos, and Cardano for example. That’s why we like multi-party computation as an approach. You can generate keys in such a way that the end customer can transact freely across networks, but a third party can help you recover keys without having access to your account.
Unless of course you wanted to give a third party like Hedgehog certain permissions to securely transact on your behalf, in which case they could combine keys with you to automate your on-chain activity, optimize your yield, prevent fraud, and make your cross-chain identities feel more seamless. Would you be interested in an MPC wallet with Hedgehog? Let us know!
Intents are a fancy way of saying that you as a user express a desire to have a certain coin on a certain network, and then an automated program called a solver helps you get from coin A on network B to coin C on network D in the most efficient way possible. This works a lot like the DNS system that helps your computer connect to a server somewhere and download a web page as quickly as possible: you type in a URL, and your internet service provider connects to a internet exchange gateway that maps out the quickest route to the computers registered to that URL.
This is really powerful technology, but I tend to think that this is a step short of what end consumers really want. When you want to play a metaverse game like Sandbox or Decentraland, are you really gonna care whether you’re using SAND or MANA on Polygon or Optimism? It’s probably a detail that you’re going to want handled by a payment processor, just like VISA and Mastercard figure out how to exchange your currency when you order cheap computer parts on Alibaba.
That’s where I think Hedgehog has the chance to deliver real value: analyzing your on-chain activity and automatically handling your inventory of web3 currencies and making sure you have the exact currency you need, when you need it: no statement of intent required.
What do you think? Please give us your guidance. Send me an email and let me know what problems we can solve for you.