Société Générale Applies for $20M MakerDAO Loan Using Bond Token Collateral

In a proposal on Thursday on MakerDAO’s governance forums, French multinational banking giant Société Générale (SocGen) submitted an application for the decentralized finance (DeFi) lending platform to accept on-chain bond tokens issued by the bank as collateral for a stablecoin DAI loan.

The loan, mediated between a number of legal entities and third parties in a somewhat complex legal architecture, would be for up to $20 million in DAI – likely the largest step towards institutional adoption of DeFi to date.

The application was submitted by Société Générale – Forge, a “regulated subsidiary” of the bank with a focus on digital assets. SocGen has been a leader in experimenting with blockchain assets for years, having issued bond-backed tokens on the Ethereum blockchain as far back as 2019.

Read more: Why French Lender SocGen Issued a $110 Million Ethereum Bond to Itself

The tokens that SocGen has submitted for application as collateral were issued in 2020, have a fixed rate of 0%, and mature in 2025. They sport a AAA rating from rating agencies Moody’s and Fitch. Both the bond tokens as DAI are recognized under French law.

SocGen wrote in the proposal that the loan would be a “pilot use case,” and that one of the goals of the project is to “help to shape and promote an experiment under the French legal framework.”

Legal headaches

Given both teams’ smart contractual expertise, the real barrier to the application appears to be organizing the legal framework that will avoid the often-messy conflicts that can arise when real-world organizations attempt to interact with on-chain, self-governing systems.

A flowchart included in the proposal shows six entities: SocGen; SocGen Forge; the MakerDAO protocol; The DIIS Group that will serve as a “security agent,” a requirement under French law to enforce the terms of the loan on the real-world side on Maker’s behalf; an as-yet unappointed MakerDAO legal representative; and an as-yet-unnamed 3rd party that will facilitate exchanging the DAI loan to dollars, likely either a custodian service or a centralized exchange.

In an interview with CoinDesk, Pseudonymous MakerDAO contributor ‘PaperImperium’ implied that Maker has a number of options when it comes to choosing its legal representation.

“The Maker Representative will probably be one of the legal entities we have been experimenting with. I’m not sure if we have settled on which one, but we have several options of structure and jurisdiction,” he wrote on Twitter.

In April, Maker made headlines by issuing a $38,000 loan to finance a real-world mortgage and has been exploring other real-world options in collaboration with Tinlake and Centrifuge.

Read more: MakerDAO on Collision Course With Banking Regulators

“This is the next logical step in MakerDAO’s mission to integrate the crypto and real-world economies. Our first experiments with home loans in April were akin to Sputnik, and the SocGen-Forge proposal is akin to Yuri Gagarin,” PaperImperium said of the application.

He went on:

“From here, the next goal is the moon.”

Business development

PaperImperium said that members of the DAO’s Growth core unit initially brought the deal together and that the Real World Finance core unit will “spearhead the preparations and operations of the bond repo.” “Core units” are the decentralized entities with budgets provided by MakerDAO to operate the protocol following the dissolution of the Maker Foundation in July.

PaperImperium, who is the DAO’s most powerful delegate representing roughly 3% of all token voting power, told CoinDesk that the deal has been in the works since 2020.

SocGen did not respond to a request for comment by press time.

Sébastien Derivaux, the head of MakerDAO’s Real World Finance unit, wrote in a reply to the proposal that it “doesn’t have a good risk/reward,” noting that it would require significant developmental resources to pass.

However, he noted that the ancillary benefits of the proposal – specifically, having the legal architecture in place to accept other real-world bank bonds – more than justifies the necessary time and effort.

“This collateral should be seen as step 1 of what is next to come. Integrating all publicly traded bonds (that will be on Ethereum as we all know) and providing repo. Quite a huge market,” he wrote.

The proposal is now in a discussion phase, and will move to a formal vote in the coming weeks.

Source: Coin Desk

Nigeria to Postpone Its CBDC Launch: Reports

The Central Bank of Nigeria (CBN) has postponed the launch of its digital currency, the eNaira, according to two Nigerian publications.

  • Citing recent remarks by CBN board Governor Godwin Emefiele to a group of foreign investors in New York, Okay.NG wrote that the CBN had delayed the launch from its originally scheduled Oct. 1 to Oct. 4. An article in The Sun referencing an announcement on Thursday by CBN spokesperson Nwanisobi Osita didn’t specify a new launch date but said the start had been delayed.
  • Both Emefiele and Osita said that the CBN had postponed the launch in deference to the 61st anniversary of Nigerian independence on Oct. 1.
  • Osita told reporters on Thursday that the bank was continuing its work on the eNaira, which he said would help reduce Nigerian’s reliance on cash and help stabilize the country’s economy. He added that the CBN didn’t expect all banking customers to use the currency from the start.
  • Nigerian financial officials have struggled with crypto’s rise in the country. Nigeria banned crypto transactions within the banking sector in February. CBDCs are seen as an effective means of combating crypto’s increasing popularity in a digital age.
  • The eNaira will be accompanied by a wallet sanctioned by the CBN that users can either link to their bank accounts or pay as they go with a prepay option, according to the web page.

Source: Coin Desk

El mercado cripto gana terreno en el boom latino de venture capital

América Latina está experimentando un auge en las inversiones de capital de riesgo o, en inglés, venture capital (VC).

En los primeros seis meses de 2021 la región registró casi $6.500 millones en inversiones de VC, una cifra incluso superior a los $4.000 millones ejecutados en todo 2020, según la Asociación para la Inversión de Capital Privado en América Latina (LAVCA, por sus siglas en inglés).

El mercado cripto está jugando un papel importante en este aumento de la inversión regional, gracias a que grandes fondos con dinero fresco generaron rondas de inversión sin precedentes y el nacimiento de dos “unicornios” cripto en América Latina, entre varios otros hitos.

Read the English version here.

Según LAVCA, ya se registraban rondas pequeñas de compañías cripto en América Latina durante 2016, cuando el exchange Bitso, con sede en México, recaudó $2,5 millones del fondo Cometa y otras firmas de capital de riesgo.

“Luego, en 2021, vimos un aumento definitivo en las inversiones de cripto en términos de volumen y tamaño de rondas”, dijo a CoinDesk Carlos Ramos de la Vega, manager de Venture Capital en LAVCA.

Las startups latinas de cripto recaudaron $517 millones en rondas de VC durante la primera mitad de 2021, agregó Ramos de la Vega, en una declaración escrita.

De los nueve nuevos unicornios —startups privadas valuadas en más de $1000 millones— nacidos en la primera mitad de 2021 en América Latina, dos pertenecen al mundo cripto. El exchange mexicano Bitso fue el primero, tras levantar una serie C de $250 millones liderada por Tiger Global y obtener una valuación de $2.200 millones. Por su parte, Mercado Bitcoin, el mayor exchange de cripto en Brasil, recaudó $200 millones de SoftBank Latin America Fund y alcanzó una valoración de $2.100 millones.

Estos grandes montos captados por las compañías cripto en 2021 superaron ampliamente a sus contrapartes del año anterior. Bitso había recaudado $62 millones en una serie B: una mera fracción de su ronda de este año.

Kaszek Ventures, fondo que lideró esa Serie B de Bitso, siempre está buscando oportunidades en América Latina, dijo a CoinDesk el cofundador y managing partner Hernán Kazah. Sin embargo, las primeras olas de proyectos cripto tenían un alcance más global y no presentaban soluciones específicas para problemas regionales, por lo que Kaszek no se involucró.

Ciertamente, no faltan problemas regionales que abordar. “En América Latina [estamos acostumbrados] a la volatilidad de los tipos de cambio, a las costosas regulaciones y a las monedas poco confiables. En Argentina, un niño de 10 años entiende que hay diferentes tipos de cambio”, dijo Kazah.

Señaló que están surgiendo proyectos con aplicaciones para uso local. “Esos actores podrán hacerlo mucho mejor en América Latina que las compañías globales”, dijo.

Ignacio Plaza, managing partner del fondo de venture capital Draper Cygnus, comparte las reflexiones de Kazah. Este año la firma anunció la creación de un fondo de $50 millones para rondas de inversión desde rondas seed a series A.

Según Plaza, los servicios financieros subdesarrollados en América Latina son una de las razones por las que la región es un lugar ideal para el mercado cripto. “Va a reemplazar la infraestructura financiera existente”, dijo.

Regionalizar lo antes posible (o vender)

Algunos proyectos centrados en América Latina, después de haber logrado grandes rondas, comienzan a expandirse regionalmente.

Mercado Bitcoin, establecido en Brasil, planea expandirse a Argentina, Chile, Colombia y México, dijo a CoinDesk Roberto Dagnoni, CEO y presidente ejecutivo de 2TM Group, la empresa matriz de Mercado Bitcoin.

La compañía ya ha mantenido conversaciones con pares sobre posibles adquisiciones, añadió el ejecutivo.

Después de haber logrado $50 millones en una serie B en septiembre, Ripio planea abrir operaciones en Colombia, México y Uruguay antes de finales de 2021, dijo el chief brand officer de la compañía, Juan José Méndez, a CoinDesk. Añadió que la empresa planea comenzar a operar en España en el primer trimestre de 2022, mientras tiene previsto anunciar la adquisición de un exchange colombiano en el transcurso de las próximas semanas.

A menor escala, dos exchanges de criptomonedas nacidos en Argentina, Lemon Cash y Buenbit, se enfrentan a escenarios similares. Ambos levantaron sus series A —de 16,3 millones y $11 millones, respectivamente— y comenzaron sus procesos de expansión por América Latina.

Bitso, establecido en Argentina y México, tiene tanto interés en Brasil que el cofundador y CEO de la compañía, Daniel Vogel, se estableció en San Pablo y contrató a un ex-ejecutivo de Facebook, Vaughan Smith, como primer director de operaciones de la empresa para impulsar la expansión en ese país.

La avalancha de dinero fresco también está provocando fusiones y adquisiciones. En febrero, Bitso compró Quedex, una plataforma de negociación de criptoderivados con sede y regulada en Gibraltar, mientras que la argentina Ripio adquirió BitcoinTrade, el segundo más grande exchange de criptomonedas de Brasil, en enero.

Jugadores globales

Kaszek ve a destacados talentos regionales creando proyectos globales. El fondo realizó su primera inversión en finanzas descentralizadas (DeFi) en agosto, cuando lideró una ronda de $3 millones en Exactly, una startup que está construyendo un protocolo de crédito no custodiado de código abierto en Ethereum, con un perfil de negocio global.

Exactly fue fundada por Gabriel Gruber, un emprendedor argentino que anteriormente había creado la proptech Properati, luego vendida al grupo OLX.

NXTP Ventures, uno de los fondos de capital riesgo más antiguos de América Latina, también invirtió en Exactly. Según el cofundador y managing partner Ariel Arrieta, el potencial de DeFi para escalar el crecimiento no tiene igual en otros sectores. “Es uno de los factores que hacen más atractivas a estas inversiones”, dijo a CoinDesk.

El fondo comenzó a mirar el cripto en 2013 cuando uno de sus limited partners, Wences Casares, fundador del criptobanco Xapo, introdujo a los fundadores en el tema, contó Arrieta. En los segmentos de criptomonedas y blockchain el portfolio de NXTP Ventures se compone actualmente de Securitize, Ripio, RSK, Koibanx y Waynyloan.

Una gran parte de las compañías que Kaszek analiza semanalmente está relacionada con cripto. “Antes, la broma era que todas las startups incluían las palabras ‘big data’. Ahora todas incluyen ‘blockchain’”, dijo.

Según Plaza, ahora las empresas se inclinan por incluir la palabra “cripto” cuando se trata de conseguir dinero. “Hoy no puedes tener ningún proyecto fintech si no incluyes el negocio de las criptomonedas”, dijo.

Kazah añadió que las inversiones en cripto de Kaszek en 2021 superarán a las de 2020. “No representarán el 100%, porque todavía vemos oportunidades en fintech, comercio electrónico, marketplaces. Sin embargo, ciertamente haremos mucho más que el año pasado”, dijo el inversor.

Plaza, por su parte, dijo que a menudo ve presentaciones de proyectos cripto que levantan rondas de financiación 10 veces sobresuscriptas.

Source: Coin Desk

¿Qué hacen realmente las DAOs?

Las criptomonedas, como cualquier activo especulativo, se mueven por bombos y platillos: Elon Musk tuitea y el mercado responde; China toma medidas drásticas y los inversores corren a esconderse. Las grandes ideas se convierten en iniciales del tamaño de un bocado, como ICO o NFT.

Read this article in English.

La más reciente palabra clave de tres letras adoptada por los cripto utopistas es “DAO”, siglas en inglés de “organización autónoma descentralizada”. Una DAO es esencialmente una estructura de gobierno corporativo construida en torno a cripto: un club exclusivo, donde el precio de admisión se paga en tokens. Poseer una determinada cantidad de tokens o NFTs lo convierte a uno en miembro del club, lo que normalmente le da acceso a un canal pago en un servidor de Discord.

Este artículo es un extracto de The Node, el resumen diario de CoinDesk con las noticias más importantes sobre blockchain y cripto. Puedes suscribirte aquí para recibir el newsletter completo.

Las DAOs también están pensadas para incentivar el compromiso. Dado que los tokens de las DAOs pueden negociarse en exchanges, pueden tener un valor monetario en el mundo real (una destacada “DAO social”, Friends With Benefits, posee un token con un valor aproximado de $110, y son requeridos 75 tokens para la admisión). La idea es que cuanto más trabaje una comunidad para mejorarse a sí misma, más gente querrá entrar y más valiosos serán sus tokens.

Lee más. ¿Qué es una DAO? (en inglés)

Este puede ser un modo eficaz de organización. Y Friends With Benefits, en particular, ha encontrado la manera de hacerlo extremadamente lucrativo. Pero la mayoría de las DAOs son también bastante limitadas en términos de lo que realmente hacen, una vez que todos sus miembros están juntos en esos canales privados de Discord.

La mayoría de las DAOs tratan a los tokens como si fueran acciones con derecho a voto en una empresa: sus titulares, en lugar de los accionistas mayoritarios, deciden cómo gastar el cripto colectivo del grupo.

“Las DAOs son básicamente como si se creara una empresa que sale a bolsa el primer día, y se celebraran votaciones de los accionistas con mucha más frecuencia”, dice el escritor Nathan Baschez. Hay un programa llamado Snapshot que facilita este proceso de votación, permitiendo a los miembros de la DAO utilizar tokens como votos en una encuesta de grupo. Cuantos más tokens tengas, más votos tendrás.

El resultado es que la mayoría de las grandes DAOs terminan como colectivos de inversión, poniendo dinero en NFTs que eventualmente esperan vender en el mercado secundario. PleasrDAO, SharkDAO y FlamingoDAO funcionan así.

Hay otras formas de orientar una DAO: Seed Club es una que dirige una especie de campamento de entrenamiento para los criptocuriosos; Venture DAO, de MetaCartel, funciona un poco como una empresa de capital riesgo; y PartyDAO construyó un programa para pujar por NFTs fraccionados. Decrypt, mi antiguo empleador, está intentando crear una DAO para medios de comunicación.

Estoy entusiasmado con el potencial de reunir a una comunidad en torno a intereses financieros compartidos sin necesidad de establecerla formalmente (el tiempo dirá si la Comisión de Valores de EE.UU. comparte esta opinión), pero sigo siendo escéptico sobre la actual ola de publicidad en y alrededor de las DAOs.

Esto se debe en gran medida a que las DAOs, en su forma actual, tienen un ámbito casi imposiblemente amplio. Vale la pena traer claridad en medio del caos: ¿qué debería hacer realmente una DAO una vez que todo el mundo ha encontrado su camino hacia el canal pago de Discord? Los cripto-utopistas dicen que las DAOs son las nuevas compañías, pero, por ahora, muchas sólo operan como clubes sociales; una lista de DAO en una biografía de Twitter se ha convertido en un símbolo de estatus en ciertos rincones del mundo cripto.

Las DAOs exitosas, como PleasrDAO y SharkDAO, han mantenido su alcance relativamente estrecho. Pero son las más pequeñas, como la mencionada PartyDAO, las que más me interesan para seguir de cerca.

Al igual que las empresas tradicionales, las DAOs necesitan hojas de ruta coherentes si van a crecer y cambiar con el tiempo. Ninguna de las que he mencionado hasta ahora ha existido durante mucho más de un año, y el modelo de accionista sin líder podría dar lugar a luchas de poder y problemas de coordinación en el futuro.

Es un nuevo paradigma, algo que claramente aún está en sus inicios. Pero si las DAOs van a tener éxito a largo plazo, tendrán que tomarse en serio cómo —y si— planean capitalizar sus ambiciones cada vez más amplias.

Source: Coin Desk

Cómo ‘World of Women’ se convirtió en un fenómeno NFT entre celebridades

Es un secreto a voces que las mujeres están poco representadas en el mundo cripto. Lo que ayuda a explicar por qué el nuevo megaéxito de los tokens no fungibles (NFTs), World of Women, es una inyección de energía tan bienvenida para ese espacio. “La misión de mi arte siempre ha sido visibilizar a las mujeres, ponerlas en el foco de atención y aportar más diversidad al espacio”, dice Yam Karkai, que lanzó los NFTs con su socio Raphael Malavieille.

Read this article in English.

El dúo lanzó la colección el 27 de julio y se agotó de la noche a la mañana. Entre sus numerosos fans se encuentran el empresario de Internet Gary Vaynerchuk, el destacado coleccionista de NFTs Pransky y el YouTuber Logan Paul, quien se ofreció públicamente a regalar a Reese Witherspoon un World of Women que se parece a la actriz.

Jeff Wilser es autor de siete libros, entre los que se encuentran Alexander Hamilton’s Guide to Life, The Book of Joe: The Life, Wit, and (Sometimes Accidental) Wisdom of Joe Biden y un libro seleccionado por Amazon Best Book of the Month tanto en no ficción como en humor.

Karkai y Malavieille no son cripto-insiders; no tienen una historia en ese espacio. La pareja se conoció en la vida real hace cinco años en París, donde Karkai estudiaba actuación (su vida antes de los NFTs incluye el teatro, la escritura de guiones y la ilustración digital.) Cuando las colecciones de NFTs explotaron, se dieron cuenta de que podría ser una forma de distribuir más ampliamente el arte de Karkai. Trabajaron en equipo: Karkai dibujaba y creaba, mientras Malavieille —con experiencia en gestión de proyectos— se centraba en lo operativo.

¿Los resultados? Ahora el precio mínimo de World of Women es de 1.5 ETH —o aproximadamente $5.100—, lo que significa que el valor combinado del proyecto, de 10.000 NFTs, es de al menos $51 millones. Karkai y Malavieille cuentan cómo lanzaron la colección, los pasos que tomaron para promover la inclusión, y cómo es convertirse de repente en famosos en el mundo cripto.

CoinDesk: ¿Cómo empezó esto?

Yam Karkai: Bueno: sentí que, en mi opinión, no estaba llegando a un público lo suficientemente amplio con mi arte de uno a uno, para el mensaje y el cambio que quiero ver en este espacio. Así que, ¿por qué no hacer un proyecto coleccionable con mujeres en lugar de con simios, pandas u osos? Porque las mujeres son hermosas, y son importantes, y son relevantes.

¿Cuáles son algunas de las reacciones que has visto?

Karkai: Mujeres que me dicen: “Soy una mujer de color. Soy de Kenia o de la India. Y es la primera vez que hay un avatar que se parece a mí, y que siento que podría ser yo o cualquiera de mi familia”.

Supongo que cuando se lanzó era muy importante ser inclusivo. ¿Puedes hablar de ello?

Karkai: Crear la mujer base que pudiera ser de cualquier etnia, o cualquier tipo de persona, era extremadamente importante para mí. Hubo muchos bocetos y mucho ensayo y error. Pero al final diseñé una mujer que tiene la cara redonda, así que podría ser delgada o de talla grande; no lo sabemos porque es un retrato de busto y no sabemos cómo es el cuerpo.

Y también trabajé para crear una forma de ojos que pudiera pasar como potencialmente asiática, o europea, o africana, etcétera.

¿Y los tonos de piel?

Karkai: Me inspiré en Fenty Beauty, la línea de maquillaje de Rihanna. Ella tiene la gama de tonos de piel más diversa de la historia del maquillaje. Y les puse nombres respetuosos porque vi que algunos proyectos nombraban sus tonos de piel como negro, amarillo y blanco, y para mí eso era increíblemente irrespetuoso.

¿Qué otras sensibilidades culturales tuviste en cuenta?

Karkai: En primer lugar, ninguna referencia religiosa. Soy medio oriental, así que me apetecía mucho tener un collar de nazar, el collar del mal de ojo. Pero me dije a mí misma que no, que no iba a hacerlo, porque si empezaba a poner cosas de mi cultura tendría que incluir la de los demás, y sería imposible complacer a todo el mundo. Así que nada de cosas religiosas, ni referencias políticas, ni nada que pudiera ser confundido con una falta de respeto.

Raphael Malavieille: Y luego estaba la preocupación por la apropiación cultural…

Karkai: Por ejemplo, cuando estaba dibujando peinados, Raph vino y me dijo: “Oye, ¿por qué no haces un gran pelo afro?”. Pero no quise porque, después de todo, este es un proyecto generativo [se generan 10.000 combinaciones únicas a partir de los “activos base” que dibuja Karkai], y si una chica blanca con ojos azules acaba con un afro, va a parecer que se está vistiendo como una mujer afroamericana. Y eso es literalmente una apropiación cultural. Es la misma razón por la que no hice trenzas africanas, o no incluí un velo musulmán.

Tus seguidores en las redes sociales se han disparado. ¿Cuál es tu secreto para el rápido crecimiento?

Malavieille: Mientras Yam hacía el arte, yo investigaba el espacio. Me fijé en todos los proyectos de mayor calidad, como The Wicked Craniums o Bulls on The Block, o Deadheads. Me fijé en todos los que se vendían muy rápido y tenían mucha publicidad en el momento del lanzamiento.

Y entonces me dije: “Bien, esta es la metodología, esto es lo que hacen”. Y sobre todo lo que funciona bien es hacer un sorteo. Así que compramos algunos activos de esos otros proyectos y los utilizamos como regalos para llevar a su comunidad a ver nuestro proyecto.

Inteligente. Los dos son muy nuevos en este espacio. ¿Cuáles son las reacciones de sus amigos?

Karkai: Cuando les contamos a nuestros amigos lo que está pasando en este espacio y lo que estamos haciendo, la mitad de ellos dicen: “Vaya, es increíble. Es una locura”. La otra mitad dice: “No lo entiendo. ¿Qué es esta m****a? ¿De qué estás hablando? ¿Cómo es posible? ¿Puedo hacer lo mismo? ¿Puedo ser rico mañana si vendo algo?”.

¿Qué has sentido al ver que tu colección ha llegado a tanta gente y ha sido acogida como la fue?

Karkai: Al principio estaba nerviosa, pero cuando vi que la gente reaccionaba como yo había soñado, me sentí muy, muy bien, y sentí que estaba marcando la diferencia. Todos los días sigo recibiendo mensajes de personas que me dan las gracias por el proyecto y me dicen que creen mucho en él.

Y la comunidad que hemos creado está llena de positividad, y con gente que cree sinceramente que este es el cambio que necesita el espacio. Así que, para mí, eso es muy gratificante. Es todo lo que siempre quise.

Malavieille: Sí. Y es definitivamente una razón por la que no podemos y no nos tomamos vacaciones.

Source: Coin Desk

Dolce & Gabbana’s First NFT Collection Sells for $5.7M

Dolce & Gabbana’s inaugural non-fungible token (NFT) collection, the Collezione Genesi, fetched approximately $5.65 million in a sale that closed Thursday.

  • The group of nine NFTs was launched on luxury marketplace UNXD, which is built on Ethereum layer 2 Polygon.
  • The bidding for the collection started Sept. 28 and ended today, with the NFTs being personally designed by Domenico Dolce and Stefano Gabbana for UNXD.
  • The Doge Crown” NFT fetched the largest amount – 423.5 ETH, or roughly $1.3 million at current prices, while “The Glass Suit” NFT took in 351.384 ETH, or just over $1 million. The two versions of the “Dress from a Dream” each fetched more than $500,000.
  • Winners of each item received not only the NFT, but physical versions of the items and exclusive access to Dolce & Gabbana events.
  • UNXD has also partnered with Polygon to launch a $10 million “Culture Fund” that aims to expand the use of NFTs in the fashion industry.

Read more: Dolce & Gabbana’s NFT Collection Said to Attract Bidding Interest From DAOs

UPDATE (Sept. 30, 20:31 UTC): Updated with additional sales details in third bullet point.

Source: Coin Desk

Why This Autumn Could Be Bitcoin Season

This episode is sponsored by NYDIG.

Download this episode

On today’s episode, NLW looks at why bitcoin could be poised to grab more mindshare this fall, including:

  • Coming regulatory pressure on DeFi and stablecoins
  • Regulatory clearance for bitcoin (and a bitcoin futures exchange-traded fund)
  • Fundamentals and the great hashrate migration out of China
  • Adoption and proof points on Twitter and in El Salvador
  • Historical cyclical patterns

See also: Bitcoin Jumps as SEC’s Gensler Reiterates Support for Futures ETF, Dollar Rally May Cap Gains

“The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: TRAVELARIUM/iStock/Getty Images Plus, modified by CoinDesk.

Transcript

What’s going on guys? It is Thursday, September 30 and today we are talking about why this fall, aka this autumn, could be bitcoin season. So, one quick correction before I get into this. Yesterday, most of the times that I was referring to Kraken’s settlement with the CFTC, I said the correct number of $1.25 million. But, at one point in the show, I said that their settlement was $125 million, which obviously would have been a much bigger deal. Just wanted to make it clear that it was a $1.25 million settlement.

Alright, let’s talk about why this fall could be bitcoin season and to get into the conversation, let’s talk about how the crypto industry uses the word “season” in general. This refers to a sort of cyclicality that has been present, historically, in the crypto industry. Basically, the idea is that as part of the market cycle, a bitcoin rally tends to then move into what people have called “alt season.” The idea here is that people who have made a bunch of money in bitcoin then recycle their profits into alts, which they view at that part of the cycle as having a bigger opportunity to grow more over some period of time. Those old cycles always encourage a sort of mania. And then eventually they pop and people who are wanting to stay in the crypto industry retreat to some safer assets, specifically bitcoin. We languish in obscurity for a while, and then eventually the cycle starts again. Now, of course, there are lots and lots of debates about the supercycle and whether a supercycle, or at least just a breaking of the traditional four year cycle based around Bitcoin halvings, has remade how we should think about cycles going forward.

I’ve done a bunch of shows, just go look up “supercycle” and you will find them. I tend to be more in the “we’ve broken the cycle” camp than not, but even if you don’t want to go so far as to call what we’re in now a supercycle, I think that it’s very apparent from the last year and a half. That cycle theory is a lot blurrier. I think you can make a pretty compelling argument that 2020 actually saw two separate bull cycles start. Now these cycles were commingling, and there were many shared participants, but they were ultimately two circles in a Venn diagram rather than the same circle. On the one hand was the bitcoin bull market, and this is more of the traditional cycle type of argument. In the wake of the market crash after COVID-19 shutdowns, Bitcoin was extremely resilient. That plus the crazy experimental monetary policies of central banks around the world got the attention of hedge funders like Paul Tudor Jones and his “Great Monetary Inflation” thesis, Stanley Druckenmiller, Bill Miller, etc, etc. Obviously, that also led to Michael Saylor, and his MicroStrategy purchase, and the entire idea of bitcoin as a treasury asset that started to make it into the institutional world as well.

That whole cycle crescendoed coming into March, April and May of last year, and since then, we’ve been fighting a never ending tidal wave, it seems, of FUD, right? We’ve had China FUD, regulatory FUD, Tether FUD, always Tether FUD somehow, etc, etc, etc. But that’s been kind of the bitcoin side of the story. However, even as those hedge funds were starting to get really excited about bitcoin, and how bitcoin might be a hedge against rampant government printing and whatever was to come next, we were also in the midst of “DeFi Summer,” where at the beginning of the summer 2020, there was less than a billion dollars in value locked in DeFi. That grew and grew and grew and grew until here, a year later, we have more than $80 billion locked in DeFi on Ethereum alone, the big explosive months were really those summer months. And I think you can make an argument that it was in fact the proceeds from DeFi Summer that helped fuel the first phase of the NFT boom that happened towards the end of the year, and then had its own crescendo in around March of this year, 2021. Now, like I said, these things are blurry, there’s commingling, there were plenty of DeFi investors who were also loading up on bitcoin, there was probably plenty of bitcoin profit that went into NFTs, at least from the traders. And I think in general, it’s worth asking about zero-sum thinking as it relates to crypto markets.

There’s some for whom the questions of bitcoin versus everything else are highly philosophical. And I think those have always been super coherent to me. If what you’re interested in is the hardest money, the soundest money, the most decentralized money, the most untamable with money of course, you’re going to prioritize bitcoin. Like I said, this is a value judgment. It’s a goal prioritization. That makes sense. But there was also some part of the frustration at least that you see on Twitter from Bitcoiners that has to do with the presumption that there is a little limited pool of attention and time. And that all the other things in crypto take away from that. I’m kind of of two minds about this. I think in the context of any shorter period, there is perhaps a bit of that, there is at any given time, X amount of participants and X amount of attention, they have an X amount of resources they have, and that can flow more or less to bitcoin based on where in the cycle we are and what else people are interested in or making money from. In the long run, I think that we are in a much more of a “rising tide lifts all boats” situation, which again, can be frustrating if you’re a Bitcoinerr who’s really only interested in that super sound, hard money goal. But either way, I think net net over the course of 10 years, everything that even sort of resembles crypto is going to be massively, massively huger than it is now, capturing a massively bigger share of global attention, having a massively bigger percentage of populations invested, etc, etc, etc.

Anyways, that’s all set up to this idea of this fall being Bitcoin season. And so we’re back to that first category where, in the context of any given moment, call at any given quarter, any given six month period, there’s going to be within this larger crypto milieu things that have more or less attention on them. Although bitcoin’s institutional fall was brewing last summer, for example, the attention in this industry was squarely focused on DeFI, you get what I’m saying? So, why then might Bitcoin be uniquely positioned to claim more narrative share this fall? There’s a bunch of reasons. The first is what seems like there is going to be increasing regulatory pressure on stablecoins and DeFi. Anyone who’s been reading the tea leaves of coming regulatory animosity has got to have seen that almost all of the attention is focused not on bitcoin, but in these other categories. There is a ton on stablecoins and that has been the case since last year when Brian Brooks, the former Coinbase lawyer, and then acting comptroller of the Office of the Comptroller of the Currency, made it so much easier for banks to interact with stablecoins. That raised the ire of Democrats who countered with the Stable Act, and these concerns and questions around stablecoins have been ever present throughout the national discourse this year.

DeFi has also started to find its way more and more into the conversation. You saw Dan Berkovitz, the soon to be former CFTC Commissioner’s speech about DeFi, and you got to think, as he becomes General Counsel of the SEC that that interest is going to extend. Gary Gensler has also talked about DeFi in his frequently claimed things as decentralized in name only dyno. So, if there is some big focus, or regulatory pressure, on stablecoins and DeFi this fall, how might that impact bitcoin? Well, one depending on how severe the pressure on stablecoins is, if you actually saw something like the Treasury being able to approve or deny certain stablecoins, it could theoretically elevate bitcoin and eth, to be fair, as a transactional and reference currency, a role that in particular Bitcoin used to have but which was supplanted by stablecoins. Remember, in the 2017 run-up, part of the reason that bitcoin got so high is that people were buying bitcoin to enter into ICOs. That hasn’t been the case for a few years as people use things like Tether and USDC.

This, to be fair, is a pretty outside possibility. I don’t think we’re going straight to the Treasury getting to control stablecoins entirely, at least not without a hell of a fight. But it’s worth at least noting, I think more realistic possibilities are that pressure on DeFi could stem the tide of emergent institutional interest in the space or at least put a pause on it. From all accounts, institutions that have now gotten into bitcoin are also looking at whether they should be in on Ethereum because of DeFi, or even looking at assets like Solana, or even looking at DeFi assets specifically, it’s not hard to imagine a lot of compliance and risk management sides of the house saying, “while there is this sort of regulatory pressure, let’s not delve any deeper for now.” Overall, it just seems pretty clear to me that DeFi is going to go through a gut check period. An example of this today is that 1inch, the popular decentralized exchange, or DEX, aggregator, has started to geo-fence users from the U.S. Users in the U.S. get a pop-up now that says “it looks like you’re trying to use the 1inch dap from a restricted territory, or are using a VPN that shows your location as a restricted territory. We respect your privacy, but please change your VPN settings to correspond with your real location.” 1inch has said that their Terms of Use have actually restricted us users since April, but that these sort of notifications are just coming online on a technical level to match the terms. The organization said: “The 1inch network is in the process of collecting the Series B funding round that has now grown to $175 million, instead of $70 million as was planned before. A significant part of those funds will be used for the development and launch of the 1inch Pro product which is specifically designed for the U.S. market, and for global institutional investors in accordance with all the regulatory requirements.”

Basically, this DEX aggregator, this decentralized exchange aggregator, is now being forced to balkanize their product into the version for U.S. investors, and presumably U.S. accredited investors, and the version for the rest of the world. 1inch is certainly not the only decentralized exchange that has gone through this. In July, Uniswap Labs also started to restrict access to certain tokens through the interface for the Uniswap protocol that it maintains, and it did so citing the “evolving regulatory landscape.” This gets into an important technical distinction that may become relevant legally, which is the line between interfaces and protocols. You can see this in the note that Uniswap put up when they made this change: “To continue to innovate and provide this tool for the Uniswap community, we monitor the evolving regulatory landscape. Today, consistent with actions taken by other DeFi interfaces, we’ve taken the decision to restrict access to certain tokens through app.uniswap.org. These tokens have always represented a very small portion of overall volume on the uniswap protocol and importantly, the uniswap protocol, unlike the interface, is a set of autonomous, decentralized and immutable smart contracts. It provides unrestricted access to anyone with an internet connection. Similarly, this action has no impact on the uniswap interface code, which remains open source or the many other portals or locally run instances used to access the uniswap protocol.”

Now, of course, how much this separation will actually carry water legally is the big question. And this isn’t really to FUD DeFi, it’s just to say that it’s going to go through this hard period where it has to actually fight these battles, and it’ll come out in some way, shape or form on the other side. However, I think that it feels pretty clear that as this happens, it will highlight the trade-off that bitcoin made in terms of decentralization.

Which brings me to my second point about why this fall could be bitcoin season. It’s not just that regulatory pressure won’t come at bitcoin the same way, it’s that bitcoin will, in many cases, or at least from a narrative perspective from regulators, be held up as the type of thing that is okay. We only need to look at how Gary Gensler, the chair of the SEC, has been talking about bitcoin and bitcoin futures as an example of this. So, let’s pop back to August when Gensler spoke at the Aspen Security Conference, there were a couple notable parts of this appearance. First, he agreed with former SEC Chairman Jay Clayton, that basically all digital assets, or at least very many of them were securities because “you see, generally folks buying these tokens are anticipating profits, and there’s a small group of entrepreneurs and technologists standing up and nurturing the products. I believe we have a crypto market where many tokens may be unregistered securities without required disclosures or market oversight.”

It was a big slap in the face to everyone who hoped for something different when he agreed with Clayton’s previous dismissive statement about the whole of the crypto industry outside of Bitcoin. He also said: “Make no mistake: it doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime.” That statement was notable because “stable value token” was a new term that he invented seemingly to give the SEC the ability to regulate stablecoins, as was pointed out by numerous members of Congress, including Tom Emmer. But, the point that I’m trying to make, at least for this show, is we have to also look at how he spoke about bitcoin. He said: “Next, I want to turn to investment vehicles providing exposure to crypto assets. Such investment vehicles already exist, with the largest among them, having been around for eight years and worth more than $20 billion. Also, there are a number of mutual funds that invest in bitcoin futures on the Chicago Mercantile Exchange, CME. I anticipate that there will be filings with regard to exchange traded funds, ETFs, under the Investment Company Act, the Investment Company Act provides significant investor protections. Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME traded Bitcoin futures.”

In other words, he’s basically saying that bitcoin futures are likely going to clear the SEC’s muster. Now, this wasn’t all sunshine and rainbows even for bitcoiners. At the time, a lot of people said after that speech that it probably meant that a spot bitcoin ETF was not getting approved this year. Steven McClurg, the Chief Investment Officer for Valkyrie, which has an active application with the SEC for a Bitcoin ETF currently said, “I think his comments are pretty clear that a pure spot Bitcoin ETF isn’t coming soon, and that futures products would potentially be considered. I think it’s certainly going to direct our conversations and our product roadmap.” He continued though, “it’s a really bizarre world where you can launch a bitcoin ETF in Canada, U.S. people can buy it through their brokerages, and you can create a U.S. ETF that includes Canadian ETFs, but a bitcoin ETF isn’t available in the U.S.

Either way, Gensler reaffirmed this position in prepared statements for the Financial Times conference yesterday. Here’s what CoinDesk wrote about it: “U.S. SEC Chairman Gary Gensler reiterated his support Wednesday for a narrow class of Bitcoin exchange traded funds that would invest in futures contracts instead of the crypto itself. Gensler signaled out bitcoin ETFs, which invest in futures contracts that trade on the Chicago Mercantile Exchange and register under the Investment Company Act of 1940. The so-called 40 act ‘provides significant investor protections,’ he said in prepared remarks for Financial Times conference: ‘I look forward to staff’s review of such filings.’” From what we’ve seen before, there is far, far less appetite for this sort of bitcoin futures ETF than there is for spot bitcoin ETFs. And you need to only look at the example of Canada to see that clearly. But still, I think in narrative terms, I think in terms of stories, I think in terms of media, imagine if we have a situation in the fall where stablecoins are under threat of basically nationalization via the Treasury Department, where leaders of DeFi protocols are being dragged in front of Congress in the Senate, but the SEC’s cleared a Bitcoin futures ETF, it’s hard not to see how that makes for a dramatic narrative shift, especially among those who aren’t paying that much attention, people for whom this is an interesting new asset class that potentially represents a small allocation in their portfolio.

Next, let’s talk about fundamentals in terms of how this fall could be bitcoin season, and I’m thinking specifically here of the great hashrate migration. A story that I noticed this morning is that Argo, which is a London based mining firm, is buying 20,000 more miners for its West Texas data center. This is land that they bought in March. Now, at the same time, we’re seeing the Chinese government make it very clear that their bitcoin mining ban is for real. They’ve hired consultants in provinces like Inner Mongolia to go after firms that may be trying to still operate but in a hidden way, and also that they’re serious about their cryptocurrency trading bands. This is hard not to see as an incredible net positive for U.S. institutional investors. All of the Kevin O’Leary’s out there of the world, who are super concerned and super focused on the provenance of their Bitcoin and how it was mined and who it was mined by, are going to be delighted that more and more of this activity is moving, not only away from China, but to the U.S. specifically, it creates incredible fodder for pro-bitcoin policies to be adopted by the government, led by traditional institutional investors.

Speaking of adoption, we have never had a more fertile environment for showing how bitcoin, enabled by Lightning, can perform in real world circumstances outside of just buying and holding. Twitter Tips seems small, but they are normalizing the potential of Lightning in a huge way. And frankly, one thing that I think is under-discussed, is how Lightning doesn’t just solve a technical problem of Bitcoin, but it also solves a psychological problem of Bitcoin. People who have enough bitcoin who are enfranchised enough to use Lightning are also the type who don’t really necessarily want to spend their bitcoin. However, when you’re using Lightning for these micro transactions for small amounts, it makes it feel not absolutely terrible to “spend” your bitcoin, you’re not using it for big purchases that you rather trade your fiat for, but it makes it viable for all of these small, day-to-day things that you otherwise would have no interest in taking your bitcoin out and using it for. So, I think that we’ve barely scratched the surface on the relevance for Lightning being integrated to a social network like Twitter, in terms of proving out technical feasibility, as well as making it feel kind of psychologically okay to “spend” your Bitcoin.

Then there is El Salvador, it’s going to be bumpy. There are tons of politics involved, as I’ve discussed, but the stress test on the Bitcoin network is undeniable. This Monday morning on September 27, through his Twitter account, President Nayib Bukele shared some statistics from the Chivo wallet, which currently has 2,255,936 total users. That’s around 34.7% of the population and Bukele clarified that that’s 2.1 million people actively using the network. He wrote, “it’s not a bank, but in less than three weeks, it now has more users than any bank in El Salvador.” As of that sharing 14,576 transactions were being made per day. Whenever you think about that experiment, if the Bitcoin network continues to perform in that context, it gets harder and harder to say that it’s just for speculation.

Finally, a last factor and why this fall could be bitcoin season is that there’s always a return to bitcoin during cycle tops. And I’m not saying, I’m not predicting, that we’ve hit a cycle top with either DeFi or with NFTs. NFTs seem to be on their own totally unique schedule and cycle that is not clear yet to anyone who’s watching them, I don’t think. They also involve actors who paid literal, no attention to the rest of the crypto industry. So I think that in some ways, you’re going to see more and more bifurcation anyway there. But, it’s still the case that a lot of people have bought a lot of NFTs that are ridiculously overpriced and are going to watch them get cheaper and cheaper and cheaper and less and less liquid. And they’re going to return to their roots in crypto, whether that’s bitcoin or maybe ethereum. And the point too, is that when prices of non-bitcoin crypto assets recede, it’s not just that bitcoin looks better in terms of its price or market profile. It’s that all the arguments that Bitcoiners have made seem to get more credibility. It’s cycle changes where you see bitcoin pick up a lot of converts, who maybe were super excited about some other asset before, who had their hopes or dreams dashed.

Like I said, I’m not saying that that’s the profile that fall, we could still be in double bubble mode, it could still go crazy. I mean, the fact that this much regulatory intrigue in China FUD hasn’t affected prices any more than it has, makes that scenario seem at least pretty plausible to me. What I know is that as you’ve seen, there are so many factors that seem for a return to narrative focus on bitcoin this fall. And I think that’s really healthy. It’s a great reminder of why this is the fundamental underlying asset of this space, and why the trade-offs that it makes that are different than any other asset, even if you like those other assets, are so powerful in the global macro context. Whatever happens, I am looking forward to this fall and I appreciate you hanging out and listening. Until tomorrow guys, be safe, take care of each other. Peace!

Source: Coin Desk

Can Crypto Put a Price on Community?

Crypto-backed online communities are constantly wrestling with speculation. Take DAOs, or “decentralized autonomous organizations,” which use crypto tokens like access keys – a bot confirms the requisite tokens are in your wallet before letting you into a private Discord server, where the organization awaits.

Rallying around shared ownership of a token can incentivize development and community building, but as the price of the token increases, the group inevitably ends up weighing the value of continued membership against the value of cashing out. The crypto market never sleeps, and neither do token prices. How should community members feel if the price of admission shoots up 10-fold overnight?

This is more or less what happened to Crypto Packaged Goods (CPG), a new community that’s betting big on the long-term value of mentorship. A limited supply of 250 non-fungible tokens works as access keys. At press time, the lowest price for one of those NFTs on the secondary market (that’s the “floor” in crypto speak) was 2.4 ETH, or around $7,000. When they launched earlier this week, the tokens cost just 0.2 ETH apiece.

Orchestrated by Color Capital, a small venture capital firm investing in consumer-focused companies like The Sill (direct-to-order houseplants) and Salt & Straw (ice cream), CPG is, for now, just a private channel on the messaging app Telegram. But there’s power behind that unassuming facade. CPG looks to marry the world of crypto with the world of consumer goods, shepherding Web3 educators, venture capitalists and entrepreneurs into a single chat room.

Read More: What Are NFTs and How Do They Work?

Jaime Schmidt and Chris Cantino, the wife-and-husband duo behind Color Capital, say the CPG Telegram channel is built around mentorship. “We started with identifying 50 ‘mentors’ who we thought would be nice, big names that people would be excited to chat with in our Telegram,” Schmidt said. The list includes some of Crypto Twitter’s heaviest hitters, from influencers (Jackson Dame), to investors (Jarrod Dicker, Packy McCormick), to do-anything entrepreneurs (Cooper Turley).

The idea was to get people talking about the relationship between crypto and consumer goods. Industry experts would act as go-betweens, helping newcomers negotiate some of Web3′s notoriously high barriers to entry.

The “mentors” were each given two NFTs: one for themselves and one for regifting to a potential new member. There were also 150 more access NFTs designated for the public. Within an hour of the announcement, Cantino said, the public NFTs were sold out.

Things get a little more chaotic once you’re actually in the Telegram group (Cantino airdropped me an NFT so that I could access the channel, which I’ve since returned). Moments after I joined, messages began to whiz by – because CPG is structured as a single feed, these messages flow almost constantly, without a filter. A few members discussed which NFT projects they found the most promising. One toasted National Coffee Day with a celebratory GIF. Two others resolved to discuss a potential business opportunity at a later date. At one point, Cantino circulated a survey meant to “identify networking opportunities within the group.”

Part of the goal, according to Color Capital, was to set CPG apart from token-centric communities in the vein of Bored Ape Yacht Club – the collection of NFT profile pictures (or “PFPs”) that has spawned a nascent media empire. “There are so many PFP projects that have been really extractive of their communities,” Cantino said. “The incentives are aligned for everybody to pump, or encourage each other to hold, or drive up the price.”

It’s not uncommon for NFTs to have a community aspect. Developers are constantly spinning off token-gated chat rooms for their projects (see Bitmap, Loot and and Nouns). But a lot of that value is hypothetical: NFT developers make all sorts of promises about the future of their communities (so-called “road maps” are par for the course with PFP collections), but there are no guarantees.

The difference here, Cantino explained, is that “the value is already baked in.”

Read More: The Latest NFT Fad Is a Text-Based Fantasy Game Building Block

“The non-ETH value is that in this group, with all these great people, you could make a relationship that changed your life. You could meet a mentor that invested in your startup. You could meet somebody that just gave you that one piece of advice, and then everything clicked.”

One of the challenges posed by this model is there’s nothing to keep the channel centered on that intersection of Web3 and consumer goods, beyond the meat of the conversation itself. Whether Color Capital succeeds in fostering a community with those shared goals will depend on how successfully Schmidt and Cantino can organize events and marshal group discussions.

Schmidt and Cantino also plan to give members access to something called the “Club CPG Investment Vehicle,” which will let “accredited investors” get an early shot at investing in startups. In that sense, an NFT access key for CPG becomes a direct opportunity to make more money down the line.

This is where speculation comes into play. What is CPG’s take on mentorship really worth? An NFT that comes bundled with intel on potentially lucrative NFT projects and startups probably has more going for it than the sticker price suggests.

Someone with the alias “Uncle Rick,” also known as “icculus.eth,” bought 10 access NFTs on Monday for 0.2 ETH each and is still hanging onto them. My first instinct was that they were looking to flip them for a quick buck, but they told me over Telegram they were considering selling the NFTs directly to “people [they] keep in high regard in the space.” It’s a combination of speculation and curation – sharing the love over the counter.

Cantino insists that the value of membership goes beyond the numbers.

“Paying entry fees for token-gated communities is essentially providing ‘proof of funds,’ he tweeted yesterday, just after our conversation. “You don’t ‘lose’ that money when you buy in – you exchange it for tokens at market value. You are staking funds in exchange for membership that can be sold back later.”

That is an optimistic view; most would probably say that you do, literally, “lose” money when that $7,000 leaves your checking account. And it’s hard not to bristle at the idea of spending that much for access to a chat room. But unlike with a concert ticket, or a subscription to a network of physical spaces (like The Wing), the money isn’t exactly gone after you’ve swapped it for an NFT; it’s just been invested.

As long as people remain interested in CPG, members who want out can just flip their NFTs on the secondary market. Think of it like a venture capital firm exiting its position in a startup after making an initial investment: Whether you make money is a measure of the project’s success.

“Maybe you get hired and you find your dream job, or you just get some great advice,” Cantino said of his plans for the group. “That can be worth so much more than the price of entry.”

Source: Coin Desk

Gary Gensler Says Crypto Is a ‘Wild West.’ Others See Pure Capitalism

Gary Gensler, from up high on his regulatory perch at the U.S. Securities and Exchange Commission, is arguing for greater oversight of crypto. He calls the sector the “Wild West,” inviting comparisons to the outlaw days of frontier capitalism.

It’s a nice metaphor. Is it apt? Crypto is indisputably tied up in the greater financial system. And some may argue that because of loose monetary policy and an overabundance of cheap cash, crypto does sit at the fringes of some portfolios of those investors looking to outperform the market.

This article is excerpted from The Node, CoinDesk’s daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.

But if crypto is on the map at all, it’s because the market has made it so. With yields on cash near zero, the “risk curve” has shifted – stocks are the new savings accounts, memes the new stocks and crypto the new bet for venture capital. People gotta get paid to save.

Crypto’s relationship to unfettered capitalism is complicated. A charitable interpretation is that the industry is committed to its libertarian roots. Experimentation is welcome, and with that come outsized risks and rewards. That’s why regulation is often viewed with derision or suspision, the range between saying “code is law” or “the rules need to be clearer.”

“Crypto today presents itself as both the wild wild west fringe, and the inevitable future of mainstream finance. But the kind of volatility and riskiness that is tolerable at the fringe isn’t necessarily tolerable at the core,” says Rohan Grey, an assistant professor of law at Willamette University.

The current, dominant economic regime in the U.S. is nominally capitalist, but in practice, it is something far afield. Government actors and the unelected Federal Reserve have long been in the business of picking and choosing winners in the market – sometimes directly. Regulation is often treated as a moat for powerful incumbents. If crypto is the Wild West, then traditional finance is the protectionism, cronyism and decadence of early modern Western Europe.

By comparison, crypto is a textbook example of “free enterprise.” It is a global financial architecture that anyone with internet access can use. It runs 24/7, it’s liquid, and it has winners and losers determined by the rules of the game. As yet, there are few intermediaries to intermediate bad outcomes.

When liquidity crises happen, people get liquidated. Businesses go bankrupt. Exchanges go down. People lose in proportion to the risks they take. Those are market forces functioning according to the rules. People may get hurt.

“This crypto space is now certainly of a size that without those investor protections of banking, insurance[and] securities laws [and] market oversight, I do think somebody is going to get hurt,” Gensler told the Financial Times Wednesday. “A lot of people are likely to get hurt.”

Recently, in crypto, there have been a number of instances where bad or ambiguous actors capitalized on the misfortune of others. So-called decentralized platforms are often more centralized than advertised, leaving backdoors for knowledgable people to exploit. And hastily written code is often ridden with unintentional errors.

Read more: DeFi Money Market Compound Overpays Millions in COMP Rewards in Possible Exploit; Founder Says $80M at Risk

Take the Poly Network hacker, who stole $600 million from a decentralized lending protocol, taking advantage of poorly written code. In a strange turn of events, the hacker decided to return the stolen funds. The circumstances around that are murky, but it appears the parties involved worked out an agreeable solution.

That is happening more and more in crypto. In the Poly Network situation, the hacker may have feared being turned in to financial authorities, which seemed plausible – a point in favor of the regulatory state. But the hacker or hackers may also have been concerned about lasting reputational damage in the industry or realized that their stolen funds were blacklisted, and made unusable, by exchanges. In other words, market forces were at work.

In a similar situation, this one involving financial titan Citigroup and cosmetic firm Revlon, a fat finger error cost the bank almost $500 million – without recourse.

In 2018, while teaching at the Massachusetts Institute of Technology, Gensler noted the importance of “marrying” innovative financial technologies with regulation. Recently, he’s said that the majority of cryptocurrencies are likely securities, meaning vast swaths of this $2 trillion market would be under the SEC’s remit.

Now I like Gary Gensler. As a professor at MIT, he cited deep cuts from Satoshi’s emails. He genuinely seems concerned about financial stability and consumer protections. He’s remarkably consistent: During that same lecture, he seemed miffed that the Commodity Futures Trading Commission entered “sufficiently decentralized” into the lexicon, an opaque, post-hoc qualification relating to the Ethereum initial coin offering. He fears that the standard could be unevenly applied to other crypto-based smart contract platforms in the future.

But there’s a case to be made that crypto ought to and can stand independent of the current economic system. As The Economist wrote recently, the state’s role in markets is to guarantee property rights. Crypto is a grand experiment with conceding that turf to blockchains. Taking ownership of your keys means taking on associated risks.

Not everyone agrees.

“Cryptocurrency proves the need for regulations because it is as profitable to be unethical as any other form of capitalism. All cops are bastards, but the only bastards a civil society should tolerate are financial police,” the wonderfully chaotic blockchain builder Bryce Weiner said over Telegram.

Read more: SEC Chairman Gensler Agrees With Predecessor: ‘Every ICO Is a Security’

Willamette’s Grey suggested that crypto might be functioning according to its own set of rules now, but said that’s because it’s still a niche market. “I would probably describe it more as ‘forgetting the painful lessons of history so we can learn them the hard way all over again,’” he said.

Gensler may be preparing for the day when crypto isn’t just at the fringes, but at the very heart of capitalism.

“If the average person’s retirement prospects were linked to the state of crypto in the way it is today to the S&P 500, then it would be quite likely that a large downturn would be seen as socially unacceptable and lead to a government intervention,” Grey said.

“Pure” capitalism promises something ruthless, but sticks to its own rules. Too bad it’s never been tried. Not even in the Wild West.

Source: Coin Desk

Multicoin Capital Hires First General Counsel as Talk of Crypto Regulation Ramps Up

Venture firm Multicoin Capital is adding to its legal ranks at a time when global regulators are putting crypto squarely under the microscope.

“Obviously, we’re at an inflection point for the regulation of digital assets in the U.S. and around the world,” Greg Xethalis, Multicoin’s general counsel and chief compliance officer, said in an interview with CoinDesk. It’s the firm’s first in-house lawyer, a company spokesman confirmed.

The New York-based Xethalis, formerly of Chapman and Cutler LLP, has long tackled crypto’s square-peg-round-hole regulatory status. He worked with the Winklevoss brothers in 2012 to submit the first bitcoin exchange-traded fund (ETF) application to U.S. regulators (the Securities and Exchange Commission (SEC) has still yet to approve a single bid).

Xethalis’ move in-house comes as other prominent venture fims in the crypto space steel their ranks with legal minds and ex-regulators. Andreessen Horowitz (a16z) has ramped up its rhetoric in recent months, with general partner and former federal prosecutor Katie Haun taking SEC Chair Gary Gensler to task as recently as this week.

For his part, Xethalis will assume the mantle of keeping compliance top of mind at Multicoin, both for the firm itself and in an advisory capacity for its many investments.

“We do want to be a strong advocate for the space and our portfolio companies,” he said.

In a blog post shared early with CoinDesk, Multicoin added:

“Crypto is entering mainstream awareness, and we are growing our team so that we can support entrepreneurs as effectively as possible, and engage broader stakeholders as one of the largest investment firms in the space.”

Source: Coin Desk