USDT Playing With Fire

Crypto Market Week in Review (26 August 2022)

Markets

Digging into Jackson Hole

This week markets continued a summer vacation. Most assets were little changed in anticipation of the Federal Reserve annual Economic Policy Symposium in Jackson Hole. This conference was often used for important monetary policy announcements, including re-framing the inflation goal as an average inflation target in 2020. Ironically, the introduction of average inflation targeting was meant to increase inflation, which has become a major problem in 2022.

The most interesting macro development this week was the euro dropping below parity with the US dollar, since European economies continue to suffer from skyrocketing energy prices. It was the first daily close of EUR/USD below the parity in 20 years.

EUR/USD

Cryptocurrencies slightly increased since last Friday with Ethereum somewhat outperforming Bitcoin. Muted price performance did not discourage Ethereum options traders, and the open interest continued to climb. Implied volatility was little changed. Interestingly, the recent daily data on Deribit indicated that the most traded Ethereum option was the moonshot $10000 call maturing on September 30.

Top-traded Ethereum options on August 25 (in USD thousands)

In potentially very negative news, the Washington Post lashed Tether stablecoin (USDT) with the article titled “Top crypto company defies U.S. sanctions on service that hid stolen assets”. The newspaper said that “Tether is not blacklisting accounts associated with Tornado Cash”, implying a possible violation of the US sanctions against Tornado. It’s a very significant accusation, which we think may potentially lead to a multi-billion fine or assets freeze (for example, in 2014 BNP Paribas was fined about 9 billion USD for Iran-related transactions). Another major stablecoin issuer Circle promptly complied with the sanctions and blacklisted USDC addresses tied to Tornado.

Beijing Announces Two-year Metaverse Innovation and Development Plan

Tuesday saw the introduction of the Beijing Municipal Government's two-year (2022-2024) Metaverse Innovation and Development Plan, which mandates that all districts follow the recently issued Web3 Innovation Plan.

The Metaverse is referred to in the development action plan as a new generation of information technology integration and innovation that will propel internet development toward Web3. The innovation plan focuses on encouraging the growth of industries connected to the Metaverse and aiding Beijing in creating a model city for the digital economy.

A Google Translate transcript of the official document read:

“Promote digital education scenarios, support in-depth cooperation between Metaverse-related technology companies and educational institutions, expand intelligent and interactive online education models, and develop industry-wide digital teaching platforms."

Additionally, districts and municipalities are required by the Metaverse Development Action Plan to provide financial and human resources support for creating virtual reality. To foster innovation, the Beijing city government also mandated monitoring nonfungible token (NFT) technological developments and investigating regulatory sandbox initiatives.

Ethereum Developers Find Bugs Ahead of September Update

An Ethereum software developer named Péter Szilágyi tweeted that he had discovered a glitch that leads to a corrupted state. He clarified that it was most likely one of the merge requests for the online pruner or new storage mode.

The developer noted in a later update that the issue would probably affect users of the release, corrupting their databases and causing data loss. He further explained that the data loss problem occurs at shutdown, which is why their tests failed to detect the defect.

Despite the problems, the developers were able to offer a remedy within a day. To fix the bug, Go Ethereum released a hotfix. The group recommended individuals who had updated it to go back and try it again to be sure everything was operating as it should.

They tweeted:

“After the patch's release, Szilágyi advised the community to wait until the builders were finished to ensure they will be on the “good version.” The developer apologised on Twitter for missing the issue during the testing phase and promised to figure out how to do better stress tests. The developer also thanked those who had contributed to helping figure out the issue”.

Bitcoin Lightning Network Vs Visa and Mastercard: Comparison?

This week, a comparison was made between Bitcoin Lightening and Payments giants like Visa and Mastercard - all payment-processing platforms. Mastercard’s network is believed to theoretically process 5,000 transactions per second, dwarfing Bitcoin’s seven per second.

Even more amazing is the throughput of Visa's transactions, which may reach 24,000 per second. According to Vasant Prabhu, chief financial officer at Visa, the network could theoretically support up to 65,000 transactions per second.

The most effective payment system in the world in terms of transaction throughput is the Lightning Network, which goes far further and can handle up to one million transactions per second.

The Lightning Network provides a foundation for Bitcoin’s mass adoption, facilitating its position not only as a store of value but also as a medium of exchange.

THORChain tech lead argued that:

“Visa is a financial institution that inherently seeks profit and control and is at the behest of governments. The Lightning Network is purely a public good. It only exists to provide a fundamental and critical service for every person on the planet in need of access to financial services.”

Celsius Countersues Keyfi, Pushes Misappopraition Claims

On Tuesday, insolvent cryptocurrency lender Celsius countersued decentralised finance (DeFi) protocol KeyFi and its CEO Jason Stone in the United States Bankruptcy Court.

Celcius claims Stone had falsely represented himself as an authority on the subject and that Stone and KeyFi had misappropriated Celsius’ coins. A few weeks prior, KeyFi had filed a lawsuit against Celsius, alleging that the latter had broken a profit-sharing agreement.

KeyFi offered a DeFi strategy and staking services to Celsius. The defendants are accused of stealing millions of dollars worth of coins from Celsius wallets, according to the lawsuit. Furthermore, according to Celsius, the defendants purchased non-fungible tokens (NFTs) with Celsius’ coins without the company's consent, transferred them to their personal wallets, and then sold some of them for "seven-figure returns" (which was never accounted for).

The defendants also allegedly bought an interest in other crypto companies with Celsius’ coins and used Tornado Cash, the crypto privacy protocol recently banned by the U.S. Treasury Department, to hide their activities.

Celsius claimed they had lost "several tens of millions of dollars" due to KeyFi's flagrant carelessness. They also asserted that KeyFi made baseless accusations against Celsius and neglected to repay payments when asked to do so.

Australia’s Regulator Risks Public Backlash after Taking Unconventional Route to Restrict Crypto Activities

While the reserve bank of Australia explores opportunities in stablecoins and token mapping, the nation’s financial regulator, Australia's Securities and Investments Commission (ASIC), is taking an unconventional, yet rigid approach to crypto adoption.

The regulators have committed to be firm on DeFI and crypto assets in the next four years.

The financial regulator ASIC stated in its recently issued "Corporate Plan" that as "developing technology and products disrupt our financial ecosystem," it will be focused on "digitally enabled misconducts" as part of its four-year strategic plan that extends to 2026.

ASIC's chair, Joe Longo, stated that the agency would pay particular attention to fraud and digital assets.

“Our regulatory environment is changing and evolving — climate risk, our aging population, emerging data and digital technologies, and significant volatility in the crypto-assets market are all having a transformational impact.”

ASIC further explained that the decision will involve a comprehensive framework to  “protect investors from harms posed by crypto-assets”. Knowing well how negatively this news will be accepted, the body said

“ASIC is not against innovation, and will do whatever it can to look for lawful ways of using the underlying technology, the distributed ledger, and blockchain technology, but that’s not to be conflated or confused with investing, inverted commas, in crypto assets.”

*This communication is intended as strictly informational, and nothing herein constitutes an offer or a recommendation to buy, sell, or retain any specific product, security or investment, or to utilise or refrain from utilising any particular service. The use of the products and services referred to herein may be subject to certain limitations in specific jurisdictions. This communication does not constitute and shall under no circumstances be deemed to constitute investment advice. This communication is not intended to constitute a public offering of securities within the meaning of any applicable legislation.