Hi there, coming to you with a slightly condensed version of the newsletter this week with a takeover from your writers in residence members, Ruby and Roslyn, as Jeremy, our newsletter extraordinaire, is moving to the UK. This week we explore the fallout from the latest market crash, some regulatory movements and bridge hacks, both old and new. Hope you enjoy this edition as much as we had fun writing it!
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/web3/NFT land and tries to provide unbiased context. It’s aimed at anyone who wants to keep an eye on the space but isn’t following it too closely, or is on the hunt for story ideas and angles. It’s put together by a team at YAP Global, and doesn’t contain any promotion of our clients (if one is mentioned, we’ll flag that).
This was put together by a team led by founder Samantha Yap, and Jeremy Wagstaff, formerly of the journalism parish. Your feedback is as always welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
[tl;dr]
Our fundamentals are (not) strong: is this the exodus we needed?
The latest in regulation
More bridge hacks, are multi-signature wallets the problem?
[Our fundamentals are (not) strong: is this the exodus we needed?]
It’s been a trying month for crypto, with the industry embattling turmoil after turmoil that it’s easy to retreat into a mindset of doom and gloom. An old adage touted by US policymakers back in 2008 was that “the fundamentals are strong”, in reference to the economy, only to find that days later the world was on the brink of the biggest global finance crisis since the great depression. Similarly, for the crypto industry facing its biggest test yet, its longevity is being called into question. Whilst this is not the first crypto winter we are experiencing, this latest crisis may just be the downturn the industry needed to restore trust in the community and reflect on the strength of its own fundamentals.
As this take from Bloomberg points out, “the seeds that spawned the meltdown — greed, overuse of leverage, a dogmatic belief in “number go up” — aren’t anything new. They’ve been present when virtually every other asset bubble popped. In crypto, though, and particularly at this exact moment, they are landing in a new and still largely unregulated industry all at once, with boundaries blurred and fail safes weakened by a conviction that everyone involved could get rich together.”
Singapore-based crypto fund, Three Arrows Capital, which has previously been liquidated after the company failed to meet margin calls, has been ordered to liquidate its assets by a British Virgin Islands court after defaulting on a $670m loan. Its assets are in the form of venture-capital investments in crypto startups and companies.
Investment banking giant, Goldman Sachs, is in talks to broker a deal to bail out Celsius by helping investors purchase its assets at a discounted rate. Under the proposed arrangement, Goldman will be a broker and not an investor in the deal, and therefore will not carry any exposure to these assets, but speaks to the bullish approach to crypto Goldman has been taking recently since exploring digital assets with its institutional customers and establishing its own trading desks.
[The latest in regulation]
With the markets in decline and retail investors seemingly bearing the brunt, regulators are sharpening their pitchforks. Is the latest crash creating a perfect storm for regulators and crypto skeptics? Here are some of the latest updates on regulation around the world:
In Singapore’s latest pivot, the Monetary Authority of Singapore (MAS), the country’s central bank, told Forkast that cryptocurrencies “have no fundamental value.” (Note this piece includes commentary from a client, Tranchess). MAS comments mark a change in tone from MAS director Ravi Menon last year, who told Bloomberg: “If and when a crypto economy takes off in a way, we want to be one of the leading players.”
EU regulators are set to introduce two major crypto regulations by the end of the month, namely the Markets in Crypto-Assets (MiCA) and Transfer of Funds Regulation (TFR). The final meeting of the MiCa bill will take place on June 30, with discussions expected on whether NFTs and stablecoins, which has been the talk of the town since the Terra collapse, should be within the scope of these regulations.
Perhaps preoccupied with the state of the US economy amidst its sky high inflation and potential recession, the Federal Reserve Chair, Jerome Powell, does not see “significant macroeconomic implications, so far” from the crypto market crash but emphasises the need for a better regulatory framework for crypto, stating that “the same activity should have the same regulation no matter where it appears”.
In any case, whilst the crypto industry and regulators have not always seen eye to eye, one thing they can agree on is that the latest market turbulence is a positive for the industry overall by helping to weed out bad actors. We may be nearing the (first of many) tipping point of concessions at last...watch this space.
[Bridge hacks old and new]
Cross-chain bridges — which enable assets to be transferred from one blockchain to another — continue to be a security concern. Harmony’s Horizon bridge is the latest to fall prey, announcing on June 23rd that $100 million was syphoned.
Harmony has since offered a $1 million bounty, with the hacker’s latest move to send stolen funds to Tornado Cash mixer — which obscures transaction paths — signalling the hacker’s rejection of said bounty.
Mudit Gupta, Polygon’s chief information security officer, revealed that two addresses out of five in the multi-signature wallet were compromised. A multisig wallet requires consent from multiple parties with the idea being this adds additional security on transactions. But does it? Back in April, Ape Dev, Founder of crypto venture fund Chainstride Capital, predicted “if two of the four multisig [Harmony] signers are compromised, we're going to see another 9 figure hack.”
Multisigs also played a role in the Ronin Bridge hack that took place in March (covered in #12). The bridge is now back in action following an internal audit and external audits by blockchain security firms Verichains and Certik. (Read more on the latest updates here).