#29 The Context: Big numbers, ordinary people
DeFi raises some awkward questions about who owes who(m)
Hi there, hope you've all had a good week. This week we keep an eye on developments in the Bear Market, but also look at some other interesting things going on, including DeSci and DePub. We also gather some updates about crypto hubs.
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 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. Thanks to Roslyn Tear, Ruby Wu, Sam O’ Donohoe, Becky Corbel and Joey Woo for their contributions. Your feedback is as always welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
[tl;dr]
Voyager rejects a helping hand, raising troubling questions for investors
From the Merge to Pharma Bro, crypto shrugs off the bears
Who will be the real global crypto hub, and is it more trouble than it’s worth?
[3AC founders surface, Tether recouped loan in the crosshairs]
The crisis that started in May is not over, but many have moved on. Here are some updates on the companies affected, and issues their experience has raised.
Voyager has rejected what it called FTX's 'low ball' offer, saying it was 'misleading', according to Oluwapelumi Adejumo of CryptoSlate. Sam Bankman-Fried, founder of FTX, responded on Twitter, asking why Voyager hadn't returned customer assets. The Defiant’s Aleksandar Gilbert and Samuel Haig explored how Voyager’s rejection of the offer leaves investors looking for answers, not least who might actually own and have title to assets held by Voyager.
A sober reminder of how those investors also included ordinary people: Molly White collates excerpts from letters to the judge in the Voyager case. Her perspective: “Regardless of what you may believe about individuals’ decisions to put significant amounts of money into Voyager, blame lies with the executives creating and running these companies and with the U.S. legal and regulatory system for allowing companies like this to operate.” Voyager's next bankruptcy hearing is August 4.
Tether’s recovery of an $840mn loan to Celsius is under scrutiny, according to the FT's Kadhim Shubber. Tether recouped the loan by selling bitcoin Celsius had pledged as collateral, raising questions about whether Celsius might be entitled to reclaim the value Tether received when it liquidated the bitcoin. The issue centres on how bankruptcy law applies to digital assets.
Three Arrows Capital founders surfaced long enough to talk to Bloomberg about their ‘LTCM Moment’. Su Zhu and Kyle Davies said they had been communicating with authorities "from day one”, said they had "almost all of our assets" in 3AC, that the collapse of Luna and TerraUSD was unexpectedly fast, and that they may have been too close to Terra's founder, Do Kwon. They are keeping a low profile because of death threats but were in the process of moving to Dubai. The piece was written by Joanna Ossinger, Muyao Shen and Yueqi Yang.
DeFi skeptics Amy Castor and David Gerard focus their guns on CeFi, detailing the ride thus far: Crypto collapse: Terra Luna, 3AC’s Singapore liquidation, Celsius, Voyager. “CeFi looked like an industry of separate institutions — but it turned out to be a few companies all investing in each other. The chart of who invested in who would look like an inverted pyramid resting on a single point — Terraform Labs’ Anchor protocol."
[A closer look at the Merge, smart contracts, DeSci and DePub]
Life goes on, and it’s already a cliche that now is the time of the BUIDLer. So what is going on?
Vitalik Buterin surfaced at ETHCC to talk about The Merge, an upgrade to Ethereum which would complete its move from electricity-guzzling proof of work to proof of stake. He pointed out that even when that happens, it only takes Ethereum part of the way to where it’s supposed to be, according to Donovan Choy of Bankless: "The difference between Bitcoin and Ethereum is that Bitcoiners consider Bitcoin to be 80% complete, but Ethereans consider Ethereum to be 40% complete… I'd say Ethereum would be 55% complete after The Merge, so we're getting close and are in the second half of this big, long vision." Full speech is on YouTube. That would be enough, argues Vivek Raman, a researcher, to give Ethereum a chance to take over Bitcoin as the most prominent cryptocurrency.
How good are audits of smart contracts? An attacker made off with more than $1 million worth of AUDIO tokens after launching a governance attack on the Audius web3 music platform. The attack exploited a vulnerability in the 'contract initialisation code' that allowed the attacker to modify dynamics of Audius' voting system. CertiK broke the news on Twitter, news which was later confirmed on Audius' blog, which said its contracts had been audited by OpenZeppelin, whose ‘proxy upgradability pattern’ was used; a further audit had been conducted by Swiss-based Kudelski Security.
Beyond DeFi, there's DeSci: ‘Pharma Bro’ and securities fraudster Martin Shkreli has resurfaced. He has launched Druglike, a “web3 drug discovery platform”, designed “to democratise the costs, access, and rewards of computational drug discovery.” He goes into more detail in an interview with The Milk Road’s YouTube channel. (He characterises what he's doing as decentralised science, or DeSci. Some more on DeSci here: DeSci Foundation, A Guide to DeSci, the Latest Web3 Movement, DeSciWorld, LabDAO, Molecule Protocol, and VitaDAO.
And then there's DePub: There's a growing movement to get publishers to move into Web3 via DAOs, according to Kayleigh Barber of Digiday (check out her series on publishing and DeFi, of which the above piece is part.) The goal: to decentralise media by putting more power in the hands of folks who are paying for content. Her conclusion: “the industry isn't there yet.” Not exactly DePub, but Brave is a good example of how journalists can be rewarded in a crypto way. And Jeremy looked at blockchain and journalism back in 2018 when he asked: The Blockchain and Journalism: Saviour or Snake Oil?
[Spokes in the Hubs]
Only a month or so ago cities and jurisdictions were elbowing each other to try to get primacy as the world’s best crypto hub. That’s not completely over, but things are a little more muted, especially for the likes of Singapore, where several of the collapsed companies had at least a pied-à-terre. So where are we now?
Metaverse hubs: Middle East crypto hub Dubai is focusing its hopes on becoming a top “metaverse economy”. Japan, while not presenting itself as a hub, is also interested in the metaverse, as the University of Tokyo plans to offer courses in (and about) the metaverse — the idea being to address a lack of skilled personnel working on ‘digital transformation’ and ‘advanced technologies’. Japan has been quite welcoming to the metaverse, seeing it, for example, as an opportunity to absorb and re-integrate recluses, or hikikomori, into society, Brian Quarmby of Cointelegraph wrote. And Indonesia’s WIR raised $29 million when it was listed on the Indonesia Stock Exchange for its own planned metaverse.
But there’s also caution. Taiwan has become the dog that didn’t bark. After China’s crackdown on crypto, Taiwan looked set to emerge as the region’s new crypto hub, according to Sandali Handagama of CoinDesk. Instead, it seems to be going the other way, looking to ban crypto purchases using credit cards.
Singapore's central bank will release crypto regulations next month, after giving off mixed signals, raising questions about whether it was losing its appeal as a global crypto hub. Some clues about direction and the regulations were found at this week's Singapore Blockchain Week Summit, where Singapore's chief fintech officer, Sopnendu Mohanty, emphasised the importance of real utility, market stability and integrity.
Thailand has not been a big contender for crypto hub but it has been seen as at least a serious player in crypto, but that reputation, too, feels a bit wobbly. Its SEC is probing potential losses for users of crypto platform Zipmex, which temporarily suspended withdrawals last week. Thai lender SCB X earlier said it was extending the due diligence period for its $537 million acquisition of Thai crypto exchange, Bitkub, Reuters’ Chayut Setboonsarng wrote.
[Tidbits]
Coinbase's decision to expand the number of coins listed on its service, adding more than 100 new tokens over a year, may in hindsight have been reckless, contributing to the arrest of one employee for insider trading, an alleged scam that was spotted not by Coinbase but a crypto influencer. Coinbase faces an SEC investigation over where it improperly let Americans trade digital assets which should have been registered as securities.
Land Life, a company using technology (including blockchain) to reforest landscapes, has admitted responsibility for causing a wildfire in Spain. A spark from an excavator used by one its contractors escaped, triggering a fire that led to the evacuation of 1,700 people.
[Reading]
Crypto populism looks at similarities between the ‘crypto movement’ and populism (defined here as 'the sum of all things that are considered populist these days’. The writer, Sam Gilbert of the Bennett Institute for Public Policy finds a lot in common between the two, and asks the question (which we've asked here too): can crypto absorb the inevitable regulation to come while accommodating its “libertarian and bottom-up instincts”?
Talking of which, Why Do Tories Love Crypto? by Peter Howson explores the connection between DeFi and the UK's Conservative Party, tracing it back to the surprisingly prophetic The Sovereign Individual, written by Jacob Rees-Mogg's dad. (And Barclays has said it's buying a stake in Copper, a company providing custody, broking and settlement services to institutional investors in crypto assets, and which happens to count former UK chancellor Philip Hammond among its advisors.)
CoinGecko’s most recent quarterly report (PDF) is well worth a read.
[DeFi Definitions]
An occasional segment exploring one particular aspect of DeFi.
This week: “Trustless” by Ruby Wu.
Trust is an important concept in transactions and economic interactions. Introduced via Bitcoin in 2010, it has become the foundation of cryptocurrency. A trustless system means no single entity has authority over the system and participants do not need to rely on each other or a third party for the system to function.
This property can be seen in peer-to-peer networks whereby transactional data is stored on a public blockchain, rather than with an institution or other third party entity. By contrast, a centralised system that is not trustless would place the power to a central point in the system, i.e. an institution who are empowered to make decisions with the information they hold from its participants. Trustless systems minimize but do not eliminate trust; it distributes trust among network participants.
More reading:
What do we mean by “blockchains are trustless”?
Trust is still a must in the trustless world of cryptocurrency
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