#35 The Context: Is it time for crypto to clean house?

Confusion over Binance move against USDC highlights broader angst about crypto

Sep 08, 2022

Hi there. This week we take a (longish) look at the FTC's recent pronouncements on online scams, and (for once) push back a bit on whether the spin they put on it was fair. You decide and let us know.~

We’ve also added a section on upcoming crypto-related events. Drop us a line if you want something included there. We’re also continuing our definitions feature, this time **Lauren Bukoskey looking at tokenomics.

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 (WSJ, BBC, Reuters). Thanks to Ruby Wu, Sam O’Donohoe, Becky Corbel, Joey Woo and Roslyn Tear for contributions. Feedback is as always welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.

[tl;dr]

Confusion over Binance move against USDC highlights broader angst about crypto
NFTs fall out of fashion, but they live on without the name
Blockchains are making headway outside DeFi

[Is it time for crypto to clean house?]

It’s relatively quiet this week, but that doesn’t mean things aren’t happening. It’s just it’s not necessarily clear what their significance is. We could lump these together as ‘challenges to the system’, since the central argument of the past few months is that, essentially, DeFi did work, it was other systems, like centralised finance, or CeFi, that didn't. While that may be true, it's clear that there are lots of areas where DeFi needs to clean house. Here are some:

The crypto exchange Binance, which issues the third larges stablecoin BUSD, has said it would stop supporting its larger rival USD Coin, or USDC. What's more, it plans to convert other stablecoins into their own BUSD stablecoin, though not the largest, Tether, or USDT. While it's presented as a benefit to users by boosting liquidity, not everyone is so sure, with some alleging monopolistic practices. Uncertainty over the move's implications reflect crypto's broader angst. (Stories by Jamie Crawley of CoinDesk and Stacy-Marie Ishmael and Joanna Ossinger of Bloomberg)
Indeed, MakerDAO, for example, is getting "existential, according to Bloomberg. MakerDAO is the decentralised autonomous organisation behind the DAI, the 4th most traded stablecoin, and is pondering a radical proposal to avoid being sanctioned like Tornado Cash. Others aren't sure it would work, pointing out that governments have other tools at their disposal to shut down a protocol, exchange, token etc. (Stories by Emily Nicolle of Bloomberg and JP Koning)
It at least makes sense for communities within DeFi to think about all eventualities, even if they appear unlikely. But there are more basic issues to be addressed, and this ongoing winter would be a great time to take more seriously what may go wrong before it, well, goes wrong. Decentralised options exchange OptiFi, for example, locked up $661,000 of USDC assets in a “code snafu.” Unfortunately the funds are not recoverable. The Register points out that the core team behind OptiFi is anonymous. (Story: Thomas Claburn of The Register)
The OptiFi team’s advice to others was: “PLEASE DON’T RUSH LIKE WHAT WE DID, ESPECIALLY FOR DEFI PROJECTS." That is good advice, but not always followed in crypto culture. An attacker for example exploited a bug in ShadowFi on its launch day, emptying a $300,000 liquidity pool.
And even those whose beat is to watch over things don't always watch over themselves. Crypto scam watchdog group RugPullFinder, aiming as its name suggests to combat fraud over NFTs, launched its own NFT project, which was promptly exploited, allowing two users to snap up 450 NFTs each, rather than the one they were entitled to. Turned out someone had warned Rug Pull Finder about the flaw, but the group chose to disbelieve them. (Story by independent journalist Molly White)
And then there's addressing a more fundamental point: how to make crypto as clear, transparent and user-friendly as possible, so even seasoned financial players don't have to ponder the nagging feeling of getting scammed when crypto trading goes wrong. (Story by financial tech thinker Chris Skinner)

[NFTs? What are they good for? It depends who you ask]

NFTs are sometimes wheeled out as the poster-child of DeFi’s craziness. But that might be because we’re thinking about it wrong.

It’s certainly the case that the heady gold-rush is over. OpenSea is now a NFT ghost-town after daily volume plunged 99% from its peak. And some of the frothier promises are being walked back. Snap, for example, has said it would 'sunset' its web3 team as part of a wider company restructuring. This less than a month after it was exploring plans to let users showcase their NFTs as filters. That looks like it's not going to happen. (Stories: Yashu Gola of Cointelegraph; Kristin Majcher of The Block; Hannah Murphy of the Financial Times)
Samsung and LG are building NFT marketplaces into their TVs, although whether this is smart thinking or merely the product of some projects cooked up months or years ago, is hard to tell. Samsung is using its NFTs to give users discounts for buying Samsung devices. (Stories by Cameron Thompson of CoinDesk and Wahid Pessarlay of CoinGeek)
Others are putting a bit of daylight between themselves and negative perceptions about NFTs by not calling them NFTs. Global football body FIFA has said it would launch “blockchain collectibles” of video moments of both the men's and women's World Cups. While Algorand is its official partner, no mention of NFT is made in their announcement.
The same is true of Meta, which is giving people the ability to post "digital collectibles" they own across Facebook and Instagram. according to The Verge. (Reddit was one of the first to drop the NFT moniker, offering “blockchain-backed collectible avatars" in early July. (Story by Mitchell Clark and Richard Lawler of The Verge)
This may be a wise move. Apparently Islamic State, or ISIS, are [using NFTs] to help push their message. The Blind Spot's Izabella Kaminska has an interesting take on this, arguing that this is a much better way to think of NFTs (not the Islamic State part, but in using them to propagate a message -- what we would call a meme in crypto’s argot). Here she opines: “I have always said the NFT market is better thought of as an attention/advertising market that resembles a patronage system for ideological goals. You can read my original thoughts about this here. What this broadly means is that the value of an NFT is not in its status as a collectible. It’s in its capacity to seed a meme, style or message that encourages many duplicates to propagate through the system.” (Stories by Ian Talley of The Wall Street Journal and Izabella Kaminska of The Blind Spot)

[Is there blockchain life beyond DeFi?]

We talked last week about two concurrent trends in crypto: consolidation within the industry and the signs of a splintering in global regulatory approaches and priorities. Within this there are a couple of sub-trends worth noting:

Consolidation is also clearly visible in the “blockchain finance industry”, not really part of DeFi but a kissing cousin under the hood: The trade finance blockchain Contour has acquired assets from we.trade, a rival that entered insolvency earlier this year despite being backed by a dozen banks. The industry hopes to leverage blockchain to replace much of the manual, paper-driven process of shipping, and at the same time remove the “trusted intermediary” role of banks. Consolidation in this space may accelerate broader adoption. China players are a key component of the space, with HSBC just announcing its involvement in the launch of the China-backed blockchain BSN Spartan Network.
At the country level, regulators are dipping their toes in the water of central bank digital currencies, usually as part of a broader digital strategy. What’s new is that the names are not those of the usual suspects: India is pressing ahead with its CBDC pilot, starting cautiously with four state banks.
Elsewhere country adoption and experimentation is increasingly being led by partnering or hiring outside expertise. Nigeria, for example, has engaged Binance to talk about the possibility of building a crypto-friendly economic zone. (Story by Brayden Lindrea of Cointelegraph)
And Saudi Arabia’s central bank is hiring a former managing director at Accenture to advise it on its virtual assets and CBDC program. (Story by Matthew Martin and Ben Bartenstein of Bloomberg)

[Tidbits]

The Merge is upon us: John Quiggin of The University of Queensland calls it “a huge shake-up that will challenge Bitcoin.” But there’ll be some short-term pain as big players approach it with caution: crypto exchange FTX has said it would halt ETH deposits and withdrawals on Arbitrum, Solana, BSC during the Merge. (Story by Arijit Sarkar of Cointelegraph)
Poolin, one of the largest Bitcoin mining pools, has suspended withdrawals from its wallet service. Poolin users had been complaining about issues withdrawing from their Poolin wallets since at least August, sparking rumours of liquidity problems prior to the announcement. Poolin said in their announcement that they would announce their plans to resume withdrawals within two weeks. (Story by Eliza Gkritsi of CoinDesk)
Vermont’s state regulator all but alleges that Celsius operated as a Ponzi scheme-like structure at times. It’s possibly the most damning assessment of the company so far; some 40 state regulators are now looking into Celsius’ operations and financials. (Story by Nikhilesh De of CoinDesk)

[Reading]

‘How Minecraft’s NFT ban gutted a crypto empire’ explores the rise and fall of Critterz, an in-game economy where Filipino kids and others were earning 100s of dollars. It’s a cautionary tale of the inherent conflict between centrally controlled platforms and decentralised ones. Story by Neirin Gray Desai of Rest of World.

[Events]

ETHWarsaw | September 1st - 4th, 2022 | Warsaw, Poland
Blockchain Rio Festival | September 1st - 4th, 2022 | Rio De Janeiro, Brazil
MCON | September 6th - 9th, 2022 | Denver, Colorado, USA
Meta Week | September 11th - 14th 2022 | Dubai, UAE
Salt | September 12th - 14th 2022 | Manhattan, New York, USA
Berlin Blockchain Week | September 12th - 18th 2022 | Berlin, Germany
Dappcon 2022 | September 12th - 14th 2022 | Berlin, Germany
Digital Asset Summit | September 13th - 14th 2022 | New York City, New York, USA
EthSafari | September 18th - 24th 2022 | Nairobi & Kilifi, Kenya
Messari Mainnet NYC | September 21st - 23rd 2022 | New York City, New York, USA
DeFi Live | September 22st - 23rd 2022 | London, UK

[DeFi Definitions]

An occasional segment exploring one particular aspect of DeFi.

This week: ‘Tokenomics’ by Lauren Bukoskey

With the Merge a week away, the crypto ecosystem can expect the validating systematic shift from proof-of-work to proof-of-stake (PoS) to heavily impact the tokenomics of the entire blockchain.

Tokenomics signifies the health of a token’s economical value. This value explains the supply and demand of a token. A token is a digital asset of a cryptocurrency that is used to represent a specific use on the blockchain. The supply for Bitcoin is finite and set at 21 million, whereas Dogecoin has a supply of a little over 131 billion with no fixed maximum supply.

Tokenomics is based on a few key metrics such as token supply, token utility, token distribution, token burn and incentive mechanism. Token Supply is the maximum amount of a token that can circulate. Token utility is defined as the use cases derived from that token, or in other word’s users’ experiences with the token. Token burn refers to how many tokens have been burned, or taken out of circulation permanently. Incentive mechanism gives users insight on the longevity of this token and can ensure the sustainability.