#49 The Context: Binance’s turn in the spotlight
CZ warns of bumps ahead, but for now ‘stabilized’.
Hi. This week: Sam Bankman-Fried is now away from the spotlight in a Bahamian cell. Now it’s the turn of Changpeng Zhao’s Binance, with journalists asking: Is Binance The Next FTX? Binance is upset, among other things, with a Reuters story that it claimed was “attacking our incredible law enforcement team.” But the more interesting stuff lies ahead: what should we be keeping an eye on next year to see what emerges from all this upheaval. Some surprises in there, I promise.
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. 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).
The team: founder Samantha Yap and Jeremy Wagstaff, formerly of the journalism parish, with Sam O’Donohoe, Becky Corbel, Delon Chan, Ewan Brewster and Tiffany Mac Sherry. Your feedback is as always welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
[tl;dr]
Binance tries to steady the ship after withdrawals, reports of U.S. prosecutors circling
FTX and SBF continue to draw sharp intakes of breath as journalists and prosecutors comb through the digital trail of software code
Things to watch: Ethereum is prioritising the withdrawal of staked ETH, and some surprising players leveraging DeFi to solve ‘real person’ problems.
[Binance ]
As last man standing among the big centralised exchanges, Binance is coming under increasing scrutiny. Some flags:
Reuters reported on Tuesday, Dec 13, that Binance withdrawals had hit $1.9 bln in 24 hours although the following day, things had stabilised, according to CEO Changpeng Zhao.
Binance has been the focus of an investigation by the U.S. government since 2018, over compliance with anti-money laundering laws and sanctions, but the Justice Department is split over charging -- including whether to charge the company and/or its founder and even dropping the case entirely.
Binance’s Australia arm has had to pay a $2 million penalty for breaching spam regulations.
Look out for Binance and others doing their best to calm users; so far, offering proof of reserves has left lingering questions about assets. And it doesn't help that those reserves keep falling.
Stories by Mark Maurer of The Wall Street Journal,Rae Wee and Elizabeth Howcroft of Reuters, Josh O'Sullivan of CryptoSlate.
And of course, FTX continues to fill column inches. This show will run so long that everyone on the planet will know what SBF stands for.
Sam Bankman-Fried is now in custody in the Bahamas. For U.S. prosecutors his efforts to deflect blame don't cut the mustard.
As journalists and investigators sift through code for evidence: Bloomberg reported that FTX Executives used a ‘Korea’ account to mask Alameda Research's ballooning liabilities
And in the really-wanting-to-see-the-upside department, turns out that factors other than FTX’s collapse caused the greatest losses for investors. Unfortunately, those other factors were Terra de-pegging and the collapse of Celsius and 3AC, which now seem like a distant dream.
Stories by Jared Higgs, Angus Berwick and Brian Ellsworth of Reuters, Gillian Tan of Bloomberg, Justin Baer of WSJ
There are also awkward questions hanging over the DeFi media landscape as links between them and the companies they’re covering come to light.
Some are known: CoinDesk is owned by Digital Currency Group, which in turn owned Genesis Global Capital, which has frozen withdrawals, raising serious questions about the future of the media company. CoinDesk broke the story about FTX’s problems that led to its collapse.
Some are only recently known: news last week that SBF secretly funded crypto news site The Block and its CEO's Bahamas apartment has proved embarrassing for the news site. Its editor Frank Chaparro took to Twitter to say he was “gutted” after finding out, and he felt "utter disgust and betrayal by [his] actions, greed, lack of disclosure. He's literal scum. He kept every single one of us in the dark."
[Things to watch]
It’s worth remembering that for a lot of DeFi builders and supporters, the implosion of key centralised exchanges of the past few months and the massive outflow of funds represents a validation of their belief that they are by definition not DeFi, and not viable. This existential battle between self-custody and custodianship works both ways: The CEO of Binance, Changpeng Zhao, argued in a Twitter Space discussion that ‘99% of people' would lose their crypto if they stored it themselves. This back-and-forth opens up space for those in and outside DeFi to improve the way that it connects to the outside world, making crypto investing easier and, well, safer.
Wait for Shanghai: Ethereum, the most viable part of DeFi, plans to roll out an upgrade (the ‘Shanghai Upgrade’) in March which will allow anyone who has committed (‘staked’) their ETH token to a smart contract will be able to withdraw (‘unstake’) their funds. Staking allows users to contribute to validating transactions on the Ethereum blockchain, drawing revenue in return. The catch is that, for now, users cannot get that staked ETH back, until a new version of Ethereum is released. The decentralised body that runs Ethereum has decided to focus on including staked withdrawals in the next upgrade, due in March. This, it’s hoped, would make ETH staking more attractive to financial institutions. (Story by Samuel Haig of The Defiant. Other background sources are below)
Sources:
Ethereum Devs Still Want Staking Withdrawals by ‘March-ish’ - Blockworks
Everything you need to know about Ethereum (ETH) staking at Bitstamp – Bitstamp
Ethereum Foundation Eliminates the Estimated Withdrawal Timeframe for Staked ETH
When will Ethereum stakers be able to withdraw their funds? What we know so far - Fortune
Ethereum 2.0 staking: A beginner's guide on how to stake ETH - Cointelegraph
[Ethereum Stakers Left Confused; When Can They Withdraw ETH? - BeInCrypto](https://beincrypto.com/nobody-knows-when-ethereum-stakers-will-be-able-to-withdraw-their-eth/#:~:text=Those who currently stake will,media includes potentially sensitive content.)
Look out for onramps: The choice of onramps to DeFi — bypassing centralised exchanges — is still growing. PayPal has just been integrated with the MetaMask web3 wallet, allowing users in the U.S. to buy Ether, a couple of weeks after payments giant Stripe allowed companies to let their customers exchange dollars for crypto. (Stories by Articles by Marco Quiroz-Gutierrez of Fortune)
Look for an abundance of caution: At the same time, some companies are ring-fencing their operations to reduce their exposure to the world of web3 — in Microsoft’s case, banning crypto mining on its online services without prior written approval. It justified the move by saying mining “can often be linked to cyber fraud and abuse attacks.” (Story by Simon Sharwood of The Register)
Look out for real-world usage: Whether crypto makes it depends on what real-world problems it actually solves. Like this one: the United Nations’ refugee agency, UNHCR, will send displaced Ukrainians the USDC stablecoin to convert into local currencies, saving them the risk of carrying cash. For now, it's a pilot in Kyiv and two other cities. The UNHCR has been accepting stablecoin donations since April via Binance's charity arm; the cash payments initiative is with Stellar. The UNHCR has since 2016 operated on the principle that the best way to help refugees is via cash “as it gives them the freedom and dignity to themselves decide how to prioritize the assistance given, based on their personal need.” In edition #11, we wrote about a Ukrainian refugee who carried their savings out of the country as Bitcoin. Another innovative UN agency, UNICEF, is working with Gitcoin (a former YAP Global client) to offer grants to web3 projects to help develop open-source, digital public goods. (Story by Marco Quiroz-Gutierrez of Fortune)
[Reading]
And if you’re wondering who is behind Dirty Bubble Media, wonder no more. Meet The Doctor Who Helped Take Down FTX in His Spare Time (Story by Charlie Warzel of The Atlantic
[Events]
World Crypto Conference | January 13th - 15th 2022 | Zurich, Switzerland
[DeFi Definitions]
An occasional segment exploring one particular aspect of DeFi.
This Week: “Oracles” by Ewan Brewster
Oracles provide blockchains with off-chain data and information from decentralised sources. Before we dive into oracles, it’s important to understand the limitations of blockchains.
As public ledgers, blockchains are good at knowing what happens ON the blockchain, for example, if X has received a transaction from Y. However, blockchains are not good at knowing what happens OFF the blockchain, for example, who is in the 2022 World Cup Final. This is where oracles come in. Oracles are what bridge blockchains with the real world. They are third parties that provide smart contracts with the off-chain data they need to execute their predetermined conditions.
Oracles have many use cases but what is perhaps the most interesting is in insurance. For example, we could programme into a smart contract that if someone is involved in a collision that isn’t their fault, they will immediately receive a payout. However, a blockchain couldn’t possibly know that the collision took place on its own, it needs an oracle to feed it this information. Other use cases of oracles include stock pricing and even disproving fake news.
The largest oracle is Chainlink but others exist such as UMA’s Optimistic Oracle (former client). Oracles operate slightly differently, but they rely on decentralised sources to avoid the issues with reliability that can arise from relying on one centralised source.