When the SEC sued centralized exchanges Binance and Coinbase earlier this month, crypto optimists opined that this could open the door for more decentralized crypto firms. Which could be true. But, as we’re seeing this week, it’s equally likely that traditional firms accustomed to the current regulatory regime can take this opportunity to seize a bigger role for themselves in the crypto space.
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).
[tl;dr]
Blackrock files for ETF 🪨
Charles Schwab-backed EDX exchange goes live 🚀
Binance under pressure in France, out of Netherlands 🗜️
[BlackRock files for ETF 🪨]
Last Thursday, BlackRock’s exchange-traded fund unit, iShares, filed an application with the US Securities and Exchange Commission to begin trading a spot Bitcoin spot ETF.
What BlackRock Said 🪨: According to the filing, the iShares Bitcoin Trust would give people "a simple means of making an investment similar to an investment in bitcoin rather than by acquiring, holding and trading bitcoin directly on a peer-to-peer or other basis or via a digital asset exchange."
What Journalists Said: Don’t expect a decision anytime soon, warned CNBC’s Jesse Pound. “ETFs typically take months to launch after an initial filing, if they ever begin trading.”
We’re still waiting for the SEC to say yes to a crypto spot ETF, wrote Decrypt’s Mat Di Salvo. “For 10 years, crypto startup after crypto startup has tried its luck,” 🍀 only to be rejected or put off. 📴 But BlackRock is no startup. It’s “Wall Street’s heaviest hitter” with nearly $10 trillion in assets under management. 🎯
As CoinDesk’s Helene Braun noted, there will be a small caveat if iShares’s application succeeds: The proposed product is technically a trust, not an ETF. But since it has a redemption mechanism that lets people to get out of the investment when they want, it functions like an ETF. 🔧 By contrast, “a trust will thus occasionally trade higher or lower than the value of its underlying assets.” That’s an issue facing Grayscale Bitcoin Trust, which is trading at about a 40% discount.
The floodgates are open. 🔓 Bitwise, Invesco and Wisdomtree all submitted or re-submitted Bitcoin spot ETF applications after BlackRock’s filing, reported Shalini Nagarajan of Blockworks.
Why It Matters: BlackRock is one of the world's largest asset management firms. Its entry into the Bitcoin ETF market would be a strong endorsement of Bitcoin as an asset class and likely increase exposure to BTC.
[EDX Exchange Opens 📈]
Traditional financial institutions are sliding into crypto’s DMs. 👁️🗨️ On Tuesday, EDX Markets — backed by Charles Schwab, Fidelity, and Citadel — said it had begun executing trades on its noncustodial exchange.
What EDX Said: “We are committed to bringing the best of traditional finance to cryptocurrency markets,” CEO Jamil Nazarali said in a press release.
What Journalists Said: EDX’s key differentiator from other crypto exchanges (apart from its big-name backers) is that it doesn’t take custody of its customers’ crypto. “Instead, EDX runs a marketplace where firms agree to execute trades of coins and dollars, 🪙💲 using its platform to agree on prices,” wrote WSJ’s Alexander Osipovich. “Then the firms move crypto and cash between each other to settle the trades.” 🔁
This is more like “trading stocks on the New York Stock Exchange” said Fortune’s Marco Quiroz-Gutierrez, with EDX splitting up the “broker, the dealer, and the exchange functions of trading” — which the SEC has faulted Coinbase for combining.
It’s all about appealing to Wall Street banks that want a taste of crypto trading, suggested Decrypt’s André Beganski. “As countless B2B startups have discovered, it pays to be a trusted vendor to big firms.”
Why It Matters: A theme is emerging. With the SEC targeting Coinbase and Binance, Wall Street firms see an opening to turn a profit — and are able to put out products similar to what regulators are used to. 📈
[Europe Turns on Binance 🌍]
The SEC pressed charges against Binance earlier this month. Now, the company is facing fresh scrutiny in Europe. France is looking into money laundering allegations, 🇫🇷 while the exchange pulled out of the Netherlands after being rejected for a virtual asset service provider license over concerns about its anti-money laundering provisions. 🇳🇱
What Binance Said: “Binance is already compliant with EU standards on the prevention of money laundering and financing of terrorism as evidenced by its registrations in other EU countries,” 🇪🇺 it said about the closure in the Netherlands, adding that it would keep trying to find a way to work with Dutch regulators. As for France, the exchange would “not comment on the specifics of law enforcement or regulatory investigations” but noted that it works “closely with regulators and law enforcement agencies on all ongoing compliance requirements.”
What Journalists Said: This is the “latest in a series of setbacks for the world's largest crypto exchange,” said Reuters. 🔙
Mere days before a visit by French police, 👮 Binance France President David Prinçay “dismissed concerns about U.S. regulatory charges affecting Binance's other operations,” reported CNBC’s MacKenzie Sigalos and Rohan Goswami.
But some of the basic accusations look similar. 👬 CoinDesk’s Sandali Handagama and Jack Schickler translated Le Monde’s reporting: “The French unit is suspected of having canvassed French customers through its local arm outside the legal framework until 2022.”
Why It Matters: It’s been a tough couple of weeks for Binance. With Europe’s new MiCA regulations going into effect, more crypto companies are expected to enter the market. Binance doesn’t want to lose ground.
[Tweet of the Week]
[Can We Have Universal Money? 🌐]
On this week’s YAP Cast: The Story of Money Season 3, Samantha Yap sits down with Anna Stone, Co-Founder of GoodDollar to discuss crypto’s role in rolling out financial accessibility. Anna is an expert in the field of technology and social welfare, with a focus on building a stronger intersection between the two; her priority is to develop a sustainable and effective model for a crypto-based Universal Basic Income. In this episode, we will explore the crucial role blockchain plays in democratising financial accessibility. Listen to the first episode of YAP Cast: The Story of Money here.
[Tidbits]
Terra-torial Dispute: “A court in Montenegro Monday convicted disgraced ‘crypto king’ Do Kwon for using forged Costa Rican passports in March to try and leave the Balkan nation on a private jet.” Story by DLNews (Ana Ćurić)
Validators, mount up: “A bump in waiting times and the sheer amount of interest in spinning up Ethereum validator nodes is making developers consider increasing the current limits drastically.” 🚏 Story by CoinDesk (Shaurya Malwa)
Lords of Crypto: “U.K. parliamentarians have voted through a new bill that could recognize crypto as a regulated activity in the country.” 🇬🇧 Story by CoinDesk (Camomile Shumba)
Wyre-less: “Cryptocurrency infrastructure provider Wyre is winding down, feeling the pinch of dwindling interest in a market that was once hailed as the next frontier of finance.” Story by Reuters
[Events]
Non Fungible Tokyo | 22nd June 2023 | Tokyo, Japan
ETHGlobal Waterloo | 23rd - 25th June 2023 | Waterloo, Canada
Solana Hacker House | 25th - 29th June 2023 | Tel Aviv, Isreal
IVS Crypto 2023 Kyoto | 28th - 30th June 2023 | Kyoto, Japan
Blockchance 2023 | 28th - 30th June 2023 | Hamburg, Germany
[DeFi Definitions]
A segment exploring one particular aspect of DeFi.
This week: ‘CeDeFi’ by Damian Alvarez.
CeDeFi stands for Centralized Decentralized Finance. CeDeFi represents a hybrid of centralized and decentralized financial systems, with its primary aim being to combine the best features of both worlds. Specifically, CeDeFi offers the traditional regulatory safeguards of centralized finance (CeFi), while also providing the innovative financial products and infrastructure seen in decentralized finance (DeFi). An example of CeDeFi we can observe today is MakerDAO.
MakerDAO operates as a lending platform that powers a decentralized stablecoin, DAI, which is pegged to the U.S. dollar. Users can take out loans in DAI using other cryptocurrencies as collateral, adopting a system of over-collateralization to protect against crashes in the value of the backing cryptocurrencies. This process mirrors traditional lending mechanisms, offering a sense of centralized financial stability within a decentralized framework.
Borrowing DAI allows investors to access a U.S. dollar stablecoin without selling their ETH, which can be beneficial given that many yield farms and lending platforms offer higher returns for U.S. dollar stablecoins. In addition, the Dai Savings Rate (DSR) provides returns to those who lock up DAI in the DSR's smart contract, allowing Maker's governance module to influence DAI demand, mirroring the role of a centralized bank.
This crucially demonstrates the ethos of traditional finance being upheld parallel to the technological infrastructure decentralized finance can offer.
The team: founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.