In this week’s edition of The Context, we try to answer the question: When is a decentralized network not decentralized? Here are the top stories and how they were covered, along with YAP Global’s take:
[Mixin Reports Estimated $200M Loss 😲]
Hong Kong-based Mixin, 🇭🇰 which describes itself as a “decentralized network for transferring digital assets,” reported a $200 million theft after “the database of Mixin Network’s cloud service provider was attacked by hackers.“ 🦹 It suspended deposits and withdrawals and said it had contacted both Google and blockchain security company SlowMist to assist in recovering funds.
What Journalists Said 🧑💻:
Mixin cracked the top 10… of crypto hacks by volume, wrote Elizabeth Howcroft (Reuters). And the $200 million theft ranks as the biggest this year.
How did this happen? Easy, said Sam Reynolds (CoinDesk). Similar to layer-2s like Arbitrum and Base, Mixin Network is “designed to make cross-chain transfers cheaper and more efficient.” But it differed in a key regard: To address scalability, Mixin decided to rely on a centralized database, “creating a single point of failure.”
Mixin delivered three different post-hack messages, reported James Hunt (The Block). Founder Feng Xiaodong said in a livestream that users could expect half of their assets to be secure. The company then posted an on-chain message to the hacker offering a $20 million bug bounty—a significant sum considering it then tweeted that “the losses are not as significant as estimated.” 🗣️
Why It Matters ⁉️:
The shortcut solution for scalability is to use centralized components. But which ones? Layer-2 rollups rely on centralized sequencers, while Mixin centralized its database and LayerZero recently announced it would integrate Google Cloud as a default oracle provider. Developers and users must use hacks and security breaches as data to decide the proper balance between centralized and decentralized components.
[Binance Says ‘Dasvidaniya’ to Russia 🇷🇺]
Binance, the world’s largest crypto exchange, announced it would fully exit Russia by selling to CommEX, explaining that “operating in Russia is not compatible with Binance's compliance strategy.”
What Journalists Said 🧑💻:
The exit isn’t a surprise, wrote Patricia Kowsmann, Caitlin Ostroff, and Angus Berwick (The Wall Street Journal) in a profile of the company that claimed a U.S. Department of Justice investigation contributed to the decision to leave Russia, “once one of its most important markets.”
Since “Binance hasn’t provided much information about its successor in Russia,” this deserves some scrutiny, reported Helen Partz (Cointelegraph). CommEX launched just one day before buying Binance; it is listed on Binance-owned CoinMarketCap, but not on CoinGecko; 🦎 the company websites feature “significant resemblances”; and “a spokesperson for Binance declined to comment on whether the company is aware of CommEx’s founders or executives.”
A Binance bye-bye is a big deal, wrote The Moscow Times. 👋 “Russians have increasingly turned to using crypto exchanges after Western sanctions cut off Russian banks from global payment networks.” 🏦
Why It Matters ⁉️:
Binance’s global footprint shrinks each time it steps away from a country. It’s already withdrawn from many European jurisdictions, and it has gone from controlling 20% of the U.S. market to less than 1% in just five months. It could just be shifting geographic priorities before the rollout of the European Union’s Markets in Crypto Assets regulation next year, but we won’t know for a while whether it’s playing a smart strategy or just struggling.
[Chase UK Bans Crypto Transactions 🚫]
Citing an increase in fraud and scams against its customers, Chase UK announced it will no longer allow customers to use their Chase accounts or debit cards to buy crypto or transfer funds to crypto sites.
What Journalists Said🧑💻:
Chase UK, which is JPMorgan’s UK lender, is joining a recent trend, wrote Tom Metcalf (Bloomberg). 🇬🇧 HSBC and lender Nationwide Building Society already “tightened limits on retail customers’ access to cryptoassets earlier this year.”
Some serious crosscurrents are at play, suggested Sandali Handagama (CoinDesk). “The local financial watchdog – the Financial Conduct Authority (FCA) – recently said it had facilitated discussions between banks and crypto firms because lenders have shown a reluctance to offer services to that industry.” 👀🐕
Chase UK cited a report by London law firm RPC showing an uptick in crypto scams. But, said Wyatte Grantham-Philips (AP News), con artists aren’t going away. RPC staff told the AP that “scams are also becoming increasingly sophisticated, particularly among fraudsters using artificial intelligence to their advantage. And when crypto values begin to increase again, an influx of activity on the market is likely.”
Why It Matters ⁉️:
Chase UK's decision to ban cryptocurrency purchases is significant because outright bans on such transactions are relatively rare among banks. Moreover, while this decision is specific to Chase UK, JPMorgan CEO Jamie Dimon has long been a vocal critic of cryptocurrencies in the past. In 2018, JPMorgan joined Bank of America and Citigroup in banning crypto purchases with its credit cards. 📈
[Tweet of the week]
Credit: @JonRiceCrypto
[TradFi Translations]
A segment exploring one particular aspect of TradFi.
This week: “Commodity” Damian Alvarez.
In traditional economics, a commodity is a basic, interchangeable good or raw material like oil or gold, often traded on exchanges and priced based on supply and demand. In the context of crypto, the term "commodity" emphasizes a digital asset's role as a store of value or its utility within a blockchain network. Bitcoin, for instance, is often called "digital gold," aligning it more with commodities than currencies. The distinction between traditional and crypto commodities lies in their physical vs. digital nature and their different utilities.
From a regulatory perspective, classification, as a commodity implicates specific laws and oversight bodies, like the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) in the U.S. Traditional commodities, have intrinsic value based on physical properties, while the value of crypto commodities often stems from their network utility or speculative value. In essence, a cryptocurrency’s classification as a commodity, security, or currency can impact its regulatory treatment. In summary, "commodity" can refer to both traditional raw materials and certain types of cryptocurrencies, each with their own trading, utility, and regulatory implications. Summed up in one sentence, a commodity is an asset that is physical or digital which acts as a store of a value which can be openly exchanged.
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 consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Andrew Wickerson, Tiffany Mac Sherry, 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.