Digital Assets

Crypto’s under attack

Stan

Wow, I haven’t seen Crypto attacked this hard in a while. The SEC decides to finally wake up (after ignoring FTX and CeFi for so long). They’re throwing lawsuits left and right. And even Charlie Munger’s taking shots again.
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And you know what? Crypto’s going up 🚀!

Here’s what we got today:

  • SEC is targeting crypto. The SEC sues Kraken and Paxos.
  • Maker introduces an Aave Rival. Spark protocol’s here to level up DAI.
  • Around the Web. Restructuring at Magic Eden, Optimism’s next airdrop, and more.​

Reading time: 8 minutes

Here’s your Edge ⚔️!

📉 THE MARKETS

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Sources: Coingecko, DeFiLlama, Fear & Greed Index​

“Difficulty is what wakes up the genius” – Nassim Nicholas Taleb

The SEC Shoots: Kraken & Paxos Under Attack

The SEC Shots: Kraken & Paxos Under Attack

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After turning a blind eye to FTX for years, Gary and the SEC finally started taking action. Their targets? Two central sectors of DeFi.​

1. Staking-as-a-service

Kraken is the 3rd-largest Ethereum staker.​

They provided a centralized staking service for customers. The SEC went after them, claiming it was a security.

According to SEC: Kraken offered outsized returns compared to the economic reality. At the same time, Kraken retained the right to pay no returns at all. They also didn’t provide any insight into the financial condition of the service.

​But Kraken is a good actor with a decade-long reputation. They are actually solvent (Pretty important in crypto). They invented Merkle Root data to create a verifiable proof of reserves.​

In the end, Kraken bent the knee. They agreed to pay a $30 million fine and to stop the staking service for U.S. customers.

​Kraken controls 7.39% of all staked Ether. They are forced to sell these after the unlock. It’ll have wide-ranging consequences.

  • $ETH tanked after the news, while decentralized LSD providers mooned.
  • This event illustrated the opportunity for decentralized staking options such as Rocketpool. While staking on a centralized service is convenient, it comes with regulatory risks.​

SEC may go after other centralized staking providers. If they do, Coinbase said they’ll fight the SEC in court. Brian’s not afraid of the smoke, and they have the $ to fight back.​

Here’s the next outrageous action taken by the SEC.​

2. Next Target: Stablecoins

BUSD is the 3rd largest stablecoin by market cap ($16B). The SEC claims BUSD is unregistered security, and they’re suing Paxos (BUSD issuer).​

The Howey test determines if something’s security:
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​“investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
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​If you hold $1,000 of Stablecoins, are you expecting any profits? No, its job is to hold its value.

​However, this doesn’t automatically mean that BUSD can’t be security – this will be solved through a long legal battle.

​Paxos, not Binance

​BUSD is NOT issued or redeemed by Binance. It is issued and managed by Paxos Trust. Think of it like a licensing deal.

​The New York Department of Financial Services (NYDFS) has ordered them to stop minting BUSD. And they’re complying. They will also stop their relationship with Binance over BUSD as well.

​This lawsuit has direct implications for the CeFi:

  • Binance will move away from using BUSD as the main pair for trading.
  • Binance will explore other issuers for a stablecoin. They are considering non-USD stablecoins as well.
  • If BUSD is ruled as security by courts, it will profoundly impact how crypto develops.
    ​

Crypto's under attack

You can see how people are moving away from BUSD. The big winner in this is USDT, as people see it as a safer haven compared to USDC and BUSD.

​These regulatory scares won’t stop crypto – they will only force us to innovate and build better solutions that cannot be censored.

​Possible 2nd order effects:

  • Crypto Companies are moving away from the U.S. and towards Crypto friendly places such as Hong Kong and Dubai.
  • Decentralized Stablecoins increase in usage: CrvUSD and Aave’s GHO can’t come fast enough.
  • The rise of Non US Stablecoins. Most stablecoins are pegged to the USD. Could we see the rise of stablecoins pegged to the Singaporean Dollar or Swiss Franc instead?

​Anyways, Gary’s facing a lot of heat for sleeping at the wheel over FTX and last year’s CeFi’s disaster. So these attacks could be him trying to overcompensate/show that he’s being hard on Crypto.
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He’s driving Crypto innovation away from the U.S.

Spark Lend: Maker’s New Lending Protocol

Crypto's under attack

Spark Protocol will be the growth-focused arm of MakerDao.
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As you know, MakerDao is behind the largest decentralized stablecoin ($DAI). They’re trying to grow DAI and to do that. They’re creating a suite of products.

​Spark Lend will be the first product from Spark Protocol.

​What is it? It’s going to be MakerDao’s lending market protocol. Doesn’t that sound similar to Aave? Well, yea. They’re going to fork Aave V3 to create this.
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​What makes it different? A credit line from Maker will be called D3M (Dai Direct Deposit Module). Spark won’t need liquidity providers for lending $DAI. This is going to save them some serious cash compared to other protocols.

They also have an exciting roadmap.

  • Provide capital-efficient fixed-rate loans.
  • Provide a market for Maker’s LSD, EtherDAI (Planned).
  • Bootstrap DeFi Yield Curve using Maker’s liquidity, Spark Lend’s leverage, and Advanced fixed rate protocols.

​Spark Protocol also marks a change in Maker’s business strategy.

Until now, Maker had a passive approach. They tried to integrate $DAI into other DeFi protocols. However, things didn’t work out as they expected. Instead, other DeFi protocols came for Maker’s lunch. Aave and Curve announced their own stablecoins.

Everyone is trying to make their own vertically-integrated DeFi ecosystems.

Maker has now entered the game of creating their own DeFi ecosystem.

📊 GMX flips Ethereum in fees

GMX 1 day fees

​Source: CryptoFees.info​

The above table shows the fees generated by different protocols. It shows both one day fees as well as the 7-day average fees.

On 10th February 2023, GMX flipped Ethereum in 1-day fees.

What is GMX? GMX is a decentralized spot and perpetual exchange. We have talked about them several times. They were the flag-bearers for the “real-yield narrative”. They have exceeded their expectations in flipping Ethereum in the fees.

What happened? Despite how wonderful GMX is, this flipping is an anomaly. Andrew Kang was forced to pay over $4 million to close his positions. He borrowed a ton of money at huge leverage for over a month. It resulted in huge fees.

🌍 What’s Happening?

📰 Industry News

Blur airdropped $BLUR worth around $400 million to its users. Blur is the largest NFT market on Ethereum by trading volume.​

Sam Bankman-Fried’s bond-signers are revealed. Apart from his parents, Andreas Paepcke and Larry Kramer signed the bond. Both are associated with Stanford.

Polygon will launch its zkEVM mainnet on 27th March. This will be the first ever zkEVM mainnet. They might accrue a first-mover advantage in this area.

​Genesis, which filed for bankruptcy last month, released its sale plan. The sale is expected to help its parent company, DCG, pay off some of its creditors.

​Magic Eden, the leading NFT market in Solana, undergoes a restructuring. Twenty-two people were laid off. Interestingly, they had raised around $130 million six months ago.

Binance has incorporated zk-SNARKs into its proof-of-reserves system. This will help demonstrate that funds are backed up 1:1 while protecting sensitive user data.​

The SEC proposed a new rule that would effectively require Registered Investment Advisors (RIA) to store digital assets outside the crypto industry.

🍿 DeFi Bites

Quix, the largest NFT market on Optimism, made its codebase open-source. This is in line with the spirit of crypto.​

Aave introduced the proposal to freeze BUSD on Aave V2. This is in reaction to Paxos’ decision to stop minting BUSD.

​Sovereign Labs announced an SDK for building zk-rollups that can settle on any blockchain. This will make launching a zk-rollup as easy as launching a dApp.

​Optimism announced the O.P. Airdrop #2. It will be distributed directly to people who have either delegated the voting power of their O.P. tokens or spent more than $6.10 on Optimism’s Gas.

​Revert Finance introduced atomic swaps into Uniswap V3 positions. Using Revert Finance, you can add liquidity to a position using any amount of underlying assets or arbitrary third-party tokens.

​Sushi is launching Sushi Studios. It is a decentralized brand licensing & incubator framework. It’ll promote products in the ecosystem that are outside the scope of the DAO Treasury.

​Redacted Cartel proposes a Hidden Hand market for Timeless Finance’s “Bunny” product. It’ll enable projects to incentivize Uniswap V3 liquidity via Bunny.

Pendulum is now producing blocks on Polkadot! Pendulum mainnet has launched successfully, and the $PEN listing is around the corner. Click here to learn more.​
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​* Thanks to Pendulum for sponsoring this message.

🧠 Twitter Alpha​

Your boy dropped a banger.

😂 Meme

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