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Federal Reserve officials said Wednesday they would hold U.S. interest rates at close to zero and work to push inflation above 2% “for some time.”

• Federal Open Market Committee keeps interest rates unchanged close to zero, according to its statement.
• Panel agrees to maintain accommodative monetary policy until inflation climbs above 2% “for some time.”
• The central bank will increase holdings of U.S. Treasury securities and mortgage-backed securities “at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions.”
• Projection materials released with the statement show officials, on average, expect rates to remain close to zero through 2023.
• On average, officials don’t expect 2% inflation until 2023.
• Robert Kaplan, president of the Federal Reserve Bank of Dallas and a voting member of the panel, voted against the plan. He “prefers that the Committee retain greater policy rate flexibility.”
• Neal Kashkari, president of the Federal Reserve Bank of Minneapolis, also cast a dissenting vote. He prefers that interest rates stay on hold “until core inflation has reached 2% on a sustained basis,” according to the statement.
• Economists weren't expecting Fed officials to make any changes to U.S. interest rates – which in March were cut close to zero on an emergency basis – as the devastating economic toll of the coronavirus started to become clear.
• Last month, Fed Chair Jerome Powell said in a speech that officials plan to let inflation rise above 2% and stay there for a while to keep borrowing conditions easy for a longer time and allow the economy to heal.
• “The Fed kind of kicked the door open at their last meeting by indicating a more aggressive approach to inflation,” Mati Greenspan, founder of the cryptocurrency and foreign-exchange firm Quantum Economics, told subscribers in an email on Tuesday, a day before the Fed announcement. “Of course, now that they have everyone’s attention, followup will be critical.”
• Bitcoin’s price was trading at around $11,022.90 at press time, up 2.4% in the past 24 hours. The price moved temporarily to $11,071.33 right after the Fed’s release.
• The S&P 500 Index was up 0.35%.

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Amid the market shocks of March, users quickly transitioned from “the long game of lending and borrowing” on decentralized applications, instead flocking to safe-haven assets such as stablecoins.

Discreet Log Contracts (DLCs), a wide-reaching application of blockchain technology, has seen its first incorporation onto the main Bitcoin blockchain, opening the gateway for Bitcoin users to access this technology without relying on any other chains or third-party applications.

The U.S. Treasury Department has slapped sanctions on a pair of Russian nationals accused of stealing $16.8 million from customers of three different crypto exchanges, including two in the U.S.

• According to a U.S. Department of the Treasury press release, Danil Potekhin and Dmitrii Karasavidi impersonated the exchanges using fake websites imitating legitimate exchange portals to obtain customer login information.
• The exchanges were not named by the Treasury Dept.
• This information was used to access the customers’ accounts and steal their crypto, the Treasury statement said.
• The defendants allegedly laundered the funds using fake profiles on different exchanges.
• The exchanges were not identified.
• The U.S. Secret Service seized “millions of dollars in virtual currency,” according to the statement.
• Bitcoin, ether, monero, litecoin, zcash, dash, bitcoin gold and ethereum classic were all included in the list of sanctioned addresses.
• Cryptocurrency exchanges are frequent targets for malicious actors in the space, who typically hope the pseudonymous properties of the technology will allow them to better hide their proceeds even though the immutable ledger records all transactions.

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Jewel, which is awaiting regulatory approval to open a bank in Bermuda, is partnering with digital asset custody firm Anchorage.

• The idea, according to a press statement released Wednesday, is for Anchorage to provide crypto custody services for Jewel, which is applying for a full bank license from the Bermuda Monetary Authority. 
• Jewel also wants to be able to use the partnership to provide lines of credit to cryptocurrency-related businesses backed by their deposited digital assets. 
• “Our relationship with Anchorage enables us to serve our clients with the rigorous security and product standards needed for bank-level safety, service and compliance,” said Chance Barnett, Jewel’s founder and chairman.

Read more: Crypto Custodian Anchorage Teases Growth Plan With 2 Executive Hires

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U.S. prosecutors charged three Chinese nationals with allegedly mounting a global hacking campaign to steal sensitive corporate data from over 100 companies and installing a mass network of crypto-mining malware.

According to an indictment dated May 2019 and unsealed Wednesday, Jiang Lizhi, Qian Chuan and Fu Qiang ran their multi-year front out of the purportedly “white hat” Chinese cybersecurity firm Chengdu 404 Network Technology Co. They’re being charged with money laundering, conspiracy, identity theft and a raft of computer-related allegations, based on allegations they operated a vast crypto-jacking scheme and installed malware on victim computers, among other charges.

Chengdu 404’s “offensive” operations are what raised prosecutors’ ire. Their indictment outlines how Chengdu 404’s chief officers targeted at least 100 “victim companies, organizations and individuals” with a multi-year cyber scheme that employed “big data” analytics to maximize its impact. 

Related: ‘Sharing Economy’ Startup ShareRing Tapped for China’s Blockchain Service Network

Beginning in May 2014, the trio “conspired to commit a sprawling array of computer intrusions targeting protected computers belonging to hospitality, video game, technology and telecommunications companies, research universities, non-governmental organizations, and other organizations around the world,” according to the indictment.

They allegedly stole source code and customer data from the companies, deployed “supply chain hacks” to knock out customers’ own computers like dominoes, infected networks with ransomware and installed cryptocurrency mining malware to bolster Chengdu 404’s bottom line.  

“The underlying common goal of the conspiracy was to obtain commercial success for CHENGDU 404 – and personal financial gain for members of the conspiracy – through computer intrusions targeting protected computers,” the indictment read.

The alleged perpetrators brought a hands-on approach to their crypto-jacking operations. As alleged in court filings, Jiang, the vice president for the Technical Department of Chengdu 404, told an unnamed fourth hacker to “get more domains to increase the computing power” of a Singaporean target. “Let’s see how the profit is if we get a total of around 10,000 machines.”

Related: Jihan Wu Regains Upper Hand in Bitmain Co-Founder Fight

Jiang allegedly advised the same hacker to sniff out French and Italian companies as potential targets, saying, “The only thing is that the time difference is a bit troublesome. Going on [ECS #1] at night happens to be their work hours.”

The indictment did not state which cryptocurrencies the defendants tried to mine.

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A slew of regulatory happenings are in the works. First, the Bahamian central bank plans to issue the first CBDC this October while the Indian legislative body is considering a ban on crypto trading. 

Further, the latest SEC injunction into an allegedly unregistered token sale could set a grave precedent, argues Commissioner Hester “Crypto Mom” Peirce.

Top shelf

CBDC first
The Central Bank of the Bahamas has confirmed it is moving ahead with the nationwide launch of its digital currency, called the “Sand Dollar,” sometime in October. Approximately $48,000 worth of the new central bank digital currency (CBDC) – pegged to the U.S. dollar-tracking Bahamian dollar (BSD) – will enter circulation initially with commitments to mint and remove BSDs as necessary. A mobile-based wallet app will also be rolled out. If it sticks to its October release, the Sand Dollar will likely become the first CBDC to launch anywhere in the world – it has been suggested China won’t launch its own digital yuan initiative until the Beijing Winter Olympics in 2022, CoinDesk’s Paddy Baker reports. 

Related: First Mover: Binance’s CZ Doesn’t Even Dispute That DeFi Might Be Inevitable

‘Chilling effect’
Online gaming and gambling platform Unikrn will pay a $6.1 million settlement – “substantially all of the company’s assets” – for conducting an allegedly unlicensed initial coin offering (ICO) in 2017, according to the U.S. Securities and Exchange Commission (SEC). The securities regulator said Unikrn’s $31 million fundraise was in violation of registration requirements, though Commissioner Hester M. Peirce has offered a dissenting opinion that the token startup wasn’t accused of committing any fraud. Further, this injunction will have a chilling effect on innovation on the part of other firms. Unikrn will continue to offer its services supported by major currencies, including fiat currencies, bitcoin (BTC), bitcoin cash (BCH), ether (ETH) and USDC, among others.

Leaked legislation
A leaked legislative draft shows the European Commission is thinking seriously about aligning its oversight over the cryptocurrency and digital asset industry with standing regulations for traditional financial instruments. Europe’s Markets in Crypto-Assets (MiCA) will provide legal certainty around crypto assets, though may also stifle innovation, CoinDesk’s Ian Allison reports. Europe’s MiCA is due this September, but will not likely be transitioned into European Union law until 2022 at the earliest. Siân Jones, senior partner at XReg Consulting, said the bill takes particular focus on stablecoins, which could affect development in  projects as diverse as the multi-asset-backed Libra project and the nascent decentralized finance (DeFi) ecosystem. 

Another ban?
India may ban cryptocurrency trading, according to a recent Bloomberg report. According to sources close to the matter, the federal cabinet is weighing a new bill that seeks to impose limits on trading activity, similar in function to a Reserve Bank of India ban that was repealed by the nation’s supreme court in March. The news comes amid a flurry of crypto activity and as the government explores potential use of blockchain technology to manage land records, pharmaceutical drugs supply chain or records of educational certificates.

Similar standards
Bank regulators in 48 U.S. states, Washington, D.C., and Puerto Rico plan to make compliance for cryptocurrency companies simpler by consolidating supervisory exams. The Conference of State Bank Supervisors (CSBS), a coordinating body for state regulators, said the new regime for money service businesses (MSB) will introduce the standards to streamline compliance and enable firms like Coinbase to work across multiple states, instead of going through the time and expense of getting regulated in each and every one, CoinDesk’s Paddy Baker reports. 

Quick bites

• Diginex Moves Closer to Backdoor Nasdaq Listing With Merger Approval (Sebastian Sinclair/CoinDesk)
• ‘Sharing Economy’ Startup ShareRing Tapped for China’s Blockchain Service Network (Jaspreet Kalra/CoinDesk)
• Binance, Huobi, OKEx Have FOMO for DeFi (Muyao Shen/CoinDesk)
• Can Bitcoin Ever Become Worthless? (Daniel Phillips/Decrypt)
• Bakkt Bitcoin Futures Daily Trading Volume Hits Record High (Omkar Godbole/CoinDesk)

At stake

Related: Blockchain Bites: MicroStrategy’s BTC Buy, Bitmain’s Power Struggle, Paxful’s Goodbye

Bitcoin CEO
MicroStrategy CEO Michael Saylor spoke with CoinDesk reporter Danny Nelson about his decision to invest nearly half a billion dollars of his firm’s treasury into bitcoin.

Tuesday, MicroStrategy announced it has purchased $175 million more BTC over and above the $250 million worth acquired in August. The reason? Dollars are no longer a safe place for its excess cash. 

This marks a pronounced turnaround for the chief executive who once called bitcoin fool’s gold. 

“I went down the rabbit hole” during COVID-19, Saylor said, admitting he “was wrong” to have doubted bitcoin back in the $600 range. “I wish I knew then what I know now,” he said.

Led by the industry’s most prominent public faces – Anthony Pompliano, Nathaniel Whittemore and Andreas Antonopoulos – Saylor realized that the age of quantitative easing and hot-headed inflation has left its mark on the dollar’s long-term future. 

“This is not a speculation, nor is it a hedge,” said Saylor. “This was a deliberate corporate strategy to adopt a bitcoin standard.”

While this move does add legitimacy to the industry and the goals of creating a stateless, intervention-proof economic system, there’s reason to pause. MicroStrategy is just one among thousands of publicly traded firms. The whims of its executives hardly represent anything beyond its board room.

Then again, as money blogger and CoinDesk columnist J.P. Koning ironically noted: “Big announcement today about 16,796 bitcoins being sold for $175 million! CoinDesk interviews the sellers to find out why they are betting big on fiat.”

Market intel

Fed whisperer
Bitcoin is struggling to clear the important psychological hurdle of $11,000. Analysts will watch closely for any changes in the U.S. Federal Reserve’s rate decision due today, where central bank heads will likely remain committed to letting the economy run hot for the next few years. CoinDesk’s Omkar Godbole reports there is a schism in how crypto markets could react, citing a tolerance of higher inflation as a bullish development for scarce assets like bitcoin and gold. On the other hand, BK Asset Management’s Kathy Lien said the U.S. dollar may find buyers if the Fed is more positive on economic growth. In that case, bitcoin will likely face selling pressure.

Data buy
Data provider CB Insights has acquired Netherlands-based Blockdata to bolster its cryptocurrency and digital asset intelligence. “It’s become something that our clients are increasingly talking about as big and practical,” CB CEO Anand Sanwal said. The terms of the deal were not disclosed.

Tech pod

Playing with DSL
Discrete log contract (DSL), a form of “invisible” smart contract that became feasible on Bitcoin just this year, has gone live. Disguised as standard multi-signature transactions, DSL has been advanced by Bitcoin developer Lloyd Fournier and his work building “scriptless-scripts.” The principal use case will be betting, CoinDesk’s Colin Harper reports.

Online censorship
The Open Observatory of Network Interference (OONI) is allowing people around the world to monitor internet censorship and interference in their countries in a decentralized manner for free. It has created the world’s largest open dataset on internet censorship, with millions of measurements collected from more than 200 countries since 2012, CoinDesk Privacy Reporter Ben Powers said. 

Op-ed

How crypto can win
Blockchain Association Executive Director Kristin Smith details how the cryptocurrency and blockchain industry can get its foot in the door of Congress. “The public policies that we need for crypto to thrive cannot be achieved if our industry is unwilling to unite and work with the government. If men were angels, government regulation would be unnecessary,” she writes. 

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HOPR, a data privacy startup, announced the release of a public incentivized testnet for its mixnet on xDai, an Ethereum sidechain.

• A mix network or “mixnet” (taking its name from the proxy servers it employs, called “mixes”) obscures the metadata left behind when data passes through a network, which can be observed on most networks by state-level adversaries.
• Nicknamed HOPR Säntis (after a Swiss mountain) and running on the xDai chain, the firm says the testnet provides “fast transactions secured by proof-of-stake, while eliminating the high Ethereum transaction fees.” Transaction costs on the xDai network are lower than on the Ethereum mainnet.
• Participants in the program will earn ERC-20 HOPR tokens for running a node. These tokens will be distributed when the HOPR mainnet launches in late 2020.
• “We want to get people to run a node ahead of our mainnet launch later this year and already earn tokens for that,” HOPR lead Sebastian Bürgel said in an email to CoinDesk.
• The incentivized testnet is also a chance to get feedback on the mixnet, detect bugs and generally take the network to the next level with a second round of feedback, following the firm’s initial public testnet this summer, according to Bürgel.  
• While HOPR sells its own hardware node version (at $440), a HOPR node can also be run on devices that run Windows, macOS and Linux. 
• The reason for using hardware rather than the cloud, said Bürgel, is that it’s better for decentralization as it doesn’t rely on cloud infrastructure.
• In July, HOPR announced a $1 million funding round led by Binance Labs.

Read more: Privacy Startup Nym Will Pay You in Bitcoin to Run Its Mixnet

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Kraken is the first cryptocurrency firm to become a bank.

On Wednesday, the Wyoming Banking Board voted to approve the San Francisco-based crypto exchange’s application for a special purpose depository institution (SPDI) charter. Kraken is now the first SPDI bank in Wyoming. According to the Wyoming Division of Banking’s general counsel, Chris Land, Kraken will also be the first newly chartered (de novo) bank in the state since 2006. 

“By becoming a bank we get direct access to federal payments infrastructure, and we can more seamlessly integrate banking and funding options for customers,” said David Kinitsky, a managing director at Kraken and the CEO of the newly formed Kraken Financial. (Kinitsky has run Grayscale Investments, was the first digital assets hire at Fidelity and was most recently head of business development at payments startup Circle.)

Related: The Crypto Firms Collaborating on a Swiss Franc Stablecoin

In the wake of a July letter from the U.S. Office of the Comptroller of the Currency giving national banks the go-ahead to custody crypto, the Division of Banking also announced it has been working with Promontory Financial Group, a prominent Washington, D.C.-based consulting firm made up of lawyers and former government regulators. In October, the division along with Promontory will publish the first manual for banks regarding procedures and policies for handling digital assets, Land said. 

In addition to more products, Kraken Financial will give Kraken the ability to operate in more jurisdictions, Kinitsky said. As a state-chartered bank, Kraken now has a regulatory passport into other states without having to deal with a patchwork state-by-state compliance plan.

Kraken has been silent about its application until now. The first hint the exchange was interested in the Wyoming charter was in December when it opened a position for the job Kinitsky has now.  

“We would expect to offer a host of new products as we get established,” Kinitsky said. “Those will range from things like qualified custody for institutions, digital-asset debit cards and savings accounts all the way to new types of asset classes. We can engage with securities and commodities and things like that as a bank. So a lot more TBD there.” 

Related: Kraken Taps Casa Co-Founder, Former CEO Jeremy Welch as VP of Product

Kraken expects its major revenue drivers to be fees and services, Kinitsky said. SPDIs are not allowed to lend, and each bank has to hold 100% of its assets in reserve. Kraken wouldn’t say how much equity capital the firm raised for its application, but the Division of Banking is encouraging applicants to raise between $20 million and $30 million, similar to the equity capital kept at a de novo bank.  

Initially, Kraken Financial will play the same function as third-party banking relationships that Kraken has already formed, Kinitsky said. Eventually, the subsidiary will become the U.S. customer service provider, with Kraken affiliated services offered on the back end. 

Read more: What It Takes to Get a Crypto-Friendly Bank Charter in Wyoming

Having received the charter, Kraken will focus on building out operations and personnel for the bank, aiming to have 10 to 25 department heads to start out, Kinitsky said. The exchange has hired its board and C-suite and expects to have the rest of its permanent hires in place by the end of the month. 

The statutes undergirding the SPDI charter reconcile digital assets with the U.S. uniform commercial code by making the safekeeping of digital assets a bailment, which is the same legal relationship that valet drivers have to the cars they park, said Wyoming blockchain pioneer Caitlin Long. SPDI banks can hold digital assets but will never have legal ownership over those assets. This means that even if a SPDI bank goes bankrupt, those assets have to be returned to customers, whereas a trust company can have its assets claimed by a judge during bankruptcy.  

Long has her own SPDI bank application underway, called Avanti Financial, which she expects to open in October with new bank-issued digital assets. She expects SPDIs to diversify the crypto banking sector, which has been historically underserved. The Division of Banking is currently working with six companies that are applicants or potential applicants for the charter, and each company could be chartered by the end of 2021. 

Long also expects the SPDI charter to pressure crypto companies to offer proof of reserves to customers and the industry at large. 

“SPDI banks have to provide a Merkle tree to their auditor so they can cryptographically verify that their reserves are there,” she said. “We have zero insight into whether the service providers are solvent or not and they’re not even audited in most cases.”

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Another contender is joining the ring of decentralized finance (DeFi) platforms sparring to win market share from the Ethereum ecosystem.

Ava Labs is launching its Avalanche blockchain next Monday, Sept. 21. The upcoming launch comes on the back of $60 million in funding, $45 million of which came from a July 2020 public token sale and private sale lead by Mike Novogratz’s Galaxy Digital, Bitmain and Initialized Capital.

“Avalanche aims to enable new systems defined by velocity, efficient use of capital, and innovation in new products and services that aren’t possible with the current wait times to finalize transactions,” Ava Labs CEO Emin Gün Sirer told CoinDesk. “DeFi is certainly part of our motivation in the short term, with our long-term sights set on traditional finance.”

Ethereum compatibility

Related: First Mover: Binance’s CZ Doesn’t Even Dispute That DeFi Might Be Inevitable

Avalanche is a proof-of-stake blockchain that the team at Ava Labs claims can process 4,500 transactions per second even without the security tradeoffs usually associated with low-latency chains. Its novel consensus mechanism is a fusion of a directed acyclic graph structure and “repeated subsampled voting,” which Sirer called the “core innovation.”

The blockchain’s architecture consists of the primary network and so-called “subnets” – secondary, uniquely tailored blockchains that are supported by Avalanche’s main network. 

These subnets can be curated for specific use cases and designed to fit the needs of their designers (they can be public or private, for instance). Avalanche validators, those who stake the network’s native token, AVAX, to process transactions, can choose to validate or ignore transactions from any given subnet. Sirer told CoinDesk that a minimum of 2,000 AVAX is needed to stake a validator node.

Avalanche documentation indicates some subnet validators may be subject to know-your-customer (KYC) requirements per their respective jurisdictions and may require licensing to operate.

Related: Binance, Huobi, OKEx Have FOMO for DeFi

Read more: Base Layer Wars Heat Up With Another $12M Committed to AVA Labs’ Avalanche Blockchain

Avalanche’s presumptive high throughput and flexibility are positioning it to compete for DeFi market share, the team claims, particularly at a time when transactions have choked the go-to DeFi network in Ethereum and sent its transaction fees skyward as traders compete for block space.

One of Avalanche’s primary marketing features is its Ethereum compatibility. One of its subnets, the Avalanche Contract Chain (C-Chain, for short), supports the Ethereum Virtual Machine and its Solidity coding language. This will allow developers to import and deploy Solidity smart contracts on the new network.

“Avalanche will also support bridges to other networks for users to move assets between the networks, including a bridge to Ethereum that we’ll be launching very soon,” Sirer said.

Another one rides the wave

Ava Labs is the latest project to dive headfirst into a surging, multi-billion dollar DeFi market, which is dominated by Ethereum. It joins other next-gen platforms like Solana and Anchor, which are positioning themselves as faster versions of older competitors like Ethereum.

Read more: Proof-of-Stake Chains Team Up to Prove DeFi Is Bigger Than Ethereum

Still other, older chains that cropped up in the market mania of 2016-2018 are playing catchup for DeFi market share as well.

In a bid to capitalize on the booming DeFi space, leading cryptocurrency exchange Binance is looking for ways to incorporate DeFi applications on its Binance Smart Chain; additionally, its new program Launchpool offers Binance users the ability to stake tokens for yield farming directly on its centralized exchange. 

Smart-contract platforms Tron and Waves recently joined forces to foster an interoperable network, Gravity, to bridge their platforms’ burgeoning DeFi applications.

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A token minting system is coming to the Polkadot blockchain ecosystem, promising to be a leaner, meaner version of Ethereum’s ERC-20 standard, the mechanism that launched a thousand token sales.

Announced Wednesday, Polimec, the token issuance and transfer framework for Polkadot, is being launched by the team behind blockchain identity protocol KILT.

The reasons for creating a community-owned tokenizing system native to Polkadot are manifold, not the least of which are the surging gas costs associated with transactions on Ethereum blockchain, said Ingo Ruebe, CEO of BOTLabs and project lead for KILT Protocol.

Related: New Index From DeFi Pulse and Set Protocol Offers Easy Access to 10 DeFi Tokens in 1

Normally a startup project working on Polkadot might attempt to finance their runway by issuing an ERC-20 token on Ethereum that can be listed on exchanges. As well as removing the costs of transferring ERC-20’s around, the bigger picture for the Polkadot ecosystem is the explosive growth that having a standard to build tokens on top of Ethereum brought to the second-largest public blockchain. 

“If you look at what ERC-20 actually did to the Ethereum ecosystem, then you can imagine what will possibly happen with Polimec,” Ruebe said. “It’s an absolutely essential part of the ecosystem, I would say.” 

Read more: Polkadot-Based Acala Raises $7M as DeFi Grabs Land on Another Blockchain

Ruebe reckons Polimec will not only drive more people and projects onto Polkadot’s parachains (similar to sidechains but with a greater degree of independence) but will also cater to a large number of dot (DOT) holders who would welcome ways to invest these back into the community.

Related: Swisscom Blockchain Wins Grant From Web3 to Help Toughen Polkadot’s Proof-of-Stake Network

“If you bought dots at the public Polkadot sale in 2017 you have seen your investment grow by more than 10 times,” said Ruebe. “So there are many dot holders who would like to reinvest in Polkadot and make the whole community more valuable and attract more projects.”

DOT’s progeny

The KILT mainnet, which is slated to go live in around 11 months, will be the first project to mint tokens using Polimec. KILT uses blockchain-based identity and verifiable credentials across various industries including areas like IoT (internet of things). The startup is part of a government scheme in Germany, GAIA-X, exploring blockchain use cases, and is backed by German and Swiss corporates Huber Burda Media and Ringier.

Exchanges can also use Polimec’s transaction-based API to conduct IEOs or provide access to the transferable Polimec-issued currencies. Polimec is dependent on the parachain/parathread functionality for Polkadot, currently under development, and will launch when parachains are available, expected later this year.

“There have been rumors circulating around the developer community about Polimec and the word has reached some exchanges,” said Reube. “We are at the early discussion stage with three exchanges; I can’t name them but they are in the top 10.”

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Trading volume in physically delivered bitcoin futures listed on Intercontinental Exchange’s Bakkt platform surged to record highs on Tuesday.

• The derivatives exchange traded record 15,955 contracts, worth more than $200 million. That’s up 36% more than the previous lifetime high of 11,706 contracts on July 28, 2020.
• Daily volumes have increased by more than 1,000% on a year-to-date basis, according to data source Skew.
• Physically settled futures require bitcoin to be delivered on the specified delivery date rather than being traded out with offsetting contracts. 
• “Since we first launched Bakkt nearly a year ago, we’ve remained committed to expanding trust in and unlocking the value of digital assets,” said Adam White, president of Bakkt, said in a press release.
• Bakkt still lags the Chicago Mercantile Exchange, which registered a volume of $262 billion on Tuesday and a record daily volume of $1.2 billion in August.
• As of Sept. 15, Bakkt accounted for just 1.6% of the global futures trading volume of $12 billion.
• Binance traded $2.8 billion worth of futures contracts and was the largest exchange by trading volume.
• “While Bakkt registered one of its highest volume days in physically settled futures [Tuesday], that was still about 30% less than CME futures, which ironically was on the lower end of year-to-date volumes,” Vishal Shah, an options trader and founder of derivatives exchange Alpha5, told CoinDesk.

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Blockchain-based lending and trading systems known as “decentralized finance,” or DeFi, have dominated recent cryptocurrency-market headlines, with collateral locked into the semi-automated platforms surging 10-fold this year to more than $9 billion.

DeFi trading platforms like Uniswap, Curve and Balancer have appealed to cryptocurrency traders with their low cost and ease of use, and they’re now starting to steal a growing and no-longer-negligible share of market trading volumes from bigger, established exchanges like Binance, Coinbase, Huobi and OKEx.

These “centralized” exchanges – the term is sometimes tossed around with a sneer – are rolling out new business initiatives they describe as decentralized, in an apparent bid to cash in on the trend and stanch a further exodus of customers.

Related: Ava Labs Sets Avalanche Mainnet Launch for Sept. 21

Huobi, a Chinese-led cryptocurrency exchange based in Seychelles, announced Tuesday it is adding 10 new members to its DeFi initiative, described as “a consortium of centralized and decentralized financial services providers.”

The announcement came just a day after Huobi’s arch-rival, OKEx, which is also Chinese-led but based in Malta, said its OKxChain network was the most decentralized public blockchain powered by an exchange. 

And last week, Binance, the world’s biggest cryptocurrency exchange, announced an integration of its centralized trading platform with its decentralized public blockchain, Binance Smart Chain (BSC). 

Binance CEO Changpeng “CZ” Zhao even seemed to acknowledge the threat during his company’s recent “World of DeFi” summit, where he said, “It’s always better to disrupt yourself than having somebody else disrupt you first.” Running a decentralized exchange is cheaper, according to CZ. 

Related: Bakkt Bitcoin Futures Daily Trading Volume Hits Record High

And OKEx CEO Jay Hao told CoinDesk in an email that “it’s impossible to ignore the compelling promise of DeFi, and we are firm believers that it will succeed.”

Charts of bitcoin held at big exchanges show declining balances over the past several weeks, and Simon Chen of the Hong Kong-based crypto trading firm Babel Finance says one likely explanation is that some of the cryptocurrency is getting transferred to DeFi.

In August, DEXs accounted for a 5% share of total crypto exchange volumes, according to a Sept. 14 report by the cryptocurrency-analysis firm Messari. The business is dominated by the “automated market makers” Uniswap, Curve and Balancer.   

“The exchange business has proven itself to be incredibly lucrative for crypto and automated market makers are starting to receive their slice of the pie,” Messari analyst Jack Purdy wrote in the report. 

Binance’s CZ said he will be “really happy on the day when decentralized exchanges replace centralized exchanges,” at least partly because the company’s BNB digital tokens “will be worth much more.” 

Su Zhu, CEO of the cryptocurrency-focused investment fund Three Arrows Capital, told CoinDesk in a Telegram message that centralized exchanges could still be a “gateway to DeFi, but not where users ultimately spend their time.” 

“The centralized exchanges will end up acting like a white label,” Zhu said.  

– Muyao Shen

Read More: Binance, Huobi, OKEx Have FOMO for DeFi

Bitcoin Watch

Bitcoin’s dip remained well supported ahead of the Federal Reserve’s rate decision, due at 18:00 UTC. 

The cryptocurrency found buyers below $10,700 during the Asian trading hours, but so far has failed to cross Tuesday’s high of $10,940. 

The cryptocurrency may rise above the $11,000 mark if the Fed announces more stimulus measures, having cut rates to zero, launched asset purchase programs and signaled tolerance for high inflation earlier this year. 

Analysts, however, expect the Fed to maintain the status quo and reiterate willingness to do more if required. According to BK Asset Management’s Kathy Lien, the focus will be on the Fed’s inflation and growth forecasts. The dollar will likely draw bids, pushing gold and bitcoin lower, if the central bank raises growth forecasts. 

– Omkar Godbole

Read More: All Eyes on Fed Reserve Rate Announcement, as Bitcoin Fights for $11K

Token Watch

Filecoin (FIL): Futures on decentralized data-storage network’s forthcoming token, currently at $18.50 in tether (USDT) terms, are trading “well above our cost basis,” investment firm Pantera Capital says. 

What’s Hot

Bank regulators in 49 U.S. states, Washington, D.C., and Puerto Rico plan to make compliance for cryptocurrency companies simpler by consolidating supervisory exams (CoinDesk)

‘Crypto mom’ and Securities and Exchange Commissioner Hester Pierce says Unikrn fine of $6.1 million will have a chilling effect on innovation on the part of other firms (CoinDesk)

A significant amount of cryptocurrencies passes through dark web marketplaces in Eastern Europe, according to Chainalysis (CoinDesk)

Bitcoin CEO: MicroStrategy’s Michael Saylor Explains His $425M Bet on BTC (CoinDesk)

India reportedly moving to ban trading of cryptocurrencies, threatening blow to rapidly growing scene in world’s second-most-populous country (CoinDesk)

Circle’s Jeremy Allaire says Algorand will bring “over 1,000 tps and transaction fees of 1/20th cent to the USDC ecosystem” (Forbes)

Analogs The latest on the economy and traditional finance

More than a third of fund managers, strategists and economists in a new survey say it may take a month or more after U.S. presidential elections until results are known (CNBC)

Federal Reserve’s “commitment to stoking inflation could cause dramatic volatility in interest rates” (Reuters)

Nvidia’s $40 billion ‘Arm’ deal faces risks and industry pushback as China looks to remove US tech from its supply chain (Nikkei Asian Review)

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Blockstack’s former head of growth, Patrick Stanley, is launching a complementary crypto company of his own, Freehold. 

Much like the former Ripple CTO Stefan Thomas who founded Coil to build services related to XRP, Stanley now runs Freehold as an independent company within the token ecosystem related to Blockstack’s namesake cryptocurrency, STX.  

Freehold kicks off today by opening enrollment for the first cohort of Freehold evangelists. This program literally pays newbies – in bitcoin (BTC) – for studying and saving in their own wallets. Stanley compared it to the Mormon door-to-door missionary program, rather than crypto fans “talking to themselves on Twitter all day.” 

Related: Bakkt Bitcoin Futures Daily Trading Volume Hits Record High

“HODLing members will be incentivized to lead community-building initiatives, share educational resources, and participate in contests in exchange for rewards,” Stanley said. “I’m taking a hands-on approach to the initial onboarding. I’m paying them in bitcoin to monitor their bitcoin accounts and eventually moving on to STX.”

Former Earn.com Balaji Srinivasan, an unaffiliated fan of the project, said in a press statement that Freehold “gives direct utility to holding crypto.” 

Read more: Blockstack’s New Consensus Mechanism Creates New Use Case for Bitcoin

Stanley said his company hired a few part-time workers, starting with a rewards budget of under $250,000 to serve an initial cohort of less than 50 newbies. Program participants are selected based on need and given assignments customized for their interests or needs. 

Related: First Mover: Binance’s CZ Doesn’t Even Dispute That DeFi Might Be Inevitable

Basically, people apply on the website and Stanley offers personal consulting. If the candidate is a good fit, he helps them set up a bitcoin wallet and monitors the address, while they make social media content and invite friends to join. 

“Folks will learn about the STX ecosystem but be making outgroup arguments about the technology and why it’s great,” Stanley said, “starting at bitcoin and working their way up.”

He concluded by saying that once the program “validates it can have an impact” on the STX ecosystem, the company could offer community development services to other token issuers. 

“We might be able to command a fee if we verify the model,” Stanley said.

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The Bank of International Settlements (BIS), the international body nicknamed the “central bank for central banks,” is on the lookout for a blockchain engineer.

• In a job posting Tuesday, BIS said it is looking for a “DLT/Blockchain expert” to be the point person on its digital asset initiatives.
• The successful applicant will have a computer science background, coding experience and a deep understanding of cryptography and distributed ledger technology.
• Hired on a three-year contract, the person will join BIS’ Innovation Hub in either Hong Kong or Switzerland to design, build and test initiatives up to proof-of-concept level.
• BIS doesn’t divulge what the new hire will be looking at, but the ad says this could include central bank digital currencies (CBDCs), digital securities and other token-based payment systems.
• Crypto-critic Agustin Carstens, BIS’ general manager, said last year that central banks were “not seeing the value” of issuing CBDCs, especially as they may affect financial stability and the monetary system.
• BIC is now already working on projects to do with the tokenization and digitalization of the trade process, the description says.
• The role will also include liaising and collaborating with central banks and other financial institutions on related initiatives.
• The head of BIS’ Innovation Hub, Benoit Coeure, a former European Central Bank (ECB) board member, has previously said blockchain is promising but cryptocurrencies such as bitcoin are too problematic to ever be considered for a mainstream payments method.

See also: BIS Plans New Central Banking Fintech Research Hubs in Europe, North America

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While bitcoin’s dips have found buyers, the cryptocurrency is struggling to clear the important psychological hurdle of $11,000 ahead of the U.S. Federal Reserve’s rate decision due later today.

• The cryptocurrency found bids near $10,675 during the early Asian trading hours, but faced rejection near $10,940 around 08:00 UTC, according to CoinDesk’s Bitcoin Price Index.
• Bitcoin has failed twice in the past 24 hours to absorb selling pressure just below $11,000.
• At press time, bitcoin is changing hands near $10,850, representing a 0.58% gain on the day.

• The slight pullback this morning has weakened the case for a move above $11,000 put forward by a bull flag breakout confirmed during early European hours.
• On the downside, the higher low of $10,675 created early Wednesday is the level to beat for the bears.
• Price volatility may pick up following the Federal Reserve’s rate decision, due at 18:00 UTC.
• The Fed is expected to keep interest rates unchanged and reiterate its willingness to tolerate high inflation.
• In other words, interest rates are likely to remain low for a prolonged period – a bullish development for scarce assets like bitcoin and gold.
• Markets, however, have already factored in this likelihood, according to Reuters.
• The focus, therefore, will be on the Fed’s growth and inflation forecasts.
• According to BK Asset Management’s Kathy Lien, the U.S. dollar may find buyers if the Fed is more positive on economic growth. In that case, bitcoin will likely face selling pressure.
• Investment banking giant Goldman Sachs has already upgraded the U.S. third quarter gross domestic product forecast to 35% from 30%.
• If the Fed announces more stimulus measures, the dollar would likely drop, potentially powering stronger gains in bitcoin.
• Bitcoin has become more sensitive to action in the U.S. dollar over the past 2.5 months.

Also read: First Mover: Bitcoin Investors the Sane Ones as Federal Reserve Cheers Inflation, Price Nears $11K

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The Central Bank of the Bahamas has confirmed it is moving ahead with the nationwide launch of its digital currency sometime in October.

• The Caribbean nation of just under 400,000 people will roll-out its central bank digital currency (CBDC), dubbed the “Sand Dollar,” next month, Bloomberg reported Tuesday.
• That will make it probably the first CBDC to launch anywhere in the world – it’s been suggested China won’t launch its own digital yuan initiative until the Beijing Winter Olympics in 2022.
• Approximately $48,000-worth of the new CBDC will enter circulation initially and will be available via a mobile-based wallet app.
• The Sand Dollar is backed 1:1 to the Bahamian dollar (BSD) which, in turn, is pegged to the U.S. dollar.
• The central bank will mint more Sand Dollars as demanded, at the same time removing physical BSD out of circulation to prevent inflating the monetary supply.
• Speaking to Bloomberg, Chaozhen Chen, the central bank’s assistant manager of eSolutions, said the CBDC had been designed to provide people and businesses in some of the archipelago’s far-flung islands with better access to financial services.
• Today’s news comes more than a year after the central bank first engaged local tech provider NZIA to design and implement the CBDC.
• It has already been tested on the remote islands of Exuma and Abaco.

See also: French Central Bank Chief Eyes Public-Private Partnership for Possible Digital Euro

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Blockchain services firm Diginex is officially merging with publicly traded 8i Enterprises Acquisition Corp., a key part of its plan for a “backdoor” Nasdaq listing.

• Announced Wednesday, 8i shareholders overwhelmingly approved the proposed “business combination transaction” with Hong Kong-based Diginex at a special meeting, with 81% in favor.
• Diginex is the parent company of derivatives platform EQUOS.io which had been hoping to become the U.S.’s first publicly traded crypto exchange later this month.
• It was pipped to the post, though, with Gibraltar-based INX Ltd. recently launching its SEC-registered security token IPO, aiming to raise $117 million.
• Diginex’s ecosystem also includes digital asset trading technology platform Diginex Access and securitization advisory firm Diginex Capital, as well as a digital asset custody provider and an investment management business.
• The company received approval from the Securities and Exchange Commission for the merger with 8i back in February.
• The news marks “significant milestone” in that process, said Diginex’s CEO Richard Byworth, with both parties expecting a close of the transaction later in the month.
• Shareholder approval during unprecedented market conditions was a “testament” to the digital assets industry, Byworth noted.
• Following the deal’s closure, the exchange’s shares are expected to be traded on the New York-based Nasdaq stock exchange under the ticker symbol “EQOS.”
• The British Virgin Islands-based “blank check” company 8i is a special-purpose acquisition shell company that uses funds from their initial public offerings (IPOs) to acquire target companies.

See also: Diginex Going Public Is About More Than a Nasdaq Ticker Symbol

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Netherlands-based Blockdata, which provides qualitative insights into the range of large enterprises using blockchain technology, has been acquired by data provider CB Insights.

The financial terms of the deal were not disclosed. New York City’s CB Insights will be opening an office in Amsterdam, while Blockdata will remain a standalone product with its own team. Blockdata’s work will also be available to CB Insights clients, the companies said.

The acquisition demonstrates that large firms are still interested in deploying distributed ledger technology (DLT) within their firewalls, and are looking for fast and thorough insights into the complex ecosystem that has grown up around enterprise blockchain.

Related: DCG Enters Retail Crypto Market With Acquisition of Luno Wallet

Following the hype around DLT in 2017, the last eight months have seen large financial and enterprise clients repeatedly ask about data sources on the enterprise blockchain space, according to Anand Sanwal, CEO and co-founder of CB Insights.

“It’s become something that our clients are increasingly talking about as big and practical,” he said. “At the same time, our clients were overwhelmed with the number of companies and projects that were going on, and were struggling to identify what exactly was happening and the best use cases.”

Read more: VC Deals in Crypto Remained Steady but Amount Invested Fell in 2019: Report

As well as financial clients, Sanwal said there is interest from governments – with central banks exploring digital currencies included in that bucket – as well as hot spots like supply chain leading to interest from the likes of consumer packing firms, logistics providers and so on.

Related: FTX Exchange’s $150M Deal for Mobile-First Blockfolio Is a Retail Trading Play

There have been various reports stating that enterprise blockchain has been languishing in Gartner’s famous “trough of disillusionment.”

“I wouldn’t say there has been a dropoff; we just see interest growing,” said Jonathan Knegtel, co-founder of Blockdata. “We started out before the crypto winter [of 2018] came along. But we’ve always said it’s about the technology, not about making money in this space. It’s about shared sources of truth and what that can do for companies.”

Knetgtel pointed out that Blockdata drills into many areas of the blockchain world, not just enterprise DLT, but also custody providers, central bank digital currencies (CBDCs), stablecoins, DeFi and the like.

The Amsterdam-based five-man team, which is set to grow significantly now, has previously raised a total of roughly $504,000 in angel investments. 

This is CB Insights’ second acquisition following its July 2020 buy of the assets of Dow Jones’ VentureSource. 

“Blockdata’s DNA is very similar to ours,” said CB Insights’ Sanwal. “We will take unstructured documents, including news and other data sources, and build technology that will classify and extract structured data from them.”

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A leaked version of rules to be issued later this month by the European Commission proposes an all-encompassing set of regulations covering the trading or issuance of digital assets across the 27-nation bloc. 

Europe’s Markets in Crypto-Assets (MiCA) draft legislation provides legal certainty around crypto assets – cryptocurrencies, security tokens and stablecoins – along the same lines as Europe’s Markets in Financial Instruments Directive (MiFID), a legal framework for securities markets, investment intermediaries and trading venues. 

The takeaway is that Europe intends to treat crypto the same as any other regulated financial instrument, which will doubtless provide legal clarity. The unknown is whether that may stifle this nascent and fast-moving space.  

Related: User Profiling Can Help Regulators Identify Illegal Crypto Activity, Says FATF

The MiCA proposals begin with a broad definition of crypto assets and a base set of rules that apply to the issuers of those assets and service providers, the latter is more or less in line with the Financial Action Task Force (FATF) definition of a virtual asset service provider (VASP).

There is a particular focus on stablecoins in Europe, which are defined as either asset-referenced tokens or e-money tokens.

Read more: Inside the Standards Race for Implementing FATF’s Travel Rule

To illustrate the difference, Siân Jones, senior partner at XReg Consulting, referred to the revised second version of libra’s white paper that redefined the token as being denominated in individual currencies. This would likely bring it within the MiCA regulation’s definition of e-money, said Jones.

Related: French Central Bank Chief Eyes Public-Private Partnership for Possible Digital Euro

“Those stablecoins that rely on a basket of currencies or are based by reference to other assets, whether that’s another crypto or other kinds of assets, they will be classed as asset-reference tokens,” Jones said in an interview. “Essentially, the subgroup that behaves like e-money will be sucked into the existing e-money framework, while those that are asset-referenced have a load of extra rules on top of the base rules. So clearly, this is targeting stablecoins and particularly global stablecoins.”

Stablecoin angst?

The attention to stablecoins chimes with comments made last Friday at an informal meeting of five European finance ministers in Berlin, which featured calls for clear regulatory oversight of asset-backed coins like libra. 

In addition to providing legal certainty around all crypto-assets, another core tenet of the proposed regulation is apparently to support innovation. 

“There will be many who will question that,” said Jones, citing the recent explosion in decentralized finance (DeFi) as an example of innovation involving the issuance of blockchain tokens that could be curtailed in Europe.

Read more: What Is Yield Farming? The Rocket Fuel of DeFi, Explained

Among the many regulatory obligations that will be imposed on crypto-asset issuers and service providers in the European Union (EU) is the need to be incorporated as a legal entity and for service providers to have their registered office in a Member State, Jones said.

“There can be little doubt MiCA will present significant challenges for those involved in DeFi projects,” said Jones.

The quid pro quo, Jones added, is the sort of regulatory clarity that will likely entice more institutional investment into the crypto space.

“By making crypto just like everything else in the traditional world, you make it easier for the traditional world to accept it,” said Jones. “I would probably say from the draft that it will favor the banks and traditional investment firms. The incumbents will have an advantage in a number of respects, which I’m sure is not the intention, but that will be the short- to medium-term impact.”

The 168-page set of draft rules, which Brussels said would come out in September, will not likely be transitioned into EU law until 2022 at the earliest. As an EU regulation, it will be directly applicable throughout the EEA without the need for national legislation.

Summing up, Jones said the new regulation will probably create something of a bifurcation of the crypto space.

“In a sense, crypto has benefited for much of the last decade from being largely in a grey area,” she said. “But now you have a very clear set of rules – and you are either in or outside it.”

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