CoinDesk Crypto

The token for the decentralized finance (DeFi) app Compound, COMP, hit an all-time high of $231 on Friday. Now startups built on top of the lending protocol are considering what to do about this sudden windfall.

Compound was built from the beginning as a simple marketplace for placing collateral and borrowing money. The intention was always to make it easy for other companies to build products atop it, and several have. 

But some startups are in a situation where they have control of COMP earned from funds entrusted to them by their customers. The question then becomes: Do they return that COMP to users immediately or use it to lock in other benefits? And if they do redistribute it now, do they simply give users COMP or convert it first to a more familiar form of crypto? 

Related: Tether’s Supply on Compound Jumps to Over $224M in a Week

CoinDesk checked in with companies built on top of the Ethereum-based application this week to find out their plans for using the fresh COMP tokens earned by users of their platforms. 

While the startups we spoke with were still exploring which course of action would be best, they generally agreed COMP’s rapid ascent is a positive moment for the DeFi industry.

Read more: A Coinbase Pro Listing and Other Eye-Opening Data Points on Compound’s Surge in Demand

Dharma CEO Nadav Hollander explained the implications of opening up governance of Compound for a company like his. In an email to CoinDesk, he wrote, “It’s like being a bank and getting to vote at Federal Reserve meetings – only any user of the protocol can do it.”

Related: Blockchain Bites: COMP x2, Reddit Scales and Factom Goes Bankrupt

In fact, Dharma has already been actively taking part. It has a proposal in now to increase the amount of interest earned on tether (USDT) deposits on Compound. Such deposits go into the reserve pool, a sort of security blanket that each liquidity pool creates for itself. As a governance token, COMP is used to stake a person’s or entity’s vote, either for or against.

According to DeFi Pulse, Compound’s total value locked (TVL) now stands at $418 million, $80 million short of overtaking MakerDAO, the dominant protocol in DeFi. Compound has added over $300 million in liquidity since COMP distribution began on June 15.

The COMP token is trading at $218 as of this writing, according to CoinGecko, for a market cap – separate from the Compound protocol’s TVL – of roughly $570 million. The market cap of Maker’s governance token, MKR, currently sits at $466 million.

Dharma

Meanwhile, Dharma is still sorting out how to handle COMP that its users are earning.

Dharma is a smart-wallet app that lets users deposit dai to earn interest easily. It also allows them to easily pay each other in dai, much like Venmo. While dai has not been the most popular asset on Compound lately (USDC and USDT have), each depositor and borrower on Dharma still earns some COMP each day as it gets distributed. 

Read more: Crypto Lender Dharma Pivots to Stablecoin Savings Accounts

Dharma’s COO has spoken about the options that Dharma is considering on Twitter. It is considering holding onto the COMP for now so that Dharma can be a stronger voter in governance, but it may also directly distribute the COMP to users or convert it to dai and then distribute it. 

Forster tweeted, “We’ve been discussing this internally and in our Discord channel. Haven’t reached a conclusion yet.” 

PoolTogether

PoolTogether is a lossless lottery. Users deposit their funds with PoolTogether in order to win a chance at winning all the interest earned by everyone else who did the same.

PoolTogether has a weekly dai pool and a daily USDC pool, but their returns have been hammered by the way liquidity mining has changed the market. 

“PoolTogether contracts are earning COMP and currently, the value of that COMP is actually greater than the value of the interest accruing to the prizes!,” Leighton Cusack, the founder, told CoinDesk in an email. “However, when we designed the protocol we did not have COMP in mind so there is not a mechanism right now to re-distribute it to depositors or include it in the prize.”

Read more: Coinbase Pumps $1.1M USDC Into DeFi Sites Uniswap and PoolTogether

Cusack let his community know that this was a question under consideration the week before COMP started to be distributed.

Like Dharma, it’s considering holding onto COMP so it can vote the tokens in the interest of PoolTogether users. That said, Cusack also wrote, “The most likely scenario though is that we’ll include the accrued COMP in the prize distribution. So longer-term this will be great for users as the value of the COMP will supercharge the prize size.”  

Staked

Staked is a startup that takes care of the hard part if users have a token on which they can earn a yield. It even has a product that will move assets around to optimize their income, called RAY, for Robo Advisor for Yield. 

Staked CEO Tim Ogilvie told CoinDesk, “Any COMP earned is distributed to depositors. Next week we’re going to update our algorithm so the yield attributable to Compound includes both interest and the value of the COMP earned.”

Linen and Argent

Linen and Argent are both wallet applications that make it easy to move assets into Compound and earn interest. Because all deposits in Compound are tokenized, this is simple to do in a non-custodial fashion; if your wallet can hold USDC it should be able to hold cUSDC (the tokenized version of a deposit of USDC on Compound). 

Argent posted on its blog Wednesday that its users would be able to keep track of COMP earnings right in their wallet and use it like any other token. 

Read more: Paradigm Leads $12M Round for DeFi-Friendly Wallet Startup

Linen founder and CEO Vitaly Bahachuk told CoinDesk via email that it would do the same. He wrote, “Linen app is powered by a user self-custody wallet and Linen does not have access to members’ assets including access to COMP. We will build an in-app interface where our members can claim their COMP and use COMP however they chose to.”

One choice they might make, HODL the COMP and delegate to Linen to vote their interests. Linen has declared itself as a delegate for voting on Compound protocol questions. 

Opyn

Opyn has also declared itself as a Compound delegate. 

The company built a decentralized protocol for hedging risk on ERC-20 tokens. While using Opyn itself does not create a way that users would earn COMP, its application may be more valuable in a highly volatile market like the one created by COMP’s release into the wild.

Read more: Options Protocol Brings ‘Insurance’ to DeFi Deposits on Compound

When Opyn creates a hedge, it also tokenizes it. So if a user buys a hedge against ETH dropping they get oETH. With so many users converting USDT into Compound deposit tokens, cUSDT, the ever-lingering concerns about tether have become salient to Opyn’s community.

“We’ve seen user demand for ocUSDT (protection on USDT deposits in Compound) as lots of DeFi users have been attracted to the COMP incentives for USDT,” Opyn co-founder Alexis Gauba told CoinDesk. 

With the price of COMP going so high so suddenly, there has been discussion on Twitter of creating a hedge for the governance token. 

Gauba wrote, “The Opyn team does currently have plans for an oCOMP token, however, the protocol is completely open and supports options on any arbitrary ERC-20 token, so anyone could create an oCOMP token!”

Related Stories

• OpenZeppelin Discloses ‘High Severity Vulnerability’ in DeFi Wallet Argent
• First Mover: Compound’s COMP Token More Than Doubles in Price Amid DeFi Mania

Tether’s volume on decentralized lender platform Compound has soared as traders try to maximize the amount of COMP they receive.

Data from Compound shows the supply of the USD-backed stablecoin has quadrupled from roughly $43.7 million at the start of the week, to over $224 million on Friday. This time last week, USDT supply had just about crossed the million-dollar mark.

With 2,000 suppliers (lenders) and just over 400 borrowers, USDT one of the largest and most active lending markets on the Compound protocol. For comparison, the supply for USDC, another stablecoin, is currently just under the $170 million mark – although the number of lenders is far higher at over 5,500.

Related: DeFi Startups Built on Compound Weigh What to Do With $200 COMP Tokens

“USDt’s growth on Compound has been faster than the growth of any other asset in the protocol, by multiples,” said Calvin Liu, Compound’s strategy lead, in a statement.

See also: A Coinbase Pro Listing and Other Eye-Opening Data Points on Compound’s Surge in Demand

This bookends a rather manic week for Compound. Total value locked (TVL) has been on a near-vertical trajectory since the release of its new governance token, COMP, on Monday – it broke past the $100 million boundary on the same day, for the first time.

At the time of writing, TVL stood at just under $400 million, according to data site DeFi pulse.

Related: Blockchain Bites: COMP x2, Reddit Scales and Factom Goes Bankrupt

One of the reasons for Compound’s soaring popularity this week might be that users are trying to receive as much COMP tokens as they can. The platform rewards all activity with COMP, so both lenders and borrowers are directly incentivized to use the platform as much as possible.

This incentive has created a feeding frenzy as COMP soars in price. The token price has more than doubled in the past 24 hours to $200. The rise has been so rapid that aggregation sites are flashing different numbers for market value. At press time, DeFi Market Cap gave Compound a market cap of $1.9 billion, whereas CoinGecko had gone for a more conservative $500 million.

Automated market maker Curv told CoinDesk earlier this week that it was seeing users depositing USDC as collateral to borrow USDT and using that borrowed USDT as a deposit for borrowing the USDC back again. Some users repeat this process up to 30 times – the maximum leverage on Compound – which they use to maximize their COMP allocation.

See also: As Tether Supply Hits Record Highs, It Moves Away From Original Home

CoinDesk asked Tether whether it thought the surge in USDT supply on Compound could be users trying to game the system.

“It wouldn’t be appropriate for Tether to comment on this,” the spokesperson said.

Related Stories

• OpenZeppelin Discloses ‘High Severity Vulnerability’ in DeFi Wallet Argent
• First Mover: Compound’s COMP Token More Than Doubles in Price Amid DeFi Mania

A little-known virtual currency fund heavy on math and statistics is turning a steady profit under a lead trader who once oversaw a major cryptocurrency exchange.

Galois Capital, a San Francisco cryptocurrency hedge fund that launched in January 2018, said in an investor letter and financial filings that it increased its holdings from $10 million to $23 million in two years with high-frequency trading and funds from new investors lured by returns. A quantitative fund manager, Galois Capital computationally makes bulk volumes of speedy, precise trades shaped by its founder and lead trader Kevin Zhou, previously head of trading at American cryptocurrency exchange Kraken, and a team of technical talent.

“Most of us are math, physics or computer science folks,” Zhou told CoinDesk, adding that highly sought International Mathematical Olympiad competitors have been sending in their resumes. 

Related: Kraken Launches Crypto Exchange Service in Australia

Quantitative approaches to trading are wide-ranging. They might encompass regression modeling, direction and magnitude calculations for price prediction or stochastic processes for volatility modeling and options pricing, Zhou said. On the technology side, programming interfaces, trading software and hardware equipment enabling fast communications and data analysis with exchanges are used.

Galois Capital built much of this architecture from the ground up, with custom tools such as co-located servers and network adapters, due to what Zhou cites as a dearth of heavy-duty options for cryptocurrency traders found at Hudson River Trading and Jane Street Capital, two of the biggest Wall Street quantitative trading funds. 

Read more: Hedge Fund Pioneer Turns Bullish on Bitcoin Amid ‘Unprecedented’ Monetary Inflation

Overall, the quantitative bent is still relatively tame at Galois Capital. For Zhou, sophisticated trading models and technologies, such as the machine learning software the fund experimented with and shelved, are sometimes overkill in this era of cryptocurrency markets.

Related: Kraken

“What works is a lot simpler than what would work in traditional markets,” said Zhou. “Some of these models that we have right now would not work in traditional markets, in more mature and more efficient markets.”  

While trading is easier in the crypto-asset class than in traditional asset classes, Zhou said, the field has gotten more competitive since he managed from 2013 to 2017 at Buttercoin, a bygone bitcoin exchange backed by Silicon Valley-located startup incubators Google Ventures and Y Combinator, and from 2015 to 2017 at the trading desk at Kraken.

At Buttercoin, “the sizes of transactions were a lot smaller. The spreads were a lot bigger. I remember there were days where you were getting 100 bps [basis points] just trading $100,000,” said Zhou. “At Kraken, spreads tightened up a bit. It was like 40, 50 bps on $200,000. Now, it’s a lot tighter, probably a million dollars gets 10, 15 bps.” A spread is the difference between a financial instrument’s bid and ask price; a “bp” (pronounced “bip”), or a basis point, reflects a 0.01% change in a financial instrument’s value.

Considering Kraken is valued at $4 billion and processes millions of dollars in cryptocurrency flows each month, Kraken’s trading desk was an all-seeing looking glass into why cryptocurrencies are bought and sold in a large corner of the market. It gave Zhou a knack for sizing up counterparty motivations with Galois Capital’s programmed trades, where the other trading actor is faceless.

“When you’re market-making with bots on all these different exchanges, you don’t actually get matched up with on the other side,” Zhou said. At Kraken, his trading desk dealt with miners and investors, up close and personal, who gave context into their market movements. “So just being able to read Kraken’s book,” as in the exchange’s record of buy and sale orders, “is definitely informative.”

Market-making as a “safer” line of business

In terms of trading volume, Galois Capital went from processing $671 million to $1.4 billion between 2018 and 2019, the investor letter says. While non-algorithmic trades shrunk from $666 million to $562 million, its algorithmic trades blew up from $5 million to $876 million to enlarge the fund’s share in crypto-asset markets.

According to Zhou, about 85% of Galois operations are geared towards liquidity provision, matching crypto-assets at prices quoted by bidders, similar to services offered by Genesis Trading, Cumberland DRW and Circle. The other 15% of operations were focused on hedge fund management of cryptocurrency plays. Galois Capital started with over-the-counter (OTC) trading — manual liquidity provision and Zhou’s specialty at Kraken — and branched out into algorithmic market-making — automated liquidity provision — and discretionary trading.

With market-making, generally you don’t want to be holding onto risk for that long. What I mean by that is more than 30 seconds.

“Liquidity provision in the traditional markets is handled by prop shops rather than hedge funds. So we’re in kind of a unique situation in that most crypto funds are long only in these different tokens, or they’re long-short and look at factors like trying to detect momentum signals and reverse signals,” Zhou said.

“I want to be able to generate profits regardless if the market’s moving up or down, regardless if there’s momentum or reversion, just based on the micro-structure of the market, just based on providing compensation for providing liquidity to the market,” Zhou said. “To me, that seems a lot safer and generally, as a trader, I’m more conservative.”

Long-short, but for the short term

Galois’ hedge fund wing, which emphasizes derivatives, quantitative long-short and discretionary long-short trades, as of January 2020 netted to-date 29.5% for a Class A fund and 53.5% for a Class B fund. (The funds charge different fees on investment subscriptions, which begin at $50,000 an investor.) The two-year returns outdid several benchmarks over the corresponding period, such as a 20.8% S&P 500 gain, a 46.6% bitcoin loss, a 32.6% cryptocurrency hedge fund loss and a 4.6% non-cryptocurrency hedge fund gain, according to the CoinDesk Bitcoin Price Index and Eurekahedge return indices.

The Class A fund was, however, more volatile than the Class B fund: According to the investor letter, the Class A fund tumbled 22.4% in 2018 and spiked 66.8% in 2019; the Class B fund ticked up 33.9% in 2018 and 19.3% in 2019. 

“We don’t really have that much of a long-term portfolio that holds the large positions longer. For us, a lot of this is just very short-term inventory balances,” Zhou said to CoinDesk. “With market-making, generally you don’t want to be holding onto risk for that long. What I mean by that is more than 30 seconds. So we’re usually flat on that exposure at any given time. And then, for very short periods of time, we’ll have short exposure in a number of different coins, but we’ll hedge that off very quickly.”

Read more: Mutual Fund Giant Vanguard Wraps Phase 1 of Digital Asset-Backed Securities Pilot

Galois Capital opened cryptocurrency futures and swaps in April 2019 and long-short trades in August 2019 to more cheaply hedge spot exposure and arbitrage price disparities with derivatives, the investor letter says. It will also initiate cryptocurrency options trades on the Deribit exchange in the fourth quarter of this year, but the plans are tentative to exercise caution over low and therefore risky options volume. Deribit alone trades less than $50 million a day.

Galois Capital has done some notable long-short trades, such as going long bitcoin at $3,750 in December 2018 and buying the FTX crypto-derivatives exchange’s FTT coin at $0.10 in April 2019, according to the letter.

The firm took the optimistic bitcoin position at a market low on the view that industry-wide hedge fund investment redemptions had subsided, that a crash in initial coin offerings — virtual currency investment structures highly correlated to bitcoin — had bottomed out and that legal measures surrounding Mt. Gox bankruptcy proceedings had abated bitcoin selling pressure.

And, due to a close relationship with FTX’s parent company Alameda Research, Galois Capital saw FTT as undervalued at the time of its investment. The coin sale was “very rushed and did not tap all of the available capital” despite “a surplus of demand on the sidelines,” the investor letter says. Galois Capital exited the FTT long position at a price between $0.80 and $1.94 while retaining some holdings of the coin.

In the coming year, Galois Capital will trade against its own market-maker, combining its liquidity and hedge fund services. Borrowed from traditional prop trading shops Two Sigma, Jump Trading and Tower Research, the strategy is aimed at improving long-short trading efficiency. According to the letter, Galois long-short traders have accidentally taken opposite positions and strive to trade independently without confusing each other’s profits and losses.

Related Stories

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The U.S. Securities and Exchange Commission (SEC) moved to halt an allegedly fraudulent digital asset investment fund run by two Pennsylvania brothers.

The SEC announced Friday it had filed a temporary restraining order and asset freeze against Sean and Shane Hvizdzak and their corporate entities, alleging the brothers stole millions from victims who thought they were investing in high-growth crypto opportunities.

Investors had been told they were getting in on a high-growth fund that doubled its money in a single quarter and grew an additional 90% the next, according to the SEC. The Hvizdzaks ran multiple firms, including “Hvizdzak Capital Management” (HCM), “High Street Capital” (HSC) and a fund, High Street Capital Fund USA, LP.

Related: Centra Tech Co-Founder Pleads Guilty to Fraud After $25M Token Sale

According to the SEC, the Hvizdzaks have moved nearly $26 million into personal accounts from the $31 million the investment firm HCM has held since 2019. They alleged that bank records document at least $3 million in misappropriations and suggest millions more.

A court filing claims the two used their personal Gemini accounts to convert dollars to digital asset equivalents, with these funds being transferred “to various custodians and trading platforms including platforms outside the [U.S.] and to unattributed addresses on multiple blockchains.”

The filing alleges at multiple points the two diverted investor funds to personal accounts.

The charges and legal action may complicate the narrative of Shane Hvizdzak, a one-time professor at local universities and lecturer at crypto events staged at Harvard and MIT. In a bio for one webinar held at Harvard, he is described as a “successful cryptocurrency trader and algorithm engineer that has generated over 1,400% in profit” in a five-month span.

Related: Crypto Exchange Owner Admits Laundering $1.8M in Online Auctions Fraud

The legal action comes a day after Bradford, Pa., residents watched FBI agents converge on the office of High Street Capital LLC.

Related Stories

• Three Arrows Capital Now Holds More Than 6% of Grayscale’s $3.6B Bitcoin Trust
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The COMP governance token is seeing massive gains (increasing more than 270% day over day, according to CoinDesk’s First Mover team), as well as potential listings on Coinbase Pro and CoinFlip, a crypto ATM network.

This wild, retail-driven speculation is also driving value into Compound’s smart contract. With $395 million locked up, Compound is gunning for the position of DeFi king, long occupied by the MakerDAO protocol. By another metric, COMP has already surpassed MKR in fully-diluted value, according to DeFi Marketcap. 

You’re reading Blockchain Bites, the daily roundup of the most pivotal stories in blockchain and crypto news, and why they’re significant. You can subscribe to this and all of CoinDesk’s newsletters here. 

Related: OpenZeppelin Discloses ‘High Severity Vulnerability’ in DeFi Wallet Argent

What this points to is a possible sea change in the DeFi lending standard. Compound is a lending protocol that allows users to leverage deposits and algorithmically sets interest rates based on demand. COMP, the protocol’s governance token, will let holders vote on development decisions, including which types of collateral to accept. 

Only launched Monday, with about 10,000 of the 4.2 million tokens set aside for community members in circulation, it’s impossible to gauge what comes next. To put it in Mythos Capital Founder Ryan Sean Adams’ words, “Stocks drunk. DeFi sober. I wrote that Monday. I jinxed us. Cause DeFi’s drunk now too.”

Top shelf

DeFi Darling
DeFi has been completely overtaken by Compound this week. As long as the token’s price remains above $100, the effective market cap of COMP, the new governance token, is more than $1 billion, though many of the tokens are illiquid. It’s hard to predict what will happen – as only approximately 10,000 of the 4.2 million tokens set aside for community members have been released, though here are a few staggering data points: 

• Coinbase Pro announced Thursday it will list COMP next week, after investing in Compound’s $8.2 million seed round in 2018.
• More than 10% of the total supply of USDC, the stablecoin created by Circle and Coinbase, is currently locked on Compound.
• The total amount of tether (USDT) on Compound is up almost 8,000% since June 11.
• FTX and FTX US will both list COMP as well as cUSDT, the Compound version of tether.

Ethereum’s Progress: Reddit and Hard Forks
Reddit announced a partnership with the Ethereum Foundation to find a Layer 2 scaling technique for its Ethereum-based “Community Points” system, which may expand to the site’s 430 million users. These tokens are earned by garnering “upvotes” on posts and can be used to purchase specialized GIFs or emojis. While ZK-Rollups and Optimistic Rollups are product-ready L2s, they are targeted for exchanges. “Many of these designs don’t take into consideration the costs of obtaining tokens or entering the scaling system, which can be significant,” Reddit states. “Community Points distributions have cost an order of magnitude more gas than all other operations combined, primarily due to on-chain storage costs associated with on-boarding new users.” Applicants are asked to submit proofs-of-concept by July 31 with reviews concluded by September. 

Related: First Mover: Compound’s COMP Token More Than Doubles in Price Amid DeFi Mania

Ethereum’s consensus algorithm is not the only thing changing with the launch of Eth 2.0. The underlying cryptography itself is getting an overhaul based on leading research out of the Electric Coin Company. Called BLS12-381, a new elliptic pairing curve will securely coordinate transactions on the proof-of-stake Eth 2.0 network, while opening up opportunities for data savings and privacy-tech solutions. The curve is slated for introduction at Ethereum’s next hardfork, Berlin, slated for July.

Bankruptcy & Cut Backs
Factom declared voluntary bankruptcy, saying it is currently not in a position to pay as much as $7.5 million in debts. Chapter 11 allows firms to restructure and pay creditors over time. The company’s board submitted its reorganization proposal with its bankruptcy filing, which will be evaluated by administrators. The company has raised $18 million from investors in a series of funding rounds. Elsewhere, Wirecard CEO Markus Braun resigned Friday, after an audit by EY found 1.9 billion euros (over $2 billion) worth of cash balances the German payment processor could not account for. (The Block) Lastly, We.trade has reportedly laid off around 50% of its staff, representing about 12 employees. (The Block)

Election 2020
Blockchain voting may be coming to a phone near you, but that doesn’t mean technologists, politicians or voters are happy about it. “There are a lot of companies working on election technology selling digital snake oil – overpriced junk that has never been tested by independent experts, or that we already know isn’t secure,” said U.S. Sen. Ron Wyden (D-Ore.) in an email. “Cybersecurity experts agree that hand-marked paper ballots are the safest way to vote.” Voatz, the most prominent blockchain voting app, has a range of security flaws, as uncovered by researchers, but also contains promise. “It’s up to voters, lawmakers and elections officials to decide if it’s a risk they’re willing to take,” CoinDesk’s Ben Powers said. 

Partnerships, Expansions & Products
ParaFi Capital, a San Francisco-based investment firm focused on blockchain, has invested in Kyber Network and partnered on its KyberDAO project. Meanwhile, Komainu, a venture involving Nomura Holdings, CoinShares and Ledger, officially launched Wednesday. Based in the U.K.’s Jersey Channel Islands, the new business serves as a custodian and provides regulatory compliance and insurance services to institutional investors for their digital asset holdings. Independently, the Google-backed, blockchain-powered internet-of-things startup Helium is looking to expand into Europe after already moving into over 1,000 U.S. cities. (Decrypt) Finally, EY launched CryptoPrep, a cryptocurrency application that helps its U.S. users with tax filings. (The Block)

He Said…
Galaxy Digital, a crypto merchant bank, which has never turned a profit, is banking on institutional investors to turn the company’s fortunes around. CEO Mike Novogratz said while bitcoin started out as a “retail-driven, people’s revolution,” his “intuition” is there’ll be a “big [institutional] take up in the next six to 24 months.” “If very few hedge funds get into the space, then my company’s going to suck.” Elsewhere, Jimmy Nguyen, president of the Bitcoin Association, the entity behind Bitcoin Satoshi Vision (BSV), accused Binance of hypocrisy after news came out earlier this week the exchange’s new mining pool was now the largest verifier on the BSV protocol. Nguyen said it was a “little too ironic” that Binance delisted BSV from its main exchange in April 2019 but sees it as economically worthwhile to mine. Meanwhile, Juggernaut’s John Cantrell was able to hack his way into a wallet containing 1 BTC as part of Alistair Milne’s social experiment. He reportedly checked over a trillion combinations of words, using several dozen GPUs rented from a cloud provider, to unlock the wallet. (Decrypt)

Market intel

Bitcoin Hoarding 
Miner outflows of bitcoin have dropped to decade lows, with analysts suggesting a hoarding mentality is partly responsible. The seven-day average of the total amount of bitcoin transferred out of miners’ addresses declined to 987 on Thursday, hitting the lowest level since Feb. 3, 2010, according to data source Glassnode. The previous decade low of 988 was registered on May 23. “It is a sign of efficient miners continuing to hoard (only selling a proportion of BTC),” said Asim Ahmad, co-chief investment officer at London-based Eterna Capital.

Opinion

Censorship or Speech?
Jill Carlson, a CoinDesk columnist and co-founder of the Open Money Initiative, sees both sides of the argument over tearing down public statues of ignominious men. As Boris Johnson said, it’s a form of censorship, while the ancient Romans practiced damnatio memoriae, where they would ritualistically deface statues of former leaders. Carlson’s take? “By all means, continue to educate generations to come about these men. Educate generations to come about these statues. And finally, educate generations to come about why some of these statues were defaced or removed. Removing or altering monuments to fit the morals and values of the day is not censorship. It is an act of speech in and of itself.”

Podcast

Its Just My Job, Folks.
This week’s U.S. jobless report brought bad news. Whereas economists expected new claims to fall to 1.29 million from 1.57 million the week before, claims fell just 58,000 to 1.51 million. In the latest episode of The Breakdown, NLW looks at the mixed signals, confusing analysis, short-term shocks and demand destruction that lay behind these figures. 

Who won #CryptoTwitter? Related Stories

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Almost a month after announcing its proposal to migrate to the Solana Blockchain, the Kin cryptocurrency project announced Friday the move had been approved by its board and community, and a transition plan would be released in the coming weeks.

The Kin Foundation said in a press release the move to Solana’s blockchain was in response to a growing user base, which was hitting limitations on the Stellar blockchain fork the cryptocurrency is currently built on. According to the firm, the cryptocurrency currently has over 3 million active monthly spenders and has been integrated into 57 different, mostly mobile, applications. 

App developers, node operators and the Kin Foundation’s board members (Ted Livingston, who founded the Kik messaging app and is the face of Kin, and William Mougayar, an author who hosts the annual Token Summit conference) voted on the proposal, which was released on Github last month.

Related: Stellar Proposes Changes Allowing Exchanges to Better Enforce Regulations

“They had already been pushing against the limits of the Stellar fork,” Mougayar said

He said a rise in users meant that the Kin cryptocurrency needs to be able to process more than 100 transactions per second, which is the upper limit on the Stellar fork. 

According to Anatoly Yakovenko, Solana’s co-founder, the blockchain can handle up to 60,000 transactions per second on its current mainnet. 

“In addition to speed, Solana’s natural ability to scale turned out to be a major determining factor in their (Kin’s) decision,” Yakovento told CoinDesk. 

Related: Stellar

This is also not the first time the cryptocurrency has changed blockchains. Launched by Kik in 2017, Kin was originally built on the Ethereum blockchain, but a few months later it announced that it would use Ethereum for security and the Stellar blockchain for transactions. Then in May 2018, Kin announced that it would fork Stellar’s blockchain to create its own.

According to the firm’s emailed statement, as part of the crypto’s transition to Solana, the blockchain firm has also promised to give 1% of all of Solana’s token supply (amounting to $3.5 million) as grants to the Kin Foundation. 

Even as Kin continues to expand its user-base, the regulatory troubles it faced in the past have continued to persist. 

“Kin is not getting much recognition in the marketplace, unfortunately because of the SEC [U.S. Securities and Exchange Commission] darkcloud,” Mougayar said.

Related Stories

• Stellar Throws SatoshiPay a $550K Lifeline After Coronavirus Knocks Out Series A
• Fed Up With Its Fork of Stellar, Kin Is Looking to Move Onto Solana

A “high severity vulnerability” was found and patched in Ethereum wallet Argent, according to leading white-hat hackers OpenZeppelin.

Disclosed Friday, OpenZeppelin security researcher Alice Henshaw discovered a vulnerability within Argent that would have allowed user funds to be drained from wallets that did not have Argent’s “guardian” feature. 

According to an OpenZepplin blog post and press release, news of the discovery was first shared with Argent on June 12:

Related: Blockchain Bites: COMP x2, Reddit Scales and Factom Goes Bankrupt

“OpenZeppelin’s research revealed an error in the latest version of Argent’s smart contracts that would allow anyone to trigger the wallet recovery process without a signature – on any wallet with zero guardians – as soon as the wallet is upgraded.”

If attacked, users had only 36 hours to prevent drainage of wallet funds. Even then, users could have their funds frozen through a Denial-of-Service (DoS) attack, OpenZeppelin wrote.

According to Henshaw, the vulnerability stemmed from a March 30 wallet update. OpenZeppelin said 329 wallets with 162 ether (ETH) and undisclosed decentralized finance (DeFi) tokens were at risk. Another 5,513 wallets were vulnerable as well, once they updated to the new Argent software, the blog states.

No Argent funds were affected and a patch has been issued, according to the firm. Henshaw received $25,000 in dai as compensation.

Related: First Mover: Compound’s COMP Token More Than Doubles in Price Amid DeFi Mania

“Only 61 wallets without Guardians and with the affected update were at risk,” Argent spokesman Matthew Wright told CoinDesk. “Our security model meant they had 36 hours to block it by simply tapping ‘Cancel’ in the app. 0 funds were lost. We think it highlights the benefits of having an open-source security model and we’re happy to award OpenZeppelin a bounty for their work.”

Argent acknowledged the vulnerability in a tweet Friday morning, thanking OpenZeppelin for its work:

In March, Argent raised $12 million in a Series A led by Paradigm Ventures. The wallet natively integrates with popular DeFi products such as Maker and Compound.

“The vulnerability discovered by our security researchers could have led to many users losing control of their funds as they upgraded to the latest version of the Argent wallet,” OpenZeppelin CEO Demian Brener said in a statement. “The Argent team has taken quick action to fix this issue so that no user funds were impacted.”

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The speculative fervor surrounding the autonomous lender Compound’s new digital token rose another notch Thursday as its already relatively lofty price more than doubled in 24 hours. 

The rapid ascent of the COMP “governance” token comes as something a surprise given it was released just Monday and is still only trading on a handful of lesser cryptocurrency exchanges. 

You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to. You can subscribe here.

Related: Blockchain Bites: COMP x2, Reddit Scales and Factom Goes Bankrupt

The token is so new that not even cryptocurrency data sites are using consistent methodologies for deriving COMP’s market value. The website DeFi Market Cap bases the calculation on the 10 million tokens in existence, for a market value of about $2 billion. But CoinGecko bases its figure on a circulating supply of 2.56 million tokens, for a market value of $537 million.

COMP may have gotten an extra jolt Thursday, when the big U.S. exchange Coinbase, which was an early investor in Compound, announced in a blog post that Coinbase Pro accounts could start trading the tokens next week in all supported jurisdictions except New York State. 

CoinDesk’s Brady Dale reported CoinFlip, which runs a bitcoin ATM network in the U.S., would list the dollar-linked stablecoin USDC on its machines, partly due to COMP-related demand.

The crypto exchange FTX also now plans to list COMP along with a suite of derivatives that will allow traders to make leveraged bets on the token’s price, Dale reported. 

Related: OpenZeppelin Discloses ‘High Severity Vulnerability’ in DeFi Wallet Argent

The apparent runaway success of the token offers a glimpse into just how frenzied the speculation has become over the future of decentralized finance, or DeFi – blockchain-enabled systems, mostly using the Ethereum network, that allow for the lending and trading of cryptocurrencies and other digital assets, without the need for trusted intermediaries like banks and centralized exchanges. 

“DeFi is hitting its stride and the space will continue to accelerate,” the research firm Delphi Digital wrote Wednesday in a report.

Mythos Capital Founder Ryan Sean Adams put it more bluntly on Twitter Thursday, posting an image of the reconfigured DeFi market-cap rankings beneath a succinct remark: “DeFi’s drunk.” 

As of Friday, COMP tokens were changing hands at about $230, for a gain of more than 270% in 24 hours, according to market data site CoinGecko.

The COMP digital coins are known as “governance tokens” because they give holders a right to vote on decisions affecting the management of the protocol, such as technical upgrades or whether to incorporate new assets onto the platform. Eventually, according to cryptocurrency research firm Messari, holders might also be able to get a share of fees paid into the system or vote to  buy back tokens – similar to stock buybacks. 

The 10 million COMP tokens in existence include stakes held by Compund executives and early investors such as Coinbase and the venture capital fund Andreesen Horowitz. COMP’s splashy arrival on the DeFi scene means it’s now already vying for top slot with Maker’s MKR, the next-biggest token in the ecosystem of decentralized finance, or DeFi. Messari puts MKR’s market cap at $515 million.

COMP’s rally appears to be based on bets on a future shakeup of the competitive landscape, since the Compound protocol still ranks behind Maker in terms of total value locked in DeFi. As of Thursday, some $323 million of value was locked in the Compound protocol, compared with Maker’s $494 million.  

“For basically all of DeFi, Maker has been the king of DeFi, and it has had the canonical tokens,” FTX CEO Sam Bankman-Fried told CoinDesk in a phone interview. “One thing the markets are implying right now is that Compound is making a serious run for that crown.”

According to Dale, traders are depositing tokens onto the Compound platform, usually USDC stablecoins, and then borrowing other tokens, such as tether, another dollar-linked stablecoin – to maximize their usage; COMP tokens are awarded daily to users of the system, as an incentive. Traders can then turn around and swap the borrowed tether back into USDC to put into Compound and maximize their COMP earnings.  

Even some involved in COMP governance have expressed concerns that the tether market is being manipulated by COMP token harvesters.

“I wouldn’t read too much into the current price,” Haseeb Qureshi, managing partner of Dragonfly Capital, told Dale in an email. 

Even before Compund’s release, SesameOpen Co-Founder Henry He had warned that the COMP tokens might get caught up in a speculative cycle. 

“One thing for sure is that the COMP market value will grow way higher than its intrinsic value, and at some point, the COMP market value will start to go down,” He wrote in a June 6 Medium post. “Then it will trigger a negative amplifying force. Lower COMP value will reduce incentives, which will cause borrowers and suppliers to leave, which will generate less interests, which will further drive down COMP value.”

As crypto traders know all too well, the amplifying forces can work both ways. 

Tweet of the day Bitcoin watch

BTC: Price: $9,410 (BPI) | 24-Hr High: $9,460 | 24-Hr Low: $9,236

Trend: Bitcoin’s multi-week period of low-volatility consolidation continues amid conflicting signals from the options market.

The one-month put-call skew, which measures the price of puts relative to that of calls, has increased to 9.2%, the highest level since May 27, according to data provided by the crypto derivatives research firm Skew. The positive number indicates that puts (bearish bets) are costlier or drawing higher demand than calls (bullish bets).

Meanwhile, three-month and six-month skews are hovering below zero, a sign calls are more expensive than puts.

The mixed data suggests investors are cautious about bitcoin in short-term, but hold a long-term bullish view, as tweeted by Skew. To put it another way, the options market expects price pullbacks, if any, to be short-lived.

Bitcoin is trading near $9,410 at press time, representing a slight decline on the day. The cryptocurrency, however, has been stuck in a range between $9,000 and $10,000 roughly since the beginning of May.

A high-volume range breakdown could be followed by quick slide to the 200-day simple moving average (SMA) at $8,239. Meanwhile, a break above the range would shift the focus to $10,950 (September 2019 high).

A breakout looks the more likely if we take into account bullish developments on the three-day chart.

Related Stories

• Outflow of Bitcoin From Miners at Lows Not Seen Since 2010
• ParaFi Invests in Kyber Network as Buzz Grows Around DeFi Projects

Ethereum’s consensus algorithm is not the only thing changing with the launch of Eth 2.0. The underlying cryptography itself is getting an overhaul based on leading research out of the Electric Coin Company.

Called BLS12-381, the new elliptic pairing curve will securely coordinate transactions on the proof-of-stake (PoS) Eth 2.0 network, while opening up opportunities for data savings and privacy-tech solutions. 

Currently, the ins and outs of that curve are being baked into the network with Ethereum Improvement Proposal 2537. That EIP is slated for delivery with the protocol’s 10th hard fork, Berlin, tentatively scheduled for July.

Related: OpenZeppelin Discloses ‘High Severity Vulnerability’ in DeFi Wallet Argent

As a hard fork, Berlin will add up to four backwards-incompatible upgrades, two of which continue to be vetted and may ultimately not be included (all though that remains unlikely given all four EIPs are being implemented on various levels by each Ethereum client). 

A test net, Yolo, conducting dry runs without applications, is currently underway for EIP 2537 and one other proposal, EIP 2315, which will add “simple subroutines” to the Ethereum Virtual Machine (EVM). 

For Eth 2.0, EIP 2537 is an introduction into the interesting cryptography work underpinning the new network while answering a question Ethereum co-founder Vitalik Buterin has been pondering since the network’s early days.

From 1.x to 2.0

In order to launch Eth 2.0, a technical bridge must exist between Ethereum’s existing Eth 1.x and Eth 2.0. 

Related: Reddit Seeks Scaling Solution for Ethereum-Based ‘Community Points’

BLS12-381 undergirds one such option by building an Eth 2.0 “lite client” inside the current Ethereum network, according to an April Medium article by Ethereum developer Alex Stokes.

In short, Eth 2.0 will roll out in steps, beginning with Phase 0 in Q3 2020. Phase 0 will begin with the beacon chain, a coordination mechanism for investors staking funds. In PoS networks like Tron or EOS, staked funds operate as a voting mechanism and incentive to partake in verifying transactions.

Read more: Vitalik Buterin Clarifies Remarks on Expected Launch Date of Eth 2.0

Eth 1.x operates on the Proof-of-Work (PoW) algorithm and has a wholly separate cryptographic schematic called Elliptic Curve Digital Signature Algorithm (ECDSA), also employed by Bitcoin and other cryptocurrencies.

But in order to bridge the PoW and PoS networks a common tongue is needed. 

That’s what EIP 2537 does – by providing a cryptographic translator between the two networks in what is called a precompile of the underlying primitives of Eth 2.0. This precompile makes a lite client possible.

In practice, a lite client would be built as a smart contract inside the EVM. Its main purpose, given the client’s limited functionality, would be to port ether (ETH) over to the new chain, a prerequisite for boarding people onto the new network.

Additionally, Layer 2 (L2) solutions for scaling Ethereum and Eth 2.0 could be built on the lite client, Ethereum co-founder Vitalik Buterin said in an April Ethereum Magicians post.

“If we have that, then an eth2-in-eth1 client is actually not that hard, which opens the door to applications that use eth2 as an availability engine (ie. things like Plasma but waaay more powerful),” Buterin wrote.

Finding the right primitive

The next iteration of Ethereum has far larger ambitions than the ECDSA can handle. Luckily, 10 years of cryptocurrency research has borne fruit in at least one subject: cryptography itself, Cloudflare cryptographer Nick Sullivan said in an interview with CoinDesk. New curves such as BLS12-381 prove as much.

“Elliptic curves have been around since the mid-1980s,” Sullivan said. “The problem is that they’re somewhat limited in what they can do. They can do effectively classical public-key operations: digital signatures, encryption and key agreement.”

Alternatively, “pairing friendly” curves invented in the early 2000s provide alternative security measures that aptly apply to blockchains, Sullivan said.

Invented in 2017, Electric Coin Company cryptographer Sean Bowe’s BLS12-381, a variant of the BLS curve invented by three cryptographic pioneers in 2003, is perhaps the most consequential for most coins today. His curve, and others like it, are the reason blockchains can scale.

“BLS12-381 is a special kind of elliptic curve (a ‘pairing-friendly’ curve) which enables cryptographic primitives like SNARKs and vector commitment schemes,” Bowe said in an email. “These primitives are very useful for improving scalability and privacy in blockchain projects.”

BLS and Eth 2.0

For Eth 2.0, the advantage can be cut into three parts: data savings, privacy and interoperability.

First, BLS-styled signatures keep the necessary computation light by batching cryptographic signatures that verify transactions, according to Ethereum researcher Carl Beekhuizen in an Ethereum Foundation blog post. 

Beekhuizen wrote:

“If 10% of all ETH ends up staked, then there will be ~350,000 validators on eth2. This means that an epoch’s worth of signatures would be 33.6 megabytes which comes to ~7.6 gigabytes per day. In this case, all of the false claims about the eth1 state-size reaching 1TB back in 2018 would be true in eth2’s case in fewer than 133 days (based on signatures alone).”

(For reference, that’s equivalent to nearly three times the weight of the current Bitcoin blockchain.)

BLS12-381 also allows Eth 2.0 to implement zero-knowledge proofs more naturally: Privacy variants of ETH could be native to Eth 2.0. In fact, BLS12-381 was hard forked into the Zcash protocol with the 2018 Sapling update as a more robust cryptographic primitive.

Moreover, the use of ECC tech on Ethereum highlights the close relationship between Buterin and Zooko Wilcox, co-founder of Zcash and the CEO of ECC. Both the ECC and Zcash teams have shown past interest in bridging the two technologies.

Read more: Zcash Will Get a Gateway Into Ethereum’s DeFi Ecosystem

Thirdly, the proposal opens up interoperability between different chains such as Filecoin, Chia or Algorand and Eth 2.0, a longstanding promise of multiple other blockchains networks such as Polkadot, which announced the launch of its mainnet earlier this month. 

Eth 2.0’s ability to connect with other projects – specifically non-Bitcoin ones – could materialize in a few different ways: Perhaps Ethereum shares its value across different chains or perhaps it siphons tech away from other projects, taking their market caps with it.

Either way, Cloudflare’s Sullivan remains impressed by the math:

“It’s a really fascinating curve of how things happen – from the mathematicians and the cryptographers writing about it in academic papers and then people in the engineering world started implementing it and testing it and then it’s getting introduced into projects and protocols and then being part of society. And then you end up in this position where there’s so many different options that it’s hard to know exactly which one to pick and why.”

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Miner outflows of bitcoin have dropped to decade lows, with analysts suggesting a hoarding mentality is partly responsible. 

The seven-day average of the total amount of bitcoin transferred out of miners’ addresses declined to 987 on Thursday, hitting the lowest level since Feb. 3, 2010, according to data source Glassnode. The previous decade low of 988 was registered on May 23. 

The number of coins being sent by miners to exchanges is also at its lowest point in over a year, as noted by Glassnode in its weekly report. 

Related: First Mover: Compound’s COMP Token More Than Doubles in Price Amid DeFi Mania

“It is a sign of efficient miners continuing to hoard (only selling a proportion of BTC),” said Asim Ahmad, co-chief investment officer at London-based Eterna Capital.

The increase in miner holding does not necessarily have long-term bullish implications for the cryptocurrency’s price. Miners tend to operate mainly on cash and liquidate their holdings almost on a daily basis to fund operations. 

As such, miner hoarding could be termed as temporary deferral of BTC sales, possibly due to fears that the market lacks the strength to absorb the regular amount of supply. Essentially, they may be waiting for the market to show strength and prices to rise before realizing their profits. 

See also: Bitcoin Mining Difficulty Makes Biggest Jump in 29 Months

Related: Market Wrap: Bitcoin Quiet at $9.3K While DeFi Gets Loud

The market, therefore, could face an above-normal miner supply during the next meaningful price rise. That, in turn, could put the brakes on a price rally. 

Hoarding aside, the other main reason for the decline in outflows is the reduction in bitcoin being mined since May’s reward halving, said Ahmad.

Indeed, transfer volume from miner addresses fell from 2,334 BTC to 1,034 BTC in the nine days following the May 11 reward halving, which reduced the per block emission by 50% to 6.25 BTC. 

That sharp decline in profitability forced out less inefficient miners, as evidenced by a drop in the seven-day average of the hash rate – the total computing power dedicated to mining blocks on the blockchain. That fell from 120 tera hashes per second (TH/s) to 90 TH/s in the two weeks following halving (though it’s since climbed as more efficient machines were switched on). 

Forced out miners, however, may return to bitcoin’s blockchain if prices rise sharply, making older hardware once again profitable.

Bitcoin is currently trading largely unchanged on the day near $9,370, according to CoinDesk’s Bitcoin Price Index. 

See also: Bitcoin Miner Maker Ebang Estimates $2.5M Loss for Q1 in IPO Prospectus Update

The cryptocurrency has been largely restricted to a narrow range of $9,000 to $10,000 since mid May. The direction in which the range is breached will likely set the tone for the next big move. 

Disclosure: The author holds no cryptocurrency at the time of writing.

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Once the lead proponent and builder of the Factom Protocol, Factom Inc. has been in financial difficulties for some time.

The Austin, Texas-based company has declared voluntary bankruptcy, saying it is currently not in a position to pay as much as $7.5 million in debts. “It is desirable and in the best interests of the Company and its stakeholders to file a voluntary petition for relief,” reads a submission seen by CoinDesk, filed in Delaware on Thursday.

Alarm bells started ringing in early March when Factom Inc. told investors it faced liquidation unless it received further funding by the end of the month. Although it received some interest, the company’s board announced March 31 that it would be wound up after being unable to find a lead investor.

Related: Factom’s Two Employees Press On Despite Investor’s Call to Liquidate

However, Factom Inc. has now opted to go the Chapter 11 route, which allows it to restructure the business and pay creditors over time. The company’s board submitted its reorganization proposal with its bankruptcy filing, which will now be evaluated by the administrators.

The company has raised a total of $18 million from investors in a series of funding rounds.

Factom Inc. Chairman David Jevans previously told CoinDesk the company’s closure will have no impact on the running of Factom Protocol, a trustless data provenance layer built on top of the Bitcoin blockchain.

See also: London Block Exchange Placed Into Compulsory Liquidation

Related: Factom Inc. ‘Faces Liquidation’ After Investors Refuse Request for More Funding

As part of the bankruptcy proceedings, Factom Inc. has publicly declared its balance sheet. Reading through, it’s clear the company, which once received a grant from the U.S. Department of Homeland Security, has been in dire financial straits for some years.

Losses have escalated since Factom Inc. launched in 2013. In the 2016 tax year, the company reported a $2.6 million loss, and another $4.3 million loss the following year. It appears the company tried to cut back after gross losses peaked at nearly $5 million in 2018; losses amounted to $4.8 million in 2019.

Although Factom cut employee wages by just under $390,000 between 2018 and 2019, compensation for company officers appears to have increased by over $260,000, according to the filing. The company also saw a significant $430,000 increase in “other deductions,” which includes legal fees.

CoinDesk approached Factom for further comment but had not received a response by press time.

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As Cambodia inches closer to establishing a blockchain-based digital currency available for public use, local users of the U.S. dollar are sharing anxiety about implications for the future value of their imported fiat.

Another day, another spat in the crypto space…

The president of the Bitcoin Association, the entity behind Bitcoin Satoshi Vision (BSV), has accused Binance of cherry-picking its relationships with the cryptocurrency project after news came out earlier this week the exchange’s new mining pool was now the single biggest verifier on the BSV protocol.

In a statement to CoinDesk, Jimmy Nguyen said it was a “little too ironic” that Binance, which delisted BSV from its main exchange in April 2019 and has been critical of the cryptocurrency, still considered BSV economically worthwhile to mine.

Related: Binance Joins Indian Tech Association That Helped Overturn Crypto Banking Ban

See also: Craig Wright Challenges Court Order Criticizing His Evidence in $4B Kleiman Case

“These actions speak far louder than the words: Binance spoke in April 2019 when it delisted BSV by saying the coin did not meet its supposed “standards.” The truth is BSV does meet Binance’s standards — for generating revenue from BSV when it chooses,” Nguyen said.

It emerged earlier this week that Binance Pool, which launched at the end of April, had become BSV’s biggest miner. On a seven-day moving average, Binance Pool made up just under 20% of the network’s total hashrate at press time.

About a year ago, Binance, along with several other exchanges including Kraken and ShapeShift, delisted BSV, in protest over the behavior of Craig Wright, one of BSV’s leading advocates, who has claimed, without evidence, to be bitcoin’s creator, Satoshi Nakamoto.

Related: Binance Launching Crypto Exchange in the UK

Wright had publicly threatened to sue anyone who called him a fraud. In response, many, including Binance CEO Changpeng (“CZ”) Zhao took to Twitter to do just that.

Zhao further called on the BSV community to kick Wright out of its ecosystem: “Anyone who supports BSV from a tech perspective should be attacking the fraudulent Craig Wright, who is poisoning YOUR community, and not attack the rest of the world.”

See also: Binance Launching Crypto Exchange in the UK

Earlier this week, CoinGeek, the cryptocurrency news site owned by Calvin Ayre, BSV’s billionaire backer and Wright supporter, suggested Binance had become BSV’s biggest miner so it could try and exert control over its price and to protect its own Binance Coin.

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ParaFi Capital, a San Francisco-based investment firm focused on blockchain and decentralized finance, has invested in Kyber Network ahead of its planned Katalyst upgrade.

Announced Friday, the two entities have also formed a new partnership that will see them work to prepare for the launch of KyberDAO with the intention of increasing adoption of Kyber’s on-chain liquidity protocol. KyberDAO is planned as a community platform for the decentralized governance of the network.

Coming at a time when decentralized finance, or DeFi, is booming, the investment from ParaFi was made in the form of an undisclosed direct purchase of Kyber Network Crystals (KNC), the project’s native token. Kyber Network is an Ethereum-based protocol that aims to aggregate liquidity and facilitate swaps for ERC-20 standard tokens.

Related: Market Wrap: Bitcoin Quiet at $9.3K While DeFi Gets Loud

Kyber aims to draw on ParaFi’s experience in decentralized finance (DeFi) as well as the firm’s knowledge of investing and market making to build liquidity infrastructure, the Kyber team said.

“ParaFi Capital has been a driving force in the governance and growth of DeFi. With their support and active participation in KyberDAO, we are confident that we can bring Kyber’s role as the liquidity layer for DeFi to the next level,” Kyber CEO Loi Luu said.

See also: Business Is Booming for DeFi Insurer Nexus Mutual Ahead of Ethereum 2.0

The investment firm will also participate in Kyber’s governance – community decision making – by staking KNC and voting on KyberDAO using its purchased tokens. Kyber said ParaFi will also connect professional market makers to DeFi through Kyber’s liquidity supply system called Fed Price Reserve (FPR).

Related: FTX Releases COMP Derivatives to Keep Up With DeFi Frenzy

ParaFi is best known for having received investment capital from billionaire Henry Kravis, co-founder of KKR & Co, back in June 2019. It’s also had backing from Bain Capital Ventures and Dragonfly Capital Partners. According to Crunchbase, ParaFi previously invested in crypto exchange Coinbase and stablecoin developer MakerDAO.

“We have been working closely with the Kyber team on their crypto-economic re-design and transition to a decentralized autonomous organization (DAO) with Katalyst. Kyber’s growth trajectory and breadth of integrations across the DeFi stack are impressive, as it evolves to become a liquidity protocol for the ecosystem,” Santiago Roel Santos, partner at ParaFi Capital, said.

DeFi has been a hot topic in recent days, with the emergence of Compound (COMP). The project which is carving out a sizeable portion of the DeFi market share, placing at the top of the list in terms of total market value. Capitalizing on the buzz, FTX, a crypto derivatives exchange, recently moved to list derivatives based the token just days after it launched.

See also: FTX Releases COMP Derivatives to Keep Up With DeFi Frenzy

“DeFi is really at the forefront of blockchain and crypto innovation,” according to David Freuden, co-author of a recent report titled “DAO – A Decentralized Governance Layer for the Internet of Value.”

“I believe DeFi protocols will continue to experience an explosion in interest for years to come,” he said.

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After two years of development, one of Japan’s largest investment banks has finally entered the digital asset custody business through a joint venture with two cryptocurrency startups.

Komainu, a venture between Nomura Holdings, CoinShares and Ledger, officially launched Wednesday. Based in the U.K.’s Jersey Channel Islands, the new business serves as a custodian and provides regulatory compliance and insurance services to institutional investors for their digital asset holdings.

CoinShares CEO and co-founder Jean-Marie Mognetti, who will run Komainu as well, said in a press release the venture will cater to traditional institutional investors such as banks, pension funds and mutual funds that want to enter the digital asset market. 

Related: This Liechtenstein Bank Can Now Custody Crypto

“Komainu has created the first turnkey solution that establishes the trust required by institutions to gain exposure to digital assets,” said Mognetti. 

Read more: CoinShares Hires WisdomTree Exec as Company Plans Expansion Outside UK

CoinShares, a digital asset trading platform, announced the venture with Ledger, the blockchain security firm, and Nomura, back in 2018.

Komainu is named after the statues of mythical “lion dogs” that guard the entrances to Japanese Shinto temples. Mognetti claimed the new custodial service offers the same level of security as cold storage solutions (where private keys are kept offline, on a device disconnected from the internet or a piece of paper locked in a safe) while allowing for the speed and user flexibility of online “hot” wallets.

Related: Crypto.com Lands Record $360M Insurance Cover for Offline Bitcoin Vaults

Mognetti said this was made possible by using a “bespoke Ledger-designed solution,” which combines hardware and software applications and is underpinned by a hardware security module (HSM), a physical device that stores and manages digital encryption keys. 

Komainu’s platform supports 20 cryptocurrencies, including bitcoin, ethereum, litecoin, and XRP. Mognetti said that while Komainu can support most protocols on the technological side, the firm would only take on tokens which satisfy anti-money-laundering requirements and have an identifiable origin. Komainu is regulated by the Jersey Financial Services Commission.  

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It’s a lethargic Thursday across most markets, including bitcoin. Yet, on a longer-term view, the big growth story remains the Ethereum network’s DeFi movement, which continues to help drive ether’s performance in 2020. 

Bitcoin (BTC) was trading around $9,395 as of 20:00 UTC (4 p.m. ET), gaining 0.97% over the previous 24 hours. 

At 00:00 UTC on Thursday (8:00 p.m. Wednesday ET), bitcoin was changing hands around $9,443 on spot exchanges such as Coinbase. It then dipped to as low as $9,365. While the charts were relatively flat Thursday, the price was below its 10-day and 50-day moving averages – a bearish signal for market technicians who study charts.  

Related: FTX Releases COMP Derivatives to Keep Up With DeFi Frenzy

Yet, not everyone sees the daily market action as bearish overall. 

“I’m not bearish until sub-$8,500,” said Josh Rager, a cryptocurrency trader and founder of educational platform Blackroots. “I’m not ruling out a pump, but we need to reclaim $9,800!” 

Read More: Bitcoin Still Undervalued After Q2 Rally, Price Metric Shows

Traders like action, and this week has been bereft of it so far. However, it is not stopping some from scooping up $9,400 bitcoin, said Michael Gord, CEO and co-founder of brokerage Global Digital Assets. “There has always been a brief accumulation phase following each halving and each accumulation phase has gotten longer as the market has matured,” he told CoinDesk.

Related: Delta Exchange Launches Crypto Interest Rate Swaps

Read More: Bitcoin Halving 2020, Explained

“The market has been very flat over the month of June,” said Denis Vinokourov, head of research for digital asset brokerage Bequant. “But there is room for a break out next week heading into options and futures expiry dates.” 

Indeed, there are a number of bitcoin options expiring next week, on June 26, according to data aggregator Skew. 

Ether beating bitcoin in 2020

The second-largest cryptocurrency by market capitalization, ether (ETH), is trading around $230, climbing 0.64% in 24 hours as of 20:00 UTC (4:00 p.m. ET). So far in 2020, ether is up 77% while bitcoin has appreciated 30%.

Traders point to the growth of decentralized finance (DeFi) applications being constructed on the Ethereum network as fundamental drivers of more people buying ether, causing the price to go up. 

Read More: Compound Has Been a DeFi Darling. Its New Token Is Priced Accordingly

Over the past week, total value locked in DeFi has jumped 28%, closing in on $1.2 billion. 

However, Michael Arrington, founder of Arrington XRP Capital, a fund that currently is using 80% of its assets for trading various cryptocurrencies, says narratives can change quickly in this market. “This year the story so far has been ether. But it might end up being bitcoin again,” he said.  

Other markets

Digital assets on CoinDesk’s big board are mixed Thursday. 

The biggest cryptocurrency winners on the day include lisk (LSK) climbing 2.3% and nem (XEM) in the green 2.1%. Significant losers include decred (DCR) dipping 1.9% and dogecoin (DOGE) in the doghouse down 1.3%. All price changes were as of 20:00 UTC (4:00 p.m. ET).

In commodities, oil is the lone asset making gains Thursday, jumping 3%. A barrel of crude was priced at $38.84 as of press time. 

Gold is trading flat as the yellow metal slipped 0.08%, trading around $2,724 for the day. 

In Asia, the Nikkei 225 of publicly traded companies in Japan closed in the red 0.45%, as stocks in the industrial and real estate sectors dragged the index lower. 

Read More: As US Stocks Defy Economic Gravity, Bitcoiners Shudder at March Memory

In Europe, the FTSE 100 index in Europe slipped 0.73% despite fresh stimulus from the Bank of England to the tune of £100 billion. 

The U.S. S&P 500 index was flat, up just 0.06%, as fresh jobless claims stayed above the one million mark.

U.S. Treasury bonds all slipped Thursday. Yields, which move in the opposite direction as price, were down most on the 10-year, in the red 5.6%.

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Derivatives market and crypto exchange FTX is moving into the storm created by Compound’s new governance token, COMP. 

Traders will soon be able to place their bets on which way decentralized finance (DeFi) will go, CoinDesk has learned.

Later Thursday, FTX and FTX US will both list COMP as well as cUSDT, the Compound version of tether. On the global site, FTX will also open its suite of crypto derivatives, allowing users to take leveraged bets on the token’s prices looking down the road.

Related: Market Wrap: Bitcoin Quiet at $9.3K While DeFi Gets Loud

“For basically all of DeFi, MakerDAO has been the king of DeFi, and it has had the canonical tokens,” FTX CEO Sam Bankman-Fried told CoinDesk in a phone call. “One thing the markets are implying right now is that Compound is making a serious run for that crown.”

Read more: A Coinbase Pro Listing and Other Eye-Opening Data Points on Compound’s Surge in Demand

Since users of Compound began earning COMP tokens for borrowing and lending on June 15, the total value locked has shot up over $300 million, from less than $100 million on Sunday. 

Compound currently has $318 million staked on the platform, according to Defi Pulse, and the COMP token is trading at $170, according to CoinGecko.

Related: Delta Exchange Launches Crypto Interest Rate Swaps

Incorporating COMP derivatives on FTX, although not in the United States, opens up a variety of positions traders can take on. 

“These will be the first futures on Compound by a longshot,” Bankman-Fried said. 

He expects the most popular product will be the perpetual futures markets. These are futures that let traders take a long or short position on a product without needing to worrying about renewing their contracts.

“It’s a futures contract that never expires,” Bankman-Fried explained, saying it’s one of those products that are relatively unheard of outside of crypto. 

Gut check

Bringing a market for short positions could actually be healthy for Compound’s users. 

The arrival of COMP has created a strange situation where users can potentially borrow money and profit, SesameOpen’s Henry He detailed on Medium earlier this month. At some point, the number of people earning COMP and the price of COMP will reach an equilibrium where some users will decide it no longer makes sense to keep going deeper into debt. A market for short positions should help bring some clarity. 

Bankman-Fried said he’s been curious about the endpoint of COMP’s runaway growth, too. “I don’t know at what point it stops,” he said.

Read more: COMP’s Sudden Growth Has Swamped a DEX Dealing Only in Stablecoins

Besides adding COMP, incorporating cUSDT allows FTX users to use a token for collateral on FTX that actually earns interest. 

When users deposit funds in Compound, they get a new ERC-20 that represents that deposit. For USDT, that’s cUSDT. This makes their deposits tradable and it also means users can earn interest on their deposits wherever they hold the token.

So for FTX users that switch from USDT to cUSDT as their collateral token, it creates a small built-in hedge for those users. FTX hasn’t yet determined how COMP earned for any trader holding cUSDT will be managed, but either way holders of cUSDT are earning 0.50% annual percentage yield as of this writing. Further, this is the first time users can easily acquire cUSDT without going directly to Compound. 

FTX US does not offer the derivatives product but it does offer a large amount of liquidity and margin trading for certain customers, Bankman-Fried said. FTX US only went live in May.

“We’re really excited to give our users access to Compound’s products . It’s a huge step forward for DeFi and also a really active project right now,” Bankman-Fried said.

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Reddit is anticipating big demand for its Ethereum-based “Community Points” system only one month after rolling out the product.

Now the social media site is looking for a scaling solution.

Posted in the r/Ethereum subreddit Thursday, Reddit announced a partnership with the Ethereum Foundation to find a Layer 2 (L2) scaling technique for the site’s 430 million users. Community Points are earned by garnering “upvotes” on posts and can be used to purchase specialized GIFs or emojis.

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A blockchain for decentralized applications, Ethereum has been eyeing various scaling techniques since its mainnet launch in 2015. 

The scaling debate has been siloed into two parts: Current work on Ethereum’s Proof-of-Work (PoW) blockchain called Eth 1.x and the future Eth 2.0 update, which promises “unbounded” scaling via two technologies called Proof-of-Stake (PoS) and sharding. Eth 2.0, sometimes referred to as Serenity, remains a highly technical project with no firm timeline, though an initial phase is tentatively slated for later this year.

Conversely, Ethereum’s Devcon 5 in Osaka, Japan, in October 2019, exhibited product-ready L2 options such as ZK-Rollups and Optimistic Rollups from the Plasma coding group, now operating under the name Optimism. For example, decentralized exchange IDEX currently trades on its own variant of the product.

Related: Colombian Government and WEF Weigh Public Ethereum in Bid to Fight Corruption

Read more: Ethereum’s Top DEX Is Rebooting With New Scaling Features

However, Reddit is looking for a product that is focused on social media. As the post notes, most L2 solutions have focused on exchanges, which require fast transaction times that most blockchains cannot handle. 

“Many of these designs don’t take into consideration the costs of obtaining tokens or entering the scaling system, which can be significant,” the post states. “Community Points distributions have cost an order of magnitude more gas than all other operations combined, primarily due to on-chain storage costs associated with onboarding new users.”

Applicants are asked to submit proofs-of-concept by July 31 with reviews concluded by September. The Ethereum Foundation did not return a request for comment by press time.

Unfortunately for these Reddit developers, the only reward is notoriety. 

“This is your chance to earn some fame but, to be clear, there is no prize if your solution is chosen or modified to meet Reddit’s needs. Our lawyer made us write this,” the post states.

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It was only a matter of time before crypto adapted elements of the $341 trillion interest rate swap market to its own. Traders may now be able to hedge the risks they face from interest rate payment fluctuations in perpetual contracts. And it could also help those lending and borrowing  in the decentralized finance (DeFi) space.

On June 9, the Singapore-based Delta Exchange launched interest rate swaps (IRS) – a contractual agreement between two parties to exchange interest rate payments over a set period of time. 

Usually, an IRS involves the exchange of floating rate and fixed-rate obligations (the parties do not exchange the principal amount). A floating interest rate is the one that moves up and down with the reference rate.

Related: Market Wrap: Bitcoin Quiet at $9.3K While DeFi Gets Loud

In traditional finance, an interbank interest rate like Libor often serves as a reference rate in a swap. Delta’s interest rate swaps offer floating to fixed swaps using cryptocurrency exchange BitMEX’s bitcoin perpetual (XBT/USD) funding rate as the reference, which helps tether the price of the contract to bitcoin’s spot price. 

See also: A Coinbase Pro Listing and Other Eye-Opening Data Points on Compound’s Surge in Demand

The funding rate is positive when the perpetuals trade at a premium to the spot price, indicating stronger buying pressure. In that case, longs pay funding to shorts. On the other hand, when perpetuals trade at a discount to the spot market, the funding rate is negative and shorts pay funding to longs. Funding occurs every eight hours at 04:00 UTC, 12:00 UTC and 20:00 UTC, and traders receive funding only if they hold positions at one of these times.

The BitMEX funding rate is usually positive and tends to hover in the 15%-20% range in anualized terms. However, it does rise or fall sharply during bouts of sudden price rally or crash. 

Related: FTX Releases COMP Derivatives to Keep Up With DeFi Frenzy

A significant chunk of a trader’s profit can evaporate due to fluctuations in the funding rate if a position is held for a long time. That risk could be hedged with the interest rate swaps. 

Assuming the funding rate is positive, a trader holding a long position on BitMEX can turn his floating funding rate liability into fixed cost by buying a floating-for-fixed contract for the same notional size as the XBT/USD position.  Essentially, the trader would pay the fixed rate and receive the floating rate. Meanwhile, traders with a short position on BitMEX can sell floating-for-fixed contracts.

If the funding rate turns negative, the direction of floating payments will reverse, but the hedge will stay intact, according to the official blog. 

Speculation

Pankaj Balani, CEO and founder of Delta Exchange said, “IRS is also for traders who do not have any exposure to these rates but just want to speculate on rates rising or falling over time.”

A speculator can buy a floating-for-fixed contract if interest rates are expected to rise over a specific period of time. “The trade will be profitable if the realized value of floating rate is higher than the expected value baked into the fixed rate,” according to Delta Exchange.

The exchange collects fixed payments up front at the trade inception, and disburses floating (funding) payments every eight hours (4 a.m. UTC, 12 p.m. UTC and 8 p.m. UTC), in sync with funding exchanges on BitMex.

“Delta has registered a notional volume of $2 million since inception,” Balani told CoinDesk. Activity could continue to rise with the increase in the institutional participation in the crypto markets. 

Indeed, in traditional finance, interest rate derivatives are the largest traded contracts on organized exchanges as well as in the over-the-counter markets globally. For the second half of 2019, the notional amount of interest rate swaps globally was over $342 trillion and valued at nearly $7.5 trillion, according to data compiled by the Bank of International Settlements.  

Swaps for DeFi

Besides traders and speculators, interest rate swaps may find a market with those involved in decentralized finance (DeFi).

“IRS on Delta Exchange will be super helpful for crypto companies that borrow stablecoins from lending protocols like Compound Finance and MakerDAO by keeping ether as collateral,” said Balani.

Interest rates in the DeFi space are determined by the interaction between demand and supply forces, and are quite volatile. 

For instance, yields on the stablecoin tether (USDT) offered by Compound surged earlier this week following the impressive debut of the protocol’s new COMP token. Notably, interest on USDT loans rose above 15% from 3% and were last seen at 8%, according to data source Defirate.com. 

See also: COMP’s Sudden Growth Has Swamped a DEX Dealing Only in Stablecoins

Just like those trading in perpetual contracts, a USDT borrower can hedge risk by executing a buy of floating-for-fixed contracts on Delta. 

Delta exchange announced early Thursday that it will soon be launching interest rate swaps for stablecoin USDC and dai. Thus, companies that borrow MakerDAO’s dai and need to pay the volatile stability fee as interest can also hedge. “That stability fee is variable and it exposes the borrower to risk of rising interest rates. IRS will help such companies swap the variable interest rate risk with a fixed risk,” Balani told CoinDesk.

Compound CEO Robert Leshner said that “interest rate swaps will give sophisticated traders an opportunity to more easily access, hedge, and arbitrage floating interest rate markets like Compound – leading to more stable, and less volatile financial products.”

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Hong Kong-based cryptocurrency platform Crypto.com has revamped its digital exchange. 

The new upgrades are expected to increase the performance and throughput of the exchange tenfold, the company announced Thursday. Changes include improvements to speed, scalability and security.

The Crypto.com exchange launched in beta at the end of last year. The exchange is one of many services offered on the platform alongside currency accounts, debit cards and a mobile app. Company co-founder and CEO Kris Marszalek told CoinDesk the firm is planning to end the trial phase by the end of the year, and the infrastructure upgrades are expected to pave the way for new features including margin trading and derivatives trading.

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“With the enhanced performance of the exchange and new features in the pipeline, we want to eliminate any reason for users to go elsewhere, and function as their trusted ‘one-stop shop’ for their digital asset needs,” Marszalek said in an email. 

CIO Matthew Chan told CoinDesk that to accommodate new features, Crypto.com had to change the foundation on which the exchange was built.

“What we did here was essentially the equivalent of changing the engine on an airplane mid-flight,” Chan said in an email. 

Under the hood

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According to Chan, the tenfold increase in performance is thanks to a revamped matching engine and order management system. For high-frequency traders, this would translate into faster response times, stability and access to real-time data.

Chan also took on the improvement of scalability, or processing capabilities, during peak transaction traffic. 

“The aim we had when making our adjustments was to build a dynamic system which in theory can scale infinitely,” Chan said.  

Crypto exchanges are vulnerable to attacks, with users losing their currency held in exchanges or wallets online. Crypto.com holds 100% of user funds offline in cold storage. According to Marszalek, this is not something the platform is willing to change, despite opening it up to increased transaction volumes.

Read more: Users See ‘Buying Opportunity’ in Coronavirus Market Downturn, Says Crypto.com

“This was a golden opportunity for us to reassess all elements of our architecture, and fully integrate DevSecOps into our development lifecycle,” Chan added. “The tech stack, internal communications and other major aspects of all systems have been carefully reviewed, and stress-tested by both internal and external ethical hackers.”

For Marszalek, the new upgrades are part of a larger vision. Crypto.com was founded by Marszalek in 2016 as Monaco, a payment platform with its own MCO token. In 2017, the company’s initial coin offering raised $26.7 million. The next year, Monaco was rebranded as Crypto.com, which currently holds $360 million in cryptocurrency insurance. 

“Our three core business pillars consist of payments, trading and lending. As of today, trading is the biggest contributor to our bottom line,” Marszalek wrote in an email.

Crypto.com has 2 million users on its platform, Marszalek said. 

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