CoinDesk Crypto

Decentralized finance (DeFi) lending project bZx has been able to recover about $8 million in cryptocurrency from an attacker who stole the funds after exploiting a code bug over the weekend.

• Paris Fotis, a spokesperson for the project, said bZx had been able to track down the attacker using his or her on-chain activity.
• The attacker returned the funds after being exposed, according to Fotis.
• bZx said in an incident report that $8 million worth of cryptocurrency had been stolen Sunday by an attacker who exploited a code bug to mint the protocol’s interest-earning iToken, which was used to redeem, and walk away with, digital assets held in various lending pools.
• bZx’s official Twitter account announced earlier today that funds had been restored.
• This was the third, and the largest, attack on the bZx protocol so far this year.
• bZx’s Kyle Kistner declined to tell CoinDesk anything about the attacker’s identity when we initially wrote about the attack early Monday.
• Fotis reiterated this, telling CoinDesk the project wouldn’t reveal the attacker’s identity for “legal reasons.”

See also: Hacker Drains $500K From DeFi Liquidity Provider Balancer

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Bitcoin advanced on Monday, ending a 10-day-long price consolidation, as the U.S. dollar weakened against gold and fiat currencies.

• The number one cryptocurrency by market value printed a high of $10,691 at 14:05 UTC, the highest level since Sept. 4, according to CoinDesk’s Bitcoin Price Index.
• The bulls finally led the price action, having shown little interest in the preceding 10 days when the cryptocurrency was stuck in a narrow range of $10,000 to $10,500.
• On-chain metrics kept improving despite the price pullback from $12,000 to $10,00 earlier this month. Many expected a breakout.
• While bitcoin gained over 3%, gold, a classic haven asset, rose 1% to $1,960 per ounce, according to data source TradingView.
• The 60-day correlation between bitcoin and gold recently rose to a record high above 0.5. Correlations move between 0 to 1.
• Correlations whose magnitude are between 0.5 and 0.7 indicate the two assets are moderately positively correlated. Above 0.7 means a strong positive correlation, meaning the two assets are moving in tandem.
• Meanwhile, the U.S. Dollar Index, which gauges the greenback’s value against a basket of major currencies, fell by 0.4%.
• Bitcoin has evolved as a macro asset since the beginning of the coronavirus pandemic in March and has increasingly taken cues from the action in the forex markets and gold in Q3 2020.

Also read: Against the Odds, Some Bitcoin Traders Are Betting on a $36K Price by Year’s End

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Already a global hotspot for bitcoin mining thanks to the availability of cheap hydroelectric power, China’s Sichuan Province is now the focus of a changing attitude from the central government, which is actively trying to court more mining operations with a variety of incentives

The folks building the next generation of digital money in Switzerland understand the need to collaborate.

Stablecoins, digital tokens pegged one-to-one to the Swiss franc (CHF) in this case, are a prime example. SEBA Bank and Sygnum Bank, the two B2B players that hold banking licenses from the Swiss Financial Market Supervisory Authority and that specialize in digital assets, are both involved in stablecoin explorations, as is the country’s respected crypto conglomerate, Bitcoin Suisse. 

“Within the Crypto Valley and here in Switzerland, there’s a very good collaboration going on, where everyone’s working together to try to design a Swiss franc stablecoin which has more or less the same definition or is fully interoperable,” said Matthew Alexander, SEBA Bank’s head of asset tokenization. 

Related: ‘No Other Option but More Collateral’: The Short- (and Long-) Term Fixes for Dai’s Broken Peg

“Coopetition” is an ungainly term at the best of times, while “interoperability” is a word that gets bandied about the blockchain world an awful lot. But it appears that’s what’s happening among Swiss stablecoin issuers.

The end goal, Alexander said, is that “you’ve got something which a consumer, or a central bank or a corporate can trade with anybody else because they know they have the same thing on the other side.” 

The Swiss also see the advantage in avoiding the kind of separate and competing currency pairs that have emerged with USD stablecoins like tether (USDT) and USDC.

Swiss stablecoins

Sygnum, which works in partnership with telco giant Swisscom, recently claimed the world’s first e-commerce transaction using a bank-issued stablecoin, the Sygnum Digital Swiss Franc (DCHF).

Related: European Ministers Call on EU Commission to Regulate Stablecoins

“We are absolutely in discussion with other players in the ecosystem,” Martin Burgherr, co-head of clients at Sygnum Bank, said on the topic of stablecoins. “To the clients, it’s a new way to transfer assets via a blockchain and this requires some disruption, and disruption is easier if you not only compete but also team up on certain aspects. We think that there will probably be multiple stablecoins for multiple purposes, but agree that you don’t need 200 stablecoins with a Swiss franc common denominator.”

Read more: Crypto Bank Hopeful Bitcoin Suisse Raises $48M in First-Ever Round

Bitcoin Suisse is no stranger to crypto interoperability, having led the OpenVASP network to harmonize global anti-money laundering (AML) standards. The firm’s Swiss Crypto Tokens AG subsidiary was the first of the three to come out with a Swiss franc stablecoin, the CryptoFranc (XCHF).

“Within the Swiss crypto industry, we are in frequent discussion with partners and other stablecoin issuers to see what cooperation and new use cases may make sense for the XCHF and how we can further adoption of cryptocurrencies in general,” said Armin Schmid, CEO of Swiss Crypto Tokens. 

All three firms praised the support of the Swiss National Bank (SNB). Asked for comment on the growth of stablecoins in Switzerland, a spokesman for SNB referred to a speech by the bank’s chairman, Thomas Jordan.

“We believe that cryptocurrencies and cryptocurrency-based tokens are of only limited use as payment instruments, stores of value and units of account because they are subject to major fluctuations,” he said last September. “The picture may be different for stable coins, however.”

Under the hood

Diving into the nuts and bolts, there are two levels of stablecoin interoperability, said SEBA’s Alexander. On the one hand, there’s the relatively straightforward technological design of the coins; on the other, the legal and regulatory underpinnings. 

Stablecoins, normally built on the Ethereum ERC-20 standard, have an advantage in Switzerland because they tend to be regulated and audited by firms like PwC or Grant Thornton. Starting out with small projects and experiments, an agreed-upon set of rules and auditing capabilities can be defined.

Read more: Swiss Canton Zug to Accept Taxes in Bitcoin, Ether From Next Year

“It literally becomes like an open banking API, and those who prove capable will be allowed to join the network,” said Patrick Salm, SEBA’s head of token platform. “A lack of collaboration will result in five standards and a race for a standard, which is not efficient.”

Standardized common languages are critical. For example, an attempt to implement a stablecoin such as tether (USDT) or USDC within a core banking system would not work, simply because such systems are not capable of handling a four-character currency unit, Salm pointed out. Currencies, according to ISO definition, are supposed to be three characters.

“It starts with stuff like this,” said Salm. “We’re not just talking about using a four-digit stablecoin as a settlement coin. … It’s really about the deep roots of banking.”

Eurocoin?

Naturally, interoperability is front and center when it comes to establishing a euro stablecoin, said Alexander of SEBA. 

“We are trying to help design something that is truly interoperable,” Alexander said, adding: 

“If lots of European countries are doing their own definition of a euro, you destroy the idea of a European Union when you reach a border and have to exchange your currency in your electronic wallet. You’ve got to have one definition and one means of operating; otherwise, what’s the point of having an integrated European banking system?”

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Crypto.com has announced a new partnership that will see Chainlink’s price feeds integrated into its decentralized finance (DeFi) wallet offering.

• The Hong Kong-based payment card and wallet provider said Monday that Chainlink’s Price Reference Data – its decentralized oracle network – had been plugged directly into the DeFi wallet, giving users ready access to its price feeds.
• Per a press release, Crypto.com said the integration meant users would receive “highly accurate and transparent prices” on all assets supported in the wallet.
• Chainlink co-founder Sergey Nazarov said the integration means the prices users see will reflect actual market conditions, rather than being the product of “human tampering.”
• Crypto.com launched its wallet earlier this year as a user-friendly means to access the buzzing DeFi space – where total value locked (TVL) ballooned from $600 million at the start of the year to a peak of nearly $10 billion a few weeks ago, according to DeFi Pulse.
• Crypto.com has also launched two decentralized data feeds for its native CRO token against U.S. dollars and ether (ETH) ahead of what it said was a “deeper integration into the rapidly growing DeFi ecosystem.”
• Mirroring Binance, Crypto.com launched a swap product last week where users can exchange tokens and where liquidity providers can earn yields by depositing digital assets into token pools.

See also: Uniswap Takes Lead Over SushiSwap Less Than 24 Hours After SUSHI Rewards Drop

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• User Profiling Can Help Regulators Identify Illegal Crypto Activity, Says FATF
• DeFi Lender bZx Loses $8M in Third Attack This Year

$1.4 billion every hour. 

According to Bank of America, that’s the pace at which central banks around the world have been buying assets since the coronavirus-related lockdowns started in March. Coincidentally or not, the market value of the Nasdaq 100 gauge of tech stocks has climbed at roughly the same pace since then. 

It’s the kind of comparison one might expect from a bitcoin true believer, steeped in the view that central-bank money printing is debasing the U.S. dollar — sure to bring rampant inflation. But it’s almost jarring when the observations instead come from researchers at a Wall Street bank at the center of the traditional financial system and dollar-based economy.

Related: Chainlink to Start Supplying Data for Crypto.com’s DeFi Wallet

“For much of the past 10 years, Wall Street has proved too big to fail, and monetary policy markets have implicitly supported asset prices to boost economic growth,” Bank of America Chief Investment Strategist Michael Hartnett wrote earlier this month in a report. “In 2020 the policy is more explicitly engineering an overshoot in asset prices.” 

That’s the backdrop for the Federal Reserve’s two-day, closed-door meeting this week, where top U.S. officials will evaluate what is perhaps the loosest monetary-policy stance in the central bank’s 107-year history. Interest rates have already been cut close to zero, and the Federal Reserve is buying $80 billion of U.S. Treasuries a month to keep markets afloat, with trillions of dollars more available through emergency-lending programs. 

The Fed isn’t expected to announce any major changes other than perhaps formalizing a plan that Chair Jerome Powell laid out last month, under which inflation would be allowed to rise above the 2% annual target without triggering immediate rate hikes. The central bank’s balance sheet already has expanded this year by about $3 trillion to $7.1 trillion as of last week. 

One possibility is that the Fed will hold off announcements of new stimulus until markets take a fresh nosedive. Despite the U.S. unemployment rate more than doubling this year to 8.4%, the Standard & Poor’s 500 Index of large U.S. stocks is still up 3.4% on the year, and speculation is growing that the Fed might be unwilling to let stocks fall.

Related: Against the Odds, Some Bitcoin Traders Are Betting on a $36K Price by Year’s End

“The market has just become too reliant on the Fed being there,” Brian Coulton, chief economist for the sovereign group at the bond-rating firm Fitch, said last week in a phone interview. 

Consumer sentiment has dipped in the past few months, but it’s nowhere near as low as it was after the 2008 financial crisis. Most economists say the current crisis is much worse. 

Imagine how consumers might rein in spending if the stock market tumbled 23%, as it did in the final quarter of 2008. In economics, there’s a psychological concept known as the “wealth effect,” where consumers spend more if the value of their assets rise, even if their income doesn’t change. The reverse is also true. 

Steve Blitz, chief U.S. economist at the forecasting firm T.S. Lombard, says it’s a “term of art” trying to gauge how far stocks might have to fall before the Fed would step in. 

“They’re not going to step in front of this normal volatility,” Blitz said. “They’ll get involved when they think it’s a move in the equity market that threatens the outlook.” 

Bitcoin traders might try to frame the question in billions of dollars per hour. 

Bitcoin Watch

Bitcoin is still down 75% from the record high of $20,000 reached in December 2017, and the market is pricing just a 5% probability of prices setting new lifetime highs by the year-end. 

Even so, some traders are buying call options at $36,000 and $32,000 strike prices expiring in December. 

“We saw some out of the ordinary activity in the $36,000 December call” on Sunday, Luuk Strijers, CCO of Deribit, told CoinDesk in a Telegram chat. “Few buyers with most likely bullish expectations executed these trades.”

Open interest or open positions in the $36,000 December call rose by 752 contracts, and the number of open positions in the $32,000 call rose by 462 contracts, according to data source Skew. 

Bitcoin is currently trading near $10,400. The cryptocurrency has been locked mostly to a narrow trading range of $10,000 to $10,500 since Sept. 4.

– Omkar Godbole

Token Watch

SushiSwap (SUSHI): “Vampire mining” protocol faces uncertain future after block rewards were cut to 100 from 1,000 , rival Uniswap reclaimed its lead among DeFi projects, and reforms have been stymied by difficulty of changing code.

Chainlink (LINK), Tether (USDT), USD Coin (USDC): DeFi protocol bZx fell victim to attack after bug in code allowed someone to steal $8 million of tokens , though project’s leaders say insurance fund covered the losses.

Crypto.com (CRO): Cryptocurrency-focused credit-card lender noses into DeFiwith launch of liquid swap product.

Dai (DAI): Founder of DeFi protocol MakerDAO open to reducing collateralization ratio on USDC-backed dai loans to 101% from 110%.

What’s Hot

Traditional businesspeople entering crypto might get bogged down by “regulatory and internal red tape” (Hacker Noon)

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Analogs The latest on the economy and traditional finance

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Despite Fed’s dovish stance on inflation, bond-market yields reflect expectations of inflation averaging 1.67% over the next 10 years, down from 1.82% at the start of the month (Bloomberg)

Israel to lock down nationwide in main holiday season amid coronavirus surge (CNBC)

Huawei enters a new world: How the US ban will affect global tech (Asian Nikkei Review)

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The Financial Action Task Force (FATF) has recommended regulators profile cryptocurrency users so they can better identify criminal activity.

• FATF, whose guidance is heeded in more than 200 countries, said in a report Monday that it had identified certain behaviors and characteristics that serve as red flags for regulators trying to detect illegal or illicit transactions.
• One of the primary methods, the international financial watchdog said, is to compare a user’s transaction activity with that of their profile.
• This can include instances where a deposit or transaction amount is inconsistent with a user’s available wealth or historical financial activity, perhaps signaling money laundering, a scam or a money mule (where someone transfers illicit value on behalf of somebody else).
• For instance, it might be suspicious if a young user, with no known business interests, started receiving large amounts in payments of a commercial nature from various parties all around the world.
• Other red flags include whether the person in question is much older than the average age of a crypto user, as well as if they have a criminal record or have been active on websites and public forums associated with illicit activity.
• The new report comes over a year after FATF recommended national regulators mandate virtual asset service providers (VASPs) – e.g. exchanges or wallet providers – retain and share identifying information on parties involved in transactions over a certain amount – known colloquially as the Travel Rule.
• In Monday’s report, the financial watchdog said other red flags include instances where users send crypto to exchanges with no known KYC/AML checks, or where they are sending transactions that are just below the Travel Rule threshold.
• Regulators might also look at users who exchange digital assets on public and transparent blockchains (such as Bitcoin or Ethereum) for privacy coins, like monero or zcash, which obfuscate or withhold transaction activity from third parties.
• Indeed, monero is one of the favored cryptocurrencies for hackers, as it mixes transaction data together making it easy for them to offload stolen value on unsuspecting exchanges.

See also: FATF Plans to Strengthen Global Supervisory Framework for Crypto Exchanges

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The Deribit crypto derivatives exchange is seeing increasing investor interest in bitcoin options that would profit from prices rallying as high as $36,000 by the end of 2020.

• As of Sunday, call options at $36,000 and $32,000 strike prices expiring on Dec. 25 were seeing the most daily positions opened.
• “We saw some out of the ordinary activity in the $36,000 December call,” Luuk Strijers, CCO of Deribit, told CoinDesk in a Telegram chat. “Few buyers with most likely bullish expectations executed these trades.”
• A call option gives the holder the right but not the obligation to buy the underlying asset at a predetermined price on or before a particular date. A put option represents a right to sell.
• Open interest refers to the number of contracts traded, but not squared off with an offsetting position.

• The most new open positions were seen in the $36,000 December call, with 752 contracts.
• The number of open positions in the $32,000 call rose by 462 contracts.
• Relatively small additions were observed in the $28,000 December expiry call, as well as the $9,750 and $9,000 puts expiring this month.
• Buy positions in the out-of-the-money $36,000 and $32,000 calls were executed during Sunday’s European trading hours when the liquidity was low (wider bid-offer spread).
• As such, these traders paid significantly more in costs than they would have incurred on a weekday.
• The aggressive weekend trading is a little perplexing, given the options market sees a very low probability of prices reaching a new record high above $20,000 by the end of December.

• The odds of bitcoin setting a new lifetime high over $20,000 by the year’s end are just 5%, the data suggests, while the likelihood of prices crossing $28,000 is 2%.
• Further, the market sees only a 9% chance of bitcoin crossing above $20,000 by the end of Q1 2021.
• While prospects of bitcoin rising to $36,000 are quite low, these deep out-of-the-money options are not expensive.
• In other words, the maximum loss in this trade is limited to the extent of the price paid to buy the option.
• That may have motivated these weekend traders to take a long shot on a new ATH. 
• At press time, bitcoin is changing hands near $10,420. The cryptocurrency has been restricted mostly to a narrow range of $10,500 to $10,000 since Sept. 4.
• On-chain developments favor a range breakout, which could fuel a rally to the psychological hurdle of $11,000.

Also read: Bitcoin Options Suggest Investors Hedging but Still Long-Term Bullish

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Decentralized finance (DeFi) protocol bZx has fallen victim to yet another attack after a bug in its code allowed someone to mint tokens they redeemed for cryptocurrencies on the protocol.

• Co-founder Kyle Kistner told CoinDesk they noticed something was wrong on Sunday when a single LINK withdrawal led to a $2.6 million drop in the protocol’s total value locked (TVL).
• The attack basically centered around the protocol’s interest-earning iToken that users receive and redeem for crypto deposited into lending pools.
• Kistner said the attacker exploited a bug that tricked bZx into minting unbacked iTokens they subsequently exchanged for cryptocurrencies held in the pools.
• Per an incident report Sunday, the attacker managed to steal just under 220,000 LINK tokens, 4,507 ETH, 1.76 million USDT, 1.4 million USDC and 670,000 DAI.
• At current spot prices, this works out as a loss of just over $8 million.
• That’s much more than the $630,000 and $350,000 hacks the protocol suffered in February, which both manipulated oracle price feeds in order to pay back bZx loans for far less than the actual amount.
• bZx paused the protocol in the aftermath of Sunday’s attack so the bug could be patched, but resumed operations hours later.
• Kistner said the decision was taken in consultation with security experts, who had not instructed them to shut down for any longer.
• He added that the $8 million lost had already been debited by the protocol’s insurance fund and will be paid out once the bZx community had ratified it.
• The bug managed to remain undetected in two extensive code audits from cybersecurity firms Certik and Peckshield
• Kistner declined to comment on the identity of the hacker.

See also: DeFi Project dForce Refunds All Affected Users After $25M Hack

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• ‘No Other Option but More Collateral’: The Short- (and Long-) Term Fixes for Dai’s Broken Peg

With Iran’s national currency, the rial, suffering from hyperinflation, some in the nation are proposing locally mined cryptocurrency might be a way to fund car imports.

• ArzDigital reported that Gholam Hossein Mozaffari, CEO of the Kish Free Zone Organization, said he hopes an agreement will be reached with the central bank to use cryptocurrency produced in Iran to fund imports.
• The Central Bank of Iran had told the organization that because of currency inflation and the current economic conditions in the country it could not provide the funding needed, Mozaffari said.
• “Our next suggestion was that we would provide the required currency through the digital currency produced in the free zones, the origin and amount of which are known, and do not put any pressure on the country’s currency,” he said.
• According to reports three weeks ago, inflation in Iran had reached as high as 30% year on year.
• U.S.-led sanctions against the nation, as well as endemic corruption and economic mismanagement, are cited as being major factors behind the high levels.
• According to Mozaffari, cryptocurrencies are already being mined on Kish island and he hopes to soon meet with the head of the central bank to discuss the possibility of using that income to fund the auto imports.
• He would also call on the private sector to launch a cryptocurrency exchange, he said.
• “If the central bank allows this, it [would be] possible to import cars with digital currency for these three free zones, and the car problem can be solved.”
• Amid the hyperinflation, Iran’s government has been moving to permit cryptocurrency mining, under certain restrictions, to bring in much-needed foreign capital.
• In May, President Hassan Rouhani ordered the government to draw up a renewed national approach for the growing industry.

Read more: Iran Issues License for Nation’s Biggest Bitcoin Mining Operation

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With Iran’s national currency, the rial, suffering from hyperinflation, some in the nation are proposing locally mined cryptocurrency might be a way to fund car imports.

• ArzDigital reported that Gholam Hossein Mozaffari, CEO of the Kish Free Zone Organization, said he hopes an agreement will be reached with the central bank to use cryptocurrency produced in Iran to fund imports.
• The Central Bank of Iran had told the organization that because of currency inflation and the current economic conditions in the country it could not provide the funding needed, Mozaffari said.
• “Our next suggestion was that we would provide the required currency through the digital currency produced in the free zones, the origin and amount of which are known, and do not put any pressure on the country’s currency,” he said.
• According to reports three weeks ago, inflation in Iran had reached as high as 30% year on year.
• U.S.-led sanctions against the nation, as well as endemic corruption and economic mismanagement, are cited as being major factors behind the high levels.
• According to Mozaffari, cryptocurrencies are already being mined on Kish island and he hopes to soon meet with the head of the central bank to discuss the possibility of using that income to fund the auto imports.
• He would also call on the private sector to launch a cryptocurrency exchange, he said.
• “If the central bank allows this, it [would be] possible to import cars with digital currency for these three free zones, and the car problem can be solved.”
• Amid the hyperinflation, Iran’s government has been moving to permit cryptocurrency mining, under certain restrictions, to bring in much-needed foreign capital.
• In May, President Hassan Rouhani ordered the government to draw up a renewed national approach for the growing industry.

Also read: Iran Issues License for Nation’s Biggest Bitcoin Mining Operation

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• DCG to Invest $100M in Bitcoin Mining Venture

A man from Washington, D.C., has been charged with running a diamond investment scam with its own cryptocurrency to fund a life of luxury.

• Federal prosecutors in South Florida charged the man, Jose Angel Aman, with wire fraud on Friday.
• Allegations include that Aman and his partners had solicited investors in the U.S. and Canada for a diamond investment scheme saying he would buy rough colored diamonds and cut, polish and resell them for profit.
• Promoting the investment as high return and no risk, Aman said the scheme was backed by a $25 million inventory of diamonds, according to the allegations.
• However, the prosecutors claim Aman “rarely” used investments to buy rough diamonds and never refined and resold them; the $25 million inventory was also an alleged falsehood.
• Aman instead made supposed interest payments to earlier investors using newer investors’ money and persuaded investors to roll over their investments by falsely claiming their investments were at full value.
• Prosecutors allege that, when the scheme, was approaching collapse, Aman launched a purported diamond-back cryptocurrency called Argyle Coin and further solicited investors.
• Again, money from earlier investors was allegedly used to play “interest” to earlier investors.
• The schemes fleeced “hundreds” of investors for over $25 million, according to the charges, while Aman allegedly used some of the funds to “support his own lavish lifestyle.”
• Aman made his initial court appearance in West Palm Beach, Florida, last week.
• Back in May, the U.S. Securities and Exchange Commission moved to halt the operations of Aman, Argyle coin and other entities he operated over similar allegations.

Also read: SEC Moves to Halt Diamond-Linked Crypto ‘Ponzi Scheme,’ Freeze Assets

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No loyalty among yield farmers.

Uniswap now has more value locked (TVL) than its upstart rival, SushiSwap, less than a day after SUSHI block rewards for liquidity providers (LPs) dropped from 1,000 tokens to just 100.

• TVL on SushiSwap fell from $1.46 billion worth of crypto assets on Saturday around 23:00 UTC to $885 million as of press time, according to SushiSwap Vision, which is a fork of the explorer used by Uniswap.
• The SUSHI token’s price has had a less precipitous fall, only dropping from $2.45 to $2.23 in the same time period.
• Uniswap’s TVL has now risen to nearly $955 million as of press time, according to Uniswap Info.
• SushiSwap executed its planned slashing of block rewards from 1,000 to 100 SUSHI for liquidity providers (LPs) on Saturday following last week’s successful migration of $800 million in assets from Uniswap.
• The initial block rewards were designed to convince Uniswap LPs to entrust their LP tokens to SushiSwap so that it could migrate a large portion of Uniswap assets to SushiSwap when it went live (as it happens, Uniswap ended the migration with roughly double the assets it had before SushiSwap was announced).
• The drop suggests a significant number of LPs were primarily motivated by maximizing their SUSHI holdings rather than supporting an ostensibly more decentralized alternative.

Read more: What to Watch for as SushiSwap Cuts Block Rewards From 1,000 to 100 SUSHI

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SushiSwap blew up on the promise of outsized rewards for those who got in before the automated market maker (AMM) actually started making markets: 1,000 SUSHI tokens per block for liquidity providers (LPs) who committed before it went live. 

It was a deal good enough to lure in almost $1.6 billion worth of various crypto assets, but now those heady days of outsized rewards are over. As planned, each block reward has dropped to 100 SUSHI as of 23:10 UTC or Ethereum block 10850000.

Now that SushiSwap is serving up less SUSHI, it’s anyone’s guess as to what will happen to the piles of crypto locked up in SushiSwap’s smart contracts.

Related: The Raw, Savage Capitalism of Open-Source Protocols

SushiSwap successfully migrated over $800 million in crypto assets from rival automated market maker (AMM) Uniswap on Sept. 9, using Uniswap tokens entrusted to the upstart project by users seeking those SUSHI block rewards.

Read more: SushiSwap Will Withdraw Up to $830M From Uniswap Today: Why It Matters for DeFi

Liquidity in SushiSwap currently stands at $1.46 billion in crypto assets, according to the site’s community-built block explorer, SushiSwap Vision. Uniswap meanwhile has $539 million, according to DeFi Pulse.

SUSHI is currently trading at $2.45 as the bonuses end, off its seven-day high of $3.17, according to CoinGecko. 

All about yield

Related: SushiSwap’s Users Ordered Changes, but the Protocol Can’t Deliver Without an Overhaul

Crypto denizens want to change the world, sure, but what they really want is money.

Giving away a fresh token has become an obvious way for new protocols to compete with the market leaders. Liquidity mining is a category of yield farming where liquidity providers (LPs) earn an additional token beyond whatever fees they earn from the underlying protocol. The growth hack was pioneered by DeFi lending platform Compound in June, with its COMP governance token kicking off cascading innovations in the following months.

In this instance, both Uniswap and SushiSwap hang on to 0.3% of each transaction in their pools, expressed in whatever tokens are in the pool. But SushiSwap also distributes a fixed amount of newly minted SUSHI to its LPs every block. (Uniswap has yet to offer such a scheme but it is widely expected among DeFi insiders.)

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

Before block 10850000, each SushiSwap LP got SUSHI in proportion to the liquidity they supplied. 

So, if SushiSwap only had 100 LPs and they all put in equal amounts of liquidity, they would each get 10 SUSHI per block. If that number rose to 1,000 LPs at equal amounts, they would only get 1 SUSHI each. 

More LPs lowers yield in a mined token, but it also probably drives up the token’s value. What’s the optimal balance? It’s hard to say.

With SUSHI distribution now plummeting to 100 per block, that’s going to be the question on every SushiSwapper’s mind.

Will liquidity flood out of SushiSwap or will it actually flood in? An argument could be made either way. 

Changes

SushiSwap’s community wants to further refine block rewards but they have been stymied so far. 

The project’s pseudonymous (and controversial) creator, Chef Nomi, apparently had a vision that the tokenomics of SushiSwap would remain relatively fixed, and that the main governance question for the community would be how fast to add new pools. 

The SUSHI community appears to want fine-grained control, though, and that could bode ill for low-governance models currently in the works. 

Read more: Yearn, YAM and the Rise of Crypto’s ‘Weird DeFi’ Moment

SushiSwap’s new leadership – a board of nine people elected by the community on Sept. 9 – published a new blog post Saturday about the grand opening of the project and its immediate agenda. 

The post, in less-than-perfect English, states:

“Being a fork where we are only copying recipe isn’t enough for us to succeed and go forward everyone knows that. We won’t become the best DEX without new features and compelling tools for our LP – Traders and Sushi holders.”

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The U.S. Securities and Exchange Commission (SEC) charged two crypto startups and eight individuals including rapper Clifford Harris Jr., more commonly known as T.I., with violating the Securities Act of 1933 and other charges due to their involvement with a pair of initial coin offerings (ICOs).

The SEC alleged Friday that film producer Ryan Felton misappropriated funds and wash traded cryptocurrencies using the proceeds from two ICOs: FLiK, a digital streaming platform, and CoinSpark, a digital asset trading platform. TI and Atlanta residents Owen Smith, Chance White and William Spark, Jr. are charged with violating securities law for recommending investors buy tokens from one or the other of the sales without disclosing they were paid by the projects. There are three relief defendants as well.

Seven of the individuals, including T.I., settled their charges with the ICO.

Related: How to Watch INX’s IPO in Real Time on the Ethereum Blockchain

The FLiK ICO raised about 539 ether (ETH), worth $164,665 at the time (late September 2018), while the CoinSpark ICO raised about 460 ether, worth about $282,418 in 2018, the SEC said in a separate complaint.

Felton now faces fraud and manipulation charges, according to the SEC.

T.I. “offered and sold FLiK” tokens, pretending to co-own the business and encouraging his followers to invest in the project. At least one of the other respondents appear to be T.I.’s employees – social media manager Sparks.

Read more: Self-Help Firm That Mostly Took Bitcoin as Payment Mostly Just Helped Itself, SEC Charges

Related: Robinhood May Face $10M SEC Fine Over Disclosure Failures

The rapper has agreed to pay a $75,000 fine and not participate in any digital asset sales for at least five years; Sparks agreed to pay a $25,000 fine and likewise refrain from participating in any securities sales for five years.

Friday’s actions continue the SEC’s trend of bringing charges against founders who took investor funds for personal use after the 2017 and early 2018 cryptocurrency bull run.

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The Takeaway:

• The SushiSwap community has voted on policy changes to the protocol to reduce the token reward schedule, introduce a lock-up period for newly minted Sushi, and introduce fee staking. But these changes can’t be made without first migrating to new smart contracts, a research firm told CoinDesk.
• The current MasterChef contract doesn’t permit changes to the SushiToken contract, which in turn dictates other protocol functions for minting SUSHI tokens and for paying fee-staking rewards to SushiSwap holders.
• Each smart contract would have to be manually migrated to make the changes, the research firm claims, though the SushiSwap team is looking for workarounds that don’t require as much heavy lifting.

The SushiSwap smart contract migration is complete but there’s a problem: Another migration may be needed if the team wants to implement changes to the protocol the SushiSwap community voted for.

Limitations in SushiSwap’s code make the proposed changes impossible without serious alterations to SushiSwap’s code, namely another migration, blockchain research firm IntoTheBlock told CoinDesk. 

Related: Market Wrap: Bitcoin Stuck at $10.3K; Uniswap Value Locked Gyrates

The SushiSwap community just voted to decrease the Sushi token reward – a so-called liquidity provider (LP) token which is rewarded to sushi users who stake tokens in SushiSwap’s liquidity pools – from 100 SUSHI per block to 50, with successive halvings every two years. In addition, this change would include a “vesting” mechanism whereby two thirds of all newly minted SUSHI are locked for one year.

These vested tokens would earn transaction fees but could not be moved or used in voting until the year-long timelock expires. The vesting proposal is particularly germane to this project after its progenitor, Chef Nomi, sold off $13 million worth SUSHI tokens for ether last weekend. Chef Nomi recently forfeited this fortune, though, announcing on Twitter that he sent the 37,400 ether he garnered from trading in his SUSHI tokens to the SushiSwap treasury.

Read more: ‘I F**ked Up’: SushiSwap Creator Chef Nomi Returns $14M Dev Fund

Sushi unrolled

These proposals won a landslide majority vote among the community, but IntoTheBlock told CoinDesk SushiSwap’s current smart contracts aren’t flexible enough to bend the rules of the protocol.

Related: ‘No Other Option but More Collateral’: The Short- (and Long-) Term Fixes for Dai’s Broken Peg

The MasterChef contract, for instance, doesn’t allow for the reward schedule to be altered because the emission rate is “hard coded.”

“…[T]he current version of the MasterChef smart contract has hard coded the number of SUSHI tokens per block that can be awarded. This has been done via the sushiPerBlock variable which is initialized at a value of 100 at the contract creation time and can’t be modified after that. You can see the reference in line 96 of the MasterChef smart contract. In simpler terms, changing the value of the sushiPerBlock variable would require deploying a new smart contract,” reads an IntoTheBlock research document shared with CoinDesk.

Read more: SushiSwap Will Withdraw Up to $830M From Uniswap Today: Why It Matters for DeFi

Fortunately, there is actually a fix for this limitation that doesn’t require another migration: Even if the reward is hard-capped, it’s possible to send extra rewards to a dead-end address that no one has access to (thus, to decrease rewards from 100 SUSHI to 50 SUSHI, every block reward would send 50 of the 100 SUSHI minted to this dead-end address).

“Although clever, this option is far from elegant and falls outside the original design of the SushiSwap protocol,” the report reads.

The great migration: What this would mean

More than inelegant, fixing the other limitations would require an overhaul of SushiSwap’s smart contracts entirely.  The problem stems from a design choice wherein the MasterChef contract (which has control over the protocol) is not upgradeable and actually owns the SushiToken contract, so migrating to a new MasterChef contract (e.g., MasterChefV2) would also require deploying a new SushiToken contract (SushiTokenV2), according to IntoTheBlock developer Pablo Bianciotto.

“The limitation arises from the fact that MasterChef is not upgradeable,” he told CoinDesk. “To be upgradeable, the actual contract logic should be stored in another contract which is referenced by MasterChef. That would give you the flexibility to change minting/rewards distribution logic by replacing this secondary contract for a new one and updating MasterChef reference.

“In addition to that, SushiToken is owned by MasterChef, so creating a new MasterChef V2 contract with a new reward distribution logic and upgradeable features would require migrating the SushiToken contract, too.” 

To implement vesting, for example, would require a MasterChefV2 and a SushiTokenV2 Bianciotto said.

Read more: Fishy Business: What Happened to $1.2B DeFi Protocol SushiSwap Over the Weekend

The code’s limitation would also interfere with implementing the fee payout proposal because there’s no way to transfer the vested tokens from the MasterChef contract into another contract for fee staking.

“This part is even harder to do,” Bianciotto said. “To earn fee payments you have to stake SUSHI into the SushiBar contract, but if your SUSHI rewarded for staking is vested and sitting in MasterChef, you wouldn’t be able to transfer it from MasterChef to SushiBar to earn fee payments.” He added that a SushiBarV2 would need to be spun up to accommodate this change, as well as a new SUSHI token minting contract (SushiMakerV2).

A cascade effect

In effect, the MasterChef contract’s non-upgradeable nature creates a cascading effect wherein every smart contract under its control also requires an upgrade to make the proposed changes to the protocol. The only solution, then, involves migrating each smart contract to a completely new version.

Seeing as each contract would need to be redeployed, this migration process would be more labor intensive than the previous one. Fully migrating each smart contract would involved taking a snapshot of all user’s balances and airdropping new tokens after the new contracts are deployed, as well as migrating individual user data from all of SushiSwap’s liquidity pools; users would also have to unstake all SUSHI tokens in the SushiBar and in SUSHI/ETH staking pools prior to the snapshot.

Biaciotto said that while the snapshot and airdrop may seem simple for user addresses, “smart contracts that rely on SushiToken could stop working unless they are upgraded to use the new SushiTokenV2.”

He also noted there “are no time constraints” for these changes. He recommended a transparent and methodical migration that also “clears the way to seamlessly adding/changing protocol features in the future” to avoid having to implement further changes through another migration.

Community response

CoinDesk reached out to SushiSwap’s newly elected leadership (those members who hold one of nine multisignature keys to dictate protocol development) to ask if they are planning another migration.

“No migration in the short term,” responded 0xMaki, the lead developer of SushiSwap, who has been with the project from the start. 0xMaki continued that they wish to implement the vesting and fee-staking proposals but that “it will require more thinking” to pull off. 

Bianciotto, though, insisted the “the only way forward [to implement these proposals] seems to be doing a migration.”

Read more: SushiSwap Migration Ushers in Era of ‘Protocol Politicians’

Another team member insisted that such a migration would be “significantly less complicated” and that there is “no concern whatsoever of any problems on the horizon.” Bianciotto reaffirmed that since “SUSHI is owned by MasterChef,” that “any kind of migration is non-trivial.”

To corroborate IntoTheBlock’s research, CoinDesk reached out to Zokyo Labs, a blockchain security and development company with a DeFi studio. A Zokyo representative confirmed IntoTheBlock’s findings.   

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It was a quiet day in the bitcoin market while there was action on Uniswap’s total crypto value locked.

• Bitcoin (BTC) trading around $10,316 as of 20:00 UTC (4 p.m. ET). Slipping 0.13% over the previous 24 hours.
• Bitcoin’s 24-hour range: $10,199-$10,383
• BTC above its 10-day and 50-day moving averages, a bullish signal for market technicians.

The price of bitcoin was struggling to trend upward Friday, staying in a narrow $10,200-$10,380 range to start the weekend. 

“Bitcoin has traded off this month with other risk assets, such that it is now short-term oversold near former resistance in the $10,055 area,” said Katie Stockton, managing partner at Fairlead Strategies. “We expect the pullback to keep its hold in the near term from a momentum standpoint.”  

Related: SushiSwap’s Users Ordered Changes, but the Protocol Can’t Deliver Without an Overhaul

Read More: Bitcoin Holds Firm Above $10K but Strong Bounce Proves Elusive

Indeed, bitcoin’s volume numbers Friday were tepid at best, with USD/BTC trades on spot exchanges amounting to just  $210 million, whereas daily averages the past month had been $393 million.

Yet, this could be an inflection point for the cryptocurrency, according to Neil Van Huis, director of institutional trading for crypto liquidity provider Blockfills. “Around $10,500 is really the middle of range from a previous breakout from consolidation around $9,000 all the way up to the roughly $12,000 we’ve seen recently,” he said. “If we can stay above $10,000, I’m encouraged and remain bullish. If we stay too long below $10,000, I think we could be more susceptible to a re-test of $9,000.”

Read More: Singapore Man Caned for Stealing $267K From Bitcoin Investor

Related: ‘I F**ked Up’: SushiSwap Creator Chef Nomi Returns $14M Dev Fund

The bitcoin options market appears to be picking up during this low-momentum period and that is an ominous sign, according to William Purdy, an options trader and founder of analysis firm PurdyAlerts. “Bitcoin option open interest is increasing. This suggests a continued downward trend,” noted Purdy.

Karl Samsen, vice president for capital markets at trading firm Global Digital Assets, said some are staying out of the market for the time being. “What we’re seeing is a lot of money on the sidelines,” said Samsen. “The early DeFi investors who didn’t cut gains pre-BTC runup are starting to take gains now.” 

Read More: SushiSwap Co-Founder Sees Future Users in China and Other Blockchains

Uniswap’s roller-coaster ride

The second-largest cryptocurrency by market capitalization, ether (ETH), was up Friday, trading around $369 and climbing 1.4% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Read More: Ethereum Gets Unplanned Stress Test as DeFi Fever Grows

The amount of cryptocurrency “locked” in decentralized exchange Uniswap has shown a high degree of volatility on DeFi Pulse charts the past week. On Sept. 8, value locked was $1.4 billion, then down to $400 million Sept. 9, then up to almost $1 billion Sept. 10. On Friday, the number was at $648 million.

Drama in DeFi, particularly from Uniswap software fork SushiSwap, is playing a role in the volatility. 

“The big decline is from the SushiSwap migration,” said a DeFi yield farmer who goes by the username devops199fan. “Basically, SushiSwap converted liquidity from Uniswap over automatically,” they added. 

Read More: DeFi ‘Vampire’ SushiSwap Sucks $800M from Uniswap

The gyrations show the ephemeral nature of DeFi and its fast movement of funds around various projects, noted devops199fan. “I think the bump right after the decline was from people migrating back to Uniswap so they could use the LP [liquidity provider] tokens to farm in some other new projects that just popped up recently.”

Liquidity provider (LP) tokens are incentives provided to yield farmers in return for contributing liquidity on decentralized exchanges. 

Read More: ‘I F**ked Up’: SushiSwap Creator Chef Nomi Returns $14M Dev Fund

Other markets

Digital assets on the CoinDesk 20 are mostly in the red Friday. Notable winners as of 20:00 UTC (4:00 p.m. ET):

• neo (NEO) + 14.2%
• 0x (ZRX) + 7.9%
• qtum (QTUM) + 7.7%

Read More: Coinbase Effect Hits DeFi as yEarn’s YFI Token Surges 10% on Listing News

Notable losers as of 20:00 UTC (4:00 p.m. ET):

• nem (XEM) – 1.6%
• tezos (XTZ) – 1.4%
• basic attention token (BAT) – 1%

Read More: Binance’s New Platform Will Connect CeFi and DeFi With $100M Fund

Equities:

• Asia’s Nikkei 225 closed in the green 0.74% as reported coronavirus infection numbers declined in Japan, causing Tokyo to lower its alert status one level.
• Europe’s FTSE 100 ended the day up 0.48% as reports the U.K. economy grew 6.6% in July helped investor optimism Friday.
• In the United States, the S&P 500 was flat, in the green 0.05% as the tech sector dragged on the index, with losses by Apple, Amazon, Facebook and Microsoft.

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

Commodities:

• Oil is up 1.3%. Price per barrel of West Texas Intermediate crude: $37.49.
• Gold was flat, in the red 0.16% and at $1,942 as of press time.

Read More: Bitstamp Integrates Nasdaq’s Matching Engine for Faster Order Executions

Treasurys:

• U.S. Treasury bond yields all slipped Friday. Yields, which move in the opposite direction as price, were down most on the two-year, in the red 12.1%.

Read More: Former Central Bank Official: Japan Should Take a Digital Yen Seriously

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Investment management firm Wave Financial said Friday it has received its first round of investment from clients, and has purchased a 1,000 barrels of Kentucky whiskey it plans to tokenize for prospective investors. 

According to a press statement emailed to CoinDesk, Wave Financial purchased the whiskey from the Wilderness Trail Distillery of Danville, Ky., and plans to tokenize the holding in a year or two. 

Gold, cryptocurrency and real assets such as spirits have become favored alternative investments, according to the company. By tokenizing barrels of whiskey, in this case, investors gain exposure to, and benefit from, price appreciation of that asset.

• Launched in March, the fund completed its first tranche of capital raising and “purchased 1,000 barrels of physical premium Kentucky bourbon whiskey on behalf of our investors,” said Benjamin Tsai, president at Wave Financial, in the statement.  
• “Our extensive research has shown that the returns from aging Kentucky bourbon are very stable and strong over the circa five-year period it spends in barrels before being bottled,” he added. “So we are delighted to be able to provide investors with exposure to this price appreciation.”
  
• In the firm’s March announcement, it said it plans to tokenize a full year’s worth of whiskey produced by the Kentucky distillery, which eventually be 10,000 to 20,000 barrels of the whiskey, worth about $20 million. 
  
• Called the Wave Kentucky Whiskey 2020 Digital Fund, the tokenized investment offering aims to offer investors exposure to the whiskey’s value appreciation over time and share in some of the proceeds gained when the whiskey is sold to wholesalers in the market. 

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SushiSwap creator “Chef Nomi” has returned all $14 million in ether (ETH) that he cashed out from the automated market maker last week, apologizing to the community for suddenly liquidating his SUSHI holdings.

• The pseudonymous individual transferred the 38,000 ETH back to the original developer fund wallet soon before 16:00 UTC today, according to Etherscan.
• Nomi announced the decision in a tweet, saying whatever reward he deserves for creating the project would be decided by the community:

• The SushiSwap creator suddenly sold the tokens last weekend, prompting a 73% crash in the price of the SUSHI token and creating a massive backlash from the project’s supporters and accusations of an exit scam.
• This ultimately led to Nomi transferring ownership of the project to FTX CEO Sam Bankman-Fried.
• SushiSwap co-founder 0xMaki said he was disappointed in the liquidation, according to an interview with CoinDesk China.
• Following the news that the $14 million in ether had been returned, the price of SUSHI soared from $2.26 to $2.70, a rise of 16%.
• SushiSwap is a massively popular fork of DeFi project Uniswap that is still less than three weeks old.
• In another tweet Friday, Nomi said:

Read more: Fishy Business: What Happened to $1.2B DeFi Protocol SushiSwap Over the Weekend

Related Stories

• Market Wrap: Bitcoin Stuck at $10.3K; Uniswap Value Locked Gyrates
• ‘No Other Option but More Collateral’: The Short- (and Long-) Term Fixes for Dai’s Broken Peg
• Crypto.com Follows Binance With Launch of Liquid Swap DeFi Product
• First Mover: Ethereum Gets Unplanned Stress Test as DeFi Fever Grows

SushiSwap creator “Chef Nomi” has returned all $14 million in ether (ETH) that he cashed out from the automated market maker last week, apologizing to the community for suddenly liquidating his SUSHI holdings.

• The pseudonymous individual transferred the 38,000 ETH back to the original developer fund wallet soon before 16:00 UTC today, according to Etherscan.
• Nomi announced the decision in a tweet, saying whatever reward he deserves for creating the project would be decided by the community:

• The SushiSwap creator suddenly sold the tokens last weekend, prompting a 73% crash in the price of the SUSHI token and creating a massive backlash from the project’s supporters and accusations of an exit scam.
• This ultimately led to Nomi transferring ownership of the project to FTX CEO Sam Bankman-Fried.
• SushiSwap co-founder 0xMaki said he was disappointed in the liquidation, according to an interview with CoinDesk China.
• Following the news that the $14 million in ether had been returned, the price of SUSHI soared from $2.26 to $2.70, a rise of 16%.
• SushiSwap is a massively popular fork of DeFi project Uniswap that is still less than three weeks old.
• In another tweet Friday, Nomi said:

Read more: Fishy Business: What Happened to $1.2B DeFi Protocol SushiSwap Over the Weekend

Related Stories

• Crypto.com Follows Binance With Launch of Liquid Swap DeFi Product
• First Mover: Ethereum Gets Unplanned Stress Test as DeFi Fever Grows
• Coinbase Effect Hits DeFi as yEarn’s YFI Token Surges 10% on Pro Listing News
• SushiSwap Co-Founder Sees Future Users in China and on Other Blockchains