CoinDesk Crypto

Concordium, an ambitious project whose founders have close links to companies including Volvo, IKEA, Saxo Bank and Nasdaq, is looking to shake up the seemingly glacial world of enterprise blockchain. 

The most striking thing about Concordium, which launches its third testnet next month, is the way it pushes what was once anathema to big corporates: public and permissionless blockchains.

Businesses, wary of tipping their hands and giving away any competitive advantage, have traditionally preferred the idea of private and permissioned blockchains. But many advocates of blockchain tech believe only open systems hold true transformational promise. The oft-cited analogy centers on the relevance of internet versus intranet.  

Related: ‘Boring Is the New Exciting’: How Baseline Protocol Connected With 600 Corporates

Read more: ‘Boring Is the New Exciting’: How Baseline Protocol Connected With 600 Corporates

Toeing the line between the privacy requirements of regulated businesses and full-broadcast blockchains like those of Bitcoin and Ethereum has led some very smart people to opt for an attenuated architecture when it comes to distributed ledgers. 

However, Concordium is confident it has found a third way, keeping sensitive data private using a clever identity and zero-knowledge-proof (ZKP) system, providing firms with a safe, flexible option to deploy open blockchains.

The momentum around projects like Baseline Protocol, which now has some 600 big firms using it, is a solid indicator ZKP tech is ready for prime time.

‘Something totally new’

Related: ConsenSys Acquires JPMorgan’s Quorum Blockchain

According to Concordium CEO Lone Fønss Schrøder, sometimes you need a permission-based ledger; but in order to realize new business models, it has to come in combination with baked-in permissionless possibilities. 

“I think that’s really what large corporations are looking for,” said Fønss Schrøder. “If you look at Hyperledger, for example, or R3, I don’t think it is blockchain in the sense of really providing something new. It’s not decentralized. Companies are seeing it as just another way to do their mainframe applications. But when you talk about permissionless blockchain, it’s something totally new.”

Blockchain today simply doesn’t meet the needs of corporations, says Fønss Schrøder, and a lack of permissionless flexibility has led to no uptick in business adoption. 

Concordium’s chief marketing manager, Beni Issembert, went further: Businesses underwhelmed by today’s enterprise blockchain offerings are squarely in Concordium sights.

“Businesses that are open-minded feel a lot of frustration and desolation when it comes to using Hyperledger and R3 Corda. And we are talking to those disappointed businesses,” Issembert said.

Big-name partners

It would be easy to write Concordium off as some kind of naive newcomer – both R3 and Hyperledger declined to comment on the Concordium white paper. 

But the project, which has its roots in Denmark, features an impressive cast of players from business and academia. On the science side, Concordium’s research center at Denmark’s Aarhus University is run by widely cited cryptographer Ivan Damgard. Last September, Torben Pryds Pedersen, creator of the Pedersen Commitment cryptographic primitive, was appointed as Concordium’s CTO.

Read more: Staying Alive: Why the World of Enterprise Blockchain Has Turned to Collaborations

In terms of corporate clout, Fønss Schrøder is a boardroom director at IKEA, vice chairman of Volvo and spent 22 years at A.P. Moller Maersk. Concordium’s founder, Lars Seier Christensen, founded Saxo Bank in 1992, while the blockchain’s advisers include former Danish Prime Minister Anders Fogh Rasmussen, and heavy hitters from Nasdaq, Mastercard and Skype.

It’s one thing to announce a paradigm shift in the way businesses intend to use blockchain technology, but another to show hard evidence of this new permissionless demand. 

“We are already in contact with those people [Volvo and IKEA] and looking at ways to fulfill what they would like to do. But we are not only targeting 20 or 40 businesses,” said Issembert. “We are focused on the next generation of commerce, the new unicorns; firms that you don’t have to convince the best approach is an open system.”

Open use cases

It should be pointed out that Volvo has blazed a trail when it comes to tracking the minerals used in electric car batteries with the help of Hyperledger Fabric. IKEA has also done some interesting blockchain experiments with the likes of Tradeshift using the Maker protocol. 

Neither Volvo nor IKEA would confirm to CoinDesk whether they were testing Concordium at this time.

Read more: IKEA in ‘World First’ Transaction Using Smart Contracts and Licensed E-Money

If large corporations have been mostly happy with proofs-of-concept using closed enterprise blockchains, what are the new use cases that open systems like Concordium can offer? 

Fønss Schrøder said a major opportunity exists in rethinking the way procurement and supply chains work, for example. (In terms of new entrants to the enterprise blockchain space, there have also been some interesting moves from the EOS ecosystem, particularly in Latin America.)

“It could be smart contracts, which actually will function as marketplaces for you and your whole procurement sector,” said Fønss Schrøder. “I think about what Maersk has been doing, but the disadvantage for Maersk is that this should never have been built on a permission-based blockchain; it should have been permissionless. But that’s the kind of logistical use case I’m sure we will be able to support.”

Volvo board member Fønss Schrøder also sees plenty of uses for open blockchains in the car industry, across secondary markets, for instance, and the service agreements that come with that.

“Nearly every car sold by Volvo has some kind of lease arrangement or car-care, and blockchain is well suited to support this on the insurance side and on the service side,” said Fønss Schrøder.

Public, but private

As far as the ZKP secret sauce, Issembert called this the “backbone of the network,” but could not disclose details.

“For the ZKP design approach, we are going to come to the market with our own solution. It’s not something that has been seen yet,” he said.

Read more: WATCH: ‘Big Four’ Exec Says Privacy Is Key to Enterprise Blockchain Adoption

Next month sees Concordium’s third testnet come into being, with a view to going live in January 2021. 

“We will have the smart contract layer ready and then we will see which corporations will build on it,” said Fønss Schrøder. “It will be very interesting. I don’t think we will disappoint you.”

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Messaging giant LINE has launched a wallet for users to manage digital assets and a blockchain platform where developers can issue their own tokens, tokenize digital assets, and run decentralized applications (dapps).

• LINE’s development platform aims to allow companies to easily introduce blockchain technology, CoinDesk Japan reported.
• LVC Corporation, operator of the company’s crypto and blockchain businesses, and LINE TECH PLUS PTE unveiled the platform, LINE Blockchain Developers and BITMAX Wallet on Wednesday. The wallet services are now only available in Japan, where LINE is particularly well-known.
• The company is developing the proprietary LINE Blockchain and issued its own token LINK (LN) for trading against several major crypto assets such as bitcoin and ether in 2018.
• LINE also started offering trading services via its crypto exchange Bitbox. It was approved for a crypto business license in September 2019. 
• The company established the LINE Blockchain Lab in April 2018, which has been tasked to build the LINE Token Economy.
• LINE, with more than 84 million users in its messaging app, aims to leverage its existing network to jumpstart the development of its token economies and accelerate adoptions of many dapps built on its proprietary blockchain platform.
• The company is one of a handful of messaging apps that have tried to develop blockchain technology and issue their own tokens, but it stands out for the progress it has made.
• Canadian messaging company Kik and Russia-originated Telegram have met with lawsuits from the U.S. Securities and Exchange Commission for their controversial fundraising processes called Initial Coin Offering (ICO), while American messaging giant Facebook’s stablecoin project Calibra is stalled and facing major challenges from the U.S legislators and financial authorities. 

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When Hong Kong regulators gave crypto firm OSL a nod of approval last week, it was the icing on the cake for the HKEX-listed digital asset trading platform. 

Hong Kong’s Securities and Futures Commission (SFC) granted BC Group crypto subsidiary OSL an “approval-in-principle” for its license application for Type 1 (dealing in securities) and Type 7 (automated trading service or ATS), as it pertains to crypto and virtual assets.

The bigger picture is that Asian crypto hubs like Hong Kong, Singapore and Japan have a clearer regulatory stance going forward and are progressing faster than the U.S. and Europe. Perhaps this should be expected, given that Asia remains the global leader in terms of crypto trading volumes.

Related: Hong Kong Regulator Gives Crypto Exchange OSL Tentative Licensure Approval

“I think regulatory progress has been so much more significant than in North America,” OSL CEO Wayne Trench said in an interview. “You’ve got regulators who’ve been front-foot trying to embrace this movement and embrace the technology. The West is perhaps slightly less developed with more obscurity or uncertainty, which just really makes it difficult right for the traditional institutions to engage.”

Read more: Hong Kong Regulator Gives Crypto Exchange OSL Tentative Licensure Approval

This is not to say Hong Kong is delivering light-touch regulation when it comes to virtual assets; quite the opposite, said BC Group CEO Hugh Madden. 

“The SFC flies very carefully and is heavily focused on consumer protection,” Madden said. “If you look at the details of the SFC’s licensing framework, it’s quite specific. They prescribed mandatory insurance to protect consumers with specific percentages for hot and cold storage. When you add in the levels of controls, capital and scale of your organization, it’s really quite a tough hurdle.”

Related: Is Bitcoin Mining Legal in India? Miners Still Don’t Know

The SFC did not respond to a request for comment by press time.

OSL, which states it is the first crypto company to be granted provisional approval by the SFC, has acquired insurance cover for both hot (connected to the internet) and cold (fully offline) storage of digital assets but declined to go into details of the size of cover or markets providing it. OSL is also set apart from other crypto plays in that it’s audited by Big Four accounting firm PwC. 

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

In terms of timelines, Madden said if all the SFC’s supervisory requirements are met, OSL should have its full license by the end of this year.

Asian autonomy

The SFC announced its regulatory framework for virtual asset trading platforms back in November 2019, emphasizing the regulator would only grant licenses to platform operators meeting standards comparable to licensed securities brokers and automated trading venues.

“With the license in principle given to OSL now, it would appear the SFC is keen to promote the licensing framework that was clarified last November,” said Malcolm Wright of industry group Global Digital Finance.

Read more: PwC Report Shows Major Growth in Crypto M&A in Asia and Europe

Wright, a compliance expert based in Hong Kong, said Singapore, Japan and Hong Kong have a natural advantage in that they are able to develop their frameworks with relative autonomy. 

“The U.S. and Europe are more complex environments,” he said via email. “For Europe, first there needs to be European agreement (e.g., 5th Anti-Money Laundering Directive) and then each country has to implement it into law – a process that can take several years to complete and can still lead to unevenness in regulatory approach.”

‘Travel Rule’ landscape

OSL and BC Group have also earned their regulatory chops thanks to their close involvement with the Travel Rule Protocol (TRP), a Financial Action Task Force (FATF) “Travel Rule” solution for crypto led by Dutch lender ING and Standard Chartered Bank, and including Fidelity Digital assets and BitGo.

Read more: In Banking First, ING Develops FATF-Friendly Protocol for Tracking Crypto Transfers

Madden pointed out that OSL has license applications underway in both Hong Kong and Singapore. He has personally followed the progress of FATF rules for crypto closely in Asia and internationally, and has had the chance to engage with multiple regulators.

Madden described the Travel Rule solution jurisdictional map as “an interesting landscape,” with virtual asset service providers (VASPs) in the large economies tending to be more domestically focused, while very trade-oriented financial centers are working in a more international fashion.

“Fortunately, we’re all well-known to each other, and all the groups are brilliant at communications in order to try and stay aligned,” Madden said.

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Nigerian programmer Adebiyi David Adedoyin hears knocking at his apartment door. He’s just woken up and headed to the bathroom. He decides to take his time. He’ll answer in a minute.

But the knocking grows louder – and more urgent. 

Inching open the bathroom door, Adedoyin sees someone clawing open his apartment window. 

Related: Fed Chair Powell’s Jackson Hole Speech Could Hint at US Dollar’s Future

“Someone’s there,” a voice says.

It’s probably the police trying to break in, he realizes, from all the stories he’s heard.

Adedoyin is sure he hasn’t done anything wrong. But with the Nigerian police, that doesn’t matter. He still might need to brace for trouble. 

As he thinks through what to do next, Adedoyin is thankful a chunk of his money is stored in bitcoin. His crypto wallet is in a hiding spot the officers probably won’t think to check. That means they’re less likely to steal it.

Police corruption

Related: Market Wrap: Bitcoin Braces for $700M in Options to Expire; Record $7B Value Locked in DeFi

While there are many principled police officers in Nigeria who help tackle crimes, police corruption is pervasive. Many Nigerian police are known for extorting and even sometimes torturing citizens rather than helping them solve legal quandaries. 

“Right there in the bathroom, where I was in my boxers with just my phone, AirPods and pack of cigarettes, I could hear them shouting for me to come open the door,” Adedoyin told CoinDesk.

This is a well-documented phenomenon in Nigeria. Over the past several years, an online social media movement has emerged against the police. On Twitter, people use the hashtag #EndSARS to publicize the poor treatment they’ve received from police. SARS stands for Special Anti-Robbery Squad, which is a particularly brutal and mistrusted wing of the Nigerian police force.

Human rights research organization Human Rights Watch released a 102-page report outlining the abuses in painful detail in 2010. 

“Human Rights Watch’s research revealed that people refusing to pay bribes are routinely subjected to arbitrary arrest, unlawful detention and threats until they or their family members negotiate payment for their release. Extortion-related confrontations between the police and motorists often escalate into more serious abuses. The evidence suggests that police officers have on numerous occasions severely beaten, sexually assaulted, or shot to death ordinary citizens who failed to pay the bribes demanded,” the report reads.

Tricks and strategies

Adedoyin notes that Nigerians have to develop their own tricks to avoid police extortion, especially the younger Nigerians who are the main targets. Some people walk along different routes to avoid walking near the police.

 “Now it’s up to each person to prevent oneself from entering such situations,” he said.

The practice is common enough that Adedoyin has been extorted by police officers more than once, and his friends have, too.

Corrupt police officers take their detainee’s phone. They scan through it looking for SMS or email messages signalling how much money the detainee has in the bank. 

If the police officer finds the detainee doesn’t have any money, they’re less likely to waste their time.

Locked in the bathroom, Adedoyin rapidly scrolls through his most recent messages, deleting any bank statements or emails showing how much money he has.

The bathroom door lock breaks. 

Adedoyin is confronted by four police officers, all carrying guns. One slaps Adedoyin and asks him why he didn’t come open the door. As Adedoyin expected, another officer snatches his phone and scans through for any grain of evidence that Adedoyin has money.

Adedoyin didn’t have time to delete everything. The officer finds some evidence of how much money he makes. They finally let him go once he pays.

Where using bitcoin comes in

It was a bad experience. But Adedoyin is happy that his bitcoin trick worked – most of his money is still safe. 

“The money they collected to let me go in that case would have been a lot more if I had more money in my account. But I had most of my money in bitcoin,” Adedoyin said.

Why does using bitcoin help in this situation? Adedoyin’s ploy is to pretend that he doesn’t have much money to extort. His solution is to store his money in a bitcoin wallet instead of in a bricks-and-mortar bank. Since bitcoin’s less common, it’s less likely the police officers find it.

Put another way, he’s not putting his money into bitcoin as a safeguard because of its decentralization properties. Rather, he just thinks police officers are far less likely to look for a crypto balance than a fiat balance to see if he’s ripe for extortion. 

“[The officers] don’t think to check [bitcoin] wallet apps, because most of them don’t even know what bitcoin is and even think bitcoin is a scam,” Adedoyin said.

The second reason he has bitcoin is he hopes the price will keep rising. Like many other bitcoiners in the region, he sees it as an investment that might pay off in the future. 

But for now, he keeps most of his money in bitcoin as security against the next time the police come banging on his door.

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A speech by Federal Reserve Chair Jerome Powell scheduled for Thursday offers a reminder of just how dramatically once-slow-moving monetary forces have accelerated due to the devastating economic toll of the coronavirus pandemic. 

This time last year, President Donald Trump was vehemently criticizing Powell on Twitter for setting interest rates too high, as U.S. economic growth slowed and the national debt swelled past $22 trillion.

This time last year, then-Bank of England Governor Mark Carney delivered a speech at the Fed’s annual Jackson Hole Economic Symposium in Wyoming warning the U.S. dollar’s status as the de facto global currency contributes to an unsustainable international economic and monetary regime. He argued that world leaders should create a “synthetic hegemonic currency,” potentially provided “through a network of central bank digital currencies.” 

Related: Unconfiscatable? Using Bitcoin to Resist Police Extortion in Nigeria

Fast forward to now, and the Jackson Hole conference has been forced to go virtual because of the coronavirus. Trump’s economic stewardship, including a U.S. stock market that many investors now say is propped up by the Fed’s $3 trillion of freshly printed money, has become a core issue in the 2020 presidential election. The national debt now stands at $26.5 trillion. Digital currencies are now being studied and pursued by central banks in China, the U.S. and just about everywhere else. Goldman Sachs recently warned the dollar risked losing its dominant reserve status. 

“The pandemic has sped up key structural trends and triggered substantial market swings,” strategists for the $7 trillion money manager BlackRock wrote this week. “The policy revolution was needed to cushion the devastating and deflationary impact of the virus shock. In the medium term, however, the blurring of monetary and fiscal policy could bring about upside inflation risks.”

Read more: The Federal Reserve Is Experimenting With a Digital Dollar

As the spread of the coronavirus earlier this year triggered lockdowns and quarantines, the global economy this year entered its deepest recession since the early 20th century. 

Related: Market Wrap: Bitcoin Braces for $700M in Options to Expire; Record $7B Value Locked in DeFi

When markets from stocks to bitcoin swooned in March, the Fed slashed interest rates close to zero and has since announced plans to buy U.S. Treasury bonds in essentially unlimited amounts while providing emergency liquidity for money markets, Wall Street dealers and corporations. 

“The road ahead is highly uncertain,” Fed Governor Michelle Bowman said Thursday in a speech in Kansas.  

‘No easy way out’ for Powell

Many investors are betting on bitcoin as a hedge against the potential debasement of the U.S. dollar, but Fed officials say deflationary forces might be stronger because of an expected drop off in demand from consumers and households.

Analysts for Bank of America, the second-biggest U.S. bank, wrote earlier this week in a report that bond market traders expect the Fed to adopt a “major new policy framework aimed at better achieving its 2% target” for annual inflation. As of the last reading, the central bank’s preferred measure of consumer price increases registered just 0.9%, so the baseline expectation is the Fed would let inflation rise well above 2% so that the average over a long period of time gets closer to the target. 

Read more: Bitcoin Risks Deeper Drop if Dollar Rebounds

“Let us be optimistic and say it takes three years to create some inflation,” Matt Blom, head of sales and trading at the digital-asset firm Diginex, wrote Wednesday in an email. “We would need to drive it above 3.5% and maintain it there for years before we are able to use an average calculation.” 

It’s unclear what Fed scenario is already priced into the market, but Bank of America’s Athanasios Vamvakidis, a foreign-exchange analyst, wrote that there is “no easy way out” for Powell and his colleagues. 

“Without inflation eventually acting as a budget constraint, we see risks for recurring and worsening bubbles, with further divergence between Wall Street and Main Street,” Vamvakidis wrote. 

What Powell’s speech could say about the dollar’s future

Crypto traders will focus in the short term on what the Fed’s speech might mean for bitcoin prices, which have surged almost 60% in 2020, far exceeding this year’s 7.7% year-to-date gain in the Standard & Poor’s 500 Index of U.S. stocks. 

But the Fed’s actions could also have implications for ether, the native token of the Ethereum blockchain, where entrepreneurs are developing alternative currencies and semi-autonomous lending and trading networks that might one day replace the current financial system. There’s also a fast-growing business in dollar-linked “stablecoins,” with the amount doubling this year to $13 billion.

Read more: Fed Reserve Analysts Say Common Digital Currency Distinction ‘Problematic’

“So much has changed,” said Joe DiPasquale, CEO of the cryptocurrency-focused hedge fund BitBull Capital. “There is this danger of the U.S. [dollar] in the future no longer being the world’s reserve currency. We are in a much worse position than we were in a year ago.”

Mati Greenspan, founder of the cryptocurrency and foreign-exchange analysis firm Quantum Economics, wrote this week that Powell’s return to Jackson Hole comes at a time when “people are just starting to ask questions about the intrinsic value of money.” 

“U.S. authorities have just taken on an inordinate amount of debt, more than they could possibly ever hope to pay back,” Greenspan wrote. “So the only viable option is to decrease the value of that debt by way of monetary debasement. It’s despicable and dangerous, but the only other option is austerity, which is too unpopular for any public servant to mention at this time.”

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The bitcoin market bottomed out around $11,100 before bouncing back; DeFi continues an upward trend, garnering interest from traders and perhaps creating new ones.

• Bitcoin (BTC) trading around $11,467 as of 20:00 UTC (4 p.m. ET). Gaining 1.2% over the previous 24 hours.
• Bitcoin’s 24-hour range: $11,102-$11,593.
• BTC above its 10-day moving average but below the 50-day, a sideways-turning-bullish signal for market technicians.

Bitcoin’s price was able to hold above $11,100 Wednesday, going as low as $11,102 before jumping as high as $11,593. 

Read More: Bitcoin Drop Squeezes Out Weak Derivatives Positions

Related: Unconfiscatable? Using Bitcoin to Resist Police Extortion in Nigeria

Katie Stockton, analyst at Fairlead Strategies, sees $10,000 as a lower bound in trading because the world’s oldest cryptocurrency lacks market momentum. “The pullback in bitcoin appears healthy,” Stockton noted. “That said, there is room for further near-term downside with support in the $10,000-$10,055 area, where there was once resistance, and room to short-term oversold territory.” 

Jean Baptiste Pavageau, a partner at quantitative trading firm ExoAlpha, says bitcoin continues to be affected by gains in alternative cryptocurrencies, or altcoins. Indeed, one way to measure this is looking at bitcoin’s dominance, which hit a 2020 low of 60.26% in August. 

”The flattishness of the bitcoin price since the beginning of August allowed the altcoin market cap to grow quickly with an inflow from bitcoin traders toward altcoins,” said Pavageau.  

However, two key events looming over the balance of this week might increase bitcoin market action. One is Thursday’s speech from Federal Reserve Chair Jerome Powell. “The key thing to watch from Powell’s speech tomorrow is the possible shift of the inflation target from a unique figure, like 2%, to a range such as 1.75%-2.25%,” said Chris Thomas, head of digital assets for Swissquote Bank. “This would create a dovish feel to the market and we’d likely see some dollar weakness.”

Related: Fed Chair Powell’s Jackson Hole Speech Could Hint at US Dollar’s Future

Another event is the expiration of 65,000 BTC options, over $700 million at current market values, on Friday. The vast majority of these options are on crypto derivatives platform Deribit. 

“We may see some volatility as a few traders try to push the futures market towards the $11,000 or $12,000 strike,” said Swissquote’s Thomas, adding, “$11,000 would be a buying opportunity and $12,000 we’d likely see further selling.” 

Read More: Fidelity’s Chief Strategist Starts Bitcoin Index Fund

Value locked in DeFi at $7B

Ether (ETH), the second largest cryptocurrency by market capitalization, was up Wednesday, trading around $386 and climbing 1.4% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Read More: BitGo Weighs Building a Sidechain for WBTC as Ethereum Fees Climb

The total value locked in decentralized finance, or DeFi, has surpassed $7 billion in value, according to aggregator DeFi Pulse. Over 4.8 million ETH and 49,248 BTC is currently “staked” in various DeFi services, gaining a percentage profit or “yield” in return. 

Vishal Shah, founder of crypto derivatives platform Alpha5, says DeFi’s opportunities are captivating the interest of traders, and perhaps creating some brand-new ones. “Derivatives traders naturally look for complex risk to exploit, and, by comparison to DeFi, typical derivatives instruments are quieter,” Shah said. “I think the nuanced specifics of DeFi are probably even giving rise to a new breed of derivative traders.” 

Read More: What to Make of the SEC’s New Accredited Investor Rules

Other markets

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

• qtum (QTUM) + 10.4%
• chainlink (LINK) + 7.4%
• 0x (ZRX) + 5%

Read More: Binance’s New DeFi Futures Let Crypto Traders Bet on Decentralization

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

• bitcoin gold (BTG) – 1%

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

Equities:

• Asia’s Nikkei 225 ended the day flat, in the red 0.03%, as a Japan-U.K. trade deal is expected to be finalized by Friday.
• Europe’s FTSE 100 closed flat, in the green 0.14%, as a stronger pound hurt internationally exposed company stocks, dragging down the index.
• The United States’ S&P 500 gained 1%, led by tech stocks as Salesforce jumped 26% on expectations of a stellar earnings announcement.

Read More: Crypto and Fintech Investor Ribbit Capital Files to Raise $350M for IPO

Commodities:

• Oil is flat, down 0.03%. Price per barrel of West Texas Intermediate crude: $43.35.
• Gold was in the green 1.1% and at $1,952 as of press time.

Read More: Marathon to Buy Fastblock Mining for About $22M in Stock

Treasurys:

• U.S. Treasury bonds were mixed Wednesday. Yields, which move in the opposite direction as price, were down most on the two-year, in the red 3.8%.

Read More: Democrats Ask Trump Admin. For Details on Terrorist Crypto Seizures

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Mathew J. D’Souza, crypto entrepreneur and CEO of Blockware Solutions, died on Aug. 21 after a seven-year fight with leukemia. He was 29.

D’Souza’s firm, a major U.S.-based mining rig distributor, announced his death and said a memorial service would be held in Park Ridge, Ill., where the company is based, on Wednesday. 

Despite a short life, he was greatly accomplished. He graduated with a Bachelor of Science in Accountancy (with Honors) in 2012 and a Master of Accounting Science in 2013 from the University of Illinois at Urbana-Champaign. Before entering the crypto world, D’Souza worked with accounting firm KPMG. 

Related: Arctos Inks $1M Sale and Leaseback Deal With Bitcoin Miner Blockware

In crypto, however, he quickly made his mark. In 2017 he co-founded two firms, Blockchain Opportunity Fund, LLC, a multi-million dollar cryptocurrency hedge fund, and Blockware Solutions, LLC, a leading service provider for the bitcoin mining Industry. While CEO, Blockware Solutions became one of the largest distributors of mining rigs to the U.S. market, according to the company.  

In 2019 he co-founded the bitcoin mining fund Blockware Mining, LLC and served as the company’s CEO.

In addition he was a keen observer and advocate of the blockchain and crypto space and a frequent source of insight for reporters at CoinDesk. He was a featured speaker during the virtual Consensus: Distributed conference in May.  

D’Souza is survived by his parents and brothers. Blockware Solutions said those wishing to pay tribute to his memory could make donations to the Evans Scholars Foundation. 

Related: Canaan’s Post-IPO Stock Plunge Reveals Sales Slump, Price War With Bitmain

A Celebration of Life will be held on Friday, Aug. 28, from 3 p.m. to 8 p.m. local time at Cooney Funeral Home located at 625 Busse Highway in Park Ridge, Ill.  The Memorial Service will be held the next day at 10 a.m. at Mary, Seat of Wisdom Parish, 920 W. Granville, Park Ridge.

Two U.S. tech firms are building NASA a blockchain-based communications solution they believe has potential for the space agency’s quadcopter fleet.

• Orbit Logic and the Fraunhofer USA Center for Experimental Software Engineering won $124,800 in NASA funding Tuesday to build “Space Communication Reconstruction and Mapping with Blockchain Ledgering,” or SCRAMBL for short.
• While the proposed SCRAMBL is far from the launchpad, the system as described in a brief seeks to use blockchain to propagate data between networking satellites, increasing their communication efficacy, coordination and “overall awareness.”
• “Lightweight and tailored” algorithms will shore up communication breakdowns, according to the SCRAMBL project brief. If one node cuts out, the rest will quickly and dynamically adapt.
• Such flexibility could be of particular use for NASA’s budding army of tiny drones moving in tandem, the SCRAMBL project proposal said. NASA is currently spending billions on an octocopter mission to Saturn.
• As pointed out by the two firms, quadcopter swarms need to stay nimble in inhospitable environments, where communication is spotty but operational awareness remains paramount. They told NASA that blockchain could be just the ticket.
• NASA did not return CoinDesk queries, and Orbit Logic did not pick up calls.

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Blockchain firm Coda Protocol announced the launching of its node operator mentorship program on Wednesday. 

• In a press statement emailed to CoinDesk, the firm said that in order to train people to run nodes it would pair them with “technical ambassadors” from its team, and this program would also be a gateway for applicants to seek a grant of Coda’s tokens to help develop the network.  
  
• We are proud that 30% of our community comes to us having never run a node before,” said Evan Shapiro, CEO of O(1)Labs, the firm developing Coda Protocol, in the statement. “We made this program to really make it easy for people to get involved with what we’re building,” he added. 
  
• According to Shapiro, Coda is also on track for its expected mainnent launch in Q4. “It’s just a few more testnets and we’ll be there,” he said. 

Related Stories

• One Small Step for Bitcoin – SpaceChain Secured Transfer From International Space Station
• Square Crypto, Human Rights Foundation Ramp Up Bitcoin Development Grants
• Coda Protocol Touts User Growth One Year Into Testnet
• China Aims to Be the World’s Dominant Blockchain Power – With Help From Google, Amazon and Microsoft

Fidelity Investments’ chief strategist is heading a new bitcoin index fund that appears to be Wall Street’s latest play for high-dollar institutional crypto bets.

• “Wise Origin Bitcoin Index Fund I, LP” has a $100,000 minimum buy-in and a high-ranking executive officer to boot: Peter Jubber, head of strategy and planning for the increasingly crypto-friendly investments giant Fidelity.
• Disclosed in a Wednesday morning filing with the Securities and Exchange Commission, the fund is the latest example of Wall Street veterans warming up to bitcoin. Fidelity, one of the largest mutual fund firms in the U.S., is also leading the Street in bitcoin research and services.
• Wise Origin links back to Fidelity Investments via Jubber and Fidelity’s brokerage service and distribution subsidiaries, both of which are set to receive sales compensation from the new fund. It also shares a Boston office building with Fidelity.
• Fidelity declined to comment on its ties to the fund. A Delaware corporation called FD Funds GP is Wise Origin’s general partner, and Jubber is FD Funds’ president.
• While it is not known how the fund will approach bitcoin investing, Jubber waxed bullish on blockchain in a 2017 podcast sponsored by Fidelity. At the time he said his firm had sketched out 10 years of potentialities for the institution-disrupting tech.
• “Every incumbent should be spending time and money on this topic to understand it, at least to understand the threat,” he said in the podcast. “But I think there’s just a massive opportunity.”
• The fund has yet to raise any capital from investors.

Read more: Fidelity’s Man: Can Tom Jessop Bridge Crypto and Wall Street for Good?

Related Stories

• US Democrats Ask Trump Administration for Details on Terrorist Crypto Seizures
• Darknet’s Largest Marketplace Still Offline; Fears of Exit Scam Rise
• South Korean Crypto Exchange Coinbit Seized Over Allegations of Massive Wash Trading
• Bitwage Rolls Out Tax Calculator Tool as IRS Ramps Up Crypto Pressure

FTX acquired Blockfolio, ConsenSys acquired Quorum and police have seized the third-largest exchange in South Korea. And news broke the U.S. Securities and Exchange Commission (SEC) has formalized new “accredited investor” rules.

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. 

Breaking news

The U.S. Securities and Exchange Commission (SEC) has formally adopted new accredited investor rules, expanding the group of Americans who can invest in private securities.

Related: First Mover: Binance’s New DeFi Futures Let Crypto Traders Bet on Decentralization

The new definition, which lets individuals holding certain licenses meet the definition of “accredited investor,” was released for public comment in December 2019.

Accredited investors in the U.S. – which currently include individuals who have a net worth of more than $1 million, annual income greater than $200,000 or entities that meet certain legal requirements – have access to private financial markets the broader public does not.

Still, the move isn’t broadly expanding the list of individuals who can take part in the private markets. Zachary Kelman, a partner at Kelman Law, told CoinDesk shortly after the proposal was unveiled in December that “Wall Street insiders” and similar individuals may benefit most.

Drew Hinkes, general counsel at Athena Blockchain, similarly told CoinDesk at the time that more clarity was needed on what type of credentials might qualify individuals to become accredited investors.

Related: Blockchain Bites: Bitcoin’s ‘Rich List,’ Ethereum’s Volatility, DeFi’s Shakeup

“The proposed modernization would appear to include persons who are licensed to sell securities but who otherwise did not previously qualify to buy private placements as accredited,” he told CoinDesk via Telegram.

Though this may not grow the investor pool by that much, he noted. 

Top shelf

Retail acquisitions 
Derivatives exchange FTX has acquired Blockfolio in a $150 million cash, crypto and equity deal. Discussions began nine months ago, and play into FTX’s vision of becoming a retail and mobile-friendly exchange. Antigua and Barbuda-based FTX is ranked first by order-book liquidity and seventh by 24-hour volume, having been founded last year, CoinDesk’s Zack Voell reports. Blockfolio, founded in 2014, has six million cumulative downloads and sees 150 million impressions on its news and portfolio tools.

Exchange hosed
Meanwhile, Coinbit, South Korea’s third-largest cryptocurrency exchange, appears to have been seized by police over allegations it faked most of its trading volume, CoinDesk EU News Editor Daniel Palmer reports. Exchange insiders and police said up to 99% of the platform’s trading volume was “manipulated,” or washed, using “ghost” accounts – totalling over 100 billion won ($84 million) in faked income. Seoul Newspaper, which broke the news, said it had seen the books and that 99% of recorded trades could not be associated with deposits or withdrawals.

Acquire, invest, interoperate?
ConsenSys will acquire Quorum, the enterprise blockchain platform developed by JPMorgan Chase, with the mega-bank becoming a customer of ConsenSys. All enterprise work being done at ConsenSys will now fall under the new “ConsenSys Quorum” brand, and ConsenSys plans to merge its existing protocol engineering roadmap with Quorum, including locking down interoperability between the other enterprise Ethereum client Hyperledger Besu. Also announced, JPMorgan has made an undisclosed strategic investment in ConsenSys, which is in the process of raising funds, CoinDesk’s Ian Allison reports. 

$1B Ethereum exploit
Over $1 billion worth of tokens on the Ethereum blockchain are missing a software standard released in 2017, setting them up to be hijacked and drained from trading exchanges, according to new research. The vulnerability, called a fake deposit exploit, was pinpointed in 7,772 issuers of ERC-20 tokens, according to several university researchers. A hacker can fraudulently siphon exorbitant amounts of funds at nearly no cost by manipulating code in the smart contracts of ERC-20 tokens listed on cryptocurrency exchanges with deficient transaction verification methods.

Darknet down
Top darknet site Empire Market has been offline for more than three days, prompting fears of an exit scam. According to a Tuesday report by Darknetstats, the site, the most trafficked darknet marketplace, was taken offline on August 22. John Marsh, a Darknetstats representative, raised concerns Empire’s administrators could have absconded with an estimated 2,638 bitcoin ($30.2 million). Empire Market admin Se7en dispelled the rumors. There’s plenty of speculation, but nothing “concrete” about what has happened to the site, CoinDesk’s Sebastian Sinclair reports.

Quick bites

• Another Bitcoin Lightning Startup Is Working With Visa to ‘Fast Track’ Card Payments (Alyssa Hertig/CoinDesk)
• Australian Payments Firm Sues Ripple for Use of PayID Trademark (Sebastian Sinclair/CoinDesk)
• IRS, Ignoring Its Own Watchdog, Sends Letters About Crypto Taxes Once Again (Danny Nelson/CoinDesk)
• How State Channels aims to make torrenting cool again (Saniya More/The Block)
• Aave’s Price Rose 20,000% in Ethereum’s DeFi Explosion (Daniel Phillips/Decrypt)

At stake

Ribbit leaps
Ribbit Capital, an investor in fintech startups and early backer of crypto, is seeking to raise $350 million for a “blank check” company that would make acquisitions.

The special-purpose acquisition company (SPAC), Ribbit LEAP Ltd., filed a prospectus with the Securities and Exchange Commission late Tuesday, only mentioning cryptocurrency twice in passing, in passages that describe Ribbit Capital’s range of investments.

Unlike traditional publicly traded companies, where major acquisitions are subject to shareholder approval, a SPAC asks for wide latitude to make purchases (hence the term “blank check”), CoinDesk Executive Editor Marc Hochstein reports.

“Our shareholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete our initial business combination even though a majority of our shareholders do not support such a combination,” warns the risk factors section of the Ribbit Leap prospectus.

Ribbit has led a seed round for Bobby Lee’s Ballet crypto wallet startup in 2019, and invested in Coinbase, Revolut, Robinhood, Xapo, Chainalysis, Figure Technologies and CRB Group.

While it’s unclear how much Ribbit Leap will focus on crypto or blockchain acquisitions, the filing comes at a time of renewed exuberance in the sector. Aside from the bull run in coin prices, fledgling exchange INX Ltd. has launched an on-chain regulated initial public offering, and heavyweights Coinbase and Ripple are reportedly eyeing public listings.

Market intel

Futures liquidated
Bitcoin’s latest price drop to $11,400 has forced out weak hands in the derivatives market, according to CoinDesk’s Omkar Godbole. The top cryptocurrency by market value fell by over 3.5% to levels near $11,100 on Tuesday, according to CoinDesk’s Bitcoin Price Index, triggering sell liquidations worth nearly $50 million in futures contracts listed on cryptocurrency exchange BitMEX. “The positives of last night’s move was that it cleared out a lot of the weak leverage longs,” Singapore-based QCP Capital said in a Telegram post, in reference to the perpetuals liquidations. 

Bet on decentralization
The fast-growing realm of decentralized finance – semi-autonomous exchanges and lenders erected from interconnected systems of digital tokens and coding atop the Ethereum blockchain – is one of the hottest corners of the crypto industry this year, with $7 billion of value locked, a 10-fold increase over the start of 2020. Now, the big centralized crypto exchanges are finding a way to cash in on the mania, introducing indexes tied to the fate of “DeFi” tokens and new futures contracts and other types of derivatives. For traders, these indexes provide a way to speculate on decentralized finance without going all in on any single project.

Tech pod

Wrap it up?
Digital asset trust company BitGo is considering building an Ethereum sidechain for wrapped bitcoin (WBTC), amid historic highs in Ethereum fees. CTO Ben Chan said the company is “reaching out” to community partners to build an alternative for its popular product, an ERC-20 token with a 1-1 peg to bitcoin, which has become a key component of the decentralized finance space. BitGo currently secures some 46,000 BTC (~$500 million) through a custodial patchwork and is not “committed to anything in 2020.” Ethereum fees peaked on Aug. 13, with little sign of abating. 

No government!
Liquity is a DeFi project that wants to launch without token governance, CoinDesk’s Brady Dale reports. It has started running ideas for farming schemes by its early supporters, ahead of its stablecoin mint that works much like MakerDAO, lending against collateral with a low-volatility token. Notably, Liquity’s smart contract will adjust as needed without a governance committee of token-holding people. “All of the system parameters are automatically controlled by the algorithms,” CEO Robert Lauko said.

Podcast corner

Unintended consequences
As companies have to shift their business model to contend with low interest rates, the largest find themselves in a comparatively better situation.

Who won #CryptoTwitter? Related Stories

• First Mover: Ether Price Swings Make Bitcoin Look Tame as DeFi Speculation Spreads
• Blockchain Bites: Aave’s Advance, BitMEX’s Block, Turkey’s Bitcoin Trot

The U.S. Securities and Exchange Commission (SEC) has formally adopted new accredited investor rules, expanding the group of Americans who can invest in private securities.

The new definition, which lets individuals holding certain licenses meet the definition of “accredited investor,” was first released for public comment in December 2019. Accredited investors in the U.S. – which currently include individuals who have a net worth of more than $1 million, annual income greater than $200,000 or entities that meet certain legal requirements – have access to private financial markets the broader public does not.

Read more: SEC Proposal Would Broaden ‘Accredited Investor’ Definition

Related: Boontech, Founder Pavithran Settle SEC Charges Over Fraudulent ICO and Registration Violations

The SEC oversees regulated token offerings in the U.S., and has cracked down on unregulated offerings as illegal securities sales. Wednesday’s move helps grow the pool of Americans who can compliantly invest in token sales.

Still, the move isn’t broadly expanding the list of individuals who can take part in the private markets. Zachary Kelman, a partner at Kelman Law, told CoinDesk shortly after the proposal was unveiled in December that “Wall Street insiders” and similar individuals may benefit most.

Andrew Hinkes, an attorney with Carlton Fields, similarly told CoinDesk at the time that more clarity was needed on what type of credentials might qualify individuals to become accredited investors.

On Wednesday, he said on Twitter the new definition was “not meaningful,” at least for now.

Related: Stacks Foundation Will Soon Put Those 100M Tokens to Work

“The proposed modernization would appear to include persons who are licensed to sell securities but who otherwise did not previously qualify to buy private placements as accredited,” he told CoinDesk via Telegram.

As was the case in December, the potential to add certain academic credentials or similar certifications might grow the space more, but this has yet to be properly defined.

Read more: Closer Look at SEC ‘Accredited Investor’ Revamp Suggests Little Will Change

Indeed, as Hinkes pointed out, the SEC itself acknowledges the expanded definition might not grow the pool of accredited investors that much. The document released Wednesday states:

“We do not expect that number of newly eligible individual accredited investors to be significant compared to the number of individual investors that currently are eligible to participate in private offerings, and (2) we expect the amount of capital invested by such newly eligible individual investors to have minimal effects on the private offering market generally.” 

The document indicates that only individuals with Series 7, 65 or 82 certifications would qualify for now.

Hinkes said the move is still promising, however.

“The modernization reflects the SEC’s willingness to continue to consider further expansion of the definition to include other certifications or credentials and includes an invitation for the public to offer suggestions,” Hinkes told CoinDesk on Wednesday.

Related Stories

• Interactive Brokers to Pay $38M in Settlement Over AML Lapses
• SEC Seeking ‘Smart Contract’ Tracing Tool That Can Spot Security Vulnerabilities

Fiat and crypto payments platform Wirex announced Wednesday it has partnered with Railsbank to replace insolvency-facing Wirecard as its card provider for the Asia-Pacific region. 

• According to the announcement posted on the firm’s website, customers with existing Wirex cards have already been migrated to Railsbank’s cards and there would be no disruption in Wirex’s payment services during the transition. 
  
• The firm’s announcement said Wirex has about 3 million customers who use its multi-currency card that allows for both fiat and crypto payments. 
  
• The firm’s previous card provider, Wirecard, is facing insolvency proceedings after a $2.1 billion hole was discovered in its balance sheet in June earlier this year. 
  
• According to a recent report by German local media, one of the Wirecard executives wanted in connection with the fraud, Jan Marsalek, surfaced in western Moscow and is being sheltered by Russia’s largest secret service, the military-controlled GRU. 

Related Stories

• Wanted Wirecard Exec Said to Be Sheltered by Secret Service in Russia
• German Regulator Had Just 1 Person Checking Wirecard’s $3.1B Books: Report
• Wirecard Fallout: Auditor EY Accused of Not Flagging $2.1B Black Hole Sooner
• Crypto.com to Refund Clients as Wirecard’s Card Issuer Told to Cease Operations

Nasdaq-listed cryptocurrency mining company Marathon Patent Group signed a letter of intent to acquire the mining-as-a-service company Fastblock Mining, founded in 2014, in an all-stock deal.

• Marathon will acquire Fastblock for 8,658,009 common shares, currently trading around $2.48, giving the deal a total value of about $22 million.
• After deploying Fastblock’s 3,304 ASIC miners, Marathon’s mining power will increase by 208 petahash per second, according to the announcement.
• Marathon also said the deal will cut its overall cost to mine bitcoin (BTC) from $7,400 per BTC to $3,600 per BTC due to the lower-than-industry-standard electricity cost of $0.0285 per KwH.
• Fastblock has been “actively seeking a partner that could help us build one of the largest bitcoin mining companies in North America,” according to Fastblock CEO Bernardo Schucman.
• Schucman will stay on with Marathon after the deal and become its head of mining operations.
• Marathon said it will work with Fastblock’s management team to expand the current power capacity in Fastblock’s Atlanta facility from of 15MwH to 45MwH. The facility may be expanded up to a maximum of 100MwH of power should Marathon’s expansion efforts require additional power, the company said. 
• The acquisition is the latest move in Marathon’s push to rapidly expand its mining operations in light of the recent runup in BTC. On Monday, Marathon announced its receipt of 1,300 new mining machines –⁠ WhatsMiner M31S+ and S19 Pros –⁠ with 1,000 additional S19 Pros expected to arrive by December.
• Marathon said it expects the acquisition to close by the end of September.

Update (August 26, 15:30 UTC): This article has been updated with the company’s halving of mining costs and additional information about Bernardo Schucman.

Related Stories

• Marathon Brings New Bitcoin Mining Rigs Online, Sees Itself Becoming Cash-Flow Positive
• Marathon Signs New $23M Contract With Bitmain for 10,500 Bitcoin Mining Rigs
• Mining Stocks Are Beating Bitcoin in a Bullish Cryptocurrency Market

Nasdaq-listed cryptocurrency mining company Marathon Patent Group signed a letter of intent to acquire the mining-as-a-service company Fastblock Mining, founded in 2014, in an all-stock transaction.

• Marathon will acquire Fastblock for 8,658,009 common shares, currently trading around $2.48, giving the deal a total value of about $22 million.
• After deploying Fastblock’s 3,304 ASIC miners, Marathon’s mining power will increase by 208 petahash per second, according to the announcement.
• Fastblock has been “actively seeking a partner that could help us build one of the largest bitcoin mining companies in North America,” according to CEO Bernardo Schucman, adding that he and his company are “extremely pleased” to join Marathons mining expansion efforts.
• Schucman will stay on with Marathon after the deal and become its head of mining operations. 
• The acquisition is the latest move in the American mining company’s push to rapidly expand its mining operations. On Monday, Marathon announced its receipt of 1,300 new mining machines –⁠ WhatsMiner M31S+ and S19 Pros –⁠ with 1,000 additional S19 Pros expected to arrive by December.
• Marathon’s acquisition of Fastblock is expected to close by the end of September, according to the announcement.

Update (August 26, 15:30 UTC): This article has been updated with additional information about Bernardo Schucman.

Related Stories

• Marathon Brings New Bitcoin Mining Rigs Online, Sees Itself Becoming Cash-Flow Positive
• Marathon Signs New $23M Contract With Bitmain for 10,500 Bitcoin Mining Rigs
• Mining Stocks Are Beating Bitcoin in a Bullish Cryptocurrency Market

Baseline Protocol, where corporates can use the Ethereum public mainnet as a common frame of reference among different systems of record, has released its Version 1.0. 

Announced Wednesday, the Microsoft-backed project – developed by Paul Brody, blockchain lead at EY, and John Wolpert of ConsenSys – made the first version of its code available to contributors to augment, as part of the OASIS open-source project, clearing the way for standards development.

Baseline uses Ethereum only for hashing and ordering events, like a kind of middleware. The way enterprise blockchains typically work is by running data on-chain like a traditional workhorse database – a grave error of judgment, according to Wolpert. 

Related: ConsenSys Acquires JPMorgan’s Quorum Blockchain

The protocol has seen prolific adoption since its launch in March of this year. Wolpert said some 20 or so companies a week are joining the 600-plus firms now using the protocol, with big names like the U.S. division of Coca-Cola recently joining. 

Read more: Microsoft, EY and ConsenSys Tout New Way for Big Biz to Use Public Ethereum

Wolpert is outspoken on the subject of enterprise blockchains and why “Baselining” is proving to be so popular among large corporations. 

“I think because boring is the new exciting,” Wolpert quipped. “We have been trying to shill this idea of putting data on these shared databases for the past five years – and I had a hand in that, too. Well, turns out it’s a bit like the emperor’s new clothes.”

Related: Token Sales Are Back in 2020

“Baselining,” the verb, can massively reduce capital expense and other overheads, said Wolpert, while increasing operational integrity when automating business processes across multiple companies.

Next steps

Thus far, several proofs-of-concept have been released to showcase how to baseline systems such as SAP, Microsoft Dynamics and Google Sheets. The standards work commencing will be coordinated with the standards initiatives of the Enterprise Ethereum Alliance’s Mainnet Working Group, Wolpert added.

Baseline has also established a technical steering committee that includes EY, Microsoft, ConsenSys, Splunk, MakerDAO, Duke University, Chainlink, Unibright, Envision Blockchain, Neocova, Core Convergence, Provide and W3BCloud. 

Read more: How the EEA Made Ethereum Palatable to Big Business

The release of Baseline Protocol v1, Wolpert said, represents a significant milestone because it provides a set of standard interfaces for developers to implement solutions easily and for vendors to provide their own modules that comply with the specification. Official OASIS standards development based on the Baseline reference implementation will commence in September, according to a press statement.

“The protocol is at a stage where it is going into professional standards development,” Wolpert said. “Now people can really dig in and start contributing to it in a way that makes it is fairly straightforward.”

Related Stories

• Audius Rallies EDM Artists, Crypto VCs to Back Vision for Music Payments on Ethereum
• China Aims to Be the World’s Dominant Blockchain Power – With Help From Google, Amazon and Microsoft

Market Moves

The fast-growing realm of decentralized finance – semi-autonomous exchanges and lenders erected from interconnected systems of digital tokens and coding atop the Ethereum blockchain – is one of the hottest corners of the crypto industry this year, with $7 billion of value locked, a 10-fold increase over the start of 2020.  

Now, the big centralized crypto exchanges are finding a way to cash in on the mania, introducing indexes tied to the fate of “DeFi” tokens and new futures contracts and other types of derivatives. For traders, these indexes provide a way to speculate on decentralized finance without going all in on any single project.

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: Bitcoin Drop Squeezes Out Weak Derivatives Positions – And That May Be a Good Thing

The latest announcement comes from Binance, the world’s largest cryptocurrency exchange. 

The company plans to offer “DeFi Index Perpetual Contracts,” listed on Binance Futures, according to a press release Wednesday. The contracts will be denominated in the dollar-linked stablecoin tether and offer traders leverage up to 50 times their money down.    

The “fully synthetic derivative product enables greater access to decentralized finance,” Binance said in the release. 

Ahem. Never underestimate crypto exchanges’ creativity when it comes to adapting Wall Street-style financial engineering for use on the so-called digital rails. 

Related: Blockchain Bites: Bitcoin’s ‘Rich List,’ Ethereum’s Volatility, DeFi’s Shakeup

Binance’s new contracts might be an early entrant in what could potentially become a crowded field.

Earlier this week, the exchange FTX announced a futures index tracking the top 100 liquidity pools on the decentralized exchange Uniswap. FTX had already launched its own DeFi Index in June. 

“We’ve seen large demand from customers to get exposure to a broad base of DeFi products,” CEO Sam Bankman-Fried told CoinDesk’s Zack Voell in a private message.

Binance’s DeFi index consists of 10 tokens associated with DeFi, several of which rank among the year’s best performers. They include Chainlink’s LINK, Compound’s COMP, Kyber’s KNC, Aave’s LEND, ZRX’s 0x and MakerDAO’s MKR. 

In an example of the speculative fervor, tokens associated with the phenomenon now have a combined market value of $12.7 billion, more than the amount of money locked into the underlying platforms, according to the website DeFi Market Cap.

“DeFi is still the big hype, with many coins still flying high,” the Norwegian cryptocurrency analysis firm Arcane Research wrote Tuesday in a weekly report.

Messari, a crypto-markets research firm, has compiled its own list of 30 tokens associated with DeFi. On average, they’re up 13-fold in 2020.

It almost makes bitcoin’s 56% year-to-date gain look like dead money.  

Bitcoin watch

Bitcoin’s latest price drop has a silver lining: It has forced out weak hands in the derivatives market and potentially opened the doors for a more sustainable rally to recent highs. 

• Bitcoin is currently trading near $11,400.
• Tuesday’s 3.7% price drop triggered sell liquidations – the forced unwinding of long trades – worth nearly $50 million in perpetuals (futures with no expiry) listed on cryptocurrency exchange BitMEX, according to data source Skew.
• “The positives of last night’s move was that it cleared out a lot of the weak leverage longs,” Singapore-based QCP Capital said in a Telegram post, in reference to the perpetuals liquidations. 
• Following Tuesday’s price drop, the cost of holding long positions in BitMEX perpetuals, known as the “funding rate,” has normalized.
• A high funding rate discourages new investors from entering the market and existing holders from boosting their long positions.
• “The unsustainably high funding rate has been pushed back to its typical baseline levels of 11% annualized,” QCP Capital said. 
• The funding rate had jumped to highs above 60% in annualized terms on Aug. 18, when bitcoin broke above $12,000.
• As a result, stronger buying pressure may emerge, leading to a re-test of recent highs above $12,000. 

Read more: Bitcoin Drop Squeezes Out Weak Derivatives Positions – And That May Be a Good Thing

– Omkar Godbole

Token Watch

Aave (LEND): Decentralized lender passes MakerDAO to become No. 1 in DeFi rankings (CoinDesk)

Wrapped bitcoin (WBTC): Fees on Ethereum blockchain are so elevated that BitGo is scouting for partners for new sidechain. (CoinDesk) 

Ether (ETH): More than $1 billion of ERC-20 tokens vulnerable to “fake deposit exploit.” (CoinDesk)  

PAX Gold (PAXG): Crypto exchange Binance lists the gold-linked digital token as precious metal trades around $1,900 an ounce. (Paxos)

Analogs The latest on the economy and traditional finance

Big companies load up on debt as borrowing costs fall, even amid recession (Bloomberg)

U.S. consumer confidence unexpectedly falls to 6-year low as stimulus checks expire (Reuters)

Stimulus-induced inflation puts $40 trillion of retirement savings at risk (Bloomberg)

Tweet of the day What’s Hot

FTX Exchange Trying to One-Up Binance’s CoinMarketCap Acquisition (CoinDesk)
FTX has acquired Blockfolio, the mobile news and portfolio tracking app, for $150 million.

BitGo Might Do a Sidechain for WBTC as Fees on Ethereum Mount (CoinDesk)
Pressure plaguing the Ethereum blockchain might prompt BitGo to build a sidechain to sidestep exorbitant fees.

Bitcoin Lightning Startup LastBit Working With Visa to ‘Fast Track’ Card Payments (CoinDesk)
LastBit’s hope is to allow users to harness the Lightning network to pay for just about anything.

Japan’s First IEO to Launch via Crypto Exchange Coincheck (CoinDesk)
One of the largest crypto exchanges in Japan is supporting the launch of the country’s first initial exchange offering.

– Sebastian Sinclair

Related Stories

• Binance Exchange to List Paxos’ Gold-Backed Cryptocurrency
• First Mover: Ether Price Swings Make Bitcoin Look Tame as DeFi Speculation Spreads

Two U.S. Democrats have asked the Trump administration to provide more information on recent seizures of cryptocurrency from terrorist groups, including ISIS.

• Representatives Josh Gottheimer of New Jersey and Emanuel Cleaver of Missouri made the request Monday, according to The Hill.
• Calling it “the largest-ever seizure of online terrorist financing,” the two lawmakers said it is “vital” that members of the Subcommittee on National Security, International Development and Monetary Policy should be briefed on the investigation.
• They requested the Department of Justice (DOJ) and the Department of the Treasury provide the briefing, with the latter also asked to explain its efforts in tackling potential malicious attacks on U.S. finance.
• As for why, Gottheimer and Cleaver explained that this information would help lawmakers develop legislation enabling law enforcement agencies and regulators to “continue to address the illicit use of cryptocurrency and disrupt terrorist organizations.”
• As reported on Aug. 13, the DOJ announced the seizure of 300 terrorist cryptocurrency accounts with funds worth in the “millions of dollars.”
• Following an investigation, money-laundering and fundraising efforts involving al-Qaeda, Hamas and ISIS were dismantled, it said.
• Gottheimer told The Hill in a statement that it’s important “to stay one step ahead” of foreign terrorist entities that threaten the U.S.

See also: DOJ Indicts Founder of Anti-Money Laundering Bitcoin Project for Money Laundering

Related Stories

• Darknet’s Largest Marketplace Still Offline; Fears of Exit Scam Rise
• South Korean Crypto Exchange Coinbit Seized Over Allegations of Massive Wash Trading
• Bitwage Rolls Out Tax Calculator Tool as IRS Ramps Up Crypto Pressure
• Australian Payments Firm Sues Ripple for Use of PayID Trademark

Crypto exchange Shakepay, which describes itself as “Canada’s fastest-growing bitcoin platform,” conducted a “proof-of-reserves” audit and acquired an insurance policy to reinforce its security, perhaps learning a lesson from fellow Canadian platforms QuadrigaCX, Einstein and Coinsquare, which all lost customer funds or have otherwise been involved in scandals over the past 20 months.

The Montreal-based crypto exchange hired blockchain forensics firm CipherBlade to conduct a full audit of its reserves and security policies. To safeguard its customers’ funds, the exchange also tapped a third-party custodian and secured a specific insurance policy for its cold wallets through Aon, underwritten by insurers with Lloyd’s of London, the exchange announced Wednesday.

Shakepay CEO Jean Amiouny told CoinDesk the exchange supports bitcoin buying and selling, but tries not to actually hold onto its customers crypto holdings any longer than necessary.

Related: South Korean Crypto Exchange Coinbit Seized Over Allegations of Massive Wash Trading

This reduces the risk that customer funds can be stolen should the exchange be compromised.

Read more: Lloyd’s of London Makes Quiet Entrance Into Crypto Insurance Market

“ShakePay is built, not to hold your bitcoin [but] to send it out right away,” he said. “What [our customers] do is they buy bitcoin and then they send it out to wallets they control … as a platform we generally don’t hold customer assets very long.”

The five-year-old exchange originally offered a bitcoin debit card, but shut the program down after its issuer experienced some issues. In 2018 the firm pivoted to bitcoin buying and selling, and just passed 100,000 users, he said.

‘Proof-of-reserves’

Related: Crypto Exchange Coincheck to Launch Japan’s First IEO

According to CipherBlade’s audit report, Shakepay’s reserves fully back its customer assets on paper.

“There was a 100% match between transaction data found in backend systems and amounts credited to user accounts accordingly relative to actual transaction amounts observed on the Bitcoin and Ethereum blockchains (for cryptocurrency transactions) and bank account records (for fiat transactions) in all transactions observed,” the report said. 

CipherBlade worked with Shakepay’s custodian and financial institutions to verify these figures, Amiouny said. 

Shakepay’s new insurance covers all funds held in cold storage, meaning it covers “physical theft of the media where the private keys are held,” he said.

The cold storage, in turn, is provided by a crypto custody provider regulated in the U.S. Amiouny declined to confirm the custodian’s name on the record, citing security concerns. 

Read more: QuadrigaCX Owes Customers $190 Million, Court Filing Shows

What Shakepay’s new policy does not provide is individual insurance. It’s not like Federal Deposit Insurance Corporation insurance in the U.S., he said. 

The exchange also asked CipherBlade to assess the exchange’s personnel and security processes, creating a tiered access system to ensure employees only have access to tools they need to conduct their jobs.

Still, CipherBlade claims “there is no evidence” that indicates Shakepay’s employees might steal or otherwise divert the exchange’s funds, citing criminal background checks it was provided.

The exchange is currently only available in Canada, with no plans to expand beyond the country, Amiouny said.

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Bitcoin’s latest price drop has a silver lining – it has forced out weak hands in the derivatives market and potentially opened the doors for a more sustainable rally to recent highs. 

• The top cryptocurrency by market value fell by over 3.5% to levels near $11,100 on Tuesday, according to CoinDesk’s Bitcoin Price Index.
• The price drop triggered sell liquidations, the forced unwinding of long trades, worth nearly $50 million in perpetuals (futures with no expiry) listed on cryptocurrency exchange BitMEX, according to data source Skew.

• “The positives of last night’s move was that it cleared out a lot of the weak leverage longs,” Singapore-based QCP Capital said in a Telegram post, in reference to the perpetuals liquidations. 
• “Weak longs” is the term used to describe traders lacking confidence or resources to hold assets for the long haul. Usually, it’s the retail crowd that exits the market or is forced out on minor price dumps or pumps.
• Markets often shake out weak hands with temporary price pullbacks following strong breakouts like bitcoin’s recent move above $12,000.
• Following Tuesday’s price drop, the cost of holding long positions in BitMEX perpetuals, as represented by the “funding rate,” has normalized.
• Funding rate is a mechanism used to tether a perpetual contract’s price to the spot price. 
• A high funding rate discourages new investors from entering the market and existing holders from boosting their long positions.
• “The unsustainably high funding rate has been pushed back to its typical baseline levels of 11% annualized,” QCP Capital said.
• The funding rate had jumped to highs above 60% in annualized terms on Aug. 18, when bitcoin broke above $12,000.
• As a result, stronger buying pressure may emerge, leading to a re-test of recent highs above $12,000.
• Bitcoin is currently trading near $11,400.

Also read: Market Wrap: Bitcoin Dips to $11.1K; Ether Mining Difficulty at Year High

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