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Bitcoin’s Lightning Network has reached a significant milestone. An important capacity limit meant to protect users of the nascent protocol is being tweaked, toppling a barrier to entry for companies looking to adopt the novel payment system. 

LND, a leading Lightning Network implementation from startup Lightning Labs, has announced it has adopted support for wumbo channels. Going forward, users can deposit more money into Lightning Network channels than before, as well as send larger transactions.

Read more: What Is Bitcoin’s Lightning Network?

Related: Dust Attacks Make a Mess in Bitcoin Wallets, but There Could Be a Fix

ACINQ’s eclair and Blockstream’s c-lightning both adopted a form of wumbo earlier this year. According to LND’s fresh release notes, the node software now allows users to opt into “accepting” and “creating” wumbo channels.

What is wumbo?

The word “wumbo” comes from, believe it or not, SpongeBob SquarePants, a cartoon series about a talking sponge that works at a burger joint under the sea with an assortment of sea friends. In one scene, SpongeBob’s starfish friend Patrick Star teaches him the word “wumbo.” 

“You wumbo, I wumbo,” Star says, pointing to Spongebob, then himself. Lightning’s “wumbo” is similar in that two users have to agree to wumbo before they wumbo.

There are two parts to wumbo. The first part removes the limit to the total amount of bitcoin that can be held in a channel: This limit is currently capped at 0.16777215 BTC, worth about $1,988 at press time. The second strips away the limit to how large an individual payment can be: That limit has been 0.04294967 BTC, worth about $508 at press time.

Related: Bitcoin DeFi May Be Unstoppable: What Does It Look Like?

Read more: This Spongebob-Themed Tech Proves That Bitcoin’s Lightning Is Advancing

Wumbo isn’t technically difficult; in fact, it’s very simple. With wumbo channel support, a user can signal he or she wants to go beyond the aforementioned limits and find other nodes to connect to that also support higher limits.

Developers added the limitation to protect users from pouring too much money into Lightning, as it’s still a new and experimental technology. As such, one reason wumbo is a big deal is it is a sign that the payment technology is maturing.

“We view shipping wumbo in LND as a sign that the software has progressed to a certain point where advanced users, companies, and node operators can open larger channels. These larger wumbo channels enable a better user experience with larger transactions on the network and more efficient capital usage for startups and node operators,” Lightning Labs CEO Elizabeth Stark told CoinDesk.

That’s not to say they don’t think people still need to be careful working with this new technology.

“That said, we do not encourage people to go all ‘DeFi’ on Lightning (looking at you, YAM), as we believe people should balance the risks of deploying capital on a new protocol that could have bugs with the benefits of larger channel sizes,” Stark added.

Why wumbo?

Average Lightning users might not be impacted much by wumbo. If they’re using the Lightning Network to send small amounts, then this lift on capacity won’t make a difference to them. 

Larger entities such as business or exchanges, on the other hand, might want to take advantage of a larger capacity.

“Most users can likely get by without wumbo channels, but larger nodes or exchanges/services may really benefit from the ability to manage a smaller set of larger channels,” LND developers explain in the release notes.

Read more: To Beat Online Censorship, We Need Anonymous Payments

That’s why some developers think wumbo will take the Lightning Network to the next level. They think it will attract wider adoption of the Lightning Network among larger entities, making it accessible to more bitcoin users.

“Most of the major node operators and startups run our LND implementation, so unless they’ve forked LND and added Wumbo themselves (which a few have, and this was riskier without official support), they would not have had this feature enabled,” Stark said.

Still, some companies have already added support for wumbo without waiting for an official route to do so. As such, Acinq CEO Pierre-Marie Padiou is skeptical LND adding support for wumbo will make a huge difference.

“It can’t hurt, but larger nodes […] have already switched, so the improvement has probably already taken place,” he told CoinDesk.

Are we ready to wumbo?

Channel and transaction limits were put in place to protect users from potentially losing large amounts of bitcoin by sending it over an experimental network. What makes developers think Lightning is now ready to live without these limits?

“I think we’ve gained experience, and with that comes confidence,” said Blockstream engineer Rusty Russell, though he still expressed caution: “As always, it’s best to think of Lightning as your petty cash, rather than your life savings.”

Read more: Grasping Lightning: Mapping the Key Players in Bitcoin’s Next Phase

People have a choice – they obviously don’t have to use the ballooned capacity that wumbo channels allow. “With regard to security, with Eclair you can decide whether or not you decide to allow large channels and what the maximum channel size you accept [is]. We also scale the number of confirmations for the funding transaction depending on the amount of funds at stake,” Padiou told CoinDesk.

Russell also pointed out that the payment limit of 0.16777215 BTC was far less valuable, equivalent to about $10 dollars, when it was originally proposed years ago. As bitcoin’s price has increased over the last several years, this value limit has ballooned to almost $2,000. So, to a degree, the limit has naturally lifted over time.

“So we got wumboed already without having to even put our belt on,” Russell said, referencing the belt SpongeBob wears in the wumbo scene.

Related Stories

• ‘Rat Poison Squared on Steroids’: What’s New in Bitcoin’s Latest Lightning Release
• To Beat Online Censorship, We Need Anonymous Payments

Rep. Tom Emmer of Minnesota will accept crypto donations for his campaign.

The chairman of the National Republican Congressional Committee (NRCC) and member of the Congressional Blockchain Caucus opened his first cryptocurrency town hall on Thursday with the announcement, telling CoinDesk that BitPay will process all donations. 

The town hall, announced last week, was held in conjunction with the Chamber of Digital Commerce (CDC) to celebrate innovators in the crypt industry and to encourage engaged voters to participate in political discourse.

Related: Pro-Bitcoin Senate Candidate Wins Primary Race in Wyoming

CDC founder and President Perianne Boring told CoinDesk contributors can make donations to Emmer’s campaign using any of the eight cryptocurrencies supported by BitPay, including bitcoin, bitcoin cash, Gemini’s U.S. dollar stablecoin and Circle’s USDC.

Emmer is not the first politician to accept crypto contributions. In 2015, U.S. Sen. Rand Paul (R-Ky) accepted bitcoin to fund his presidential campaign. Last year, Democrats Rep. Eric Salwell of California and Andrew Yang both accepted crypto donations for their presidential campaigns as well. But, according to Boring, Rep. Emmer’s initiative is different. 

“He’s engaging the community. It’s more than just adding a button on his campaign website. It’s about including more people in the political process, especially young people who prefer to leverage advanced technologies,” Boring said.

The crypto town hall was described as a “celebration” of innovators in the crypto space, and featured industry leaders BitPay CEO Stephan Pair, Circle CEO Jeremy Allaire, Ripple CEO Brad Garlinghouse, eToro Managing Director Guy Hirsch, Bloq co-founder and Chairman Matthew Roszak as well as Paxos co-founder and CEO Chad Cascarilla. 

Related Stories

• After Years of Resistance, BitPay Adopts SegWit for Cheaper Bitcoin Transactions
• The COVID-19 E-Commerce Boom Hasn’t Trickled Down to Bitcoin, Despite Advantages
• US Fed Chair Says Private Entities Should Not Help Design Central Bank Digital Currencies

BlockFi has raised a Series A, B and C within a 12-month span, an ICO’s investors can’t find the people they’re trying to sue and stablecoin demand may become unbalanced by traders ditching a “market-neutral strategy.” 

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. 

Top shelf

Semper BlockFi?
Crypto lender BlockFi closed a $50 million Series C led by Morgan Creek Digital and with participation from Peter Thiel’s Valar Ventures – the lead investor in BlockFi’s A and B rounds – Castle Island Ventures, Winklevoss Capital as well as NBA player Matthew Dellavedova and two unnamed university endowments, among others. BlockFi has now raised $100 million in the past 12 months, has accrued $1.5 billion in crypto assets on its lending platform, and sees about $10 million in monthly revenue. So why the raise? CEO Zac Prince said BlockFi is still trying to add personnel and keep equity capital stable in order to quickly expand geographically, CoinDesk’s Nathan DiCamillo said. 

Related: First Mover: Collapsing Bitcoin Futures Premium Offers Glimpse of New Digital Money Market

Error 404: promoters not found
Investors in a $12 million ICO want their money back, but the celebrity couple behind the project has disappeared, CoinDesk’s Leigh Cuen reports. A district court ruled investors in the marijuana project Paragon can pursue a class action. The project appears to have been helmed by Jessica VerSteeg, a former Iowa beauty queen and reality star, and her husband, Russian entrepreneur Egor Lavrov. Rapper “The Game” is also listed as a defendant, among several technologists. It’s unclear if any of the project’s stated plans to revolutionize the marijuana industry would have materialized had it not been for legal action from the SEC in 2018.

DeFi headlines
Algorand has unveiled smart contract capabilities aimed at luring DeFi projects away from its larger competitors. New “stateful smart contracts” store certain information in user accounts, rather than its own code, increasing efficiency and reducing fees. ALGO tokens have jumped 20% on the news. Binance users can now stake dai and kava tokens as the exchange’s DeFi-centered platform goes live.

Election experiments 
Russian communications giant Rostelecom has published details of its blockchain-based voting system that will be deployed in two local regions. The system will be based on a private enterprise version of the Waves blockchain, with nodes located only by Rostelecom servers. “All information from the enterprise voting chain will be published on a special portal that can be accessed by anybody,” CEO Sasha Ivanov said. A previous pilot saw personal information of voters on the blockchain system end up on darknet markets. Authorities deny the allegations. Russia’s Department of Information Technologies will host a separate voting pilot during the by-elections this fall.

Harried: Cash & carry
Institutional demand for stablecoins may cool because yield on “carry trades” has been cut in half since Monday. Carry trading, a market-neutral strategy, involves buying an asset at spot prices and simultaneously selling a futures contract against it when the futures contract is trading at a premium to the spot price. The decline in the carry strategy yield – pushed by declining yields – could also mean a cut in  demand for dollar-backed stablecoins like tether. CoinDesk’s Omkar Godbole reports. “Stablecoins are widely used as funding currencies and there has been a high demand for these dollar-backed cryptocurrencies from institutions,” Skew CEO Emmanuel Goh said. Carry trades have been a main driver of stablecoin issuance this year.

Quick bites

• Pro-bitcoin U.S. Senate candidate Cynthia Lummis wins her primary race in Wyoming. (Nikhilesh De/CoinDesk)
• South African regulator advises clients of crypto trading network Mirror Trading: Take your money and run. (Danny Nelson/CoinDesk)
• Hawaii welcomes crypto exchanges back with a new regulatory sandbox. (Sandali Handagama/CoinDesk)
• The Bitcoiners who live “permanently not there.” (Daniel Kuhn/CoinDesk)
• How DeFi is ushering in the age of “cypherpunk governance.” (Jason Nelson/Decrypt)

At stake

Related: Blockchain Bites: Bitcoin in Space; Prime Brokerage Race; Nodes You Can’t Trace

Earlier this week, Axios reported tensions between investors and developers have delayed the Filecoin project. 

According to the report published Tuesday, investors in Protocol Labs, a for-profit incubator of anticipated Web3 projects like IPFS and Filecoin, believe they are owed disbursements of Filecoin’s native token.  

Filecoin raised about $205 million in a 2017 ICO, in which some – but not all – of Protocol Lab’s seed round backers participated. Axios reports Protocol Labs “retained a percentage of the tokens,” with regular distributions being made to CEO Juan Batiz-Benet and early employees, “which in theory would be value accruing to the equity investors.”

Unnamed parties are apparently in mediation over receiving a portion of these tokens, which could potentially delay Filecoin’s imminent launch next month if not resolved, reporters Dan Primack and Kia Kokalitcheva intuit. 

Fortune’s Jeff John Roberts read the news and added this insight: Filecoin is a representation of the entire blockchain space where it is common to raise millions of dollars through novel funding mechanisms, and frequently, fail to deliver. 

Part of the issue is, it’s hard building a new, open and fair version of the internet or the financial system. “But there is another reason to be skeptical, and that is the lack of incentive that blockchain companies have to succeed,” he writes. 

Front-loaded with cash, it’s easier to “travel the world” rather than “toil over blockchain code,” Roberts writes. 

While Filecoin is no stranger to delays (in February 2019, developers pushed back the launch of its first testnet. The mainnet had been estimated to deploy in the first quarter of 2019, then the second quarter, then to Q3/Q4 2019, then between July 20 and Aug. 21, 2020, now in a month), its network participants are less cynical. 

Despite a year of delays, Filecoin has found an incentivized community in China, and has onboarded miners, after it emailed hard drives containing climate data to future (probable) network participants.

In Benet’s own words from Consensus: Distributed: “Web 3 is about creating a platform that is decentralized, that puts human rights foremost, and can build a much freer and open internet and lock it in place.” 

Blockchain and cryptocurrency have already “changed the underlying guts and rails of major industries,” he said. But it hasn’t yet solved the dilemma between project developers and their investors. 

Market intel

Greens & reds
Bitcoin’s price pullback may worsen as the U.S. dollar shows signs of life. The dollar index, which tracks the greenback’s value against that of other reserve currencies, has jumped 1% to 93.000 in the past 24 hours – the biggest single-day rise in two months. This jump comes after July’s Federal Reserve meeting minutes show the central bank is not planning on implementing controversial yield curve controls on bonds. The correlation between bitcoin and the U.S. dollar has been historically weak but has picked up in the past month as investors look for alternative safe-haven assets, CoinDesk markets reporter Omkar Godbole writes.

Rendering Ren
Prices for ren, the token for the RenVM DeFi network, surged by more than 100% over the past week. That’s because the total amount of renBTC, a tokenized bitcoin that is locked in RenVM, broke 10,000 on Monday, according to data collected by DeFi Pulse. The total value locked in RenVM jumped to more than $174 million on Monday from approximately $59.9 million a week earlier. There is a growing demand for having bitcoin (BTC) on the Ethereum blockchain as it is increasingly used in DeFi, CoinDesk’s Muyao Shen reports. 

Tech pod

OMG! Fees!
Tether has added its eighth blockchain, OMG Network, to help alleviate congestion on the popular rail Ethereum. OMG is touted as a scaling solution to handle thousands of transactions at a third of the cost of Ethereum, which is currently experiencing a record high gas fees, or the price to run transactions. The third-largest cryptocurrency with a market capitalization of $13.1 billion is among the top Ethereum “gas guzzlers,” according to Ethgasstaion. CoinGecko data shows OMG tokens have increased 115% from $1.70 to $3.65 in the past seven days, as investors look to the network to escape climbing gas prices.

Op-ed

Gamifying gains
Andrew Thurman, a content consultant for Chainlink Labs and an adviser to IdeaMarkets, thinks non-fungible tokens (NFTs) are immutable, immortal, resistant to theft, impossible to forge and “boring as dirt.” Crypto collectibles aren’t for everyone, but NFTs have properties that can be applied to a variety of games increasing the stakes and the fun. Although, “not all NFT projects need to introduce such elegantly designed systems to become more fun,” he writes. 

Podcast corner

Real enough?
Some people think a recovery in stocks is divorced from reality, in which stores are closing, prices are rising and roughly 14.8 million Americans are collecting unemployment. Nathaniel Whittemore dives into the controversy and asks how real is it, and how are leading finance minds interpreting the recovery?

Who won #CryptoTwitter? Related Stories

• First Mover: Money Legos Turn ‘Exuberant’ as Chainlink Stripped of ‘DeFi’
• Blockchain Bites: Hashrates Drop, Bitcoiners Hodl and an Open Letter to Bankers

Thailand’s largest court system is developing a blockchain storage network that will move judicial information entirely online when it debuts in Thai Courts of Justice in 2021.

• Already in the midst of a national digitization campaign, the Office of the Court of Justice, which oversees 91% of Thai courts, said Thursday that it is “actively developing” the blockchain network. 
• Details are scant on the newly revealed blockchain project, and it was unclear at press time if Thailand is building the network with private-sector help. 
• The announcement called the network “in-house.” Court officers could not immediately be reached for comment.
• But the system, expected to launch next year, is far enough along that Thai’s judiciary is now getting ready to train officials on how to use it.
• Although the Office of the Court of Justice claimed Thursday that Thai’s system will be the world’s first judicial blockchain, a handful of Chinese courts have already moved reams of data on-chain.

Related Stories

• ETC Labs Rolls Out Fixes to Thwart Further 51% Attacks on Ethereum Classic
• It’s Now Cheaper to Buy One Bitcoin Than to Buy a Single DeFi Token YFI
• Algorand’s Move Into DeFi Gives ALGO Price a Boost
• OMG Price Doubles as DeFi and Record Ethereum Fees Create ‘Perfect Storm’

Price Point

Bitcoin traded slightly higher early Thursday at $11,772 after falling for two straight days. 

The largest cryptocurrency by market capitalization has declined 1.3% this week as the U.S. dollar strengthened in foreign exchange markets. The greenback gained support Wednesday as the Federal Reserve said it wasn’t immediately planning to implement a “yield curve control” program that probably would have brought an accelerated pace of money printing.

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 Risks Deeper Drop if Dollar Rebounds

“The corrective moves we witnessed are necessary for the market to cool down and catch a breath,” Joe DiPasquale, CEO of the cryptocurrency investment firm BitBull Capital, told CoinDesk in an email. “Moving forward, we can expect the market to lean on the support zone between $11,000 and $11,500 to consolidate and try another push above $12,000.”

Market Moves

Bitcoin’s mini sell-off this week has revealed a key feature of fast-evolving cryptocurrency markets: How dollar-linked “stablecoins” are being used to fund exotic futures trades, similar to the way money markets serve as a vital lifeblood on Wall Street.

As flagged earlier this week by the Norwegian cryptocurrency-analysis firm Arcane Research, prices for bitcoin futures contracts on the Chicago-based CME exchange have been trading well above “spot” prices for the underlying security. That premium rose last week to 20%, the highest in five months, seen as a sign of just how bullish big investors have become on bitcoin. 

This week’s retreat in prices below $12,000 has led to a squeeze for traders who were attempting a “cash and carry arbitrage,” as reported Wednesday by CoinDesk’s Omkar Godbole. It’s a strategy in which traders buy bitcoin and then short futures contracts on the cryptocurrency, betting the prices will eventually converge and the premium will be pocketed as a profit. 

Related: Market Wrap: Bitcoin Sinks to $11.6K as Ether’s Gas Keeps Rising

The annualized premium dropped to 14% in under 48 hours as prices slid, and some traders rushed to unwind their arbitrage trades. 

One lesson from the episode is that traders were apparently using stablecoins such as tether (USDT) to fund the trade, according to Godbole. 

“Stablecoins are widely used as funding currencies, and there has been a high demand for these dollar-backed cryptocurrencies from institutions,” Skew CEO Emmanuel Goh told Godbole in a Telegram chat.

Bitcoin Watch

Bitcoin’s recent price pullback may worsen as the U.S. dollar shows signs of life on the back of minutes released Wednesday from the Federal Reserve’s meeting in July. 

• The U.S. Dollar Index, which tracks the greenback’s value against that of other reserve currencies, has jumped 1% to 93 in the past 24 hours, the biggest single-day rise in two months.
• USD has picked up on the news the Fed is not planning on implementing controversial yield curve controls on bonds – something markets had been anticipating.
• The correlation between bitcoin and the dollar is historically weak. But in the past month there has been a growing inverse relationship between the two as more investors look for alternatives to the U.S. currency. Analysts with Goldman Sachs and some investors have warned the greenback's reserve-currency status might be at risk. 
• CoinDesk pricing data shows bitcoin rising from $9,000 to $12,400 in the four weeks through Aug. 17, just as the dollar index declined to 92 from 97.
• But in the face of a strengthening dollar, bitcoin has fallen to around $11,780, down 5% from a 2020 high reached earlier this week.
• Continued recovery in the dollar could yield further losses for bitcoin, but a sustained rebound in the U.S. currency still looks unlikely. Interest rates likely to remain close to zero to stimulate the economy, and inflation-adjusted yields are trading at negative levels; analysts at Deutsche Bank and elsewhere say the Fed might be forced to undertake more radical monetary measures.

– Omkar Godbole

Token Watch

Ren (REN) is benefiting from rising demand for tokenized bitcoin in DeFi: Prices for the Ren token have doubled in the past few days. Like other protcols designed to produce synthetic version of cryptocurrencies, RenVM takes bitcoins and produces an ERC-20 token called renBTC that can be used in Ethereum-based applications. More than 10,000 of the tokenized bitcoin, renBTC, were locked on Monday, according to DeFi Pulse. RenBTC currently represents about 21.7% of the tokenized bitcoin market, ranking it second behind wrapped bitcoin (WBTC).

Rates to borrow the Synthetix stablecoin sUSD monetarily spiked to almost 50% Wednesday on Aave’s decentralized lending platform. The cause? According to Stani Kulechov, chief executive of Aave, users were clamoring for the dollar-linked sUSD tokens to send to Curve, so they could participate win that protocol’s CRV tokens via “yield farming.” Prices for CRV were trading at $4.35 at the time of writing, up 14.8% in the past 24 hours, according to CoinGecko. As Arcane Research put it earlier this week, it’s a “summer of crazy returns” in ” exuberant DeFi.”  

Aave (LEND) is seeing a surge in transactions to go with its 2020 price jump: “Despite growing criticism  about the actual value locked being significantly smaller than reported in DeFi Pulse, on-chain activity for these protocols and their tokens demonstrate thriving activity,” according to a post Wednesday by the crypto-intelligence firm IntoTheBlock on CoinMarketCap.com’s blog . The decentralized lender’s token is up 29-fold this year, for a market valuation of $700 million, inspiring incredulity. The bull case is that “there is no denying that these innovations have the potential to redefine finance as we know it,” IntoTheBlock wrote. CoinDesk’s Will Foxley reported last week that Aave plans to work the firm RealT to tokenize home mortgages. 

-Muyao Shen

Analogs – on the economy and traditional finance

Federal Reserve officials saw need for more stimulus at last month’s meeting (Fed)

Asset bubble isn’t really bubble; it’s rational due to easy Fed monetary policy. (WSJ)

“Pandemic has ignited a Schumpeterian process of creative destruction.” (FT)

Deutsche Bank, Citi, Other Big Banks Sitting on $250B of Murky Assets (Bloomberg)

Bitcoin outperforming Apple in 2020 as computer maker hits $2T market cap.

Tweet of the Day What’s Hot

The Bitcoiners Who Live ‘Permanently Not There’ (CoinDesk)
Bitcoiners are no different than the old rich in that they want to look for the best place possible to avoid paying more tax. Here’s one company helping them do just that.

High Ethereum Fees Push Tether to Its Eighth Blockchain, OMG Network (CoinDesk)
Tether has adopted Ethereum scaling solution OMG Network amid record demand for settlement space on the “world computer.”

Eventus says crypto exchange Gemini to use its anti-market-manipulation system. (Bloomberg)
The Winklevoss twins have tappedEventus Systems Inc. to provide surveillance and anti-market manipulation tools for crypto.

– Sebastian Sinclair

Related Stories

• Stablecoin Demand May Drop if Traders Abandon Bitcoin ‘Cash and Carry’ Strategy
• Blockchain Bites: Bitcoin in Space; Prime Brokerage Race; Nodes You Can’t Trace

There’s a joke in the world of digital advertising: How many companies does it take to put an ad on a website? 

In fact, there can be as many as 15 intermediaries participating in this opaque process, sponging up around 30% of the advertising spend. To fix this broken system, the next generation of adtech specialists are again pinning their hopes on blockchain technology. 

Announced Thursday, MadNetwork, a permissioned layer running on top of Ethereum while using the public blockchain itself as its immutable system of record, emerges from stealth with a testnet coming next month. 

Related: OMG Price Doubles as DeFi and Record Ethereum Fees Create ‘Perfect Storm’

Adtech provider MadHive and advertising industry consortium AdLedger had previously piloted an entire system of data sharing and accounting on Ethereum, but over the past couple of years they decided a Layer 2 approach was needed in order to scale.

Blockchain is often used to help automate manual or paper-based processes, but in the case of advertising, it’s the system of automation itself that’s the problem. The first iteration of hastily-erected programmatic web advertising – a mish-mash of servers and accounting platforms – has led to a black box riddled with fees and inconsistencies.

‘Programmatic cesspool’

The time is right for blockchain transparency to cut through the Gordian Knot of programmatic advertising, particularly as traditional broadcast television makes the transition to the world of connected devices, said MadNetwork project lead Adam Helfgott.

“An NBC or a Fox can’t really afford to lose 30% of their television media revenue into this like programmatic cesspool,” said Helfgott. “These legacy media companies are used to having a very clean transaction, and not all this black-boxy programmatic stuff in the middle.”

Related: High Ethereum Fees Push Tether to Its Eighth Blockchain, OMG Network

The AdLedger blockchain consortium, of which MadHive is a member, includes some heavyweight media players such as Viacom, Publicis Media, Hearst Television, IPG Mediabrands, Hershey and also IBM. (Back in 2018, AdLedger did a pilot with IBM, which committed some advertising budget to a system running on Big Blue’s preferred blockchain, Hyperledger Fabric.)

Read more: IBM-Backed Blockchain Trial Takes Aim at Advertising’s Middlemen

As well as clarifying where intermediary systems impinge, MadNetwork’s blockchain also helps provide insights into the programmatic supply chain in the era of oncoming data privacy regulation, said Christiana Cacciapuoti, AdLedger’s executive director.

“We are seeing a greater demand for insights into which data is going to which players and from which consumers, and who got that consent and how it’s being passed around,” said Cacciapuoti. “Just as that [blockchain-based] system of accounting can track the transfer of dollars and the business-outcome angle, it can also track data transfer and take account of privacy angles.”

Touchpoint of truth

The revamped Layer 2 solution on Ethereum uses the public mainnet as a “touchpoint of truth,” said Helfgott, likening it to the Baseline Protocol built by John Wolpert of ConsenSys and Paul Brody of EY. The deployment of nodes is handled by “nodes as a service” provider Blockdaemon, a close partner of MadHive, Helfgott added. 

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

In terms of the roadmap, Cacciapuoti said: “We are looking at around Sept. 1 for publicly launching our testnet, and then mainnet in Q4.”

In the not too distant future, it’s inevitable that most people will be watching TV via IP-delivered video, said Helfgott. 

“Unless a company like MadHive and MadNetwork steps in, it’s inevitable that we’ll run over the mobile media infrastructure that exists today, that Google kind of owns,” he said. “Adtech paid for the internet to be built out by Google, and now we kind of see adtech paying for blockchain to be built out at scale.”

Related Stories

• Chainlink to Provide Data for Farming Insurance Startup Arbol
• Blockchain Privacy Firm HOPR Releases Mixnet Hardware Node for Ethereum

Users of crypto exchange Binance can now stake dai and kava as the exchange’s decentralized finance (DeFi) staking platform goes live.

Binance’s DeFi staking program was first announced Wednesday with dai, the stablecoin generated by loans on MakerDAO. The Binance initiative aims to tap into this year’s booming DeFi market by offering the ability for users earn staking rewards (akin to interest) on select digital assets.

On Thursday, Binance added kava as the second asset to its staking product. Kava is a DeFi platform backed by Binance, Huobi and OKEx with a native token by the same name.

Related: It’s Now Cheaper to Buy One Bitcoin Than to Buy a Single DeFi Token YFI

In a statement to CoinDesk, Binance CEO Changpeng Zhao said:

“Our users have been requesting Binance.com giving them access to DeFi. Binance prioritizes user experience and in the spirit of the community, Binance.com now offers direct integration into these DeFi products allowing the products’ value to flow out to Binance.com users and that’s happening with KAVA and BNB to name a few.”

The move means Kava users no longer need to interface with the Kava app but instead can go directly through Binance’s DeFi staking portal.

Read more: Multi-Chain DeFi Protocol Raises $750K in Token Sale With Framework Ventures

Related: Algorand’s Move Into DeFi Gives ALGO Price a Boost

Kava’s CEO and co-founder, Brian Kerr, said today’s DeFi market would not resemble tomorrow’s, claiming the sector is just at the “tip of the iceberg” in terms of adoption.

Staking in DeFi means users can participate, utilizing smart contracts, on various issues via voting in a proof-of-stake model as well as earning passive rewards by locking up their crypto.

Read more: Chainlink Integration Brings Data Feeds to Binance’s DeFi Project

One of India’s largest exchanges and a subsidiary of Binance, WarzirX, recently announced it was developing a DeFi product known as an automated market maker in collaboration with Matic.

Related Stories

• Algorand Readies On-Chain Smart Contracts as the Summer of DeFi Rolls On
• Ren Just Had a Great Week as Demand for Bitcoin on DeFi Rises

CORRECTION (Aug. 20, 13:18 UTC): Adds context at the top of the story to make it clear it’s the price of a single YFI that’s more expensive than a single BTC and that the overall market value of bitcoin continues to be vastly greater. Also notes other tokens are priced above bitcoin, but YFI is the only one with notable trading volume.

Though the total market value of yEarn.finance’s governance token (YFI) is still little more than a rounding error compared with sector behemoth bitcoin’s (BTC), the explosive growth of decentralized finance (DeFi) along with the recent fallback in BTC have propelled the price of a single YFI past that of its much bigger crypto sibling.

• yEarn.finance’s governance token (YFI) has surged 35% in the past 24 hours and is currently trading at nearly $13,500, according to CoinGecko data.
• In comparison, after hitting a yearly-high earlier this week, bitcoin has now fallen back down to just under $11,800 – possibly in response to a strengthening dollar.
• Bitcoin’s exchange rate is also superseded by other obscure tokens, according to comprehensive pricing data from CoinGecko, but YFI represents the only token priced above BTC with any sort of notable 24-hour trading volume with roughly $107 million at last check.
• YFI only launched four weeks ago – initially trading at just $32; it surged $400 as CoinDesk went to press.

• Investors deposit select digital assets into YFI, which then automatically executes various DeFi trading strategies with ROIs of up to 95% – the platform takes 5% of the yield as commission.
• Total value locked (TVL) in yEarn stood at $9.3 million on July 18 but boomed to $600 million by Tuesday. At press time, TVL stood at $675 million, according to DeFi Pulse.
• As a governance token, YFI can be staked to give holders a vote on the protocol’s direction. It can also be farmed like many other DeFi tokens.
• But only 30,000 YFIs were created, meaning that despite the price surge its market cap currently sits at just under $400 million – a fraction of BTC’s $218 billion.

See also: $200M Staked in YAM-Inspired DeFi Protocol in Under 12 Hours

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After $50 million in fresh capital, crypto lender BlockFi has now raised nearly $100 million in the past 12 months.

Announced Thursday, the latest round, a Series C, was led by Anthony Pompliano’s Morgan Creek Digital. (It’s the second-largest round to be led by the VC firm, with Figure’s $103 million Series C topping the list.)

At the moment, BlockFi has $1.5 billion in crypto assets on its lending platform and is producing a little less than $10 million a month in revenue, CEO Zac Prince said in an interview. He said BlockFi is still trying to add personnel and keep equity capital stable in order to quickly expand geographically.

Related: Crypto Savings Accounts Are Coming to Fintech Firms That Use Wyre

Prince also expects to have the first bitcoin rewards cards in the market by year’s end and a more public rollout early next year.

“You have to work with quite a few partners to bring a credit card to market,” Prince said. “Some of them haven’t really handled the transition from being fully in-office to being fully remote as smoothly as companies like BlockFi have.” 

New investors

Other participants in the Series C include Peter Thiel’s Valar Ventures – the lead investor in BlockFi’s A and B rounds – CMT Digital, Castle Island Ventures, Winklevoss Capital, SCB 10X, Avon Ventures, Purple Arch Ventures, Kenetic Capital, HashKey, Michael Antonov, National Basketball Association player Matthew Dellavedova and two unnamed university endowments.

Read more: Bitcoin Lender BlockFi Raises $30M in Series B Led by Peter Thiel’s Valar Ventures

Related: NBA’s Spencer Dinwiddie, Andre Iguodala and More Join Dapper Labs $12M Funding Round

Dellavedova, who is a guard for the Cleveland Cavaliers, first learned about crypto in 2017 and was introduced to BlockFi by Morgan Creek’s Pompliano later on, he said in an interview. 

Dellavedova has been making angel investments for the past three to four years, but BlockFi is the basketball player’s first crypto play, aside from holding “a little” bitcoin and ether, he said.

“I would say I’m still a rookie in this space,” he said. “I think having an interest rate that you can have on your crypto is appealing.”

Repeat investor Sterling Witzke, a partner at Winklevoss Capital, said BlockFi’s ability to “resonate with both retail and institutional customers” has been a key selling point. “We look forward to supporting the BlockFi team as they launch their next iteration of products and continue to drive mainstream adoption, firmly cementing crypto at the core of the future of finance,” she said in a statement.

Profits during a crisis

Prince said BlockFi was able to continue its lending operation even after the March bitcoin crash while other lending firms took a short break.

Similar to Genesis and Celsius, BlockFi says March ended up being a good month for crypto lending because of the sector’s primary borrowers – proprietary traders and market makers. 

“The event in March, we didn’t like it because there were clients of ours who have borrowed dollars secured by their cryptocurrency holdings, where we had to issue margin calls,” Prince said. “The way that we handled that I believe was more fair and flexible than the way those things are handled on platforms where everything is very black and white.”

Read more: $100M+ in Margin Calls: Crypto Lenders Demand Collateral as Market Buckles

While interest rates on fiat-backed crypto loans have trended downward after March, demand for bitcoin-backed dollar loans remains high, he added.

“If you look at the futures curve today, it’s implying north of 15% cost of borrowing cash, which makes sense given the bullish position in the market,” Prince said. 

What’s next

BlockFi’s largest expense is people, Prince said, as the team has grown from just under 100 at the beginning of the year to 175 now, with engineering and security making up half of the staff.

Another major growth area is BlockFi’s risk-management team, including hires related to security infrastructure, compliance and financial risk, Prince said. The lender also has new sales and client-relationship teams in London and Singapore and one employee in Hong Kong. 

Part of the Series C will go toward building a larger balance sheet so BlockFi can remain a less risky institution in the eyes of its counterparties. As a general rule, the firm is aiming to have a loan leverage ratio that is more conservative than what you would find at a traditional bank, which typically holds a minimum 5% leverage ratio. 

Read more: Crypto Lender BlockFi Rolls Out Zero-Fee Trading for Bitcoin, Ether, GUSD

Nothing has changed about BlockFi’s collateral levels or its rehypothecation of loan collateral, Prince added. The CEO claims the firm’s loan and security agreement is more transparent than what customers would find at a securities lender in the traditional markets, where rehypothecation of loan collateral is also common. 

“It’s a scary word,” Prince said about rehypothecation. “It’s the folks who are cut from a similar cloth as the ‘not your keys, not your crypto’ crowd.”

Prince would not say whether BlockFi invests customer assets into perpetual swaps, Grayscale Bitcoin Trust shares or other investment vehicles. 

“We think about those and would consider them if it’s appropriate within the context of our risk-management function,” Prince said without going into detail.

Prince also admitted that BlockFi does uncollateralized lending to counterparties with “certain financial requirements” but would not say what percentage of the lender’s loan book was comprised of unsecured loans.

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Bitcoin’s price pullback may worsen as the U.S. dollar shows signs of life on the back of the newly released minutes from July’s Federal Reserve meeting.

• The dollar index, which tracks the greenback’s value against that of other reserve currencies, has jumped 1% to 93.000 in the past 24 hours – the biggest single-day rise in two months.
• The U.S. dollar (USD) has picked up on the news the Federal Reserve is not planning on implementing controversial yield curve controls on bonds – something markets had been anticipating.
• The correlation between bitcoin and the USD has been historically weak but has picked up in the past month as investors look for alternative safe-haven assets.

• CoinDesk data shows bitcoin rising from $9,000 to $12,400 in the four weeks up to Aug. 17 just as the dollar index declined from 97 to 92.
• But in the past week and in the face of a strengthening dollar, bitcoin has fallen to around 11,780 – down 5% from the recent high of $12,400 it reached earlier this week.
• Continued recovery in the U.S. dollar could yield further losses for bitcoin but a sustained dollar rebound still looks unlikely – interest rates will remain at rock bottom to stimulate the economy, increasing the chances that the Fed might be forced to more radical monetary measures.

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ALGO tokens are up as markets respond positively to Algorand’s newly announced plan to become an alternative venue for the white-hot decentralized finance (DeFi) space.

• CoinGecko data shows the price of ALGO tokens has increased from $0.53 to nearly $0.65, a jump of approximately 20% in the past 24 hours.
• That translates into an $80 million increase in ALGO’s market cap to $515 million.
• ALGO peaked at over $0.70 last Friday, the highest it’s been in over a year. The token has a way to go before it approaches its all-time high of $3.56, reached in June 2019.

• This comes after Algorand’s founder, Silvio Micali, unveiled a new set of smart contract capabilities that lowered transaction fees and ultimately make Algorand a faster and more efficient venue for DeFi-related activities – such as yield farming.
• The digital asset industry has become completely enthralled by the sudden rise in the DeFi space over the past year – some projects have been able to attract hundreds of millions of dollars in investment in as little as 12 hours.
• The total value locked in DeFi applications went past the $6 billion milestone at the week beginning, according to DeFi Pulse.

See also: Algorand and Blockstack Are Building a Multi-Chain Smart Contract Language

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ALGO tokens are up as markets respond positively to Algorand’s newly-announced plan to become an alternative venue for the white-hot decentralized finance (DeFi) space.

• CoinGecko data shows the price of ALGO tokens has increased from $0.53 to nearly $0.65 – a jump of approximately 20% in the past 24 hours.
• That translates into an $80 million increase in ALGO’s market cap to $515 million.
• ALGO peaked at over $0.70 last Friday – the highest it’s been in over a year. The token has a way to go before it approaches its all-time high of $3.56, reached in June 2019.

• This comes after Algorand’s founder, Silvio Micali, unveiled a new set of smart contract capabilities that lowered transaction fees and ultimately make Algorand a faster and more efficient venue for DeFi-related activities – such as yield farming.
• The digital asset industry has become completely enthralled by the sudden rise in the DeFi space over the past year – some projects have been able to attract hundreds of millions of dollars in investment in as little as 12 hours.
• The total value locked in DeFi applications went past the $6 billion milestone at the week beginning, according to DeFi Pulse.

See also: Algorand and Blockstack Are Building a Multi-Chain Smart Contract Language

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The native token for OMG Network has more than doubled in the past week as record Ethereum fees lead some investors to look to layer-2 solutions.

• CoinGecko data shows OMG tokens have increased 115% from $1.70 to $3.65 in the past seven days – with the price surging by 30% in the past 24 hours.
• The rally means OMG’s market cap has surged by approximately $275 million since this time last week.
• OMG’s price has increased by nearly 1,000% since it fell to its all-time low of $0.35 after the Black Thursday crash in March.

• Denis Vinokourov, research head at crypto exchange BeQuant, told CoinDesk OMG Network was benefitting from a “perfect storm” of industry-wide developments.
• The craze around DeFi – a subset that has exploded to well over $6 billion – has seen a surge in activity on Ethereum, leading to soaring fees.
• There are also reports that the testnet for Eth 2.0 – a new iteration that would make the blockchain platform much more scalable – crashed last week.
• As such, investors are beginning to look more closely at layer-2 solutions, he said.
• Ethereum’s average transaction fees rapidly shot up from under $0.10 in January to nearly $3.40 currently – the first time fees have stayed so consistently high.

• Stablecoin Tether – a notable "gas guzzler" – said Wednesday it was launching on OMG Network so it could take some of the pressure off the base layer.

See also: Decentralized Finance Frenzy Drives Ethereum Transaction Fees to All-Time Highs

Additional reporting by Omkar Godbole.

Related: Algorand’s Move into DeFi Gives ALGO Price a Boost

CORRECTION (Aug 20, 09:30 UTC): A previous version of this article referred to OMG Network by its old name OmiseGo, this has since been corrected.

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Algorand has unveiled a fresh set of smart contract capabilities aimed at luring decentralized finance (DeFi) projects away from its larger competitors.

• The main iteration appears to be Algorand’s addition of “stateful smart contracts” alongside features such as atomic transfers and Algorand Standard Assets that already run on the blockchain’s base layer.
• Simply put, these “stateful” smart contracts increase efficiency by storing certain information in user accounts, rather than its own code, according to a blog post by Algorand founder Silvio Micali.
• That efficiency allows Algorand to charge static network transaction fees at low cost and scale faster than other competing DeFi-friendly chains.
• “Until now, restrictions around scale, transaction speeds and high transaction fees have been barriers to mainstream blockchain adoption,” Algorand said, taking multiple pot-shots at the current DeFi leader, the Ethereum blockchain.
• Algorand clearly wants to woo its own batch of YAMs, yield farmers and the innumerable DeFi products that have sprouted up like mushrooms on Ethereum all summer. “DeFi gives the world access to an essentially unlimited number of financial products and services,” Micali said in the statement.

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Tether has adopted Ethereum scaling solution OMG Network amidst record demand for settlement space on the “world computer.”

“The integration [between Tether and OMG Network] will result in a reduction of confirmation times delivering faster payments while fees will be reduced without compromising on-chain security,” Tether Inc. said in a blog Wednesday.

OMG Network can handle thousands of transactions at a third of the cost of Ethereum as a Layer 2 solution for Ethereum that batches transactions before settlement, OMG Network CEO Vansa Chatikavanij said in a statement.

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Tether – now the third largest cryptocurrency with a market capitalization of $13.1 billion – has become the token of choice for traders. It scores in the top three Ethereum “gas guzzlers” consistently, according to Ethgasstaion. 

Adjacently, the cost to transact on Ethereum has grown in near lockstep with the rise of decentralized finance (DeFi) applications (dapps) such as Uniswap and Compound. 

Ethereum fees on the rise

High growth in both stablecoins and DeFi usage has had adverse results for Ethereum, which settles transactions for both finance applications. 

Indeed, on Aug. 13, the average transaction fee on Ethereum broke all time-highs last set during the 2017 initial coin offering (ICO) boom. 

Related: Market Wrap: Bitcoin Slides to $11.8K; Uniswap at $7M in Monthly ETH Fees

Read more: Decentralized Finance Frenzy Drives Ethereum Transaction Fees to All-Time Highs

“By migrating USDt value transfers to the OMG Network we save costs, drive performance improvements and relieve pressure on the root chain network,” Tether CTO Paolo Ardoino said in a statement. “This is good for Bitfinex and our customers, and the whole Ethereum ecosystem.”

Tether issuance can be found on other blockchains including, but not limited to, Omni, Liquid and Tron. 

OMG Network will also be used for withdrawals and deposits on Tether Inc. sister firm, Bitfinex, the blog states.

Batching Ethereum transactions on secondary layers, as OMG Network does, has become the preferred solution to scale the network. How to do so remains challenging from a technical perspective, however.

For example, Reddit announced a partnership with the Ethereum Foundation in June to white board possible solutions, such as batching transactions, for its native token.

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South Africa’s financial watchdog is investigating Mirror Trading International (MTI), a purportedly lucrative crypto trading network that Texas state regulators last month declared as a fraud.

• At the very least, the Financial Services Conduct Authority (FSCA) intoned in its Tuesday announcement that MTI is operating a financial service without a license.
• MTI told FSCA that its bots conduct high-frequency derivatives trades with client’s pooled bitcoin, consistently generating 10% monthly returns.
• But FSCA said it “has much greater concern” about the legitimacy of MTI’s purported business model. It said in a statement that such a consistent high yield “seems far-fetched and unrealistic.”
• Regulators are now parsing through statements made by a former platform broker for MTI that may contradict MTI’s self-descriptions.
• MTI has “partially-cooperated” in the inquiry, according to FSCA, and informed clients of the investigation. FSCA recommended that all clients jump ship posthaste: “We recommend that clients request refunds into their own accounts as soon as possible.”
• MTI CEO Johann Steynberg denied the trading club is a scam in a letter to investors obtained by the news site Bitcoin.com.
• FSCA’s inquiry comes just over a month after the Texas State Securities Board ordered MTI and its associates to “cease and desist” what it called a multi-level marketing scam.

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Prices for ren, the token for the RenVM DeFi network, surged by more than 100% over the past week. That’s because the total amount of renBTC, a tokenized bitcoin that is locked in RenVM, broke 10,000 on Monday, according to data collected by DeFi Pulse.

• The total value locked in RenVM jumped to more than $174 million on Monday from approximately $59.9 million a week earlier.
• There is a growing demand for having bitcoin (BTC) on the Ethereum blockchain as it is increasingly used in decentralized finance (DeFI).
• As reported by CoinDesk previously, RenVM holds a cryptocurrency and mints a representation of that crypto as an ERC-20 token (renBTC, for instance) for use on Ethereum.
• Data from Dune Analytics shows more than 40,000 bitcoin have been tokenized on Ethereum. About 21.7% of that amount was minted by renBTC, making it second behind wrapped bitcoin (WBTC) in the market.
• The recent popularity of tokenized bitcoin indicates a rising demand to use bitcoin in the white-hot Ethereum-based DeFi applications.
• “Bitcoin is now an undeniable part of DeFi, with $420 million of BTC on Ethereum in one form or another,” Loong Wang, chief technical officer of Ren, tweeted on Aug. 15.

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Bitcoin traders are hitting the sell button. On Ethereum, DeFi is boosting fees again.

• Bitcoin (BTC) trading around $11,658 as of 20:00 UTC (4 p.m. ET). Slipping 2.6% over the previous 24 hours.
• Bitcoin’s 24-hour range: $11,613-$12,100
• BTC below its 10-day and 50-day moving averages, a bearish signal for market technicians.

Bitcoin traded as low as $11,613 Tuesday. Traders continued selling the world’s oldest cryptocurrency after it hit a 2020 high of $12,485 on Monday. For the time being, it may struggle to break much higher from that. 

Read More: Bitcoin’s Bull Run Is Slowing – Pullback Now Expected

Related: Stablecoin Demand May Drop if Traders Abandon Bitcoin ‘Cash and Carry’ Strategy

“Too much resistance at $12,000,” said over-the-counter crypto trader Alessandro Andreotti. “So it’s just going to go sideways for a while.” 

Katie Stockton, analyst for Fairlead Strategies, expects a weaker bitcoin market ahead. “There are signs of short-term upside exhaustion supporting continuation of today’s pullback over the next week or two,” said Stockton. Traders In the bitcoin options market don’t expect too drastic a pullback, however, as most strikes are well over $10,000. 

Many traders remain bullish despite the recent price drop, seeing the decline as a bit of a respite before rising. “Last year’s high was $13,852,” noted Rupert Douglas of institutional crypto broker Koine. “We are going to test that, but whether we have a significant pullback to around $10,000 first is a tough call,“ Douglas added.

First it must get over that $12,000 hurdle, and traders like Andreotti see that level as all that stands in the way of a return to bullish territory. “I believe that in the next attempt at breaking $12,000 we could have the next major support as high as $13,500,” added Andreotti.

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Read More: SpaceChain Secured Transfer From International Space Station

Ethereum’s gas pain

The second-largest cryptocurrency by market capitalization, ether (ETH), was down Wednesday, trading around $398 and slipping 5.8% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Read More: $200M Staked in YAM-Inspired DeFi Protocol in Under 12 Hours

After jumping to an average all-time high of $6.68 on Aug. 13, Ethereum fees dropped briefly below $3. However, they are now rising again, currently at $3.59, according to data from aggregator Glassnode. The fees are required to make transactions on the network, including trading on decentralized exchanges, or DEXs. 

Peter Chan, a trader at firm OneBit Quant, says the network’s fee costs, also known as gas, are problematic for Ethereum’s DeFi market. “Everyone in DeFi was all over the place, including us, the last couple of days due to the insane gas cost,” he said. The bearish market trend, in addition to the fees, are problematic for the ecosystem’s cryptocurrencies, Chan told CoinDesk. “DeFi coins are going downhill now.” 

Read More: Blockchain Firm HOPR Releases Mixnet Hardware Node for Ethereum

Other markets

Digital assets on the CoinDesk 20 are mostly in the red Wednesday. One notable winner as of 20:00 UTC (4:00 p.m. ET): 

• chainlink (LINK) + 0.43%

Read More: Money Legos Turn ‘Exuberant’ as Chainlink Stripped of ‘DeFi’

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

• tron (TRX) – 10%
• litecoin (LTC) – 9.9%
• eos (EOS) – 9.6%

Read More: Barclays’ Former Russian Bank Has Issued a Token-Collateralized Loan

Equities:

• Asia’s Nikkei 225 ended the day in the green 0.26% as Japanese export numbers for July were better than expected.
• In Europe, the FTSE 100 climbed 0.60% as British Airways owner IAG stock gained 7.6% on attempts to speed up airport quarantine rules.
• The United States’ S&P 500 slipped 0.10% as the Federal Reserve remained cautious on the economic outlook amid the coronavirus pandemic.

Read More: UK Regulator Grants License to Digital Security Exchange Archax

Commodities: 

• Oil is up 0.66%. Price per barrel of West Texas Intermediate crude: $42.80.
• Gold was in the red 3% and at $1,940 as of press time.

Read More: Riot Supercharges Mining With 8,000 More Rigs as Bitcoin Price Soars

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 2.6%.

Read More: Binance-Owned WazirX Announces DeFi Project With Matic

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U.S. exchanges ErisX and bitFlyer are among 12 crypto firms selected to pilot Hawaii’s digital currency regulatory sandbox that will allow virtual asset service providers to do business in the state without obtaining a money transmitter license for a two-year period, the companies announced Wednesday.

• The pilot program, offered through the Digital Currency Innovation Lab, a partnership between Hawaii’s Department of Financial Institutions (DFI) and Hawaii Technology Development Corporation (HTDC), marks the return of crypto firms to the state and is the first regulatory sandbox of its kind in Hawaii, according to a statement from ErisX. 
• Although the DFI didn’t exactly ban crypto when the state implemented the “double-reserve requirement” in 2017 – which required companies to hold reserves in fiat currencies matching the amount of crypto held by their clients – exchanges like Coinbase said "aloha" to the state, leaving because they saw the requirement as a costly burden. 
• But in January 2020, Hawaii introduced a bill that would allow financial institutions to hold digital assets.
• In March, the state went a step further to potentially relax the stringent rules for virtual asset service providers by launching the Digital Currency Innovation Lab to address the heavy regulatory requirements and “create economic opportunities for Hawaii through early adoption of digital currency.”
• According to ErisX General Counsel Laurian Cristea, following the launch of the lab, Hawaii invited crypto firms to apply for participation in the pilot program. 
• With the addition of Hawaii, ErisX, which pioneered crypto futures trading in the U.S., is now operational in 49 out of 53 possible U.S. states and territories, according to the exchange.
• In a statement to the press, global crypto exchange bitFlyer, whose U.S. affiliate is headquartered in San Francisco, said the “sandbox initiative marks the return of crypto exchanges to Hawaii, with the ultimate goal of seeing exchanges such as bitFlyer promoted to full licensees in the future.”
• The full list of participants includes BlockFi, CEX.io, Apex Crypto, Cloud Nalu, Coinme, Flexa, Gemini, Novi, River Financial and Robinhood Crypto.

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Institutional demand for stablecoins may cool because yield on “carry trades” has been cut in half since Monday.

The annualized rolling one-month futures basis shot as high as 28% at the start of the week on the Malta-based cryptocurrency exchange OKEx, the biggest in terms of open interest. That was the highest premium since February, according to data provided by the crypto derivatives research firm Skew.

That premium, however, dropped to 14% in under 48 hours. In other words, the carry strategy, if initiated now and held until next Friday, will yield an annualized return of 14%, down from 28% on Monday.

Related: Market Wrap: Bitcoin Sinks to $11.6K as Ether’s Gas Keeps Rising

Carry trading, or cash and carry arbitrage, is a market-neutral strategy, one that seeks to profit from both increasing and decreasing prices in one or more markets. It involves buying the asset in the spot market and simultaneously selling a futures contract against it when the futures contract is trading at a premium to the spot price.

See also: Bitcoin Price Holds Below $12K Even as Hashrate Hits All-Time High

The premium, however, evaporates as the futures contract nears expiration and on the day of the settlement, the futures price converges with the spot price. Should futures draw high premiums, savvy traders initiate a carry strategy and lock in fixed returns.

Futures markets usually trade at a premium to the spot market and the spread tends to widen during price rallies. The annualized premium rose roughly from 9% to 27% in the last two weeks of July as bitcoin’s price rose from $9,000 to $12,000 and it remained near that level going into August. 

Related: Bitcoin’s Bull Run Is Slowing – Pullback Now Expected

Traders could have locked in an annualized profit of 28% on Monday by buying bitcoin in the spot market and selling the front month futures contract on OKEx. Doing that trade now would still profit, but by only half as much.

The decline in the carry strategy yield could also mean a cut in  demand for dollar-backed stablecoins like tether (USDT).

“Stablecoins are widely used as funding currencies and there has been a high demand for these dollar-backed cryptocurrencies from institutions,” Skew CEO Emmanuel Goh told CoinDesk in a Telegram chat. Indeed, the carry trade has been one of the main reasons for the surge in stablecoin issuance seen this year.

On Monday, the annualized cost of borrowing tether on the decentralized finance protocol Compound was 6.94%. Assuming carry traders borrowed USDT from Compound on Monday, holding the carry strategy until the August expiry, due next Friday, would generate a net yield of about 21% in annualized terms. (return of 28% from cash and carry adjusted for tether’s borrowing cost of 6.94%).

See also: First Mover: Money Legos Turn ‘Exuberant’ as Chainlink Stripped of ‘DeFi’

If the same strategy were executed at press time by borrowing USDT, the net yield would be 6.3%. That’s because the cost of borrowing USDT is now 7.68% and the OKEx futures are trading at a premium of 14%. Put simply, carry trades have become far less attractive. As such, institutional demand for stablecoins could soften, as noted by Skew. 

The premium has declined sharply in the past 48 hours, possibly due to bitcoin’s failed breakout above $12,000 and resulting concern of deeper price pullbacks. The decline in premium may have been compounded by increased selling in futures as more traders piled into the cash and carry trade.

Whenever futures trade at discount to spot prices, traders execute reverse cash and carry trade by buying futures and taking a short position in the spot market. 

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