Introducing the Decentralized Money Stack

To see money's future, we need to look to the past
Continue reading this column here. 

 

–Michael J. Casey

Off the Charts

Stable By Default

In the International Monetary Fund's just released Global Financial Stability Report, there's a chapter dedicated to risks that cryptocurrency markets may pose to the broader global economy, including recommendations for national policymakers on how to mitigate them. Among the areas of focus are stablecoins, with a discussion about the risk of "runs" on tokens perceived to be insufficiently backed to warrant their intended valuation. 


With the U.S. currently working on stablecoin regulations, this is not an idle topic. Regulation is coming. So, given that total stablecoin market capitalization is now pushing $130 billion, according to CoinGecko, it's worth exploring what the market is telling us about the risk perception of this growing pool of stablecoin users. One proxy for that is to look at how well the largest stablecoins, Tether's USDT – now worth $70 billion in market cap – is holding to its one-to-one valuation in dollars. 

 

Clearly, in its past, USDT was pretty volatile. Sometimes demand for a token that had become integral to many crypto exchanges' operations was so high that people were willing to pay more than $1.30 for something that was supposed to be worth $1.00. Other times, buffeted by the New York attorney general's $18.5 billion fine against Tether and partner company Bitfinex and by a hack of the latter, the price "broke the buck," dropping as low as $0.92. At such times, the price likely did capture a degree of mistrust in the integrity of the underlying assets at Tether.


More recently, as the market has expanded, price variations have significantly declined, with the market more consistently hewing to the $1 level. That may reflect greater confidence in the asset integrity, now that the NYAG settlement has forced greater transparency around Tether's reserve holdings. But it might also reflect network effects. There is so much more liquidity in the market, that as the turnover of USDT increases, traders and institutions that know they can easily offload the token happily accept the one-to-one valuation – almost as if the integrity is a moot point. 

A message from BlockBank

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The Conversation

DeFi Battles

Illustration: Rachel Sun/CoinDesk

Remember the block size war? Bitcoin purists in favor of small blocks framed it as a fight – which they ultimately won – between their interest in keeping the Bitcoin network decentralized and venture capital-backed Bitcoin businesses, which wanted to increase on-chain processing capacity to make more money. Well, if a recent Twitter battle is any indication, a similar sort of division may now have just opened up in the DeFi world.

 

(H/T to CoinDesk's Andrew Thurman for pointing me toward this one.)


It started with an announcement from the folks at borrowing and lending platform Aave that they had received a proposal from custodial services provider Fireblocks for it to become a whitelister of participants in Aave Arc, a permissioned version of Aave's otherwise open system. This, according to Fireblocks' proposal, is part of its mission to "bring more institutional participants into DeFi" by "extending access to even our most compliance-conscious customers, who would otherwise avoid DeFi over compliance or regulatory concerns." Fireblocks said it services "more than 600 customers and has secured over $1.25 trillion in digital assets."  

Twitter account @InvestRepeat neatly summed up how many of the "keep DeFi decentralized" crowd felt about this. 

The fight got more intense after a core developer at competing protocol Yearn weighed in with a quote-tweet:

But then Jake Chervinksy, a lawyer for the team that developed competing lending protocol Compound, chipped in with support for the Fireblocks proposal, citing Aave founder Stani Kulechov. 

Relevant Reads

NFTs IRL

Two stories this week showed that the traditional art world continues to be fascinated by the possibilities posed by NFTs, even if the bidding mania that led Beeple to sell a piece for $69 million earlier this year has subsided and even though the crypto world's attention has gone to avatar-collecting communities such as the Bored Ape Yacht Club

  • In this piece, freelancer Dorian Batycka reports back from the elite Art Basel artfest that collectors there continued to "swoon" over NFT. 
  • Meanwhile, Tanzeel Akhtar discovered that "a Czech royal family that traces its heritage to the 14th century...is conducting an NFT drop next month with a goal of 'preserving cultural heritage.'"

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