September 6, 2022

The biggest crypto news and ideas of the day

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Good morning, and welcome to The Node. I'm Daniel Kuhn, here to take you through the latest in crypto news and why it matters. In today's newsletter: Binance will automatically convert three rival stablecoins to BUSD, the final countdown to the Ethereum Merge has officially begun and DeFi giant Aave stopped loaning ether ahead of the Merge.

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– D.K.

Today's must-reads

Top Shelf

Binance, Issuer of Third-Biggest Stablecoin, Stopped Supporting Larger Rival USDC: Binance announced it will automatically move customers' funds to its binance USD (BUSD) token from alternatives, including the larger USD coin (USDC), at the end of the month.

The decision was made for capital efficiency reasons, the exchange said. Users will still be able to deposit and withdraw USDC and other stablecoins on Binance, but will now have to use tether and BUSD as trading pairs, primarily.
USDT's $68 billion market value leads USDC's $52 billion, while BUSD is in third place at $19 billion.

The Final Countdown to the Ethereum Merge Has Officially Begun: The Bellatrix upgrade on Ethereum was activated on Monday, marking one of the final steps before the network officially switches from proof-of-work (PoW) to proof-of-stake around Sept. 13. The Ethereum Foundation requests node operators update their gear.

The Bellatrix upgrade prepares Ethereum's PoS Beacon Chain – also called its Consensus layer – for the Merge with Ethereum's mainnet Execution layer. The next steps for Ethereum after the Merge will be to address scalability issues with sharding and rollups.
Meanwhile, Ethereum Classic's hashrate and price have surged as miners and hucksters sell the idea of the continued relevance of a PoW-based Ethereum in a post-Merge world.

DeFi Giant Aave Stopped Loaning Ether Ahead of Ethereum Merge: The Aave community is worried that users may increasingly borrow ether ahead of the Merge (betting the news will increase the price of ETH), exposing the protocol to liquidity issues. Users voted overwhelmingly to "temporarily" pause ETH loans, cutting into a popular "utilization" trade involving ETH-staking service Lido..

Meanwhile, a wallet belonging to insolvent crypto hedge fund Three Arrows Capital has removed $33 million worth of staked ether (stETH) from a pool of decentralized exchange Curve.

Poolin, One of the Largest Bitcoin Mining Pools, Suspends Withdrawals From Wallet Service: PoolinWallet is suspending all withdrawals days after announcing liquidity issues on the world's fifth-largest bitcoin mining pool. The move is meant to prevent a run on assets and will be replaced with a "feasible" solution within a week, a post on the company's official Medium account said.

That plan might include debt, according to CEO Kevin Pan's post.

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Putting the news into perspective

The Takeaway

Who Gains From Binance Converting USDC to Its Own Stablecoin?

On Monday, Binance, the largest global crypto exchange by volume, announced it is killing access to three stablecoins that compete with its own dollar vehicle, Binance USD (BUSD). Binance said it's making the move to improve liquidity and capital efficiency on the exchange.

Beginning Sept. 29, Binance will automatically convert users' USD coin (USDC), Pax dollar (USDP) and trueUSD (TUSD) holdings into BUSD. Binance Pay, the exchange's payments service, will also stop supporting those coins on Sept. 12.

Binance is suspending spot, future and margin trading with the targeted coins, closing down all associated trading pairs. But users will apparently still be able to withdraw capital in USDC, USDP and TUSD – just not custody it directly on the exchange.

While those who say this is an overt power grab that raises novel antitrust questions have a point, it's hard to argue that BUSD isn't already popular. It's a viable alternative to the other U.S. dollar stablecoins. I'm going to quickly try to see it from Binance's point of view. Undoubtedly, liquidity conditions will improve on the exchange.

(Danny Nelson/CoinDesk)

BUSD is the third-largest stablecoin by market capitalization, and has increasingly been growing its share of stablecoin trading volumes ever since Binance eliminated trading fees for bitcoin (BTC) on its platform this summer.

Circle's USDC, the most important of the affected coins, is the second-largest stablecoin at a capitalization of about $52 billion. TUSD and USDP stand as the sixth- and seventh-largest stablecoins, capitalized at just over $1 billion and just under $1 billion, respectively.

As part of the move, Binance will also close access to its USDC-denominated saving accounts, decentralized finance (DeFi) staking services and loans. Counter-intuitively, Circle CEO Jeremy Allaire tweeted that the "converged dollar books on Binance ... is a good thing" for its stablecoin.

"Prediction: This move leads to a gradual net share shift from USDT to BUSD and USDC," Allaire tweeted, linking to a thread by Evgeny Gaevoy, the chief executive of trading platform Wintermute. (USDT, of course, is tether, the biggest stablecoin by issuance.)

Gaevoy's, and perhaps Binance's, argument is that this cuts out steps for USDC users who want to trade on Binance. People can still issue USDC as before, deposit it on Binance, do what they want to do and withdraw in USDC.

Meanwhile, there's friction for USDT traders, who still have to manually convert their assets – a "a T+1 process" that may cause it to lose "ground," Gaevoy said. Notably, exchange FTX has had automatic conversion of USDC, which has benefited market makers, he added.

All of this is fairly speculative and does raise questions about possible monopolistic behavior. Binance has cause to increase the utility of its BUSD stablecoin, issued by Paxos, but it would still cut into USDC trading volumes. If Binance's self-reported transaction volume is correct, the exchange is leaps and bounds ahead of competitors.

"[W]hile optimizing dollar liquidity on the world's largest exchange may carry benefits, the paradigm does raise potential market conduct questions," Circle told multiple publications.

But USDC will still be accessible on other major exchanges, perhaps weakening the case for antitrust action. Further, because the exchange is still offering USDC withdrawals, it presumably will be holding a massive USDC bag.

– D.K.

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Overheard on CoinDesk TV...

Sound Bites

"One of the big barriers to global scaling is the environmental impact that comes with proof-of-work. We see this as a barrier for global adoption."

– Prysmatic Labs co-founder and Ethereum Protocol Developer Preston Van Loon, discussing the Ethereum's upcoming Merge, on CoinDesk TV's "First Mover"

Off-Chain Signals

What others are writing

From tinkering with video games to building the new Ethereum: How Preston Van Loon became key to The Merge (The Block)
Bridging DC and DeFi: Can crypto decentralize politics? (The Block)
Here's what CZ says about Binance definitely not being Chinese (Protos)
Crypto real estate: the property market built on digital assets (FT)

Which institutes are most impacting the blockchain world? Tell us your thoughts in a five-minute survey. We're welcoming responses until Sept. 7. Take the survey here.

Web3 M&A Is Coming of Age With the Help of the Industry's Best

M&A deals: Alpha that too many overlook

Mergers and acquisitions (M&A) doesn't always get the love it deserves, but it should. Across the economy, M&A delivers huge value to everyone when it's done right. For strategically smart entrepreneurs and founders, it opens the door to sector-disrupting synergies of talents, intellectual property (IP) and revenue streams. For investors, it can be a stunning source of alpha and return on investment (ROI).

A recent report published by Bain earlier this year makes all this clear, highlighting that since 2014 the value of M&A deals worldwide has amounted to an absolute minimum of $3.6 trillion each year. In 2021, the total value of M&A deals hit $5.9 trillion, a record-breaking figure.

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