January 26, 2023

The biggest crypto news and ideas of the day

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Welcome to The Node. This is Daniel Kuhn, here to take you through the latest in crypto news and why it matters. In today's newsletter:

In the news: China's version of Instagram integrated a L1 blockchain backed by Shanghai's government. Redacted document gives a peak at FTX's creditors. And Coinbase was hit with a $3.6 million fine by the Dutch central bank.
The takeaway: Laura Navaratnam, director of Gattaca Horizons and the former head of fintech at the U.K. Financial Conduct Authority (FCA), writes about legislative advancements in the U.S., U.K. and E.U. for CoinDesk's "Policy Week."

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Non Fungible

China's version of Instagram, Little Red Book, has been integrated onto a layer 1 blockchain backed by Shanghai's government Conflux – causing its native token to surge. The integration, notable considering China's hot and cold approach to Web3, will enable the social media platform's 200 million users to display Conflux non-fungible tokens on their profiles, according to a press release. Meanwhile, NFT influencer Kevin Rose said his personal wallet was compromised leading to the loss of millions of dollars worth of "blue-chip" digital collectibles. Rose warned about a possible phishing scheme linked to fellow NFT influencer Erick "Snowfro" Calderon's generative art project called Chromie Squiggles; Rose's NFT platform Proof was not affected. Finally, Sui-based Ethos wallet raised a $4.2 million seed round while popular NFT project Doodle's released a new collection on the Flow blockchain.

3 Suits

According to a partially redacted 116-page creditor list, bankrupt exchange FTX owes money to tech firms including Netflix and Apple; media companies Wall Street Journal, Fox Broadcasting and CoinDesk; rival crypto exchanges Coinbase and Binance, airlines American, Spirit and Southwest as well as a several charities, Stanford University and a host of other businesses. Judge John Dorsey, overseeing the bankruptcy, earlier allowed the names of 9.7 million individual creditors to remain temporarily sealed. Meanwhile, Coinbase has been fined $3.6 million by the Dutch central bank for serving customers without proper registration. The exchange may appeal the decision, a spokesperson said. Last, Mango Markets is suing Avraham Eisenberg, the trader who attacked the decentralized exchange in October, according to a New York court filing. Mango is claiming damages of $47 million – the remaining amount Eisenberg, who is also under investigation by the Commodity Futures Trading Commission, did not already return to Mango.

Crypto Holdings

BUSD, a stablecoin issued by Binance, had circulating supply fall to $15.4 billion on Wednesday, paring $1 billion over the past week and $2 billion in a month, according to CoinGecko, amid allegations of collateral mismanagement and ongoing fears about the exchange giant's liquidity. Earlier this month, blockchain research firm ChainArgos found that Binance-peg BUSD was not always fully backed by reserves during 2020 and 2021. Binance acknowledged the breach and said it was fixed. The latest decline comes amid recent reports about errors involving the exchange's wrapped token derivatives known as Binance-peg tokens. In lighter news about bitcoin holdings, Tesla apparently did not sell any more BTC in the fourth quarter of 2022, according to its earnings report. Tesla's remaining bitcoin was valued at $184 million, down from $218 million in Q3 due to impairment charges from bitcoin's price decline.

NEAR Protocol: Primed for the Crypto Winter

Navigating Web3 right now is no walk in the park. As the world continues to feel the effects of an economic slowdown and a swelling of prices from inflation, Web3 is experiencing a contraction in participants and venture capital. This can be disheartening for those looking to invest in crypto projects, as many are struggling to secure sufficient funding or seeing slower monthly Web3 developer activity than in 2020 or 2021.

Despite this adversity, there remains considerable potential both now and in the future. Continue reading.

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Sound Bites: Privacy Focus

"We want to pursue a privacy statute federally which is important to a digital future."

– Congressman French Hill (R-Ark), on CoinDesk TV's "First Mover."

The Takeaway: Regulatory Irons

The crypto market is continuing to feel the aftershocks of the collapse of FTX. Although the contagion hasn't spread into mainstream financial markets, policymakers fear that it could and are proposing regulatory intervention. In the U.S., U.K. and E.U. there are several global regulatory irons in the fire, and a new found impetus to wield them for the protection of markets and consumers. Whether these irons will be forged quickly and thoughtfully only time will tell.

U.S.

In the U.S., we will likely see a continued and strengthened differentiation between different categories of digital assets. The Biden Administration's executive order (EO) on "cryptoassets" published in March made it clear that crypto is "here to stay," with many federal agencies publishing subsequent detailed responses. Although a relief for many in the crypto industry, the executive order still left the door open for more detailed policy proposals to be brought up. Most notably, the Digital Commodities Consumer Protection Act (DCCPA), the bill championed by none other than Sam Bankman-Fried, remains in progress. While the DCCPA has run into some recent opposition for granting the Commodity Futures Trading Commission (CFTC) broad oversight over the spot crypto markets (instead of the U.S. Securities and Exchange Commission), it will still be a key baseline for debate in the new Congress. The bill is currently backed by Senate Agriculture Committee Chairwoman Sen. Debbie Stabenow (D-Mich.) and ranking member Sen. John Boozman (R-Ark.). Moreover, noteworthy crypto skeptic and chair of the Senate Banking Committee, Sen. Sherrod Brown (D-Ohio) recently sent U.S. Treasury Secretary Janet Yellen a letter expressing, for the first time, his willingness to work on crypto legislation. We could finally see bipartisan agreement for rules governing stablecoins and bank involvement in crypto.

U.K.

In the U.K., although mired with its own political problems during 2022, the ambition set in April to be a crypto hub seems to be holding. Current U.K. Economic Secretary Andrew Griffith reiterated the country's commitment to becoming a key center for the nascent industry, saying the collapse of FTX isn't a reason to change course. With the Financial Services and Markets Bill (FSMB) making its way through Parliament, the Financial Conduct Authority (FCA) is poised to take on broad new powers to regulate crypto markets. However, firms hoping for a forward leaning approach from the regulator will likely be disheartened by incoming FCA Chair Ashley Alder's recent remarks about crypto exchanges facilitating money laundering and creating "massively untoward risk." The regulator might have its own ideas on how to exercise any new powers it receives once the FSMB is passed into law.

E.U.

In Europe, hopes continue to be pinned on MiCA, or the Markets in Crypto-Assets bill, a comprehensive piece of legislation that would apply to the 27-member nation trading bloc. Initial plans for the European Parliament to vote on the bill in December were abandoned given its length and complexity, with reports suggesting the vote, initially scheduled for February, have been delayed until April due to translation issues. MiCA may face pressure to be "FTX-proof," potentially resulting in even further delays – but the European Commission has been bullish on this front, claiming that under MiCA as currently drafted the failings of FTX wouldn't have been allowed to happen. Even if true, this legislation is still a long way from being enforceable. Even if the final vote is held and passed this spring, there is still an implementation window of 12-18 months.

– Laura Navaratnam, director of Gattaca Horizons and former head of fintech at the FCA

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Off-Chain Signals

Nifty Gateway Co-Founders Step Down as Cock Foster Twins Seek to Start New Company (Decrypt)
Sen. Wendy Rogers (R-AZ) has a "bitcoin legal tender" bill, h/t Decrypt
Arbitrum and Optimism: Two protocols control 80% of all Ethereum Layer 2 TVL (Protos)
dYdX's delayed a token unlock (The Defiant)
The Crypto Token Economy Is Second-Order Fraud (Quillette)
The International Swaps and Derivatives Association (ISDA), an industry body, published guidance for how to deal with crypto price plunges (Reuters via USA Today)