2022 Week 23 - DeFi Digest
Hello again ??
It’s been another momentous week with lots of news happening globally in the cryptocurrency space. The markets are still facing a downtrend with so much macro uncertainty taking place however there is positive news in the form of a cryptocurrency bill coming to light in the US as well as various funds to ensure the prolonged growth of the industry.
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[tl;dr]
In this edition, we discuss:
There is never a dull moment in crypto as it is an ever-evolving technological space. This newsletter is a summary of a number of largely unrelated news pieces from the crypto-verse that might be crypto/DeFi/NFTs/VCs/Macro but touch upon DeFi. It is aimed at people who want to stay abreast of some of the news but are not following along too closely. It is put together by Bisonai - a DeFi company in Seoul that bridges AI + Blockchain.
1. The Gillibrand-Lummis Cryptocurrency Bill
In the wake of the Terra Luna debacle, it is no surprise that regulations are being fast-tracked in order to protect regular retail customers, who were by and large the demographic most negatively impacted. On Tuesday this week, Republican Sen. Cynthia Lummis and Democrat Sen. Kirsten Gillibrand unveiled a 70-page draft bill in order to legislate the cryptocurrency industry. The bill comes after several months of work between the senators to understand the industry before drafting a bill to legally clarify many issues that can impact both retail investors and corporate entities alike.
According to The Defiant, the bill covers a range of different aspects such as defining what digital assets are with divisions in commodities and securities, their tax implications, what constitutes a stablecoin and much more.
At a recent Bitcoin-themed forum hosted by the Heritage Foundation in May 2022, Lummis said “[The bill] includes coins that are commodities, coins that are securities, it includes stablecoins, it includes a discussion about (central bank digital currencies).” She went on to elaborate that “It includes definitions, consumer protection, privacy, taxation, and several other components of the discussion as it relates to all of this, using the existing regulatory framework.”
Some of the key takeaways are:
Definitions:
Tax:
DAOs:
Stablecoins:
The bill is skewed towards bitcoin and they consulted bitcoin maximalists such as Michael Saylor when drafting the bill. This could potentially bring about a bifurcation of Bitcoin/Ethereum (Commodities) vs all other altcoins (Securities). It could have very bad impacts for layer1s apart from Ethereum, and all other cryptocurrencies. The "Howey test," a Supreme Court doctrine from the 1940s that explains when an asset is a security. This test makes clear that cryptocurrencies are not securities, and that the SEC's interpretation, which says they are, is incorrect.
The bill will probably be heavily edited between now and passing. If it does pass, it probably won’t be until 2023. According to The Decrypt, the bill will probably not pass Congress in its current format without being heavily edited and it is expected to gain new momentum in 2023 following the November mid-term elections, and to frame the contours of future crypto policy.
2. Bitcoin Mining ramps up in China
Despite a mining ban by the CCP in China, Bitcoin mining is back up and running and is reportedly only second to the U.S. China was previously a powerhouse in bitcoin mining which accounted for 65% to 75% of the total “hash rate” — or processing power — of the bitcoin network. However, after China’s government outlawed it in mid-2021, the hash rate dropped to almost 0, according to Cambridge University.
New data by the university suggests that miners are active again in China and in September 2021, they contributed as much as 22% of the global mining hash rate, despite the governments’ efforts to outlaw bitcoin multiple times. Miners might be obfuscating their location via VPNs in order to continue mining in the country whilst it is illegal.
It remains to be seen what the CCP do in regards to this latest news, however with cryptocurrencies’ chequered history in China, we don’t believe this will be the end.
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3. Paypal is enabling crypto withdrawals to non-custodial wallets
Hot on the heels of Robinhood allowing withdrawals of cryptocurrencies to user's personal wallets in January this year, PayPal has finally begun to allow users to withdraw their crypto assets as well. The ability to transfer crypto has been one of the most requested features since the company started facilitating digital asset purchases, according to an article by The Defiant.
This comes almost 2 years after PayPal customers were able to purchase cryptocurrencies. In October 2020 the company started allowing customers to buy, sell and hold bitcoin, ethereum, bitcoin cash and litecoin. This news was extremely bullish for bitcoin and other cryptocurrencies at the time by validating the purchase of cryptocurrencies by one of the worlds largest payment providers as well as making purchasing very easily accessible to a majority of the US population.
Yet as many purchasers of those assets could not do anything except hold them in PayPal’s custodial wallet, many advocated for users not to purchase cryptocurrencies via services such as Robinhood and PayPal. Influential Bitcoin thought-leader Andreas Antonopoulos, author of influential books such as Mastering Bitcoin, The Internet of Money, and Mastering Ethereum said at the time, “If you buy your Bitcoin on PayPal you didn’t buy Bitcoin. What you bought is exposure to the price of Bitcoin mediated by a custodian who you hope is doing good risk management practices but who you cannot audit for the actual existence of reserves.”
This recent news, however, changes that and now purchasers of cryptocurrencies on PayPal can go about and use them as they see fit.
4. Korea Corner
4.1 Solana sets up a fund of US$100 million to support South Korean web3 startups
Solana Ventures and the Solana Foundation have formed a $100-million fund in order to support web3 companies in the country. This fund will focus on gaming studios, GameFi, NFTs and DeFi in South Korea.
South Korea has a coloured history in regards to cryptocurrency, especially in terms of regulation, however, many South Koreans are crypto holders and there are plenty of web3 startups based in the nation. According to Cointelegraph, The Solana Foundation is banking on interest in gaming finance (GameFi) and decentralized finance (DeFi) to increase in the country as companies begin to vie for grant money.
In the wake of the Terra Luna collapse, other blockchains are courting developers and start-ups to use their chains to ensure their own success. This comes after recent news of blockchains such as Polygon and Kadena trying to woo developers during the last month.
Solana will be hosting the Seoul Hacker House during the Korea Blockchain Week in August and get to work with some local developers on the ground.
4.2 Anchor Developer claims that he warned Terraform Labs’ Do Kwon that the 20% interest rate wasn’t sustainable.
According to the Cointelegraph who was quoting an exclusive by Korea’s JTBC, the initial rate of Anchor Protocol was only supposed to be 3.6% per annum, however, this was bumped up to 20% just before the release [of Anchor Protocol] to attract more investors. This led to what many consider to be artificial growth and adoption of the UST stablecoin and lead to its ultimate downfall in May 2022. The Seoul Metropolitan Police Agency are reportedly continuing to investigate the company in relation to the embezzlement of bitcoin from the company’s treasury, which it purchased to maintain the peg of the stablecoin.
4.3 South Korea initiates its plan to regulate cryptocurrencies.
As the world comes to terms with the fallout, more and more news is coming to light every day about the cataclysmic end of the protocol that erased US$60 billion in days - excluding the effects on the wider cryptocurrency industry.
The crash has led South Korea to instigate a new crypto oversight committee - the Digital Asset Committee. This committee will serve as a watchdog over the crypto industry and will be responsible for policy preparation and supervision until the Framework Act for Digital Assets is enacted and a formal government entity devoted to crypto is established. This is set to become legislation in 2024, giving the government plenty of time to explore different ideas about how to regulate, whilst keeping a close eye on the US and around the world.
Until next week, have a great week ahead! If you’d like to get in touch, email us at [email protected]. Previous newsletters can be found here.
About Bisonai
Bisonai Technology Group focuses on solving hard technical problems with the use of Blockchain and Artificial Intelligence. We believe in a future of Decentralized Finance (DeFi) and we work on services that bring all benefits of DeFi closer to our lives.
About Kayne
Kayne is DeFi Analyst working for?Bisonai, a DeFi Tech company in Seoul, South Korea. He has a prior background in law and education in Australia and Japan before he was lured into the exciting world of crypto. Recognising that South Korea had emerged as an exciting, crypto-friendly base, he relocated to Seoul. He has a passion for investing and technology, loves to dig into the latest Blockchain and DeFi developments and enjoys keeping an eye on the latest trends in the crypto-verse.
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