BitGo: Crypto Water Cooler — Aug 16
GM. It’s Wednesday, August 16.
Newsmakers
PayPal Stablecoin: Big Step Forward or Loss of Founding Principles?
PayPal last week became the latest institution to push deeper into crypto, launching a dollar-denominated stablecoin PayPal USD (PYUSD). The move could be a big step to mass adoption of crypto payments. PayPal processed 6.1B transactions worth a total of $377B during its most recent quarter. As of its Q2 earnings report, it had?431MM active users?worldwide. Coinbase, the largest U.S. crypto firm, has?98MM registered users; about 10 percent of them trade actively every month.
This isn’t PayPal’s first rodeo in crypto; the $67B fintech OG?began?allowing users to buy, sell, and hold Bitcoin, Ethereum, Litecoin, and Bitcoin Cash in 2020. For now, only U.S. users who have transacted in crypto will be able to?use PYUSD. PYUSD will eventually be available on PayPal subsidiary Venmo. Users will be able to redeem it for dollars at any time.
Not everyone thinks PYUSD will sprint to widespread adoption. Bank of America?analysts?believe it will face competition from both CBDCs and interest-bearing stablecoins, and it seems like only a matter of time before other crypto-savvy fintechs (think Block and its CashApp platform) follow suit. PYUSD could also hit regulatory headwinds. Rep. Maxine Waters (D-CA)?slammed?the company for not awaiting regulatory approval, and its issuer Paxos Trust has previously?run afoul?of the SEC. However, PayPal holds a BitLicense from the New York Department of Financial Services as does Paxos. In September, Paxos will begin providing a proof-of-reserves report for PYUSD.
On a more philosophical level, some crypto purists feel that PayPal’s ability to freeze accounts and seize funds from users that go against its terms of service violates the principles of crypto. Writing on CoinDesk, Daniel Kuhn opines that PYUSD will eventually be “subject to just as much surveillance and ‘censorship’ as PayPal or its subsidiary Venmo today.”
Read More →CoinDesk
New U.S. Federal Reserve Supervision Program Will Address Crypto Activity
As the U.S. Congress dithers over legislation and the SEC continues with enforcement actions, the Federal Reserve (“Fed”) is trying a new tack: clarifying rules and stepping up supervision. In a?press release?last week, the Fed offered details of a policy statement that makes clear that insured and uninsured banks are subject to its supervision and that it “would not prohibit a state member bank, or prospective applicant, from providing safekeeping services, in a custodial capacity, for crypto-assets if conducted in a safe and sound manner.”
It also introduced the novel activities supervision program (SR 23–7), which could provide more detail on what the agency considers safe and sound. Through the program, experts with specialties in digital assets will collaborate with current Fed supervisors to allow banks to engage in digital asset activity. Katie S. Cox, a former Fed Bank examiner who is now an advisor to Custodia Bank,?called the guidance?“hastily developed” and “piecemeal” and wished banks and regulators luck in sorting through it by trial and error — much as Wyoming-chartered Custodia had to do in its long and ultimately unsuccessful quest to become a master account holder and member bank.
Custodia applied for a master account in October 2020. In August 2021, it applied to become a member bank subject to Fed oversight. In June of 2022,?Custodia sued?the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City for unduly?delaying?their master account application; a similar application from BNY Mellon, submitted well after theirs, was approved in October 2022. In January 2023, Custodia finally received across the board rejections “partly because of its crypto friendliness and part because it was a state-chartered bank, not a nationally chartered one.” Custodia then amended their complaint to challenge the denial of their application.
In an?opinion piece?on American Banker co-written by Cox and Custodia Founder and CEO?Caitlin Long, they state that there was?nothing unique?about Custodia’s application that prevented its admittance as a Fed regulated bank and, through its denial, it de facto rejected uninsured state banks, which exist in Connecticut, Maine, Nebraska, Vermont, and Wyoming. The Fed sought to have the suit dismissed; in June 2023, a U.S. District Court?ruled?that it could proceed.
Some senators have also questioned the Fed’s master account decision process. Then-Senator Pat Toomey (R-PA) last year inserted a?provision?into the National Defense Authorization Act requiring the Federal Reserve to create and maintain a public, online, searchable?database?of all master account holders.
Ironically, Custodia may be one of the first to test out the Fed’s new program; it?launched in select states?under its Wyoming charter just days after the Fed’s announcements.
Read more →Decrypt
Microsoft-Aptos Partnership Could Give “Convergence” a Solid Foundation
Hype about the convergence of the metaverse, AI, crypto, and the blockchain isn’t new.?In theory, combining these technologies has broad potential. Proponents envision a fully automated, decentralized web where the transparency, security, and immutability of the blockchain improves the credibility of rapidly generated AI output. Some even believe the combination could unleash?innovation and creative development?by providing incentives to participate in the process.
In practice, developers will need to?plow through the mundane?building of infrastructure?before reaching more glamorous applications. A newly announced partnership between Microsoft — one of the giants of Web 2.0, the centralized web — and layer-1 blockchain Aptos Labs shows how that may eventually play out. Aptos can manage up to 160,000 transactions each second, making it?one of the fastest?blockchains. It also features low transaction costs and a more intuitive developer interface, making it an attractive partner forMicrosoft.
The?multi-faceted partnership?will help to train Microsoft’s AI models through verified information on the Aptos blockchain, with Aptos also running?validator nodes?on Microsoft’s Azure cloud. Aptos will also provide developer guidance through a new chatbox, Aptos Assistant.
Read more →Blockchain Management
News In Brief
Regulation and Security
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Business of Crypto
DeFi and Web3
Midweek Market Pulse
Total Market Cap:?$1,168,605,300,144–7 day change as of Tuesday 8/15/23 Noon EST: -0.5%
The global crypto market cap edged down 0.5% to just under $1.17T in another quiet week in what is turning out to be a relatively quiet summer vis a vis volatility and price action.?Bitcoin (BTC, -1.3%)?and?Ethereum (ETH, -0.8%)?fell slightly as Bitcoin continued its trend of?range bound?trading.
There was more excitement further down the list of top cryptos by market cap.?Hedera (HBAR, +17.6%)?enjoyed strong momentum as its Dropp micropayment app was added as a?service provider?to FedNow, the U.S. Federal Reserve’s instant payment platform. Dropp allows merchants to receive payments in dollars, HBAR, or the USDC stable coin. Hedera is now up more than 40% over the past month.
Toncoin (TON, +16.4%)?rebounded and is again approaching the top 15 cryptos by market cap. Earlier this summer, Telegram launched a wallet chatbot, which allows users to buy, sell, and send TON, BTC,?Tether?(USDT, -0.1%)?and?Tron (TRX, +0.4%)?in the app.?Shiba Inu (SHIB, +8.7%)?continued to rally as users?burn tokens?ahead of the launch of Shibarium, the network’s mainnet.
SHIB may have some competition in the world of Inus. A?catchall meme coin?on the Ethereum network called?HarryPotterObamaSonic10Inu?(BITCOIN, +65.8%), which cleverly adopted the ticker “BITCOIN,” has gained nearly 200% over the past month. The whimsical coin now has a market cap of over $160MM to the delight of meme coin aficionados and the chagrin of meme coin haters.
The Last Word
Federal Reserve Master Account
Noun
: An account at a Federal Reserve Bank wherein a member bank holds most of its assets
/ A master account allows a bank access to Fed payment systems and services without having to go through an intermediary.
About BitGo
BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.
Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.
Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.
BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.
Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 1500 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.
For more information, please visit?www.bitgo.com.
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