📉Frax Founder Pins $25B Stablecoin Supply Drop on Fed Rate Hikes
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By Owen Fernau
MARKETS When TerraUSD (UST) fell from $1 to $0.09 last week, a huge sell-off shrank the dollar-pegged stablecoin market by 14.1% in a week. Now down $25.34B, the market cap for stablecoins sits at $154.53B, according to The Block.
UST, which all but collapsed after its sister token, LUNA, spiralled into oblivion, was responsible for $18.64B of the drop. Tether (USDT), which briefly fell to as low as $0.95, contributed losses of about $7 billion.
While uncertainty about Tether’s reserves and a loss in confidence in Terra’s algorithmic peg could explain some of the losses, even stablecoins that held firm suffered major drops.
THE CATALYST So why the sudden washout in stablecoins? Sam Kazemian, the founder of Frax Finance, the issuer of the FRAX partially-collateralized stablecoin, said the seeds were planted long before the collapse of UST– things started when the Federal Reserve raised interest rates by 0.25% in March.
Terra Saga Continues To Unfold
By Samuel Haig
South Korean authorities have formed an emergency financial crimes unit to investigate the collapse of stablecoin protocol Terra, and fined the protocol’s founder, Do Kwon, $78M for tax evasion, local media reported.
The government agencies want to understand why UST, Terra’s US dollar stablecoin, lost its peg on May 9. The crash wiped $18 billion from the stablecoin market, $26B from Terra’s TVL, and sent Terra’s network token, LUNA, from $65 to a fraction of a cent within four days of the crash.
Yonhap News Agency reported that Korea’s Financial Services Commission and Financial Supervisory Service have requested data from local crypto exchanges, including trade volumes for LUNA and UST, and the number of investors hurt by the crash.
Local media outlet Naver reported on May 18 that Korea’s tax authority found Terra’s parent companies guilty of evading corporate and income taxes. The Korean National Tax Service said Kwon had transferred LUNA from his software company,Terraform Labs, to the Singapore-based Luna Foundation Guard (LFG) – a non-profit launched to support Terra – to evade taxes.
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Big Brands Embrace Web3
By Jason Levin
In my girlfriend’s world, people pay $500 for t-shirts and $2,500 for trench coats. That’s because she works at the corporate office of Burberry, the British luxury fashion brand. But for the last few months, the 166-year-old fashion house has been blasting company-wide emails about a new kind of fashion line: web3 wearables.
Last August, Burberry launched wearable NFTs for a crypto video game called Blankos Block Party. Sharky B NFTs, sold together with a jetpack, armbands, and pool shoes, generated about $375,000 in sales. Now, brands such as Gucci, Louis Vuitton, Nike and Adidas, want to dress this burgeoning market, too.
It’s only a matter of time until the tech goes mainstream, predicts Dani Loftus, a digital fashion writer and member of RedDAO, a DAO that invests in fashion NFTs. “In the next five years you will wear Digital Fashion. On your in-game avatar, on zoom, or on your social media,” she wrote in a Mirror post.
Algo Stables Wreak Havoc
By Samuel Haig
Scream is the latest DeFi protocol to suffer at the hands of faulty algorithmic stablecoins.
Opportunistic traders have taken advantage of the Fantom-based lending protocol having fixed the value of the network’s native stablecoins fUSD and DEI at $1 despite the tokens trading below their pegs.
The ill-fated move allowed users to scoop up the stablecoins at market value — both of which traded as low as $0.55 this past week — before depositing the tokens in Scream and using them as collateral at face value ($1) to take out loans in other assets. As a result, opportunistic users have drained Scream’s USDT, FRAX, DAI, and USDC pools, which now hold less than a dollar worth of liquidity each.
CBDC On Ethereum’s L2
By Samuel Haig
Norway’s central bank is embracing Ethereum’s Layer 2 for its central bank digital currency (CBDC) pilot.
On May 16, Nahmii, an Ethereum L2, announced it had been tapped by Norges bank to host the sandbox for the country’s national currency, the krone. Nahmii said in a statement that it will “build, maintain, and train Norges Bank users and partners on the sandbox.”
Nahmii said that all major Norwegian banks are expected to take part in the sandbox. In April 2021, Norges said it would begin trialing different technologies for its CBDC over the next two years.
The Commodity Futures Trading Commission (CFTC) will add resources and increase its efforts to address cryptocurrency-related fraud and manipulation cases, agency Chairman Rostin Behnam said Wednesday, The Wall Street Journal reported. In video remarks at the Chainalysis Links conference, Behnam said that the CFTC was facing a surging number of these types of cases.
🔗 ‘The big idea that failed’: Crypto billionaire breaks silence on Luna’s meltdown: The Sydney Morning Herald
Mike Novogratz broke his silence on the TerraUSD meltdown, calling it a “big idea that failed” and warning that the tough environment for cryptocurrencies will continue. The founder of Galaxy Digital Holdings Ltd. and big backer of Terraform Labs, the company behind Terra and Luna, had gone silent for a week. Novogratz spent the time reflecting on the economy and his firm’s role in the crypto industry, he said in a statement on Wednesday.
Andreessen Horowitz is launching a new vertical fund exclusively focused on opportunities in the games industry. The new $600 million fund brings a pool of dedicated capital and a new internal structure dedicated to sourcing deals inside the games vertical. The new vehicle, called Games Fund One, joins other industry-specific arms at a16z, including its crypto and bio divisions.
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Crypto Markets Stabilize After $693B Sell-Off Crypto markets have stabilized, ending a market free-fall that erased $693B from crypto’s market capitalization from May 5 to May 12. Crypto’s market capitalization fell from $1.81T on May 5 to lows of $1.12T on May 12. The market started to rise on Friday, and now rests at $1.28T, data from CoinMarketCap shows.
VillageDAO Aims To Decentralize Customer Service Blockchain technology company ConsenSys revealed its plans to create VillageDAO, a decentralized autonomous organization (DAO) that will provide customer care services to other web3 projects. To provide customer support at scale, ConsenSys has partnered with LivePerson, a US-based company focused on conversational AI. While AI will play a role, VillageDAO community members will be incentivized to contribute to the platform and its clients.
Robinhood To Launch Non-Custodial Web3 Wallet It gets harder to tell the difference between DeFi and TradFi by the day. As the two financial sectors continue to blend, popular stock trading app Robinhood has announced a non-custodial mobile wallet for web3. The wallet won’t charge “network fees,” according to the company’s blog post.
🧑💻 ✍️ Stories in The Defiant are written by Owen Fernau, Samuel Haig, Jason Levin, DeFiDad, Aleksandar Gilbert, and yyctrader, and edited by Edward Robinson, yyctrader, and Camila Russo. Videos are produced by Robin Schmidt, Alp Gasimov and Daniel Flynn. Podcast is led by Camila, edited by Alp.
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