US Banks & Stablecoins Sitting in a Tree
Also, ETHE is up to new shenanigans, #altszn incoming, tokenized NFT funds are now a thing.
We’re changing up the newsletter a bit: Here, you’ll find the TLDR version of the thoroughly reported stories you know and love :) To dive in, just click through the story on The Defiant website. Let us know what you think of this format!
The open economy is taking over the old one. Subscribe to keep up with this revolution. Click here to pay with DAI (for $100/yr) or sub with fiat by clicking on the button below ($10/mo, $100/yr).
🙌 Together with Zerion, a simple interface to access and use decentralized finance, Neutrino, an algorithmic price-stable protocol that enables the creation of stablecoins tied to real-world assets, Value DeFi Protocol, a suite of DeFi products including the Value Liquid AMM, which allows anyone to create trading pools with flexible ratio pairs, and Cartesi, an optimistic roll-ups solution that aims to revolutionize smart contracts by allowing developers to code with mainstream software stacks, has just launched CTSI Reserve Mining.
🏦 US Banks Can Now Process Stablecoin Transactions
TLDR: National banks and federal savings associations are now allowed to operate blockchain nodes and use stablecoins for payments, according to a decision issued by the US Office of the Comptroller of Currency (OCC). This is a big deal for mainstream crypto adoption.
“Our letter removes any legal uncertainty about the authority of banks to connect to blockchains as validator nodes and thereby transact stablecoin payments on behalf of customers who are increasingly demanding the speed, efficiency, interoperability, and low cost associated with these products,” said Acting Comptroller of the Currency (and former Chief Legal Officer of Coinbase) Brian P. Brooks in a Jan. 4 OCC press release.
🗺 BIG PICTURE: The decision recognizes the need for faster payments rails, which can be provided by open blockchains, according to the 10-page interpretive letter. It may prime a whole new batch of DeFi outsiders for involvement in the space.
The regulation will enable a bridge between decentralized and traditional finance, said early Ethereum community member and designer Richard Burton.
“With this USDC integration, the dollar can now move across open source financial protocols like Ethereum and into the traditional banking industry,” Burton told The Defiant.
👀 TO BE SURE: While the OCC’s decision is positive as it helps connect crypto to traditional banking, allowing *only* banks to transact with stablecoins, as the recently proposed STABLE act would have, would put decentralized exchanges, blockchain node operators, and practically every DeFi application under regulatory risk.
🕵️ KYC/AML, KYC/A/ML, KYC/AML: The OCC makes sure to note that banks will need to keep new technological risks in mind when engaging with INVNs, and properly guard against money laundering and terrorist financing. They also clarify that all officially recognized stablecoin arrangements “should have the capability to obtain and verify the identity of all transacting parties, including for those using unhosted wallets.”
BOTTOM LINE: While mainstream DeFi adoption is still a ways off, and the insistence upon identity verification doesn’t line up perfectly with the permissionless ethos of the space, the OCC ruling is still a major move to ensure that the US stays financially competitive on the global stage.
📈 ETHE Drops as ETH Climbs Near Record Highs
TLDR Wall Street’s favorite ether investment vehicle ETHE is plunging just as the underlying cryptocurrency is near records. But there’s a good reason why.
🧮 BY THE NUMBERS Grayscale’s Ethereum Investment Trust, ETHE, has dropped 40% from a 6-month high of $23 on Dec. 22, compared with a 70% rise of ether, the only asset the ETHE trust holds, over the same time period.
BUT WHY? To understand why, first get this: Accredited investors can buy shares of ETHE from Grayscale at the net asset value, or NAV, of the trust, which holds ether. They then have to wait for a lock-up period before their shares become liquid.
In the meantime, other investors buy ETHE in the secondary market driving up the share price relative to NAV, or the underlying ether value.
🍬 THAT SWEET ARBITRAGE If the premium exists in 6 months, accredited investors can profit from the difference between the NAV at the time of purchase and the price of ETHE (or GBTC, the bitcoin-based fund), post lock-up period.
OK SO WHY IS ETHE DOWN? The lockup period is over and 116M ETHE shares have suddenly become available, according to Bloomberg Intelligence analyst James Seyffart. The potential flood of ETHE shares is causing the ETHE share price premium to NAV to drop from as high as 270% in December to 15% on Tuesday.
Investors are likely rushing to sell their securities before the gap closes.
🤯 THIS IS NUTS Yes, but what’s mote nuts is that the reason accredited investors have to go through these convoluted instruments is because regulators have not yet approved an exchange-traded fund that would allow direct exposure to crypto.
🦄 Is an Ethereum-Driven Alt-Season Around the Corner?
TLDR Ether is surging faster than bitcoin, which may signal small tokens will follow.
Bitcoin welcomed newcomers to the crypto space in an all-too-traditional baptism of fire on Sunday with upwards of $500M in long liquidations. Meanwhile, Ethereum was off to the races.
#ALTSZN In prior market cycles, Ethereum lagged bitcoin performance until the later stages of the cycle. After a certain point, the tables turn as Ethereum rages on to bring about another ‘alt season’. If history is a guide, then crypto is revving the engine for another altseason bonanza.
BTC DOMINANCE As Ethereum and various alternative cryptocurrencies and DeFi coins gain momentum, bitcoin dominance has performed as market participants would expect, sliding below 70%.
👩🎤 NFTX Launches NFT Liquidity Pools
TLDR: There’s been a lot of optimism about the potential for NFTs - or non-fungible tokens - to revolutionize digital collectibles, but an important drawback has been hanging over the sector; lack of liquidity. NFTX is seeking to address the issue by debuting an NFT liquidity pool.
“NFTX is a platform for making ERC20 tokens that are backed by NFT collectibles,” states the release post. These ERC20 tokens makeup specific ‘funds’ or different subsets of NFTs aggregated together to form fungible liquidity pools.
WHY DOES THIS MATTER Secondary market transactions are rare for high-value collectibles like CryptoPunks, currently valued at a minimum of 5 ETH a piece. With NFTX, collectors can pool their NFTs to create funds, offering an easy way to trade in and out of specific NFT types using Uniswap or Balancer. This could give a larger number of people exposure to the most sought out NFTs, without having to pay the high price.
“Our hope is that by creating fungible versions of popular NFT collections, it will be possible to supercharge NFT markets with better liquidity and accessibility.” founder Alex Gausman told The Defiant “There are a number of other benefits to fungibility as well such as (1) real-time price feeds, (2) the ability to use NFTs as collateral, and (3) the ability to short NFTs and go leverage long.”
OF COURSE, THERE’S A TOKEN Collectors can deposit NFTs in exchange for NFTX governance tokens. Every last token offered in the first round of three was claimed, with the first PUNK liquidity pool now live.
📊 DeFi10 Results Update
ICYMI This Monday we published the results of the DeFi10 experiment, where Defiant founder Cami Russo put 1,100 Dai in 10 DeFi protocol plus a benchmark. The fund returned 370%, growing to $5,200.
IDLE FINANCE We wanted to give you a quick update on one of the investments, Idle Finance, which was one of the best performing, thanks to its airdrop of IDLE tokens. However, returns excluding the airdrop were negative because it was just the balance of the 100 Dai deposited minus trading and gas fees.
UPDATE Interest wasn’t showing up because Cami didn’t migrate to v2. V1 was in Sai, which is deprecated and so it stopped optimizing for yield. The mandate was to not touch those investments, but this wouldn't have been an issue for most users. We wanted to make sure it didn’t reflect poorly on Idle, which is a tool that directs crypto deposits to where they are gaining the most yield.
“Stellar CTO and Ripple architect Jed McCaleb cashed out a whopping $411 million in XRP in 2020, according to an updated report from blockchain analytics account Whale Alert,” Cointelegraph reported.
“The entire TradeBlock team will remain with the company, which will operate independently from the media operations to maintain TradeBlock’s commitment to data security and confidentiality and the integrity of CoinDesk’s journalism, the media company said. Financial terms of the transaction weren’t disclosed,” CoinDesk said.
🧑💻 ✍️ Stories in this newsletter were written by Daniel Kahan, Owen Fernau, Christopher Attard and Cooper Turley, and edited by Camila Russo.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access, while free signups get only part of the content. Click here to pay with DAI (for $100/yr) or sub with fiat by clicking on the button above ($10/mo, $100/yr).