Crypto - DeFi

cross-posted from: https://exploding-heads.com/post/539236

U.S. Securities and Exchange Commission wanted the exchange to delist the nearly 250 tokens on its platform prior to it filing a lawsuit against the exchange.

At the time, the SEC reportedly said it believes “every asset other than Bitcoin is a security,” said Armstrong.

“We said, well how are you coming to that conclusion? Because that’s not our interpretation of the law,” Armstrong added.

He recounted that the regulator said, “we’re not going to explain it to you; you need to delist every asset other than Bitcoin.”

It’s a similar view held by SEC Chair Gary Gensler, who claimed in a February New York Magazine interview that “everything other than Bitcoin” is a security under the agency’s remit.

Ripple putting XRP on exchanges for trading (and funding their operation with those sales) is NOT an investment contract, and therefore not a security.

Ripple paying people in XRP is NOT an investment contract and therefore not a security.

XRP is NOT a security in and of itself even when offered through a securities transaction.

Ripple selling XRP directly pursuant to contracts was an investment contract, and thus a security. Ripple had fair notice that doing this without registration was illegal. And a jury will be needed to decide whether Ripple execs aided and abetted this unregistered issuance.

cross-posted from: https://exploding-heads.com/post/194013

This is big

"the overall sentiment across the crypto community appears to be one of jubilation."

cross-posted from: https://exploding-heads.com/post/180540

The United States Securities and Exchange Commission and banking regulators are trying to dismantle this budding industry, brandishing lawsuits and an intimidating array of regulatory measures designed to make compliance impossible.

Crypto’s fighting chance is embedded within the very words and legal principles put forth by America’s founders in the Constitution. They designed the Constitution on the principle of the separation of powers inspired by the Enlightenment. Their vision was of a system with three separate but coequal branches of government, each acting as a safeguard against the potential abuse of power by the others.

The framers of the Constitution left us an arsenal of tools to wage a revolution for freedom within the design of the U.S. Constitution. Legal scholars and constitutionalists, including Gorsuch, are reviving the founders’ vision of a delicate balance of power among the three branches with the major questions doctrine.

Crypto defendants, such as Coinbase, Ripple and Binance, are pioneering a revolution of their own. They are at the forefront of a movement aiming to decentralize power, shifting it from centralized institutions to the hands of individuals. In their struggle, they are armed with the very same tools our founders used to shape this nation.

There’s a striking parallel between our founders’ fight for political freedom and the current struggle for financial freedom in the digital realm. The underpinnings of both these movements are deeply rooted in a quest for autonomy and liberty.

cross-posted from: https://exploding-heads.com/post/162078

“The Government recognises the seriousness of de-banking and understands that inaction on the issue will stifle competition and innovation in the financial services sector and may drive businesses underground and to operate exclusively in cash.”

cross-posted from: https://exploding-heads.com/post/161027

And we are decentralizing it on Exploding Heads as it spreads across the fediverse

Every month I go to the local crypto ATM to buy some bitcoins to pay for my VPSs. Today I went again and put ~$10 as usual. When I went to checkout it said that the transaction fee would be ~$8. I thought it was a mistake or an error. It turns out it wasn't un my wallet I got $1.16 worth of BTC. I checked what is the average transaction fee only and for some reason it has went to the moon 😉. I was pissed.

Dose anyone have spare $2-3 in XMR (ideally) or BTC that I can borrow to pay for my VPSs?

cross-posted from: https://exploding-heads.com/post/82973

Think of it as a #DEX with the potential to address all the current challenges facing centralized and decentralized exchanges.

For #DeFi to thrive, capital & access must be available to those with great ideas.

The reliability of code and decentralization CAN provide capital while eliminating major downside risk.

cross-posted from: https://exploding-heads.com/post/82910

More competition coming as X7 will be launching on Arbitrum and will be looking to take market share as a DEX offering under collateralized leverage.

Arbitrum doesn’t yet have a dominant DEX, according to Walter Teng, vice president of digital asset strategy at Fundstrat Global Advisors. "No de facto DEX on Arbitrum (yet) means the market will look to find a Velodrome equivalent,” he said to CoinDesk, referring to the most popular automated market maker on rival layer 2 network Optimism. Velodrome boasts a TVL of $216.32 million, per DeFiLlama.

cross-posted from: https://exploding-heads.com/post/82890

DeFi has the potential to solve key challenges around; centralized control, limitations in access, inefficiency, interoperability, and the opacity that are often hallmarks of the incumbent centralized financial system.

Centralized control was clearly demonstrated by the collapse of FTX. A centralized entity controlled user funds, and used, and lost user funds. In many cases they also limited who could access certain services and instruments, based on for example geographical location. Both inefficiencies, interoperability and opacity were rolled up into one and clearly demonstrated in the case of FTX with a lack of proper accounting, flow of funds and transparency of reserves.

This is just one example that is reflected across all manner of centralized financial infrastructure. The intention of DeFi was to replace this inefficient infrastructure with decentralized smart contracts. Clearly we are not there yet. DeFi itself is still riddled with problems from smart contract risks to bad actors. It is an ideal time to focus the mind and push DeFi forward.

The CEO of Binance.US at the time, Catherine Coley, wrote to a Binance finance executive in late 2020 asking for an explanation for the transfers, calling them "unexpected" and saying "no one mentioned them." [...]

Reuters was unable to trace what became of the $400 million. An unspecified portion of the money was subsequently sent to the Silvergate account of a Seychelles-incorporated firm called Key Vision Development Limited, according to a person with direct knowledge of the transfers. A 2021 corporate filing by another Binance unit identified CEO Zhao as a director of Key Vision. A former Silvergate executive confirmed that Key Vision held an account at Silvergate at the time. The money transfers suggest that the global Binance exchange, which is not licensed to operate in the United States, controlled the finances of Binance.US, despite maintaining that the American entity is entirely independent and operates as its "US partner." The Department of Justice and the Securities and Exchange Commission have sought information from Binance and Binance.US about their relationship as part of ongoing investigations into potential breaches of financial rules, including whether Binance is using the American exchange as cover for doing business in the U.S.

Seems to me DeFi exchanges are they way to go, rather then risking your money with opaque CeFi exchanges like Binance

Unlike many other decentralized finance (DeFi) lending platforms that have cropped up in recent years in the nascent digital-asset industry, Maple’s model would not require extra cryptocurrencies to be deposited as collateral that could be seized or quickly liquidated in the event of a default.

In just the past two weeks, some $36 million of loans have defaulted with another $18 million distressed. The soured debt represents 66% of the total outstanding in Maple’s four active lending pools, with some of the biggest borrowers acknowledging they were devastated by the spectacular collapse of Sam Bankman-Fried’s FTX crypto exchange.

“Uncollateralized loans in DeFi are still reliant on centralized parties for underwriting, antithetical to the ethos of transparency and decentralization,''

Two former credit pool managers, crypto lender Celsius Network and FTX sister trading firm Alameda Research, are now in bankruptcy and getting tarred in court and in the media over allegedly unsavory business practices.

A third credit pool manager, Orthogonal Trading, allegedly misrepresented its financials to hide losses from FTX and was booted from Maple on Dec. 5.

The prematurely closed loans freed up ample cash in the credit pools, which allowed depositors unnerved by the FTX drama to withdraw funds. (Per Maple’s code, there’s a 10-day waiting period from initiating withdrawals until users can remove any funds.)

In the end, this led to highly concentrated pools with bad debt to distressed borrowers, and mostly depleted cash deposits in the three problematic pools,

Listed crypto companies are cefi, not defi.

This is an opportunity for defi

BlackRock Chief Executive Larry Fink said this week that he expects most crypto companies will fold after FTX’s demise. A Schwab index tracking crypto-linked stocks is coming off its worst month since June, and is down 63% this year.

The assets included in the list are Yearn Finance (YFI), Curve Finance (CRV), 0x (ZRX), Decentraland MANA, 1inch (1INCH), Basic Attention Token (BAT), Enjin (ENJ), Ampleforth (AMPL), DeFi Pulse Index (DPI), RENFIL, Maker and xSUSHI.

Apart from these, the protocol also suspended the following stablecoins: sUSD, USDP, LUSD, GUSD and RAI. With the assets frozen, users cannot take loans on the assets or deposit their assets to the protocol.

The revelation of unethical practices by FTX in its bankruptcy filing has set a panic among investors who are already losing trust in these centralized trading firms. Exchange outflows hit historic highs of 106,000 BTC per month in the wake of the FTX fiasco and the loss of trust in centralized exchanges (CEXs) has pushed investors toward self-custody and decentralized finance (DeFi) platforms.

The key to DeFi being both innovative and safe stems from the same source: Give developers an easy way to create and interact with assets and make assets and their intuitive behavior a native feature. Any asset created should always behave predictably and in line with common sense financial principles.

In the asset-oriented programming paradigm, creating an asset is as easy as calling a native function. The platform knows what an asset is: .initial_supply_fungible(1000) creates a fungible token with a fixed supply of 1000 (beyond supply, many more token configuration options are available as well) while functions such as .take and .put take tokens from somewhere and put them elsewhere.

Instead of developers writing complex logic instructing smart contracts to update lists of variables with all the error-checking that entails, in asset-oriented programming, operations that anyone would intuitively expect as fundamental to DeFi are native functions of the language. Tokens can’t be lost or drained because asset-oriented programming guarantees they can’t.

This is how you get both innovation and safety in DeFi. And this is how you change the perception of the mainstream public from one where DeFi is the wild west to one where DeFi is where you have to put your savings, as otherwise, you’

As centralized and decentralized markets become increasingly integrated, CEX market depth is no longer enough to fully understand a cryptocurrency’s liquidity

As mentioned earlier, staked Ether (stETH) played a large role in the liquidity issues faced by Celsius and Three Arrows Capital this summer. This caused market wide contagion at the time as investors scrambled to cash out of stETH and move into the more liquid ETH. In this case, the majority of liquidity for stETH wasn’t on centralized exchanges; rather, it was in DEX liquidity pools.

Diligent monitoring of the Curve stETH/ETH pool would have flagged a drop in the total value locked in real time as stETH made up over 80% of the pool at the height of the rush for liquidity. That allocation has improved slightly since, but remains quite imbalanced as stETH now makes up 67% of the pool

Going forward, crypto firms will need to understand liquidity on both centralized and decentralized markets to be able to simulate large liquidations and price impact.

Decentralized exchange (DEX) trading volumes are expected to continue increasing until confidence is restored, the note added.

One could argue this is making the market more efficient

In a decentralized environment, users don't need to ask permission from a central authority before engaging in any money market activity. Anyone online can earn interest on their capital and/or borrow funds for their needs seamlessly. The decentralized protocols have an inherent censorship-resistant structure.

In centralized money markets, users' funds lie in the custody of the central gatekeeper. However, DeFi protocols like money markets are noncustodial, and funds are directly in the control of borrowers and lenders.

Aave is a noncustodial decentralized crypto lending and borrowing platform and hopes to leverage its overcollateralized stablecoin to offer better liquidity and passive income opportunity.

Given that GHO will be overcollateralized, users must always deposit a higher amount of crypto than the minting value of the GHO. This should ensure an overcollateralized loan on the stablecoins. Once the user repays the loan, their position will be liquidated and their borrowed GHO will be burned.

The problem of course, is that crypto banks don’t actually exist in the world of crypto, but in a nicely furnished entry lounge, or when markets are down - in the exit parking lot. Centralized crypto lenders are in the business of peddling DeFi products, but its foundational building blocks aren’t on blockchain infrastructure.

In other words, a crypto bank’s promise of yields is fundamentally an off-chain, unverified claim that users have to take on faith. You’re missing the point of Web3.

The Treasury’s paper also proposes rules for “secondary service providers who operate as brokers, dealers, or operate a market for crypto assets.” Its stated rationale is to minimize the risk consumers face when service providers become insolvent and they cannot withdraw their funds. Critically, however, it specifies that these rules would not apply to “decentralized platforms or protocols,” leaving DeFi alone.

This is an excellent article explaining the recent crypto crash and pinpoints where the problem was, why, and where the problem was not.

Gives you a good mental framework to consider crypto opportunities in the future.