decentralized marketplace

Innovate some compliance mechanisms, US Treasury official tells DeFi community

Assistant Treasury Secretary Elizabeth Rosenberg said the Treasury was enhancing its regulatory regime and that DeFi should program in some compliance.

The United States Treasury did a risk assessment of decentralized finance (DeFi) and found the sector lacking in several ways, Assistant Treasury Secretary for Terrorist Financing and Financial Crime Elizabeth Rosenberg reminded an audience at the Atlantic Council think tank on April 21. Get ready for more regulation, she said.

Rosenberg was referring to a report released earlier in April by the Treasury that found scammers, money launderers and North Korean hackers benefitting from the lack of Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) compliance in the sector. That report was part of the Treasury’s response to U.S. President Joe Biden’s executive order on the responsible development of digital assets.

The report also found that DeFi was not always very decentralized. “There are generally persons and firms associated with those [DeFi] services to which AML/CFT obligations may already apply,” Rosenberg said. The assessment report established that all DeFi services are liable to comply with the Bank Secrecy Act, including AML/CFT.

“We will assess enhancements to our domestic AML/CFT regulatory regime as applied to DeFi services and monitor responsible innovation of AML/CFT and sanctions compliance tools,” Rosenberg said. She continued:

“I want to offer a specific message to the private sector. ‘DeFi innovation’ should not only occur in the technical, financial domain — there is an enormous need and potential for innovation in compliance mechanisms that could help all players in the digital ecosystem ensure they remain on the right side of the law.”

Rosenberg and her team were freshly back from the Financial Action Task Force (FATF) Virtual Assets Contact Group meeting in Tokyo, she said. The team presented the results of the Treasury’s DeFi risk assessment there as well.

Related: FATF agrees on roadmap or implementation of crypto standards

The timing of Rosenberg’s speech is also notable because the European Parliament passed the Markets in Crypto-Assets legislation a day earlier. The MiCA legislation included provisions for tracing or blocking certain payments using crypto assets. This AML/CFT practice is already used in traditional finance and is known as the “Travel Rule” by the FATF. It was also a key part of the Treasury‘s risk assessment.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

Web3 economy to gain more traction in Africa through DeFi-based financial inclusion

DeFi-based financial inclusion serves to increase liquidity and earning opportunities for African micro-entrepreneurs through Fonbnk’s partnership with Tanda.

Web3 in Africa began with cryptocurrency, with blockchain technology bringing a lot of transformation regarding transparency and people’s control over their finances. The Web3 economy in Africa continues gaining traction with decentralized finance-based financial inclusion.

Fonbnk, the Web3 on-ramp that allows Africans to obtain cryptocurrency assets by exchanging their airtime credits, has partnered with Tanda, a merchant network platform in East Africa, to launch an airtime trading marketplace across Tanda’s network of agents.

The partnership between Tanda agents and vendors in East Africa can increase liquidity in the marketplace through the buying and selling of prepaid airtime for profit. This, in turn, can create opportunities for agents to earn revenue and also allow them to store their profits in dollarized stablecoins.

The partnership gives African micro-entrepreneurs more earning opportunities, creating a growth flywheel effect through improved liquidity and marketplace efficiency. This cycle builds trust and generates even more liquidity. Moreover, this partnership enables more African users to participate in the Web3 economy — without requiring bank accounts or cards — by using only their airtime credits.

Although Fonbnk operates throughout Africa, its partnership with Tanda is concentrated in East Africa. Fonbnk plans to expand earning opportunities for African micro-entrepreneurs and bring decentralized finance-based financial inclusion to the masses across Africa.

During the first episode of Cointelegraph’s Hashing It Out podcast, the co-founder of Fonbnk identified the rise in crypto adoption as being due to several factors, such as the chance to earn money, inflation, currency devaluation and the ease of doing business on a global scale.

Web3 can open up an intra-African exchange economy, and it can be used for purchases and transportation between African nations thanks to the ability to be used between borders. It will assist Africans in generating more economic value in the wider market.

Related: Bitcoin gaming enters Africa with local crypto exchange partnership

According to BitcoinAfrica.io, the top five African countries whose communities are adopting Web3 and crypto are South Africa, Nigeria, Zimbabwe, Kenya and Ghana. They have the most demand for digital currency and the most active local cryptocurrency communities.

Magazine: Web3 Gamer: Shrapnel wows at GDC, Undead Blocks hot take, Second Trip

NFT marketplace LooksRare launches v2, reducing fees from 2% to 0.5%

The previous version of the nonfungible token marketplace will be sunsetted by April 13, 2023.

Nonfungible token (NFT) marketplace LooksRare has upgraded to version 2, reducing fees by 75% and implementing several other features, according to an April 6 announcement from the company.

The LooksRare version 1 platform charged 2% per trade. This has been reduced to 0.5% in version 2. In addition, v2 has more gas-efficient contracts, allowing users to save approximately 30% on gas fees versus the previous version of the app.

The company explained that in version 2, sellers receive Ether (ETH) instead of Wrapped Ether (WETH) for most sales, and the smart contracts allow for bulk buying and selling orders if a user wants to place multiple trades simultaneously. In addition, aggregators can now implement custom recipients, allowing users to buy an NFT with one wallet but send it to another.

Sellers can also list their NFTs for sale in token prices instead of ETH, including for a fixed U.S. dollar price to be paid in equivalent ETH.

The team said in a separate April 7 post that LooksRare v1 will be sunsetted. On April 12, the app’s front end will no longer allow users to post version 1 auctions through the public API. All current v1 auctions will be removed from the website at 10:00 am UTC on April 13, and the smart contracts themselves will be disabled through an admin function at 11:00 am UTC.

Related: NFT aggregator Blur eyes 30% price pump by March amid airdrop euphoria

Reaction to the announcement was mostly positive, as many LooksRare users believed the new features would provide a strong challenge to competitors such as OpenSea and Blur.

But not everyone was convinced that LooksRare v2 would be enough of a change to woo users from other platforms. Some users expressed that v2 still fails to provide good token incentives or allow enough collections to be listed.

LooksRare faced some controversy in October when it decided to eliminate creator royalties. However, it has also benefited from the recent boom in NFT prices.

European DeFi startups saw a 120% increase in VC funding in 2022: Finance Redefined

The top 100 DeFi tokens had a mixed week, with little changes and a majority of the tokens trading in green.

Welcome to Finance Redefined, your weekly dose of essential decentralized finance (DeFi) insights — a newsletter crafted to bring you significant developments over the last week.

The ongoing downturn in the crypto market hasn’t stopped European venture capital (VC) firms from investing in DeFi projects. A new report revealed that European DeFi startups saw a 120% increase in VC funding last year.

The Euler Finance saga continued to dominate headlines, with the exploiter returning a significant chunk of the $190 million in stolen funds. The exploiter has returned over 58,000 stolen Ether (ETH) in one installment, and another $37 million worth of ETH and Dai (DAI) in the second one.

Traditional banking giant, Citibank, forecasts tokenization will take over traditional finance and predicts that by 2030 trillions in assets could be tokenized.

MakerDAO passed a new constitution to create multiple offices tasked with fulfilling various jobs for the protocol, each with its powers and responsibilities.

The top 100 DeFi tokens had a mixed week and didn’t see many changes from the previous week, with a majority of the tokens trading in green.

European DeFi startups saw 120% increase in VC investment in 2022: Data

2022 was a turbulent year for the crypto space, from an ongoing bear market and high-profile collapses of some of the industry’s most prominent players, like Terra and FTX. Despite the setbacks, venture capital investors continued supporting crypto startups.

According to a new study released by European investment firm RockawayX, VC investment in crypto startups based in Europe reached its all-time high in 2022, with $5.7 billion invested. European decentralized finance startups hit $1.2 billion in 2022 — a 120% increase from the previous year’s investments of $534 million.

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Euler Finance exploiter returns over 58,000 stolen Ether

The hacker behind the $196 million exploit on lending protocol Euler Finance has returned most of the stolen assets, according to on-chain data.

In a transaction on March 25, the exploiter returned 51,000 ETH, worth around $88 million at the time of writing. A second transfer of 7,737 ETH was made on the same day, worth over $13 million. Previously, on March 18, the hacker sent 3,000 ETH to the protocol, worth nearly $5.4 million at the time. The exploiter still controls some of the stolen assets. By April 27, the attacker returned another $37.1 million worth of ETH and DAI.

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‘Killer use case’: Citi says trillions in assets could be tokenized by 2030

Citibank is betting on the blockchain-based tokenization of real-world assets to become the next “killer use case” in crypto. The firm forecasts the market to reach between $4 trillion and $5 trillion by 2030.

That would mark an 80-fold increase from the current value of real-world assets locked on blockchains, Citibank explained in its “Money, Tokens and Games” March report.

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MakerDAO passes new ‘constitution’ to formalize governance process

MakerDAO, the decentralized autonomous organization that governs the DAI stablecoin, has passed a new proposed “constitution” intended to formalize governance processes and help prevent hostile actors from taking over the protocol, according to the official forum page for the proposal.

According to the proposal’s text, a constitution is needed because the Maker protocol “relies on governance decisions by humans and institutions holding MKR tokens,” which can “expose weaknesses and vulnerabilities that can fail the Maker protocol or the loss of user funds.”

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DeFi market overview

Analytical data reveals that DeFi’s total market value rose above $50 billion this past week. Data from Cointelegraph Markets Pro and TradingView shows that DeFi’s top 100 tokens by market capitalization had a bullish week, with most of the tokens trading in green, barring a few.

Thanks for reading our summary of this week’s most impactful DeFi developments. Join us next Friday for more stories, insights and education in this dynamically advancing space.

DeFi problems and opportunities in 2023: Market Talks

Join us as we discuss decentralized finance, how it performed in 2022, and what its potential is in 2023.

On this week’s episode of Market Talks, Cointelegraph welcomes Grant Shears, founder of Blocmates — an educational and consultancy company that aims to create crypto, decentralized finance (DeFi) and Web3 content that anyone can understand.

This week, to kick things off, the show takes a look at the emerging trends of 2023 and what people should look forward to. What industries could really take off this year, and which sector could have the most potential to grow?

It’s no secret that 2022 was not a great year for DeFi, an industry that arguably imploded on itself by offering unsustainable high yields that eventually caused the model to collapse. Host Ray Salmond, Cointelegraph’s head of markets, asks Shears if there are any projects this year that plan to fix this problem, and what that fix might look like.

Traditional finance (TradFi) seems to have caught up to DeFi since yields have increased from about 1% to 3.5% — and in some cases 4.65%. Plus, TradFi comes with a sense of security and safety. There are lower risks involved when compared with DeFi, where in order to get higher yields, users must also take on higher risks. Salmond asks Shears to shed some light on how DeFi can make a case for itself in this environment.

Ever heard of “NFT-Fi?” No? You’re not alone. Although it’s been around since 2020, not much has been discussed about it or its potential. On this episode, Salmond and Shears discuss what it is and what problems it aims to solve. 

Next up is some good ol’ technical analysis. The show looks at Bitcoin (BTC), Ether (ETH) and a few altcoins to see what fundamentals Shears is currently tracking and how he’s trading this current market. Salmond and Shears also discuss Bitcoin’s recent price rally and whether it was a shift in trend or just another bull trap. 

People are getting excited about the new staked ETH unlocks coming with the Shanghai upgrade. Salmond gets Shears’ views on the upgrade and whether this could be another “buy the rumor, sell the news” situation like the Merge was or a catalyst for the next DeFi bull run.

And finally, the age-old question: What is going to bring people back into crypto? Will 2023 be the year investors get interested in the space once more, or will we have to wait until 2024 for any sort of real action in the space? 

Make sure to stay tuned until the end to get all of these insights and more. Cointelegraph wil also be taking your questions and comments throughout the show, so be sure to have them ready to go.

Market Talks streams live every Thursday at 12:00 pm ET (5:00 pm UTC). Each week, it features interviews with some of the most influential and inspiring people from the crypto and blockchain industry. So, be sure to head on over to Cointelegraph’s YouTube page, and smash those like and subscribe buttons for all our future videos and updates.

1inch launches Fusion upgrade to improve swap security and profitability

As a decentralized trading and matching system, the 1inch Swap Engine connects DeFi users and provides liquidity for crypto trades through professional market makers.

Leading decentralized finance (DeFi) aggregator 1inch Network announced a major upgrade — Fusion — around its 1inch Swap Engine. The Fusion upgrade aims to deliver cost-efficient, secure and profitable swaps for crypto investors. 

The Fusion mode in 1inch Swap Engine allows DeFi investors to place orders with a predecided price and time range without paying network fees. In addition, the upgrade includes network improvements such as updated staking contracts and tokenomics.

As a decentralized trading and matching system, the 1inch Swap Engine connects DeFi users and provides liquidity for crypto trades through professional market makers. Explaining the intent behind the Fusion upgrade, 1inch Network co-founder Sergej Kunz stated:

“Fusion makes swaps on 1inch dramatically more cost-efficient, as users won’t have to pay network fees, plus, an extra layer of security is added, protecting users from sandwich attacks.”

Going against the traditional centralized approach, 1inch’s latest upgrade allows investors to perform secure noncustodial swaps, which are executed in a totally permissionless and trustless way.

According to the announcement, 1inch offers limitless liquidity and uses a new type of decentralized order-matching approach based on the Dutch auction model, as shown below.

The Fusion mode allows users to exchange tokens on various decentralized exchanges (DEXs) without paying any network fees. The upgrade also allows users to choose the order execution time as per their unique requirements.

Moreover, the Fusion mode provides protection against the maximum extractable value (MEV), which refers to the maximum value that can be extracted from block production in excess of the standard block reward and gas fees.

Alongside the upgrade, 1inch launched the 1inch Resolver Incentive Program, which will help resolvers get a refund on the gas spent on filling users’ orders in Fusion mode until Dec. 31, 2022.

Related: 1inch releases new tool to protect traders against ‘sandwich attacks’

Security experts believe that bridge attacks will still pose a major challenge for the DeFi sector in 2023.

Speaking to Cointelegraph, Theo Gauthier, founder and CEO of Toposware, pointed out that bridges have an “inherent vulnerability” because they rely on the security of the chains it connects to.

In this regard, one of the major technologies available is zero-knowledge proofs (ZKPs), which allow data to be verified and proven as accurate without revealing further information.

OpenSea blocks Cuban artists from the platform due to US sanctions

OpenSea’s terms of service explicitly prohibit individuals and organizations from sanctioned regions from using its platform.

Nonfungible token (NFT) marketplace OpenSea has been banning artists and collectors from Cuba, citing United States sanctions as the key reason behind its action.

According to a report published by Artnet, 30 artists and collectors have been banned from the popular NFT marketplace until now. The most noted artist to face the axe includes well-known Havana-based artists Gabriel Guerra Bianchini and Fábrica de Arte Cubano.

OpenSea marketplace has mentioned in its terms of service that it explicitly prohibits sanctioned individuals and individuals in sanctioned jurisdictions. The NFT marketplace’s adhesion to United States sanctions was widely known and included countries such as Venezuela, Iran and Syria. However, the recent blocking of Cuban artists adds the country to that list as well.

“We continue to holistically evaluate what other measures need to be taken to serve our community and comply with applicable law,” an OpenSea Spokesperson told Cointelegraph.

A Twitter profile called NFT Cuba Art revealed earlier in December that OpenSea had blocked them from viewing or listing their art while they still had access to their wallets. Erich García Cruz, the founder of Bit Remasa, responded that their NFT collections were banned too. Cryptocuban founder Gabriel Bianchini added that the future of Web3 doesn’t look decentralized.

Apart from OpenSea, several crypto platforms had to shut down their services for Russian customers in the wake of the new European Union sanctions issued after the war in Ukraine began earlier this year.

Related: Proactive sanctions can help spare the ecosystem: Chainalysis exec

While the cryptocurrency ecosystem is built on the ethos of decentralization, the majority of the intermediaries and firms facilitating various services still very much work like most centralized Web2 companies. 

The crypto community was not very pleased with the auctions of the NFT marketplace and called for an end to intermediaries. Another user said that there is a need for real decentralized platforms that don’t care about nationalities

New OECD report takes lessons from crypto winter, faults ‘financial engineering’

The Organisation for Economic Cooperation and Development found regulation and retail consumer protections lacking in a highly complex trading environment.

The Organisation for Economic Cooperation and Development (OECD) analyzed the crypto winter in a new policy paper titled “Lessons from the crypto winter: DeFi versus CeFi,” released Dec. 14. The authors examined the impact of the crypto winter on retail investors and the role of “financial engineering” in the industry’s current problems and found a lot not to like.

The paper from the OECD, an intergovernmental body with 38 member states dedicated to economic progress and world trade, concentrated on events in the first three quarters of 2022. It placed the blame for them squarely on a lack of safeguards due to “non-compliant provision of regulated financial activity” and the fact that “some of these activities may fall outside of the existing regulatory frameworks in some jurisdictions.”

The report noted that institutional market participants exited their positions sooner than retail investors, who may have even continued to invest as the market collapsed. Investors in TerraUSD (UST), for example, had “little understanding of the circular and reflexive character of the so-called stablecoin, which had no tangible value.” Meanwhile, contagion spread through the industry due to its high interconnectivity.

The crypto winter also “exposed new forms of financial engineering” that had a negative effect on the market. According to the report:

“Developments such as liquid staking, creating derivatives backed by illiquid locked assets, create extreme liquidity transformation risk and maturity mismatches. Consecutive rounds of re-hypothecation of crypto-assets that are considered by platform clients to be lent and/or ‘locked’ as collateral create risks related to high leverage and liquidity mismatches in crypto-asset markets.”

Many of those practices derive from the “composability” of decentralized finance (DeFi), that is, the ability to combine smart contracts to create new products, and the practices continue unabated, the report said.

The authors wade into the CeFi/DeFi divide within crypto, noting that DeFi worked “without issues” in the first half of the year, although DeFi’s automated liquidations could lead to greater market volatility. Both types of platforms may lack regulation or regulatory compliance, and CeFi and DeFi are highly interconnected in a concentrated ecosystem.

Related: OECD releases framework to combat international tax evasion using digital assets

More faults were found in DeFi. The report documents an oracle failure during the Terra ecosystem collapse that created opportunities for abuse on some exchanges. Differences in information access led to DeFi and CeFi platforms behaving markedly differently during that crisis. The report noted:

“CeFi and DeFi markets work better in bull markets.”

The report stressed the need for educated retail investors. “When appropriate disclosure about risks is not provided by market participants, policymakers could provide warnings to investors, and in particular to retail investors, about the increased risks of such activities,” it said. It added that crypto market crises will have greater potential to spill over into traditional markets as the industry develops, and international coordination would be necessary “to avoid regulatory arbitrage opportunities currently exploited by some non-compliant crypto-asset firms.”

Bank of England Deputy Governor Cunliffe on DLT securities settlement: Not so fast!

In a lengthy appraisal of distributed ledger technology, Cunliffe weighed its technical implications, which will be examined in greater detail when the FMI Sandbox premiers in 2023.

There’s more to crypto than just assets, Bank of England Deputy Governor Sir Jon Cunliffe reminded the Association for Financial Markets in Europe Conference in London on Sept. 28. The distributed ledger technology (DLT) behind crypto assets has far-reaching implications for traditional markets and interoperability. 

DLT will touch on trading, clearing, settlement and custody as it is integrated into capital markets, Cunliffe said. One of the biggest differences Cunliffe identified in DLT was its speed. Instantaneous settlement can reduce risk by removing the chance of drastic market movements while a transaction is being processed, but:

“The development of instantaneous settlement also poses challenges for the management of liquidity as it requires all cash and securities to be in place at the time a trade is struck […] though I should stress that it [settlement] need not be instantaneous or decentralized.”

Smart contracts combine activities and thus reduce the number of intermediaries and the fees associated with them, Cunliffe said. They could increase resilience in the system for the same reason and incorporate related services like the payment of coupons on bonds or “management of more sophisticated securities trades.”

Cunliffe, a longtime advocate of greater crypto regulation, had a number of caveats to share. First, he said, DLT is relatively unproven. In addition, decentralization may need to be constrained:

“It is very difficult to see how risks can be managed to the right level without a legal entity accountable for the services provided and responsible for the proper functioning of the system.”

Currently, “central banks provide the rails on which those [settlement] assets are transferred in their jurisdictions,” Cunliffe said, and the Bank of England could create its own DLT to accommodate transactions in the future or create ways to “plug in” the current real-time gross settlement system to DLT systems. European Central Bank executive board member Fabio Panetta discussed the same options at a symposium held on Sept. 26.

Related: BoE official compares current crypto market regulation to ‘unsafe aeroplanes’

The Bank of England, the Financial Conduct Authority and HM Treasury will have a Financial Markets Infrastructure (FMI) Sandbox in place by 2023 to explore performance and regulatory issues, Cunliffe said.

Zircon Finance launches mainnet to mitigate impermanent loss on Moonriver

Impermanent loss relates to a condition wherein investors end up losing assets they had previously dedicated to providing liquidity to a liquidity pool.

Zircon Finance, an automated market maker (AMM) and a decentralized exchange on Moonbeam, announced the launch of a mainnet network to address investors’ challenges related to impermanent loss in decentralized finance (DeFi).

Impermanent loss relates to a condition wherein investors lose assets they had previously dedicated to providing liquidity to a liquidity pool for earning profits via yields. The mainnet network, dubbed Zircon Gamma, aims to counter such losses through single-sided liquidity over the Moonriver network, which tranches or splits risks between a volatile cryptocurrency and a stablecoin.

For example, in the case of an ETH/USDC pool, Zircon allows Ether (ETH) to maintain full exposure while ensuring safety through USD Coin (USDC) stablecoin. In addition, the mainnet allows both sides to earn swap fees.

As explained by Zircon, loat liquidity pools like ETH double their gains over regular pools but remain at the risk of impermanent loss. However, the AMM’s in-house Async LPing mechanism reduces the risk by at least 90%.

The mechanism does this by incentivizing liquidity pools to restock lost ETH funded via the earned fees. Speaking to Cointelegraph, Andrey Shevchenko, co-founder of Zircon, revealed that his inspiration to create such a system stems from the traders’ need for a flexible and permissionless solution, stating:

“Too many people got burned by teams making fantastic but misleading claims about removing or compensating impermanent loss. In some cases, the mechanism (involving dynamic fees) they offer just doesn’t really do anything.”

Shevchenko acknowledged the obvious failure conditions in case a token nosedives to $0, but argued that “but Zircon reduces it enough to make impermanent losses a non-issue. What’s more, we can weaponize it for creating options.”

When compared to existing players that pitch protection against impermanent loss, Shevchenko stressed the numerous fail-safe mechanisms that help rebalance the liquidity pools. However, he recommended users do their research when selecting their trading pairs, adding that “It’s an incentive-based economic system that you can expect to work 99% of the time.”

In addition to protecting users from impermanent losses, Zircon’s differentiating factor includes providing liquidity directly for stablecoins and cheaper swap fees. “Overall, we’re going to be the cheaper and more liquid option for swapping anything outside of really popular pairs on Uni V3,” concluded Shevchenko.

Related: Liquidity protocol uses stablecoins to ensure zero impermanent loss

A whitepaper recently released by Trader Joe, an Avalanche-based DeFi protocol, also claimed to have solved the issue of impermanent loss.

The white paper outlined the use of Liquidity Book (LB), which introduces variable swap fees to “provide traders with zero or low slippage trades.”