finance

CZ predicts ‘existential implications’ for anti-crypto traditional finance

While the reluctance of traditional players is a deterrent to crypto’s adoption in the short term, CZ argues that the decision might backfire over the next two decades.

As traditional institutions proactively reduce exposure to cryptocurrencies as a reaction to ecosystem collapses in 2022, Binance CEO Changpeng “CZ” Zhao believes this move could potentially have a negative impact on such traditional financial players.

The collapse of major crypto companies, such as FTX and Terraform Labs, reduced trust among investors and forced the traditional market to reevaluate their strategies for stepping into the crypto ecosystem. While the reluctance of traditional players stands as a deterrent to crypto’s adoption in the short term, CZ argues that the decision might backfire over the next two decades.

According to CZ, over the next 10-20 years, traditional financial players that choose to slow down on crypto adoption will be placed way behind the adoption curve, stating that:

“[The lack of crypto adoption] may have existential implications for [traditional financial players] in 10-20 years’ time.”

CZ, along with other crypto entrepreneurs, believe that the actions of actors like Sam Bankman-Fried set the industry back by a few years as he said, “Regulators rightfully will scrutinize this industry much, much harder, which is probably a good thing, to be honest.”

CZ’s long-term bet on the fate of crypto naysayers was supported by investors that have slowly started recovering from the traumas of 2022. The overall positive sentiment is supported by a slow but consistent bull run, which has brought back Bitcoin (BTC) prices from the $15,000 range to well above $23,000 at the time of writing.

Related: Binance Charity to provide over 30K Web3 scholarships in 2023

Amid growing accusations of insider trading, Binance informed Cointelegraph about a zero-tolerance policy. According to the spokesperson:

“Every employee is subject to a 90-day hold on any investments they make, and Binance’s leaders are mandated to report any trading activity on a quarterly basis.”

In 2018, Binance’s insider trading prevention policy included a 30-day period, which has now been extended to 90 days.

Moody’s to build scoring system for stablecoins: Report

Moody’s is allegedly developing a scoring system for stablecoins, with analysis of up to 20 digital assets.

Risk assessment firm Moody’s Corporation is allegedly developing a scoring system for stablecoins, with analysis for up to 20 digital assets, Bloomberg reported on Jan. 26, citing unnamed sources. 

The system, which appears to be in the early stages of development, will evaluate and rate the quality of the attestations of stablecoin reserves, although it will not be considered an official credit rating. Generally speaking, third parties attest that a company’s claims are accurate and validate that stablecoins are backed 1:1 by their reserves.

A stablecoin is a type of cryptocurrency whose value is pegged to a fiat currency, such as the United States dollar, or another financial instrument. The concept was developed to offer an alternative to the volatility of other cryptocurrencies by tying the stablecoin’s value to another asset. This does not imply, however, that stablecoins are risk-free.

For instance, Tether, the largest stablecoin issuer, settled with the New York Attorney General’s office in 2021 after allegedly misrepresenting the amount of fiat collateral backing its USDT (USDT) stablecoin. In addition to paying $18.5 million in damages to the state of New York, the company was required to submit periodic disclosures of its reserves, Cointelegraph reported at the time.

Related: SBF tried to destabilize crypto market to save FTX: Report

Stablecoin reserves have come under further scrutiny in recent months as a consequence of the bear market and crypto firms’ collapse in 2022. In May, the Terra ecosystem imploded when its algorithmic stablecoin, TerraUSD (UST), lost its dollar peg, crashing to a low of around $0.30.

Recently, Tether disclosed plans to stop lending funds from its reserves amid rumors concerning its secured loans. The company reiterated that its loans were overcollateralized by “extremely liquid assets” but decided to discontinue the service throughout 2023.

Moody’s provides credit ratings for publicly traded companies, delivering analyses regarding credit risk through its rates. On Jan. 19, the agency released a note on Coinbase discussing the crypto exchange’s downgraded senior debt and corporate family rating, which indicates a company’s ability to meet its financial obligations.

Central African Republic eyes legal framework for crypto adoption

A 15-member committee is tasked with working on a legal framework that will allow cryptocurrencies to operate in Central African Republic and expedite the development of the national economy.

Central African Republic (CAR), a developing country in Central Africa, set up a 15-member committee responsible for drafting a bill on the use of cryptocurrencies and tokenization in the region.

According to Faustin-Archange Touadéra, the president of CAR, cryptocurrencies can potentially help eradicate the country’s financial barriers. He believed in creating a business-friendly environment supported by a legal framework for cryptocurrency usage. A rough translation of the official press release reads:

“With access to cryptocurrencies, the monetary barriers existing until now will disappear, the main objective of the measures adopted by the government being the development of the national economy.”

The committee responsible for drafting the crypto bill comprises 15 experts from five ministries of CAR — Ministry of Mines and Geology, Ministry of Waters, Forest, Hunting and Fishing, Ministry of Agriculture ad Rural Development, Ministry of Town Planning, Land Reform, Towns and Housing and Ministry of Justice, Promotion of Human Rights and Good Governance.

Through collaboration, the members are tasked with working on a legal framework that will allow cryptocurrencies to operate in Central African Republic and expedite the development of the national economy.

Related: Bitcoin, Sango Coin and the Central African Republic

Crypto initiatives from the African continent marked another milestone as Nigerian crypto exchange Roqqu bagged a virtual currency license for the European Economic Area after two years of waiting for permission from regulatory authorities.

Roqqu CEO Benjamin Onomor told Cointelegraph that off-shore Africans send back over $5 billion to their relatives, and the current remittance system slows the process.

“It makes a lot of sense to solve this problem by using crypto as the vehicle. Crypto is a faster and cheaper route that can bridge the gap and help reduce fees in moving money globally. This is the core of the problem we want to solve,” he added.

Decentralized forex will reduce cost by as much as 80%: Report

The researchers compared the cost of trading USDC and EUROC stablecoins on Uniswap with World Bank estimates of the average cost of remittances.

If the foreign exchange market starts using decentralized finance (DeFi) protocols instead of the current centralized systems, the cost of remittances could be reduced by “as much as 80%,” according to a Jan. 19 paper jointly published by researchers at Circle and Uniswap.

The paper, titled “On-chain Foreign Exchange and Cross-border Payments,” was written by Uniswap Data Scientist Austin Adams, Circle Chief Economist Gordon Liao, Mary Catherine Lader, David Puth and Xin Wan.

The authors studied the trading activity of Circle’s U.S. Dollar Coin (USDC) and Euro Coin (EUROC) on Uniswap from July 2022 through January. They found that the coins had $128 million in total volume, with some days having trading volume as high as $8 million.

During this time, the stablecoins USDC and EUROC traded within a few basis points of exchange rates found in the wholesale forex market for their backing currencies, USD and EUR. In the authors’ view, this showed that the DeFi forex market was providing a reasonable alternative to traditional forex, with good price efficiency, despite its smaller trading volume.

Related: DeFi auditor nets $40,000 for identifying Uniswap vulnerability

However, the researchers wanted to know if using DeFi protocols like Uniswap could provide savings to participants in the forex market. So they analyzed the costs associated with the traditional “correspondent banking model” of forex vs. those associated with DeFi forex.

Correspondent model of forex vs. DeFi model. Source: “On-Chain Foreign Exchange and Cross-Border Payments” by Adams, Ladder, Liao, Puth and Wan

They used World Bank estimates to determine the price of a $500 remittance done through the global banking system. They then compared this with the cost of buying stablecoin (either USDC or EUROC) through an exchange, swapping it for the other coin on Uniswap, sending it to another person, and having the other person cash it out at an exchange.

The researcher concluded that the DeFi model causes users to incur many different fees, including exchange commissions, DeFi trading fees, network fees and fees for transferring cash to and from an exchange. Even so, the fees are up to 80% less than the average price of remittances, based on World Bank estimates.

Circle released the EUROC in June. EUR/USD is the most widely traded currency pair in the world, according to Investopedia.

Crypto service Tap Global becomes first 2023 listing on UK stock exchange

The company provides regulated bank accounts and offers crypto purchases through affiliated exchanges.

UK crypto app Tap Global has become the first 2023 listing on the Aquis Stock Exchange (AQSE), according to a Jan. 10 press release from the company. The listing was accomplished through a reverse takeover by Quetzal Capital.

Tap provides fiat banking services, a crypto swap service that sources crypto from partner exchanges and access to staking and DeFi protocols to UK and EU residents. The app is regulated as a bank by the Gibraltar Financial Services Commission.

Cast your vote now!

Quetzal acquired the company by trading 20.5 million British pounds ($24.9 million) of its own stock to Tap Global shareholders in exchange for ownership, and it raised another 3.1 million pounds ($3.8 million) by issuing new shares. These funds will be used to “increase marketing spend and drive international expansion,” according to the press release.

Related: Coinbase will cut 20% of its workforce in second wave of layoffs

Tap Global CEO David Carr acknowledged that the company’s decision to list on a public exchange “raised some eyebrows,” since it came so soon after the collapse of FTX, at a time when the crypto industry is facing increased skepticism. However, Tap decided to go through with the listing anyway because it wanted to offer a regulated option for UK residents, he said, adding:

“Like any emerging technology, cryptocurrency has seen its fair share of bad actors impacting market sentiment. However, as firms that have not shown proper care in safeguarding assets fall to one side, the market will mature, leaving fully regulated and responsible firms, such as Tap, well-positioned to succeed.”

Crypto exchange apps have been under increased scrutiny by regulators and customers after the collapse of FTX in November. The world’s largest exchange by volume, Binance, is reportedly under investigation in the United States. Coinbase, the only crypto exchange listed on the New York Stock Exchange, has faced falling revenue as trading volumes have declined.

But despite these challenges in the industry, this recent listing by Tap Global shows that some crypto services are still finding success.

Ripple exec expects more crypto acquisitions by TradFi in 2023

Crypto acquisitions in 2023 will further strengthen the industry in the aftermath of casualties like the FTX collapse, a Ripple exec predicts.

The cryptocurrency industry will see increased consolidation in 2023 as healthier companies acquire more crypto and blockchain companies, according to a senior executive at Ripple.

Sendi Young, Ripple’s managing director for Europe, took to Twitter on Jan. 9 to share a set of industry predictions for 2023, expressing confidence about crypto in the near future.

According to Young’s forecast, the coming year will bring many acquisitions in the blockchain and crypto industry, which will help companies and startups fill the gaps in their capabilities. The acquisitions will further strengthen the sector in the aftermath of casualties like the FTX collapse and other issues experienced by firms like Celsius, Voyager, Three Arrows Capital and others, the Ripple exec noted.

Young also predicted that cryptocurrency and blockchain firms would be acquired by companies in the traditional finance (TradFi) sector and other established companies in 2023.

Cast your vote now!

Young’s predictions about the state of crypto acquisitions in 2023 come amid increasing interest from TradFi giants in buying subsidiaries of the now-defunct crypto exchange FTX. As many as 117 financial and strategic counterparties have expressed willingness to purchase one or more of FTX’s branches, such a FTX Japan, FTX Europe, LedgerX and Embed, according to a court filing from Jan. 8.

The cryptocurrency industry has seen some major acquisitions recently, with Mike Novogratz’s Galaxy Digital acquiring Argo Blockchain’s flagship mining facility Helios for $65 million in late December. According to Novogratz, the Helios mining deal was a transformative acquisition for Galaxy as it works to increase its exposure to the Bitcoin (BTC) mining sector.

Related: Voyager tells court Binance acquisition plan is ‘sound business judgment,’ urgently needed

Among other predictions, Young also forecasted that 2023 will see greater adoption of fiat-backed stablecoins as institutions realize the benefits of blockchain for real-time merchant settlement.

At the same time, central bank digital currencies will “come of age,” the exec predicted, adding that the FTX collapse has further triggered the need for nations to establish a “dependable digital settlement asset as a secure alternative to other crypto solutions.”

DeFi flash loan hacker liquidates Defrost Finance users causing $12M loss

Moments after a few users complained about the unusual loss of funds, Defrost Finance’s core team member Doran confirmed that Defrost V2 was hit with a flash loan attack.

Defrost Finance, a decentralized leveraged trading platform on Avalanche blockchain, announced that both of its versions — Defrost v1 and Defrost v2 — are being investigated for a hack. The announcement came after investors reported losing their staked Defrost Finance (MELT) and Avalanche (AVAX) tokens from the MetaMask wallets.

Moments after a few users complained about the unusual loss of funds, Defrost Finance’s core team member Doran confirmed that Defrost v2 was hit with a flash loan attack. At the time, the platform believed that Defrost v1 was not impacted by the hack and decided to close down v2 for further investigation.

Core team member Doran confirming attack on Defrost Finance. Source: Telegram

At the time, the platform believed Defrost v1 was not impacted by the hack and decided to close down v2 for further investigation.

Blockchain investigator PeckShield found that the hacker manipulated the share price of LSWUSDC, leading to a gain of roughly $173,000 for the hacker. Upon further analysis, PeckShield’s investigation revealed:

“Our analysis shows a fake collateral token is added and a malicious price oracle is used to liquidate current users. The loss is estimated to be >$12M.”

While the company proactively announced the hack, the community suspects a rug-pull situation at play.

Defrost v1 was initially announced unaffected by the hack as the first version of Defrost lacked a flash loan function.

Core team member Doran confirming attack both Defrost Finance versions. Source: Telegram

However, the platform later acknowledged an emergency for v1 as well, stating:

“Our team is currently investigating. We kindly ask the community to wait for updates and refrain from using either the V1 or V2 for the moment.”

Until further notice, investors are advised to stop using Defrost Finance. An internal team is currently investigating the situation and will reach out to users through official channels.

Defrost Finance has not yet responded to Cointelegraph’s request for comment.

Related: Raydium announces details of hack, proposes compensation for victims

In 2022, North Korean hackers stole crypto worth more than 800 billion Korean won ($620 million) from decentralized finance (DeFi) platforms alone.

A spokesperson from South Korea’s National Intelligence Service (NIS) revealed that all North Korean hacks were done through overseas DeFi exploits. However, with Know Your Customer (KYC) initiatives in place, the total number of North Korean hacks saw a significant reduction.

Bringing community-based solutions to crypto lending can solve trust issues

The crypto lending space is plagued with trust and security concerns, but crypto lending platform BNPL Pay offers an innovative community-based lending solution.

BNPL Pay: Partnership Material

A type of decentralized finance (DeFi) that allows investors to lend their crypto tokens in return for regular interest payments, the crypto lending space comprises both centralized and decentralized crypto entities that manage the entire process on behalf of their investors.

Offering high annual percentage yields (APY) to investors from whom the tokens have been borrowed, these lending platforms further lend the same assets in the form of collateralized crypto loans to borrowers.

However, despite providing businesses with easy access to capital and promising high yields for investors, the crypto lending space finds itself entwined in liquidity issues stemming from their unregulated and overleveraged lending practices.

As a result, crypto investors have either lost their tokens in debacles such as the Celsius Network meltdown or are gripped with fear that they may be unable to withdraw their crypto staked with distressed crypto lending platforms.

Major problems afflicting the crypto lending space

With major cryptocurrencies correcting by over 70% from levels last seen in November 2021, the crypto lending industry has been mired in a spiraling credit crisis, exaggerated by the crash of the Terra stablecoin in May 2022. The ensuing liquidity crisis has already consumed leading crypto lenders and hedge funds such as Celsius Networks, Vauld, Three Arrows Capital (3AC), Voyager Digital, and Babel Finance, further exaggerated by overleveraged trading and suspect business practices.

Consequently, the crypto lending space has been clouded with severe trust issues, with more lending platforms seeking fund infusions to tide over the current bear market.

As a niche market with limited offerings, investors or crypto firms often employ borrowed capital to indulge in speculation, hedging, or working capital.

Any over-exposure on the part of the borrower could put the lender at an immense risk of marking down the lent amount, leading to liquidity concerns in case a majority of the investors proceed to withdraw their deposited tokens. Making matters worse is the opaque nature in which most crypto lenders function, often using tokens staked by investors to pursue high-risk trades, all in the hope of turning a larger profit.

As in the case of Celsius Networks, many lenders continue to be at risk of becoming insolvent if cryptocurrency prices dip further, potentially setting off another domino effect.

What are the possible solutions to these overriding concerns?

The major problems with collateralized crypto lending are exposed during volatile market conditions, especially when cryptocurrency prices drop consistently. With a lender’s ability to repay investors hinging on price movements of the underlying staked tokens and the amount of collateral collected, there is a clear need to delink crypto lending and adopt a more community-focused approach to finding a solution.

One such example is BNPL Pay, a decentralized crypto platform where communities can create banking nodes to borrow and lend from one another.

Based on the assumption that communities can better manage trust, BNPL Pay allows each banking node to be self-governed and decide which loan requests to accept or decline. Borrowers, on their part, can set the loan terms, decide on the percentage of collateral they are comfortable with and provide any additional information as deemed fit.

As a result, both lenders and borrowers enter into an agreement with conditions set by both parties at the very start of the contract. BNPL Pay merely acts as a technology provider and facilitator without interfering with the assets covered by the contract.

With funds managed via the BNPL Smart Contract suite that is additionally audited by leading cybersecurity firm PeckShield, there remains no scope for BNPL Pay to misappropriate capital or face solvency issues in the event that a borrower defaults on payments.

Image_0

Where is the crypto lending space headed?

With crypto markets currently going through one of the most challenging bear periods yet, it is time for DeFi providers like crypto lenders to develop new business models unaffected by market volatility. Building trust within the stakeholder ecosystem is a must, and BNPL Pay has shown one unique way to do this.

As developers and entrepreneurs learn from the mistakes made by the growing list of bankrupt crypto lenders, the space will witness rapid transformation in the days to come. The focus needs to be on building solutions that promote financial inclusivity, targeting real-world businesses like mom-and-pop stores and solving their working capital requirements.

This will require crypto lenders to adopt more transparent business practices and adhere to stringent self-regulated disclosure norms, at least until a formal regulatory framework is mandated by the various governments worldwide.

What is certain, though, is that the next leg of growth for crypto lenders will come from attracting more mainstream crypto investors, focusing on their ability to help communities lend and borrow within themselves for greater trust and security.

Material is provided in partnership with BNPL Pay

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you with all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor can this article be considered as investment advice.

BlockFi employees were discouraged from describing risks in internal communications: Report

According to a former employee, an internal team at BlockFi raised concerns about the borrower pool being too concentrated among crypto whales such as Three Arrows Capital and Alameda.

Following BlockFi’s Chapter 11 bankruptcy filing with the United States Bankruptcy Court for the District of New Jersey, reports have surfaced about the crypto lending company’s risk assessment and management culture. 

As early as 2020, the company culture discouraged employees from “describing risks in written internal communications to avoid liability,“ a former BlockFi employee told Forbes.

Although BlockFi claimed risk management was core to their DNA and central to their mission, reports surfacing paint a different picture of the company. BlockFi executives appear to have prioritized aggressive growth, while dismissing risk management professionals who attempted to do their job. 

According to a former employee, an internal team at BlockFi raised concerns about the borrower pool being too concentrated among crypto whales, including mega hedge funds Three Arrows Capital and Alameda Research, to which the management responded that the loans were collateralized. 

Reports surfacing about BlockFi’s risk assessment and management culture seem to counter the image the crypto lending firm portrayed to its clients. In a blog post that was updated after the FTX collapse, the company maintained: “Risk management is one of BlockFi’s key strategic advantages and differentiators, powering our track record of delivering market leading interest payments, access to client funds, and preservation of client capital through all market environments.” 

Related: Bankruptcy court told FTX and Alameda they owe BlockFi $1B, but it’s complicated

During the first day of hearings in its bankruptcy proceedings, a lawyer for BlockFi shared that the crypto lender has an estimated $355 million stuck on FTX, while the collapsed exchange’s sister company, Alameda Research, had defaulted on a $680 million loan.

While FTX and Alameda owe BlockFi an estimated $1 billion, the state of financial obligations appears to be complicated by the $400 million line of credit extended to BlockFi by FTX.US on July 1.

BlockFi, which previously denied having a majority of its assets custodied at FTX, has cited the collapse of FTX as the reason for its woes. 

Binance US eliminates trading fees for Ethereum

This announcement comes months after the crypto exchange removed all trading fees for Bitcoin transactions.

Binance US has announced that it has expanded its “zero fee price model” to Ether (ETH) effective immediately. 

According to the announcement, users are now able to freely trade four Ether spot market pairs: ETH/USD, ETH/USDT, ETH/USDC and ETH/BUSD.

Effective immediately, the US exchange has also eliminated gas fees on all Ethereum transactions made through the “Buy & Sell” feature on its website. 

In June, Binance US followed in the footsteps of Robinhood, which pioneered no-commission crypto trading in 2018, by removing all Bitcoin (BTC)spot market trading fees for BTC/USD, BTC/USDT, BTC/USDC, and BTC/BUSD.

Binance US operates as an independent entity in the United States but still bears the same name and logo as the global Binance crypto exchange. As the name implies, Binance US caters primarily to American crypto traders.

According to Binance US president and CEO Brian Shroder, eliminating fees on both BTC and ETH cements the company’s position “as the low fee leader in crypto.” He added that “now, more than ever, it is critical that platforms operate with users’ interests first.”

Related: Why the battle for low or no transaction fees really matters

Exchanges play a crucial role in crypto adoption. Facilitating zero-fee transfers encourages users to transact more with digital assets. If sending funds from one point to another is expensive, millions of potential users would avoid or limit their use of the technology.

Exchanges that avoid charging fees can still earn on no-fee transactions through spreads. In trading, a spread is known as the difference between the bid (sell) price and the ask (buy) price of a trading pair.