Stablecoins

Algorithmic stabilization is the key to effective crypto-finance

Crypto needs to move on from the LUNA crash and start trusting algorithmic stablecoins again.

After the collapse of Terraform Labs’ cryptocurrency, Terra (LUNA), and its stablecoin, Terra (UST), the notion of “algorithmic stabilization” has fallen to a low point in popularity, both in the cryptocurrency world and among mainstream observers.

This emotional response, however, is strongly at odds with reality. In fact, algorithmic stabilization of digital assets is a highly valuable and important class of mechanism whose appropriate deployment will be critical if the crypto sphere is to meet its long-term goal of improving the mainstream financial system.

Blockchains, and other similar data structures for secure decentralized computing networks, are not only about money. Due to the historical roots of blockchain tech in Bitcoin (BTC), however, the theme of blockchain-based digital money is woven deep into the ecosystem. Since its inception, a core aspiration of the blockchain space has been the creation of cryptocurrencies that can serve as media of payment and stores of values, independently of the “fiat currencies” created, defended and manipulated by national governments.

So far, however, the crypto world has failed rather miserably at fulfilling its original aspiration of producing tokens that are superior to fiat currency for payment or for value storage.

In fact, this aspiration is eminently fulfillable — but to achieve it in a tractable way requires creative use of algorithmic stabilization, the same sort of mechanism LUNA and other Ponzi-esque projects have abused and thus given an unjustly bad reputation.

Nearly all crypto tokens out there today disqualify themselves as broadly useful tools for payment or value storage for multiple reasons — they are too slow and costly to transact with, and their exchange values are too volatile.

The “slow and costly” problem is gradually being addressed by improvements in underlying technology.

The volatility problem is not caused directly by technological shortcomings but rather by market dynamics. The crypto markets are not that huge relative to the size of global financial systems, and they are heavily traded by speculators, which causes exchange rates to swing wildly up and down.

The best solutions the crypto world has found to this volatility issue so far are “stablecoins,” which are cryptocurrencies with values pinned to fiat currencies like the United States dollar or euro. But there are fundamentally better solutions to be found that avoid any dependency on fiat and bring other advantages via using algorithmic stabilization in judicious (and non-corrupt) ways.

Troubles with stablecoins

Stablecoins like Tether (USDT), BinanceUSD (BUSD) and USD Coin (USDC) have values tied close to that of USD, which means they can be used as a store of value almost as reliably as an ordinary bank account. For people already doing business in the crypto world, there is utility in having wealth stored in a stable form within one’s crypto wallet, so one can easily shift it back and forth between the stable form and various other crypto products.

The largest and most popular stablecoins are “fully backed,” meaning, for example, that each dollar-equivalent unit of USDC corresponds to one U.S. dollar stored in the treasury of the organization backing USDC. So if everyone holding a unit of USDC asked to exchange it for a USD at the same time, the organization would be able to rapidly fulfill all the requests.

Some stablecoins are fractionally backed, meaning that if, say, $100 million in stablecoins have been issued, there may be only $70 million in the corresponding treasury backing it up. In that case, if 70% of the stablecoin holders redeemed their tokens, things would be fine. But if 80% redeemed their tokens, it would become a problem. For FRAX and other similar stablecoins, algorithmic stabilization methods are used to “maintain the peg.” That is, to make sure the exchange value of the stablecoin remains very close to that of the USD peg.

Terra’s UST was an example of a stablecoin whose backing reserve consisted largely of tokens created by the people behind LUNA as governance tokens for their platform, rather than USD or even cryptocurrencies like BTC or Ether (ETH) defined independently of LUNA. When LUNA began to destabilize, the perceived value of their governance token went down, which meant the cash value of their reserves decreased, which caused further destabilization, etc.

While LUNA did use algorithmic stabilization, the core problem with their set-up was not this — it was the presence of vicious circularities in their tokenomics, such as the use of their own governance token as a backing reserve. Like most other flexible financial mechanisms, algorithmic stabilization can be manipulated.

Every major government is explicitly targeting stablecoins in their current regulatory exercises, with the goal of coming up with strict regulations on the issuance and properties of any crypto token that seeks to match the value of fiat currency.

The answer to all these issues is a relatively simple one: Utilize the flexibility of blockchain-based smart-contract infrastructure to create new financial instruments that achieve useful forms of stability without pegging to fiat.

Liberating algorithmic stabilization

“Stability” does not intrinsically mean correlation with fiat currency value. What it should mean for a token to be stable is that year on year, it should cost roughly the same number of tokens to buy the same amount of stuff — carrots, chickens, fencing material, rare earths, accounting services, whatever.

This leads to what my colleagues in the Cogito project are doing, with new tokens that they call “tracercoins,” which really are stablecoins but of a different sort, pinned approximately to quantities other than fiat currencies. For example, the Cogito G-coin is pinned to a synthetic index that measures progress on improving the environment (e.g., global temperature).

Tracercoins can be programmed to track transactions in whatever manner is required by law in the jurisdictions where they are used. But they are not trying to emulate the currency of any particular country, so they will not likely be regulated as strictly as fiat-pinned stablecoins.

Because the pegs for these tokens are synthetic, it’s less of a traumatic market-psychology issue if the tokens vary from their pegs a bit from time to time.

What we have here, then, are stores of value that are potentially better even than the U.S. dollar and other traditional financial assets, in terms of maintaining fundamental value as the world evolves … and that are much less volatile than BTC and other standard crypto assets because of the stabilization built into their tokenomics.

Coupled with modern blockchain efficiency optimizations, we also have a viable payment mechanism that is not tied to the currency of any one country.

Crypto has the potential to fulfill its ambitious long-time aspirations including creating financial tokens serving as better value-stores and payment mechanisms than fiat currencies.

To realize this potential the community needs to set aside fears incurred by the various frauds, scams and badly-architected systems that have plagued the crypto world, and aggressively deploy the best tools at hand — such as fractional reserve-based algorithmic stabilization — in the service of creative designs aimed at the greater good.

Ben Goertzel is the CEO and founder of SingularityNET. He served previously as a director of research at the Machine Intelligence Research Institute, as the chief scientist and chairman of AI software company Novamente LLC and as chairman of the OpenCog Foundation. He graduated from Temple University with a PhD in mathematics.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Tether to reduce secured loans to zero in 2023 amid battle against FUD

The move comes in response to a wave of mainstream media attacks and FUD, primarily from the Wall Street Journal.

The world’s largest stablecoin issuer, Tether, has pledged to eventually stop the practice of lending out funds from its reserves, saying it is “mission critical to restore faith” in the crypto market.

In a Dec. 13 post, the stablecoin issuer addressed recent mainstream media FUD (fear, uncertainty, and doubt) concerning its secured loans, among other FUD that h hit the “rumor mill.”

Tether reiterated that its secured loans are over-collateralized and covered by “extremely liquid assets,” while also adding that the firm would be eliminating these loans throughout 2023, stating:

Tether is announcing starting from now, throughout 2023, it will reduce secured loans in Tether’s reserves to zero.

Tether’s secured loans operate similarly to private banks lending to customers using secured collateral, the company explained. However, unlike banks that operate on fractional reserves, Tether claimed that its loans are over 100% backed.

The move is likely in response to a Wall Street Journal report earlier this month alleging these loans were risky, claiming that the “company may not have enough liquid assets to pay redemptions in a crisis.”

#Tether Addresses FUD Around Secured Loans, Reveals Plans to Reduce These to Zero in 2023https://t.co/nZcPr8RiF1

— Tether (@Tether_to) December 13, 2022

It is not the first time that the WSJ has targeted Tether. In August the outlet said that Tether could be deemed “technically insolvent” if its assets fell just 0.3%. The stablecoin issuer refuted the claims at the time, stating that it had increased the legitimacy and transparency of its attestations by hiring a top-5 accounting firm.

According to those attestations, 82% of Tether reserves are held in “extremely liquid” assets.

In October, Tether responded to more media FUD by further eliminating commercial paper from its reserves and replacing the investments with U.S. Treasury bills.

In its most recent statement, the company stated that it will wind down its lending business without losses and continue its mission to prioritize transparency and accountability.

“We will continue to show Tether’s resilience through the most uncertain times, regardless of the story fabrications and disinformation concocted by Tether Truthers and clickbait headlines from mainstream media that have been consistently wrong about Tether, for close to a decade.”

Tether is currently the leading stablecoin issuer, with 65.8 billion USDT circulating. It has a market share of 46.6%, according to CoinGecko.

Brazil could cement its status as an economic leader thanks to 2024 CBDC move

Brazil is set to launch a Central Bank Digital Currency (CBDC) in 2024, a move that could contribute to its status as an economic leader in South America.

As of 2022, more than 30 million Brazillian citizens have no bank accounts, and no credit or debit cards. What’s wrong here?

For roughly a decade, Brazil has been passing legislation aimed at changing the situation. However, the results have fallen short of expectations. To better understand the reason, let’s take a step back to look at a historical perspective.

The Brazilian banking industry has always been extremely concentrated, historically due to the country’s macroeconomic volatility, the bank’s legacy technology and stringent oversight. At one point in time, the regulator needed some reliable “bulwarks” to build the local financial system and deal with scale. Concentration was an inevitable flipside of that strategy.

However, in the past few years, the balance started to shift, with regulators fostering competition through novel legislation in tune with technology trends, smarter controls and a better macroeconomic environment. This process, combined with the “software is eating the world” phenomenon, greatly contributed to creating a prolific environment for the fintech boom.

In 2020, the Brazilian Central Bank launched PIX, an instant payments infrastructure that works 24/7 and whose adoption was off the charts. Today PIX has more than 122 million active users, or 57% of the Brazilian population. Thanks to this innovation, 40% of users made their first electronic transfer ever, which denotes the enormous potential of technology for financial inclusion. Given its sheer success, no wonder PIX quickly became a benchmark for many countries and has been praised by the Bank of International Settlements.

The Open Finance program was another important step for advancing the financial inclusion and competition agenda because it allowed the exchange of customer data between financial institutions, allowing for more customized product offerings to customers. The program went live in 2021 and already has more than 800 financial institutions participating and more than 9.6 million customers who have consented to information sharing.

In line with the effort to spur innovation, one theme the Central Bank of Brazil has already endorsed relates to the revolution created by cryptocurrencies and blockchain, because it represents the next frontier capable of unlocking access to financial products for a greater portion of the population through the tokenization of the Brazilian currency — the digital real. Supporting arguments for that initiative come from a cost analysis. As a proxy, it is estimated that the costs of retail payments in the United States represent about 0.5% to 0.9% of GDP — a value that, depending on the on-chain solution, can be reduced to practically zero.

From the demand to create an on-chain digital currency whose issuance is guaranteed by a regulatory body, Central Banks in many countries started designing central bank digital currencies (CBDC). The concept was conceived in an effort to unlock the potential of blockchain technology within a regulated context, according to each country’s monetary policies, enabling numerous use cases in credit, KYC/AML, tokenization of digital and physical assets, programmable money, and so on. The Brazilian CBDC is expected to be fully implemented in 2024. PIX and Open Finance give us cause to look at that forecast optimistically.

Countries like the United Kingdom, China and the United States have their own agendas when it comes to financial solutions. China has an extremely agile payment system via digital wallets used monthly by almost one billion Chinese people. The United Kingdom, in addition to the instant payments system, also has had an Open Finance system since 2018, which serves as a benchmark for a number of other countries, including Brazil.

None of these innovations, however, finds in these countries a paradigm of financial inclusion as Latin America does. In 2021, Latin American citizens with bank accounts totaled 73.7%, vs. 88.7% in China, 95.0% in the U.S. and 99.8% in the United Kingdom. These numbers represent close to 200 million people, with millions more underserved by traditional financial products in the region. Yet, no other country in Latin America has advanced as quickly in a progressive regulatory agenda as Brazil.

Combine Brazilian regulators committed to creating state-of-the-art financial solutions with an unbanked population and you will fertile ground for these innovations, which will not only guarantee more agility and traceability but also fulfill their first and noblest purpose: including more people and small businesses in the financial system.

Renato Valente is general partner at Iporanga Ventures. He previously served as the founder of Ocapi, an ad-tech start-up sold in 2015. He also served as the Brazil Country Manager at Telefonica Open Innovation and as the head of Wayra Brazil, where he led more than 30 investments in start-ups including Gupy, Teravoz, and Monkey. Prior to that, he worked at IBM. He holds a BA in business administration from FAAP with specializations in global management from IESE (Barcelona) and Venture Capital from UC Berkeley.

Leonardo Teixeira is general partner at Iporanga Ventures, and has served as an investor in more than 50 technology companies since 2013. He previously worked at Macquarie Group and Barclays PLC in São Paulo, London and New York. He holds a BA in production engineering from Poli-USP and an MBA in finance from Insper.

Total crypto market cap falls to $840B, but derivatives data shows traders are neutral

Regulatory pressure continues to limit each upside breakout, but data shows some compelling reasons for an eventual crypto market rally.

The total cryptocurrency market capitalization has dropped 1.5% in the past seven days to rest at $840 billion. The slightly negative movement did not break the ascending channel initiated on Nov. 12, although the overall sentiment remains bearish and year-to-date losses amount to 64%.

*Total crypto market cap in USD, 12-hour. Source: TradingView*

Bitcoin (BTC) price dropped 0.8% on the week, stabilizing near the $16,800 level at 10:00 UTC on Dec. 8 — even though it eventually broke above $17,200 later on the day. Discussions related to regulating crypto markets pressured markets and the FTX exchange collapse limited traders’ appetites, causing lawmakers to turn their attention to the potential impact on financial institutions and the retail investors’ lack of protection.

On Dec. 6, the Financial Crimes Enforcement Network (FinCEN) said it is “looking carefully” at decentralized finance (DeFi), with the agency’s acting director, Himamauli Das, saying that digital asset ecosystem and digital currencies are a “key priority area.” In particular, the regulator was concerned with DeFi’s “potential to reduce or eliminate the role of financial intermediaries” that are critical to its efforts against money laundering and terrorist financing.

Hong Kong’s legislative council approved a new licensing regime for virtual asset service providers. From June 2023, cryptocurrency exchanges will be subject to the same legislation followed by traditional financial institutions. The change will require stricter Anti-Money Laundering and investor protection measures before being guaranteed a license to operate.

Meanwhile, Australian financial regulators are actively working on methods for incorporating payment stablecoins into the regulatory framework for the financial sector. On Dec. 8, the Reserve Bank of Australia published a report on stablecoins that cited risks of disruptions to funding markets, such as bank exposure and liquidity. The analysis highlighted the particular fragility of algorithmic stablecoins, noting the Terra-Luna ecosystem collapse.

The 1.5% weekly drop in total market capitalization was impacted mainly by Ether’s (ETH) 3% negative price move and BNB (BNB), which traded down 2.5%. Still, the bearish sentiment significantly impacted altcoins, with 10 of the top 80 coins dropping 8% or more in the period.

*Weekly winners and losers among the top 80 coins. Source: Nomics*

Trust Wallet (TWT) gained 18.6% as the service provider gained market share from the browser extension wallet launch in mid-November.

Axie Infinity Shards (AXS) rallied 17.6% as investors adjusted their expectations after a drastic 89% correction since the 1Q of 2022.

Chainlink (LINK) saw a 10.1% correction after its staking program opened up for early access on Dec. 6, indicating investors had anticipated the event.

1INCH dropped 15.2% after 15% of the supply was unlocked on Dec. 1 under its original four-year vesting schedule.

Leverage demand is balanced between bulls and bears

Perpetual contracts, also known as inverse swaps, have an embedded rate usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Perpetual futures accumulated 7-day funding rate on Dec. 8. Source: Coinglass*

The seven-day funding rate was near zero for Bitcoin and altcoins, meaning the data points to a balanced demand between leveraged longs (buyers) and shorts (sellers) in the period.

Traders should also analyze the options markets to understand whether whales and arbitrage desks have placed higher bets on bullish or bearish strategies.

The options put/call ratio reflects moderate bullishness

Traders can gauge the market’s overall sentiment by measuring whether more activity is going through call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, whereas put options are for bearish ones.

A 0.70 put-to-call ratio indicates that put options open interest lag the more bullish calls by 30% and is therefore bullish. In contrast, a 1.40 indicator favors put options by 40%, which can be deemed bearish.

*BTC options volume put-to-call ratio. Source: Laevitas*

Even though Bitcoin’s price failed to break the $17,500 resistance on Dec. 5, there was only temporary excessive demand for downside protection using options.

Presently, the put-to-call volume ratio stands near 0.40 as the options market is more strongly populated by neutral-to-bearish strategies, favoring call (buy) options by 60%.

Derivatives markets point to upside potential

Despite the weekly price decline in a handful of altcoins and the 2% drop in total market capitalization, there have been no signs of sentiment worsening, according to derivatives metrics.

There’s balanced demand for leverage using futures contracts, and the BTC options risk assessment metric remains favorable even after Bitcoin’s price failed to break above the $17,500 level.

Consequently, the odds favor those betting that the ascending channel will prevail, propelling the total market capitalization to the $875 billion resistance. A break above the channel would give bulls much-needed breathing room after a week of negative newsflow.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Israel’s chief economist lays out recommendations for crypto regulation

The chief economist said the Supervisor of Financial Service Providers and the Israel Securities Authority should be granted more powers to oversee the industry.

Israel’s chief economist has laid out a list of recommendations as to how policymakers should tackle digital asset laws in the country in order to safely drive up crypto adoption.

In a 109-page report submitted to the Minister of Finance on Nov. 28, Shira Greenberg, chief economist at the Ministry of Finance, called for a more comprehensive regulatory framework that would bring trading platforms and crypto issuers in line and would expand the powers given to its financial regulators.

Greenberg recommended Israel should improve investor certainty and protection by imposing stricter licensing requirements on trading platforms and issuers of cryptocurrencies, as well as ensuring funds originating from digital assets are more safely managed.

She also recommended the supervisor of financial service providers have broader powers to oversee licensing rules and develop a more comprehensive taxation framework for the buying and selling of digital assets.

Expanded powers for the Israel Securities Authority were also recommended by Greenberg, who stated the powers were needed in order to ascertain whether a digital asset falls within the scope of Israeli securities laws and to monitor the activity of payment service providers in the crypto space.

In regard to legislation, Greenberg made mention of the need to implement specific licensing and supervision rules for stablecoin issuers, along with a proposed establishment of an inter-ministerial committee to examine and regulate blockchain-based decentralized autonomous organizations (DAOs).

She added it was important that policymakers and lawmakers take into account the concept of technological neutrality when implementing digital asset-related rules.

Minister of Finance Avigdor Lieberman praised Greenberg for her work, stating the report “constitutes the most comprehensive and up-to-date report currently available on this issue for government use” in Israel and that he expects the “report will serve as a basis for future decisions and legislation” on digital asset-related matters in the months to come.

Despite Israel often being referred to as a tech-savvy nation, the country hasn’t shown to be too crypto-obsessed thus far, having ranked 111th out of 146 countries in a recent global crypto adoption index conducted by blockchain data firm Chainalysis.

Greenberg also referenced data in her report that states that Israeli residents have accounted for 21 million blockchain-based transactions in total, which only equates to 0.04% of all crypto transactions worldwide.

Meanwhile, only 2% of Israelis reported owning or using a crypto wallet.

More adoption appears to be on its way. The Tel Aviv Stock Exchange (TASE) recently announced on Oct. 24 that it intends to create a blockchain-based platform to expand its trading services to cryptocurrencies. In the same month, TASE also kicked off live tests for a pilot project involving the tokenization of digital bonds, which is expected to be completed in Q1 2023.

Government-issued licenses are finally being issued, too, with Israeli-based trading platform Bits of Gold becoming the first firm to receive a license from the Capital Markets Authority in Sep. 2022 to store digital currencies through their own secured custody wallet and provide certain digital asset-related services to banks.

Crypto awakening: Researcher explains ETH exodus from exchanges

On-chain analytics show that ETH and stablecoins have been flowing out of centralized exchanges in the aftermath of FTX’s collapse.

Blockchain analytics carried out by a Nansen researcher has highlighted outflows of Ether (ETH) and stablecoins from centralized exchanges in the wake of FTX’s collapse.

Nansen research analyst Sandra Leow posted a thread on Twitter unpacking the current state of decentralized finance (DeFi), with a specific focus on the movement of ETH and stablecoins from exchanges.

As it stands, the Ethereum 2.0 deposit contract contains over 15 million ETH, while some 4 million Wrapped Ether (wETH) is held in the wETH deposit contract. Web3 infrastructure development and investment firm Jump Trading holds over 2 million ETH tokens and is the third largest holder of ETH in the ecosystem.

The current state of DeFi in @nansen_ai charts

— sandra lmeow (@sandraaleow) November 22, 2022

Binance, Kraken, Bitfinex and Gemini wallets feature in the largest ETH balances list, while the Arbitrum layer-2 roll-up bridge also holds a significant amount of Ether.

As Leow explained in correspondence with Cointelegraph, the percentage increase of ETH held in smart contracts can be seen as an indicator of ETH flowing into various DeFi products. This includes decentralized exchanges, staking contracts and custody services.

The recent collapse of FTX may have also led to fears for users holding assets with third-party custodians, like centralized exchanges. Leow highlighted the reality that the safety of funds held on exchanges may not be guaranteed:

“There is an amplification for the quote, ‘Not your keys, not your coins,’ and this is especially important given times like these.”

According to Nansen’s exchange flow dashboard, Jump Trading stands out as an entity with significant withdrawal volumes from exchanges in comparison to its deposits. Leow presented a number of possible reasons for Jump Trading’s token movements, noting the firm’s exposure to liquidity hub Serum (SRM) tokens:

“Due to their exposure to the FTX fallout, they had to offload some tokens out of exchanges in need of liquidity. In the last seven days, we’ve seen Jump Trading withdrawing ETH, BUSD, USDC, USDT, SNX, HFT, CHZ, CVX and various other tokens from multiple exchanges.”

A substantial amount of ETH has flowed out of a number of major exchanges over the past seven days as well. $829 million worth of ETH departed from Gemini, while Upbit saw $797 million of ETH moved from its account. $597 million of ETH flowed out of Coinbase, while Bitfinex also saw around $542 million worth of ETH withdrawn from its platform.

The past week also saw a significant amount of stablecoins moved off exchanges. Stablecoins worth $294 million flowed out of Gemini, while Bitfinex saw $173 million moved off its platform. KuCoin and Coinbase followed with $138 million and $108 million of stablecoins withdrawn from the two exchanges, respectively.

Leow also explained the movement of stablecoins, telling Cointelegraph that outflows typically indicate users are on the sidelines and capital is not flowing into the cryptocurrency space:

“Perhaps, the market contagion and prolonged bear market reduce the appetite for traders to be actively investing and involved in the space.”

Nansen has played its part in delivering key insights into major ecosystem events in 2022. The blockchain analytics firm delved into on-chain data to piece together the collapse of Terra in May 2022.

It then followed suit with a deep-dive into FTX’s collapse, with evidence suggesting collusion between the exchange and crypto trading firm Alameda Research. Both firms were created and controlled by Sam Bankman-Fried.

FTX collapse followed by an uptick in stablecoin inflows and DEX activity

Investors piled into stablecoins following FTX’s collapse, and an uptick in DEX activity suggests a rising interest in self-custody options.

On-chain data from Glassnode show Bitcoin’s (BTC) movements hit a new record for the largest net decline in aggregate BTC balances on exchanges, reducing by 72,900 BTC in one week.

A similar movement occurred in April 2020, November 2020 and June 2022, with the current outflow leaving around 2.25 million BTC on exchanges.

*Bitcoin exchange balances with net position change line. Source: Glassnode*

Exchange exodus for Ether, but not stablecoins

While Ether (ETH) did not see an all-time high outflow from exchanges, 1.1 million ETH was withdrawn from exchanges over the last week. According to Glassnode, this marks the largest 30-day exchange balance decline since September 2020 during the decentralized finance (DeFi) summer in the same year.

*Ether exchange net position change. Source: Glassnode*

Contrary to Bitcoin’s and Ether’s declining balances on exchanges, stablecoin balances remain net positive on exchanges, meaning their balances are growing. Over $1.04 billion in Tether (USDT), USD Coin (USDC), Binance USD (BUSD) and Dai (DAI) moved to exchanges on Nov. 10. This marks Nov. 10 as the seventh-largest stablecoin inflow to exchanges.

*Exchanges’ stablecoin net volume. Source: Glassnode*

According to Glassnode, with the major influx of stablecoins to exchanges, the current $41.186 billion total is an all-time high.

*Stablecoins on exchanges. Source: Glassnode*

Bitcoin miners continue to sell

Bitcoin miners continue to remain under extreme pressure, and data highlights that hash prices are at all-time lows. The record-low hash prices led to miners selling around 9.5% of their treasuries, around 7.76 million BTC. This sell-off marks the sharpest monthly decline for miner balances since September 2018.

*Bitcoin miner balances. Source: Glassnode*

Decentralized and centralized altcoin performance

Delphi Digital used asset baskets to analyze performance between decentralized exchange (DEX) and centralized exchange (CEX) tokens and found that when comparing the basket prices to BTC, the DEX basket gained 24% whereas the CEX basket is down 2%.

*CEX and DEX basket performance. Source: Delphi Digital*

Generally, on-chain activity correlates to overall Bitcoin, Ether and altcoin market sentiment, with the current FTX chaos catalyzing historic exchange outflows and CEX tokens’ underperformance. A likely trend to emerge from the current chaos is a steady uptick in self-custodied cryptocurrencies and an increase in DEX use.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Crypto.com CEO addresses whereabouts of $1B in stablecoins sent to FTX

CEO Kris Marszalek says the firm has recovered much of the funds and has less than $10 million in exposure to FTX.

During a live ask-me-anything (AMA) session with users on Nov. 14, Crypto.com CEO Kris Marszalek explained that the firm sent large-sum stablecoins to troubled cryptocurrency exchange FTX to fulfill liquidity within customers’ orders at the time when FTX was still functional. As told by Marszalek:

“Over a year, $1 billion was moved to FTX, and we recovered all of this. We only had exposure of under $10 million when FTX shut down. And FTX was a trading venue where — this is one of the few trading venues with decent liquidity for some of the coins, like the ones I mentioned earlier.”

During the session, Marszalek reassured users that the exchange was not halting withdrawals. Although, a higher volume of requests has led to a backlog of customer service tickets. The Crypto.com chief then stated that only three coins, two of which are FTX tokens and the other being a securitized token, currently have their withdrawal functions suspended on the exchange.

Marszalek also denied allegations that the exchange was using its native token, Cronos (CRO), as collateral for loans: “We’ve never used it. We haven’t needed to use it,” he said, pointing out that the exchange has a “very simple business that generates a fairly decent amount of revenue,” opting to focus on that direction instead.

Finally, in response to users questioning why approximately 20% of the exchange’s reserves are in memecoin Shiba Inu (SHIB), Marszalek explained that they were simply customer deposits:

“It so happens that last year, DOGE and SHIB were two extremely hot memecoins, and people bought a lot. And they’re holding it, they didn’t sell it. We have no control over what you guys buy. You buy it, we will store it — we will keep it safe.”

Like many other exchanges, Crypto.com has seen a flurry of withdrawals in the aftermath of FTX’s collapse. The firm also became the target of wide-ranging conspiracy theories on Twitter after it was uncovered that the exchange accidentally sent 320,000 Ether (ETH) to Gate.io before recovering the funds shortly after.

Major stablecoins destabilized as market volatility and redemptions surge

Nearly all major stablecoins lost their U.S. dollar pegs amid the FTX saga, but most have recovered again as markets stabilize.

Plunging cryptocurrency prices are not the only consequence of this week’s FTX-induced crypto contagion.

Significant market volatility this week induced by the collapse of the FTX exchange has impacted stablecoins with many of them depegging temporarily.

According to CryptoQuant senior analyst Julio Moreno, nearly all leading stablecoins have experienced some level of peg volatility this week.

The world’s dominant stablecoin, Tether (USDT) temporarily declined to $0.97 on Nov. 10 as redemptions surpassed $600 million over the past two days, he noted.

CoinGecko currently reports that USDT is still slightly below its peg, trading at $0.998 at the time of writing.

Cointelegraph reported the Tether depegging incident citing evidence that FTX and sister company Alameda Research were attempting to short USDT.

Crypto market volatility has gone up tremendously in the last few days amid the FTT/FTX downfall.

How are stablecoins doing in this environment?

Tether’s price shortly declined to $0.97 today as redemptions surpass $600M in the last 2 days. pic.twitter.com/52eAtBs3NP

— Julio Moreno (@jjcmoreno) November 10, 2022

Circle’s USD Coin (USDC) has not been immune from the volatility either, as redemptions topped $1 billion. The stablecoin fell to $0.977 very briefly yesterday but rapidly regained its peg, according to CoinGecko.

TrueUSD (TUSD) redemptions barely surpassed $1 million, Moreno noted, but that didn’t prevent a depegging to $0.98 yesterday. The Pax Dollar (USDP) stablecoin dropped as low as $0.96 as redemptions hit $100 million, he noted.

There was some volatility for the Binance stablecoin, BinanceUSD (BUSD), on the Gemini exchange, resulting in a brief dip to $0.98.

Tron’s algorithmic USDD stablecoin is still way off its peg, currently trading at $0.973, according to CoinGecko. It fell as low as $0.952 yesterday at peak volatility.

Concerns over the collateral backing the stablecoin are rising as Tron (TRX), which is used to redeem USDD, has tanked 12% since the beginning of the week. Justin Sun also accused FTX and Alameda of shorting USDD.

The de-pegging incidents coincided with a slew of stablecoins leaving the FTX exchange on Nov. 10.

FTX Exchange (0x2faf) has resumed transfer out 1 hour ago.

A total of 99 transfers were made, with $4,433,330 stablecoins.

Including:
28 transfers of $USDC, 3,985,236 $USDC in total.
22 transfers of $USDT, 325,569 $USDT in total.
3 transfers of $BUSD,122,526 $BUSD in total. pic.twitter.com/CdsSG1aWc9

— Lookonchain (@lookonchain) November 10, 2022

At the time of writing, most major stablecoins including USDC, BUSD, USDP, GUSD and TUSD had returned to their U.S. dollar peg, meaning market participants fearing another Terra-type stablecoin collapse can breathe easy again for now.

Markets have recovered marginally from yesterday’s rout with a 5% gain in total capitalization which was back over $900 billion once again.

Inflation-pegged ‘flatcoin’ launches testnet to track the cost of living

The concept of an inflation-linked “stablecoin” has been trialed before, but time is yet to prove whether it is working as intended.

Blockchain tech firm Laguna Labs has launched a testnet for its in-development “flatcoin” — a spin-off of stablecoin tokens — pegged to the cost of living rather than a fiat currency or a commodity.

In an Oct. 24 announcement, Laguna Labs said that the Nuon flatcoin is unlike tokens tied to fiat currencies, such as the United States dollar, as it is pegged to the cost of living via “daily unbiased, authentic, and on-chain inflation data.”

The firm said the idea is inspired by discussions and Twitter threads from big players in the space, such as Coinbase CEO Brian Armstrong, ex-Coinbase CTO Balaji S. Srinivasan and Ethereum co-founder Vitalik Buterin, who all call for alternative ways to peg an asset so that it maintains its purchasing power over time.

However, while the concept of an inflation-linked crypto token is not new, it remains relatively untested.

In April, Frax Finance launched a consumer price index-tracking (CPI) stablecoin called the Frax Price Index (FPI) that utilizes oracle data from ChainLink.

Launching at around $1.02, the price hit an all-time high of $1.18 on July 19 but is down 10.6% since then to $1.05. Given the asset is less than a year old, it is hard to judge its success in beating out inflation rates until more time has passed.

The Volt Protocol (VALT) token also follows the CPI-tracking route, but its price history is hard to come by as platforms such as CoinMarketCap and CoinGecko are not actively tracking the asset. It is not listed on any major exchanges like Binance and Coinbase.

There is also the aptly named Inflation Hedging Coin (IHC), launched in October 2021, which utilizes a burning mechanism “based on the annual United States inflation data” and monthly CPI rate to determine the asset’s burn rate and, in theory, increase its value over time.

However, a person snapping up IHC a year ago will see the value of their holdings fall as much as 96.4% as of today, according to data from CoinGecko, with IHC priced at $0.00009529 at the time of writing.

The Nuon white paper states that it utilizes an independent inflation index oracle to calculate the Nuon peg daily and uses “over-collateralization and arbitrage to maintain the peg while offsetting inflation.”

It also claims that the asset’s over-collateralization will stop it from falling from its peg. However, it is unclear how well that theory holds up if the value of the collateralized assets were to tank significantly.

Details are sparse on the testnet, but the firm states that people can now use the testnet to try out the Nuon flatcoin’s minting mechanism.

Annual U.S. Inflation rates have surged dramatically since the beginning of the COVID-19 pandemic, going from 1.4% to around 8.2% in 2022 according to U.S. Inflation Calculator.

As such, the purchasing power of the USD has taken a significant hit with the general price of goods and services continuing to increase.

Crypto, and particularly stablecoins have also been an important tool for citizens in countries dealing with significant inflation and economic trouble.