Weekly Web3 Workout — 23rd September 22
Intro
Welcome to the Weekly Web3 Workout. Lots of regulation to get into this week as SEC’s Gary Gensler seems to be going as crazy as Alex Mashinsky’s rebranding of Celsius AKA Kelvin. There’s some news on podcasts I’ve been doing recently, and shockingly Craig White has once again failed to prove he is Satoshi. So, on with the show.
Market Highlights
$BTC $19,023 -3.94%
$ETH $1,298 -11.65%
$YOP $0.049 -17.41%
$USDT Market Cap $67.96Bn
$USDC Market Cap $49.78Bn
The Good…
US Regulation
President Biden has come out fighting, stating that the US needs to get a grip on crypto regulations. This is positive news that will hopefully bring some law and order to what is sometimes seen as the wild west. He is looking for the various agencies and government bodies in the US to step up and redouble their efforts in controlling the bad actors in this space, hopefully providing a better consumer experience, and provide a more level playing field for crypto businesses to operate on at the same time. The final output for this could come as soon as February next year. https://www.forbes.com/sites/siladityaray/2022/09/16/white-house-outlines-plan-to-regulate-cryptocurrencies-heres-what-you-should-know/?sh=7dab829141ec
The review even went as far as expanding the Bank Secrecy Act to include cryptocurrencies and non fungible tokens (NFTs). All of this is seen as an effort to make the digital economy more equitable as the framework calls for the expanded adoption of “instant payment services” and the establishing regulatory policies for “non bank” payment platforms.
Considering roughly 7 million Americans have no bank account, with another 24 million relying on costly nonbank services, like cheque cashing, it shows this is needed. It also shows that you don’t need to be living in a developing nation to be unbanked. Crypto and DeFi are solving real world problems, despite some sceptics saying otherwise.
You can read the output of the White House framework for this here https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/16/fact-sheet-white-house-releases-first-ever-comprehensive-framework-for-responsible-development-of-digital-assets/
On the subject of regulation, with the crypto winter in full effect, now is a great time for the regulators to implement some guard rails for crypto before the quiet period ends and we’re off on the next bull run. We have seen many times this year that governments and regulators are struggling to get to grips with crypto regulation due to the head start the industry has had and the speed of innovation therein. With a lull in proceedings, they should be pushing to (try) get on top of things while they have the chance. We all know that winters are the time for building so who knows what will be popping out as spring arrives, and the regulators start getting left behind again. https://www.bloomberg.com/opinion/articles/2022-09-20/don-t-let-the-crypto-winter-go-to-waste
Innovation
Seeing this potentially become a reality is music to my ears. My first realisation for blockchain technology nearly 10 years ago is getting so close to being a reality.
SWIFT, the global system that banks use to manage cross-border payments, is giving blockchain technology a good look. Back when I first looked at this in 2013, the technology was clearly not ready, but with advances in blockchain technology, it looks like the use case is gaining traction. A hallmark of DLT is that blockchains are immutable ledgers, and operate via consensus mechanisms, this means a blockchain validates the data before registering it. Speaking with a former colleague who works for a large US bank, while we agreed on the use case, he did highlight that sometimes it’s not just the technology that is causing the problem and in fact humans are pretty good at causing problems too (as we well know). Until we have more discipline between the vendor and customer relationship, blockchain technology is only part of the solution.
Tether
Tether has been ordered by a US judge in New York to provide significant evidence of what backs its $68 billion dollar-pegged USDT as part of a lawsuit that alleges Tether used USDT to inflate the price of Bitcoin. Now that Tether has new accountants, maybe we can finally get this sorted out. https://storage.courtlistener.com/recap/gov.uscourts.nysd.524076/gov.uscourts.nysd.524076.247.0.pdf?utm_source=newsletter
Bug Bounties
400 ETH ($520K) might sound like a big payout for a crypto bug bounty but considering it saved a $250M hack, it was certainly worth it. Not to mention the reputational fall out the hack would have caused! Bug bounties should be non-negotiables. Too many companies and products are left chasing their tail after a hack and cleaning up an avoidable mess in the process. https://www.theblock.co/post/171585/arbitrum-announces-400-eth-bug-bounty-payout
Conferences
I’m looking forward to attending the Bloomberg Tech Summit in London on 28th September! The line up this year looks great with subjects covering the metaverse, crypto, web3, and my favourite, regulation. https://events.bloomberglive.com/bloomberg-technology-summit-london/agenda
Podcasts
This week my episode of Startup Founders Stories with Fabian Bock was released. We had a great time discussing web3, the future of crypto regulation, why humans and tech clash, my journey into blockchain via a desire for more sleep, and so much more. You can watch the episode here https://www.youtube.com/watch?v=oWM3bBtwuGo
Next week I am recording a podcast with Bit About Crypto. I’m really looking forward to this one too! You can check out their YouTube channel here https://www.youtube.com/channel/UC8iSxKVNaChnkxySDMjo6xw
The Bad…
Regulation SEC
Gary Gensler from the SEC has been making some confusing comments on crypto, innovation and regulation. Although he seems to have an agenda against crypto and DeFi, when he lists the challenges that the SEC are trying to tackle, it seems the very thing he is fighting could solve all his headaches. Is it possible that he has backed himself into such a corner now that regardless of the benefits of crypto, he will not be able to backtrack and admit that this is a very useful technology?
On innovation..
“We haven’t updated key aspects of our national market system rules, particularly related to order handling and execution, since 2005. Think about that. When you reach into your pocket, you likely will find a phone that did not exist 17 years ago. How would you fare in your work and life if you still were using the latest technology from 2005?”
… but the SEC is happy to regulate crypto on rules that predate its existence.
On transparency…
“The Commission has voted to propose rules to strengthen the transparency of short positions for the investing public and regulators. From this we can see transparency is critical to high quality markets.”
… Gary, you do realise the blockchain is publicly accessible?
On transaction speed…
”We also proposed rules for the public’s feedback around enhancing central clearing, including shortening the settlement cycle to one day.”
… so Gary there is this thing called the blockchain that is pretty much instant clearing, maybe you want to look into it?
If you want to read all of his “I want something that is exactly like crypto and blockchain but not crypto and blockchain”, check the full transcript here https://www.sec.gov/news/testimony/gensler-testimony-housing-urban-affairs-091522
Celsius AKA Kelvin
Celsius plans a comeback… as Kelvin… with a strategy that “does not require you to trust us in anything” says Mashinsky. Like an old dog that’s had his day, he needs taking out to the woodshed and shooting, he’s clearly lost his mind. The company, which filed for bankruptcy in July, is now angling for a comeback. In a recording of a closed-door meeting CEO Alex Mashinsky and Celsius Chief Compliance Officer Oren Blonstein laid out extensive plans to rebuild the company as a crypto custody firm that would store people’s cryptos and charge fees on certain types of transactions. Somebody please stop him!
https://cryptodaily.co.uk/2022/09/celsius-planning-comeback-as-kelvin
SEC Regulation
In a great piece by Bloomberg’s Matt Levine, he analysed the SEC’s proposed and crypto rules. We want rules so there’s a level playing field, but the SEC should not be enforcing their crypto playbook without showing their hand. If the SEC is worried about people gaming their rules, they need to write better rules. https://www.bloomberg.com/opinion/articles/2022-09-13/crypto-wants-some-sec-rulesl
ETHPoW
ETHW (ETH PoW) has lost 3 quarters of its value and users are struggling to access the network as its Chain ID is already being used by another project, exposing it to a replay attack. These are all issues we knew about before but no one seems to have told the ETHW team. To top it all, the miners are also earning a 10th of what they were when mining ETH before The Merge!
Ethereum PoS
Rumours our mate Gary from the SEC might fancy a pop at Ethereum now it’s earning a yield. Under the Howey test, anticipating profits based on the efforts of others, now technically classifies it as a security. Here we go again! https://www.wsj.com/articles/ethers-new-staking-model-could-draw-sec-attention-11663266224
FTX and the FCA
The FCA in the UK has issued an official warning about FTX operating in the UK. A boilerplate FCA statement, similar to the old OneCoin statement, has warned consumers about using FTX. Always DYOR but I think this is more about highlighting lack of consumer protection rather than FTX being a scam. https://www.fca.org.uk/news/warnings/ftx
Considering FTX were working with The FCA when the official warning was published, it does seem a bit off. However the fact the FCA accidentally added some FTX scam phone numbers shows the lack of joined up process around this. Clearly FTX are trying to operate legitimately but the FCA were not prepared to wait around while FTX got their house in order.
DOA Regulation
In a move by the CFTC to regulate a DAO, there has been some contention (shocking). The original founders of a protocol, who knew they were breaking the law, sought to avoid the problem by moving into a DAO, in which they were a governance token holder and could vote on the same proposals that were breaking the law. Now the CFTC is claiming that all governance token holders are liable for anything the DAO has voted on. Holding all governance token holders liable if they have ever voted on anything in the DAO is crazy. However if the DAO breaks the law, those that voted the specific law breaking proposal in, should be liable. DAOs are not above the law and should be accountable. https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement092222
The Ugly…
Hacks
Another DeFi hack. This time Wintermute, a reputable and professional Market Maker. Was the target. One would hope they have a bug bounty in place to mitigate this huge hack. I’m sure we’ll find out very soon. Hacked for about $160M in DeFi operations, the CEO has said that the company remains ‘solvent’ after the hack. It is likely the hacker exploited an old address with admin access. A cryptocurrency wallet address showed a series of transactions took place earlier on Tuesday, one of which involved transferring 112 million native tokens of Curve’s 3pool, a platform for swapping stablecoins, from a null address to the hacker. https://www.bloomberg.com/news/articles/2022-09-20/wintermute-hacked-for-about-160-million-in-its-defi-operations
Craig White
Craig Wright, who claims to be Satoshi, also claims he accidentally destroys proof he invented Bitcoin. In his continued failure to prove anything, it is just an on running joke now, and one we can all watch with great enjoyment https://futurism.com/bitcoin-creator-hard-drive-proof
And Finally
If you have ever wondered what Jamie Dimon (CEO and Chairman of JPMorgan) thinks about crypto, well…
“I’m a major sceptic on crypto tokens, which you call currency, like Bitcoin, they are decentralised Ponzi schemes.”
I think that’s pretty clear what he thinks.
OK, that’s your lot. Thanks for reading the Weekly Web3 Workout and I look forward to sharing my thoughts and learnings with you next week. Please share this with all the web3 and crypto curioso out there.
Have a great weekend!
