Newsletter #11

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Week in review

Regulators are catching up…but who are they really protecting?

The UK’s Financial Conduct Authority (FCA) will be banning the sale of cryptocurrency derivatives to retail consumers from January 2021. The ban will cover exchange-traded notes (ETNs), crypto futures, options, CFDs and other derivatives. Whilst direct cryptocurrency trading and commodities, and central bank digital currencies, e.g. China’s DCEP will not be covered.

Their rationale was that cryptocurrency derivatives were not suited for consumers due to the harm they pose. Specifically, the inherent nature of these products meant that there is no reliable basis for valuation and that market abuse and financial crime is prevalent. From the consumer’s standpoint, the FCA took the view that they have an inadequate understanding of crypto assets, and there is a lack of legitimate investment need for them to invest in these products.

When interviewed by CoinTelegraph, Coinshares, a UK-based company providing cryptocurrency ETNs expressed its disappointment in the ban. Coinshares recalls they were heavily involved in the consultation process and lobbied against it. Yet the FCA ignored the reasons put forward by Coinshares and other industry participants against the ban or dismissed them with little additional information. Further, they take the view that the FCA had made it clear in initial consultations and draft rules that they do not believe digital assets including Bitcoin have any value, suggesting that the FCA had long ago made up its mind on the matter.

Coinshares also expresses concern that the ban would instead have the opposite effect, driving UK retail investors to unregulated cryptocurrency exchanges.

We also consider this ban a step backward for investors who are now deprived of options. Looking at the reasons put forward by the FCA, it appears they would like to maintain the status quo rather than allowing room for innovation. And shutting it down on the basis of consumers’ ignorance before they even have a chance to understand it. And in fact, according to the FCA’s Policy Statement on the matter, 97% of the respondents to the FCA’s consultation opposed the ban. Which brings up questions on who the FCA is really interested in protecting.

RAMP DeFi ($RAMP) sells out in 4 minutes

RAMP Defi held it’s public sale at 10 pm on the 10th of October (what perfect timing). The sale was packed with a few hard questions, but this didn’t deter avid buys from buying out the token sale in less than 4 minutes. Overall, this shows that the demand for good projects is still extremely strong.

Meanwhile, financial heavyweights are banking big on Bitcoin

Square Inc. (NYSE: SQ), a US mobile payment company and creator of Square Cash App- an app used to buy and sell cryptocurrencies announced it has purchased USD$50mil in Bitcoin. This amounts to 4,709 BTC at an average price of USD$10,617.96 per BTC.

The Company calls Bitcoin an instrument of “economic empowerment” and that the purchase is in alignment with their vision of building products based on a more inclusive future. They also believe that Bitcoin, “…has the potential to be a more ubiquitous currency in the future”.

But Square is not the first to do this, in early 2020 business intelligence firm MicroStrategy already invested half a billion dollars into Bitcoin.

This news gave the markets a much-needed breath of positivity. Prices for Bitcoin hovered below USD$10,750 earlier this week and upon the news effortlessly pushed back up to over USD $11,250. Now it remains to be seen whether this positivity can be upheld.

DeFi/yield farming scams are ruining things for the space?

Not a day goes by on our Telegram/Discord without discussions about potential issues with DeFi/yield farming projects or worse, outright scams. Please note that some of these raised issues are subject to further verification so please do your own research. Here’s what was looked at this week in our Telegram/Discord alone:

  • Amplyfi.money: Rug pulled after collecting 2,500 ETH from investors. Their social media and websites are gone
  • Beer Garden Finance: Founder holds over 50% of the token supply in his personal wallet. When our community asked for more details such as a github link for the project, or timelocks for the tokens they were banned from the Telegram group.
  • Burn Vault Finance ($BFV): Allegedly rug pulled. Their Telegram and social media no longer exist.
  • CBDAO ($BREE): The project had a presale for $SBREE tokens which would be swapped for $BREE. One of the admin wallets exploited a backdoor in the SBREE token contract, minted 50,000 SBREE, converted it to BREE and sold it on the market, pushing down the price of BREE at the expense of other holders. The 50,000 BREE was sold for under 200 ETH.
  • Degenballz: staking may steal 1% of your LP tokens.
  • Emerald Mine (EMD): User tokens worth nearly USD$2.5mil that were supposedly locked under a smart contract were moved to another account. Fortunately, cryptocurrency exchange ChangeNow managed to stop the sale of 135,020 EOS. However, this only represents a small fraction of the total amount stolen.
  • Lv.finance: Falsified audit results, after investors deposited their funds in they found they were unable to withdraw. The team has disappeared.
  • Minions Farm: Has cute Minions but will access all your assets when you connect your wallet to the Minions Wallet site.
  • Steaks.finance: Developers apparently had trouble interacting with their own timelock. Though some consider it may be due to a problem with their code rather than ill-intentions.
  • Tomatoes.finance: Hacker triggered simple permission granting and withdrew tokens.
  • UniCat ($MEOW): Back door in smart contracts allowed UniCat to keep control over users’ tokens even after they were withdrawn from the pool. Around USD$200,000 worth of crypto has supposedly been stolen.
  • Unirocket ($URCKT): Apparently rug-pulled, cannot be located on social media.
  • Yfdex.finance: Project promoted themselves on Twitter for 2 days, took a total of USD$20mil of investor funds and absconded.

These incidents have caused users substantial losses, even more so when some people unwisely put in more than they can afford to lose. As a result, it seriously affects their appetite and even the ability to believe in DeFi’s potentials. What’s more, it affects people’s interest in yield farming which like it or not, was the main draw for people since some farms promised unheard of returns not found in any other asset class. Now with the interest and returns for yield farming decreasing due to how prolific these scams and exploits are, the corresponding interest in DeFi, in general, is also losing steam. This is a huge shame considering DeFi had huge potential to bring financial services to the unbanked and was a direct challenge to the status quo being perpetrated by institutions and regulators, as we can already see above.

Will DeFi push governments to finally adopt CBDCs?

With DeFi gaining traction and new projects emerging every day, what can central banks and governments do to maintain their dominance whilst benefitting from the new technologies and conveniences brought by DeFi? An answer could be to create a Central Bank Digitial Currency (CBDC). In an article published in Forbes, the author suggests that governments should push towards issuing CBDCs as it would allow users to enjoy cheaper and faster transactions. The article also touches upon our coverage of DCEP and contrasts China’s progress in testing DCEP with the US which is still only debating the topic.

Indeed the European Central Bank (ECB) has announced it would pursue the possibility of issuing a “digital Euro”. Though there are no concrete plans yet, the ECB recognises consumers’ demand for digital payments, and in their Report on a Digital Euro published on 2nd October 2020 noted that they would be “..ready to introduce a digital euro, shall the need arise.”

In any event, as the Forbes article suggests governments need to be quick to catch up to DeFi. The legion of innovators in the DeFi space is growing, and will the overwhelming advantages of DeFi, there is a real risk of it toppling the status quo long-held by governments and institutions in their favour.

Upcoming events

11 Oct 2020: Results for Shenzhen, China’s DCEP lottery will be announced. Winners will receive RMB 200 (US$30) in DCEP and can spend it at 3,389 participating shops. We are eagerly awaiting winners to post how DCEP will work in action!
12 Oct 2020 3:00am: Boxmining livestream
15 Oct 2020: Filecoin ($FIL) mainnet launch. Huobi Global will launch FIL on the same day and trading, deposits and withdrawals will be opened.

*All times are listed in UTC unless otherwise stated.

See here for back issues of our newsletter.

The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.

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