Making Sense of DeFi's Recent Drop

November 2, 2020

By Daniel Kuhn

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Top shelf

October saw the first time the total value locked in all DeFi protocols closed below the month’s starting value. Square Crypto is sponsoring a bitcoin wallet designer. A new civil suit alleges BitMEX executives were looting profits.

Digital transfers
Over 4 million transactions totaling more than 2 billion yuan ($299 million) have been conducted using China’s digital yuan, Yi Gang, governor of the People’s Bank of China, said. Speaking at the Hong Kong Fintech Week conference on Monday, Yi said the COVID-19 crisis has also accelerated the need for contactless banking, creating challenges for central banks looking to balance consumer needs and safety. That said, the central banker also played down the prospect of an imminent launch, saying the digital yuan project is still in the early stages.

Squaring the crypto
Square Crypto, the cryptocurrency arm of the payments company, has awarded a grant to a designer building easy-to-use bitcoin wallets. Announced via tweet Friday, Maggie Valentine’s development work will answer the question: "How can we provide an intuitive experience for non-crypto users while preserving the security of a user’s funds?" The award comes less than a month after Square said it had purchased 4,709 bitcoins for $50 million, representing 1% of the firm's assets.

Cayman consensus
The Cayman Islands, an autonomous British Overseas Territory in the Caribbean, is building a regulatory framework for “virtual asset service providers” (VASPs). Announced Saturday, the Caymans' Ministry of Financial Services has entered "Phase One" of the framework, a set of rules spelling out the nation’s anti-money laundering (AML) and terrorist financing regulations. VASPs already working in the Caymans, or planning to, will need to notify and register with the Cayman Islands Monetary Authority (CIMA) and comply with the AML/CFT rules. "Phase Two," slated to come into force next June, will look at licensing requirements and "prudential supervision" for VASPs.

Voted down
A proposal to distribute UNI tokens to those left out of a previous airdrop was not adopted in Uniswap’s second governance vote. While many votes were in favor, a quorum was not established, reports CoinDesk’s Zack Steward. Proposed by decentralized finance (DeFi) portal Dharma, “Prop 2” would have sent 400 UNI tokens each to 12,619 addresses that interacted with Uniswap through third-party apps, following a surprise airdrop on Sept. 17, that sent free tokens to anyone who had directly used the platform. A threshold of 40 million voted UNI tokens fell short by less than 2.5 million.

Corporate raiders?
The top officers of HDR, the parent company of crypto trading platform BitMEX, which has been charged with facilitating unregistered trading and other violations, systematically looted $440,308,400 from HDR accounts, a civil lawsuit claims. The suit, filed on behalf of plaintiffs BMA LLC, Yaroslav Kolchin and Vitaly Dubinin, alleges executives began diverting BitMEX's profits after becoming aware of possible charges in 2019. The U.S. Commodities Futures Trading Commission (CFTC) and the Department of Justice both announced charges against BitMEX on Oct. 1. A spokesperson for HDR called the new civil claims “spurious.”

CoinDesk's upcoming virtual event Bitcoin for Advisors, on two half days Nov. 9-10, aims to equip investment advisors with tools to better understand bitcoin, talk to their clients about it and work it into their business.

In close cooperation with professional advisors, CoinDesk is showcasing a program tailored to the financial advisor community. Through a series of keynotes, panels and interactive roundtable sessions, we will discuss investment theses for bitcoin, why younger demographics are turning to this asset and how it fits into the current global macroeconomic picture.

We will also walk through the practicalities: how to answer client questions about bitcoin, how to talk to your compliance department about bitcoin, how can bitcoin can help grow your book. Apply for Bitcoin for Advisors, Nov. 9-10.

Quick bites

Blockchain could make dismantling nuclear warheads more secure, King’s College London claims in a recent report. (CoinDesk)

Nigerians protesting police corruption and concerns about a possible internet shutdown are adopting decentralized VPNs, along with bitcoin. (CoinDesk)

Following Coinbase’s announcement, peer-to-peer digital asset marketplace Paxful will launch a Visa debit card. (CoinDesk)

Mongolia’s oldest bank will offer services including cryptocurrency remittance, custody, deposits, asset management and loans (Modern Consensus)

eToro has unveiled a free insurance scheme covering customers for up to £1 million if the firm should ever become insolvent. But crypto holders are left out in the cold. (CoinDesk)

European Central Bank President Christine Lagarde said the agency is seeking public comments about a digital euro, implying a broad retail offering is now on the table. (Survey)

"On Purpose" podcast host and Onramp Invest CEO Tyrone Ross invites the public to CoinDesk’s first podcast live taping party on Wednesday, Nov. 4.

Attendees will be part of the experience and get to ask frank questions to Ross and his guests Adam Pokornicky, COO of Digital Asset Investment Management; Andy Edstrom, financial adviser and investor at WESCAP Group; and Sunayna Tuteja, head of digital assets at TD Ameritrade; as they raise the big questions for financial advisors in a jargon-free, transparent discussion.

Pokornicky, Edstrom and Tuteja, who are also speaking at CoinDesk’s Bitcoin For Advisors event for registered investment advisers Nov. 9-10, are experts in the digital asset class in the context of how it fits in the realm of portfolio management, including understanding bitcoin’s macro implications, preparing against bitcoin’s volatility and how to fold it into retirement accounts.

Podcast taping attendees will also be fast-tracked for approval to attend Bitcoin For Advisors after applying separately here.

Register for On Purpose’s live taping party on Nov. 4.

Market intel

Pop and drop
After October’s 28% bitcoin rally, the market appears to be cooling off. On Saturday, BTC notched a 33-month high of $14,093, but was unable to stay above that level. Trading in the mid $13Ks, this minor pullback has validated the short-term bull fatigue. "Unless the market can establish above $14,000, there is a risk that rally stalls here in favor of a healthy retreat," Joel Kruger, a currency strategist at LMAX Digital, told CoinDesk. At the low end, bitcoin could revisit the former hurdle-turned-support of $12,500.

Webinar: How to Value Ethereum

In this 30-minute webinar, the first of the four-part series How to Value Ethereum, CoinDesk Research looks at accounts - a concept that sounds familiar to blockchain addresses, but involves novelties and complexities that are critical to understanding how Ethereum works.

Register to join How to Value Ethereum on Nov. 11.

At stake

DeFi contraction

In the last week of October, DeFi protocol tokens were bleeding red.

MakerDAO, one the largest and most successful decentralized lenders, started the week at $2.1 billion locked in. By Friday, that had dipped to $1.96 billion, according to DeFi Pulse. Compound, Aave and Curve similarly shed a few million from their valuations.

In aggregate, DeFi lost $1.5 billion in the last five days of the month, according to DeFi Pulse. With those losses, October marked the first time since the sector’s bull market began that the amount of cryptocurrency “locked in” DeFi contracted compared in the span of a month.

It wasn’t a steep decline. DeFi’s cumulative valuation stood at $11.28 billion on Oct. 1, and only retreated to $11 billion locked up on Oct. 31. Industry publication Decrypt called the ecosystem’s monthly top at $12.4 billion.

It was this minor decline that may have triggered a more than $2.5 billion sell off seen this weekend, where the ecosystem retreated to lows of $8.5 billion last seen in early September.

With prices reverting back to over $11 billion (at press time), it doesn’t appear that DeFi is dead.

Who won #CryptoTwitter?

With the U.S. Election Day next week, much is at stake - including crypto policy over the next four years.

Like it or not, this election will matter for the crypto industry. Our latest limited-run newsletter, The State of Crypto: Election 2020 by regulatory reporter Nikhilesh De, aims to walk you through why.

At stake: Will new crypto products be approved or allowed to operate in the U.S.? Will regulators target more overseas exchanges and platforms like BitMEX? Will the U.S. launch a “digital dollar” or some other form of central bank digital currency?

These questions will come down to who takes the reins at the various financial regulators and government departments. Over the next several days, we map out the possible outcomes and introduce analysis of the candidates.

Our limited-run newsletter runs Mondays, Wednesdays and Fridays at least until Election Day. Subscribe to The State of Crypto: Election 2020.

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