🔮Tether's Financial Situation, BNB and ETH, DOD Looks To Crypto

Token Specific News

Two Is A Coincidence, Three Is A Trend. 4 Is, Just Another Day at Binance

• Binance CEO Changpeng Zhao has dismissed concerns following the temporary pause and restart of bitcoin withdrawals on the exchange. Binance halted bitcoin withdrawals twice within a 12-hour period, citing network congestion as the reason. Some speculated that the pauses were due to large-scale withdrawals from the exchange. However, Zhao responded by using his personal code "4," which means to ignore FUD (fear, uncertainty, and doubt) and fake news. He explained that the high transaction fees on the Bitcoin network caused the temporary halts. Binance also addressed concerns about replenishing its hot wallets, stating that the movement of funds between hot and cold wallets was necessary due to Bitcoin address adjustments. Data from CryptoQuant showed that Binance moved 157,000 bitcoins (worth approximately $4.4 billion) between wallets, but net withdrawals were estimated to be around 10,100 bitcoins (over $282 million).

Source: CryptoQuant

Decentralized Data

• Decentralized databases play a vital role in managing large amounts of mutable data and regulating its accessibility. While databases are essential in Web2 applications, they have received limited attention in Web3. Several decentralized database projects have emerged, each with its own approach, trade-offs, and target markets. This report examines the significance of decentralized databases in the Web3 application stack and evaluates the projects involved in this field.

Stacking Buzzwords With A Serial Entrepreneur

• Worldcoin, the iris-scanning cryptocurrency project led by OpenAI CEO Sam Altman, is reportedly attracting investors even though it is still in beta. The project is said to be in advanced talks for a new funding round worth approximately $100 million, with both existing and new investors participating. Previous rounds included funding from venture capital firms Andreessen Horowitz and Khosla Ventures, valuing the project at $3 billion. Worldcoin is preparing for an official launch within the next six weeks. Despite the project's progress, concerns have been raised by individuals like Edward Snowden regarding the collection and storage of people's iris scans for a global database. Worldcoin and OpenAI have not yet responded to requests for comments.

Ethereum Finality Hiccup a ‘Fire Drill’ That ‘Could Have Been Avoided’

• The Ethereum network experienced a temporary disruption, leading to a delay in transaction finality for approximately 25 minutes. The incident, caused by a failure to finalize blocks, served as a test of the network's resilience and highlighted the importance of client diversity. The precise cause is still under investigation, but it likely involved multiple issues. Developers are working on a fix, and it has become urgent as the problem has recurred. The loss of finality could have been avoided if less than a third of validators used the same consensus layer software client. Ethereum prioritizes liveness over safety, and its consensus algorithm, Gasper, played a role in preventing a fork. While the incident raised concerns about transaction finality, the network's ability to continue processing transactions was maintained, and client diversity was seen as key to the network's self-healing capability. Observers remain optimistic about the long-term prospects of the Ethereum network despite the temporary disruptions.

Ethereum Staking Deposits Outpace Withdrawals by $189M in ETH

• The completion of Ethereum's Shanghai upgrade allowed stakers to withdraw their funds from the mainnet, including those who had been waiting since December 2020. The event revealed that Kraken's U.S. staking customers had largely exited the system due to regulatory action and the closure of the exchange's staking operations. Coinbase has the largest amount of staked funds still waiting to be withdrawn, with over 55,000 ETH. The net amount of Ethereum being staked remains positive, indicating continued bullishness towards staking and the desire to earn ETH-denominated yield. This trend is seen as positive for Ethereum as it reduces selling pressure on the open market. Per Nansen, Lido’s staked ETH commands 79% of the total market of entities measured, hosting a whopping 6 million Ethereum. Second place goes to Coinbase, with about 15% of that market.

Source: Nansen

Sh!t Meme Coin Pepe Le Pew Stinking Up The Numbers

• In just 23 days, PEPE has emerged as the most rapidly growing ERC-20 token in the history of cryptocurrency, attaining a market capitalization of $1 billion and attracting 107,000 holders. This impressive growth of PEPE has sparked a revival in meme coins, leading to increased congestion and higher transaction fees on both the Ethereum and Bitcoin networks. However, it is important to note that while PEPE has experienced remarkable growth, its valuation still remains significantly lower compared to that of DOGE and SHIB. See Similar: Hackers Are Targeting Abandoned Meme Tokens in Almost-victimless Crime See similar: Uniswap Volume Leapfrogs Coinbase Thanks to Pepe and Meme Coins

Source: Messari

First Quarter NFT Volumes Outpace Q4 Thanks to Blur Token Airdrop

• NFT trading volumes on the Ethereum blockchain experienced significant growth in the first quarter of 2023 compared to the previous quarter. This increase was partly driven by the airdrop farming frenzy for Blur's native token, BLUR. NFT trading volume more than doubled, reaching $4.5 billion in Q1 2023, up from $1.9 billion in Q4 2022. However, despite the surge in trading volumes, the number of unique wallets trading NFTs only increased by 24.5%. This suggests that existing users were responsible for the higher trading volume, likely due to the BLUR token airdrop. However, the NFT market experienced a bearish trend in spring, with trading volumes declining by 30% in April compared to March. The first week of May saw the lowest number of sales and users in the year, with around 370,000 weekly NFT sales. Trading volumes in May fell to levels similar to 2022, with approximately 90,000 ETH traded weekly. Nevertheless, the trading volumes in USD terms remained significant due to the bullish performance of Ethereum, which saw its price rise from below $1,300 in Q4 2022 to around $1,900 in 2023.

Source: Nansen

Regulation

Chamber of Commerce Backs Brian... Sue Or Be Sued

• Coinbase has been engaged in a regulatory battle with the SEC. To seek clarity on which digital assets could be classified as securities, Coinbase filed petitions with the SEC, but received little response. However, the SEC issued a Wells Notice, indicating potential enforcement action. In a surprising move, Coinbase sued the SEC. Now, the U.S. Chamber of Commerce has entered the scene, submitting a brief in support of Coinbase. As a prominent business organization representing millions of organizations globally, their involvement carries significant weight. Although not directly involved in the case, their brief could influence the court's decision and potentially expedite the SEC's response to Coinbase. The current regulatory guidance remains uncertain. See similar: Crypto Industry Bets on New Supreme Court Doctrine to Push SEC Out

Can't Beat 'Em... Join 'Em

• Financial firms, including Deloitte, S&P Global, and Moody's, have joined forces to support the launch of the Canton Network, a blockchain platform aimed at streamlining financial markets using Web3 technology. The network aims to provide decentralized infrastructure that enables more efficient transactions, synchronizing financial systems and offering innovative products while enhancing efficiency and risk management. The network, leveraging the smart-contract language Daml, has 30 participants so far, including Paxos, Goldman Sachs, BNP Paribas, Cboe Global Markets, and Microsoft. The network plans to expand its connections exponentially as applications are developed, addressing common hurdles in using Web3 tech such as privacy and control over data, interoperability trade-offs, and scaling limitations. The participants believe that asset tokenization has the potential to revolutionize traditional finance by enabling instantaneous settlement and reduced fees.

Crypto’s ‘Rampant Fraud and Dysfunction’ Needs ‘Law and Order,’ NY AG Says

• The conflict between state and federal cryptocurrency regulation intensifies as New York State Attorney General Letitia James aims to establish the state as a policy leader. James plans to present a bill to state legislators called the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act. The proposed legislation would require crypto companies to undergo audits, submit financial statements, and enhance fraud protection. It would also introduce new regulations concerning custody, lending, and leverage trading. This move by New York comes at a time when lawmakers across the country are divided on how to regulate the expanding crypto industry. New York's approach to cryptocurrency regulation, including the BitLicense introduced in 2015, has been seen as one of the more advanced in the United States. Other states have expressed interest in adopting similar regulations based on New York's framework. The CRPTO Act also addresses stablecoins, aiming to restrict the use of the term "stablecoin" to assets fully backed by the US dollar.

A Peek Under Tether's Hood

• Three of the world’s greatest mysteries... What happens to socks in the washing machine, What’s in Tether’s reserves and What’s backing USDT? Tether, the issuer of the USDT stablecoin, has released an overview of its Q1 financials, revealing some key details. The company reported an all-time high in reserves, with $2.44 billion. Its net profit for Q1 was $1.5 billion, surpassing Blackrock's profit for the same period. Tether holds 85% of its reserves in cash/cash equivalents, including gold, while 1.8% is in BTC ($1.5 billion). This marks the first time Tether has made its BTC/gold reserves public. The majority of its reserves, around $53 billion, is held in U.S. Treasury Bills. However, it's important to note that this disclosure is an "attestation" and not a full audit, providing a snapshot of the financials at a specific point in time. Nonetheless, Tether is benefiting from earning interest on its treasury holdings, with current rates for 3-month bills at 5.23%.
• The good news if you consider Tether to be/act like a bank (which you can draw the parallel) we have pretty good benchmarks to assess whether the their reserves are enough to keep us calm. One method for calculating the required equity balance for banks is by converting assets into risk-weighted assets (RWAs), which consider the riskiness of each asset category. While regulators provide guidance for standard comparisons, some captive exposures, like sovereign credit exposure, have received favorable weighting, which benefits Tether. Tether's reserves, as a percentage of risk-weighted assets (RWAs), are estimated to range from 11.7% to 8.9%, with an average of 10.1%. However, there are a few important considerations to keep in mind. First, only credit risk, excluding metals and $BTC, has been accounted for, and no additional reserves have been allocated for other types of risks like interest rates or operational risk. Second, the assumption is made that Tether doesn't have any bad debt in its balance sheet, although it would be wise to acknowledge the possibility of non-performing exposures. Despite these caveats, the 10.1% figure serves as a reasonable baseline for analysis. Comparing Tether's capital health to regulated banks, European banks had an average CET1 of 14.74% over RWAs. This indicates a capital gap for Tether, ranging from $645 million to $1.6 billion, depending on assumptions. The conclusions drawn regarding Tether's capital are inconclusive and depend heavily on Tether's exposure to Bitcoin ($BTC). A more favorable treatment of $BTC from a capital perspective, along with higher prices, could help Tether address the capital gap. However, its worth pointing out the elevated volatility of Tether's balance sheet and the limited transparency provided to investors, which may not justify the 0% yield that holders of $USDT receive.

Defending With Crypto

• The US Department of Defense (DOD) has finalized a six-year contract with Constellation, a blockchain startup, marking a significant step for the industry. Constellation focuses on processing big data and provides infrastructure for decentralized data marketplaces and data provenance. The contract aimed to modernize the cybersecurity of the US military's backend systems, exploring whether blockchain could securely transfer confidential data across Defense Transportation System commercial airlift partners. The completion of "Phase II" led to a well-defined prototype, and the upcoming "Phase III" will explore commercialization without limits on contract duration or value. Constellation's Hypergraph Transfer Protocol (HGTP) acts as a tool for Web3 developers, similar to HTTP for the internet, facilitating efficient data communication. Constellation's native token DAG incentivizes data validators. The US military has shown mixed receptivity to crypto, but Constellation believes that educating about the benefits and tying cryptocurrencies to data validation can change mindsets. Other blockchain units, such as SIMBA Chain, are also working on enhancing military capabilities in the information tech race.

Democratic Rep Says Self-Custody Wallets Should Have Federal Digital Identities

• During a joint hearing on crypto regulation, Democratic Representative Bill Foster criticized witnesses and argued that it is difficult to effectively regulate cryptocurrency markets due to rampant market manipulation. Foster suggested that the establishment of federally-regulated "traceable digital identities" for wallets and users is necessary to control wash trading. However, witnesses from Kraken Digital Asset Exchange and the CFTC offered alternative solutions and expressed skepticism about the prevalence of wash trading. Foster has previously raised concerns about digital identities in a House stablecoin hearing. The hearing was a collaborative effort between the Financial Services and Agriculture Committees, announced by chairs Dusty Johnson and Patrick McHenry.

Canada Becomes Latest Country to Pursue Digital Dollar Conversation

• Canada has joined the global discussion on central bank digital currencies ( CBDCs), with the Bank of Canada seeking public input on the potential introduction of a digital dollar. Canadians have until June 19 to provide feedback on various aspects, including the use and security features of a CBDC, as well as any concerns regarding its issuance. The Bank of Canada emphasized that a digital dollar would complement, not replace, physical cash. While the bank currently sees no immediate need for a CBDC, it aims to be prepared for future developments and the potential adoption of private cryptocurrencies or foreign CBDCs within Canada. The conversation around CBDCs has gained momentum globally, with the topic even being discussed in US campaigns. China has already introduced a digital yuan, while other countries such as Israel and the UK are exploring the implementation of their own digital currencies.

Other Domestic Regulation Updates

• White House Tackles Digital Identity, Distributed Ledgers in New Tech Standards
• Is the World Leaving America Behind on Crypto Regulation?
• FedNow Will Save the US From a CBDC
• Crypto exchange Bittrex filed for bankruptcy
• SEC’s Enforcement by Action Is ‘Crippling’ Digital Assets: Paradigm
• Binance Leaving Canada, Market ‘No Longer Tenable’ for Exchange

Other International Regulation Updates

• Bitcoin Payment Option 'Is Coming', Says Liechtenstein's Prime Minister
• FTX's Sam Bankman-Fried Moves to Dismiss Most Criminal Charges Against Him
• 80% of Estonian Crypto Firms Fold as New Rules Take Effect
• South Korean Politician’s Own Party Will Investigate Him for Irregular Token Trading
• EU Is One Step Closer to Adopting New Rules on Sharing Crypto Tax Data
• Samsung, Bank of Korea to Deepen Offline CBDC Payments Research
• Terraform CEO Do Kwon to Be Released on Bail in Montenegro

Pain & Gain

Pain

• S&P Global acknowledged crypto’s popular appeal as an inflation hedge but noted a weak correlation to inflation expectations
• Why Web3 Is Not An Automatic Security Fix
• Bitcoin Developer Calls to Block Ordinals, BRC-20 Tokens From Network
• Bitcoin Hits Two-Month Low Amid Dollar Strength, Cooling Ordinals Activity
• BlockFi to Liquidate Crypto Lending Platform, Over $1B on the Line in Litigation

Gain

• PayPal has some $1 billion worth of customer crypto on its balance sheets, mainly in the form of bitcoin and ether
• Hive Blockchain plans to sell up to $100 million in common shares to fund the goal of doubling its computing power
• Franklin Templeton plans to add to its crypto market offerings with a second blockchain fund
• Ethereum Staking Tokens Lido, Rocket Pool Soar Double Digits on the Week
• Pudgy Penguins has raised $9 million in a new funding round
• Salesforce Adds NFT, Web3 Capabilities to Product Suite
• Blockworks Raises $12M at $135M Valuation
• Mastercard, PayPal, Robinhood Push Deeper Into Crypto
• Bitdeer to Raise $500MM for Bhutan Mining Operation
• Michael Saylor: Bitcoin Ordinals Are a ‘Catalyst’ for Adoption