🔮 Binance, Token Incentives, Worldcoin, and the Regulatory Landscape

Token Specific News

Less CEX Than Andy Stitzer

Binance, a former dominant exchange, faced significant challenges, including lawsuits from the SEC and CFTC, and accusations of fund commingling. As a result, it shifted to a crypto-only platform, experiencing a slight market share decrease from 53.6% to 50.6% in Q1 and Q2. Competitors Bitget and OKX gained ground, with Bitget, a crypto derivatives exchange, growing to an 8.7% market share and processing $60 billion in spot trading volume, becoming a top 4 CEX. OKX, a U.S.-based exchange, saw remarkable growth from 1.9% to 15.9% in Q2 and gained regulatory status in Hong Kong. All centralized exchanges face challenges as Bitcoin reserves on exchanges declined from around 3 million BTC in 2020 to approximately 2 million BTC, reflecting investors' trust issues. The move towards cold storage for enhanced security, influenced by events like the FTX exchange incident, highlights the significance of private key ownership to retain control over cryptocurrencies.

Source: Glassnode

The Efficacy of Token Incentive Models

Since the DeFi summer of 2020, token incentives have become a driving force for protocol growth. Unlike traditional capital acquisition methods, crypto protocols adopt a direct approach by incentivizing users with protocol tokens for specific actions. These thoughtfully crafted token incentive models aim to align users with the protocol's long-term growth, entice new participants, and gradually decentralize token governance. However, the success of different token experiments has varied significantly, ranging from ineffective to transformative. This report examines case studies within three main categories of token incentive models – one-time airdrops, ongoing rewards, and campaign models – to evaluate their viability, trade-offs, and sustainability.

Worldcoin Raises Some Eyebrows

Worldcoin has launched its WLD token, distributed to over two million people globally who verified their identities through iris-scanning orbs. The project aims to enable people to prove their identities online with verified credentials in person but has faced criticism over privacy concerns. The token launch comes after multiple delays, and the company plans to deploy orbs in more than 35 cities globally to accelerate user sign-ups. Those verified by an orb will receive 25 WLD tokens and periodic grants, with tokens reservable on the World App. The total supply of 10 billion WLD tokens will be distributed to users, operators, and the ecosystem, with 20% reserved for the team and backers. The project, co-founded by OpenAI CEO Sam Altman, addresses the rise of AI tools like ChatGPT and their implications for the future of work. Ethereum co-founder Vitalik Buterin raised concerns about privacy, accessibility, centralization, and security in the project's design.

Links Get Stronger

Chainlink's co-founder, Sergey Nazarov, envisions banks adopting Chainlink's cross-chain interoperability protocol, CCIP, leading to the creation of their own blockchains and potentially bringing trillions of dollars into the crypto market. CCIP enables secure token transfers across different blockchains and has undergone testing with projects like Synthetix and Aave. The protocol has also been trialed with Swift and other financial institutions, potentially enabling token transfers across public and private chains. Nazarov outlines three stages of bank adoption: custody of crypto assets, tokenization of real-world assets, and the development of financial protocols on proprietary chains, where Chainlink aims to provide essential services. The hope is that CCIP will merge separate on-chain networks into one fully on-chain global financial system. With its early access mainnet release, developers on various blockchains can now utilize CCIP, and the protocol has already generated significant revenue.

Source: Dune

OpenSea-Backed Americana Makes Its 'Phygital' Vault Service Available to the Public

Americana, backed by OpenSea and Alexis Ohanian's venture capital firm 776, is a vaulting platform that offers secure storage and digital exhibition for physical assets. It allows authenticated items to be traded as tokenized counterparts without leaving the physical facility. The platform uses various authentication methods, including digital fingerprinting for artworks, and employs a 3D photogrammetry machine for high-resolution imagery. The item's digital title is minted as an NFT on the Ethereum blockchain, serving as a certification of authenticity and an insurance policy. Americana currently stores artworks, watches, jewelry, collectible cards, and even a motorcycle, offering non-custodial ownership and blockchain-powered solutions for physical collectibles.

Blockchain IRL

Google Cloud and Microsoft is focusing on building Web3-focused products and services to become the first choice for industry firms and developers in the cryptocurrency and blockchain space. The cloud computing services unit plans to continue developing services like its Blockchain Node Engine and offering on-chain datasets to support startups and developers in the Web3 ecosystem. Google Cloud is also exploring Web3 applications of artificial intelligence (AI). Similarly, Floor, a mobile NFT portfolio tracking app, is about to sell exclusive NFT artwork solely through its iOS and Android apps. The app aims to provide a single venue for users to view, trade, and collect NFTs, and it will absorb the 30% fees charged by Apple and Google for in-app purchases to enable mobile NFT sales. This move comes after Google announced it will allow more blockchain-based digital content on Android-based apps and games, including NFT rewards, potentially encouraging developers to focus more efforts on Web3 gaming.

Regulation

New U.S. Senate Bill Wants to Regulate DeFi Like Banks

The U.S. Senate is considering the Crypto-Asset National Security Enhancement Act of 2023, aiming to regulate the crypto industry, particularly decentralized finance (DeFi) protocols, with stringent anti-money laundering (AML) measures akin to banks. The bill's goal is to combat crypto-related crimes, prevent money laundering, and ensure national security. DeFi protocols enable financial activities via smart contracts, posing regulatory challenges compared to centralized platforms like Coinbase. The bill seeks to impose obligations on entities controlling DeFi protocols and those providing user-friendly applications for them. Entities investing over $25 million in protocol development would also be subject to these responsibilities. Proposed requirements include customer vetting, AML programs, reporting suspicious activities to the government, and blocking sanctioned individuals from using the protocols. The bill also aims to enforce identity verification for crypto kiosks and grant the Treasury Department more authority to address money laundering in non-traditional financial sectors, including the crypto industry. See similar: New bipartisan bill says DeFi project ‘controllers’ must follow KYC rules

What the Faq, NASDAQ Backs Out

Nasdaq has decided to suspend its plans for a cryptocurrency custodian business due to the changing business and regulatory landscape in the United States. CEO Adena Friedman cited a lack of clarity in the sector and stated that it wasn't the right time to pursue the custodial business. Despite this setback, Nasdaq remains committed to supporting the digital assets ecosystem and engaging with regulators, positioning itself as a leading digital assets software solutions provider. Nasdaq has also partnered with BlackRock for a spot bitcoin ETF pending approval from the SEC.

House Republicans’ Long-Awaited Crypto Market Structure Bill Is Here

A group of House Republicans introduced the Financial Innovation and Technology for the 21st Century Act, a long-awaited bill that aims to define the crypto oversight roles of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The bill establishes joint rulemaking powers between the SEC and CFTC, with the latter gaining control over digital commodities markets, including exchanges and broker-dealers. It also clarifies the classification of digital assets, stating that the existence of an investment contract alone does not make a token a security. About 70% of all crypto tokens are proposed to be classified as commodities. The bill's co-sponsors include House Agriculture Committee Chair Glenn Thompson, Rep. French Hill, and Rep. Dusty Johnson, among others. The bill may face opposition from House Democrats who argue for a larger role for the SEC in the crypto market oversight.

UK Government Rejects Proposal to Classify Crypto as Gambling

The UK's HM Treasury has rejected a proposal to classify crypto trading as gambling, disagreeing with the House of Commons Treasury Committee's recommendation. The Committee argued that crypto assets had no intrinsic value and should not be regulated as financial assets. However, the Treasury believes such regulation would be contrary to global standards and could drive crypto activity offshore, while failing to address certain risks. Instead, the Treasury emphasizes the need for a financial services regulatory framework to address the risks of unbacked crypto assets and promote safe innovation. The UK's Financial Conduct Authority also announced that companies promoting cryptocurrencies to UK customers must comply with existing financial promotion regulations by October 8, 2023.

General Consensus From Societe Generale

Societe Generale's crypto subsidiary, SG-FORGE, received approval as a licensed digital asset service provider in France. The license enables SG-Forge to offer reception and transmission of orders for digital assets, becoming the first firm in the country to do so. It qualifies as a Class 1 and Class 2 crypto asset service provider under EU's MiCA legislation, meeting the minimum capital requirements of €125,000. SG-Forge's CEO, Jean-Marc Stenger, stated that the approval solidifies the firm's position in the digital assets space and supports its development of the euro-pegged stablecoin, EUR CoinVertible (EURCV), for institutional investors.

El Salvador's Bonds Have Skyrocketed Alongside Bitcoin in 2023

El Salvador's bonds due in 2027 have risen over 60% since the start of the year, along with Bitcoin's 80% surge. Fitch Ratings had previously downgraded El Salvador's debt rating and predicted a debt default in January 2023, but the country's bonds soared and were repaid successfully. The country's adoption of Bitcoin as legal tender has been controversial and faced criticism from ratings agencies and the International Monetary Fund.

Source: Tradingview

Other Domestic Regulation Updates

• U.S. SEC Formally Agrees to Review BlackRock Spot ETF Proposal
• Binance Files Intent to Dismiss CFTC Complaint
• SEC in hot water after Ripple ruling, former agency attorney says
• SEC Asserts Ripple XRP Case was 'Wrongly Decided', Signals Appeal

Other International Regulation Updates

• FSB Publishes Its Global Regulatory Framework for the G20
• Putin says ‘yes’ to Russia’s digital ruble
• EU Regulator Releases Paper on Tech Standards for Service Providers Under MiCA

Pain & Gain

Pain

• Hong Kong Banks Slow to Embrace Crypto
• Crypto mining is too loud for these American counties
• DoJ Accuses SBF of Leaking Caroline Ellison's Diary to 'Discredit a Witness' in FTX Trial
• China Targets Travelers With Digital Yuan as Tourist Season Looms
• Pennsylvania Bank Quietly Grows Crypto Business—Within Self-imposed Limit

Gain

• Messaging platform Telegram issued $270 million in bonds this week to fund its growth until "we reach the break-even point," CEO Pavel Durov
• You aren’t thinking hard enough about digital art
• Metaverse Rollup Futureverse Raises $54MM A Round
• Music Platform Sound Raises $20MM Series A from a16z, Snoop Dogg
• 15 Retail CBDCs Likely by 2023, BIS Study Finds
• Manta devs raise $25 million
• MakerDAO’s $2.4B Real-World Asset Portfolio Drives 80% of Fee Revenue

• Genesis Trading Saw 'Uptick' in Altcoin Activity After Ripple SEC Decision