Welcome to The Node. This is Daniel Kuhn and Prachi Vashisht, here to take you through the latest in crypto news and why it matters. In today’s newsletter:
U.S. Securities and Exchange Commission Chairman Gary Gensler once again suggested that proof-of-stake tokens could meet the definition of securities under the Howey Test, bringing them under the agency’s regulatory authority. In a conversation with reporters on Wednesday, Gensler suggested the proof-of-stake consensus mechanism essentially promises a “return.” Meanwhile, the Federal Reserve said its long-awaited real-time settlements network, FedNow, will launch in July and start enlisting users next month.. The service will operate round-the-clock, and is often said to be inspired by and could replace crypto’s payments innovations.
Very Sketchy
Before declaring bankruptcy, FTX transferred over $3.2 billion to key employees including $2.2 billion to founder Sam Bankman-Fried, according to the firm’s new management. The next largest beneficiary was Nishad Singh, who at the time was FTX’s director of engineering. He received about $587 million. Nishad pleaded guilty to charges including fraud and campaign-financing violations in February. Separately, drama unfolded Thursday as a top-ranked member of the Shiba Inu’s Discord channel posted evidence the cryptocurrency’s new blockchain, Shibarium, is a fork of Ethereum’s old Rinia testnet. The chains share the same chain ID number. SHIB dropped 8% following the allegations.
Drops and Bots
The biggest player in Ethereum’s layer 2 scaling landscape, Arbitrum, is finally getting a token – ARB. With the launch and airdrop scheduled for March 23, Arbitum will officially be run by a decentralized autonomous organization. The Arbitrum Foundation plans to grant 44% of the tokens to investors and core contributors, a relatively high amount, experts said. Salesforce released NFT Management, a platform that monitors the performance of customers’ collections of non-fungible tokens, and new Web3 services on Wednesday. “We’ve seen a lot of interest from customers who want to understand and tap into this new world of Web3 and NFTs,” Adam Caplan, Salesforce’s senior vice president of emerging technology, said in a blog.
Sound Bites
“We’re not in a crypto crisis. This isn’t a financial crisis, yet. But this is a banking crisis.”
– Former FDIC regulator Jason Brett, on CoinDesk TV’s “First Mover”
The Takeaway: Stablecoin Experimentation
Who would have thought the U.S. government would be bailing out stablecoins? Well, through sheer coincidence, this week when the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. announced plans to backstop all deposits at two failed banks, they were also pledging to secure at least 8% of the collateral for the USDC stablecoin. Circle Internet Financial, the stablecoin’s issuer, said it keeps around a quarter of USDC’s reserve assets at about six banks. What are the odds?
The bailout benefited Circle, which was working overtime last weekend while USDC depegged from the U.S. dollar. In a recent episode of the “Bankless” podcast, Circle CEO Jeremy Allaire spoke about the emergency measures the firm took, as well as the serious game theorizing Circle has played over the past two years to spread out its cash and one day essentially turn stablecoins into “straight-through government obligation money.”
If you balk at the idea of a crypto-based tool like stablecoins essentially functioning like a “proxy” central bank digital currency, or CBDC as “Bankless” host Ryan Sean Adams suggested, making Allaire smile, then you’re likely not alone. Stablecoins may be the bridge between crypto and the real economy, but they should also retain some of the aspects that make crypto crypto, beyond 24-hour access and a different transaction settlement mechanism. Censorship resistance is all but impossible if crypto nuzzles close to the banking system.
But why be so prescriptive? “Stablecoin” is an imperfect word to describe a whole host of blockchain-based assets that can have a range of attributes and completely different mechanics. Apart from the promise to have a sticky price, there is little USDC has in common with terraUSD, the stablecoin whose algorithm failed.
In fact, in the wake of the recent banking crisis, there’s been a flutter of stablecoin experimentation. Just on Thursday, a Bitcoin-based decentralized-finance protocol Sovryn introduced the sovryn dollar (DLLR) backed entirely by bitcoin (BTC). There have been similar experiments with stablecoins backed with gold.
Arthur Hayes, the former CEO of crypto exchange BitMEX, recently plugged the idea of Nakacoin, a stablecoin that would be issued by member exchanges that list the inverse bitcoin perpetual swaps that would back the asset.
I can’t vouch for any of the soundness of the ideas behind these projects, but I can say generally experimentation is good. USDC showed the world this weekend that the idea of issuing a dollar proxy backed by safe investments and cash stored at banks can be resilient even when a critical component fails. Tether, the company that has a checkered past and that is behind the USDT stablecoin, has not only grown despite being caught lying by New York state prosecutors but is thriving.
But crypto is also supposed to offer alternatives to banks and finance. There are doubtless people who would prefer to take on “protocol risk” of an all-on-chain stablecoin rather than the “platform risk” of a stablecoin with a bank account. But there I go again, being prescriptive…
Bitcoin Core developer proposes new type of pruned node (Protos)
Doodles ‘No Longer an NFT Project’ and Won’t Cater to Speculators, Co-Founder Says (Decrypt)
Worldcoin’s Digital Identity Protocol Goes Live Alongside GPT-4 (The Defiant)
ChipMixer Is Shut Down for Allegedly Laundering $3 Billion in Crypto (WSJ)
Crypto Companies Are Asking Jamie Dimon to Hold Their Money (NY Mag)
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