This Compound exploit allows users to 4x their initial capital—using their borrowed amounts

An exploit on Compound is allowing users to leverage their initial capital multifold, creating more Compound DAI than real DAI, and a situation that some are terming “impossible.”

This is not a security lapse or bug in the Compound protocol, but a sneaky loophole that makes borrowing against borrowed collateral possible.

More Compound DAI than circulating DAI

DeversiFi COO Daniel Yanev noted on a tweet Friday that on-chain DAI was just 108 million, compared to Compound DAI that’s more than 3x the value:

Thread commentator @degenspartan explained the situation arises as a user immediately deposits the DAI they borrow “which becomes collateral so [they] can borrow more DAI,” which in turn, can be further pooled to gain collateral on.

Real-time data on DAIStats shows there must only be 164 DAI (at press time). However, the Compound protocol shows over 540 million DAI in gross supply:

(Source: Compound)

Compound calculates each DAI deposit under additional gross supply, regardless of if it was just-borrowed and quickly re-deposited. Using three or more wallets makes this task easy; borrowing DAI with a small stablecoin capital and using all that amount to quickly borrow more DAI.

Interestingly, an application is touting such “recipes” already. Instadapp, a self-styled management tool for DeFi tokens, tweeted June 3 that such “debt swaps” can help maximize one’s capital:

CryptoSlate did not independently verify Instadpp’s claims. A mail to Compound requesting information on the topic was unanswered at press time.

“Infinite leverage” glitch

The above loophole is reminiscent of the notorious “infinite leverage” glitch on Robinhood last year. One user, at the time, found out they could borrow capital on leveraged options, going back-and-forth multiple times to over 100x in leverage and theoretically unlimited capital.

Robinhood has since patched the issue.

Meanwhile, Compound has a set of new governance rules on the platform, quelling opportunists from pooling illiquid tokens and farming the most yields.

Last month, the Compound community noted BAT poolers were taking the chunk of yield rewards, despite no borrowers taking out BAT loans. This led to a governance poll last week, as CryptoSlate reported, with a majority calling for tweaking the rules to suit actual deposits and borrowed assets — instead of high-interest rates.

The prominence of DAI on Compound is creating some discussion around the token’s market supply on MakerDAO forums. Risk manager Cyrus Younessi noted last week:

“There is a chance (likelihood, even) that we see unprecedented demand for Dai. Much of the natural supply for Dai could also be locked up in COMP farming, thinning out sell-side order books.”

(Author’s Note: Compound figures are real-time and are subject to change than those mentioned above.)

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Coronavirus pushes Bitcoin-friendly Japan to begin “Digital Yen” trials

The East Asian superpowers are battling it out, this time with blockchain and digital currencies as a focus.

ZDNet reported Friday that Japan has quietly begun digital yen experiments in an effort to build out its CBDC capabilities.

The move comes as China’s digital yuan is seeing explosive development and South Korea has assembled a team to spearhead its digital won.

Legal implications before digital yen

Reports state technical challenges for a state-wide deployment are being carefully considered. Legal implications form the bulk of research, and Japan wants a “concrete footing” before issuing a digital currency.

Heading the study is the Bank of Japan(BoJ), the country’s central bank with an estimated $4.87 trillion under management.

Last week, the bank issued its “Technical Hurdles for CBDC” report, noting that upcoming experiments with a state-backed currency could provide an alternative to the “traditional” Yen.

The ongoing coronavirus pandemic has been singled out as a catalyst. BoJ believes traditional payment methods, such as cash and cards, rely on contact that may increase the risks of virus transmissions. To counter this, contactless methods like mobile, online, and digital currency payments may gain precedence.

Disinfecting cash as COVID transmissions a worry. Digital currency is touted as an alternative to prevent this. (Source: LA Times)

Earlier this month a Japanese senator said cryptocurrencies “will be more important” in a post-COVID world, as CryptoSlate noted at the time.

But don’t expect to see digital yens going around soon. BoJ said the project remains in a nascent stage, for now, one where the groundwork and long-term aspects are carefully weighed out.

Two considerations

Two specific research areas have been identified as the main focus—resilence and ease-of-access. The former deals with how a digital framework could survive efficiently in times of disasters. 

This is important, as Japan is one of the most earthquake-prone countries globally which causes disruption of several economic systems for days on end. If the power is out, there are no outlets to access online payments, a feature that cash provides for citizens.

Earthquake concerns are significant, with even bullet trains being upgraded for the event. A tweet from June 2 shows:

Another concern is that of Japan’s older population not understanding digital currencies and ending up victim to scams. Furthermore, they may not have access to smartphones, impeding a full-scale digital yen launch.

As per Reuters, only 65% of the Japanese population owns a smartphone. This means fintech applications are not inclusive to all age groups as of today.

Japan’s economy is notorious for its heavy reliance on cash, despite being internationally-acclaimed as a tech-forward country. Reports suggest Japan’s banking systems run on outdated software and are slow, creating an environment ripe for digital currency disruption.

Bitcoin and cryptocurrencies have a cult-following in the country. As CryptoSlate reported previously, Japanese e-commerce giant Rakuten entered the crypto market last year, via the launch of an exchange.

Bitcoin ATM at a Cafe in Japan. (Source: Bangkok Post)

The development comes as Japan grapples with China’s increasing dominance in the CBDC space. The country has earmarked the upcoming 2022 Winter Olympics in Beijing as a launch date for digital yuan and is already quizzing teenagers on Bitcoin mining in national university exams.

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Staking frenzy pushes 0x (ZRX) to highest user activity since April, price jumps 14%

The recent infatuation for most in the cryptocurrency market is with DeFi tokens and staking, with the sectors seeing strong growth in both technology and price values since the past month.

Buoyed by the interest is 0x protocol, the open, permissionless protocol that enables the peer-to-peer exchange of assets on the Ethereum blockchain.

Surge in active ZRX wallets

Recent data shows active wallets reached an all-time high in two months since April 2020, while ZRX—0x’s native token—has jumped 14 percent at press time.

On-chain analytics firm Santiment tweeted Friday on 0x’s wallet addresses and the corresponding price bump:

The metrics indicate wallet activity on the protocol has bolstered, presumably as public interest in staking application and passive incomes from cryptocurrency holdings grow.

Protocols like Compound and Balancer are leading the pack. The former returned over 800 percent to holders within two days of COMP issuance on June 18, eventually falling to $185-$190 level as on June 4.

Up for the taking is “risk-free” returns of 10-120%. While 0x is nowhere close to such returns—it’s a project not governed by complex eternal factors, such as MakerDAO’s zero-fee DAI sales in March.

After 0x’s beta staking launch in early-2020, holders have three main ways to lend their tokens. Previously, this was possible using some third-party protocols.

Staking frenzy catches on

Data on Staking Rewards shows ZRX “delegates” stand to gain an annual reward of 0.51% with a lockup period of 14 days. “Liquidity pool” owners get 3.45% on a similar lockup, with a risk rating of “moderate.”

(Source: Staking Rewards)

On Compound, ZRX’s gross supply is over $42 million, up 0.4% since Friday. Gross borrow is $16 million, with borrowers charged 14% per annum. The table below shows:

Compound dashboard. Displayed are ZRX lending/borrow values. (Source: Compound)

Developers can use 0x as a platform to build exchange applications on top of (0x.js is a Javascript library for interacting with the 0x protocol), as the project notes.

For end-users, 0x will be the infrastructure of a wide variety of user-facing applications i.e. 0x Portal, a decentralized application that facilitates trustless trading of Ethereum-based tokens between known counterparties.

Meanwhile, ZRX is seeing some token selling after a rip above the 34-EMA on July 3. Sellers sold at the $0.42 level, but charts show there might be buyers waiting on the $0.37-$0.38 price band.

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Singapore’s Huobi launches Chainlink (LINK) node, aims to bolster the DeFi market

Huobi, one of the world’s largest crypto exchanges by market cap, is now running a Chainlink (LINK) node on its Wallet service, the firms announced in a release Thursday.

Additionally, the exchange is making all its exchange data available on Chainlink’s smart contracts — which developers and applications can access via oracles.

Actualizing price fees

In the release, Huobi said it was leveraging Chainlink’s external adapters to make the exchange API available to smart contracts, allowing developers to access price data from Huobi Global, started in 2013 in China and now based in Singapore.

The first of such price pairs will be BTC/ETH, BTC/USDT, ETH/USDT, and LINK/ETH. Other crypto pairs will be rolled out in the coming weeks.

Price feeds help developers and DeFi applications access to a reputed source of exchange data. All such bridges will be enabled via Chainlink oracles, the firm’s decentralized data feed service that operates off-chain.

Executives at a Huobi event. (Source: Glassnode)

Running a Chainlink node

Huobi becomes the first cryptocurrency exchange to run a Chainlink node, the release stated. Previously, the former’s Wallet product ran PoS nodes, for several altcoin projects like ATOM, Ontology, and LOOM, claiming to have over $10 million locked collectively.

The release said Huobi brings its expertise and experience in running secure infrastructure to the Chainlink Network and shall decentralize the process to make oracles faster and more accessible.

While several oracles are offered on the market. Chainlink’s emerged as a market leader, powering several projects with real-world verifiable data. As per CryptoSlate’s extensive reporting on the subject, Chainlink feeds are used by betting pools, games, exchanges, and even golf games.

A game powered by Chainlink oracles. (Source: ChainFaces)

An eye on DeFi

The partnership capitalizes on the ongoing DeFi frenzy. Huobi said the development creates an external adapter for the Huobi Global Exchange API, meaning any Chainlink node can leverage the adapter to gain access to price data. 

This allows DeFi projects to access prices, which in turn, can be used to build products for lending, borrowing, derivatives, and others, the firm noted.

As per DeFiMarketCap, the DeFi space is valued at over $2 billion, with heavyweight projects like Compound along capturing over 50% of the space. CryptoSlate noted yesterday the project’s pools supply billions in assets, while COMP tokens have broked into the top-25 altcoins.

Compound supply and burrow pools. (Source: Compound)

Meanwhile, Huobi Wallet CEO Will Haung said on the development:

“DeFi offers a unique value proposition of providing financial products that are transparent, open, and programmable. We want to accelerate the growth of DeFi, and supporting Chainlink’s critical oracle services are key (…)”

Huobi Wallet is a noncustodial, multi-currency wallet app featuring over 19 currencies and 3 digital tokens. It wholly maintained by the Huobi group.

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DeFi-favorite Ethereum wallet MetaMask gets Version 8 update, new features

Popular non-custodial wallet MetaMask announced it will roll out a Version 8 update for the wallet in the coming weeks, promising increased privacy, a better UI, and other user-centric features.

The wallet is popular on all DeFi exchanges and applications and may see increased installations as the broader DeFi sector grows.

If you’ve used UniSwap, Balancer, or Compound; the role of MetaMask should have struck out as evidently significant.

Privacy, assets, and accessibility 

Via a blog post on June 2, ConsenSys engineer Dan Finlay wrote on the new features of MetaMask touting the latter is what “no wallet has done before.”

First up is enhanced privacy. Finlay said most crypto wallets either manage a single account or show current account information to all websites/applications associated with that account, revealing sensitive private information.

But MetaMask V8 introduces customized privacy control for each linked account, i.e. creating a new wallet for each website or selecting what wallet interacts with which website. Users can dictate their data sharing on their terms.

To smoothen the above, account switching will be enabled to allow for quick shifting between two wallets on their respectively linked platforms.

Switchable ETH accounts. (Source: MetaMask)

As part of MetaMask’s EIP-2255 permissions system, new and enhanced permissions will enable powerful features like decryption, access to wallet information (like tagging a user’s favorite tokens or contacts), and eventually introducing the MetaMask “Snaps” extension — the latter is a plugin system currently in beta mode.

A newer UI promises greater accessibility for users, mainly under the “assets” and “activity” sections. New iconography helps in making transactions more recognizable, says Finlay.

Easier for Ethereum devs

Ethereum developers have something new as well. MetaMask now features Web 3.0 encryption, which allows websites to transfer data using state-of-the-art encryption measures.

Finlay notes:

“For now, these decryption requests each require user confirmation, so it’s mostly ideal for decrypting infrequent, important messages, like emails.”

He adds developers have an opportunity “later on” to build a decryption strategy available with a permissions system. More information on the decryption API is available here.

Finlay said the team has, via the update, addressed past issues of developers finding it difficult to onboard users onto MetaMask, courtesy a slightly intimidating installation process.

To ease the above, a new onboarding library enables applications to implement their own connect button. This allows users to land on a site, install MetaMask, and be automatically redirected back to the application.

Last is the ERC-1193 Provider API meant for developers. This EIP “formalizes a JavaScript Ethereum Provider API for consistency across clients and applications,” creating a friendlier-to-user, extensible API for developers.

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Fund strategists: The internet’s craziest traders will bring volatility back to Bitcoin

Bitcoin, and the cryptocurrency market, has largely traded in a tight price band since an initial rise in early-2020. 

Fund managers have taken note and are actively considering BTC as a hedge against global markets. In fact, the traditional markets are, as Ethereum’s Vitalik Buterin puts it, turning into what the world thought crypto-markets would be.

But the stability will soon disappear as profit-seeking retail traders set their eyes on Bitcoin, bringing with them a surge in price volatility, a fund strategist believes.

Profit hunters to prop Bitcoin price

Matt Maley, the chief strategist at Miller Tabak + Co, says Robinhood traders will soon seek opportunities in the Bitcoin market, once their infatuation with traditional stocks and options wanes off.

Traditional markets have seen unprecedented volatility in recent times across products like futures and equities. Many say, retail traders—perhaps some even spending their stimulus checks—are fuelling a surge in U.S. markets, one that does not mirror real-world concerns like unemployment or economic contraction.

But their boredom could eventually drive Bitcoin up. Quick profits are unlike long-term investing, and retailers are likely to rush in when BTC shows signs of an upwards trend.

Speaking of the retail mindset, Maley adds:

“They’re playing in another sandbox right now, but they’re keeping their eyes on all the other sandboxes because they know that something like Bitcoin can make them a big profit very quickly.”

Talking to Bloomberg, Maley said Bitcoin’s Relative Strength Index (RSI)—a mathematical measure of overbought or underbought conditions—is at a neutral point of 48.5.

Bitcoin is known for its sudden moves, even if not all end in ecstasy. In March 2020, the pioneering digital asset fell over 45 percent in two trading sessions for no fundamental reason. 

Some funds were liquidated and faced legal notices from clients, as CryptoSlate reported at the time.

Reviving bankruptcies and Bitcoin

Maley’s thoughts come after Robinhood traders were quoted by mainstream media outlets in the past month for piling into bankrupt companies like Hertz—driving it’s stock price up by 30 percent in under a week.

Their actions may have led to the revival of indices like the SP-500 and Nasdaq-100 as well, with the latter posting all-time highs even as the long term outlook remains grim.

The traditional market indices have been surging with no regard for real-world concerns. (Source: TradingView)

Bitcoin is up over 30 percent for the year. Other relatively unknown tokens like Compound’s COMP are up almost 300 percent, driven by a recent boom in DeFi protocols

For option trading subreddits like r/wallstreetbets, the above is a boon. The forum almost exclusively trades options on Robinhood—and while speaking about crypto is “forbidden” in the sub’s rules—the traders might check out BTC options if a profit opportunity presents.

Benn Eifert, the managing partner of QVR Advisors, believes there’s an overlap between the “Robinhood types” piling into shares of bankrupt companies and those who purchased crypto in 2017.

“It’s a social media-like dynamic,” he told Bloomberg, adding that “influencers” point out some pretty-looking charts and give out a market call causing “many people [to] pile in.”

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Ethereum co-founder says “rollups” will power ETH 2.0 to 100k TPS

Since long, the transaction per second (TPS) metric for many cryptocurrencies is informally considered a gold standard for how good any blockchain platform is.

High TPS means a battle-tested network capable of scalability and fast processing of user transactions. This partly helps in positioning blockchain as a steady alternative to centralized providers.

Currently, Bitcoin provides 4 TPS, while Ethereum goes up to 15. Smaller coins like NEO and Cardano boast of or are building a framework for reaching 1,000 TPS, while Komodo claims to have reached the 45k per second mark in testing.

Now, with ETH 2.0 coming up, the protocol might see over 100,000 TPS gradually, with plans for eventually scaling to over a million as “sharding” is deployed.

If that happens, the popular argument of public blockchains being slower than VISA is set to be toppled.

Six-figure TPS coming to Ethereum

Vitalik Buterin, the 26-year-old co-founder of Ethereum, tweeted earlier this week:

Buterin said ETH 2.0 scaling for data will be available before that for general computation, explaining the 2-3k TPS with ETH 1.0 as a data layer, “then ~100k TPS with ETH 2.0 (phase 1).

In thread comments, Buterin noted “rollups could potentially go up into the thousands or more,” adding that shards didn’t “need to talk to each other synchronously to be able to have a synchronous rollup that combines the shards’ scalability.”

On a relevant Reddit post, Buterin laid out the math:

“64 shards * 256 kB per block per shard / 12s slot time = 1.33 MB/sec. Rollups: ~10-12 bytes per tx if packed optimally. 1.33m / (10…12) > 100k.”

He added the calculations assumed that rollups “are ready, phase 1 sharding is ready, and people actually use the tech.”

Graph showing Ethereum’s TPS as of June 30. (Source: Blockchain)

What are rollups anyway?

For the uninitiated, rollups are layer-2 frameworks that help the network scale-up to multiples of present levels. In its most fundamental form, rollups store transactional data on the Ethereum blockchain in a compressed form, with the heavy-working computation occurring off-chain.

An example is Optimistic rollups, first proposed by Buterin in 2018 and now developed by Plasma. Some teams are building application-specific zk-Rollups as well—iterating on the same architectural design to suit their needs.

Another team is Matter Labs, with its zk-Sync product described as “zk-Rollups on steroids” by Ben DiFrancesco, a blockchain developer who also writes a popular newsletter on relevant topics.

Matter uses zero-knowledge proofs, the same tech used by Zcash, allowing for faster transactions than other similar solutions.

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Compound users now supplying over $1 billion in ETH assets; COMP a top-25 altcoin

Compound’s meteoric rise in the crypto-space is coupled with the rise of DeFi tokens and retail traders chasing the next “moonshot.”

COMP, Compound’s native token, rose over 600 percent from a listing price of $61 to over $350 on June 21, before steadily falling to its current $195 level.

At press time, COMP is a top-25 altcoin, while the value of total assets locked in Compound exceeds $1.5 billion across supply and burrow pools.

Compound locks $1 billion

Compound touts itself as a decentralized lending pool and automated market maker, which in layman’s terms, means one can put up their crypto holdings for other traders to burrow and make money off — paying the lender a fee in return.

This is similar to how banks operate. Yearly interest—oft in the range of 2-5 percent—is generated when an account holder’s money to shipped off in the banks’ name to loan seekers. The fees they pay are then siphoned to holder accounts, with banks taking a cut.

While Compound is not a bank, provides a decentralized platform for lending and borrowing crypto assets. The interest rates are variable and fluctuate based on the supply and demand of the individual assets.

And the community seems to have taken a liking. Total assets locked on Compound crossed over $1 billion last week and has gained another 30 million since. The snapshot below shows:

Compound Supply & Borrow
Compound supply and burrow pools. (Source: Compound)

Of that pool, Brave’s BAT token emerges as the top-choice pool token. Gross supply is over $326 million, with suppliers earning 14 percent and borrowers paying 33 percent APR.

However, there are concerns about how BAT holdings and distributions are calculated. As CryptoSlate reported yesterday, a Compound pool voted for a new distribution system as concerns of illiquid and propped-up holdings rose, meaning BAT might not hold its position for long.

COMP token surges, but there are concerns

Each day, over 2,880 COMP are distributed to users of the protocol; the distribution is allocated to each market (ETH, USDC, DAI), proportional to the interest being accrued in that market, notes Compound.

The token is traded mainly on DEXs like UniSwap, but last week saw mega-listings on Coinbase and FTX. The latter could have catalyzed COMP’s surge to $350.

Yesterday, Korea’s OKEx listed the COMP token — possibly opening the gates for the second round of retail interest as the country’s rides on the DeFi mania.

Meanwhile, not all are convinced with how Compound, and the broader DeFi market, is shaping up. This cohort includes Ethereum co-founder Vitalik Buterin, who has chimed in the crypto community’s fascination with “yield farming” in recent times:

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Norway turns to IBM blockchain for sustainable salmon—and activists are probably happy

For Norway’s huge following of climate change and sustainable farming activists, blockchain technology may hold an answer.

Last week, the Norwegian Seafood Association (NSA) said it is partnering with IBM for the latter’s enterprise blockchain solution “Transparent Supply” — changing how its billion-dollar fish industry will operate moving forward.

Salmon—now blockchain-tagged

Norwegian Salmon is a serious business. Reports estimate the industry generates just shy of $1 billion annually in imports for the Scandinavian country—making up an important part of its overall economy.

Concerns of sustainability and traceability have been raised in the past. The aura around Norwegian Salmon brings with it below-par products, frauds, and storage concerns, all of which individually contribute towards buyer decisions.

But Kvarøy Arctic, one of the joinees, thinks blockchain technology ends such concerns. The firm is a leading provider of naturally sea farmed salmon, and shall soon deliver blockchain-tagged fish fillets to retailers in the United States and Canada.

NSA CEO Robert Eriksson believes that using blockchain will increase the competitive edge of the Norwegian fishing industry. He touts the world-renowned quality as a USP, but without the ability to trace origins and track storage fosters fraud and food waste:

“Blockchain can help eliminate these problems with a transparent, accountable record of where each fish came from.”

Eriksson believes other industries might pile on if the pilot efforts catch on, leading to more sustainable food production and profits for Norway’s famed agricultural businesses.

Sustainability a theme of 2020

The partnership comes as sustainability in food chains has gained prominence—perhaps even a cult following—since last year.

Led by activists like Sweden’s Greta Thunberg, a majority of affluent populations in Europe are siding with calls for reducing the world’s carbon footprint, creating sustainable food sources, and moving to more eco-friendly methods of living.

Led by Greta Thunberg, youths rally in Sweden against climate change and for sustainable living. (Source: AFP)

A recent IBM study concluded that over 70 percent of surveyed consumers vouched for traceability over other factors—even stating a premium price was no limiting factor if sustainability was proven.

With the blockchain system in place, customers would get documentation about the fish they consume. This would include points like where the fish is from, when it was fished, the feed it has eaten, and even the temperature it was transported in.

Blockchain tags may soon feature on salmon shelves in the U.S. (Source: AP)

For sellers, this means charging a higher premium for location-centric salmon deemed a higher-quality, similar to what single-origin coffee sellers have enjoyed in the past few years.

Other blockchain-specific benefits include ease-of-clearance at national Customs checkpoints, ensuring easy data access for the latter to expedite clearance. 

Launched in 2016, the IBM Blockchain Transparent Supply allows participants on a shared network to manage their membership, securely share documents, and create a permanent record of the history and lifecycle of physical and digital assets.

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University of California pays out millions in Bitcoin after ransom attack

The University of California at San Francisco (UCSF) paid out over $1.14 million in Bitcoin to hackers earlier this week, days after their data was held as ransom by a group of unidentified individuals.

Authorities are monitoring transactions and have passed the case on to relevant cyber-crime officials, as per reports on Tuesday.

UCSF affected

Hackers blocked a selection of data servers from the university’s overall computing network. Compromised data containing sensitive research information — such as the UCSF’s work on medical studies — among other uncategorized data.

The affected servers were blocked by encrypted malware, masking the hackers’ identities.

The incident first came to light on June 1, after UCSF’s I.T. department raised concerns of and confirmed an isolated security incident on a “limited number of servers in the School of Medicine.” the servers were isolated from the UCSF core network.

UCSF medical school at night. (Source: Linkedin)

All servers, at the time, were left inaccessible, and stolen data immediately encrypted to prove a hack — instead of carelessness in data handling — had been perpetrated.

In a release, UCSF said the data was vital to research for “serving the public good,” adding that the data that was encrypted is important to some of the academic work we pursue as a university serving the public good.”

This caused the school to make the “difficult decision” of paying $1.14 million to the individuals heading the malware attack.

Bitcoin paid, tool received 

UCSF has since received a tool to unlock the encrypted data and the return of the data held by attackers, the release confirmed.

University officials told reporters their work on patient care, COVID-19, or general campus activities was unaffected. In terms of avoiding such an attack again, they said a team of security experts will be brought in to educate and eliminate such future threats.

Affected servers will be restored in the coming weeks. Meanwhile, UCSF said the incident highlighted the growing threat of malware by cybercriminals, although not blaming the use of Bitcoin in any way:

“This incident reflects the growing use of malware by cyber-criminals around the world seeking monetary gain, including several recent attacks on institutions of higher education.”

Investigations are ongoing.

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Three reasons why China will “lose its grip” on Bitcoin mining as political tensions mount

Weeks after the Bitcoin halving in mid-May, miners are seemingly moving out of China and into Europe — with one prominent mining pool stating geopolitical tensions between the U.S. and China are a major catalyst.

Losing “inertia”

F2Pool, one of the world’s largest Bitcoin mining pool as per data on BTC.com, said in a tweet this week that “inertia” is keeping the most of the Chinese hashrate still intact, but the country will “eventually lose its grip on the industry.”

China commands over 65 percent of the global Bitcoin hash rate, as per reports. F2Pool, AntPool, Pooling, and BTC.com are the major players, with smaller ones like Lubian and ViaBTC also making their mark.

China is no newcomer to mining. Such businesses have thrived there for years, with F2Pool itself active since 2013. Low labor costs, cheap electricity, and technical know-how have each played their part in catapulting China’s rise in the mining industry.

However, the podium is likely to see change. F2Pool believes mining farms outside of China will “increase [their] pace” this year.

A 21 Shares analyst echoes the thoughts. Going by @elidinga on Twitter, he said earlier this week that “three important geopolitical” patterns could explain China’s sharp mining decline in recent times.

Three political factors

First is the ongoing U.S-China trade war, presumably coupled with the latter’s political behavior with India, Hong Kong, and Taiwan. Capital outflows have seen a record level in the country since 2010. Western investors, hedge funds, and even some East Asian VCs are running for the exit.

The above has, by extension, caused funds spent on Bitcoin mining and farm setups to steadily decline. Mining, by nature, is an expensive affair, oft requiring millions in upfront investments to building a mid-sized mining outlet.

Mining farm in China. (Source: Charl)

Next is the “de-dollarisation of various financial systems, specifically in emerging economies.” The latter are increasingly turning to crypto-assets ahead of traditional financial instruments. Eli adds:

“Since accessing cryptoassets from crypto exchanges is undoubtedly impossible for users in countries like Iran, setting up mining operations to earn Bitcoin presents [a] viable option.”

Last, is Bitcoin mining businesses getting institutionalized in the U.S.

U.S Prominence and rising difficulty

Just last week, a relatively new mining firm, Core Scientific, led by ex-Microsoft COO Kevin Turner said it would purchase over 17,595 units of mining rigs from Bitmain. Another firm in Canada, Hut 8 Mining, also raised $8 million from investors to build mining capabilities.

As such, U.S. investors interested in such avenues are family offices, traders, and accredited investors, notes Eli. He added this trend was likely to shift to professional traders in the short term.

Data shows the U.S. is already catching on — commanding 7 percent of the global mining hash rate:

(Source: Cambridge Alt Finance)

Meanwhile, Eli said retail mining still remains active in the Bitcoin market, presumably using old GPUs to earn their bread. However, they are likely to be stamped out in the near-term as Bitcoin’s difficult changes and corporate miners invest in better equipment.

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DeFi platform Balancer to reimburse $500k in hack losses; community threatens legal action

It’s been a difficult 48 hours for DeFi project Balancer.

Riding on the DeFi yield farming hyper, Balancer saw an influx of pool funds locked in its protocol, which in turn, attracted the bane of any technology project — the attention of hackers and loophole opportunists.

Attackers stole over $500,000 in wrapped Ether, Chainlink, and other alts early on June 29. The saga ended on June 30 with a bug bounty reward, legal threats, and reimbursement of all liquidity pools affected in the attack.

All losses to be reimbursed

Balancer Labs tweeted Tuesday that all liquidity pools affected in the $500k hack would be fully reimbursed. The firm said a community vote was taken in the regard, with the majority in favor of the decision:

Hex Capital, an algo-trading account created by one Ankur Agrawal, would be paid out the “highest” bug bounty for having earlier addressed the security lapses around listing Statera (STA) — the token which caused the vulnerability in the first place.

In a post, Balancer CEO Fernando Martinelli said the platform experience an unprecedented surge in both users and liquidity last week, leaving developers to play “catch up” on scaling the platform.

Twitter commentators said Balancer was, perhaps, setting a “dangerous” precedent for future DeFi projects and security lapses. However, others believe the sector is undergoing teething issues and developers could take this as a “learning” experience.

However, Martinelli was forthcoming in this regard. He said Balancer Labs will only reimburse the losses of liquidity providers in the attack as the team had already received a specific bug bounty report prior to the hack.

Security audits and legal action

Statera, on its part, tweeted it was working with Balancer and actively collaborating on solutions. The firm added it would be reimbursing STA to all liquidity providers affected by the hack, while Balancer will reimburse the four other tokens.

Meanwhile, Dr. Julian Hosp of CakeDeFi claimed Balancer was audited twice previously:

“$BAL was audited twice. The problem here is neither the auditor nor Balancer Labs. it is the turing-complete game. Turing complete is amazing for trying out things and pushing the boundaries. It is terrible at providing guarantees.”

Before Balancer’s statements, some community members called for lawsuits against the firm and its developers hours after the hack came to light. The posts have since been deleted.

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Chainlink (LINK) oracles to power NFT-based blockchain games on Polyient

Chainlink’s technological capabilities are in-demand this year, with its blockchain seeing increased adoption this year courtesy its scalable smart contracts, oracles, and verifiable randomness function (VRF) features.

NFTs and Chainlink

On June 29, the firm said Polyient Games, a venture fund and development lab dedicated solely to non-fungible token-based blockchain games, will use Chainlink’s blockchain to power various features of the broader Polyient Games ecosystem.

Chainlink’s VRFs will feature on Polyient’s Founder’s Keys (PGFKs), an upcoming membership NFT that will provide lifetime rewards and perks to holders within the Polyient Games Ecosystem.

VRFs will be used to randomize the distribution of exclusive NFTs and various other rewards for PGFK holders, the release noted.

(Source: Polyient)

On choosing Chainlink, Polyient said the project’s “deep industry expertise” made it ideal to as the firm explores capabilities of and works towards bolstering NFTs for mainstream investors and consumers.

Polyient’s faith is not unplaced. Earlier this month, Chainlink was recognized by the World Economic Forum as one of the top-50 tech pioneers in 2020 for the firm’s work in blockchains, smart contracts, and decentralization.

“Truly random” winnings

The release explained Chainlink VRFs will power chance-based rewards for users who “stack” on PGFKs, based on the amount of NFTs held in their respective wallets. 

For the uninitiated, VRFs are a “truly random” way to determiner rewards, among other uses. As CryptoSlate illustrated last month; imagine a betting service announces the winner of a million-dollar lottery, what proof do ticket holders have about the winner’s connections within the organization?

Lottery booth in Tokyo, Japan. Winnings may not be random, but Chainlink’s VRFs solves the issue. (Source: Travel Japan)

Or, what if the so-called “winner” is an employee of the company, acting solely as “bait” to entice new buyers of lottery tickets.

VRF’s can help in the above example, as the Chainlink blog explains:

“Well made systems relying on randomness would ideally want it to be both provably fair/equally uncertain to all contract participants, while also successfully reducing the risk that an adversary could exploit their contract by predicting its outcomes.”

Chainlink VRF represents a major advancement in the NFT space, as it enables a provably-fair and on-chain verifiable source of randomness, noted Polyient’s release.

Benefits include proper transparency for the minting and distribution of PGFK rewards, which an eventual goal of building an “open, collaborative ecosystem around NFTs.”

In the coming weeks, Polyient will explore more uses for Chainlink capabilities, all centered around the games it supports and native products.

Meanwhile, Chainlink’s head of Business Development spoke in the regard:

“We’re excited to empower Polyient Games with secure and reliable oracle solutions to further their mission of expanding the blockchain gaming ecosystem into numerous unseen application designs that are augmented by access to off-chain data.”

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Bank of America is treating Bitcoin, Ether as “cash,” will let you purchase crypto with credit cards

First, they ignore you, then, they fight you, then you win.

The adage cannot hold truer when it comes to the cryptocurrency markets. This year alone, banks like JP Morgan, Goldman Sachs, and even the  People’s Bank of China — all anti-crypto at some point — have expressed their interest in offering cryptocurrency services to clients.

While their reasons may range from collecting high processing fees instead of embracing the decentralized ethos of Bitcoin, the developments mark a changing narrative in the digital assets space — as far as traditional markets are concerned.

Now, another American banking giant seems ready to plunge head-first into the crypto-market.

Purchase BTC with BoA credit cards

An image posted by a user on the r/Cryptocurrency subreddit showed a Bank of America (BoA) notice stating all cryptocurrency purchases will be treated as a “cash equivalent.”

BoA credit card notice. (Source: Reddit user)

This applies to all BoA credit card purchases of digital currencies, with no confirmation on how the bank treats debit cards or bank transfers for crypto transactions.

As the image shows; terms and conditions under the “Types of Transactions” have changed to include cryptocurrencies as a “cash equivalent,” that in turn, is will be treated as a “cash advance” on purchases.

Thread commentators noted cash advances attract the highest fees on BoA — about 5 percent on all transfers or a minimum of $10, as noted by Wallethub.

Lack of volatility leading to the decision?

While no official announcements from BoA on their decision to include cryptocurrency under a cash advance exists at press time, the marked lack of market volatility could have contributed to the same — as some commentators noted.

Taxing capital gains worked well when Bitcoin hovered wildly in single trading sessions. However, with the pioneering asset hovering between $9,200 – $9,800 since March, banks may have moved to capture fees on static aspects.

BoA branch in Fort Worth, Texas. (Source: Fox)

The move marks a step forward in some regards. While the ethos of cryptocurrencies calls for cutting out middlemen and high fees, banks onboarding customers with the latter is perhaps better than the threat of card cancellations or account freezing.

Despite the development, one must be wary to trade cryptocurrencies on credit. They remain a highly-speculative, risky investment with a marked lack of risk management tools on most platforms.

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Crypto.com is celebrating its 4th anniversary and giving away Bitcoin at a 50% discount

Crypto.com is offering discounted Bitcoin for a limited number of users of June 30, as part of the firm’s fourth-anniversary celebrations. 

BTC at 50% off

Called the “Syndicate Anniversary Special,” the Hong Kong-based crypto giant has a $2 million allocation for the first 25,000 users placing a “subscription” on the exchange.

Registered and qualified users get Bitcoin at a 50 percent discount, meaning if the asset trades at $9,500 today, select users can buy it at $4,750 tomorrow. Subscriptions are open until 06:00 UTC on June 30.

No staking of CRO — the platform’s native token — is required, opening the gates for all exchange users to participate regardless of their CRO holdings.

However, staking CRO does have its benefits. Crypto.com notes in a release stakers get a chance to increase their maximum allocation for BTC subscriptions while enjoying added benefits like a trading fee discount, a 20 percent yearly yield on CRO staked, and the preferential interest rate on Crypto.com “Soft Staking.”

The event’s rules are as follows:

Sale Amount & Subscription Price:

  • Total BTC Supply: $2,000,000 USD worth of BTC
  • Discount rate: 50%
  • Max. no. of subscribers to participate: 25,000

Details on the CRO staking and equivalent rewards paid out in terms of BTC allocations are shown in the table below:

(Source: Crypto.com)

Caveats

However, for Crypto.com exchange users, staked CRO tokens may not be used to subscribe to BTC in this event, noted the release, adding says event participants will “receive their finalized BTC allocation at distribution.”

Caveats remain, however; Crypto.com can cancel or make amends to the Syndicate program without prior notice, while citizens of Hong Kong, the U.S., and China are excluded from the program.

In a post, Crypto.com said all legal matters will be dealt with in Hong Kong, with the program being fully-governed and deemed compliant with relevant authorities. Any participant found to breach the terms, found here, will be liable for legal action.

Crypto.com has been in the news lately for its security audit standards and temporarily shutting its debit card program in the U.K and Europe after Germany’s Wirecard, its card operator, announced bankruptcy last week.

Last week, the exchange also announced making an upgrade to its exchange system; foraying ahead with improved infrastructure as cryptocurrencies start to take precedence in the traditional finance sector as a “hedge” akin to gold.

To sign up for Crypto.com and participate in the sale, click here.

Disclaimer: Crypto.com is an advertising partner for CryptoSlate.

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Report: China’s national blockchain project could adopt Ethereum after Chainlink onboarding

China’s surging ahead with its blockchain aspirations even as the world grapples with the basic regulation around distributed systems and digital currencies.

Moving into public blockchains

A fund manager revealed Sunday the country will soon onboard Ethereum to its ambitious Blockchain Service Network (BSN) project, as part of a broader push to leverage blockchain technology within the country.

Haseeb Qureshi, the managing partner of crypto-focused Dragonfly Capital, said local sources confirmed the BSN will feature Ethereum and Nervos Network, apart from other unannounced-as-of-yet public blockchains.

The development comes a week after Chainlink, the blockchain agnostic platform, was earmarked to be onboarded to the BSN in the coming weeks. The news sent LINK surging over 20 percent at the time.

While no information on how Ethereum will be utilized exists at press time, reports confirm Chainlink will be used to secure the “blockchain middleware” that enables developers to create interconnected smart contracts.

Qureshi believes the partnership marks a “big deal” for Ethereum and the broader cryptocurrency sector. The development is in step with China’s apparent “blockchain, not Bitcoin” narrative; which sees the country heavily censor the use of cryptocurrencies while pursuing rapid growth in the blockchain space.

Supporting public blockchain would mean anyone on the planet can access data and confirm transactions on the BSN. This is contrary to China’s notorious image of being extremely private about its internal policies.

Qureshi noted in a tweet:

“We predicted that since Xi Jinping announced the “Blockchain+” initiative, it would start with permissioned blockchains.” 

He added that China would eventually embrace the innovation “happening in the decentralized world.”

Despite the claims, Matthew Graham of Sino Global Capital, a China-first investment firm, suggests being “super cautious” about the development until official reports on the matter:

China’s blockchain push

China’s blockchain efforts have not gone unnoticed among global governments. Ministries in South Korea and the U.S. have acknowledged Jinping’s push for a distributed system, and the so-called “digital yuan,” in the country.

As reported by CryptoSlate last month, Korea is said to be “concerned” about China’s quick rise to the top blockchain developer in the world. ICON founder Ho Kim tweeted about this sentiment:

Korea has even unveiled a $400 million fund to spearhead its own efforts towards blockchain regulation, development, and setting up a legal sandbox for cryptocurrencies.

Meanwhile, in an interview last week, Ripple co-founder Chris Larsen said much of the U.S. discussion around cryptocurrencies centers around Bitcoin and Ethereum, which he defines as “dominated by miners based in China.”

Markets in China could soon heavily feature blockchain systems. (Source: Peek)

Larsen noted “China is so far ahead of us (the U.S.),” and not for bad reason. China is already modeling the island of Hainan as a “blockchain hub.” Local observers state President Xi Jinping aims to make the island fully-blockchain and AI-compliant; a glimpse into how the city of the future could look.

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DeFi risks; Hackers drain $500k in LINK, wrapped ETH, and other alts from Balancer pools

Hackers made away with $500k worth of Wrapped Ether, Chainlink, and Synthetix from Balancer pools early on Monday, after a deflationary token model was taken advantage of.

Balancer addressed the issue soon after, confirming the hack and stating the protocol was not compromised. All other tokens remain unaffected, and the exchange continues to function.

$500k stolen

Two balancer pools were affected on Monday morning after hackers used a vulnerability in the contract models of a token, Statera (STA), which runs on a “deflationary” model.

Balancer pools are a type of automated market makers (AMM), providing on-chain liquidity for multiple assets and keeping them balanced in certain proportions.

For the incident, hackers sent a complex transaction to Ethereum Mainnet which caused an attack on one of the Balancer Pools, as per a report by 1inch exchange, a DEX aggregator. Soon after, another transaction led to the draining of funds from another Balancer Pool.

Using a sophisticated approach, the attacker used an automated smart contract to run multiple actions in a single transaction. The first step involved taking out a “FlashLoan” of 104k WETH from dYdX (another DEX). 

The funds were used to swap WETH to STA token over 24 times, causing STA balances to be drained until it became 1 weiSTA (0.000000000000000001 STA).

The above was possible as the STA token ran on a deflationary model with transfer fee of 1 percent charged from a recipient. This meant every time the attacker swapped WETH to STA, the Balancer pool received 1 percent less STA than was expected, 1inch noted, adding:

“As the next step, the attacker swapped 1 weiSTA to WETH multiple times. Due to STA token transfer fee implementation, the pool never received STA but released WETH regardless.”

Full circle and DeFi risks

Similar steps were used to drain WBTC, SNX, and LINK token balances from the pool. The hacker reached full circle by repaying the WETH FlashLoan dYdX. All the stolen funds can be tracked and viewable on this address

STA was advised of its deflationary model being broken before listing on Balancer, as some on Twitter observed:

At press time, STA is down over 80 percent. Relevant tweets on the subject show the community is not pleased, and some are threatening legal action against Balancer.

Meanwhile, “Hex Capital” claimed to have appraised the issue to Balancer Labs at an earlier time, but receiving no response on the subject:

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Whales might be dumping Bitcoin on Grayscale, and a fund manager calls it “very bearish”

Grayscale Trust, the institutional vehicle for accredited investors to get exposure to cryptocurrencies, has been making the rounds in crypto circles recently for seemingly cornering the Bitcoin market.

Reports confirm the entity has been buying over 70 percent of all Bitcoins produced each week, with last week’s stash alone exceeding 19,000 BTC.

This leads to many presuming the fund will eventually dump its holdings on retail investors to actualize profits. However, one prominent money manager believes the contrary is taking place; i.e. whales unloading their holdings to Grayscale.

“Very bearish”

Peter Schiff, famed economist and fund manager of global macro-biased Euro Pacific Capital, is a long-time Bitcoin critic. He has, in the past, famously stated the currency “will go to zero” and considers all crypto markets to be “worthless.”

However, the economist’s insights cannot be ignored, despite his non-adherence to the broader crypto ethos.

On Saturday, Schiff tweeted Grayscale was buying more Bitcoin than miners produce since the May 12 halving event.  Despite this, falling Bitcoin prices indicate whales — or large holders — are dumping their holdings on the institutional fund.

Grayscales provides investors exposure to Bitcoin, and other cryptocurrencies, via its GBTC and other respectively named products. As per its prospectus, one GBTC share trades at $10 on the open OTC market and holds 0.00095996 BTC per share.

Total assets under management exceed $3 billion and Grayscale charges a 2 percent investor fee.

Meanwhile, data from on-chain analytics firm Glassnode shows whale holdings increasing, contrary to what Schiff said:

(Source: Glassnode)

Grayscale products, not the best understood

Despite Schiff’s opinion, Grayscale’s products are not the most understood in terms of what they actually do. While they are largely defined as an ETF, Ryan Watkins, an analyst at on-chain firm Messari, says people grossly “overestimate” the amount of BTC held in the trust.

As CryptoSlate reported earlier, Grayscale’s products disallow investors from selling until after a 6-month period. Watkins explains:

“Since no new shares are added, investors in the secondary market can push the price of the shares well above the value of the underlying cryptocurrencies.”

The above creates high-premium for Grayscale products, with the ETHE — which tracks Ether — selling at 750 percent higher than actual ETH. This creates an arbitrage opportunity.

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China wants to eventually track all transactions over $14,000 with the digital yuan

China’s digital currency aspirations are both unprecedented and unparalleled. The former because not many critics pinned their hopes on the Far Eastern giant to be the beacon holder for blockchain technology, the latter as no other nation is close to China’s progress with in terms of digital currency development.

But the advancement of disruptive technology is not China’s motive to spearhead digital currency development, if recent developments are considered.

Instead, the Eastern superpower wants to leverage blockchain to gain a greater foothold over its citizens’ transactions and financial activities — an ideology completely contrary to that of Bitcoin’s.

Capping all large transactions

Nikkei Asia reported June 27 the country will now track all “large” transactions over RMB 100,000 (or $14,000 at current rates) to curb capital flight and closely monitor fraud.

Starting July, banks in China’s Hubei province shall record serial numbers for all cash transactions over the 100,000 yuan threshold; and reporting gross figures to the People’s Bank of China (PBoC).

Eventually, the digital yuan will be deployed to provide real-time insights and transaction Chinese regulators — with the ultimate motive to stamp out currency fraud in the country.

While no exact date for the launch exists, reports suggest President Xi Jinping is pushing the launch of Digital Yuan before the 2022 Winter Olympics in Beijing.

PBoC building in Beijing (Source: Bloomberg)

Observers believe the event will be fully digital, with the digital yuan playing a significant role in terms of financials.

Hubei denizens get a small-cap, those in Shenzhen — a technology hub bordered with Hong Kong — get a 200,000 yuan ($28,000) threshold.

Business accounts have their threshold set at 500,000 yuan in the two areas and the Zhejiang province. This is to presumably accommodate for their cash dealings.

Capital flight affecting China

The government has been cracking down on individuals trying to smuggle yuan out of the mainland to acquire Hong Kong or U.S. dollars. Beijing hopes to put in place a complete tracking regime that will help prevent capital outflows.

Another factor is the ongoing U.S.-China trade, one that has affected the stock markets in both nations and, to some extent, their fiat as well. Nikkei notes:

“China’s foreign reserves exceed $3 trillion, the figure is less when accounting for the surge in dollar-denominated debt, as well as for U.S. government bonds that can be cashed out quickly.”

Capital outflows have, historically, lead to the dumping of the yuan. This weakens the Chinese currency and squeezes its foreign currency reserves.

China looks to curb capital flight originating from Shenzhen. (Source: Savvy)

In 2020 alone, capital outflows from China via bank transfers and other channels exceeded $30 billion in the January-March period. While the question of capital flight being controlled by issuing a digital yuan is debatable, one thing’s evident, China is not looking to embrace the decentralized ethos of cryptocurrencies any time soon.

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Betting against Compound? This DeFi app just made it possible with COMP options

Compound’s (COMP) meteoric rise is equal parts FOMO and illiquid price pushing, with industry observers drawing parallels with the infamous ICO boom of 2017.

The lending-centric token even made it to Coinbase this week, with the latter notorious for taking a methodical, legal-first approach to projects. 

Thus far, there were limited avenues to bet against COMP price, with only FTX and UMA providing relevant products. However, on Friday, DeFi exchange Opyn said it was listing put options for COMP, providing bears with an avenue to short the token.

Bet against COMP

Styled as a DeFi risk management tool instead of a vanilla exchange, Opyn exclusively provides put options on popular DeFi tokens. The firm even raised $2 million earlier this week to expand its tech stack and product suite.

The first put option is currently live and provides an expiry price of $150 or lower per COMP on June 3. The latter currently trades at $259 as per data on CoinGecko.

Put option protection provides security against volatility & flash crashes, noted Opyn in further tweets, adding:

“When you purchase protection, you buy an oToken, giving you the right to sell your asset (eg. ETH, COMP) at the strike price no matter what its market price is. This oToken caps your downside.”

Opyn users can earn premiums in return for the “protection” they provide. All earned premium remains with the holder above the strike price until expiry. Collateralization is with the USDC, with Opyn stating it eliminates liquidation risk.

Yield farming spurs COMP rise

Since its launch on June 18 with an initial price of $61, COMP surged to $359 on June 21, buoyed by the bullish sentiment and market interest in “yield-farming” and DeFi applications. 

A Coinbase listing announcement may have catalyzed its price further, courtesy the famed “Coinbase effect” — which sees altcoins pump tremendously ahead of a listing on the U.S. exchange followed by a dump afterward.

But interest observers are not impressed. Some even draw parallels with a Ponzi scheme, as COMP’s protocol does not allow it to fall below the initial $61 price.

Ex-Messari product head Qiao Wang has spoken against the yield farming frenzy in recent times:

 

Ultimately, as CryptoSlate reported earlier, much of DeFi’s attractive yields come from loaning the collaterals out to other traders who, in turn, turn a profit on their capital to pay back COMP holders.

This creates a trading-centric product very similar to what banks did in 2018 — create leverage upon leverage and hand it out to those chasing high returns. 

But one must clearly understand the risks that DeFi yield farming brings to the table. Otherwise, such situations will start becoming more common:

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Crypto.com suspends debit card program after Wirecard bankruptcy

Crypto.com is temporarily suspending its Europe and U.K. issuances of MCO debit cards after its former card operator — Germany’s Wirecard AG — slipped into bankruptcy and filed insolvency this week.

The Hong Kong-based company will now find a new card operator to commence its card business again — one of the largest in the crypto-ecosystem.

Crypto.com clients in other regions, apart from the Europe and U.K., have not been affected.

EU roadblock

As per a blog Friday, Crypto.com said they were requested by authorities to cease all card programs in the U.K. and Europe, after an FCA investigation on Thursday.

Customers in the two regions cannot top-up or transact using their MCO cards as of June 26. The stoppage is not limited to Crypto.com; other Wirecard’s virtual card clients like ApplePay and Google are confirmed to have been affected.

The release said all customer funds are safe and pending credits will be processed to respective crypto accounts within the next 48 hours (at the time). All balances will be calculated from the fiat amount held on the cards prior to ceasement.

Early on June 27, CEO Kris Marszalek confirmed all cardholder balances were credited:

Crypto.com’s broader business has not been affected. The company said it is already working on transferring the card program to a new provider, adding:

“So that we can resume the issuing of cards in the UK and Europe and allow existing and new customers to benefit from our card program again.”

Commentators on relevant Twitter threads were happy with Crypto.com’s overall service and speed of addressing customer concerns.

Inside Wirecard

Long regarded as a poster child for German fintech startups, Wirecard was a former-unicorn that worked its way to big valuations using a series of shady deals, accounting manipulations, and stock fraud.

But this month, the firm’s music stopped. Investigations in April revealed company accounts did not match with reality. 

In June, Wirecard said over $2 billion were “missing,” sparking swift inquiry and police action into the matter. Shares plunged almost immediately, resulting in insolvency and the arrest of its former CEO, Markus Braun, this week.

Wirecard office in Germany. (Source: Evening Standard)

The company’s downfall is not a total surprise. Investigations led by Financial Times back in April 2015 revealed the flawed business model and questionable transactions pertaining to the firm’s expansion plans in Southeast Asia. 

Independent audits held by accounting firm KPMG in 2019 concluded there was no “discrepancy” in company accounts. However, in a separate audit, the firm alleged they were not provided with “all documents.”

In the succeeding months, several reports brought to light the malpractices in the company, leading to its eventual fall.

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Ripple co-founder: America is “ceding control” to China by regulating only Bitcoin and Ethereum

Blockchain technology and digital currencies are increasingly revered as the next phase for technological advancements, alongside the usual suspects of A.I., machine learning, and drone tech.

This week, Ripple co-founder Chris Larsen spoke on a CBInsights forum about the slow development of blockchain and cryptocurrencies in the U.S.

Speaking to WSJ reporter Paul Vigna, Larsen said the country was “ignorant” about providing legal clarity on blockchain and cryptocurrencies:

China miners dominate industry

Larsen said blockchain technology is poised to play an integral role in the world’s “next-gen” global financial system. However, he added, much of the U.S. discussion around cryptocurrencies centers around Bitcoin and Ethereum, which Larsen defines as “dominated by miners based in China.”

Saying “China is so far ahead of us,” Larsen notes China has readied a $1.4 trillion warchest for emerging technology, with part of it earmarked exclusively for increasing payments technology and blockchain. 

China is already modeling the island of Hainan as a “blockchain hub.” Local observers state President Xi Jinping aims to make the island fully-blockchain and AI-compliant; a glimpse into how the city of the future could look. 

Earlier this month, as CryptoSlate reported, the China government even called for the “speed up” of development in Hainan’s “Blockchain Pilot Zone.”

Hainan, the new blockchain hub? (Source: Business Traveller)

Ahead of ICO days

Larsen believes the cryptocurrency industry has come far ahead of its ICO days, a time when scams and obscure tokens swindled billions of dollars from the open market. That war has been “won,” he said, adding:

“Regulators must address the industry so that they can compete with China’s blockchain and cryptocurrency progress.”

Larsen said China’s recent move to try to control Hong Kong gives them two major financial centers — the other being Shanghai — while the U.S. continues to field a majority of its financial efforts only in New York.

The Ripple executive, with an estimated net worth of $2.6 billion on Forbes, thinks Chinese control over the global financial system could prove “devastating” for global prowess that U.S. markets currently exhibit.

His words come weeks after J. Christopher Giancarlo, a former U.S. regulator-turned-lawyer, appealed for XRP to be considered a “commodity” similar to BTC and ETH. As CryptoSlate reported, Giancarlo noted XRP failed the Howey test for securities and must not be regulated as such.

China zooming ahead

Countries around the world are pushing for development in and around blockchain and digital currencies, with some like China even including blockchain as a significant part of its ambitious Five-Year-Plan. 

But the U.S., long holding the beacon for advancements in technology — especially the role the country played in the development of the internet industry — is markedly slow in adopting blockchain, in terms of both regulations and infrastructure.

The lack of action is a problem for the country’s long-term growth and attractiveness as a technological hub, with some saying China might eventually emerge on top given its proactive steps.

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FTX blasted after “creating tokens” to capture $1 million in value; but that’s what DeFi is supposed to be

An incident earlier this week showed what peak Decentralized Finance (DeFi) could look like — one where the smartest survive and rent-seekers are eradicated immediately.

Gaming the game

On June 25, Predictions Exchange tweeted FTX was creating tokens and listing them on CoinGecko, while supplying its own liquidity for capturing Balancer (BAL) distribution. The tweet noted FTX harvested over 50 percent of last week’s BAL distribution:

At current market rates, the BAL value is well over a million dollars — meaning easy money for anyone who goes through the loops for attempting the above. 

To explain simply, Balancer is a DeFi protocol that creates “pools” of various cryptocurrencies and promises quick token swaps between different coins. BAL distributions, which started on Tuesday this week, are calculated by the liquidity locked on a certain pool with values calculated from CoinGecko’s data.

Seeing opportunity in the above, what FTX did afterward was either borderline fraud or pure genius — depending on what lens one puts on. 

The exchange issued USDTBEAR and USDTHEDGE tokens to CoinGecko, and then used their quant prowess to add over $100 million in liquidity to a Balancer pool in a 50-50 split between the two tokens. 

$100 million worth of pooled funds dwarfed other pools — which amounted to few or tens of millions each. This, in turn, allowed FTX to received over 50 percent of all distributions, even if its pool was worthless.

But this led to swift backlash.

Governance introduced

The topic was quickly picked up on Balancer’s discord channel, where users voiced introducing a token “whitelist” to control the distribution of BAL. Balancer devs seemed to halt distribution shortly afterward, preventing FTX to secure its rewards from the system.

FTX co-founder Sam Bankman-Fried took to Twitter to speak against the censorship of Balancer. He noted a lot of untraded ERC20 tokens issued pools on their funds, leading to a sort of “liquidity mining” within the ecosystem.

He noted liquidity mining was a “stupid” proposition similar to “transmining,” or creating “effectively negative fees to create the impression of activity.” However, the nature of DeFi prevents others from censoring the governance, said Bankman-Fried:

“In DeFi, you don’t enact arbitrary retroactive rules.  In fact, in pure DeFi you can’t enact retroactive rules, and are really limited even in forward-looking ones.”

Balancer held a community vote (without taking BAL tokens holdings into consideration), and said they would introduce a whitelist to prevent market gaming: 

Needless to say, Bankman-Fried was not impressed. The ex-Susquehanna trader said protocols like the above are a part of “what makes DeFi so hard to do well,” adding that  permissionlessness is “a double-edged sword.”

DeFi: much-needed or a profit tool?

Some commentators on relevant Twitter threads questioned the need for liquidity pools and products in DeFi, adding that most of today’s popular DeFi frameworks exist only to facilitate financial gains and not real-world utility.

Others on Twitter suggested FTX was committing “theft,” in terms of not providing any value to the broader DeFi community or providing true liquidity to an asset

However, this begs the question of what DeFi really is — in its truest terms, no governance must exist and participants are free to exploit loopholes as long as they exist. The latter may not seem ethical, but it embodies what a lack of censorship truly means.

Meanwhile, investors must understand that DeFi yields and gains do not come without significant risks, and one must invest only what they can afford to fully lose.

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Bitcoin miner outflows are showing signs of a weakening BTC market

It was a long time coming. After Bitcoin’s May 12 halving event, many in the cryptocurrency community suggested weaker miners would move out of the market and leave much of the hash rate open to stronger players. 

But, as the Bitcoin protocol is, the network’s hashrate adjusted itself negatively — meaning lower difficulty — allowing “weaker” entities to jump back into mining Bitcoin. 

However, they seem to be running out of fuel. On-chain data shows lesser-known miners are readying to actualize their profits and presumably shut operations if research from a few sources is considered.

Second-largest outflow

Pointing out Bitcoin outflows from a couple of miners this week, research firm CryptoQuant tweeted: 

The data pinpoints two mining pools, HaoBTC and Poolin, to be moving large Bitcoin amounts. Poolin is one of the world’s biggest mining pools, shuffling with AntPool for the top place perpetually. It also saw its second-largest outflow this week — with both pools accounting for 7,153 BTC, about $65 million at current prices, as of June 25.

As per data on BTC.com, Poolin has mined over 158 blocks in the past week, second only to F2Pool’s 187. HaoBTC does not feature on the top-20 list.

Data shows the public Bitcoin accounts of popular crypto-exchanges did not display a marked increase in total holdings — indicating the funds were likely sold in an over-the-counter (OTC) Bitcoin transaction. Asia is home to many such firms, such as OSL in Hong Kong and QCP in Singapore.

Despite the above, metrics on Glassnode show about 2,900 BTC — tracked from individual miner wallets — was deposited to cryptocurrency exchanges:

(Source: Glassnode)

Outflows precede drops

As CryptoSlate reported earlier this month, miner outflows have been declining after an initial surge in the week following the Bitcoin halving. At the time, publically-available data showed miners were, for a short while, selling more Bitcoin than they earned, presumably to cover costs and protect against future risk.

Meanwhile, some traders on Twitter said the miner outflows contributed to bearish cryptocurrency prices on June 25. At the time of writing, Bitcoin is down 4 percent, while ETH has declined 6 percent:

Commentators claim miner outflows have preceded massive price drops in the past. However, no statistically significant data or metric necessitates this claim.

In early-June, Glassnode data on Miner Outflow Multiple (MOM) for Bitcoin, which calculates the outflows for the currency from miner pools, showed relevant values were reaching a new one-year-low, considering the metric’s 365-day moving average.

Fund manager Tuur Demeester tweeted at the time:

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This Swiss bank is now paying out Bitcoin yield to account holders, but there’s a catch

Innovative Bitcoin products are not falling short of delivering this year, with institutional firms notching up one crypto product or other.

While none are as bold as FTX’s Shit-perp futures, one Switzerland bank is providing investors a way to earn a handsome yield on Bitcoin prices — if they can stomach some losses along the way, that is.

Bitcoin yields as investor bait

Zug’s SEBA bank, a crypto-focused and Swiss license financial institution, announced a new Bitcoin-centric structured product yesterday. The instrument allows holders to passively bet on BTC prices in the short-term.

Termed the Dual Currency Certificate (DCC) in its prospectus, the product is linked to real-time BTC/USD exchange exchanges and is issued at a discount to spot BTC prices.

Described as a “yield enhancement” product, the DCC bets on short-term Bitcoin movements,  paying out investors when a predetermined “strike” period is met. Profit redemptions, if any, are determined by calculating the “final price” of the underlying asset with respect to their strike price.

SEBA is forthcoming with regard to losses. The bank states investor capital is not protected in the DCC product, meaning it’s not a strategy to set-and-forget. Instead, investors “should be prepared to sustain a potential loss of their initial capital,” the prospectus cautions.

There are other risks too, including theft, fraud, and cyber-attack on the exchanges that SEBA uses. All investor positions will be terminated and redeemed in such an event.

SEBA Bank in Zug, Switzerland. (Source: Yahoo!)

Limited to 50 investors

For those who dare, the maximum yearly payable yield is capped at 44 percent. The product is pegged at a 1:1 (BTC to USD), and a total of $10 million such shares are issued. And as with all institutional products, there are some fees too — SEBA charges 0.6 percent per annum as collateral.

The product goes into play in the first week of July, with an August maturity for the first batch of issued DCCs. It’s closed to investors from the U.S and U.K and can be publicly distributed only in Switzerland.

Those interested might want to get their hands on the DCC soon; only 50 investors are allowed under the scheme.

The product follows similar other ventures offered by firms diving into the crypto market to increase their product suite. Earlier this month, BTSE Exchange launched its Bitcoin-settle gold futures products, allowing investors to bet on the yellow metal using BTC as collateral.

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Here’s why Ethereum (ETH) prices are not surging even as DeFi heats up

Much of the ICO boom in 2017 was driven by massive surges in ETH prices — with scammers, aspiring technologists choosing the Ethereum protocol to issue their tokens, and reap some profits off the frenzy.

At the time, currently available stablecoins were either not popular or didn’t exist, meaning token holders had to sell their holdings to either ETH or BTC, and then convert to USD to fully cash out.

The above, among other reasons, form part of why stablecoins have killed the narrative for Ethereum to be used as an onboarding currency of choice — in terms of both currency and technology aspects.

Stablecoins killing the ETH narrative

Messari analyst Ryan Watkins said Wednesday that no “direct reason” exists why ETH must rise as DeFi tokens surged. The latter, in all regards, is already showing signs of ICO-like returns, with some rather unknown tokens surging up to 10,000 percent in the past week.

Watkins quoted Qiao Wang, an ex-Messari product lead-turned-investor, who said back in 2019 that stablecoins had “killed the chance” for some platforms to be significant to profit-seekers:

Watkins notes some DeFi tokens, like Compound or Balancer, can be purchased straight from Coinbase or Uniswap for USD, eliminating the Ethereum bridge that was required in 2017. The below graphic explains:

(Source: Messari)

Exchange data reflects this falling demand. Metrics show trading volumes for Ethereum-based products, such as spot, futures, and derivatives, have decreased significantly since 2017. Instead, stablecoins like Tether have gained prominence, despite all the criticism and controversy surrounding USDT:

(Source: Messari)

ETH’s rising utility

Not all is lost for ETH. For one, Watkins noted the sheer progress of DeFi applications, presumably from both a tech and institutional standpoint, were proof of Ethereum’s “product-market fit.” He added: 

“In the past two years, Ethereum has developed from a piggy bank for ICO projects to a burgeoning digital economy.”

Watkins notes utility is a core driver for any currency; such as how the U.S. dollar is more valuable than the Venezuelan Bolivar for reasons like an overall utility, worldwide acceptability, and underlying value.

With updates like ETH 2.0 on the horizon — its public multi-client testnet goes live in under a week — Ethereum’s utility does not look like one that will be usurped anytime soon. 

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Big Short 2.0: Yield farming on DeFi apps? Here’s the risk no one talks about

After ICOs in 2018, DeFi applications are seemingly positioning themselves to be the next 100x coin baggers in 2020; complete with shiny websites, world-changing promises, and sparking dreams of early-retirement for those who dare.

While the above does not apply to every project, DeFi is now being whispered as the new opportunity in crypto-circles and “yield-farming” — a term that did not exist outside of about a 100 ears last year — is now the cyberpunk’s favorite pandemic pass time after sourdough bread.

But huge returns bring huge risk, with the latter not being spoken about enough. Some, like Ethereum’s Vitalik Buterin and ex-Messari product head Qiao Wang, are trying to appraise the community about understanding the risks they take before putting in any funds.

For all purposes; DeFi applications, and cryptocurrencies as an extension, remain an unchartered territory, and are majorly still in their early development/teething stages.

Yield farming faces tail risk

Messari’s Wang tweeted this week about how yield-farming is a negatively-skewed strategy, which in financial terms, means the probability of a black swan event — one that can wipe the whole account within seconds — is higher than the potential gains.

This type of strategy provides slow and steady gains, think mutual fund payouts, and index investing, but a drastic event stands to wipe those profits and then some.

Bitcoin trading and venture fund (VC) investments are positively skewed, which as Wang notes, gives a lot of smaller losses to investors but promises a home run with just a few right market calls.

To illustrate, VCs are infamous for losing millions on obscure startups, but just one IPO listing, or a buyout by a larger fund, means big profits that allow their business to keep running.

DeFi is falling in the negative skew category, with perhaps one recent example justifying how easily and quickly could everything go wrong for investors.

Between a rock and a hard market

In March this year, Bitcoin fell over 45 percent over two trading sessions in an event now colloquially known as “Black Thursday,” with the highly-correlated cryptocurrency market falling by a similar percent.

But MakerDAO investors faced the most pain. The DeFi platform — regarded by some in cryptocurrency forums as the “future” of decentralized finance — was caught unaware after a sudden drop in ETH prices exposed the platform’s risk management policies at the time.

Investors lost millions in ETH, DAI, BAT, and USDT as hackers took advantage of “zero-bid” offers. Rapidly falling ETH prices and rising GAS values failed to update on Maker auctions, leading to a situation where certain ETH collaterals were purchasable at 0 DAI (comparable to 0 USDT).

Notably, Maker’s inherent platform security was uncompromised — unmodeled, and unforeseen financial behavior caused the harm.

Black swan risks cannot be modeled

The above indicates the financial risk is not necessarily due to a poor platform. A platform can be robust, well-designed, feature the best-in-class technology, but still fall victim to an event that no one has modeled yet.

Current market favorite DeFi projects promise “risk-free” yields, which come largely from lending funds to other traders who, in turn, reinvest the “loans” in other leveraged speculative assets.

In short, farming yields by loaning risky traders the funds to speculate over a speculative asset class is not a sustainable model. 

To protect themselves; investors must, as the adage goes, be prepared to invest only what they can afford to lose despite any promises made over how “risk-free” the yields are.

Cause promises like the above can lead to moments like what this unfortunate trader faced:

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Ethereum developer reveals public, multi-client testnet for ETH 2.0 is a “week away”

ETH 2.0, the long-awaited update for Ethereum to shift from a Proof-of-Work consensus protocol to a Proof-of-Stake system, is cobbling along for a release.

Rumored to go live in July and then confirmed by co-founder Vitalik Buterin to be a baseless theory, ETH 2.0 remains one of the most sought-after developments in the cryptocurrency industry, with both technologists and investors having their reasons for the protocol’s swift launch.

Altona coming next week

On Wednesday, Ethereum developer Danny Ryan posted a blog on the Ethereum Foundation’s website, giving a few insights on current developments and what to look forward to in the next few weeks.

Ryan wrote that ETH 2.0’s first public, multi-client testnet is expected to launch within the “next seven days.” He started off saying the update in specifications were not demanding, but the team’s focus on security, optimization, and to “generally harden the clients” took a while.

Called Altona, the testnet will initially be rolled out to client teams — Prysm, Lighthouse, Nimbus, and Teku — testing nodes on the network. Other client teams, including developer Afri Schoeden and unnamed Ethereum Foundation members, will also feature. 

Deposit contract addresses, after the initial launch, will be released to allow for open, public participation, noted Ryan. He added Altona is more of a developer-focused testnet than an end-user one, explaining:

“That is, [allows] client teams to sanity check v0.12 software in a production setting and for eth2 engineers as a whole to work through any bugs that might only arise in a multi-client setting.”

Once the above is done, a “larger, community focused testnet” featuring the of 16,384 validators will be open. 

Solidity deposit contracts

As part of the updates, Ryan said a newer deposit contract will be rolled out, one written in the Solidity language instead of Vyper as previously. The change is “entirely transparent” for all existing client and dev tooling.

Reasons for the shift included Vyper throwing up latency issues in security audits and developer tests, with one ConsenSys engineer, Suhabe Bugrara, not recommending the “bytecode as secure as long as it used the Vyper compiler.”

In addition to the Solidity contract and the launch of Altona, Ryan added:

“We’re excited to announce a continuation grant for Sigma Prime’s multi-client differential fuzzing effort – beacon-fuzz. To date, this project has already been a huge success, finding bugs in all of the clients onboarded into the system.”

ETH 2.0 is a piece of art. Last month, Ethereum co-founder Buterin told Defiant’s Camilla Russo that the 1.0 version, as it exists today, will function as an independent “shard” on the new network.

At the time, when asked about the biggest risk in expanding the protocol, Buterin said technical challenges are a more significant concern than “community or political” setbacks.

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Bithumb, one of Korea’s biggest crypto exchanges is appointing Samsung to underwrite its IPO

Cryptocurrency firms, presumably burnt by the crashing ship that were ICOs, are turning to traditional methods to raise funds and keep themselves in business.

Bitcoin miners Canaan and Ebang have already jumped ship, and a Korean crypto-exchange is now turning to share markets to raise funds for its business.

Samsung appointed

Bithumb, one of the largest exchanges in South Korea as per data on CoinGecko, is seeking an IPO in the country.

The firm has appointed Samsung Securities, the financial arm of the Korean “chaebol” giant, to underwrite the IPO and offer equity to individual investors, as per local reports on Wednesday.

Local observers say Bithumb wants to overcome various challenges the company has faced in past, pertaining to both opaque shareholder composition, uncertainty about business continuity, taxation issues, protection of investors, and social reputation issues.

Going under the hammer is Bithumb Korea, which in turn, is made up of Bithumb Holdings with a stake of 74 percent in the Bithumb exchange, with the remaining owned by Visdent, which in turn, is listed on Korea’s KOSDAQ.

Samsung securities building in Seoul. (Source: Pulse)

Crypto opacity a concern

The process is not expected to be smooth. An unnamed industry expert said digital currencies are difficult to define legally, and since no regulation for their public listing exists in Korea, the listing of a crypto-exchange entity is an unseen endeavor.

Other concerns include the exchange cryptocurrencies, which form the core proposition of the proposed Bithumb IPO, are “opaque” and used only for speculative purposes instead of a noteworthy use-case.

Loosely translated from Korean, the expert added:

“It can be said that some part of the virtual currency has entered the system and has been the target for evaluating business feasibility and corporate value. seems that the minimum environment for the IPO is not equipped.”

Bithumb kiosk in Seoul, Korea. (Source: WSJ)

Call for increased regulation

Korea’s proposed Bitcoin tax, as CryptoSlate reported yesterday, has already drawn criticism from local economists and academics for apparently interfering with the long-term development of cryptocurrencies in the country.

However, the above has led to increased legal regulation and definition of “virtual assets,” with countries like the U.S., Japan, and even China (to an extent), placing cryptocurrencies alongside tradable financial products such as commodities like rice or sugar.

With the IPO, local experts hope additional scrutiny and framework around cryptocurrencies are created, such as tax issues, business continuity, asset handling, and investor protection.

An official concluded:

“If Bithumb does an IPO, there will be marketability and valuation issues, but there will be many variables such as internal company issues and uncertainty about the virtual currency itself.”

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This top-30 altcoin is integrating with Chainlink (LINK) for bolstering smart contract ecosystem

Chainlink’s oracles and smart contract technology is seeing a marked surge in adoption and demand in 2020.

The latest is Ontology, a Singapore-based global blockchain enterprise solution that has worked closely with the NEO Foundation and launched its mainnet in 2018.

“Last mile” solution

As per a Chainlink tweet, Ontology will use the former’s oracle technology and verifiable price feeds to input data for various use cases.

Initially, the integration will unlock new data management capabilities for Ontology, through “the integration of ONT ID, Ontology’s digital identity framework, and the ONTO wallet into a range of dApps and enterprise infrastructure.”

Ontology (ONT) touts itself as a high-performance public blockchain and a distributed collaboration platform that enables a decentralized network environment that solves key issues of identity security and data integrity.

Building a “last mile for blockchain applications,” Ontology was one of the few crypto-projects that never had an ICO. Instead, ONT was airdropped in three major tranches and quickly gained value over the year.

At press time, ONT trades at $0.66 and has a network value of $460 million — making it the 30th largest cryptocurrency by market cap in the world.

Significant code commits

In a blog post, Ontology said the Chainlink integration is live on the Ontology TestNet, and subsequently allows developers to build smart contract applications connected to real-world data. 

Chainlink acknowledged the Ontology team had committed “significant code” to the project repo ahead of the integration, even rewriting Chainlink contracts in Ontology’s native Python smart contract programming language.

Ontology co-founder Andy Ji spoke on the development: 

“Ontology’s high-efficiency and low transaction fees, combined with Chainlink’s adept ability to consistently provide secure and reliable oracles is a potent combination that will drive mutually beneficial outcomes for our respective platforms and communities.”

Ji added Chainlink’s “stellar track record” in providing oracle solutions to both established enterprises, like Google, Oracle, and SWIFT, and startups make Chainlink the “undisputed, market-leading decentralized oracle network.”

Chainlink oracles may also be onboarded to Ontology’s HydraDAO, the project’s open framework for knowledge processing, in the near future. This would enable stronger data accuracy within smart contracts, cross-chain interactions, and cross-data source collaboration, the blog noted.

Meanwhile, Chainlink is on a roll. The blockchain agnostic platform was recently awarded as a top-50 tech disruptor for this year by the World Economic Forum (WEF) for its work in smart contract technology and oracles.

The project is seeing at least five partnerships or tech onboardings per week for its verifiable randomness function (VRF) and oracles, if updates on Chainlink’s twitter feed are considered.

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