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From the right place at the wrong time, to the right place at the right time

Published

4 months ago

20 July, 2024

Stablecoins at 10: From right place, wrong time, to right place, right time

Below is a guest post by Vincent Chok, CEO of First Digital Group.

On July 21, 2014, we witnessed the launch of the first stable currencyBitUSD. It was a powerful new concept to hit the market, offering the promise of a stable digital currency that could facilitate transactions without the volatility associated with other cryptocurrencies. Yet, four years later, BitUSD lost its one-to-one parity with the US dollar and has been unable to recover since. BitUSD was not alone. The early years were mired in numerous failures as the structures, infrastructure, and oversight needed to support stablecoins were not yet mature.

Today, the landscape has changed significantly with solid projects and, last but not least, the long-awaited regulation of stablecoins in Hong Kong. As stablecoins celebrate their 10th anniversary, it is time to reflect on their journey so far and why the environment now paves the way for a successful future, proving that stablecoins are now in the right place, at the right time.

Review of previous failures

Ten years ago, the idea of stablecoins was new and exciting, at a time when the world was still reeling from the effects of the global financial crisis. They were seen as a bridge between the volatile world of cryptocurrencies and the stability of traditional fiat currencies. There was also a growing recognition that Web3-enabled digital payment systems could increase the attractiveness and accessibility of stablecoins to the underbanked.

However, many early projects failed primarily due to poorly conceived mechanisms, lack of robust infrastructure, and lack of regulatory oversight. In the case of BitUSD, a detailed analysis by BitMEX Research found that the stablecoin was backed by an obscure, volatile, and non-self-backed asset, BitShares. In the event of a BitShares price decline, a single BitUSD could be used to purchase multiple BitShares, thereby encouraging mass arbitrage similar to traders in traditional asset classes. However, the reverse was not guaranteed, thus creating a structural weakness.

Another notable example is EarthUSD (UST), which maintained its fixed price through an arbitrage mechanism involving its sister token, LUNA. Although innovative, this mechanism had several flaws.

Under normal conditions, the redemption fee was 0.5%, but during the collapsefees skyrocketed to 60%, making it unprofitable for arbitrageurs to reset the peg. Inaccuracies in the Luna Price Oracle contributed to the instability, with discrepancies of up to 70% between the price of the Oracle and the trading price. The delay between the redemption of UST and the sale of LUNA created uncertainty, preventing effective arbitrage. Ultimately, UST’s collapse was exacerbated by a speculative attack and a bank run-like scenario, where heavy redemptions led to a death spiral for both UST and LUNA.

Other stablecoins, such as Acala USD (aUSD) and Deus Finance’s DEI, have also faced significant issues. Acala USD, for example, was brought down by a technical exploit in which hackers managed to mint 1.28 billion aUSD due to a misconfiguration in a liquidity pool.

DEI was targeted in a hack that exploited vulnerabilities on multiple networks, resulting in a loss of $6 million. In hindsight, many of these mistakes could have been easily avoided, however, as is so often the case with emerging technologies, trial and error is part of the process of maturity.

Learning from the past

Today, the stablecoin environment has improved significantly. Learning from past mistakes, modern projects reflect more robust models and thoughtful mechanisms. For example, we have seen fewer uncollateralized algorithmic stablecoin projects enter the market in favor of fiat- and commodity-based stablecoins. Unlike algorithmic stablecoins, collateralized stablecoins do not rely on market forces to maintain their stability and are less exposed to fundamental risk. FDUSD, for example, is pegged to the US dollar, backed by verified liquidity and high-quality cash equivalent reserves that are held in financial institutions.

Modern stablecoins are also built on more secure and scalable blockchain platforms, reducing the risk of technical exploits. Factors include better standards, as well as the fact that the professionalization of the industry has attracted top talent from major tech companies, cybersecurity fields, and more.

Regulatory certainty

In the early days of stablecoins, the regulatory landscape was characterized by a lack of clear guidelines and standards. This ambiguity posed significant challenges for stablecoin projects as they navigated a complex web of financial regulations across multiple jurisdictions. Many early projects operated in a regulatory gray area, leading to compliance and security issues. However, today, regulators are increasingly introducing clearer guidelines that help mitigate risk, introduce good governance, and provide much-needed certainty for projects to thrive.

The Hong Kong Monetary Authority is expected to introduce its stablecoin regime in the coming months. The licensing criteria and conditions are expected to include stringent requirements to ensure the stability and integrity of stablecoins under its jurisdiction. The city is known for developing some of the highest standards in financial regulation and governance through its rise as an international financial hub.

Dubai’s VARA regime also provides an attractive foundation for digital asset companies to build businesses and solutions on the market. Only recently did the Central Bank of the United Arab Emirates approve the issuance of regulations for licensing and overseeing stablecoin deals.

The European Commission’s MiCA regulation also includes provisions on capital requirements, governance and consumer protection for stablecoins.

Interoperability and interchangeability

Regulation will play an important role as regulated stablecoins will have the same KYC and AML mechanisms as Central Bank Digital Currencies (CBDC), creating a level playing field. The interchangeability and interoperability between the two will open up the utility of stablecoins to traditional financial services.

Today, stablecoin use remains largely focused on cross-border payments and remittances scenarios. Proliferation and broadening the scope of its utility must be preceded by increased credibility and trust. Historical issues with well-known stablecoins and heavy exposure to the US market at a time of inherent uncertainty continue to overshadow the sector.

This makes a compelling case for alternatives issued outside the US market and developed with trust-by-design. Features include collateralized, high-quality, audited reserves, unlimited minting, and 1:1 redemption.

In the right place at the right time

As stablecoins celebrate their 10th anniversary, it’s clear they’ve come a long way. Early failures provided valuable lessons that have shaped the development of more resilient and trustworthy stablecoins. As the world continues to change, as risks and uncertainties increase, there has never been a stronger desire from people and businesses for greater trust, certainty, and consistency.

Therefore, stablecoins are in the right place at the right time. Backed by solid infrastructure, emerging regulatory frameworks and increased interoperability. These factors position stablecoins play a transformative role in the financial system, leveraging their inherent programmability to inspire new business models and increase accessibility to the financial system for users around the world.

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Cryptocurrency Price August 1: Bitcoin Dips Below $65K; Solana, XRP Down Up To 8%

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Major cryptocurrencies fell in Thursday trading following the Federal Reserve’s decision to keep its key interest rate unchanged. Overnight, the U.S. Federal Reserve kept its key interest rate at 5.25-5.5% for the eighth consecutive time, as expected, while also signaling the possibility of a rate cut at its next meeting in September. The unanimous decision by the Federal Open Market Committee reflects a continued wait-and-see approach as it monitors inflation trends.

CoinSwitch Markets Desk said: “Bitcoin has fallen below $65,000 after the US Federal Reserve announced it would keep interest rates unchanged. However, with markets now anticipating rate cuts at the next Federal Reserve meeting in September, the outlook for a Bitcoin rally by the end of the year has strengthened.”

Meanwhile, CoinDCX research team said: “The crypto market has plunged after the Fed decision. Tomorrow’s US unemployment rate announcement is expected to induce more volatility, with the ‘actual’ figure coming in higher than the ‘expected’ one, which is positive for cryptocurrencies.”

At 12:21 pm IST, Bitcoin (BTC) was down 3.2% at $64,285, while Ethereum was down nearly 4.5% at $3,313. Meanwhile, the global market cryptocurrency The market capitalization fell 3.6% to around $2.3 trillion in the last 24 hours.

“Bitcoin needs to clear its 200-day EMA at $64,510 to consolidate further. Otherwise, a retest of $62,000 could be in the cards,” said Vikram Subburaj, CEO of Giottus.

Altcoins and meme coins, such as BNB (3%), Solana (8%), XRP (5.7%), Dogecoin (5%), Cardano (4.6%), Avalanche (4.3%), Shiba Inu (3.8%), Polkadot (3.4%), and Chainlink (4%) also saw declines.

The volume of all stablecoins is now $71.64 billion, which is 92.19% of the total cryptocurrency market volume in 24 hours, according to data available on CoinMarketCap. Bitcoin’s dominance is currently 54.99%. BTC volume in the last 24 hours increased by 23.3% to $35.7 billion.

(Disclaimer: Recommendations, suggestions, opinions and views provided by experts are personal. They do not represent the views of the Economic Times)

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Altcoins WIF, BONK, RUNE, JUP Down 10% While Bitcoin Drops 4%

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Altcoins WIF, BONK, RUNE and JUP drop 10% as Bitcoin recedes 4%

Altcoins dogwifhat, Bonk, THORChain, and Jupiter have suffered losses of more than 10%, while Bitcoin is down 4% in the last 24 hours.

After a period of relative calm yesterday, July 31, Bitcoin (BTC) price action has seen a drastic change as the cryptocurrency dropped by more than $3,500, bringing its value to $63,300. At the same time, altcoins mirrored this trend, with the total value of liquidated positions rising to nearly $225 million over the course of the day.

Initially, the week started on a positive note for Bitcoin, which reached its highest point since early June, hitting $70,000. However, this peak was short-lived, as it was quickly rejected, leading to a substantial decline, with Bitcoin falling below $65,500.

The cryptocurrency managed to regain some stability, trading comfortably at around $66,800. However, following a Press conference According to Federal Reserve Chairman Jerome Powell, the value of Bitcoin has fallen again to $64,300, down more than 3% in 24 hours.

BTC Price Chart 24 Hours | Source: crypto.news

The recession coincided with a relationship from the New York Times stating that Iran had called for retaliatory measures against Israel following the assassination of Hamas leader Ismail Haniyeh in Tehran, increasing the risk of further conflict in the region.

Meanwhile, on the economic front, the Federal Reserve decided to keep its benchmark interest rates in place, offering little information on a planned September rate cut. Powell also hinted that while no concrete decisions have been made on the September adjustment, there is growing consensus that a rate cut is likely.

Amid Bitcoin’s decline, altcoins have suffered even more significant losses. For example, dogwifhat (Wife) saw a 12.4% drop and (DISGUST) has suffered a 10% drop. Other altcoins such as THORChain (RUNE) also fell by 10%, while Jupiter (JUPITER) and the Ethereum naming service (ENS) decreased by 8% and 9% respectively.

Among the largest-cap cryptocurrencies, the biggest losers are Solana (SOL) with a decrease of 8%, (Exchange rate risk) down 6%, Cardano (ADA) down 4%, and both Ethereum (ETH) and Dogecoin (DOGE) recording a decrease of 4.4%.

Data from CoinGlass indicates that approximately 67,000 traders have been negatively impacted by this increased volatility. BTC positions have seen $61.85 million in liquidations, while ETH positions have faced $61 million. In total, the value of liquidated positions stands at $225.4 million at the time of writing.

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Riot Platforms Sees 52% Drop in Bitcoin Production in Q2

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Riot Platforms posts 52% decrease in Bitcoin production for Q2

Bitcoin mining firm Riot Platforms has released its second-quarter financial results, highlighting a decline in cryptocurrency mined due to the recent halving.

Colorado-based Bitcoin (BTC) mining company Riot platforms revealed its second quarter financial results, highlighting a significant reduction in mined cryptocurrencies attributed to the recent halving event that took place in early April.

The company reported total revenue of $70 million for the quarter ended July 31, a decline of 8.7% compared to the same period in 2023. Riot Platforms attributed the revenue decline primarily to a $9.7 million decrease in engineering revenue, which was partially mitigated by a $6 million increase in Bitcoin extraction income.

During the quarter, the company mined 844 BTC, representing a decline of over 50% from Q2 2023, citing the halving event and increasing network difficulty as major factors behind the decline. Riot Platforms reported a net loss of $84.4 million, or $0.32 per share, missing Zacks Research forecast a loss of $0.16 per share.

Halving increases competitive pressure

The Colorado-based firm said the average cost of mining one BTC in the second quarter, including energy credits, rose to $25,327, a remarkable 341% increase from $5,734 per BTC in the same quarter of 2023. Despite this significant increase in production costs, the firm remains optimistic about maintaining competitiveness through recent deals.

For example, following the Recent acquisition Cryptocurrency firm Block Mining, Riot has increased its distributed hash rate forecast from 31 EH/s to 36 EH/s by the end of 2024, while also increasing its 2025 forecast from 40 EH/s to 56 EH/s.

Riot Platforms Hashrate Growth Projections by 2027 | Source: Riot Platforms

Commenting on the company’s financials, Riot CEO Jason Les said that despite the halving, the mining company still managed to achieve “significant operational growth and execution of our long-term strategy.”

“Despite this reduction in production available to all Bitcoin miners, Riot reported $70 million in revenue for the quarter and maintained strong gross margins in our core Bitcoin mining business.”

Jason Les

Following its Q2 financial report, Riot Platforms shares fell 1.74% to $10.19, according to Google Finance data. Meanwhile, the American miner continues to chase Canadian rival Bitfarms, recently acquiring an additional 10.2 million BITF shares, increasing its stake in Bitfarms to 15.9%.

As previously reported by crypto.news, Riot was the first announced a $950 million takeover bid for Bitfarms in late May, arguing that Bitfarms’ founders were not acting in the best interests of all shareholders. They said their proposal was rejected by Bitfarms’ board without substantive engagement.

In response, Bitfarms She said that Riot’s offer “significantly understates” its growth prospects. Bitfarms subsequently implemented a shareholder rights plan, also known as a “poison pill,” to protect its strategic review process from hostile takeover attempts.

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Aave Price Increases Following Whales Accumulation and V3.1 Launch

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Aave price surges amid whale accumulation and V3.1 launch

Decentralized finance protocol Aave is seeing a significant spike in whale activity as the market looks to recover from the recent crash that pushed most altcoins into key support areas earlier this week.

July 31, Lookonchain shared details indicating that the whales had aggressively accumulated Aave (AAVE) over the past two days. According to the data, whales have withdrawn over 58,848 AAVE worth $6.47 million from exchanges during this period.

In one instance, whale address 0x9af4 withdrew 11,185 AAVE worth $1.23 million from Binance. Meanwhile, another address moved 21,619 AAVE worth over $2.38 million from the exchange and deposited the tokens into Aave.

These withdrawals follow a previous transfer of 26,044 AAVE from whale address 0xd7c5, amounting to over $2.83 million withdrawn from Binance.

AAVE price has surged over 7% in the past 24 hours amid buy-side pressure from these whales. The DeFi token is currently trading around $111 after jumping over 18% in the past week.

Recently, the price of AAVE increased by over 8% after Aave founder Marc Zeller announced a proposed fee change aimed at adopting a buyback program for AAVE tokens.

Aave v3.1 is available

The total value locked in the Aave protocol currently stands at around $22 billion. According to DeFiLlamaApproximately $19.9 billion is on Aave V3, while the V2 chain still holds approximately $1.9 billion in TVL and V1 approximately $14.6 million.

Aave Labs announced Previously, Aave V3.1 was made available on all networks with active Aave V3 instances.

V3.1 features improvements that are intended to improve the overall security of the DeFi protocol. The Aave DAO governance has approved the v3.1 improvements, which also include operational efficiency and usability for the network.

Meanwhile, Aave Labs recently outlined a ambitious roadmap for the projectwith a 2030 vision for Aave V4, among other developments.

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