The stablecoin has upgraded its market infrastructure after losing its peg during the crisis.
AUSTIN, Texas — The USDC stablecoin has emerged from March’s banking crisis stronger and safer, Jeremy Allaire, CEO of issuer Circle Internet Financial, said Wednesday.
USD Coin, a critical rail for moving money through the crypto industry, lost its dollar peg in mid-March after Silicon Valley Bank’s failure temporarily imperiled billions of dollars of its cash reserves. Though it quickly recovered ground, the event spooked investors and sparked massive outflows from the second-largest stablecoin.
“We’ve successfully navigated this crisis, and have actually upgraded the market infrastructure behind USDC to be by far the strongest, safest digital dollar on the internet today, hands down, there’s no question,” Allaire said onstage at CoinDesk’s Consensus conference in Austin.
He drew a contrast between USDC and other “alternatives we don’t know much about.” That unspoken competitor was Tether (USDT), long the stablecoin market leader despite some critics’ misgivings about its banking relationships and backing.
But the market disagreed. Since March’s banking crisis, USDC’s market cap has fallen to $29 billion from $39 billion, according to Nansen. Tether, meantime, has grown in size.
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Still, Allaire said USDC needs to become safer still. He said that can only happen with legislation at the Federal level.
Titled, “The Future of Digital Assets: Identifying the Regulatory Gaps in Spot Market Regulation,” the hearing will take place on Thursday afternoon.
The House Subcommittee on Commodity Markets, Digital Assets, and Rural Development has provided the witness list for Thursday’s hearing examining regulatory holes in crypto spot market regulations.
The panel notably includes former Commodity Futures Trading Commission (CFTC) Chair Timothy Massad, who is currently a research fellow at the Harvard Kennedy School and director, M-RCBG Digital Assets Policy Project.
Other witnesses include Purvi Maniar, general counsel at institutional crypto trading platform FalconX, and Nilmini Rubin, head of global policy at decentralized proof-of-stake ledger Hedera. Rounding out the panel are Daniel Davis, partner at law firm Katten Muchin Rosenman LLP, as well as its co-chair, Financial Markets and Regulation and Joseph Hall, partner at law firm Davis Polk & Wardwell LLP.
The hearing is set to begin Thursday at 2 p.m. ET.
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Todd Groth of CoinDesk Indices shares some thoughts on how macro analysis works in crypto.
One thing I like about macro investing is the scope.
While financial analysts and their respective crypto degens counterparts are looking at balance sheets, earnings statements, Solidity code and social media sentiment, macro strategists get to think about the consequences of exogenous things.
Put another way, while the analysts examine the forest tree by tree, macro investors sit on a hill, surveying the whole valley and considering which parts of the forest will be nourished or threatened by rainfall, forest fires, changes in land use and other factors outside of the idiosyncrasies of the micro analysis.
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Being macro in digital assets means considering historical environments in which cryptocurrencies have thrived as well as more challenging environments, such as 2022.
Last year, digital assets were clearly sensitive to the Federal Reserve’s efforts to tighten financial conditions. There are many ways to measure financial conditions, but to keep it simple we can simply use trends in nominal and real yields, U.S. dollar exchange rate baskets and corporate credit spreads. From these measures we can create a financial conditions indicator and see how it relates to the historical risk-adjusted performance of digital assets, as proxied by bitcoin (BTC) and ether (ETH).
To estimate trends in these financial-condition proxies we utilize a trend signal similar to the one used in the Bitcoin Trend indicator (BTI) released recently by CoinDesk Indices.
To represent nominal yields (“NomRates”), we use two-, five- and 30-year U.S. Treasury yields; we subtract the five-year breakeven inflation rate derived from TIPS to create a proxy for two-, five- and 30-year real yields (“RealRates”). U.S. dollar denominated baskets of advanced and emerging economy currencies are used alongside a broader basket as three proxies for the dollar (“FX_USD”). And option adjusted spreads (OAS) for high-yield corporate bonds rated BB and CCC are used alongside an investment-grade index to represent U.S. credit conditions (“Credit_OAS”).
Trend signals are generated from the data within these four macro indicator buckets, then averaged to result in a positive, neutral and negative score for the financial condition regime. Risk-adjusted return ratios (annualized return per unit of volatility) are calculated on BTC and ETH within each regime and compared to an unconditional buy-and-hold strategy (“BuyHold”) shown in the figure below.
(CDI Research, St Louis FRED)
From this preliminary macro regime analysis it’s clear that financial conditions matter when investing in digital assets. Keeping a pulse on market conditions, particularly real and nominal interest rates and credit conditions, can help to navigate the crypto cycle better by offering a better risk-adjusted return than a simple buy-and-HODL approach.
In summary, as investors in cryptocurrencies we’d all benefit from taking a broader macroeconomic and market perspective to not miss the forest for the trees.
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P.S.: See you in Austin this week at Consensus 2023. Come meet the CoinDesk Indices team at booth #1306!
The cross-chain transfer protocol seeks to improve liquidity of the major crypto payments rail.
USDC issuer Circle Internet Financial on Wednesday released a new method to move the major stablecoin between blockchains that it says is faster, safer and cheaper than the so-called “bridges” that pervade decentralized finance (DeFi).
Called the “Cross-Chain Transfer Protocol,” the technology debuts for USDC transfers between Ethereum and Avalanche, with more chains coming in the second half of 2023. DeFi apps can integrate the relevant smart contracts to make it easy for users to move their stablecoins about.
The tech attempts to break down the barriers currently fragmenting USDC’s $30 billion market cap across many different blockchains. Though Circle issues “native” USDC on many top ecosystems including Ethereum and Avalanche, those asset tranches were more or less partitioned; those who wanted to “bridge” the divide had to engage in complicated and sometimes expensive cross-chain transfers.
Circle’s new method seeks to replace bridges, which solved that problem by creating another: a derivative token called a wrapped asset. CCTP works by destroying USDC on the source chain and re-creating it on the destination chain.
The process could pay the biggest dividends when it comes to asset swaps. It could be used to move cross-chain and cross-token transfers behind the scenes.
“With CCTP, developers can simplify the user experience and their users can trust that they are always transacting with a highly liquid, safe and fungible asset in native USDC. This milestone makes USDC a natively multi-chain digital dollar,” Joao Reginatto, VP of Product said in a press release.
Wallet company MetaMask, bridge operator Wormhole and bridge aggregator LI.FI are among the infrastructure providers with CCTP coverage at launch.
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Circle could not immediately be reached for comment.
The U.S. Department of Justice last year charged three members of a Miami crew in a crypto-related scheme from 2020.
The leader of a Miami crew charged by the U.S. Department of Justice (DOJ) with defrauding banks in a 2020 cryptocurrency-related scheme has pleaded guilty, an official notice from Wednesday said.
Esteban Cabrera Da Corte was one of three individuals arrested in relation to the crime, and was accused of “participating in a scheme to steal millions of dollars’ worth of cryptocurrency and trick U.S. banks into refunding the millions used to purchase that cryptocurrency, in part by using personal identifying information stolen from other people.”
The scheme saw U.S. banks processing more than $4 million in false reversals, while a cryptocurrency exchange lost around $3.5 million worth of digital assets, the DOJ’s notice said.
Cabrera, a 26-year-old from Miami Florida, pled guilty to “one count of conspiracy to commit wire fraud,” which comes with a 20-year prison sentence, and has agreed to pay restitution of $3.6 million – with an additional forfeiture of $1.2 million.
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Changes to the protocol’s “Chef” contracts are intended to make the protocol more decentralized and secure.
SushiSwap, a decentralized exchange (DEX), is one step closer to adopting a new tokenomics model that will promote its adoption of Uniswap version three (v3).
The model will probably go to a community-wide vote in late May, Head Chef Jared Grey told CoinDesk. The changes, if approved, will include overhauling the protocol’s “Chef” contracts to improve the code that underpins its activities following a multimillion-dollar hack earlier this month.
“V3 helps us make tokenomics more efficient [and] vice versa. With v3’s improved capital efficiency and improved and sustainable tokenomics, we will scale growth across our more than 30 supported networks,” Grey said.
The changes will also increase decentralization, improving the protocol’s security, Grey told CoinDesk.
The exchange is attempting to beef up security in the wake of the exploit, which drained $3.3 million from the platform’s wallets earlier this month. The hack exploited a vulnerability in SushiSwap’s Route Processor 2, a smart contract component that aims to execute trades more efficiently while boosting liquidity provisions. Some funds have since been recovered.
SushiSwap has patched the bug, and has stealthily introduced version three (v3) of its router on some networks to support Uniswap v3 adoption, Grey tweeted. The router will launch on more networks soon.
SushiSwap’s team also plans to roll out a series of changes to the protocol’s interface that aim to facilitate cross-chain swapping, according to Grey’s tweets.
The sushiswap (SUSHI) token is trading at $1.08, up 5.4% in the past day, CoinGecko data shows. The price has increased by roughly the same percentage over the past month.
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At CoinDesk’s annual Consensus conference, CEO Jenny Johnson said cryptocurrencies like bitcoin were a “distraction” from the benefits of blockchain technology.
AUSTIN, Texas – Grousing about the state of crypto regulations in the U.S. has become the norm for many industry players, but Franklin Templeton’s CEO Jenny Johnson said she thinks it’s important for the industry to accept that more regulations are coming – whether they like it or not.
Speaking at CoinDesk’s Consensus Festival on Wednesday, Johnson said that the future of the industry “will be regulated,” and that cryptocurrencies like bitcoin were a “distraction” from crypto’s real innovation, blockchain technology.
“Bitcoin is the greatest distraction from the greatest disruption [coming to the financial system], and that’s blockchain,” Johnson said.
Read full coverage of Consensus 2023 here.
“I can tell you, if bitcoin ever became so big that it became a threat to the U.S. dollar as the reserve currency, the US would limit…the use of bitcoin. Currencies are very important for governments…to manage their economies,” said Johnson. “They will not cede their currency to this concept of a global currency.”
Johnson added that it’s better for companies to engage directly with regulators as they develop new products. Johnson added that Franklin Templeton, which manages $1.5 trillion in assets, has been in close contact with the U.S. Securities and Exchange Commission (SEC) as it developed its newly-launched blockchain-based mutual fund.
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Johnson added that the firm, which has offices in over 30 countries worldwide, is used to working with regulators outside the U.S. as well.
“I can tell you, different areas in the world are more advanced than others, more comfortable with it than others,” Johnson said, naming Singapore, Hong Kong, and the UAE as examples of crypto-friendly jurisdictions.
Johnson said that regulators, both in the U.S. and outside of it, are nervous about passing regulations that could have unintended consequences.
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“This is a complicated space, and the regulators are trying to be thoughtful,” Johnson said.
Regulatory uncertainty aside, Johnson is still bullish on the potential for crypto and blockchain technology to disrupt the financial industry. Blockchain technology could, according to Johnson, open up investment opportunities for asset managers by reducing friction and eliminating “toll takers” that currently waste resources.
The latest price moves in crypto markets in context for April 26, 2023.
This article originally appeared in First Mover, CoinDesk’s daily newsletter putting the latest moves in crypto markets in context. Subscribe to get it in your inbox every day.
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Bitcoin gained 6% on Wednesday, breaking its five-day losing streak, as the cryptocurrency reached $29,000 for the first time in a week. Ether, the second-largest cryptocurrency by market value, rose 4.5%. The moves up come as concerns over U.S. banking stability ramp up again, with shares of First Republic Bank (FRC) dropping 50% on Tuesday after the San Francisco-based lender revealed that customers pulled more than $100 billion from their accounts last month. The slide stressed U.S. markets, as the Dow Jones Industrial Average lost 1% and tech-heavy Nasdaq 100 fell almost 2% on Tuesday.
Joseph Seibert, who was head of digital assets at Signature Bank, and four members of his Signet team have joined Fortress Trust, a Nevada-based chartered trust company that specializes in cryptocurrency and Web3. Signature Bank, which was a crypto-friendly institution, was shut down in March after depositors withdrew large sums of money following the collapse of Silicon Valley Bank, another bank with crypto ties. Signet was a payments platform that was popular with Signature’s institutional crypto customers.
Talos, a crypto trading platform for institutional investors, is working with Coinbase Prime to expand access to digital assets for customers of both firms. With rising demand from institutional investors for more secure and efficient trading platforms, the agreement offers Talos customers access to Coinbase Prime for spot liquidity and custody services, according to a press release. The pact will also give Coinbase Prime customers access to Talos’ trading and connectivity products.
Chart of the Day
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The largest staking platforms for institutional investors recorded three times more new deposits than last month, early veri shows.
Early signs show that Ethereum’s seamless Shanghai upgrade has spurred institutional investors’ interest in staking.
Top institutional-grade ether (ETH) staking service providers have already recorded about three times larger inflows in April compared to all of last month, Michiel Milanovic, analyst of Ethereum blockchain developer firm ConsenSys, told CoinDesk. Some 80% of the inflows happened after the Shanghai upgrade went live on April 12, he added.
Ethereum’s highly anticipated tech update, often referred to as the Shanghai or Shapella upgrade, enabled withdrawals of some 18 million tokens, worth $35 billion, previously locked up in staking contracts starting April 12. After the upgrade, ETH’s price rallied to $2,100, its highest level in 11 months, defying earlier concerns that the unlocking could lead to significant selling pressure and a price crash. The token recently has dropped below $1,900, aligning with a broader crypto market decline.
Allowing withdrawals also reduced the liquidity risk associated with locking up ETH for staking, which have kept some investors at bay before. “We expect this to naturally increase staking rates after the initial drawdown of ETH from long-term validators,” Milanovic said.
According to a survey by Kiln, an institutional-grade staking service provider, 68% of investors said that they intend to start staking or increase their staked amount after Shanghai. The survey was conducted in February, before the Shanghai upgrade.
Thomas de Phuoc, Kiln’s co-founder and chief operating officer, said the firm experienced a fresh wave of interest in staking, even from traditional finance firms.
“Our sales team noted 60% more deals in the pipeline than at the same time last year, including from traditional institutions,” Phuoc said. “We are discussing at the moment with some brokerage firms, investment banking services holding companies in the US or in Europe.”
Kiln has recorded $47 million (24,640 ETH) of new deposits since the Shanghai upgrade, according to a Dune dashboard by crypto venture fund Dragonfly’s analyst.
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Rival platform Staked.us booked $111 million (58,592 ETH) inflows, more than double than the $51 million (26,667 ETH) of staking rewards withdrawn, per Dune veri.
Still, it is still early to draw definite conclusions, Milanovic noted, because not all staking providers have enabled withdrawals immediately.
The country’s central bank wants people to be able to exchange Zimbabwe dollars for the gold-backed token so they can hedge against the currency’s volatility.
The Reserve Bank of Zimbabwe (RBZ) plans to introduce a gold-backed digital currency as legal tender to help stabilize the local currency, the Zim dollar, the Sunday Mail reported.
The tokens will be a form of electronic money backed by the country’s gold reserves, which will be held by the central bank. RBZ wants people holding Zim dollars to be able to exchange their money for the gold-backed token to help them hedge against the volatility of the local currency.
The Zim dollar is known for being volatile. A year ago, 1 U.S. dollar was worth about 150 Zim dollars, now it’s closer to 1,000, according to Investing.com. The country operates with both the Zim dollar and the U.S. dollar.
RBZ announced in August that it planned to create a central bank digital currency (CBDC). Other African countries have been exploring a CBDC; Nigeria launched its eNaira in October 2021.
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CoinDesk reached out for a comment from the Reserve Bank of Zimbabwe.
