Your Cryptocurrency Newsletter for January 04, 2021

If you are interested in cryptocurrencies, this newsletter is for you. [img]  [Learn more about RevenueStripe...](   [Learn more about RevenueStripe...]( [img]( [FeedBinary Newsletter]( [CeFi and DeFi Will Finally Meet in 2021 — Let’s Hope They Hit it Off]( CeFi and DeFi have a long way to go in order to effectively work together, but their combined efforts will help drive mass crypto adoption.The decentralized finance industry undoubtedly has vast potential — the value locked in it has exploded, surpassing $14 billion this month. Though there is speculation over whether decentralized finance is yet another bubble, I believe it is here to stay. How it stays, however, is another matter that depends on how DeFi handles ongoing hacks and other vulnerabilities, how centralized finance incorporates DeFi’s leading features and vice versa. DeFi encompasses everything that the crypto space fundamentally stands for: democracy, power to the unbanked and underbanked, transnationalism, a truly global and shared economy, all of which many would consider financial utopia. Yet no utopia has ever come into existence, and no extreme can sustainably progress toward its end goal unchecked. The enfants terribles in history usually meet an unhappy end unless they adapt to the realities of a less-than-utopian world. A golden mean between CeFi and DeFi must be met — both “factions” stand to benefit from it, as does the whole space. What DeFi can take from CeFi A lack of comprehensive and effective security auditing in DeFi has led to millions of dollars worth lost from hacks, which, seen through the lens of the world outside of crypto, where the CeFi–DeFi distinction is blurred, damages the reputation of the entire space. Within crypto, this has very much positioned DeFi as an enfant terrible, and for good reason — among code bugs, flash loan attacks, system vulnerability exploits and token design issues, there were more than 20 major DeFi hacks in 2020 for an amount topping $100 million. Thankfully, over the past months, there has been increasing acknowledgement of the importance of better auditing — and auditing in general — among larger DeFi players and their communities. This is the first step in the right direction. Auditing for DeFi is, of course, just as nascent an occupation as the industry itself, and while this means it is not yet up to scratch, it also leaves ample room for change and improvement — perhaps even for the development of an entirely new sub-industry, complete with standards and certifications, to address this single greatest weakness of DeFi. That security auditing model and best practice can be taken straight from CeFi and adapted to incorporate DeFi’s specifics. The next step would be financial audits, which would address potential vulnerabilities from a market perspective. This would be a collaborative effort between traditional and digital finance, and it’s something that CeFi players are leading the conversation in.With these issues covered, another DeFi challenge would be partially tackled: attracting institutional investment to guarantee long-term development. While DeFi’s anonymity, by default, inhibits large-scale capital inflows because institutional investors cannot enter into contractual obligations with an anonymous counterparty, better security would facilitate a relationship between CeFi and DeFi in this direction. A similar issue emerges on the retail side, which is just as important in driving mass adoption. The complexity of most DeFi platforms makes them inaccessible due to the high degree of technical knowledge required to use them. This limits DeFi platforms’ chances of expanding their user base, in turn, making a breakthrough into the mainstream unlikely and stunting their growth potential. CeFi products, on the other hand, enjoy much greater adoption rates due to their user-friendliness and proximity to traditional digital banking tools. These formats can be transferred onto DeFi protocols to enhance user acquisition and retention. Furthermore, there are currently ways in which DeFi is successfully adopting centralized components, and the fact that a substantial amount of wealth on DeFi platforms is held in stablecoins — the products of centralized organizations — is perhaps the best case in point. As such, stablecoins serve as a much-needed bridge between DeFi and CeFi. What DeFi can give CeFi There is much to admire about what DeFi has brought to the table this year, not least that it has presented opportunities for the unbanked to access banking services, offering the democratization that our entire space aims for.Though blamed for most hacks, flash loans are DeFi’s absolute hallmark in that they are a prime example of how finance can be effectively democratized. In enabling anyone to operate like a whale and take advantage of market situations that would otherwise be unavailable to them as a smaller investor, they eliminate the phenomenon of the rich getting richer, while the less-wealthy stagnate due to a lack of financial tools or liquidity at opportune moments. With CeFi’s greater security and user-friendliness, these opportunities can be amplified and presented to an entire market of potential unbanked and underbanked users. There are also positives to take from some of the DeFi projects that collapsed this year. The “right to fail” is an important part of the learning process for an industry as young as ours that makes us more resistant, even anti-fragile. This is in sharp contrast with traditional finance, where mistakes, big and small, are swept up thanks to governments and central banks’ interventionist policies. I believe this to be the fundamental flaw of the current financial system. Our space demonstrates how the true forces of the market are played out, and DeFi, with its many hacks over the past year, has illustrated this perfectly. I admire the likes of Harvest, Value DeFi and Yam for flagging their mistakes. It goes to show that the whole crypto space, in general, is maturing and growing stronger. As DeFi currently stands, it is unlikely to spill over the borders of its own niche despite the steep climb we witnessed in 2020. It will plateau over the coming year as some projects fail and disappear, while others adapt and put into motion mechanisms to self-regulate, giving way to a more sustainable modus operandi that is better aligned with CeFi’s. [Read Full News]( The post [CeFi and DeFi Will Finally Meet in 2021 — Let's Hope They Hit it Off]( first appeared on [Feed Binary](. [Read Full Story]( ------------------ You Might Like     [Learn more about RevenueStripe...]( ------------------ [Ethereum 2.0 – Ether’s Journey From a Security to a Security]( The quantum mechanical properties of Ether Superposition is a quantum property that effectively refers to the ability to simultaneously be in multiple states.Ether (“ETH”) appears to be in superposition as commentary suggests it is and isn’t a security at the same time. In 2018, William Hinman, then Director of the SEC’s Division of Corporation Finance, implied that Ether was initially offered through a securities offering but was no longer a security at the time. Typically, a product that begins as a security remains a security so I see issues with Hinman’s analysis, which I will refer to as Hinman’s puzzle. Issues with the Hinman puzzle have recently been highlighted by former SEC Commissioner Joseph Grundfest in the context of the SEC’s complaint concerning XRP. Grundfest has stated that the SEC has not adequately delineated the difference between ETH and XRP in coming to the conclusion that XRP is a security and ETH is not. For example, both issuances were centrally issued, included premines and had continuing issuances. Hinman’s reasoning seemingly hinged on his understanding of there no longer being any central enterprise being invested in, and thus purchasers no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts. In other words, Hinman’s position is that assets can transition out of security state through sufficient decentralization. As stated by Hinman, “when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede.” Hinman concluded: when I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value. And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value. And of course there will continue to be systems that rely on central actors whose efforts are a key to the success of the enterprise. In those cases, application of the securities laws protects the investors who purchase the tokens or coins. Ethereum 2.0: Securities analysis The last part of Hinman’s statement produced above is powerful: in systems that rely on central actors whose efforts are a key to the success of the enterprise, securities laws apply. I won’t use this forum to delve into a debate regarding Hinman’s previous conclusion that there are not central parties whose efforts are a key determining factor in the enterprise with respect to BTC and Ethereum, as one need look no further than Blockstream / core developers / “co-owners” responsible for final publication authority in the case of BTC and the Ethereum Foundation / core developers / Vitalik Buterin in the case of ETH. The economic and technical control, power and influence over development, information asymmetries, experimenting, changes to protocols and conflicts of interest issues regarding these central parties should give the SEC and other regulators cause for concern and reasons to revisit the Hinman puzzle. Notwithstanding the above, for the purposes of this article, with respect to Ethereum 2.0, I want to revisit the securities analysis based on Hinman’s emphasis that the determination of whether something is a security is not static. Therefore, as implied by Hinman, while a token like BTC or ETH could transition away from classification as a security, it can revert back into security status. If we assume ETH transitioned away from classification as a security, which as stated above is debatable, there are compelling reasons to conclude that Ethereum 2.0 brings it back to its state as a security—thus, as the title of this article implies, ETH’s journey from a security to a security. Issuer Liability: Application of digital asset securities laws to Ethereum 2.0 There are, at present, compelling reasons to conclude that the SEC and federal courts are likely to decide that the launch and buildout of the Ethereum 2.0 network constitutes an investment contract under Howey. At the highest level, the transaction between the Ethereum Foundation and the initial validator investors bears resemblance to Telegram’s and Kik’s initial private sales to investors, which qualified as securities transactions (the SEC v. Kik Interactive, Inc. and SEC v. Telegram Group decisions applied the securities framework to token sales). As in both cases, the Ethereum Foundation promised to develop the Ethereum 2.0 network and deliver the ETH2 tokens earned as interest to the initial validators upon the successful launch of this platform. Likewise, as in both Telegram and Kik, there is no consumptive use for the tokens earned on the Ethereum 2.0 network in its present form. Notably, Telegram conceded that this transaction constituted an investment contract. Bearing in mind that the Howey test is always highly fact-specific, an independent analysis likewise results in the same conclusion. As to the first element under Howey, a court would likely find that the validators have made an investment of money in the Ethereum 2.0 network because the validators are staking a valuable currency equivalent in exchange for the pledged interest payments. First, users that want to earn rewards for helping to secure the network and process transactions must deposit 32 ETH tokens into a smart contract on the original Ethereum blockchain. An equal amount of ETH is then created on the Ethereum 2.0 beacon chain, which is represented as a new token on that chain, and which the user can put up as collateral to become a validator. These validators only received their 32 ETH on the Ethereum 2.0 network because the critical mass validator threshold was reached, allowing the Ethereum 2.0 network to launch. Second, the ETH created on Ethereum 2.0 cannot be sent back to the original Ethereum blockchain. Third, validators will immediately begin earning interest—potentially as high as to 20%—on their initial 32 ETH investment. As to the second element of Howey, a common enterprise, the $325 million of ETH staked to launch Ethereum 2.0 would likely be considered a pooling of funds that would give rise to horizontal commonality. As the court held in Kik Interactive, the “key feature” defining a common enterprise “is not that investors must reap their profits” in a specific form or at the same time, but rather is “that investors’ profits at any given time are tied to the success of the enterprise”. Specifically, “the nature of a common enterprise [is] to pool invested proceeds to increase the range of goods and services from which income and profits could be earned or, to increase the range of goods and services that holders of [the digital asset] would find beneficial to buy and sell with [that digital asset]”. A court is likely to find that the ETH staked to the Ethereum 2.0 network satisfies this test. First, over 16,000 validators collectively staked $325 million, a threshold that was required for the launch of the Ethereum 2.0 network to occur. Second, the ETH created on the Ethereum 2.0 network cannot be sent back to the original Ethereum blockchain, and it cannot be used for any consumptive purposes on the present version of the new Ethereum 2.0 network. Rather, the future value of the staked ETH, if any, turns entirely on the Ethereum Foundation completing the four promised phases of Serenity leading to the merging of the Ethereum mainnet and the Ethereum 2.0 network. Absent a merger of the two networks, the ETH held on the Ethereum 2.0 network would have no consumptive uses and no real value. Thus, these features lead naturally to the conclusion that the $325 million of staked ETH constitutes the pooling of funds to not just increase, but create, the goods and services that holders of the ETH on the Ethereum 2.0 network can use this asset for. In addition, as the Ethereum Foundation has explained, the launch of Ethereum 2.0 is necessary to allow for the scaling and sustainability of the Ethereum mainnet. Thus, if the four-phase plan succeeds, once Ethereum 2.0 has smart contract capability and is merged with the Ethereum mainnet, this could result in an enormous increase in the range of goods and services for which the ETH token may be used. As to the third element, a reasonable expectation of profits, there are several factors that would support a finding that the validators have acquired additional ETH tokens on the Ethereum 2.0 network (via interest payments) with investment intent. A court would likely find that the following facts weigh in favor of finding a reasonable expectation of profits. First, the ETH earned on the Ethereum 2.0 network is locked on this network until and unless there is a merger with the Ethereum mainnet, and cannot at any point prior to such merger be sent to the Ethereum mainnet. Second, no consumptive transactions or smart contracts can presently occur on the Ethereum 2.0 network. Third, the Ethereum 2.0 network does not have an existing marketplace where the earned ETH tokens are accepted for consumptive use. Accordingly, the value of the ETH tokens earned as interest payments at present is entirely speculative, and the future value turns entirely on the Ethereum Foundation successfully executing on its four-phase plan leading to the merging of the Ethereum 2.0 network with the Ethereum mainnet. If the Ethereum Foundation does succeed in its plan, these token stand to have a greater value (potentially significantly greater value) than the current market value of ETH tokens, because the merged Ethereum network will have greater capabilities—most notably vastly increased scalability. That potential value is substantial. If the Ethereum Foundation fails, the tokens could ultimately be worthless. Investors understand this. [Read Full News]( The post [Ethereum 2.0 – Ether’s Journey From a Security to a Security]( first appeared on [Feed Binary](. [Read Full Story]( ------------------ You Might Like     [Learn more about RevenueStripe...]( ------------------ [Bitcoin Breaches $34,000 as Rally Extends into New Year]( The latest gains top an eye-popping rally for the controversial digital asset in 2020, which rebounded sharply after a severe crash in March that saw it lose 25% amid the coronavirus pandemic.Bitcoin, the world’s largest cryptocurrency, topped $34,000, just weeks after passing another major milestone.The currency gained as much as 7.8% to $34,182.75, before slipping to about $33,970 as of 3:05 p.m. on Sunday in Singapore. It advanced almost 50% in December, when it breached $20,000 for the first time. The latest gains top an eye-popping rally for the controversial digital asset in 2020, which rebounded sharply after a severe crash in March that saw it lose 25% amid the coronavirus pandemic. The currency “will be on the road to $50,000 probably in the first quarter of 2021,” said Antoni Trenchev, managing partner and co-founder of Nexo in London, which bills itself as the world’s biggest crypto lender. Institutional investors returning to their desks this week will likely boost prices further after retail buying over the holidays, he said. Bitcoin has increasingly been “embraced in more global investment portfolios as holders expand beyond tech geeks and speculators,” Bloomberg Intelligence commodity strategist Mike McGlone wrote in a note last month. Proponents of the currency have also seized on the narrative that the coin could act as a store of wealth amid supposed rampant central-bank money printing, even as inflation remains mostly muted.Bitcoin should eventually climb to about $400,000, Scott Minerd, chief investment officer of Guggenheim Investments, told Bloomberg Television in a Dec. 16 interview. Still, there are reasons to be cautious, partly since Bitcoin remains a thinly traded market. The currency slumped as much as 14% on Nov. 26 amid warnings that the asset class was overdue a correction. The big run-up in price in 2017 was followed by an 83% rout that lasted a year. [Read Full News]( The post [Bitcoin Breaches ,000 as Rally Extends into New Year]( first appeared on [Feed Binary](. [Read Full Story]( ------------------ You Might Like     [Learn more about RevenueStripe...]( ------------------ ------------------ Connect with TheFeedBinary on Facebook and Twitter [fb](  [tw]( ------------------ You received this email because you operate or create content for a website/service and based on your website it seemed like this could be important information to you and your users. FeedBinary daily newsletter is managed by [Postbox Consultancy Services Pvt. Ltd.]( C-4/5, IBD Emporia, Kolar Road, Bhopal, Madhya Pradesh, INDIA, 462042 Want to change how you receive these emails? 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