In Token Issue this week, we look at Hope, a new stablecoin project by Babel Finance co-founder Flex Yang, and make sense of the banking crisis. [Read from your browser]( Token Issue Welcome to Token Issue! Delivered every Friday, this free newsletter breaks down the biggest stories in Asiaâs crypto scene and beyond. View past issues [here]( or [sign up here]( to receive future newsletters. Written by Shihan Fang
Crypto journalist Hi {NAME} Two weeks ago, I spoke to Dante Disparte, Circleâs chief strategy officer, about why it pays to be pro-regulation, even if the regulations are unclear. By then, the company had transferred its deposit at Silvergate Bank to other banking partners and appeared poised to drive global expansion efforts for USD Coin (USDC) and Euro Coin (EUROC). Happily, I submitted the story and peaced out to a much-needed family holiday in Thailand. This week, I returned to find that Circleâs USD Coin unpegged from the US dollar almost immediately after my story was published on March 10 due to the closure of Silicon Valley Bank (SVB). Oof. âWelcome back, Shihan,â said no one in particular. The coin was repegged two days later after the Federal Deposit Insurance Corporation (FDIC) guaranteed that all depositors at SVB would be made whole, including Circle, which had US$3.3 billion in the bank. Circleâs market cap is now [down 20%]( - it fell by US$8.8 billion in just two weeks and continues to sink. Announcements of its [new European headquarters in France]( and participation in the [US$10 million investment]( in the yuan stablecoin [CNH Coin]( led by KuCoin Ventures, has not fully restored confidence in USDC and EUROC. Part of Circleâs exodus appears to have been absorbed by its archrival [Tether]( which has increased its market cap by US$5.8 billion since USDC unpegged. [Bitcoin]( holders are also enjoying a rally. The coin broke past the US$20,000 market on March 10, surged past US$25,000 on March 17, and is now trading above US$27,000. Meanwhile, banks continue to melt down. This week, the fourth and largest bank to bite the dust is Credit Suisse, which was sold off to Swiss rival UBS for US$3.2 billion on March 19 in a hasty deal brokered by the Swiss Financial Market Supervisory Authority (FINMA). The deal includes a write-off of [US$17 billion worth of risky AT1 bonds](. Some bondholders are now [preparing to take legal action](. Investment research firm [Morningstar]( has drawn a timeline detailing the demise of the 166-year-old banking giant, while staff in Credit Suisseâs Singapore and London offices are frantically [calling up headhunters]( to secure their next gig. For this weekâs Deep Dive, we look into Hope, a new project from the co-founder of Babel Finance, Flex Yang. Hope is designed to become a stablecoin once the project accumulates enough reserves - a process expected to take three years - and will be backed by digital assets and bonds from Singapore and Hong Kong. Whether Yang will succeed depends on the state of the financial system by then. The US Federal Reserve just [raised interest rates again by 0.25%]( on Thursday. Banks that are unable to adjust their portfolios accordingly without causing panic - SVB failed to do just that - are likely to continue to be washed out. Knowing which ones will make it will be crucial for startups looking for an alternative to the [proverbial biscuit tin](. -- Shihan
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𤿠THE DEEP DIVE
 [Babel Finance co-founder attempts to recover losses with stablecoin project]( âHopeâ is the latest venture from Yang, who is giving Babelâs creditors two choices: either liquidate the company and gain nothing, or accept a portion of the potential gains in his new stablecoin project. Hope was launched last week with US$75 million in bitcoin and ether in reserves. After being clobbered by the Terra collapse in May 2022, the Hong Kong-based crypto financial services provider owes its creditors US$766 million. Babel recently applied for a debt moratorium in Singapore. Itâs an interesting proposition, especially if you understand the Chinese euphemism for buying a dollar lottery ticket: buying a little hope (âä¹°ä¸ä¸ªå¸æâ). My colleague Scott has the latest from Yang in this interview.
 --------------------------------------------------------------- ð ALL EYES ON... *What everyoneâs talking about.* Crypto isnât the problem, itâs the banks
The US Federal Reserve announced its [ninth consecutive rate rise]( on Thursday, increasing its benchmark interest rate by another 0.25% to a range of 4.75% to 5% - the highest since 2007. Just a year ago, interest rates were close to zero. Policymakers are stuck in a quandary, given how inflation in the US is at a historic high. Prices in February are 6% higher than the year before and raising interest rates are the main lever to get that number down to a comfortable 2%. But as this monthâs string of four bank collapses has shown, rapid rate hikes will create stress in the sector. Itâs likely to hit poorer-run banks - those that thought they could cruise through a long period of near-zero interest rates but are now rebalancing their portfolios. Yes, thatâs [SVB]( which attempted to rebalance its portfolio with an asset sale that included selling its bond portfolio to Goldman Sachs at a [US$1.8 billion loss]( and raising money by selling its stocks. The move (TechCrunchâs Connie Loizos calls it an [âown goalâ]( sparked a bank run as panicked customers, who read about Silvergateâs closure the same day the asset sale was announced, wondered if SVB was also facing financial trouble. The run was worsened by [VCs urging their portfolio companies]( to withdraw their funds from SVB. Crypto-friendly Signature Bank similarly faced a bank run and was [taken over by New York regulators]( on March 12, who cited a âsystemic riskâ to the wider banking sector. Signature built its business [on loans to New Yorkâs real estate barons]( in 2001. It started serving crypto clients in 2019 with the launch of Signet, a digital payment network similar to the Silvergate Exchange Network (SEN). Signet allowed customers to transfer the equivalent of fiat currency outside traditional business hours, and helped to triple the bankâs deposits to a peak of US$110 billion by early 2022. Unlike SVB, the run on Signature wasnât sparked by an ill-timed asset sale. Its crypto clients were spooked by a class action lawsuit in February claiming that the bank âsubstantially facilitatedâ alleged fraud at FTX via Signet, and the subsequent closure of Silvergate. Since the beginning of 2023, Signatureâs deposits had plummeted by US$50 billion or nearly 60%, according to [data gathered by the Financial Times](. This meant that the bankâs conservative real estate clientele, normally far less flighty than the nouveau riche degens, began to worry about their deposits too and started pulling out funds. Tellingly, no one stepped in to buy Signature even though it still had a healthy amount of capital to withstand the run, according to [Barronâs](. And when Flagstar Bank, a unit of New York Community Bancorp, stepped in to acquire Signatureâs deposits in a deal arranged by the FDIC, it avoided taking on the Signet business. Some [media]( [reports]( have characterized the closure of Signature bank as an attempt by US regulators to send a strong anti-crypto message, ignoring the takeover of SVB by the same regulators at the same time. But as the above timeline shows, the bank collapses have more to do with old-fashioned trust in bank management and less to do with crypto. With SVB, doubts about its ability to manage its underlying assets relative to the hawkish interest rate environment sparked off a bank run. With Signature, potential losses and a lawsuit about its involvement with FTX created a crisis of confidence among the bankâs crypto clientele, which then bled into the wider business as real estate customers questioned if it could continue operating once it lost its crypto customers. This weekâs Credit Suisse takeover is no exception. According to Morningstarâs timeline, rot in the bank began three years ago in 2020, but the actual bank run on March 14 was triggered when Credit Suisse released its delayed annual report admitting to âmaterial weaknesses'' in its financial controls. The Swiss National Bank then threw out a 50 billion franc (US$54.4 billion) lifeline on March 16 with little effect - the next day, Credit Suisse was bleeding US$10 billion in daily outflows. On March 19, it was officially sold off to UBS in a deal brokered by FINMA to restore confidence in the Swiss banking sector. The bank contagion has hit Asia hard, with risky bonds from some Asian banks [falling by record amounts early this week](. Asian investors that loaded up on Credit Suisseâs AT1 bonds are also [still reeling from the write-off](. The Monetary Authority of Singapore in a statement on Wednesday also attempted to quell panic, confirming that shareholders will have to absorb losses before bondholders in the city-state. Itâs the opposite of what happened in the UBS buyout of Credit Suisse, which saw bondholders getting wiped out but shareholders gaining US$3.2 billion. What a ride. Short of praying hard that more banks donât collapse, thereâs little that the cryptocurrency sector can do. Again, itâs telling of how dependent decentralized finance is on traditional banks. For all that bluster about reshaping the financial system, the value of cryptocurrency tokens still has to be tethered to fiat currencies to be of any use. And maybe thatâs the next big problem DeFi will have to solve.
 --------------------------------------------------------------- â TO THE STARS Impactful developments and projects in Web3. 1ï¸â£Â Hong Kong crypto gaining stream ahead of regulation rollout on June 1
[Over 80 crypto companies]( are lining up to open a branch in the city as they await new regulations for virtual asset service providers later this year, said Christian Hui, Hong Kongâs secretary for financial services and the treasury. He added that the Hong Kong Monetary Authority is also expected to launch stablecoin regulations in 2024. Singapore is also set to unveil its own cryptocurrency regime [by mid-2023]( but the city-state departs from Hong Kong in its distaste for the use of cryptocurrencies in retail speculation. 2ï¸â£Â Arbitrum airdrop crashes website
The Ethereum Layer 2 project was due to airdrop its governance token, Arbitum, to DAO members on March 23. The highly anticipated event saw IOUs and derivatives trading on crypto exchanges even before the actual token was released. Arbitrum currently holds more than half of the Ethereum L2 market share, ahead of Optimism, which launched its token in May 2022. The airdrop crashed [Arbitrumâs website]( but it came back online about 2.5 hours after the event was due to commence.
 --------------------------------------------------------------- MORE TO CHEW ON Stuff thatâs good to know. 1ï¸â£Â Do Kwon arrested by police in Montenegro, official says
The founder of Terraform Labs has been arrested, according to two [tweets]( posted by Filip Adzic, Montenegro's interior minister, on Thursday night. Kwon was detained at the Podgorica Airport with allegedly falsified documents, and the country is currently awaiting official confirmation of his identity. 2ï¸â£Â [XanPool axes staff amid market turmoil, shuts offices in Singapore, Malaysia](
The crypto payments platform has laid off âjust under 40 peopleâ after raising US$41 million last year and also closed its offices in Singapore and Malaysia. The cost-cutting measures were aimed at helping the Hong Kong-based company tide through a longer bear period, a spokesperson said, adding that friendliness towards crypto-fiat gateways is âat all-time lows.â 3ï¸â£Â [Spend stablecoins in APAC with Mastercard](
The global payment provider has launched a stablecoin digital wallet on its ecosystem, in partnership with Australian stablecoin platform Stables. This will enable retail customers in Asia Pacific to save and spend in USDC. The feature is accessible via a stablecoin-only wallet built by Stables, together with a payment card supported by Mastercard. 4ï¸â£Â SEC adds Coinbase, Justin Sun to body count
The crypto exchange was [dealt with a Wells Notice this week]( and may be facing further legal action from the US Security and Exchange Commission for allegedly selling unlicensed securities. On Wednesday, Tron founder Sun was [sued by the regulator]( on similar allegations as well as for âfraudulentlyâ manipulating the secondary market of Tronix - the blockchain platformâs token - through an âextensive wash tradingâ scheme. Others on SECâs hit list include a slew of celebrities - Lindsay Lohan and Soulja Boy, to name a few - who allegedly promoted Tronix and a sister coin, BitTorrent Token, without disclosing that they were paid to do so. Most of the celebrities have settled the charges.
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