CoinDesk Crypto

MakerDAO’s DAI stablecoin is the latest crypto unicorn with a $1 billion market cap. DeFi’s total value locked hit a lifetime high. Hedge fund billionaire Ray Dalio said yesterday he isn’t keen on bitcoin; a few hours later, the cryptocurrency hit a three-year high. 

Top shelf

Cannot dai
Dai (DAI), MakerDAO’s dollar-pegged algorithmic stablecoin, reached a $1 billion market capitalization on Wednesday. While there are only 993 million DAI in circulation, its skewed peg of $1.01 has brought it above the milestone metric. “[I]t works, is here to stay, and is the honey badger of Ethereum,” Compound’s Robert Leshner said. About a third of all dai is in the DAI Savings Rate (DSR) smart contract, with most of the remainder (over 620 million,) locked in its ERC-20 smart contract, CoinDesk’s Brady Dale reports. The move comes as the DeFi ecosystem in aggregate passed a new lifetime high of $13.62 billion.

Forfeited funds
Chainalysis, in conjunction with confiscated asset consultancy Asset Reality, unveiled a program for storing and selling forfeited crypto. Announced Thursday, the program is targeted towards government clients, many of which rely on Chainalysis’ blockchain sleuthing technology to trace illicit funds. While no clients have been announced, in April, the U.S. Marshals Service, which runs semi-regular forfeiture auctions, said it was looking for a private-sector partner to help it manage and dispose of forfeited cryptocurrency.

Related: First Mover: Bitcoin Breaches $16K as (Committed) Holders Diss Dalio’s Diss

Dalio’s dictates
Founder of the world’s largest hedge fund Ray Dalio said governments will seek to “outlaw” bitcoin if it becomes “material.” Plodding well-worn territory, Dalio said bitcoin may not even get there due to its volatility and lack of commercial appeal. “I today can’t take my bitcoin yet and buy things easily with it,” he said. Still, governments may “use whatever teeth they have” to break bitcoin’s back, if it becomes necessary, he said.

Staking play
Crypto trading firm DARMA Capital unveiled a service to provide Eth 2.0 stakers with liquidity through USDC stablecoin loans. Called, perhaps unimaginatively, LiquidStake, the service will allow users to continue earning interest provided by the Eth 2.0 experiment (which will not allow stakers to recall their assets once pledged) while also using this stake as collateral on a cash-equivalent loan. While other loan providers are testing similar services, DARMA’s has received the backing of the Ethereum establishment, including involvement from ConsenSys, Bison Trails, Figment, OpenLaw and Filecoin. In other Ethereum news, Tel Aviv-based Kirobo revealed a way to reverse erroneous ether transactions.

$7.6B stolen
Since 2011, $7.6 billion worth of cryptocurrencies have been stolen through hacks or scams, according to a new Crystal Blockchain report. Approximately $2.8 billion was stolen through 113 security breaches, with a concentration of hacks taking place in the U.S., Japan, U.K., China and South Korea. Another $4.8 billion was stolen through scams, with Crystal Blockchain identifying 23 prominent fraud schemes. Noting the the number of hacks and scams seems to be holding steady, malicious actors are growing more sophisticated. Proper insurance, reserve balances, in-house security teams and blockchain analytics software are all recommended remedies.

Quick bites

• Bitcoin hashrate rebounded 30% Wednesday from quarterly lows as Asian miners brought machines back online. (CoinDesk)
• Russia’s Ministry of Finance has proposed changes to the country’s coming crypto laws that could soften tax reporting requirements. (CoinDesk)
• Some U.S. legislators tore into the Office of the Comptroller of the Currency, and its acting head Brian Brooks, for its “excessive focus” on crypto during a pandemic, in an open letter. (CoinDesk)
• “Slippery slope” as new bitcoin mining pool censors transactions. (Cointelegraph)
• Dash still can’t shake its “privacy coin” associations. (Decrypt)

Market intel

Crossing $16K
Bitcoin kissed three-year highs above $16,000 earlier today. At  around 10 UTC (5 a.m. ET) the cryptocurrency clocked $16,157, a price point last seen on Jan. 6, 2018, before trending down to the high $15,000s. Bitcoin is now up 123% on a year-to-date basis and has gained nearly 50% so far this quarter. Investors still predict a consolidation between $14,000 to $16,000 before any potential retest of all-time highs of $20,000. “The interest so far in 2020 has been primarily from institutions and we could see more retail participation when bitcoin breaks its previous all-time highs of $20,000,” Kyle Davies, co-founder of Three Arrows Capital, said.

Related: Blockchain Bites: Bitcoin’s Path to $20K, Ethereum’s ‘Unannounced’ Fork and Biden’s Crypto-Friendly Picks

Bitcoin in profit
Bitcoin’s rally has had another effect beyond market exuberance and wild-eyed predictions: Nearly all unspent transaction outputs (UTXOs) are in profit. According to Coin Metrics, 98% of UTXOs are worth more today than the time of creation, a level last seen in December 2017. UTXOs are the value left over after a bitcoin transaction, similar to receiving change after paying cash. So what does it mean for bitcoin’s price? Well, Coin Metric analysts said traders might be encouraged to sell and take their profits, or continue holding, given there’s “ a low risk of capitulation.”

At stake

Bitcoin in Venezuela 
Venezuela continues to dominate peer-to-peer crypto activity. According to data reviewed by CoinDesk research analyst Duy Nguyen, in GDP-adjusted terms, the South American nation’s P2P bitcoin market is at least twice as high as the next-largest market, Nigeria.

Activity on prominent P2P crypto exchanges LocalBitcoins and Paxful peaked in the first half of 2019, but has since hovered around $20 million. Experts point to a range of factors to explain the successful test case of Venezuelan crypto use: including the nation’s riotous inflation, capital controls and remittance markets, U.S.-led sanctions and the Maduro regime’s experiment with a crypto-backed petro dollar.

The International Monetary Fund measured Venezuelan hyperinflation at 65,374% in 2018, leagues above any other economy. (Zimbabwe, for instance, is projected to run hot at 319% in 2020, though government bans mean P2P BTC trading is near-zero.) Among the 10 economies that have experienced the highest rates of annual inflation since 2017, only Venezuela, Argentina and Iran have shown significant peer-to-peer bitcoin market activity, Nguyen reports.

While macro-level indicators do much to explain a “deflationary” currency like bitcoin’s appeal, significant on the ground factors are at play. Gabriel Jiménez, a Venezuelan blockchain entrepreneur who led the development of the petro, said Venezuelan businesses often use bitcoin as a medium to obtain foreign currencies like the dollar.

“People living in Venezuela are living under a very unstable and predatory government. They suffer from extreme inflation and general economic instability. And here’s a censorship-resistant, inflation-proof asset, so it’s very attractive to people who are looking for a way to maintain value,” Andrea O’Sullivan, director of tech and innovation at James Madison Institute, told Nguyen.

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All eligible PayPal account holders in the U.S. can now buy, hold and sell cryptocurrency, the company announced Thursday. The firm also increased the amount of crypto that users can purchase in a week.

PayPal confirmed its crypto plans in a Oct. 21 announcement that sent shockwaves across the industry.

During the firm’s most recent earnings call on Nov. 2, CEO Dan Schulman said only 10% of PayPal customers in the U.S. had access to the crypto service at the time.

Related: ‘Where Banks Go, Regulation Follows.’ Why Institutional Acceptance Is a Double-Edged Sword for Crypto, Feat. Ajit Tripathi

Citing steep demand, the publicly traded payments giant upped its weekly crypto purchase limits from $10,000 to $15,000 at the time and said remaining U.S. customers would get access to crypto in the next two to three weeks. By acting so quickly and raising the purchase limit yet again, PayPal is clearly finding a warm reception for its crypto offerings.

“Due to initial demand from our customers, we’ve also increased our weekly cryptocurrency purchase limit from $10K/week to $20K/week,” PayPal spokesman Aaron Gould said Thursday.

Read more: PayPal Raises Crypto Buying Limit to $15K/Week for ‘Eager’ Customers

Plans to bring crypto services to Venmo and international customers in the first half of 2021 remain unchanged, Gould said. The service comes by way of a partnership with Paxos, a registered fintech firm based in New York that will handle all crypto custody on PayPal’s behalf.

Related: California’s Prop. 24 Could Be a ‘Silver Lining’ for Crypto Exchanges Looking to Comply With GDPR

PayPal’s crypto service initially supports bitcoin, ether, bitcoin cash and litecoin – but only with limited functionality. Some have criticized the firm for its restrictive approach.

According to PayPal’s cryptocurrency terms and conditions: “You currently are NOT able to send Crypto Assets to family or friends, use Crypto Assets to pay for goods or services, or withdraw Crypto Assets from your Cryptocurrencies Hub to an external cryptocurrency wallet.”

The price of bitcoin has risen 32.54% from Oct. 21, the date of PayPal’s announcement, to Nov. 11, according to CoinDesk data.

Related Stories

• Federal Reserve Keeps Rates Close to Zero, Maintains Asset Purchases
• Bitcoin Is Good for PayPal, but Is PayPal Good for Bitcoin?

Zapper announced Thursday an extension of its seed investment round with new backing from Delphi Digital and Coinbase. The additional amount on the $1.5 million round was not disclosed.

Zapper runs an asset management portal for decentralized finance (DeFi) on Ethereum. Users can log in with their wallets and see all their assets in one place, as well as simple interfaces for making further investments – in yield farming, liquidity mining or simply diversifying their token holdings. 

Delphi Ventures is the investment arm of the cryptocurrency research firm Delphi Digital. Coinbase Ventures is the same for Coinbase, the exchange led by Brian Armstrong. 

Related: Why DeFi Needs to Branch Out From Ethereum

The original seed round announced in August was led by Framework Ventures and Libertus Capital.

Related Stories

• Total Value Locked in DeFi Sector Hits Record $13.6B
• MakerDAO’s DAI Stablecoin Breaks $1B Market Cap
• Flash Loans Aren’t the Problem, Centralized Price Oracles Are

Ant Group’s suspended initial public offering (IPO) has shed further light on a possible motivation behind China’s digital yuan. The Chinese government appears to view the payments giant as a destabilizing force to China’s economy, and the digital yuan is a way to keep companies like this in check. 

Industry watchers say the People’s Bank of China (PBoC) might use the digital yuan as part of a broader effort to curb the growth of Alipay and WeChat Pay. The central bank digital currency (CBDC) could stunt Alipay’s micro-lending business and provide the unbanked with financial services, while also drawing back deposits for commercial banks.

Ant’s IPO exposes fault lines in the digital payment industry, and China’s central bank is motivated to launch the digital yuan and give itself more power to keep third-party payment platforms in check, Tanvi Ratna, CEO of fintech think tank Policy 4.0, said. Policy 4.0 has been working on an extensive research report on China’s national digital currency that will be released on Nov 18.  

Related: Discovering Bitcoin Through the #EndSARS Movement, Feat. Yele Bademosi & Akin Sawyerr

The Shanghai and Hong Kong stock exchanges halted Ant’s $35 billion dual IPO last week after China’s financial regulators raised concerns over Ant’s booming micro-lending business, which could add more debt to the country’s highly leveraged economy. 

Ant’s co-lending subsidiary Huabei, which is a built-in virtual credit card in Alipay, facilitates loans between commercial banks and borrowers, while Jiabei is the short-term consumer loan provider. Though it enjoys as much as a 40% cut of loan interest, Alipay bears far less in credit risk than the banks. Only 2% of the loans Ant had facilitated as of June were on its balance sheet, according to its IPO prospectus. 

One way for the central bank to control Alipay’s lending business is to require the company to convert cash into the digital yuan to underwrite consumer loans. 

“The bank can make it more costly for digital payment platforms to use the digital yuan to lend money, and this might be something the government might want to force,” Ratna said. 

Related: World’s Second-Biggest Bank to Issue $3B in Bonds Tradable for Bitcoin

One day before Ant’s IPO, China’s top financial regulators published a consultation paper to require online lenders to provide at least 30% of any loan they fund jointly with banks, making it more difficult for Ant to lend money. 

Ant’s booming lending business has struck a nerve with China’s top financial regulators at a time when the country is already battling increasing default risks and weak banks. To curb fintech giants’ growing influence over the country’s economy, Beijing’s authorities proposed a new set of anti-monopolistic practices on fintech companies on Wednesday.  

“China is very conscious about its debt problem. A lot of businesses do not have cash flows, especially after the coronavirus pandemic,” Ratna said. “Ant is pushing out personal loans, a lot of which could go bad.” 

Alipay has not always been forthcoming in reporting its consumer lending data to Chinese banks. While Huabei and Jiebei were launched in January 2018, they did not share data with the central bank until the end of July this year, at the central bank’s request. 

The digital yuan can increase financial transparency and efficiency by helping banks better track and analyze non-performing assets, Ratna said. 

“For the central bank, it is very important that the underlying asset becomes the digital yuan,” she said. “It can help the bank to solve many chronic problems in the financial system, including shadow banking, non-performing loans and too much informal financing.” 

Deposits leak

China’s payment giants pose other threats as well. Commercial banks in China have been losing cash deposits to non-banking payment platforms. The Chinese mobile banking market saw about $8 trillion worth of transactions in the last three months of 2019, with Alipay taking 55% of the market and WeChat Pay having 39%. 

Alipay has one of the world’s largest money market funds called Yu’e Bao, which essentially is a mutual fund that usually invests in safe asset classes such as treasury bonds to earn interest that is higher than many of the saving accounts in commercial banks. Its users tend to put their in-app cash into the fund. With other similar funds on its distribution platform, Alipay had nearly $600 billion in total assets as of June. 

“Loan-to-deposit ratio determines how much money a commercial bank can lend,” Aurora Wong, vice president of crypto firm ZB Group, said. “More cash deposits enable the banks to lend more, which is one of the most lucrative businesses by earning interest.” 

China’s commercial banks need to maintain or raise their deposit base to keep up with lending,  especially when the economic slowdown deepens. 

Some of the commercial banks in China hope retail depositors will use the digital yuan in their payment transactions. When the users convert the virtual currency back to fiat, the cash will remain in the bank accounts instead of on mobile payment apps. 

The latest attempt to encourage mass adoption of the digital yuan was a $1.5 million giveaway by PBOC in October for Shenzhen citizens, Wong said.

Each of the 50,000 participants, who downloaded the digital wallet, would be selected in a lottery to receive about $30 during the week-long campaign. Stores in Shenzhen posted the QR code for the wallet users to scan and pay for their purchases. 

The digital yuan’s benefits for China’s commercial banks go beyond increasing cash deposits. With a larger user base, the banks will have more transaction data to profile consumers, analyze their online behavior and experiment with different ways to monetize the data. 

“Commercial banks in China are becoming more similar to fintech companies,” Wong said. “I think this won’t be the last virtual currency giveaway and there will be even more programs to incentivize consumers to use the wallets from commercial banks.”

Mass adoption

Still, Alipay and WeChat Pay are standing in the way of the digital yuan’s mass adoption. During last month’s trial giveaway, some shoppers preferred to use these two mobile payment apps because they are more convenient. 

“The question of adoption is a difficult one for central banks,” Ratna said. “This is the bread and butter for a startup but it is not something that the central banks have experienced.” 

Favorable regulatory policies for the digital yuan, unique technical features that enable the unbanked to access basic financial services and improving user experience for native digital wallets are among the most likely ways to increase mass adoption for the digital yuan. 

One technical feature that sets the digital yuan apart from Alipay in terms of payment is that users do not need a bank account to be linked to a mobile app in order to do cash transactions. 

China has more than 225 million people without a bank account, which is one of the largest unbanked populations in the world, according to a 2017 report from Global Findex. 

The digital yuan account has a sliding scale of Know-Your-Customer (KYC) requirements corresponding to the amount of digital yuan you want to own and use, said Chuanwei Zou, chief economist of blockchain infrastructure firm PlatOn, said.  

“The more identity information you register with the digital yuan wallet, the more digital yuan you can have in the wallet,” Zou said.  

For Alipay and WeChat Pay, their users have to register with their bank accounts, which requires a government-issued ID. The app will also use facial recognition and cell phone numbers to verify identities. 

Users only with an equivalent of a few thousand dollars in their digital yuan wallets could remain fully anonymous, which would be beneficial to many small retail depositors in China, Zou said.

The decoupling from a bank account also helps foreigners in China and those who have the demand for renminbi transactions outside the country. The central bank plans to launch a trial during the Beijing Winter Olympic Games in 2022, where foreigners in China can directly exchange other fiat currencies for the digital yuan without carrying cash or opening a bank account.   

The digital yuan enables foreigners to buy goods and services in China, and allows anyone outside China to transfer funds across borders, without using a bank account since the virtual currency will be part of a closed system managed by PBOC, Zou said. 

“The digital yuan will definitely change the market structure of digital payment in terms of the last-mile adoption,” Zou said. “We already have commercial banks’ mobile apps, Alipay and WeChat Pay and there would probably be a native app for the virtual currency, which can be a standalone app but can also be integrated into third-party payment apps.” 

China’s four major commercial banks have included the digital yuan account in their mobile apps, while the central bank has yet to let Alipay and WeChat Pay integrate the digital yuan as a payment option in their apps. 

Like many other significant policy changes, the Chinese government has been approaching its national virtual currency initiative in a trial-and-error fashion, Ratna said. 

“The central bank has not really played all its cards yet,” she said.  

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Bitcoin briefly climbed above $16,000 for the first time in three years before quickly falling back below the psychological threshold. 

Digital-asset market traders and analysts say the cryptocurrency is likely to make another run higher, with strong demand expected from traditional investors looking for a hedge against inflation, at a time when sellers appear unwilling to part with their bitcoin holdings.   

“Against the backdrop of stimulus from the Federal Reserve, we expect investors holding cash to continue to allocate to bitcoin,” said Kyle Davies, co-founder of the digital-asset fund Three Arrows Capital.

Related: 98% of Bitcoin’s ‘Unspent Outputs’ Are Worth More Than When Made

In traditional markets, European shares headed toward their first drop of the week on disappointing earnings reports, and U.S. stock futures pointed toward a lower open. 

A powerhouse panel discussion between Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey is scheduled for 5:45 p.m. central European time (16:45 universal coordinated time, 11:45 a.m in New York). The topic is “central banks in a shifting world.”  

Gold strengthened 0.2% to $1,870 an ounce. 

Read More: Bitcoin Price Breaks Above $16K for First Time in 3 Years

Market moves

Related: Israeli Firm Unveils Tech Allowing Users to ‘Undo’ Erroneous Ether Transactions

Ok, so apparently hedge fund titan Ray Dalio doesn’t like bitcoin. 

But guess who’s not selling? People who already own it – and look to profit handsomely from doing so. 

The oldest and largest cryptocurrency doubled last year, and it’s doubled again in 2020. Compare that with the Standard & Poor’s 500 Index of large U.S. stocks, which has gained 44% since the start of 2019. 

So what’s happened, according to data extracted from the Bitcoin blockchain, is that holders of the cryptocurrency are now nearly unanimously in the money – sitting on paper profits, as it were. And that might be because they simply don’t want to part with the digital asset that’s already made them so much money. 

It also means that nobody’s really even close to needing to cut bait. And since many investors view bitcoin as an of out-of-the-money option on economic armageddon, rampant inflation, a revolution in financial technology or all of the above, they’re just letting the bet ride.    

As reported Thursday by CoinDesk’s Omkar Godbole, the percentage of so-called “unspent transaction outputs,” or UTXOs, recently topped 98%, a level not seen since the bull run in late 2017. As well, the number of UTXOs in profit reached a record high of over 110 million. A UTXO is a digital representation of bitcoin or a chunk of bitcoin.  

“A high percentage of UTXOs in profit potentially signals that there is relatively low sell pressure since there’s a low risk of capitulation,” the cryptocurrency analysis firm Coin Metrics wrote this week in a report.  

Sure, bitcoin might be the biggest bubble the world has ever seen – and the holders might be deluding themselves to believe these gains can continue forever. It also could be that bitcoin is just at the beginning of that bubble. 

Charlie Morris, CEO of the cryptocurrency fund manager ByteTree, has been arguing all year that bitcoin is really a technology, which partly explains why it has historically traded in sync with the tech-heavy Nasdaq stock index. On Thursday, Morris noted in a newsletter that bitcoin has recently, and noticeably, started to outperform large tech stocks. (See chart below.) 

“Just as investors flock to gold when they see it outperforming the stock market, I believe bitcoin will attract capital from tech,” Morris wrote. “We can be fairly certain that tech is a bubble, yet bitcoin isn’t.”

It just so happens that many hedge funds like Dalio’s Bridgewater tout their own track records when they’re casting about for funds from big investors like pension funds, endowments and rich family wealth offices. (At least one Twitter troll was quick to compare Dalio’s fund performance with bitcoin’s. Spoiler alert: Dalio loses.) 

Whatever the case, bitcoin holders appear satisfied with the cryptocurrency’s performance, and they appear to be sticking with it. 

– Bradley Keoun

Bitcoin watch

Bitcoin’s first attempt to establish a foothold above $16,000 has failed for now. The cryptocurrency rose to a three-year high of $16,157 early Thursday only to fall back quickly to $15,700. 

The failure to keep gains above the psychological hurdle could be attributed to overbought conditions signaled by technical indicators. 

Analysts told CoinDesk Wednesday the cryptocurrency is likely to consolidate for a couple of weeks before resuming the uptrend and challenging the record high of $20,000 by the end of December.

It remains to be seen if the bulls take a breather as anticipated by analyst or push for early test of record highs. The latter cannot be ruled out as the market is facing sell-side liquidity issues and it’s easier for the bulls to force rapid price rallies. The options market is showing strong bullish sentiment with the demand for call options outstripping the demand for put options by the most on record. 

The cryptocurrency has recovered back to $15,900 and could soon cross back above $16,000. Another rejection above that level would validate overbought signals and may yield a bigger pullback than the one seen early Thursday. 

– Omkar Godbole

Read More: Bitcoin Likely to Consolidate Before December Rise Toward $20K, Say Analysts

What’s hot

Ethereum’s “unannounced hard fork” was trying to prevent the very disruption it caused (CoinDesk) 

DeFi pioneer MakerDAO’s dollar-linked DAI stablecoin breaks $1B market capitalization (CoinDesk) 

Stablecoin issuer TrustToken taps Chainlink for on-chain proof of reserves for TrueUSD dollar-linked token (CoinDesk)

U.S. representatives rip OCC Commissioner Brooks for “excessive focus” on crypto industry (CoinDesk)

Bridgewater’s Dalio sees governments banning bitcoin should it become “material” (CoinDesk)

African startups should tokenize debt and equity on blockchain to “break the white man’s curse” (CoinDesk Opinion)  

Pakistan securities regulators publish position paper on regulating digital assets (SEC Pakistan)

Venezuela’s peer-to-peer bitcoin volume relative to the size of its economy is the highest in the world, due to factors including migration, capital controls, risk of government seizure, demand for hard money and exposure to the petro, the cryptocurrency backed by the government (CoinDesk)  

Ethereum heavyweights launch LiquidStake loans to stake the stakers in staking system 2.0 upgrade tests get underway (CoinDesk) 

Flash loans aren’t the problem, centralized price oracles are (CoinDesk Opinion) 

Analogs The latest on the economy and traditional finance

OPEC deepens forecast for drop in global oil demand, down 10% from 2020 levels, trims expectations for 2021 rebound (WSJ)

U.S. commercial banks are reducing already-low interest rates on customer savings as deposits swell to $15.9T from $13.2T at start of year (WSJ) 

Russia says “Sputnik V” vaccine is 92% effective at preventing coronavirus cases (Reuters) 

Japan’s Nikkei Index hit a near 29-and-a-half-year high on the back of favorable tech shares trading in Asia and the U.S. (Reuters)

Failed IPO of Jack Ma’s Ant Group has led to several companies advancing their own offerings in Hong Kong looking to take advantage of surplus liquidity (Nikkei Asian Review)

Tweet of the Day Related Stories

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When it comes to solving the so-called “oracle problem,” or the way blockchains are connected to outside data sources, we can do better.

So says API3, a project building a transparent methodology for marrying blockchains to the APIs of data providers, which really means providing an alternative to Chainlink, the decentralized oracle service with something of a monopoly in the world of data feeds and smart-contract blockchains. 

Announced Thursday, API3, which promises a decentralized API (dAPI) network, has raised $3 million in a private funding round led by Placeholder and with participation from Pantera, CoinFund and Digital Currency Group (which is also the owner of CoinDesk).

Related: Brent Crude Oil Futures Now Tradable on DeFi Exchange Synthetix

Because blockchain nodes are consumed with the business of reaching consensus, they must obtain outside information via oracle nodes, a sort of middleware between the ledger and the API of some data provider. According to Heikki Vänttinen, co-founder of API3, this intermediary function is handled by rent-seeking middlemen who run nodes on Chainlink, which in turn operates an opaque system of governance. 

A better solution is to allow API providers themselves to run their own nodes, said Vänttinen. That way, the process of governing the curation of data feeds can be done in a transparent and decentralized manner.

“We just saw some shortcomings in the way they [Chainlink] basically operate their data feeds on the oracle network as a whole,” said Vänttinen, who was one of the first Chainlink node operators. “The core team is this sort of centralized black box for the data feeds, deciding unilaterally which nodes get to serve which data feeds and also which APIs those nodes serve data from,” he said.

Placeholder’s Chris Burniske turned up the heat.

Related: Flash Loans Aren’t the Problem, Centralized Price Oracles Are

“Crypto’s largest oracle system by network value, Chainlink, is composed of data-reselling middlemen, where the source and quality of data are suspect,” he said in a statement. “While heavily marketed, Chainlink isn’t well enough designed or maintained to remain a long-term solution for crypto or DeFi’s information needs, and those that rely on Chainlink do so at their own users’ risk. Enter API3.” 

The Chainlink advantage

However, a Chainlink Labs spokesman said a quick look at one of the widely used feeds like ETH/USD, shows multiple leading data providers, such as Kaiko, running their own nodes. 

“The Chainlink system possesses a key advantage,” the spokesman told CoinDesk via email. “It enables data providers to sell their data to multiple blockchains without the need to run any additional software. Chainlink not only enables data providers to run their own nodes, and many already do on production today, but also enables them to sell their existing APIs into the Chainlink Network with zero changes to their infrastructure.”

This purposeful design decision provides Chainlink users access to a broader selection of data providers, the spokesman said, adding: 

“It’s a starkly different improved approach from that of API3, which requires all data providers to operate and manage new infrastructure to even get started. Chainlink’s origin-signed data capabilities are complemented by the even more important capability that allows smart contracts to access any and all APIs, a key feature API3 clearly lacks.”

Read more: TrustToken Taps Chainlink for On-Chain Proof of Reserves for TrueUSD Stablecoin

Vänttinen says the API3 approach makes it painless and easy for API providers – from crypto-price crunchers to weather forecast APIs that plug into insurance apps – to set up as oracles. The API3 Airnode is “a very simple serverless function that the data provider can deploy on their existing cloud provider platform – you set it and forget it,” said Vänttinen. Alternatively, running a Chainlink node is “basically a full-time job” to keep operational, he said.

Chainlink pointed out that since API3 removes the reliability of having each oracle running its own full nodes would make this approach highly susceptible to things like the recent Infura downtime event.

“API3 doesn’t have oracles that run their own Ethereum or other nodes, which means they are forced to rely on centralized third parties to broadcast their results,” the Chainlink Labs representative said. “This means that API3 is entirely dependent on services like Infura being live, which as we’ve seen recently, can fail for hours at a time, which in API3’s case, would lead to hours of downtime, out of sync market prices and therefore massive losses for users.” 

DeFi bonanza

The recent DeFi boom saw Chainlink node operators cashing in. For example, the monthly subsidies earned by each of the top three Chainlink node operators was close to $100,000 per month between August and October this year. According to research carried out by The Block, between August and October, ChainLayer made over $322,000, LinkPool over $306,000, CertusOne over $293,000 and Fiews over $282,000. September was a particularly good month for them, as the top three nodes all made over $160,000 in said subsidies.

By contrast, the API providers are paid a couple of orders of magnitude less and don’t even know their data is being resold in these applications, said Vänttinen. The monthly subscription fees paid to those providers by node operators could range between $100-$200 per month, perhaps running as high as $400, Vänttinen said, adding that the terms and conditions of these subscriptions usually prohibit the third-party reselling of data.

Read more: Flash Loans Aren’t the Problem, Centralized Price Oracles Are

“With its Airnode design, API3 makes it seamless for primary data providers to pipe their information into cyptonetworks with zero blockchain expertise,” said Burniske. “That means the reputation and quality of existing data providers can carry into cryptoland, simultaneously allowing these entities to turn a profit from crypto participation.

“Furthermore,” he said, “API3’s organizational DAO structure provides a framework for truly decentralized on-chain data feeds, which the team calls dAPIs.”

Related Stories

• TrustToken Taps Chainlink for On-Chain Proof of Reserves for TrueUSD Stablecoin
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You can now carry exposure to world oil markets in your decentralized finance (DeFi) portfolio, thanks to the listing of Brent Crude Futures (Brent) on trading platform Synthetix.

Using syndicated data from Intercontinental Exchange (ICE), the Synthetic Oil (sOIL) token is live today on the Synthetix trading platform, according to a release shared early with CoinDesk. 

Brent is one of two major futures contracts for global oil markets, the other being West Texas Intermediate (WTI). The contract tracks the future price of oil found in the North Sea and generally helps set the spot price of European oil. Outside of fiat-backed stablecoins, the product is one of the first real world assets to enter DeFi trading.

Related: ‘Chainlink Killer’ API3 Closes $3M Funding Round With Placeholder and Pantera

Read more: What Is DeFi?

The addition of more real world assets “will be up to the community to request,” Synthetix founder Kain Warwick told CoinDesk in a Telegram message, adding that there is “a lot of interest in adding other commodities.”

Pricing data for sOIL is supplied by data provider Chainlink, further sourced from ICE for an undisclosed sum. Framework Labs, sister company of venture capital firm Framework Ventures, helped syndicate the data.

“Connecting key financial infrastructure to next-generation smart contracts is a key step in the continued evolution of the DeFi ecosystem. We look forward to helping Synthetix continually expand the collection of assets it supports and working with Framework Labs to onboard more traditional players to DeFi,”Chainlink Co-founder Sergey Nazarov said in a statement.

Synthetix and oil

Related: TrustToken Taps Chainlink for On-Chain Proof of Reserves for TrueUSD Stablecoin

Synthetix – which conducted an initial coin offering (ICO) in 2018 for its ERC-20 styled Synth (SNX) token – enables the creation of synthetic financial contracts using its native token.

The platform currently offers 24 trading pairs ranging from cryptocurrencies to crypto indices to foreign exchange (FX) such as the euro. Each tradable contract is backed by a 750% collateralization of SNX and mimics price movements of the chosen asset through an oracle. SNX is currently trading hands at $4.12, according to Messari.

sOIL contracts and the data syndication necessary were first proposed by community members under Synthetix Improvement Proposal (SIP) 49 and 62 in March and May, respectively. 

Real-world assets in DeFi have only made a soft impression to date due to the technical and philosophical constraints behind blockchain-based financial alternatives. For example, MarkerDAO, the oldest DeFi project, has weighed the addition of railroad invoices and music royalties for collateralizing its dai (DAI) stablecoin while lending platform Aave has more recently begun working toward tokenizing mortgages with RealT.

Crafting a tradable synthetic DeFi contract for oil also proved difficult, Warwick said, particularly in light of the physically deliverable nature of Brent.

“There were a number of issues around governance and formulating the algo for the price feeds, but the main reason was needing to ensure we have the most robust price feeds for the aggregator network possible,” Warwick said. “The team at [cryptofinance firm] XBTO helped construct a formula that took all of the current futures contracts and rolled them into a proxy for a spot price.”

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Chainalysis is preparing to help its governmental clients sell the same trove of forfeited cryptocurrencies the blockchain tracing company often assists in tracking down.

• On Thursday, Chainalysis unveiled a program for storing and selling forfeited crypto in partnership with confiscated asset consultancy Asset Reality.
• The program will likely cater to many of the same government clients that already pay Chainalysis millions of dollars annually to help trace illicit crypto transactions.
• Those investigations sometimes lead to agencies taking possession of eye-popping crypto sums. Just last week, the U.S. Department of Justice (DOJ) announced it seized over $1 billion in bitcoin that Chainalysis software traced back to Silk Road.
• DOJ agencies unload their crypto on the public through semi-regular forfeiture auctions. These sales can raise tens of millions of dollars for the government.
• But the U.S. Marshals Service, which runs those auctions, has been asking since April for a private-sector partner to help it manage and dispose of forfeited cryptocurrency. 
• Chainalysis representatives did not immediately confirm if its new partnership with Asset Reality was in response to the U.S. Marshals’ request.

Read more: US Seized More Than $1B in Silk Road–Linked Bitcoins, Seeks Forfeiture

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• Bitcoin Price Breaks Above $16K for First Time in 3 Years
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• Ethereum Service Providers Scramble to Update Software After ‘Unannounced Hard Fork’

Russia’s Ministry of Finance has proposed new amendments to the country’s coming law on crypto assets that could soften the requirements for cryptocurrency taxpayers, news agency RBK reported Thursday.

According a package of draft bills, individuals must report their holdings if annual transactions exceed 600,000 Russian rubles (about $7,800). In a previous proposal, the ministry had sought disclosure when transactions pass 100,000 rubles (around $1,300) in one year.

With the law planned to be passed by January, the ministry wants holdings for the next tax year to be disclosed no later than April 30, 2022. The value of the crypto reported will be calculated by the national tax agency based on the prices at the moment of transactions, the bill reads.

Related: New Jersey Moves Closer to Crypto License With Introduction of Senate Bill

Failure to declare the full amount of cryptocurrency owned in a timely manner, as well as not paying taxes on it, will lead to fines. If a taxpayer doesn’t declare his crypto for three years in a row, the punishment will be tougher: up to six months in jail for undeclared crypto worth 15 million rubles (~$195,000) and up to three years in prison for 45 million rubles (~$586,000) and more.

Cryptocurrency miners and over-the-counter (OTC) brokers will have to report deals to Rosfinmonitoring, the agency assigned with preventing money laundering and terrorism financing. The agency earlier reportedly planned to develop its own blockchain-tracing tool to connect crypto addresses with users’ identities.

Also read: Russian Hydropower Giant Opens Bitcoin Mining Farm

A previous proposed bill by the regulator sought to ban miners located in Russia and using Russia-based infrastructure from being rewarded for their work in cryptocurrency. That wording prompted fears that mining might be outlawed in Russia altogether, and hasn’t been clarified since.

Related: ‘Where Banks Go, Regulation Follows.’ Why Institutional Acceptance Is a Double-Edged Sword for Crypto, Feat. Ajit Tripathi

These amendments, however, are not as harsh as one of the first draft bills, which sought punishment for facilitating crypto transactions in Russia of up to seven years in prison. That version provoked an outcry among the Russian crypto community and even criticism from other ministries.

Mikhail Tretyak, IT expert at the Digital Rights Center, told CoinDesk he believes the new amendment draft, while less harsh than the previous versions, might still scare away crypto entrepreneurs. “Part of the market will go to the darknet,” he said. “Others might choose emigration to the countries with softer regulatory regimes, and people are asking us for help with this more and more each day.”

The Ministry of Finance has also previously suggested limitations on purchasing crypto for non-qualified investors, limiting purchases to no more than 600,000 rubles-worth (about $7,740) of digital assets in one year.

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A bitcoin on-chain metric has increased to three-year highs, suggesting a potential supply shortage and low odds of significant price pullback. While there are conflicting interpretations about this latest signal, many market observers are taking it to be positive for the cryptocurrency. 

The percentage of bitcoin unspent transaction outputs (UTXOs) in profit recently topped 98%, the highest level since December 2017, according to data source Coin Metrics. As well, the number of UTXOs in profit reached a record high of over 110 million. 

The data indicates a large number of holders are currently making money on their coins and may decide either to hold or liquidate, depending on their outlook. Their next step may influence the price trajectory. 

Related: Bitcoin Price Breaks Above $16K for First Time in 3 Years

“A high percentage of UTXOs in profit potentially signals that there is relatively low sell pressure since there’s a low risk of capitulation. Conversely, it could signal that some investors may soon start taking profits if the potential gains become too good to pass up,” according to Coin Metrics’ “State of Network: Issue 76.”

A UTXO is leftover bitcoins after a transaction akin to receiving change after making a large cash payment. These coins can be spent as inputs to future transactions. A profit-making UTXO is the one whose price at the time of creation is less than the current market price.

Capitulation is the point where investors give up trying to recapture lost gains and sell into the falling market, leading to a more profound decline. Currently, most investors are making money on their investments, and the risk of capitulation is almost nil. Besides, the market is mood bullish, and holders are unlikely to book profits anytime soon. 

Analysts expect the cryptocurrency to consolidate in the short-term before challenging the record high of $20,000 before the year-end.

Related: Market Wrap: Bitcoin Fails to Break $15.9K; Over 50K ETH Staked on Eth 2.0 Contract

“Most investors that have held steady for this long would continue to hold till new all-time highs, causing a supply shortage, and acting as a positive reinforcement loop, leading prices higher,” Connor Abendschein, research analyst at Digital Assets Data, told CoinDesk in an email.

Large spot buyers have already caused the drying up of sell-side liquidity, and the situation could intensify with the uptick in the percent of UTXOs in profit. 

“Between Grayscale’s GBTC trust, MicroStrategy, and the influx of other large spot buyers, the supply of bitcoin is beginning to look more scarce,” Matthew Dibb, CEO of Stack Funds, told CoinDesk. Grayscale is owned by CoinDesk’s parent firm, Digital Currency Group.

At press time, the cryptocurrency is trading near $15,800, having reached a three-year high of $16,157 early Thursday.

Also read: Bitcoin Price Breaks Above $16K for First Time in 3 Years 

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Kirobo, a Tel Aviv-based startup known for developing a product that reverses erroneous bitcoin transactions, has repurposed its invention to work on Ethereum.

• Announced Thursday, the Retrievable Transfer service is now available to users transacting in the network’s native ether token.
• “The use of our logic layer finally eliminates the need to send a test transaction, sharply reducing the level of anxiety users feel when transferring funds to a third party,” said Asaf Naim, CEO at Kirobo.
• Available to users of MetaMask and any wallet that uses the WalletConnect protocol, Retrievable Transfer allows users to reclaim funds sent to the wrong address by generating a password that is entered by the sender.
• The receiver of the funds must also enter the matching password – failing to do so allows the sender to claim back the funds, reversing the transaction.
• In addition, the service is also designed to safeguard against sending funds to smart contracts that don’t support deposits, as well as man-in-the-middle attacks, according to Kirobo.
• Ethereum standard ERC-20 tokens will also be supported by the service at a later date, the startup said.

See also: Israeli Firm Develops Tech Allowing Crypto Users to Retrieve Funds Sent in Error

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• Total Value Locked in DeFi Sector Hits Record $13.6B
• Ethereum’s ‘Unannounced Hard Fork’ Was Trying to Prevent the Very Disruption It Caused
• Ethereum Heavyweights Launch LiquidStake Loans to Ease Eth 2.0 ‘Lockup’

Bitcoin’s (BTC) stalled rally picked up the pace on Thursday, with prices reaching three-year highs above $16,000.

• The world’s top cryptocurrency by market capitalization clocked a high of $16,157 at 10:12 UTC, a price point last seen on Jan. 6, 2018.
• The move ended a week of consolidation in the range of $14,000 to $16,000.
• Bitcoin is now up 123% on a year-to-date basis and has gained nearly 50% so far this quarter, according to CoinDesk 20.
• With the U.S. election in the rearview mirror, projected President-elect Joe Biden’s stance could have an influence on fiscal policy over the next four years, which could, in turn, affect inflation, against which bitcoin is touted as a hedge.
• “Against the backdrop of stimulus from the Federal Reserve, we expect investors holding cash to continue to allocate to bitcoin,” said Kyle Davies, co-founder of Three Arrows Capital.
•  “The interest so far in 2020 has been primarily from institutions and we could see more retail participation when bitcoin breaks its previous all-time highs of $20,000,” Davies added.
• The cryptocurrency has recently received validation from several public companies and prominent investors as a store of value asset and is facing a supply crunch due to increased institutional participation.
• U.S. billionaire investor Stanley Druckenmiller disclosed on Monday a bitcoin position and said bitcoin will outperform gold in the long run.
• Analysts also told CoinDesk the bitcoin price may consolidate for a short period before moving toward $20,000 in December.
• Other top cryptocurrencies were also in the green with ether, litecoin posting gains between 1%-2% and OMG rising 8% on the day, according to data by CoinDesk 20.

See also: Lightning Operators Are Bracing for a Bitcoin Bull Run

Zack Voell and Nikhilesh De contributed reporting.

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The U.S. dollar value of the cryptocurrency liquidity locked up in all decentralized finance (DeFi) projects has hit another record.

• At around 08:00 UTC on Thursday, the total value locked (TVL), as provided by analytics website DeFi Pulse, reached a new lifetime high of $13.62 billion.

• Harvest Finance, the decentralized platform that lets users automatically “farm” assets from other DeFi platforms, is helping the charge with its TVL almost doubling over 24 hours.
• The 84% boost to Harvest’s TVL, in U.S. dollar terms, saw it jump from $473.5 million to over $890 million, just shy of its record TVL at $1.09 billion seen on Oct. 23. It currently ranks sixth among other DeFi projects.
• Lesser known projects, DFI Money and ForTube also saw big hikes in locked liquidity, with 24-hour gains of over 45% and 36%, respectively.
• “People have been fascinated by high-yield, risk-free strategies,” said Ki Young Ju, CEO at analytics firm CryptoQuant. “For conservative investors, staking on DeFi projects is a better strategy than holding or utilizing other risk-free strategies like arbitrage on exchanges.” 
• The DeFi sector has been on a tear this year, after hitting $1 billion TVL in February, the sector currently holds 13 times greater value.
• The last all-time high of around $12.5 billion was hit in late October, preceding a temporary $1 billion slump before rising sharply again to Thursday’s record.

See also: Flash Loans Aren’t the Problem, Centralized Price Oracles Are

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Since 2011, $7.6 billion worth of cryptocurrencies have been stolen, according to a new report from Amsterdam-based blockchain analytics firm Crystal Blockchain. The total figure breaks down into two sadly predictable buckets – hacks and scams. 

The report found that $2.8 billion was stolen through security breaches, the most popular breach being via a cryptocurrency exchange’s security systems. In total, the firm documented 113 security breaches; the largest of these was the Coincheck breach in 2018, which saw hackers make off with more than $535 million worth of NEM coins. 

The United States, Japan, the United Kingdom, China and South Korea experienced the most exchange security breaches. U.S. crypto services were targeted 13 times, topping the list. 

Related: Binance Gives $200K to Investigators Who Helped Identify Actors Behind 2018 Attack

Read more: Social Engineering: A Plague on Crypto and Twitter, Unlikely to Stop

Another $4.8 billion was stolen through scams, with Crystal Blockchain identifying 23 prominent fraud schemes. 

“We deemed $7.6 billion as the total amount for all the years combined in one sum. Basically a cumulative sum for the last 10 years,” said Kyrylo Chykhradze, a product director of Crystal Blockchain.

In terms of the value stolen, China led the pack by far. The report attributed its ranking mainly to the 2019 PlusToken Ponzi scheme ($2.9 billion) along with the 2020 WoToken scam ($1 billion) that  was connected to the PlusToken. 

Related: Crypto Exchange Coinbase Is on a Hiring Spree in Japan

The majority of crypto exchanges that were hacked had insufficient security and low-level verification for withdrawals, such as just an email or phone number. 

In the case of Coincheck, for example, the company kept most of its assets in a wallet connected to other external networks. It also lacked multisignature security entirely, which would have required multiple key holders to sign off before funds were moved. 

Read more: Multisignature Wallets Can Keep Your Coins Safer (If You Use Them Right)

Chykhradze said the main reason for vulnerabilities in the tech is the industry continues to evolve at a very fast pace, and more and more entities are appearing on the market with inadequate and “neglected” internal security policies. 

“Their security policies are neglected because these new services cannot (financially) afford to pay as much attention to such security issues, whereas well-established entities are in a better position to ensure and prioritize security,” he said in an email to CoinDesk. “This results in newer services becoming cherry-picking opportunities for bad actors who can spot those vulnerabilities.”

Hackers are becoming more sophisticated

The report’s conclusion doesn’t offer much of a silver lining. It observes that over the last few years the number of attacks have remained high. Even large-scale exchanges, which would ostensibly have better security measures, have experienced breaches. The report also predicts that, given that methods used by hackers have continued to become more sophisticated, attacks will only continue to grow in number. 

Chykhradze said they see SIM-swapping on the rise; this scam is industry-agnostic, afflicting cryptocurrency players as well as those in other sectors. 

“But what has really changed and developed is the way that these criminals are laundering stolen funds. These entities scrutinize services to understand their [anti-money laundering/know your customer] policies as well as policies related to privacy coins in the service’s offering,” he said. 

“Services with lower barriers for KYC or privacy coin entry are better opportunities for laundering. This is another critical point to consider in crypto service security, how do we make stolen fund laundering almost impossible for bad actors?”

By way of solution, a few basic security measures for all crypto exchanges were recommended, particularly when exchanges use hot wallets. One is having proper insurance for special cases, a second is retaining an in-house security team, the third is using blockchain analytics software and last is making sure to have assets in reserves equivalent to the amount of cryptocurrencies in online storage. 

“We can assume that the number of attacks and schemes will continue to grow as the blockchain industry and the crypto market grows,” said Chykhradze, “especially with this latest bitcoin bull run we are currently experiencing and the influx of new business.”

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The Takeaway:

• The bulk of Ethereum’s DeFi ecosystem went dark earlier today after a latent bug in the Ethereum code split the network’s transaction history in two.
• The split resulted from a code change that was surreptitiously inserted into a previous Geth update; some Ethereum node operators ignored the update, which ironically was meant to prevent the very split that occurred.
• The nodes that did not upgrade were under the impression the update was minor and did not know it included a change to Ethereum’s consensus design.
• A post-mortem released today by Geth indicates that the bug was intentionally triggered. The case is perhaps Ethereum’s greatest challenge since the 2016 DAO fork, and it raises questions about Ethereum’s oft-touted decentralization and the effectiveness of its developer coordination going into Ethereum 2.0. 

At first, it was an apparent issue with Infura, the ConsenSys-run servers that keep a majority of decentralized finance (DeFi) applications synced to the Ethereum network.

Infura went down around 8:00 UTC Wednesday, and with it, some of Ethereum’s most popular applications like Metamask, MakerDAO, Uniswap, Compound and MyCrypto, among others. Shortly after, Binance halted Ethereum trading after noticing conflicting transactions on its Ethereum node. As other exchanges suspended trading as well, the real issue became clear: A bug in the Go Ethereum (Geth) client, whose code underpins 80% of Ethereum’s applications, had split the Ethereum blockchain in two.

Related: Ethereum Heavyweights Launch LiquidStake Loans to Ease Eth 2.0 ‘Lockup’

Read more: Ethereum Developers Delay Berlin Hard Fork to Stem Client Centralization Concerns

The two conflicting transaction histories meant Etheruem users were temporarily interacting with different versions of the Ethereum blockchain. More than causing delays, this put user funds at risk by knocking out the majority of Ethereum’s DeFi applications for a few hours.

Infura has fixed the issue, as have other service providers who were affected by the snafu, by updating their nodes. These stakeholders were running an older version of Geth, which contained a bug that Ethereum developers silently patched in recent update – an update which Infura and Blockchair, among others, ignored. 

Besides these two service providers, other Ethereum users and wallet providers were also affected because they didn’t update their code, developers have told CoinDesk. 

Related: First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

The fiasco has critics challenging Ethereum’s perceived decentralization, while stakeholders are wondering why the change was pushed in secret without coordination between Geth and other development teams. 

To some, the split is the most pressing challenge for Ethereum since the infamous DAO hack of 2016.

Ethereum’s chain split: How it happened

In a just-published post-mortem, Péter Szilágyi, a team lead at Ethereum, wrote that a fork “was (deliberately) triggered on the Ethereum network.”

A representative from Optimism, an Ethereum scaling project, recently posted that the project purposefully triggered the bug the Geth update fixed, setting off the fork.

When the fork occurred, it created two versions of the Ethereum transaction ledger: one with transactions from updated Geth clients, and one with transactions from older Geth clients (like Infura).

“The fix was deployed several months ago and only today a transaction that caused that split came in,” Nikitia Zhavoronkov, the lead developer at Blockchair, an Ethereum block explorer who was affected by the fork, told CoinDesk in a direct message. 

Read more: Did Ethereum Learn Anything From the $55M DAO Attack?

Thinking the update was “a minor change to the code,” Blockchair didn’t bother with the update because it wouldn’t be worth the downtime for their services. But more than minor, developers apparently made a quiet change to Geth’s consensus mechanism in the update, as well. 

“The Geth team indeed changed the consensus implementation in the v1.9.17 release, however the team did not create any new rules that the Ethereum community didn’t know about or agree to,” Szilágyi writes in the post, saying these rules were laid out in an Ethereum Improvement Proposal three years ago.

“If you don’t consider accidentally introducing a bug a ‘consensus upgrade,’ then you should also not consider fixing the said bug a few months later a ‘consensus upgrade’,” he argued.

A call for transparency

Ironically, the fork was caused by the very consensus bug that Geth’s update sought to address. 

The Ethereum bounty program recently recognized John Yang, a newcomer to Ethereum’s open-source community, for discovering this and another vulnerability. Geth developer and Ethereum security expert Martin Swende tweeted the changes in the update fix the disclosed issues, intimating that the debacle is a “reminder to keep your node(s) up to date!”

Swende continues to say in the tweet thread that developers did not announce the big change to avoid drawing attention to the flaw. In his own explanation, Szilágyi said that “silently” fixing the bug invited less “disruption.”

Still, other Ethereum stakeholders are wondering why the bug could not have been disclosed in private with the teams that are building on Geth.

Read more: ‘High’ Severity Bug in Bitcoin Software Revealed 2 Years After Fix

“Each major project that the dev team is in close contact with should have a security contact that can help manage and coordinate a smooth upgrade, and we should work together,” Matt Luongo, the founder of Thesis, told CoinDesk.

“When forks are surprises, anyone who has built atop Ethereum like we have could lose money,” he continued.

Thesis builds the Keep Network, which issues tBTC, a form of tokenized bitcoin for the Ethereum blockchain. Luongo said the fork put tBTC users’ funds at risk, but not because of the chain split, which has been resolved after Infura and others updated their Geth clients. 

It’s because the downtime meant that users staking Ethereum in Keep Network couldn’t coordinate with the Ethereum mainchain; as a result, they risked having part of their stakes “slashed” for not meeting their fiduciary requirements.

Despite the problems the split caused, prices for ether, the Ethereum blockchain’s native cryptocurrency, rose 4.6% Wednesday after the news emerged, suggesting that traders see little systemic or long-term threat from the snafu.

Picking up the pieces

Zhavoronkov said that the mess-up was not malicious, but that “if [Geth] knew such thing could happen, they should’ve prepared a guide for node operators.” Luongo shared similar frustrations, saying that the Geth team are “good developers” but that they lack “experience running infrastructure” and are “underfunded.”

The comments key in on a frustration some Ethereum stakeholders share pertaining to why Geth kept the consensus change a secret. Going further, why did Infura, the backbone of Ethereum’s decentralized finance ecosystem, among others, not know about a consensus-breaking bug in Ethereum’s code before it was triggered?

“This is a bit of a grey area and requires a case-by-case discussion,” Szilágyi explains in his post. “We all agree that transparency is king and that we should strive as much as possible towards it, but it’s also important to look at all the details before heads start rolling.

Read more: Ethereum 2.0 Countdown Begins With Release of Deposit Contract

“In the case of Ethereum, it takes a lot of time (weeks, months) to get node operators to update even to a scheduled hard fork. Highlighting that a release contains important consensus or DoS fixes always runs the risk of someone trying to beat updaters to the punch line and taking the network down. Security via obscurity is definitely not something to aim for, but delaying a potential attack by enough to get most node operators immune may be worth the temporary ‘hit’ to transparency,” he continued.

Ultimately, Geth’s team believed there was too much risk in disclosing the vulnerability, so they decided that pushing the update surreptitiously invited the least risk.

“We’d argue that it actually did work,” Szilágyi says. Even though the update “took an unexpected turn with yesterday’s network split,” Geth’s team still believes that keeping the issue hush “was the right call”

As Ethereum approaches its largest upgrade ever in Eth 2.0, the case could be a critical study in client coordination for the Ethereum ecosystem.

“The most important thing here IMO is that the folks who made this call are transparent about the reasoning, own any mistakes, and grow,” Luongo said. “Monero has dealt with [consensus bugs] well in the past, as has Bitcoin and Zcash. There are many examples, and while it’s always tricky to coordinate across an industry, eschewing any sort of coordination is extremely dangerous. 

“I hope this fork leads to tighter relationships and rethinking how projects on Ethereum interact with client development.”

Update 00:36 UTC – This article has been updated to better convey that the “hard fork” was not a deliberate code change, but a chain split which was triggered by the consensus bug that Ethereum developers quietly patched in the Geth v1.9.17 release.

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The stablecoin dai (DAI) broke a market capitalization of $1 billion on Wednesday, according to CoinGecko.

“One billion Dai in circulation is a huge milestone and a powerful validation that people around the world want more access, more transparency and more opportunity to maximize their economic potential,” Rune Christensen, MakerDAO’s founder, told CoinDesk through a spokesperson.

Supply actually increased by $30 million at one point today, the MakerDAO Foundation confirmed, though it provided no additional details.

Related: Flash Loans Aren’t the Problem, Centralized Price Oracles Are

DAI is created when Ethereum users deposit one of many assets into the Maker Protocol and borrow against that asset in the form of DAI. The smart contracts enforce a value of $1 per DAI, which helps the stablecoin generally maintain a $1 peg, though it varies from time to time. 

All of the relevant data about the MakerDAO system can be monitored at the Dai Stats website. As of this writing, the total supply is at around 993 million DAI. (The $1 billion market cap is explained by DAI being slightly above its peg at $1.01, as of press time.)

“Dai is a pioneer of protocol-created financial instruments – and reaching the milestone of one billion Dai proves that it works, is here to stay, and is the honey badger of Ethereum,” Robert Leshner, founder of DeFi money market Compound, told CoinDesk.

It’s worth noting that it was only February that the whole DeFi market first broke $1 billion in total value locked.

Related: US Representatives Rip OCC, Brooks for ‘Excessive Focus’ on Crypto

On Compound, there’s actually $1.6 billion in DAI locked up right now. As we’ve previously noted, this is because users deposit, borrow and deposit again, in loops (as much as collateralization rates will allow). 

While most DAI that’s used in the world takes the form of an ERC-20 token, not all of it does, and that is by design. DAI doesn’t go into the ERC-20 smart contract until users withdraw it from MakerDAO, and in the future users could do so in other token standards, if better ones arise, Nik Kunkel, a developer at the Maker Foundation, explained.

“In the Maker system, dai is not an ERC-20 token. Dai is just dai,” Kunkel said. 

About a third of the total supply is in the DAI Savings Rate (DSR) smart contract, despite the fact that it currently offers no return. Most dai, over 620 million, are currently in the ERC-20 smart contract, as viewable on Etherscan.

“DSR is part of the protocol itself, so it’s not opinionated about what form dai should be in,” Kunkel explained.

Maker currently has $2.3 billion in assets locked according to DeFi Pulse, making it the second biggest DeFi application on Ethereum, after Uniswap.

“MakerDAO was built to help people find a better, less biased and more transparent way to participate in the global financial system,” Christensen said.

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Bitcoin gained Wednesday while Ethereum 2.0 staking has been ramping up.

• Bitcoin (BTC) trading around $15,694 as of 21:00 UTC (4 p.m. ET). Gaining 2.6% over the previous 24 hours.
• Bitcoin’s 24-hour range: $15,293-$15,973
• BTC above its 10-day and 50-day moving averages, a bullish signal for market technicians.

Bitcoin’s price was back on a bullish run Wednesday, heading as high as $15,973 around 18:00 UTC (2 p.m. ET) before slipping somewhat, at $15,694 as of press time. 

Constantin Kogan, managing partner at investment firm Wave Financial, sees an upside signal in the Power of Balance indicator, which uses opening, closing, high and low daily pricing to determine market movements. “The Power of Balance indicator signals in favor of an upward breakout, most likely a test of $16,000,” Kogan said. 

Related: Venezuela’s Bitcoin Story Puts It in a Category of One

Read More: Bitcoin to Consolidate Before December Rise Toward $20K, Say Analysts

Analysts seem to have found a short-term price floor, the area where order books will trigger buying, pushing the price back above that level if it does go that low. 

“We’ve been ranging between $14,600 to $16,000 since Nov. 5. Bitcoin seems to have found a local floor at the $15,000 price,” Andrew Tu, an executive at quant trading firm Efficient Frontier, told CoinDesk.

David Lifchitz, chief investment officer of ExoAlpha, echoed a similar assessment. “In the very short term, we may see some consolidation of the bitcoin price around $15,000, which would be healthy after the last powerful breakout, before grinding higher toward $20,000.”

Related: Bridgewater’s Dalio Sees Governments Banning Bitcoin Should It Become ‘Material’

“As BTC consolidates and more bullish fundamental news comes out for both bitcoin, like [Stanley] Druckenmiller coming out as an investor in BTC, and the general market, like the [Pfizer coronavirus] vaccine, it may provide the risk-on impetus to break above resistance at $16,000,” Tu added. 

The market hailed the potential for coronavirus vaccinations being deployed over the next several months. That has pushed up global equities since Monday and major indexes were positive on Wednesday.

• The Nikkei 225 closed up 1.7% as optimism over a coronavirus vaccine outweighed traders hitting the sell button on SoftBank, which fell 2.5% Wednesday. 
• Europe’s FTSE 100 ended the day in the green up 1.3%, driven by optimism that a vaccine will help boost the continent’s economy.
• In the United States the S&P 500 gained 0.77% as tech stocks climbed, led by Amazon in the green 2.8% and Apple jumping 2.7%.

Bitcoin’s correlation with the S&P 500 has been trending down this week, with Tuesday continuing Monday’s drop in the relationship of their price movements.

For Efficient Frontier’s Tu, some fundamental aspects that would cause traditional markets to dump may simultaneously pump bitcoin. “[U.S. President] Trump’s posturing around the election result and the multiple lawsuits and recounts coming from his administration may provide enough political instability to cause BTC to bid upwards.”

Ether in ETH 2.0 surpasses 50K

Ether (ETH), the second-largest cryptocurrency by market capitalization, was up Tuesday, trading around $465 and climbing 3.5% in 24 hours as of 21:00 UTC (4:00 p.m. ET).

Read More: Ethereum Providers to Update Software After ‘Unannounced Hard Fork’

The amount of ether that has been staked in Ethereum’s 2.0 upgrade smart contract passed 50,000 ETH Tuesday. It’s at 50,977 ETH, according to data aggregator Glassnode, and is worth over $23 million as of press time.

The Ethereum 2.0 contract launched Nov. 3. Users must stake at least 32 ETH in the contract in order to participate in the network upgrade, which is expected to enhance its security and scalability while maintaining the transaction history and functionality of existing ether balance. 

Ben Chan, vice president of engineering at oracle provider Chainlink, told CoinDesk he is bullish on ETH 2.0 prospects but that more scaffolding still needs to be built for ETH 2.0 developers. “I think it needs more community support, more tooling and turnkey staking solutions,” Chan said.

Other markets

Digital assets on the CoinDesk 20 are mixed Wednesday. Notable losers as of 21:00 UTC (4:00 p.m. ET):

• omg network (OMG) + 10.7%
• kyber network (KNC) + 6.2%
• litecoin (LTC) + 2.6%

Notable losers:

• 0x (ZRX) – 2.6%
• algorand (ALGO) – 1.3%
• tezos (XTZ) – 0.36%

Read More: Bridgewater’s Dalio: Governments Will Ban Bitcoin if It Becomes ‘Material’

Commodities:

• Oil was down 0.60%. Price per barrel of West Texas Intermediate crude: $41.53.
• Gold was in the red 0.69% and at $1,864 as of press time.

Treasurys:

• The 10-year U.S. Treasury bond yield climbed Wednesday, jumping to 0.982 and in the green 1.4%.

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Venezuela is an example of cryptocurrency adoption during an economic crisis. No other economy facing hyperinflation has come near the South American nation in terms of GDP-adjusted activity on peer-to-peer crypto exchanges, according to a new CoinDesk Research analysis of data from LocalBitcoins and Paxful, the two largest such exchanges.

Previous reporting from CoinDesk has shown that amid platform bans by the government and Venezuelans’ unease toward foreign crypto coverage, peer-to-peer (P2P) transactions remain at the center of the country’s thriving crypto scene. In general, Venezuelans cite a combination of factors for the rise of crypto there including migration, capital controls, risk of government seizure, demand for hard money and exposure to the petro, the cryptocurrency backed by the government. 

Whatever the main cause, data indicate unique factors could be driving bitcoin adoption in Venezuela, which is far outpacing adoption in countries experiencing similar economic fallout.

Related: Market Wrap: Bitcoin Fails to Break $15.9K; Over 50K ETH Staked on Eth 2.0 Contract

The map above shows a visualization from CoinDesk’s GDP-adjusted database of LocalBitcoins and Paxful volume by currency. Venezuela’s dominance is apparent. 

Other GDP-adjusted analyses of peer-to-peer bitcoin trading volumes, such as this one from analyst Matt Ahlborg, excluded Paxful, which has become a major platform. In this data visualization from CoinDesk, we include both LocalBitcoins and Paxful data and adjust for GDP. Peer-to-peer activity in Venezuela has continued to dominate – with a monthly level at least twice as high as the next-largest market, Nigeria. Paxful’s exit from Venezuela is imminent, but its growth in other parts of the world make it an important component of analysis that looks at peer-to-peer crypto trading on a global scale. 

Peer-to-peer crypto exchanges are often where people come to buy their first crypto assets, Ahlborg argued in the same analysis, and so their activities can depict how the crypto asset is adopted on the ground level more truthfully than larger exchanges that are set up for fast-paced, speculative trading.

By and large, this is true in Venezuela. Expats use bitcoin to send remittances back home, where locals convert it to bolivars to buy food and pay bills. With crypto remittances from expats plunging, peer-to-peer cryptocurrency transactions within the country have proven resilient. LocalBitcoins and Paxful trades using bolivars peaked in the first half of 2019, and have since hovered around $20 million.

Related: Bridgewater’s Dalio Sees Governments Banning Bitcoin Should It Become ‘Material’

Continued high volumes are driven by businesses’ demand for bitcoin, according to Gabriel Jiménez, a Venezuelan blockchain entrepreneur who led the development of the petro. Venezuelan businesses often use bitcoin as a medium to obtain foreign currencies like the dollar, he said. 

Read more: Here in Venezuela, Doctors Struggle to Access Aid From Crypto Platform

Yet, other countries that also suffer from hyperinflation have not come close to Venezuela in peer-to-peer bitcoin activity. Among the 10 economies that have experienced the highest rates of annual inflation since 2017, according to data from the International Monetary Fund, only Venezuela, Argentina and Iran have shown significant peer-to-peer bitcoin market activity, and none approach Venezuela in size or consistency. Venezuela’s peer-to-peer bitcoin activity has been extraordinary, whether measured as an absolute or relative to GDP.

What sets Venezuela apart may be governmental support of a digital currency. The petro helped loosen Venezuelans’ fear of dealing with services like LocalBitcoins, said Jiménez. 

Some high-inflation countries have moved in the other direction. The government of Zimbabwe, where the two largest peer-to-peer bitcoin exchanges have shown zero activity, has made efforts to curb cryptocurrency adoption.  

There are other factors: Venezuela’s inflation rate is measured by the International Monetary Fund at orders of magnitude higher than any other economy in the top five by annual inflation rates. It hit 65,374% in 2018. The next-highest rate of inflation tracked by the IMF over the past three years is in Zimbabwe, where it is projected to be 319% in 2020. 

“People living in Venezuela are living under a very unstable and predatory government. They suffer from extreme inflation and general economic instability. And here’s a censorship-resistant, inflation-proof asset, so it’s very attractive to people who are looking for a way to maintain value,” said Andrea O’Sullivan, director of tech and innovation at James Madison Institute, a Washington think tank.

Peer-to-peer vs. centralized exchanges

According to Jiménez, Venezuelans prefer peer-to-peer exchanges also because they’re better than other alternatives. Centralized services, for example, have lower liquidity and less-developed trading capabilities due to a lack of service from Venezuelan banks. 

The “early bird” factor is yet another reason. LocalBitcoins became such a popular exchange in Venezuela not only because it was inexpensive, but also because it was the first thing available to Venezeulans as soon as government normalization of cryptocurrencies was in the air around 2017, Jiménez added. Veteran LocalBitcoins traders have their ratings, number of successful trades and years of experience visible on their profile pages, which attracts and maintains customers’ loyalty to them and, in turn, both sides’ loyalty to the platform.

Read more: Venezuela Rolls Out Ethereum-Based Stock Exchange to Help Skirt US Sanctions

In contrast, Paxful only made plans to enter the market by late 2018, and research from CoinDesk shows that bolivar-bitcoin trades on the platform have only amounted to less than 1% of their LocalBitcoins counterparts in terms of monthly volume.

Yet, even though it’s slated to cease all operations in Venezuela because of heavy U.S. sanctions against the country, Paxful has been on the rise. In July, trades involving bolivars doubled the June volume, crossing the $100,000 line for the first time since the currency was reissued in August 2018, the research shows. The exchange is also enjoying explosive growth in Nigeria, Ghana and Kenya.

People living in Venezuela suffer from extreme inflation and general economic instability. And here’s a censorship-resistant, inflation-proof asset, so it’s very attractive to people who are looking for a way to maintain value.

That said, Paxful’s monthly volume in each of these countries has only amounted to half of LocalBitcoins’ growth in Venezuela, our data visualization shows. Peer-to-peer activity continues to be most dominant in Venezuela, where it is used to skirt government restrictions and obtain foreign fiats. 

It’s possible that, as Jiménez suggested, Venezuela’s peer-to-peer bitcoin activity wouldn’t be where it is today without crypto-friendly initiatives from the government itself. It’s also possible that bitcoin adoption in Venezuela may be driven by the sheer rate of Venezuela’s hyperinflation, which outpaces other crisis economies. As bitcoin’s real-world uses continue to crystallize, yet other factors may emerge as drivers of its adoption. 

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Several U.S. lawmakers are displeased by the Office of the Comptroller of the Currency and its focus on crypto and fintech during a pandemic-caused recession.

Six members of Congress faulted the banking regulator’s stance on crypto custody and stablecoin services, as well as its plans to offer a fintech charter, in a sharply-worded letter Tuesday that questioned whether acting chief Brian Brooks has his priorities straight during COVID-19’s health and economic crises.

Brooks has no business bolstering crypto banking while millions of Americans are still waiting for economic relief, wrote Reps. Rashida Tlaib (D-Mich.) and Stephen Lynch (D-Mass.) in a letter cosigned by Deb Haaland (D-N.M.), Ayanna Pressley (D-Mas.), Jesús García (D-Ill.) and Barbra Lee (D-Calif.). They blasted OCC’s “unilateral actions” as short-sighted calls that they said could put “the entire hierarchy” of dollar-denominated financial assets at risk.

Related: Kadena Partners With Stablecoin-Maker Terra in Bid to Expand Its DeFi Offering

“The OCC plays an important role in providing stable forms of currency. However, the decisions of your agency have the potential to adversely affect banking and financial activities well beyond your jurisdiction,” they wrote.

The letter appears to be the first substantial Congressional critique of a financial regulator that has indeed thrown its weight behind crypto. In July, OCC gave national banks the go-ahead to custody assets like bitcoin and ether for their clients. Then, in September, the agency allowed banks to begin offering stablecoin issuers banking services.

Those twin decisions could take crypto banking mainstream in the United States. But according to the representatives, they’re not OCC’s calls to unilaterally make. They castigated Brooks, a former Coinbase lawyer, for failing to consult Congress and other agencies on his crypto regulation first.

“We also question whether this is an appropriate priority for the OCC in the midst of this pandemic,” the representatives wrote.

Related: Crypto Custodian Anchorage Gets SOC 1 Security Certification With Big 4 Auditor EY

Read more: The OCC’s Crypto Custody Letter Was Years in the Making

Cryptocurrency should not take precedence over America’s systemic banking access issues, the representatives wrote. Around 8% of Americans use crypto. But a combined 25% of their fellow citizens are either unbanked or underbanked. Their shaky financials are deteriorating further amidst the pandemic, representatives said.

“Arguably, the immediate needs of millions of at-risk individuals who have not yet received an economic stimulus check and/or cannot deposit their funds in a bank, deserve greater attention than an effort to increase access to financial services to the “banked community” via mobile phones,” they wrote.

The representatives asked that Brooks explain OCC’s stance on stablecoin regulation and consumer protection by Dec. 10.

Wednesday’s letter isn’t the first asking Brooks to explain himself; Senator Mike Crapo (R-Idaho), chairman of the Senate Banking Committee, wrote to Brooks in September, asking him to update the committee with the OCC’s findings and detail the next steps the regulatory agency would be taking. Crapo also called for clear regulations to be drafted around cryptocurrency services in the letter.

Read the letter below:

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Ethereum’s Infura went down, causing a chain split. The world’s second-largest bank will issue $3 billion in blockchain bonds. President-elect Joe Biden’s transition team features some noted crypto commenters. 

Top shelf

Chain split
Wednesday morning, around 08:00 UTC, Ethereum infrastructure provider Infura disclosed a service outage for its Ethereum mainnet API, related to one of the blockchain’s major clients, Geth. Industry participants began speculating over a possible “chain split,” or a type of unplanned and unannounced hard fork. The issue likely stems from the split between node operators who have and have not upgraded Geth. “Those who haven’t been upgrading their Geth nodes for a while (I presume several months at least) got split with those with new Geth versions,” Nikita Zhavoronkov, lead developer at Blockchair said, adding that his own services were restored after upgrading. As of press time, Infura has identified the root cause and has begun work towards recovery.

Blockchain bonds
The world’s second-largest bank (market cap), China Construction Bank (CCB), will issue $3 billion worth of bonds on a blockchain. These tokenized bonds (offered at the state-owned bank’s Labuan, Malaysia, branch) will be exchangeable for bitcoin and U.S. dollars on the Fusang digital asset exchange. Tokenization reduces the number of financial intermediaries and costs associated with issuance, meaning that CCB can offer the certificates for as little as $100 (rather than the typical $4,000 price tag) and offer yields of 0.75% (compared to the 0.25% industry standard).

Related: First Mover: Bitcoin Pause, Ethereum Snafu, 1,000% Returns Put Focus on Exchange Tokens

Tokenization chill
Despite a DeFi cooldown, the number of tokenized BTC on Ethereum increased 21% since September. There are now well over 150,000 BTC, worth some $2.3 billion, on Ethereum. However, the trend has slowed significantly. Roughly $360 million worth of bitcoins was tokenized in October, compared to the $737 million tokenized in September, according to data from Dune Analytics. Notably, the pace of tokenization still outpaced the rate of mining issuance for the third consecutive month.

Brain trust
President-elect Joe Biden announced his transition team yesterday, a “brain trust” of policy experts featuring some with close ties to the crypto industry. Most notably, former CFTC chairman and noted blockchain commentator Gary Gensler will lead the Biden financial policy transition team, responsible for Federal Reserve and banking and securities regulators review. MIT’s Simon Johnson, who has written about blockchain technology; Georgetown’s Chris Brummer and University of California’s Mehrsa Baradaran, known for their comments on Facebook’s libra project; and one of the “digital dollar’s” architects, Lev Menand, have also been tapped as part of the transition team.

Quick bites

• Audius has big numbers by crypto standards, with approximately 50,000 daily users, but can it take on SoundCloud? CoinDesk’s Brady Dale dives in.
• One week after deployment, Ethereum 2.0’s deposit contract now holds over 50,000 ETH, or approximately 10% of the threshold value needed to move to the next phase of development. (CoinDesk)
• Service journalism: Multisignature wallets can keep your coins safer (if you use them right). (CoinDesk)
• So you want to use a price oracle, ETH whisperer Samczsun writes. (Blog)
• Sam Bankman-Fried: “When incentives are gone, what’s left? DeFi gets mixed marks.” (The Defiant)

Market intel

Coin consolidation 
Market analysts are largely bullish on bitcoin’s prospects to test all-time highs of $20,000, though many foresee a period of consolidation in the coming weeks and months. CoinDesk market reporter Omkar Godbole writes, “further notable gains look unlikely in the short term, as the cryptocurrency’s 60% rally from $9,800 to $15,900 seen over the past two months looks overstretched, per the technical charts.” A position also taken by Patrick Heusser, senior cryptocurrency trader at Zurich-based Crypto Broker AG, who sees consolidation between $14,000 to $16,000 in the next few weeks. Diminished sell-side liquidy, driven by increased institutional action, could be a factor here, Godbole notes. 

At stake

Privacy coins
Colorado-based cryptocurrency exchange ShapeShift has delisted a roster of privacy coins including zcash (ZEC), monero (XMR) and dash (DASH).

Related: Blockchain Bites: Billionaire Bullish on Bitcoin, Updates on Fowler’s Crypto Capital Case and More

Citing regulatory concerns, Veronica McGregor, ShapeShift’s chief legal officer, told CoinDesk’s Brady Dale that the action was taken to “derisk” the company.

At the moment, it seems like ShapeShift is alone in disabling certain privacy coins. There was no immediate change to regulatory policy that might have incentivized the move – though the general thrust of overriding guidance would suggest that privacy coins are in financial watchdogs’ crosshairs.

Dale spoke with Peter Van Valkenburgh, Coin Center director of research and a zcash Foundation board member, who compared privacy coins to bags of cash – currently the denomination of choice for criminal activity.

The U.S. Financial Crimes Enforcement Network, or FinCEN, “basically says, you have to make sure you are taking reasonable steps from a cost-benefit analysis to stop the proceeds from crime from flowing through your institution,” Van Valkenburgh said.

What defines a reasonable step is still open to interpretation, given the broad mandate of laws like the Bank Secrecy Act. Van Valkenburgh noted that these vague regulations do offer ways for crypto companies to offer privacy coin services, “just as banks deal with cash.”

Notably, monero, the 14th largest cryptocurrency by market cap and the only one of the coins in question that offers privacy by design, is something of a pariah for centralized exchanges. Of the major exchanges, only Kraken offers XMR trading, Decrypt reported.

Blockchain forensic firm CypherTrace was tapped by the Department of Homeland Security to crack monero’s privacy protections, while the IRS has offered a similar contract to Chainalysis and Integra to crack monero, zcash, dash, grin, komodo, verge and horizon.

Offering a peak behind the hood of regulatory conversations, Coinbase CEO Brian Armstrong essentially said this summer that regulators speak softly but carry a big stick.

“A lot of it is behind-the-scenes conversations where [regulators] are kind of saying: ‘We very much don’t think you should do this. And then we have the conversation: ‘Well, are you telling us that you don’t like it, or are you telling us that you are going to sue us if we do it?,’” Armstrong reportedly said.

To be sure, when it comes to financial surveillance U.S. financial regulators have both soft power and money behind them.

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