Blockchain Bites: Ledger’s Breach, Celsius’ Contradictions and DeFi’s Next Frontier

Ledger suffered a data breach, crypto mining in India comes with questions and a new decentralized finance (DeFi) looks to offer lending and saving opportunities for PoS token holders.

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Top shelf

Anchor Aweigh
Liquidity mining is coming to proof-of-stake (PoS) blockchains. Anchor, the new DeFi platform from Terra, Cosmos, Web3 Foundation and Solana, is designed to launch with a governance-token reward. Version 1 will go live in October, according to a Terra co-founder, offering a two-pronged platform for PoS token holders. The system offers savings accounts and a lending platform – the bread and butter that made DeFi on Ethereum a multibillion-dollar enterprise. “We’ve been looking at ways in order to earn passive income on our users, for unused balances in unused assets,” Do Kwon, a co-founder of Terra and the startup built atop it, Chai, said. CoinDesk’s Brady Dale breaks down how it works.

Elevator Rides Towards Regulatory Approval
ArCoin became the first cryptographically traded U.S. Treasury Fund registered under the Investment Company Act of 1940 (a so-called ‘40 Act Fund) in early July – after 605 days of attempting to appease regulators. Arca Labs and Tokensoft, the fund’s pursuer and designer, met with and overcame regulators’ misconceptions of how crypto markets function, partly through proximity: Tokensoft’s offices were 10 floors apart from the SEC’s in San Francisco’s financial district. The fund does not represent an investment in the Ethereum blockchain, but it does signal a shift in the regulator’s tolerance for public blockchain investment vehicles. 

Celsius’ Contradictions
Crypto lender Celsius is making uncollateralized loans, on a limited basis, contradicting the claims of its founder, Alex Mashinsky. “Celsius’ total uncollateralized loans are less than a fraction of 1 percent out of tens of thousands of loans issued since 2018,” a Celsius representative said. Uncollateralized lending is one of several practices that the firm has downplayed or not shared with depositors – including the rehypothecation of collateral borrowers pledge. “In its terms of use, Celsius reserves the right to re-hypothecate customers’ assets, but it’s ambiguous whether the passage refers solely to depositors’ funds or to borrowers’ pledged collateral as well,” CoinDesk’s Nathan DiCamillo reports.  

Ledger Hacked
Ledger suffered a data breach that may have leaked client information for over two months. In a note to clients Wednesday, CEO Pascal Gauthier said the French hardware wallet provider’s e-commerce and marketing database was accessed by an unknown third party, exposing email addresses of customers who signed up to Ledger’s newsletter or receive promotional material, as well as full names, postal addresses, and phone numbers of about 9,500 customers. In total, the company estimates around one million email addresses have been stolen. Customer funds, passwords and payment info were not affected, and the hole has been patched. 

Mining Muddle
India’s Supreme Court has relaxed a ban on banking cryptocurrency firms but the verdict is still out on crypto mining. Recently, a rumor spread of a new government ban. ”It’s risky and bizarre to work in such an environment,” Anshul Dhir, founder of mining startup Qadcore, said. His business, and many like it, are operating under a cloud of uncertainty including whether customers will allow necessary ASICs chips into the country. 

Quick bites

• The Bank of Japan called a digital yen a “top priority.”
• Pantera led a $2.6 million seed round for decentralized exchange Injective Protocol.
• Augur, take two
• Bitcoin’s rally has legs, exchange data reveals.
• Overstock's blockchain arm tZERO lays off staff, cuts salaries. (The Block)

At stake

CoinDesk’s Nikhilesh De spoke with Commodity Futures Trading Commission (CFTC) Chairman Heath Tarbert about his approach to crypto regulation. The nation’s top commodities regulator noted that many of crypto’s unique attributes – borderlessness and decentralization – require a thoughtful approach. 

Economic systems are in a constant state of flux.

• “Our entire financial and economic system outside the current system, the non-crypto system basically evolved since, one could argue, the Renaissance in Italy,” he said. “Whereas what people are doing in the digital asset space is effectively building within a decade or less an entire economic system based on human incentives and trust … I just find that fascinating.”
• Tarbert specified that he is interested in the way developers are incorporating “hundreds of years of accumulated knowledge about human behavior and economic incentives” as well as cryptographic methods originally used in national security applications to build these digital commerce systems.  

Blockchain could become the foundation of an entirely new financial system.

• “When you think about the idea that at some point a large part of our financial system could very well exist in blockchain format, that’s also revolutionary,” he said.

On the duties of a regulator. 

• “My view is that to be a successful CFTC chairman, meaning regulating the derivatives market, you have to have [a] keen understanding of the underlying market,” he said. “And so I’ve tried to learn as much as I can about the various agricultural sectors. I’ve gone out into fields and … gone to grain elevators, I’ve gone to a feedlot to learn about cattle and wheat. I’m learning about oil but I’m also learning a lot about crypto and in many ways, because it’s so revolutionary and so cutting edge, I’m spending a lot of time just learning how it all works in the ecosystem.”

On writing the law of the land.

• “I suspect some of it will be principles-based and some of it will be more specific rules … the right blend of each to allow for innovation and also flexibility both for market participants but also for ourselves because we don’t want a regulatory framework to be obsolete six months after it’s introduced, but at the same time, there may be customer protection and maybe some other issues that are so important that we want to provide very clear standards and rules to provide clarity."

Market intel

FOMO, Greed & Crypto
A popular gauge of market sentiment known as the Crypto Fear and Greed Index has, in just one week, turned from “fear” to “extreme greed.” Swedish cryptocurrency analysis firm Arcane Research found the market is now at its greediest in a year. Bitcoin is up 51% in 2020. Meanwhile, Ether has jumped about 30% just in the past seven days – a bigger gain than the Standard & Poor’s 500 Index mustered in all of 2019 – and is up 142% on the year. “For bitcoin, this rally is driven largely by FOMO and a momentum play,” Denis Vinokourov, head of research for cryptocurrency prime broker BeQuant, said Tuesday in emailed comments. FOMO stands for “fear of missing out.” 

Latest ETH ATH
Ethereum usage is rocketing as the number of contract calls – a metric for network activity – hits an all-time high. Coin Metrics reported Tuesday more than 3.1 million daily contract calls had gone through on July 25, an all-time high. A contract call is where a user requests a specific function from a smart contract that, unlike a transaction, doesn’t publish anything on the blockchain – sort of like a dry run. The bump primarily came from DeFi applications, which has more than quadrupled in size to $4 billion total value locked, year-to-date.

Tech pod

Lighten the Node
MIT researchers have developed a way to make it easier to run a Bitcoin full node. The software, called Utreexo, shrinks the size of a node’s “state,” or an up-to-date account of the entire Bitcoin network, from roughly four gigabytes to less than a kilobyte. This is an important step for a continually growing network that relies on nodes to validate transactions. The code exists as a testnet; developers will have to eventually modify Bitcoin Core to make it suitable for use with real money.

Secret Contracts
The community behind “secret contracts” is moving forward after months of delay. The Secret Network, an open source network that protects data for users of decentralized applications, known as “Secret Apps,” has started a token burn and is welcoming players such as Binance, Staked and Figment to its testnet of “secret contracts.” The network’s protocol lets decentralized applications use encrypted data without revealing it on a public blockchain, or even to nodes themselves, using smart contracts that use private data termed “secret contracts.” 

Opinion

First Amendment Protections
Justin Wales, co-chair of Carlton Fields’ national blockchain and virtual currency practice, said Bitcoin is protected under the First Amendment, including all the decentralized bits and bobs it enables. “We’ve all heard the phrase ‘Money is Speech,’ which stems from the U.S. Supreme Court’s recognition that the use of money can itself be an expressive act. One has a right to donate to a political party because we view that type of spending not as financial, but as communicative. Because of Bitcoin, money is no longer restrained to a dollar’s limitations. Accordingly, the range of expression one is capable of has been expanded because money has taken on a more useful form,” he writes. 

Podcast

Why Bitcoin Boomed
NLW looks at eight factors that may explain Bitcoin’s recent surge to a yearly high – ranging from banks beginning to custody crypto after a recent rules change, federal money printing and Robinhood traders getting wise to crypto. 

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