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Coinbase L2 Network Eyes Inflation-Pegged Stablecoins

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Coinbase developers are working towards building a new form of decentralized stablecoins that tracks the rate of inflation called ‘flatcoins’ on its newly launched layer-2 network Base.

These asset classes, in contrast to typical stablecoins, are anchored to the cost of living rather than being linked to real-world assets like fiat currencies, which enables them to maintain stability during times of market unrest.

According to a blog titled ‘Request for Builders’, published by Coinbase’s Base Network, flatcoins would enable users to have stability in purchasing power while having resiliency from the economic uncertainty caused by the legacy financial system.

We also welcome other forms of ‘flatcoins’ that do not peg to fiat but rather fill the space between fiat-pegged coins and volatile crypto assets. With the recent challenges in our global banking system, we believe these explorations are more important than ever.

The Coinbase team then provided a brief overview of the other important areas that require attention in addition to flatcoins. They are Onchain reputation, Onchain Limit Order Book [LOB] Exchanges, and Safer DeFi.

By using reputation methods that are inherent to on-chain entities, developers would concentrate on enhancing online trust and preserving user privacy and autonomy at the same time.

This may resemble a FICO or Google page rank type score on ENS names, merchant ratings and reviews, and other trust-building factors on-chain, the blog read.

Next on the agenda is to create a more sophisticated exchange—a limit order book exchange [LOB]—that eliminates counterparty risk through self-custody.

Coinbase Push For LOBs

The team believes that while the existing exchange offerings like AMMs, are crucial DeFi primitive, LOBs would play a greater role, especially for professional traders and institutions.

Finally, in order to construct a more secure DeFi, the exchange would focus on expanding better tools that would allow users and developers to keep up with the speed of innovation while protecting their funds from flaws in smart contract code, assaults on the ecosystem, etc.

The latest plan follows after Coinbase received a Wells notice recently from the SEC involving an unspecified amount of its listed digital assets, including the staking program Coinbase Earn, Coinbase Prime, and Coinbase Wallet.

The exchange criticized the regulator for being “unfair and unreasonable when it comes to its engagement on digital assets,” and vowed to fight back.

Binance Mints TUSD While Price Of $TRU Rises By 200%

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Binance, the famous cryptocurrency exchange, has created roughly $50 million worth of TrueUSD just days after rumours surfaced that Paxos and Binance USD (BUSD) were under regulatory review by US authorities (TUSD).

Data from Etherscan indicates that the transaction occurred on February 16. It also occurs two days after Binance CEO Chanpeng “CZ” Zhao stated in a Twitter Space on February 14 that Binance would seek to “diversify” its stablecoin holdings away from BUSD.

CZ had previously stated that the recent regulatory action by the United States Securities Exchange Commission and the New York Department of Financial Services over the long term may lead to a fall in the dominance of U.S. dollar-backed stablecoins despite making nearly $50 million in TUSD from the TrustToken platform’s smart contract.

CZ said,

“I think with the current stances taken by the regulators on the U.S. dollar-based stablecoin, the industry will probably move away to a non-U.S. dollar-based stablecoin, back to algorithmic stablecoins.”

He further added,

“There’s multiple agencies putting applied pressure there. It is just going to shrink the U.S. dollar-based stablecoin market.”

CZ stated that they are now investigating alternative choices after being motivated to search for other options in various locations.

While the CEO noted that Binance would extend greater support for USD Coin (USDC) and Tether (USDT) in the near future in the hope that BUSD “winds down over time,” he also mentioned that they are now working to investigate new stablecoins based on the euro and the Japanese yen.

CZ stated that the existing circulating quantity of BUSD is there and safe, and when more individuals want to redeem, they will be burned in regards to BUSD.

Interestingly, the CEO of Binance also said that he was never overly optimistic about the BUSD stablecoin’s success.

He stated,

“To be honest BUSD was never a big business for us, when we started I actually thought the BUSD project may fail, so we actually don’t have very good economics on that collaboration.”

Binance Auto-Converts TUSD to BUSD

TUSD was an interesting stablecoin that Binance auto-converted to BUSD in September to improve liquidity and capital efficiency for its users. Additionally, USDC and USDP Stablecoins were automatically converted to stablecoins (USDP). In a few weeks, this increased BUSD’s market share in stablecoins from 10% to 15%.

TUSD was introduced by TrustToken on March 5, 2018. It is present on the Tron, Polygon, Avalanche, and Ethereum networks.

Every time a buyer wires USD to a third-party escrow account holding USD deposits on behalf of Prime Trust, new TUSD are created. The trader’s designated ERC-20 or BEP-2 wallet address will receive TUSD, which will then be transferred there in a 1:1 ratio to any USD that was sent there.

Binance CEO To Distance Himself From BUSD: Details

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Following comments made on Tuesday by Changpeng Zhao (CZ), CEO of Binance, regarding the cryptocurrency exchange’s connection to the well-known Paxos Trust Co.-issued token, the Binance USD (BUSD), the third-largest stablecoin by market size, has returned to its intended $1 peg.

After falling to a two-year low of $0.9950 on Monday after the New York Department of Financial Services (NYDFS) ordered Paxos to halt producing more of the tokens, BUSD, which is backed by short-term treasuries and cash-like assets, surged to $0.9997 in the early hours of Wednesday in Europe.

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BUSD depegged earlier this week but is gradually regaining its peg. (TradingView)

On Tuesday, during a Twitter Spaces, CZ said,

“BUSD is not issued by Binance…. We have an agreement to let them [Paxos] use our brand, but that’s not something that we created.”

As some crypto aficionados noted earlier this week on Twitter, Zhao’s remarks certainly helped traders’ perceptions of the tokens.

Since Monday, Paxos has burnt more than $700 million in BUSD tokens.

Talking about the current support for other stablecoins, CZ said,

“With BUSD gone, BUSD slowly winding down over time, we will continue to work with more stablecoin issuers or creators.”

Binance CEO: Stablecoins To Move To Non-Dollar

On February 14th, Binance CEO Changpeng Zhao (aka CZ) said that the cryptocurrency sector might switch to stablecoins that aren’t pegged to the dollar. Stablecoins based on the Euro, Yen, or Singapore Dollar are likely to be adopted, claims CZ. According to CZ, the change will lessen the dependency on stablecoins with US Dollar backing.

CZ’s response is in response to a question on the cryptocurrency sector’s usage of gold as a unit of measurement rather than the US dollar. Utilizing gold “makes sense,” CZ concurred. But the vast bulk of expenditures are still made in fiat money. Stablecoins backed by the US dollar are still important because the majority of investors calculate their investment returns in dollars.

According to the CEO of Binance, the recent U.S. government actions against U.S. dollar stablecoins will probably force the global cryptocurrency market to rely on other currencies like the euro, yen, and Singapore dollar to support stablecoins.

The founder of Binance also said that algorithmic stablecoins might have a bigger impact on the cryptocurrency industry in the future. The hazards associated with algorithmic stablecoins, however, are different from those associated with fiat-backed stablecoins, he said. Consumers should be aware of these risks as well as the fiat-backed stablecoin reserves, in CZ’s opinion.

Court Drops Terra Luna Co-Founder Hyun-Seong’s Warrant

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For some time now, Terraform Labs has been making headlines. According to sources, South Korean authorities summoned the company’s co-founder Daniel Shin, also known as Shin Hyun-Seong, earlier this month for an inquiry into claims that he improperly benefitted from the sale of LUNA [now LUNC] tokens.

According to a South Korean news source, the prosecution wanted to arrest Shin. According to sources, the prosecution has charged Shin with making illegal profits while secretly selling $105 million of LUNA at a market high. He was also charged with violating the Electronic Financial Transaction Act by using customer data from Chai, another company he managed, to promote Luna.

However, Shin had previously stated that in 2020 he terminated ties with Do Kwon and Terraform Labs. He later founded the payment technology company Chai Corporation, where he is currently CEO and founder.

Change Of Events For Terra-Luna Co-Founder

It has just come to light that the court on March 3rd dismissed the arrest order for Shin Hyun-Seong, the former CEO of Chai Corporation and the founder of Terraform Labs, the company responsible for creating the virtual currency known as “Terra Luna.”

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Terra Luna Co-Founders: Daniel Shin (left) and Do Kwon (right)

In the stablecoins meltdown, which shook the world virtual currency market in May of this year, Shin is seen as a crucial player. Even trying to find a replacement hire for former CEO Shin has failed, and with Terraform Labs co-founder Kwon Do-Hyung staying abroad and not coming back to Korea, it can be assumed that the probe will be difficult.

After questioning the suspects (warrant review) and arresting them the previous day, chief judge Hong Jin-Pyo of the Seoul Southern District Court dismissed the arrest warrant at roughly 2:20 am on the same day.

Judge Hong said,

“Considering the attitude toward the investigation, the circumstances, process, and contents of the statement, it is difficult to see that there is a risk of destroying evidence or escaping beyond the scope of exercising the right to legitimate defense.”

Warrants for three early backers and four Terra Luna developers, who were also jointly sought, were all denied for the same reason.

Fed’s new rules prescribe a ban on crypto trading amongst other assets

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The Federal Reserve has formally adopted new and strict rules prohibiting its officials from trading in a slew of assets that includes cryptocurrencies. It will encompass the Federal Open Market Committee or FOMC members, regional bank presidents, and other officials including staff officers, bond desk managers, and employees who regularly attend board meetings. The new regulation also extends to spouses and minor children.

Apart from crypto, the latest rules cover a wide range of assets classes like individual stocks or sector funds or hold investments in individual bonds, agency securities, commodities, or foreign currencies. They also can’t enter into derivatives contracts, and engage in short sales or purchasing securities on margin. 

According to the press release, the Federal Reserve expects that additional staff will become subject to all or parts of these rules after the completion of further review and analysis. The rules “aim to support public confidence in the impartiality and integrity of the Committee’s work by guarding against even the appearance of any conflict of interest,” the statement also added.

The central bank’s hawkish stance comes in the wake of controversies surrounding the resignation of two of its former top execs Eric Rosengren of Boston and Robert Kaplan over their stock holdings, last year.

Fed views crypto and stablecoins as ‘risk to financial stability’

As per recently released minutes, the central bank during a January meeting, had a discussion on the cryptocurrency market, including stablecoins where officials raised alarm bells on the growth of the crypto industry. The meeting further stated that “some participants saw emerging risks to financial stability associated with the rapid growth in crypto-assets and decentralized finance platforms.”

In terms of stablecoins, Fed mentioned a potential run risk, which characterizes them as “another vulnerability in funding markets.”

Coming back to the new regulations, Fed officials currently holding market positions will still have 12 months’ time to close their portfolios. New officials will have six months to do so. In the future, officials covered by the new rules are required to provide 45 days’ notice before making any permissible asset purchases, a restriction that will go into effect July 1.

Yen-Pegged Stablecoins to arrive in Japan’s largest bank-Mitsubishi UFJ Trust

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Japan’s biggest bank by assets, Mitsubishi UFJ Trust is all set to issue stablecoin tied to the value of the Japanese yen. As per a report published by Nikkei, it aims to bring about a streamlined and accelerated settlement process of securities transactions through the use of blockchain technology for trading and digital assets for payment.

The report also revealed that banks are expected to follow suit in allowing stablecoins in Japan under a revised law that is slated to take effect in the spring of next year.

Further, the bank hopes that the latest initiative will encourage the usage of blockchain in securities trading. For this, the trust bank has been heavily promoting blockchain-based securities in collaboration with SBI and Daiwa Securities.

Stablecoins making huge inroads in Japan’s fintech landscape

Last year Japan planned to impose new restrictions that would only permit banks and electronic funds transfer services to issue stablecoins.

The country’s Financial Services Agency [FSA] first proposed the law took drawing inspiration from a similar US legislation to regulate stablecoins. In November 2021, the US Department of Treasury supported Congress to pass legislation that would prohibit any other entities except banks from issuing the currency.

Just a few days ago, in a report first released by Nikkei Asia today, the news agency informed on the announcement of Japanese trading company Mitsui & Co.’s plans to float a gold pegged cryptocurrency in the country. The currency would be linked to the prices of gold and sold to retail investors via cryptocurrency exchanges.

The asset dubbed ZipangCoin [ZPG] will be available for trading by this month. While Mitsui is preparing for the launch of its gold pegged stablecoin, the country’s effort on its digital currency has completed the first phase.

Update on Japan’s digital Yen

Japan is gearing for the launch of its second phase of pilot testing with Central Bank Digital Currency [CBDC] with the governor hoping that the Bank of Japan might make an official decision on the issuance of CBDCs by 2026.

However, not all seem happy with the decision as recently, a former BOJ official, Hiromi Yamaoka stated that “CBDCs are not a good idea” since he feels that applying negative rates to CBDC might be harmful to the economy.

SEC chair claims crypto regulations should become more focussed

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The tussle between the cryptocurrency market and regulatory authorities has been ongoing since the creation of the ecosystem. With each passing year, digital assets took forward steps to enter the good books of most overwatch bodies. The United States Securities and Exchange [SEC] had been on top of crypto from the very start with its Chairman making new comments recently.

During a discussion with the Committee on Economic and Monetary Affairs, SEC chairman Gary Gensler shared his views on cryptocurrency regulations. Gensler spoke about the new avenues being opened up due to the effectiveness of financial technologies. He went on to say that the current digital revolution has the potential to become as game-changing as the internet in the ’90s.

According to the SEC honcho, the cryptocurrency world was a system that constantly chugs along 365 days a year. It was no wonder that the $2.1 trillion value market was being watched by a lot of interested parties. Pro-regulation discussion aside, Gensler also pointed out the drawbacks connected to the cryptoverse.

The SEC chair cited reports that touched on Bitcoin mining’s impact on the environment. After the revelation that Bitcoin mining generated more emissions than some countries, it was clear more needed to be done to curb the problems. This was not to say Bitcoin did not have its merits as it set the foundation for the growth of new Proof of Stake [PoS] blockchain. Gesler added that the privacy of the user was of top priority with bodies like the SEC looking out to reassure that fact.

During the meeting, the SEC official also gave his two cents on stablecoins and their impact on today’s economic climate. He pointed out that stablecoins were just a medium for people to sidestep some economic policies under other banners. Gesler asked for the committee to draw up more solid regulations that will make virtual asset transactions safer and more transparent.

DeFi Major Aave Rolls Out Liquidity Mining Program

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Decentralized finance [DeFi] lending giant Aave announced the initiation of its liquidity mining program for V2 after the Aave Improvement Proposal [AIP] 16 received “overwhelming” affirmative votes from the community on the 24th of April and was officially executed.

The AIP was put forth by user Anjan Vinod, who happens to be an investment analyst at blockchain and DeFi focussed investment firm, ParaFi Capital. The launch of liquidity mining incentives for the Aave V2 protocol includes paying out governance token rewards exceeding 20% to users who borrow stablecoins. According to the DeFi platform, most of the rewards will target stablecoins in a bid to boost stablecoin liquidity.

The lending platform revealed that 2,200 staked AAVE [stkAAVE] will be allocated at a 50/50 ratio between depositors and borrowers until the 15th of July and is worth approximately $880,000 at press time prices. The distribution strategy is based on the markets’ borrowing demand.

Over two-thirds of rewards have been directed to the stablecoin USD Coin [USDC] and Tether [USDT] markets. The remainder of around 33% is being distributed among Aave’s DAI, ETH, wBTC, as well as GUSD markets. The platform’s official tweet detailing the announcement read,

“AIP 16 increases the liquidity in the Aave Ecosystem Reserve, which can be used to fund grants, devs, and builders through a community-led grants programme (currently an ARC on the governance forum) EyesHandshake”

The main objective of the program’s goal is further advance the lending and borrowing activity across markets and amplify the decentralization of the protocol’s governance that can be achieved by the distribution of governance tokens to more number of users.

In the beginnng, it only acquired around 60% support from its community for the AIP when first published on governance forums. The community had a change of heart after witnessing the success of other liquidity mining schemes following which they let the platform experiment in the new initiative.

Aave’s TVL Shoots Up To ATH

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DeFi Major Aave Rolls Out Liquidity Mining Program 4

According to the latest stats by DeFi Pulse, the total value locked [in USD] in the open-source non-custodial protocol has surged to a fresh all-time high of $7.52 billion on the 27th of April. At the time of writing, it became the third-largest DeFi protocol on Ethereum trailing behind other lending platforms – Maker and Compound.

Stablecoins To Undergo Extreme Scrutiny Following Proposal Of The ‘STABLE’ Act

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Stablecoins came as a boon to those who feared the volatile nature of cryptocurrencies. While certain governments seemed to be more accepting of stablecoins as opposed to cryptocurrencies, several platforms began rolling out their private stablecoins. As the financial universe is piled with stablecoins, a United States’ Congresswoman decided to probe these assets, while proposing a new act to regulate stablecoins.

Stablecoins Fall Under The Purview Of US Congress

Rashida Tlaib, a Congresswoman with Congressmen Stephen Lynch and Jesus Garcia penned down a press release that pointed out the introduction of a new bill. The bill will reportedly protect consumers from the risks that arise with the use of stablecoins by scrutinizing them from the issuance process itself. The members of the Congress particularly went on to mention Facebook’s Libra project now known as Diem. Keeping this in mind, Congress proposed the “STABLE Act”. This act which is an acronym for Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, intends to regulate the stablecoin market as the members entering the market have been on a surge.

Elaborating on the same, Congresswoman Tlaib said,

” […] the protections the STABLE Act would make possible are more needed than ever amid a pandemic that will breed riskier financial decisions out of necessity because our federal government continues to fail us all by not providing adequate relief legislation.”

With this latest act, anyone who intends to issue stablecoins would be mandated to seek the approval of the Federal Deposit Insurance Corporation (FDIC), FED along with several other banking entities. Any stablecoin that has been issued without the approval of the aforementioned entities would be categorized as illegal.

The Congresswoman took to Twitter to share the announcement with the public.

While some lauded the Congresswoman for the formulation of the latest act, a few others, especially from the crypto-verse denounced the latest move of the Congress. Tyler Lindholm, the Wyoming House Representative, also called out the Congress for this move and tweeted,

“Centralization of power for a decentralized world. No thanks. This industry has been light years more successful in bringing financial freedom to the unbanked and that happened without cronyism as suggested in this bill.”

Not long ago, Congresswoman Tlaib had written an elaborate letter dissing the Acting Comptroller of the Currency [OCC], Brian Brooks’ “unilateral” set of actions that was inclined towards the digital assets industry.

Stablecoins Become First Crypto to Receive Regulatory Green Light from SEC, OCC

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A monumental turn of events took place on Monday for the digital asset space, as Stablecoins became the first cryptocurrencies to received guidelines from the Securities and Exchange Commission (SEC) and the Office of the Comptroller of the Currency(OCC).

According to the official press release, a list of national guidelines were revealed on how fiat-backed cryptos can be treated under the law. Before the current announcement, there had been zero regulation clarity behind the functionality of stablecoins such as Tether and Circle’s USDC.

The press release stated,

“This letter addresses the authority of a national bank to hold deposits that serve as reserves for certain “stablecoins.” stablecoin issuers may desire to place assets in a reserve account with a national bank to provide assurance that the issuer has sufficient assets backing the stablecoin in situations where there is a hosted wallet.”

In addition, it was added that the bank offering services to hold stablecoins on behalf of crypto projects will need to comply with appropriate controls to ensure due diligence on the risks involved while maintaining an understanding with the stablecoin issuer. The banks should facilitate a proper understanding of th risks and issue a review for compliance under applicable laws and regulations, also with regards to the Bank Secrecy Act (BSA) and anti-money laundering.

From an adoption perspective, it is a huge deal as the OCC currently wanted the regulated banks to feel comfortable in providing services to stablecoin issuers.

Brian Brooks, Acting Comptroller of the Currency stated,

“National banks and federal savings associations currently engage in stablecoin related activities involving billions of dollars each day. This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner.”

With respect to the SEC, the commission indicated that they did not consider certain stablecoins as securities under the federal law but advised issuers to work with the organization to avoid any misunderstanding.

Will more crypto-assets receive regulations now?

To be fair, not in the near future. It is important to note that stablecoins are the least volatile asset in the space, that are ear-marked 1:1 with fiat currency. The only reason the OCC and SEC have allowed stable assets to work under federal law is its association with the U.S dollar. However, it is definitely a start and over time, the paradigm might shift towards regulating more digital currencies in the space.