The Start of Blockchain’s Value-Driven Adoption Cycle

Pierre Martinow

Continuous Adoption in Traditional Finance


JPM Coin debut marks start of blockchain’s value-driven adoption cycle – Cointelegraph

Being in public denial of disruptive innovation, especially if it’s existentially threatening to your entire core business, is not an unusual approach. Best example of that is Blockbuster, which underestimated how important streaming content will become to consumers, or Nokia, which was basically wiped out from the market after Apple’s launch of the iPhone. Who could have thought that touch displays will make such a big difference.

When something, as fundamentally different as Bitcoin (which created its own multibillion dollar market, notably without any help from the Banking industry) is trending in the news and is basically forcing you to make at least a public comment, what else should it be than denial. Now, entering the next bull market cycle, the public comments from big bank executives aren’t that much full of denial anymore. I wonder why. 

It seems like the emerging asset class has quietly changed the perception of being the greatest scam in human history, or simply a fraud, to something that’s really usable in the banking sector. It seems like the underlying technology, called blockchain, can help to reduce transaction costs. It seems like the largest cryptocurrency in market size, does have similar properties to gold and might even be better suited to be a store of value. 

We are glad to see the largest bank in the US slowly accepting reality and we understand the historic importance of that. JPMorgan has $3.4 trillion in assets under management and $27.4 trillion in assets under custody, just imagine what it would mean to have just a fraction of these assets run on the blockchain. In comparison, the current market cap of the crypto market is at $405 billion.

US Banks May Seek to Partner With or Buy Crypto Custodians – OCC – CoinDesk

The Office of the Comptroller of the Currency (OCC), the biggest primary regulator for banks in the US, responsible for the majority of financial institutions, points out that banks are finally taking a step towards taking crypto custody and banking services into their offering. 

After banks received permission by the regulator to interact with crypto assets earlier this year, it was believed that the conservative banking industry won’t make use of their newly gained liberty in the near future. However, the OCC pointing out that US banks are already in the process of doing so, confirms the current adoption trend we are seeing with FinTech natives Paypal and Square. 

Once businesses and consumers will be able to purchase, store and transact cryptocurrencies from their bank account, mass adoption won’t be very far and the current crypto market size of $400bn will quickly rise to the trillions, with the US banking sector alone already accounting for $20tn.

Southeast Asia’s Largest Bank to Launch a Cryptocurrency Exchange – Bitcoin News

Singapore is the Switzerland of Asia and with Hong Kong’s future still uncertain, it will remain that way for a foreseeable period of time. As Asia has the largest share of the world wide financial market, with many of its economies still emerging, it has a lot of growth potential for the future. Singapore’s biggest bank planning to launch a fiat-to-crypto exchange, marks a milestone development for the asian region. A crypto exchange, run by a traditional bank, would be the first of its kind and has never been done by any bank of its size before.

Bitcoin Miners in Iran Have a New Buyer: the Central Bank – Decrypt

Bank of Iran is going to be the first central bank in the world to get involved with cryptocurrencies. That alone is already a historic landmark event. However, we are also seeing new geopolitical conflict potential emerging: a state actor using crypto to circumvent sanctions will have unpredictable consequences, especially if the opponent in this game is the United States.

Gazprombank’s Swiss Subsidiary Receives Approval to Provide Crypto Custody Services – The Block Crypto 

Russia not providing the best regulatory environment for domestic banks to gain exposure to digital assets is taking an interesting turn. While the third biggest Russian bank can’t engage with crypto assets at home, it’s choosing its subsidiary in crypto friendly Switzerland to cover that need. However, putting into perspective that Russia is currently suffering under international sanctions, and that Gazprombank has been involved in high profile money laundering cases across the globe, one might wonder what the real intentions behind this move are. 

Avanti Unanimously Wins Bitcoin Banking Charter – Forbes

While we hear from the OCC that more traditional banks are closing in on offering crypto banking services, the next Crypto Bank received its banking charter, Avanti Finance. Other than crypto native Kraken, which recently was the first digital asset business to receive the banking license, Avanti decorates itself with an experienced c-suite from the traditional banking industry. 

Talent from the legacy finance system is much needed to accelerate the adoption of crypto assets in traditional banking. Another interesting development to follow is that the state of Wyoming seems to establish itself as the Delaware of crypto.

The SEC Votes to Modernize Regulatory Framework for Derivatives Use – Bitcoin News

While this states no clear relationship to cryptocurrencies, the SEC taking a step towards a more modern regulatory approach for derivatives, especially Exchange Traded Funds (ETFs), finally hints at progress in the process of getting an ETF for the world’s biggest cryptocurrency approved. 

Over the last six years numerous applications for Bitcoin ETFs were rejected and investment firms and financial institutions have been waiting for a sign of the regulator, in how it’s going to address the issue. Investment vehicles like an ETF are needed for institutional investors to gain exposure to an asset, without actually holding the asset itself. ETFs track the price of one or several assets, in this case Bitcoin. To investors, such investment vehicle would allow exposure without holding Bitcoin itself, which solves a lot of issues involved with the custody of Bitcoin. 

The market launch of an Bitcoin ETF would add more legitimacy and investor money to the emerging asset class and is being seen as significant as the launch of Bitcoin futures in 2017.

ECB Begins Public Survey About a Digital Euro, Implying a Broad Retail Offering – CoinDesk

Christine Lagarde, the chief of the European Central Bank, is signaling willingness to offer a Euro pegged digital currency to the wider population. The Eurozone is home to about 450mn people. Giving access to a population of that size would be a milestone in the adoption of cryptocurrencies, assuming a distributed ledger infrastructure would be chosen as underlying framework for the digital Euro.

Emerging DeFi

‘Engineering Error’ Led to $34 Million DeFi Hack, Harvest Finance Says – Decrypt 

Harvest Finance, a yield farming aggregator which is taking advantage of arbitrage opportunities between different yield farming protocols, ironically fell victim to a sophisticated arbitrage hack. 

The attacker exploited different arbitrage opportunities between vaults, in which users lock up their funds to receive the generated yields by Harvest Finance. In the attack, which only lasted seven minutes, the hacker was able to drain $24 million from the project’s liquidity pools. Harvest Finance admits that an engineering error led to the exploit, despite the project previously being audited. 

The attack proves that the DeFi space is still in its infancy and many more of these painful experiences have to be made to build robust protection against this kind of hacks. Similar to the ICO hacks we’ve seen in 2017. Early adopters pain.

 

A Makerdao Governance Vote Was Swayed by a Defi Flash LoanBitcoin News 

MakerDAO fell victim to an exploit in its voting mechanism, which allows community members to pass on decisions on important protocol updates. 

Similar to Harvest Finance, a flash loan was used to exploit the flaw. A group called BProtocol borrowed $7 million worth of MKR token from derivatives exchange dYdX to speed up the desired election results for a governance vote on their project, which is being built on top of MakerDAO. 

The incident shows another malicious use case for flash loans – gaining voting power in governance votes. A further example of how early we are in the world of Decentralized Finance. Maker and Harvest Finance are now pushing for important Governance and protocol updates to close these loopholes. 

Aave Passes Off Governance to Community – Blockonomi 

Another inherently fascinating aspect of the DeFi space is governance, and in particular self-governing projects, and the governance structures these projects are being run under. 

In a completely community led governance structure, all members of the community own the full voting and decision power on whether an election should be carried out and what should be voted on. A governing structure which hasn’t been observed in human civilization to the extent we are seeing right now unfolding in the Decentralized Finance community. 

Aave is the latest addition in DeFi projects which handed over the complete authority on governance of its protocol to its own community. It remains to be seen if our society is able to adapt to such structures. 

Uniswap Proposal to Airdrop More UNI Falls Short in Governance Vote – CoinDesk

Many investors look at what’s happening with Uniswap right now to understand how competitive DeFi projects really can be with a community-led Governance model. 

The DeFi showcase brand and biggest decentralized exchange, failed in its second-ever governance vote to pass on a proposed change to its underlying protocol. Since the project is dependent on its community to propose and vote on changes and currently no changes can be passed, it is paralyzed in its decision making process. 

Without being able to make decisions, the progress and future competitiveness of the decentralized protocol is for a foreseeable time in danger. Much like with Aave, a proven model has yet to be found.

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