The DAO — only legal.
This week, it became clear the consequences of the 2017 ICO craze remain to be seen. A coordinated set of lawsuits against some of the biggest ICOs, many of them from June and July 2017, such as Binance, Bancor, Civic and Status were named as defendants. In another throwback, the LAO, a legal version of the DAO, announced its launch date. Meanwhile, there’s one area that the coronavirus hasn’t hurt — and that’s central bank digital currency development. There’s continued talk and development in that space around the world. And, as expected, the coronavirus is spurring the crypto community to take action.
On the podcasts, Kyle Samani gives us a fascinating analysis of how defensive various DeFi protocols are on Ethereum, and what that means for Ethereum’s defensibility itself. And Matthew Graham of Sino Global Capital gives us a glimpse of post-coronavirus life from China.
This Week’s Crypto News…
Last week, 11 lawsuits alleging securities law violations were filed in New York federal court against token issuers and crypto exchanges involved in some of the biggest ICOs from 2017, including Binance, Block.One, the Tron Foundation, HDR Global Trading (which is BitMEX), BProtocol (which is behind Bancor), Status, Quantstamp (which, disclosure, has been a sponsor), Civic, KuCoin and others. In The Block, Stephen Palley writes, “These lawsuits will be dismissed by the defendants in press releases as ambulance-chasing lawsuit trolling, but it’s not quite that black and white upon closer inspection.” Referring to a preliminary injunction that asserted Telegram’s “gram” tokens are likely securities, Palley continues, “Without judging the merits of each case, I personally find it hard to believe that it will be too hard to prove that a substantial number of these tokens were, in fact, securities under U.S. law.” He says probably the first question to be resolved is whether this jurisdiction can be applied to these defendants, who are in places as wide-ranging as from China to South Africa, from the Cayman Islands to Singapore.
The Bank for International Settlements (BIS) forecast that COVID-19 could get more countries to expand digital payments, but that that could adversely affect older people and the unbanked. For that reason, central bank digital currencies could help those populations. Meanwhile, the development of at least a couple central bank digital currencies is continuing apace, with CoinDesk reporting that the People’s Bank of China said in an April 4 notice that it will “undoubtedly further its research and development of the national digital currency with enhanced top-down design.” Similarly, according to The Block, South Korea’s central bank has launched a pilot program for a digital won that will run until December 2021. In other CBDC news, Bank of England analysts working on that country’s central bank digital currency initiative said that private companies could play a role in issuing and distributing money. So, we’re likely to see a lot of experimentation and different forms that CBDCs take in the future.
And finally, in this CBDC roundup, CoinDesk chief content officer Michael Casey wrote a terrific op-ed for Fortune titled, “Why the US Shouldn’t Let China Dominate the Digital Currency Race.” He says, “A China victory in the digital currency race would have multiple negative effects for the U.S.—and Western capitalism generally. If foreign businesses can bypass America’s gatekeeping banks, Washington will lose its unique power to impose sanctions on other countries. Also, if they no longer face exchange rate risks, foreign central banks won’t need to backstop their currencies with dollar reserves. The resultant drop in demand for U.S. government bonds would result in higher interest rates, not only for the federal government, but for business loans, mortgages, credit cards, and every other form of U.S. borrowing.”
North Korea is likely using the $1.5 billion it has amassed in cryptocurrency for cross-border payments, Jesse Spiro, global head of policy and regulatory affairs for Chainalysis, told CoinDesk. One likely way in which it is used is in ship-to-ship transfers of cargo on the open sea rather than at a port. In March 2019, the UN reported a large increase in illegal ship-to-ship transfers of petroleum products and coal. Another way in which the crypto is used is to pay directly for goods and services that are prohibited by international sanctions. The article also mentions the interesting case of Marine Chain, which came up in the same UN report. In October 2018, the UN security council was informed of an ICO issuer called Marine Chain, which was backed by at least one North Korean. After being contacted by security officials, the creators of the project disappeared.
The LAO is a legally compliant version of the 2016 DAO that infamously suffered an attack in which more than $50 million was drained from the DAO. Like the DAO, the LAO will be a venture fund, however, as per US regulation, participants need to be accredited investors. The LAO may open contribution up to foreign members using Reg S. Starting on April 28, almost four years to the day after the launch of the DAO, membership to the LAO will open and be sold first-come, first-serve, with 1% blocks of LAO tokens going for 120 ETH. Ethereum-based projects can pitch themselves to the LAO prior to the launch date.
Coin Metrics released a fascinating analysis with several beautifully done charts that shows that the once-dominant Bitmain S9 miner has been replaced by the new Antminer S9, and how this shift coincides with a change in the Bitcoin nonce distribution, which should look random, but for certain time periods coinciding with the dominance of Bitmain S7 and S9 did not. This analysis has beautiful, easy-to-follow graphics — I highly recommend you check it out.
In the same issue, Coin Metrics says it also has detected that the number of addresses holding between one-billionth and one-hundred millionths of the total BTC supply has increased 6% over the last 90 days, especially since March 12, indicating perhaps that smaller holders are taking an increased interest in Bitcoin.
File this under “why are people so awful.” Blockchain analysis firm Elliptic has found that personal protective equipment used by medical workers to protect themselves as they tend to coronavirus patients is appearing on darknet markets. Reuters reports that N95 masks are being sold “well beyond the pre-crisis retail levels of about $1 each.” Some of them are going for 9 euros apiece.
There are a few efforts in the crypto industry to work together to fight the coronavirus and all of its fallout. ConsenSys (which disclosure, has sponsored by podcasts) and Gitcoin are conducting a virtual hackathon aimed at creating solutions for fighting the pandemic from April 13 to May 11. And CoinDesk reports that Chicago trading firms are banding together to form the Chicago DeFi Alliance, which will promote DeFi during the coronavirus recession. The story quotes Volt Capital co-founder Soona Amhaz as saying that the CDA will help entrepreneurs get their startups “get up and running during the crisis,” and stay “as insulated from macro conditions” as possible.