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A crypto RMB from China, weekly DeFi watch

In the recent past, we have not been able to stick to out regular cadence with the Satoshiand.co newsletters; which is a shame, as the newsletters are as useful to us as it is to you ( at least some of you). We learn a lot in taking the time to pull this together on a daily basis. 

However, in the time that we have not been writing the newsletter, we have been busy building an interesting product, and we are happy to note that the product is coming along quite well. It is the world’s fastest crypto-derivatives platform, and you can sign up for early access right here. Early beta users that have been test driving it are loving it, and we hope to unleash it upon the world soon.

One of the ‘scale effects’ of writing a daily(ish) newsletter is as follows: Over time, for any topic you want to write on, once you break down the topic into a few different sections, you likely have covered most of the sections to a fair degree of depth, in some context, on some media. 

Accordingly, today’s weekly wrap up, which will touch upon China’s planned launch of its own state-backed crypto (CBDC), will liberally point to other articles that are relevant.

So what do we make of China’s move? Let us start from the basics. Networks have value, as the base-layer primitive cryptos such as BTC and ETH have unambiguously demonstrated. As we covered in a post some time ago, it is natural that network owners will seek to unlock that value. Facebook with Libra, Telegram with Gram..you get the drift. 

The same logic works for Governments as well, and CBDCs are a natural evolution. There are more compelling reasons here as well. The global scenario today lends itself perfectly to a search for an alternative to the USD as the global reserve currency. We have spoken about other countries searching for an alternative to the USD here. CBDCs are a natural extension of Facebook’s Libra in that it helps central banks capture value directly or indirectly, from the deeply entrenched monetary networks that they control in the form of nation states. It is no surprise that CBDCs are becoming a hot topic just as the US is unabashedly wielding its economic clout globally, thanks to the USD’s global reserve status (Case in point – Iran cut off from Swift rails and economic sanctions against other countries). The head of ECB recently alluded to the possibility of having a non-sovereign digital currency as a replacement for USD as the de facto store of value, as did Mark Carney, the head of the Bank of England.

Crypto is a double-edged sword for China. Technically bitcoin and other cryptos are banned, but China is the nerve centre for crypto globally. There is risk of capital flight, which the Government is keenly aware of, but some of the most important companies in crypto have Chinese founders, and some of them are presumably close to the Govt. It is often said in China that nothing happens without blessings from the Party; Companies operate in a bit of a fog, there is intentional ambiguity, almost by design. 

However, the ambiguity has not killed crypto in China, and the infrastructure for rolling out a state-backed crypto is present and thriving, unlike say, in India, which, paradoxically is a democracy, but absent the fog that aids the Chinese, has not been able to build up a thriving crypto ecosystem at that scale..

The challenge is to balance the need to unlock value with the need to monitor and perform surveillance. In the traditional sense, the ‘crypto RMB’ will necessarily not be crypto. However, through a combination of two key factors –  incentivization of entrepreneurs and convenience to eventual consumers, the crypto RMB could become the first large scale CBDC that finds true adoption, and could rival the USD as a reserve currency. Remittances are an obvious use case. The polarizing OBOR project is another venue where we might see the crypto RMB at play; Why depend on the USD to finance a Chinese-backed dam in say, Senegal, when you can roll your own crypto, and get a bunch of nation states to borrow it, trade with it, and adopt it.

This gets really interesting from the concept of geopolitics. The new ‘aggressive’ Chinese foreign policy posturing, a combination of military muscle-flexing and financial aid, has been accused of being another form of imperialism. Nothing really stops China from air dropping its own currency, instead of the USD, in the form of infrastructure loans across a wide swathe of OBOR-supporting states.Especially given the trade wars, it is only logical that China does whatever it can, often in collaboration with other states with aligned interests, to try and replace the USD as a global reserve currency.

We made an observation almost two years ago, in the context of competing blockchains emerging out of various geographies. The quote seems even more relevant today than it did a couple of years ago..

“….we might well be seeing the beginning of a new ‘currency’ war, a paradigm war rather. We are seeing a fragmentation of consensus realities, with a multiplicity of blockchain frameworks, this time broadly around political and ideological lines. Unlike much of the Anglo-speaking world, China (and to an extent Russia), have had their own Alibabas, Baidus & WeChats for every Amazon, Google and Facebook. If we agree that currency is just a consensus reality, whether it be dollar or bitcoin, we should not be surprised that Governments are now influencing the definition and the emergence of new consensus realities in the spheres that they can control. Admittedly, it is far easier to do so in China than in most places in the world, given the ’Great Firewall of China’. ……Certain features of the blockchain make it hugely attractive to regimes that have a command-and-control mindset, especially when it is coupled with the ability to design a ‘custom’ version of the blockchain and unilaterally impose this version on a pliant populace, that vast majority of which do not have the international or transborder physical or digital mobility to protect themselves against such regime. While the Venezuelan ’Petro’ might prove to be nothing more than a desperate fourth-quarter hail-mary from a flailing regime, the Chinese Neo Council, the Russian WAVES platform, and potential efforts in this direction by India et al will be interesting in the way they evolve and redefine a new era characterized by an unprecedented overlap of technology, economics and politics”

And now we move on to our weekly DeFi watch…

Ethereum Locked in DeFi

MakerDAO still accounts for a lion’s share of ETH locked up in collateral, with more than 1.39 million of ETH locked up. Compound showed a strong w/w growth of 11% in ETH locked up, while Augur declined by 5%.

Lightning Network Growth:

Capacity per channel fell by 0.4% w/w. The total number of nodes increased w/w by 1%, and the total number of channels was flat w/w.

DEX Tracker:

Trading volumes on DEXs have increased on a w/w basis, with the average daily trading volume averaging 35k ETH for this week. IDEX remains the biggest DEX in terms of trading volume and DAI is the highest traded cryptocurrency on DEXs.

(For reference, some previous articles on DEXs, here and here).

Crypto Loans Tracker:

Compound Loans:

Total loans issued on Compound for the last week stands at approx. $5.7 million for the week, a strong increase from $4.1 million in the previous week. WETH is the most borrowed cryptocurrency on Compound followed by DAI and BAT.

dYdX Loans:

Total loans issued on Dharma Lever for the last week stands at approx. $5.2M for the week, a steep increase from $3.2M last week. DAI is the most borrowed cryptocurrency on Compound followed by WETH and USDC.

MakerDAO Loans:

DAI loans issued on MakerDAO for this week stand at ~$2.4M, a multifold increase from $800k last week. The total outstanding DAI debt currently stands at ~$86 million.

(For reference, some previous articles on MakerDao, here and here).

You can also check out last week’s Metrics Watch here.

Crypto Twitter Pick

What We’re Reading / Listening To

Crypto Monetary Policies by Messari
From the Internet’s Past to the Future of Crypto by a16z

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Satoshi&Co Daily Crypto Newsletter

By Ramani Ramachandran and Rohit Alluri

ZPX - Daily Crypto Update