As many of you may have noticed, we could not send out too many newsletters this past week, as we focus on getting Qume ready for a beta launch. Keeping that in mind, we cover key events from last week in today’s newsletter.
Binance and the curious case of the vanishing fiat on-ramps
Earlier last week, Binance announced that it would be accepting fiat through Alipay and WeChat, opening up the p2p exchange for crypto trading in China.
While this announcement underscored the strong demand for crypto trading in China, it also came as a surprise to many – How could Binance facilitate crypto trading in a country that has legally banned crypto exchanges for a while now. There has been enough evidence in the past that suggested a strong demand for p2p and OTC trading in ‘alternative’ marketplaces in China in the absence of legitimate crypto exchanges, but accepting fiat from Alipay and WeChat, which together have more than 1.5 billion users raises concerns over regulatory clampdown.
Alibaba was quick to deny that it supports crypto-to-fiat OTC transactions and patently stated that it would censor any payments linked to Bitcoin or other digital currencies. The following conversation between @lawmaster and @CZ (now deleted) gives some interesting insights into how crypto trading in China takes place despite the ban.
With China having expressed its interest in launching a state-backed cryptocurrency with the help of Alibaba and WeChat as distribution partners, it will be interesting to see how they react to Binance using Alipay and WeChat for p2p trading.
As we had noted in one of our newsletters some time ago, tolerance for ambiguity is especially high in China. There might be the letter of the law, but there is also the spirit of the law that is even more important. Official government bans have their place, which seems primarily to be to scare off the pretenders and the dilettantes. What is clear is that China will continue to be important to crypto and crypto will continue to thrive in China, at least as long as certain unspoken ‘rules of engagement’ are not violated by the various stakeholders. The above tweet thread was a rare instance where one of the key stakeholders in China strayed dangerously close to the line, maybe even crossing it for an instance before pulling back.
Multi Collateral DAI Coming Soon…
DeFi giant MakerDAO is in the middle of a massive revamp as part of its upgrade to multi collateral DAI (DAI). The new upgrade allows users to hold their collateral in multiple ERC20 tokens, not just ETH. This could include commodity-backed tokens and ERC-20 version of bitcoin (wBTC). Using the new multi collateral system, users can gain leveraged exposure to the underlying collateral in various currencies.
Amongst the new features proposed is the DAI interest rate. Users can now earn interest on their minted DAI tokens without having to lend them out on a borrowing/lending app. The savings rate is a new monetary feature that can be adjusted to control the supply of DAI and maintain its price stability.
In addition, MakerDAO is launching a frontend portal called Oasis that allows DAI users to seamlessly borrow, save and trade DAI tokens. This is a nifty bit of forward integration, and gives MakerDAO direct access to end-users, and also puts it in direct competition with platforms like Compound, Dharma, Nuo(Juno), Instadapp, etc. Remember, these Defi platforms all use DAI extensively in their lending businesses.
Regulators’ knock Libra off balance
After the initial hype, things have been going south for Libra ever since Facebook announced the launch of Libra back in June. The project has faced severe criticism and backlash from various central bank regulators. The regulatory skcepticism and the backlash have finally gotten to Libra’s founding partners as several key early supporters such as Visa, Mastercard, Paypal, eBay, etc. have announced their departure from the projects, raising serious questions over the project’s future course and its eventual success.
What probably was the proverbial final straw on the camel’s back was this letter by a couple of US Congress members to various Libra participants. The letter, among other things, touched upon:
The departure of leading payment companies from the consortium calls into question the viability of Libra’s vision to become a leading p2p payment mechanism, including cross-border transfers. The presence of the payment giants, who perhaps wanted to piggyback on Libra’s success, with their strong penetration and partnerships would have helped Libra tap into the existing payments markets with relative ease. With their departure, Libra is essentially a business rival to each of them. The remaining founding members are expected to meet soon to discuss the governance structure and the launch roadmap for the project. It would be interesting to see how the project responds to the exit of some of its key founding members and the strong criticism being leveled at them.
What does this mean for Facebook and Zuckerberg? For one thing, this was an ambitious plan for a company that was facing a maturing core business with its various social networks stagnating in growth. By dangling the power of its various networks and user bases, Facebook cleverly managed to cobble together a consortium of some of the leading players across a range of industries, with the notable exception of the banks. In spite of the fact that Libra would also have been a direct threat to these payment companies, they likely went along after being FOMOed into it. But with all the negative publicity and the scrutiny threatening to distract from their core business, they have probably decided to pull back for now.
Facebook will definitely be back with another iteration of the Libra, and will start making tweaks to the design to make it more truly decentralized. This is a good thing, as we have often felt that Libra in its current avatar is more an oligarchy like EOS from a governance perspective. A truly decentralized design will be able to better withstand regulatory pressure as we have seen from the likes of Bitcoin, Ethereum, etc. Facebook has too much at stake, and more than enough cash in hand, to give up the crypto fight just yet.
Protocols As Minimally Extractive Coordinators by Chris Burniske