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Friday Metrics Watch #7; All Not-so-quiet on the Tether Front

In today’s edition, we share with you some interesting reads that informed our thinking this week, before delving into the standard Friday DeFi watch.

First off, in case you have not done so already, please download and go through the excellent quarterly update research report from Circle Research @Circle.

The report does a good job of summarizing the key themes in crypto heading into Q2 and beyond. The report also does a great job of breaking down the key themes (stablecoins, Open Finance, Security Tokens, regulations etc), at a very high level.

And now onto all things Bitfinex and Tether.

Bitfinex is back in the news for the wrong reasons again. Bitfinex was earlier accused of insolvency in the second half of the last year as it was widely speculated that the USDT-issuer did not have sufficient USD bank deposits to back the outstanding USDT in circulation when its banking partner Noble Bank offered itself up for sale. This lead to a massive selloff and the price of USDT traded at a significant discount to the dollar as questions were raised about the legitimacy of the overall project. USDT fought back against the allegations and hired a new banking partner, putting a temporary stop to the constant negativity about its sustainability in the media.

This time around Bitfinex has to deal with a much harder blow; it is the New York State Attorney General that it is investigating iFinex, the company behind Bitfinex, as the company is accused of defrauding investors to the tune of over $850 million. The NYSAG is investigating if there was a loss of $850 million that was not disclosed to investors. The $850 million was allegedly given to Panama-based Crypto Capital which handled the withdrawal processes for Tether. When Bitfinex realized that it had lost access to those $850 million, the company, unbeknownst to its investors, tapped into the Tether funds that back the USD stablecoin USDT. Given USDT’s prominence in the crypto ecosystem, the news resulted in a run on Tether, as mass withdrawals of USDT ensued on various exchanges, leading to a temporary ban on withdrawals and the drop in price of USDT and other major cryptocurrencies as well. Given that BTC/USDT is the largest Bitcoin trading pair in terms of volume, we might expect traders to sell off their USDT for BTC or any other liquid cryptocurrency such as ETH in the short term, which could lead to a rise in prices in the short run.  Immediately after the news of the NYSAG action came in, Tether was trading down at as much as 0.9680 and bitcoin was down almost 10%, although it has now recovered some of its gains.

We wonder if it might have been an inopportune moment to have listed USDT (the ERC-2- version of Tether) on Fordex!

Which of course leads us to truly decentralized stablecoins  such as DAI. All’s not well in DAI land. As per reports, there is a conflict over the company’s direction between the founder and other senior members, some of who have since left the company  and sued the company. As we have noted before, DAI has been facing growing pains in a changing crypto market. With ETH going back up again, there is significantly increased incentives to add to outstanding DAI supply. The MKR governance framework addresses this by changing the stability fee, but stability fees are now north of 14%.

We are rooting for DAI, because DAI is foundational not just as a stablecoin, but also to other projects in this space, such as Dharma, Compound, and the potentially promising UMA. Here is another interesting slide from the Circle report that we can’t resist sharing.

And now onto our our weekly metrics watch section…

Ethereum Locked in DeFi

MakerDAO still accounts for a lion’s share of ETH locked up in collateral, with more than 2.1 million of ETH locked up. Uniswap showed a mdoerate w/w growth of 2% in ETH locked up, while MakerDAO and Augur have seen moderate declines.

Lightning Network Growth

The w/w growth in Lightning nodes showed a modest increase of 1% this week. Network capacity decreased by 1% to 1061 BTC this week, while capacity per channel 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.

Crypto Loans Tracker

Compound Loans

Total loans issued on Compound for the last week stands at approx. $437k for the week, a strong w/w increase from $245k the previous week. WETH is the most borrowed cryptocurrency on Compound followed by DAI and BAT.

Dharma Loans

Total loans issued on Dharma Lever (still in alpha) for the this week stands at approx. $1.8 million for the week, a 50% decrease from 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 ~$2.1 million, a significant drop from last week. The total outstanding DAI debt currently stands at ~$85 million.

Meanwhile in Crypto Wonderland….

“DAI Stability Fees to be Increased to 16.5%” A majority vote to increase fees on programmatic lending platform MakerDAO has passed an initial round of polling today. This time, the winning vote is to increase fees by 2 percent, which, in comparison to past weeks, is a comparatively small increase to the usual 3 or 4 percent. As is custom, the 2 percent increase will undergo a secondary round of polling starting tomorrow and be executed once a certain threshold of voter participation is met. These fees – also called the “Stability Fee” – are applied to all loans taken out through the MakerDAO system for dollar-pegged stablecoin DAI. At present, the rate at which fees accrue on the total amount of DAI loaned is 14.5 percent. Once ratified in a secondary round of polling called “the executive vote,” fees will begin to accrue on MakerDAO loans at 16.5 percent.

“India Considering a Complete Ban on Cryptocurrencies” A draft bill that would outright ban cryptocurrency is reportedly circulating among various departments of the Indian government. An official familiar with the matter reportedly told the Economic Times that the government has begun inter-ministerial consultations on the “Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019″ draft bill. A committee consisting of the Department of Economic Affairs (DEA), the Central Board of Direct Taxes (CBDT), the Central Board of Indirect Taxes and Customs (CBIC) and the Investor Education and Protection Fund Authority (IEPFA), among others, has reportedly supported the idea to completely ban the “sale, purchase and issuance of all types of cryptocurrency.”

“Bitcoin ATM Now in Iran” Iran’s first teller machine that exchanges bitcoin into Rial and vice versa has been unveiled at the 12th International Exhibition of Exchange, Bank and Insurance in Tehran on Wednesday according to the Russia Today owned German based Ruptly.

“Rapper to Start Accepting Bitcoin Payments Over Lightning Network”You can now buy a Lil Pump T-shirt or keychain with bitcoin through the Lightning Network thanks to his partnership with OpenNode. This method gives users lower fees and faster transactions. The Lightning Network is helping merchants take payment for smaller-ticket items such as coffee and music. This type of mini-transaction may not bring much fiat on-ramps, but it is spreading awareness throughout the wider community. Bitcoin Google searches are already beginning to hit record numbers again during its current rally. And major Gen-Z influencers and artists like Lil Pump are playing their part in fostering more awareness. With plenty of studies revealing that modern youth is more interested in cryptocurrencies than older generations, the importance of artists like this cannot be undermined.

Crypto Twitter Pick

What We’re Reading / Listening To

DeFi Liquidity Models by Alex Evans
A Comparison of Austrian and Keynesian Economics by Venture Stories


Satoshi&Co Daily Crypto Newsletter

By Ramani Ramachandran and Rohit Alluri

ZPX - Daily Crypto Update