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Friday Metrics Watch #8; Tether – Untethered but Undaunted

All is not well with Tether these days, as we had briefly touched upon a few days ago.

The latest bout of disquiet started with the NYSAG (New York State Attorney General) announcing an investigation into the workings of iFinex, Bitfinex and Tether after they were accused of defrauding investors and customers of over $850 million. Most recent documents presented by Tether’s lawyer indicate that only 74% of the USDT tokens outstanding are backed by dollar deposits. The remaining 26% of the deposits are seemingly held by Bitfinex to cover up an $850 million loss it incurred with its processing partner Crypto Capital. Drawing on the traditional “fractional reserve” banking model where only a fraction of the deposits are backed by reserves, Tether’s lawyers claim that they intentionally did not disclose this important piece of information to customers and investors. The fractional reserve model that Tether now claims as a defense for its current situation goes against the fundamental ethos of cryptocurrencies and decentralization. Most crypto faithful would unanimously agree that the “fractional reserve system” is the fundamental reason behind credit bubbles and growing inflation. Moreover, Tether’s questionable way of running its business is of a piece with the broader lack of transparency in fiat-backed stablecoin projects. In many cases you are just swapping trust for the Government with trust in a private entity.

In addition, there are rumors circulating around Bitfinex considering the launch of an exchange token in a $1B IEO. The fact that the IEO is being timed when Bitfinex has allegedly moved funds out of the dollar deposits backing Tether raises severe red flags as to the real motive behind the token offering.

Some other random observations, in no particular order, some contradicting some of the normative statements above.
– Stablecoins are a highly lucrative business. In its elemental form, the basic collateralized version is remarkably simple in its elegance. You collect a bunch of fiat currency, and you find a place to park is safely (clearly, some place where the establishment – such as the govt cannot confiscate the collateral, but this often ends up being a shady bank in a banana republic which can have issues with competence or intentions or both, like in the case of crypto capital). Assuming you pull this off, you can just collect interest on this collateral. In case you have not already, do check out our Stablecoinwatch section.
– Tether, as per estimates, has $2b in reserves. 3% of that is a cool $60m per year. In addition you have the revenues from Bitfinex. If the parent company were a publicly traded company, this is the time a Warren Buffet, a Bill Ackman or a Carl Icahn would have gone all in. Either way! (remember Herbalife!). There is a lot of financial bundling/unbundling + narrative building + market pumping and dumping + shareholder activism + financial sponsorship efforts that would have taken place if the parent company were publicly traded.
– Extending that logic, the parent company here should just go public! Their growth rates and unit economics are simpler, better and easier to grok than most of the current crop of decacorns that are going public, some without a hope of turning profitable anywhere in the near future.
– Or it could talk to the Softbank vision fund. Apparently they fund market leaders everywhere, and Tether is the undisputed stablecoin market leader.
– Three types of stablecoins – However, even if you have something like DAI, which is crypto-collateralized, you may not have outright centralization issues, but you still have issues.
– The conspiracy theory here is of course that this is potentially the ‘establishment’ striking back. We have JPMCoin, ‘Goldman’/Coinbase Coin (USDC), and ‘Winklevoss’ coin (Gemini USD) who stand to benefit from the NYSAG’s actions, and who are of course, cleaner, better, shinier than Tether, until they are proven not to be, as with all things centralized. Then there is PAX ( from the ItBit team), which is still finding its feet. As we say of all conspiracy theories – never attribute to malice what you can to stupidity!
– The deliciously bitter irony of Tether and its lawyers leaning back on the logic of fractional banking to cover up the shortfall; The bigger irony – they might yet pull it off!
– Tether, in spite of the allegations against it, has always been ‘backstopped’ by the reputation of Bitfinex. Bitfinex has always made investors whole. Reputation here is bigger than collateral (Thanks @Ibrightly for this gem). A potential IEO on Binance or OKex would raise enough and more to take care of the 26% collateral shortfall.
– Tether has also been linked to the bitcoin price rising to north of 19k in early 2018. Allegation here is that the Tether folks just issued ‘uncollateralized’ Tethers to buy up bitcoins.
– Read this carefully! It is being speculated that Tether is being feverishly converted to BTC as we speak, leading to 2019 highs, as we type this.
– It would be remiss of us to not urge to you check out our stablecoin relayer www.fordex.co. You can trade Tether, USDC, TUSD, USDS, DAI, PAX as well as non-USD stablecoins such as EUR and KRWb (Korean Won). If you are in the US, you can get on a fiat onramp through our partnership with @sendWyre as well.

And now, onto our Friday metrics watch….

Ethereum Locked in DeFi

MakerDAO still accounts for a lion’s share of ETH locked up in collateral, with more than 2 million of ETH locked up. Uniswap and Compound showed a moderate w/w growth of 9% and 7% ,respectively, while Augur and Maker showed modest declines.

Source: defipulse.com

Lightning Network Growth

The w/w growth in Lightning nodes showed a marginal increase of 1% this week. Network capacity was flat w/w, as was capacity per channel.

Source: 1ml.com

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.

Source: dex.watch

Crypto Loans Tracker

Compound Loans

Total loans issued on Compound for the last week stands at approx. $553k for the week, a mild increase from $553k in the previous week. WETH is the most borrowed cryptocurrency on Compound followed by DAI and BAT.

Source: loanscan.io

Dharma Loans

Total loans issued on Dharma Lever (still in alpha) for the last week stands at approx. $990k for the week, a more than 50% decrease from the previous week. DAI is the most borrowed cryptocurrency on Compound followed by WETH and USDC.

Source: loanscan.io

MakerDAO Loans

DAI loans issued on MakerDAO for this week stand at ~$1.4 million, a significant drop from last week. The total outstanding DAI debt currently stands at ~$83 million.

Source: loanscan.io

Meanwhile in Crypto Wonderland….

“Myanmar Warns Public Against Crypto”
The Central Bank of Myanmar has urged consumers to stop trading cryptocurrencies amid fears that inexperienced users could lose money. In a statement obtained by the website, the central bank said it had received reports of several scams targeting those who lack understanding about virtual currencies. Authorities in Myanmar, also known as Burma, say the likes of bitcoin (BTC,) ether (ETH) and litecoin (LTC) are being traded in the country through Facebook profiles as well as websites.

“Facebook’s Project Libra”
Facebook has been working for more than a year on a secret initiative code-named “Project Libra” to build a cryptocurrency-based payments system, The Wall Street Journal reported on Friday. The social-media giant plans to introduce a digital coin that its more than 1.5 billion users can transfer to one another and spend on Facebook and other websites, the newspaper reported. Facebook has spoken with “dozens of financial firms and online merchants” as it seeks to raise about $1 billion in investment and enlist partners to help launch the system, according to the report, which cited people familiar with the matter.

“Microsoft to Promote JPM’s Quorum”
Microsoft will promote JPMorgan Chase’s Quorum blockchain to the global tech giant’s business customers, the companies announced Thursday. The Redmond, Washington-based software firm will support Quorum, JPM’s private enterprise version of ethereum, through Microsoft’s Azure cloud platform, the firms said. They will look to support adoption of the network through their new partnership, after signing a memorandum of understanding.

“Institutional Investors are Warming Up to Crypto”
About half of institutional investors consider digital assets to be worthy of holding in portfolios, according to a survey commissioned by Fidelity Investments. Fidelity, which began a custody service to hold Bitcoin for its customers earlier this year, is trying to gauge how pensions, family offices, hedge funds, endowments and foundations feel about owning cryptocurrencies as it builds out its Fidelity Digital Assets business. According to the survey, which questioned 441 institutional investors from November to February, 72 percent prefer to buy investment products that hold digital assets, while 57 percent choose to buy them directly.

What We’re Reading / Listening To

Bitcoin’s Gravity by Gigi
Could Social Media Discontent Help the Decentralized Web? Featuring Ashley Tyson

Crypto Twitter Pick

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