Riding The Wave News Summary 104
Algorithmic stabilization is the key to effective crypto-finance, Binance Proof-of-Reserves Auditor Mazars Pauses All Work for Crypto Clients, & more
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Algorithmic stabilization is the key to effective crypto-finance
Binance Proof-of-Reserves Auditor Mazars Pauses All Work for Crypto Clients
Bitcoin still lacks this on-chain signal for BTC bull market — David Puell
Tweets
Algorithmic stabilization is the key to effective crypto-finance
After the collapse of Terraform Labs’ cryptocurrency, Terra (LUNA), and its stablecoin, Terra (UST), the notion of “algorithmic stabilization” has fallen to a low point in popularity, both in the cryptocurrency world and among mainstream observers.
This emotional response, however, is strongly at odds with reality. In fact, algorithmic stabilization of digital assets is a highly valuable and important class of mechanism whose appropriate deployment will be critical if the crypto sphere is to meet its long-term goal of improving the mainstream financial system.
The best solutions the crypto world has found to this volatility issue so far are “stablecoins,” which are cryptocurrencies with values pinned to fiat currencies like the United States dollar or euro. But there are fundamentally better solutions to be found that avoid any dependency on fiat and bring other advantages via using algorithmic stabilization in judicious (and non-corrupt) ways.
Stablecoins like Tether , BinanceUSD (BUSD) and USD Coin have values tied close to that of USD, which means they can be used as a store of value almost as reliably as an ordinary bank account. For people already doing business in the crypto world, there is utility in having wealth stored in a stable form within one’s crypto wallet, so one can easily shift it back and forth between the stable form and various other crypto products.
Some stablecoins are fractionally backed, meaning that if, say, $100 million in stablecoins have been issued, there may be only $70 million in the corresponding treasury backing it up. In that case, if 70% of the stablecoin holders redeemed their tokens, things would be fine. But if 80% redeemed their tokens, it would become a problem. For FRAX and other similar stablecoins, algorithmic stabilization methods are used to “maintain the peg.” That is, to make sure the exchange value of the stablecoin remains very close to that of the USD peg.
“Stability” does not intrinsically mean correlation with fiat currency value. What it should mean for a token to be stable is that year on year, it should cost roughly the same number of tokens to buy the same amount of stuff — carrots, chickens, fencing material, rare earths, accounting services, whatever.
This leads to what my colleagues in the Cogito project are doing, with new tokens that they call “tracercoins,” which really are stablecoins but of a different sort, pinned approximately to quantities other than fiat currencies. For example, the Cogito G-coin is pinned to a synthetic index that measures progress on improving the environment (e.g., global temperature).
Tracercoins can be programmed to track transactions in whatever manner is required by law in the jurisdictions where they are used. But they are not trying to emulate the currency of any particular country, so they will not likely be regulated as strictly as fiat-pinned stablecoins.
Because the pegs for these tokens are synthetic, it’s less of a traumatic market-psychology issue if the tokens vary from their pegs a bit from time to time.
While Tracercoins could be a solution, I feel that they are an overcomplicated one when we just need a stablecoin that backs 1:1, is willing to demonstrate it via public viewability, & runs based on some fee rate.
Binance Proof-of-Reserves Auditor Mazars Pauses All Work for Crypto Clients
Mazars, the auditing firm working with Binance and other crypto exchanges on proof-of-reserves statements, has paused all work for crypto clients, Binance said in an emailed statement and Mazars confirmed to CoinDesk.
"Mazars has indicated that they will temporarily pause their work with all of their crypto clients globally, which include Crypto.com, KuCoin and Binance. Unfortunately, this means that we will not be able to work with Mazars for the moment," a Binance spokesperson said. The suspension was reported earlier by Bloomberg.
Mazars said in an emailed statement that it had only paused its work for crypto firms relating to proof-of-reserves reports. "This is due to concerns regarding the way these reports are understood by the public," the company said.
Mazars added that its proof-of reserve reports "do not constitute either an assurance or an audit opinion on subject matter. Instead they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time."
This announcement could be true, but it’s also completely possible that the audits were inaccurate. With the recent FTX collapse and other major events, large amounts of credibility/trust have been lost within crypto.
Donald Trump NFT Collection Sells Out, Price Surges
Former U.S. President Donald Trump’s non-fungible token (NFT) digital trading card collection sold out early Friday, the day after its initial release.
According to data from OpenSea, at time of writing, the collection’s trading volume is 900 ETH, or about $1.08 million. Its floor price is about 0.19 ETH, or about $230 – more than double the original price of $99.
Some tokens are selling for much higher prices. The one-of-ones, the rarest of the NFTs, which comprise 2.4% of the 45,000 unit collection (roughly 1,000), are selling for as much as 6 ETH at the time of writing. One of these rare trading cards, of the 45th president standing in front of the Statue of Liberty holding a torch, is currently listed at 20 ETH, or about $24,000.
Currently, 1,000 NFTs, including many one-of-ones, are held in one Gnosis Safe multisignature wallet, which appears to be the wallet receiving royalty payments from the secondary sales of the NFTs.
This NFT set might onboard a lot of people, but I find it sketchy that the studio managing the project minted NFTs before the public mint was announced, and they had an extremely high success rate for getting rare NFTs. I’m also concerned by some of the wording regarding rewards being swapped out.
Bitcoin still lacks this on-chain signal for BTC bull market — David Puell
Bitcoin only needs one more key on-chain signal for a classic bull market to begin, analyst David Puell says.
In a tweet on Dec. 17, the Puell Multiple creator argued that the stage is almost set for the end of the BTC price bear market.
Despite many calling for new BTC/USD lows of $12,000 or less this cycle, not everyone is wholly bearish on the outlook for Bitcoin.
For Puell, two essential on-chain phenomena necessary for BTC price recovery are already in evidence.
Long-term holders (LTHs) are resisting the urge to sell despite Bitcoin being down over 70% from its last all-time high.
At the same time, short-term “speculators” are feeling acute pain from recent price action. As Cointelegraph reported, these “tourists” are likely already mostly gone from the market.
All that is missing, Puell believes, is a rise in network activity from all participants.
“On-chain, three factors are needed for a bull: 1. Holding behavior from long-term investors. 2. Painful losses from short-term speculators. 3. Network activity across the board,” he summarized
Evidence came in the form of Bitcoin’s MVRV-z score — an expression of market cap to realized cap in standard deviations. Dilution-proof initially called the metric “Market-Value-to-Realized-Value Temperature (MVRVT).”
Currently, accompanying charts showed signs pointing to a classic bear market bottom formation, with Dilution-proof stating that Bitcoin “is just doing what it does at this post-halving date literally every cycle.”
Overall I agree, but I plan to wait to add new funds until it’s more clear that we are trending upwards.
Disclaimer: The information in this Newsletter is not financial, legal, or tax advice. I only trade on Etoro; if you are reached out to by people requesting you join a group or provide money, it is not me. My only public social media accounts are this Substack page, my Youtube page, my Twitter page, and my Etoro page; any others you see online are not me.