IMF Warns of DeFi & Stablecoin Risks, Biden Administration Taking ‘Aggressive’ Approach to Crypto

IMF Warns of DeFi and Stablecoin Risks, Biden Administration Taking ‘Aggressive’ Approach to Crypto

A senior White House official says the administration ensures a “smart and effective regulatory system” for crypto. Meanwhile, for the IMF, because DeFi is one of the main drivers of the rapid growth of stablecoins, it “warrants close attention.”

The Biden administration is ramping its regulatory scrutiny of cryptocurrency and will make a move to address a range of risks, reported the Wall Street Journal, citing a senior White House official.

Peter Harrell, senior director for international economics and competitiveness with the National Security Council at the WSJ Risk & Compliance Forum on Tuesday, said,

“You’re really seeing the administration at the beginning of what we expect will be an ongoing, quite aggressive effort to make sure we understand and address the whole range of risks that we see in the cryptocurrency space.”

At the same time, the administration seeks to position the U.S. as a leader in digital asset innovation.

According to Harrel, the agencies do think the cryptocurrency industry has “some potential benefits,” such as financial inclusion, but added, “there are clearly a whole range of risks.”

“I think you’re really seeing the administration kind of moving out on a number of different lines of work to make sure that we have a smart and effective regulatory system in place for cryptocurrency.”

A Sound Regulatory Framework

Elsewhere, the International Monetary Fund warned that the rapid growth of cryptocurrencies poses several risks to both investors and policymakers.

While the “crypto ecosystem offers an exciting new world of opportunities,” it also has its challenges in the form of risks to consumers from lack of operational or cyber resilience and anonymity and limited global standards creating data gaps for regulators, which in turn pose a threat to financial integrity, it said.

Moreover, “the advent of crypto assets and stablecoins in emerging markets and developing economies may accelerate dollarization risks,” said the IMF adding these markets can face “destabilizing capital flows” because cryptos are used to circumvent capital controls.

The report also mentions investor protection risks for DeFi, which it says is “gaining momentum by offering new services to users,” and inadequate reserves and limited disclosure for some stablecoins.

Decentralized finance (DeFi), according to the IMF, is actually one of the main drivers of the rapid growth of stablecoins as such “warrants close attention.”

“A sound regulatory framework for crypto assets, and decentralized finance markets more generally, must be a priority on the global policy agenda.”

When it comes to stablecoins, the IMF says regulations should correspond to the risks they pose and the economic functions they perform.

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Author: AnTy

Australian Financial Minister Warns Users On Crypto Investing Risks, But Govt Won’t Stand In the Way

Australian Financial Minister Warns Users On Crypto Investing Risks, But Govt Won’t Stand In the Way

The Australian Minister for Financial services and the digital economy, Senator Jane Hume, has sounded a warning to crypto investors telling them to be aware of the risks associated with the assets.

Hume said this while speaking at the Stockbrokers and Financial Advisers Association Conference in Sydney on Thursday.

Australia Is Not Against Crypto

The minister was also quick to point out the risks associated with cryptocurrencies while also revealing that the government won’t stand in the way of crypto investors but would rather give them the chance to make their own decisions.

Hume also hinted at the possible regulation of cryptocurrencies in the country when she said that digital currency transactions are also subject to Australian law.

Recent reports suggest that a parliamentary inquiry committee headed by Liberal senator Andrew Bragg is set to investigate likely ways to regulate cryptocurrencies.

The committee will look at the present policy and legal backdrop surrounding cryptocurrencies in Australia while also considering approaches taken by Canada, Singapore, the United Kingdom, and the European Union.

According to Bragg, the committee aims to identify the type of policy provision and legal certainty needed to scale up private investment into digital assets in Australia.

Bragg said the ultimate goal would be to develop a comprehensive regulatory framework for digital assets. Bragg also said that he would appreciate the formation of a licensing regime to protect the interests of consumers.

Bitcoin Freefall Prompts New Warnings From Governments

This new move taken by the Australian government could be traced to the recent crypto market crash. The current activities in the crypto market have seen governments reiterate their positions on cryptos; advising their citizenry to tread carefully.

Bitcoin saw a massive drop from its previous all-time high of $65,000 to below $40,000 this week. This drop had been attributed to Elon musk’s announcement that Tesla would suspend Bitcoin payments for Tesla cars.

The dip in prices also saw Chinese regulators warn local investors against trading cryptocurrencies. The Asian country also banned banks and payment firms from offering clients crypto-related services.

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Author: Jimmy Aki

Jerome Powell: Fed is Studying Risks of Stablecoins As A ‘Very High Priority’

Jerome Powell: Fed is Studying Risks of Stablecoins As A ‘Very High Priority’

Meanwhile, the central bank isn’t feeling the “urge or need to be first” on CDBC’s as they already got the first-mover advantage with the U.S. dollar being the reserve currency.

The US Federal Reserve Chairman, Jerome Powell, said on Thursday that the central bank needs to find “better regulatory answers” for global stablecoins, and it is their “high-level focus.”

“That’s been a high-level focus, and that will continue to be a high-level focus because they could become systemically important overnight,” Powell said while speaking at an online event hosted by Yahoo Finance and conducted by the Princeton economist Markus Brunnermeier in New Jersey.

“We don’t begin to have our arms around the potential risks and how to manage those risks. The public will expect that we do and have every right to expect that. So that’s something that we’ve been working on with our colleagues around the world… It’s a very high priority.”

Just last month, the U.S. President Trump’s Working Group on Financial Markets said stablecoins must meet the same regulatory standards as banks and other financial institutions.

European Central Bank President Christine Lagarde shared similar views when in November, she warned in an op-ed that if stablecoins became widely adopted, they could “threaten financial stability and monetary sovereignty” around the world.

This week, she called Bitcoin a “highly speculative asset” that is facilitating “funny business.” As such, “there has to be regulation,” Lagarde added, “This has to be applied and agreed upon.”

No Need for CBDC Yet

The Fed, meanwhile, is in no hurry regarding a central bank digital currency (CBDC); it is actually estimated to take “years rather than months” before the central bank releases a CBDC, said Powell. “We don’t feel an urge or need to be first” on CDBCs, reiterated Powell while continuing,

“Effectively, we already have a first-mover advantage because (the U.S. dollar is) the reserve currency.”

Still, the Fed is “investing heavily” in understanding the technology and studying all the policy risks CBDCs pose.

According to him, it was when private-sector money, like Bitcoin and other cryptos, was created that the Fed looked into CBDC. But while people think of these cryptocurrencies as money, “at some point, they find out that it’s not money and that’s a really bad thing we need to avoid,” he said.

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Author: AnTy

US-Based ShapeShift Delists Privacy Coins Dash, XMR, & ZEC to ‘Avoid Regulatory Risks’

  • ShapeShift is delisting privacy coins from its exchange
  • Regulatory risks in the U.S. led to the delisting of ZEC, XMR, and DASH

Zcash (ZEC) is the latest privacy-enabled crypto to be delisted from Colorado-based cryptocurrency exchange, ShapeShift. This follows the silent delisting of Monero (XMR) and Dash (DASH) from the exchange due to regulatory risks.

Speaking to CoinDesk, Veronica McGregor stated the exchange delisted the coins due to the regulatory risks and uncertainties privacy coins hold.

“At least for the moment, we’re not working with those coins,” McGregor said in an interview.

The delisting of ZEC was made public on Tuesday after Decrypt’s report confirmed that Monero (XMR) and Dash (DASH) were delisted on Friday of last week.

The latest delisting shows ShapeShift taking up a more regulatory approach as regulators start paying close attention to privacy-eccentric coins. At launch, the exchange allowed users to trade and swap cryptocurrencies anonymously – allowing users to open trades without any login or account registration.

However, following money laundering claims (which ShapeShift vehemently countered), the exchange started asking users to submit their “know-your-customer” compliance documents in September 2018.

As governments and regulators take into account the FAFT Travel rule, exchanges across the world have taken a hard stance on privacy coins. BitBay and BitOasis announced the delisting of Monero (XMR) from their exchanges in 2019 due to regulatory risks. And South Korea is set to ban the trading of privacy coins.

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Author: Lujan Odera

Kraken’s Crypto Bank Is “An Accident Waiting to Happen,” says Bank Policy Institute

The structure of Kraken Financial is “prone to the same types of run risks as medieval banks and so-called “shadow banks,” said a non-partisan advocacy group representing the nation’s leading banks, Bank Policy Institute.

BPI’s remarks have been related to Kraken getting approval to be a special-purpose depository institution (SPDI) charter by the Wyoming State Banking Board.

With this approval, cryptocurrency exchange Kraken will custody digital assets on behalf of its customers and hold their US dollar deposits as well through Kraken Financial. According to BPI, it is an “accident waiting to happen” because,

“Kraken will take uninsured, demandable, retail deposits and invest them in “liquid assets,” including longer-term instruments like U.S. Treasury securities and corporate debt.”

And this model is “inherently unstable under stress,” it said.

It then points out the issues, including Kraken defaulting in case the interest rate goes up and that with longer-term corporate bonds, the risk of capital loss can even be greater as it also involves corporate default.

Because Kraken is not an insured bank and is subject only to capital regulation by the state of Wyoming’s Division of Banking, it doesn’t follow the capital requirements set by the federal banking agencies that have been raised and strengthened since the Great Financial Crisis, wrote BPI. This means,

“There would be a run on Kraken Financial, similar to the March 2020 (and 2009) run on prime money market funds, which also backed deposit-like obligations with a pool of high-quality assets.”

Bank Policy Institute further argues that Kraken has a moral hazard of “unrelenting incentive to shift its reserves toward slightly riskier assets.”

The group now wants the Federal Reserve to give the risks of Kraken’s business model “serious and thoughtful consideration,” as the exchange is applying for a master account with the Fed.

Kraken co-founder and CEO Jesse Powell only has this much to say on this, “Somebody’s scared. Degen gambler fractional banks: “Full reserve banks are dangerous!”

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Author: AnTy

China’s Digital Yuan Trial in Full Force, DCEP Lottery Winners Using Digital RMB at 3,300 Stores

While other countries are still busy studying the opportunities and risks associated with central bank digital currencies (CBDC), like the US, China’s digital yuan trial is in full force.

People have already received the DCEP and started using it at convenience stores. Shenzhen metro ticket machine also has features to top-up metro cards with the digital yuan along with “DCEP accepted here” signs.

According to BlockBeat, nearly 2 million people in Shenzhen applied for the “Luohu Digital RMB Red Packet” lottery on the blockchain-based public services app operated by the Shenzhen government.

However, the lottery’s winning rate has been only 2.61%, as only 50,000 received 200 RMB ($30) from the government through the lottery, which brings the total DC/EP giveaway to RMB 10 million ($1.47 million).

The red envelope is basically the “digital renminbi,” which is under development. The wallet, meanwhile, has been already launched by China Construction bank at the end of August.

The idea here is to promote the demand for the new digital yuan as Dan Wang, the chief economist at Hang Seng Bank, told the South China Morning Post, the program is predicted to generate 50 million yuan in total demand.

These DC/EP will be spendable at 3,389 designated shops in Luohu this week, from 12th to 18th October 2020.

“China is doing blockchain airdrops using central bank digital currency. Technology moves forward. Don’t get left behind,” tweeted Binance CEO Changpeng Zhao.

According to him, although “Nothing beats bitcoin in terms of decentralization,” despite the being “fairly restrictive/centralized,” these CBDCs will “get the masses exposed to and comfortable with blockchain technologies.”

However, these centralized digital versions of fiat cryptos only give governments more power and control over their citizens.

While for cashless societies, the latest change of payment channel is just another way to move money around, what they miss is targeted stimulus policy, and helicopter money will be at a “much more granular level” in the future, said Dovey Wan of Primitive Crypto.

This further means easy seizure of personal wealth, all with just a few lines of codes.

“When retail has been so spoiled by the convenience of digitalization of fiat, and now into digital fiat, they can easily trade self-sovereignty and enslaved by the ultimate efficiency those central servers offer It’s more critical than ever for everyone to really own their keys,” she added.

Amidst this, the Ministry of Public Security of China has announced a nationwide “Card Breaking Campaign,” that could affect Chinese crypto OTC because while criminals in China use crypto to launder money, merchants also borrow and buy bank cards.

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Author: AnTy

Nexus Mutual Sees Active Cover Growing 10x, Now Token Price ‘Directly Linked to Adoption’

“DeFi is developing faster than you can say ‘protect me from the risks in DeFi’,” said Kayleigh Petrie, Director of Engagement at Nexus Mutual, an Ethereum based insurance protocol.

Given the sector’s high risk, high gain motto, it makes sense the need for insurance coverage is growing in line with the sector, which has yet again over $9 billion of total value locked, as per DeFi Pulse.

Nexus Mutual contributes nearly $80 million of deposits to 3% of TVL in DeFi with the active cover up to $235,241,926 (635,531 ETH).

In light of this, the team of Nexus Mutual is working on increasing the capacity and scaling the capital. Just this week, they have made a new milestone in the scaling process with MCR – minimum capital requirement.

This means the amount of funds the project requires to operate (reserves) is now driven by cover amounts and not the capital floor, “this implies that token price is directly linked to adoption.”

With a market cap of $372 million, NXM is trading at around $50, as per CoinGecko.

The token that has been only available to members of Nexus Mutual requiring KYC verification has already been roped in by the DeFi blue-chip yEarn, which allows people to earn it through yInsure, which is non-KYC insurance underwritten by Nexus Mutual.

The protocol has sold nearly $250 million in cover, and much of this “enormous demand” has been because of the new entrants in the market, including wNXM (wrapped NXM) and yinsure (yNFT where cover is converted into an NFT).

SAFE is another project which involves staking wNXM and yNFTs to earn SAFE tokens that are behind this demand. The project remained in the limelight this week for being a “sh*tshow” only to be relaunched as a COVER protocol.

As happens in the DeFi market, the launch of a new protocol sees heightened demand, and the same was the case for yieldfarming.insure (SAFE). As a result, the token’s price surged to a new high only to dump soon after as people sold their positions, which also affected the price of NXM.

After this, the blame game started, with anon Chef insurance accusing the investor Azeem Ahmed of unethical decisions while Azeem hit rebuttal.

But now that the project is relaunched, and the SAFE tokens are to be migrated to the new protocol after November 1st, things seem to be coming on track. The token today hit a new ATH at over $800, and NXM is also seeing movement.

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Author: AnTy

GSR Introduces Derivative Products For Cryptocurrency Mining Companies To Hedge Risks

The cryptocurrency mining industry could soon start to hedge risks by using derivative products. GSR, a global leader in digital asset trading announced in a press release on December 20, that they are partnering with the crypto mining giant Canaan to bring professional risk management and execution services to Canaan’s mining network.

GSR and Canaan Sign Partnership To Introduce Risk Management Services

As per the press release, GSR will be offering a suite of structured products to mining firms starting in January 2020. In this way, miners in different cryptocurrency networks will have the possibility to reduce their exposure to the market and improve their returns.

Some of the new risk management products that GSR is planning include customized Swaps, Collars and other bespoke structured products.

The main reason behind the decision to work on these risk management services is related to the fact that the cryptocurrency industry and markets are very volatile, which heavily affects the sustainability of the sector.

Cryptocurrency miners have to invest large amounts of money in order to remain profitable and, in many cases, they must shut down their operations due to market conditions. Electricity prices and the cost of mining equipment are also important factors that would have an impact on their business.

Christian Gil, the co-founder of GSR, explained that many participants in the industry are under-hedged against an adverse price action. At the same time, he stated that miners are one of the main parts of the whole cryptocurrency space and market.

Basically, there is an unpredictable business model that GSR wants to tackle with a new set of products and services. As the whole market expands, participants get more exposure and firms invest larger amounts of money, having a quality risk management solution for miners seems to be the right step into a less volatile and unpredictable future in this sector.

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Author: Carl T