Blockchain Confidential: 26 November 2021

Bitcoin bonds, a potential Indian ban, and three new essays for Black Friday

The Week

Jack Dorsey’s Square announced a whitepaper for its tbDEX decentralized exchange protocol. In what we think will be a trend in DeFi, they are building in negotiated trust mechanisms based on decentralized identity standards (DID) from the start.

In a further sign of accelerating institutional adoption, an Ernst & Young study found that 31% of hedge funds plan to add exposure to digital assets in the coming one to two years, with particular interest from larger investors. Of the 264 investment firms representing $5T in AUM, only 7% already had exposure already.

El Salvador announced plans to build a Bitcoin City funded by a Bitcoin bond, and the IMF fired back; they have previously expressed concerns about the side effects of “cryptoization” of emerging market economies more generally and El Salvador’s decision to make Bitcoin legal tender specifically.

Finally, the effort by ConstitutionDAO to bid on the only copy of the U.S. Constitution in private hands lost to Citadel’s Kenneth Griffin, and announced they were returning funds shortly thereafter.

The Essay

This week’s essay is a fun and fanciful what-if about Bitcoin’s Bonnie & Clyde, and how they took down a trillion dollar market. Read The Last Days of Bitcoin.

The Geek Out

For the Geek Out we take a closer look at the Cosmos IBC protocol, the technical foundation for its Internet of Blockchains idea. Read Cosmos Unchained.

From the Research Desk

This week Ilya reviews a paper from Keskin and Aste on advanced sentiment analysis. Read Using information Theory to uncover a non-linear relationship between cryptocurrencies and sentiment.

Regulator Radar

Brady Dale at the The Defiant explored stablecoin risks in DeFi, specifically from USDC and USDT de-pegs or regulator-driven freezes. On the other end of the spectrum, Bank of America sees regulation of stablecoins as a supporting factor to get from early adopters to the mainstream. In Japan, a consortium of banks announced plans for a bank deposit-like structure backed by a new digital yen by the end of 2022.

The rumblings in the U.S. on the regulatory side continued with the OCC affirming a Trump-era authorization for U.S.-chartered banks to custody crypto, but not surprisingly wants them to ask nicely first. Multiple agencies also issued a joint statement about planned inter-agency “policy sprints” to try and come to a consensus on approach and ownership. Specifically they plan to look at issues like custody; banks issuing crypto-collateralized loans; and bank involvement in stablecoins.

The real excitement was elsewhere in the world this week, though. The Indian government is expected to introduce a bill which could ban private cryptocurrencies but authorize development of a CBDC, an approach not unlike China. This in turn opened up a massive cross-exchange arbitrage opportunity as prices slumped in Indian onshore exchanges. In Europe the ECB announced it is bringing crypto-assets under its new payments framework while the Council of Europe endorsed the MiCA and DORA proposals, on digital market regulation and cyber risks respectively; they now will be negotiated with the European Parliament before being fully adopted. The Bank of England’s Sir John Cunliff gave a qualified nod to the potential of a digital pound while Jane Hume, an Australian Senator, urged policymakers to give DeFi serious consideration, rather than dismissing it as a fad.

Finally, in what is probably the most intriguing bit of legal news given the importance of English common law around the world, a law commission found that English and Welsh law could be compatible with smart contracts, though more study is required.

At the Office

It was a relatively quiet week at Cloudwall Capital with the U.S. holiday, but we have completed the U.S. corporation’s foundational documents, retained a startup CPA and continued our conversations with potential customers and partners. There is a tremendous amount to do to build the Serenity prototype and then launch an MVP, but as the company’s first month comes to a close we are on our way.