Blockchain Confidential - 13 May 2022

UST de-pegs, Tether wobbles, and the whole market shudders

The Week

It was not Terra’s lucky week.

A report from the Fed saying stablecoins are prone to runs proved prescient as the UST algorithmic stablecoin de-pegged this week, and sent multiple ripples through the market, crashing its sibling LUNA token, draining capital out of the Anchor protocol on DeFi and putting downward pressure on Bitcoin as the Luna Foundation Guard sold its BTC reserves to try and defend the peg. Tether looked shaky as well, but stabilized. The smaller USDX de-pegged due to its use of UST as collateral. Facing fears of a governance attack, the entire Terra blockchain was shut down for emergency patching, and then was out again for nine hours.

Compound Treasury received the first-ever S&P rating for a DeFi protocol. A broker licensed by Lloyd’s of London started offering specialized insurance for digital asset firms. The fintech firm Jack Henry partnered with NYDIG to offer Bitcoin trading to its network of community banks and credit unions. And Japanese banking giant Nomura started offering Bitcoin NDF, options and futures products. And although NFT’s may have been far from everyone’s mind this week, Meta’s Instagram will be supporting NFT’s on multiple blockchains in a soon-to-be-released pilot.

Regulator Radar

Unsurprisingly, the UST de-peg amplified calls for stablecoin regulation, with Treasury Secretary Yellen citing the incident when calling for new legislation. Such work may build on a flurry of think tank research into CBDC and stablecoin policy in Washington. SEC Chair criticized major crypto exchanges, saying they are trading against their customers and not properly segregating proprietary trading activities the way traditional exchanges do; he questioned links to stablecoin issuers as well. Given earlier pushes for the CFTC and SEC to team up to supervise crypto exchanges, this hints at areas of concern they might pursue. On the U.S. state level, Utah’s governor authorized a task force to study innovative uses for blockchain and digital assets.

The EU Commission may be contemplating a ban on large stablecoin issuers; they could be forced to scale back if they go beyond a certain size to avoid them from reaching a scale that could threaten the euro. India’s securities depository’s bond records will now be backed up on a distributed ledger. Binance backed off from offering derivatives trading in Spain while seeking a local license. Finally: who wants to be the global crypto regulator? The FSB, apparently.

From the Research Desk

Head of Research Ilya Kulyatin and Sonakshi Rohra published another collaborative paper, this time on performance attribution. Read Performance Attribution for crypto sectoral indices.

The Good Read

Digital assets offer a fascinating combination of technical challenges and experiments in economics, so this week’s Good Read explores one of those points of intersection: tokenomics. Read Borderless Capital’s Introduction to Tokenomics.

At the Office

Our entire focus in May and June is the launch of the Serenity MVP with our design partners in July, allowing them for the first time to leverage our digital asset factor risk model via API. This presents multiple quant, cloud engineering and data engineering challenges, and we continued to push forward on all those fronts.

In Research, Sonakshi researched performance attribution while Boris and Ilya worked on finalizing our digital asset factor definitions for the first production model. In DevSecOps Barry continued changes to better secure Serenity’s client while Thierry dug into data engineering and Makas migrated all of our infrastructure to use managed databases while continuing to work with Chloe on risk model integration. Sam got off to a fast start with our cloud engineering.

Tanya prepared logos and banners covering Serenity, Blockchain Confidential and our forthcoming panel series, Blockchain Alpha, while Kyle and Gareth planned for the first panel in June. Jia Yng continued our exchange outreach in Asia.