Blockchain Confidential - 25 February 2022
A ZK-rollup breakthrough, Tether's disclosure, and U.S. states continue to move on digital asset engagement
The Week
Hashflow launched its DEX on the Arbitum Layer 2 protocol, aiming to tackle the problem of MEV: Miner Extractable Value, where miners and validates manipulate DEX transactions to extract profits together with “searchers” who help target opportunities. Ethereum-based networks got a significant upgrade for scaling with the roll-out of the zkEVM testnet, the first generalized implementation of ZK roll-ups; previously, solving the complex zero-knowledge proofs for ZK roll-ups as prohibitively expensive in terms of computation, but they avoid the potentially dangerous long lock-ups required by the currently-dominant optimistic-rollup mechanisms. It could be a game-changer for reducing gas fees on Ethereum.
Celsius partnered up with the Maple Finance DeFi protocol, launching a lending pool via their new CelsiusX arm. Warner Music joined forces with Splinterlabs, a blockchain gaming developer, to let their artists build play-to-earn games for fans. FTX US are launching their own offering in the gaming space, with their new FTX Gaming unit. In traditional finance, there were multiple developments this week in terms of their engagement with digital assets. The big news was BlackRock Aladdin adding crypto support, and we also saw a project to set up a digital asset exchange in Thailand by the SET and a big acquisition by the LSE. BNY Mellon will be entering the digital asset custody space later this year based on technology from Fireblocks. The traffic also went the other way with Securitize acquiring Pacific Stock Transfer, with an eye to the future tokenization of equities market infrastructure.
Given long-running worries about the Tether stablecoin’s reserves and its implications for systemic risk, this week’s quarterly disclosure that their commercial paper position is down 21% was welcome news.
The Good Read
For a glimpse inside the Fed’s thinking on the U.S. CBDC, reading Fed Governor Lael Brainard’s recent speech on the future of finance is worth the time; she spoke on the topic at the 2022 U.S. monetary policy forum.
Regulator Radar
Lael Brainard can give policy speeches about digital assets, but she can no longer trade them under new Fed rules. A newly-introduced bill in California would allow payment for state services in cryptocurrency. Also at the state level, Wyoming lawmakers proposed launching a state-backed stablecoin. On the enforcement side in the U.S., BitMEX co-founders Arthur Hays and Ben Delo entered a guilty plea for violating the Bank Secrecy Act due to the exchange weak KYC / AML checks.
Trying to stay ahead of this issue, the EU plans to create an AML watchdog for crypto firms. Meanwhile, more extensive legislation in the space stalled, with the European Parliament delaying a vote on the MiCA directive to try and settle differences over how to regulate proof-of-work blockchains like Bitcoin in the face of ESG concerns. Elsewhere in the world the UAE aims to become a crypto industry hub by licensing virtual asset service providers (VASP’s) for the first time, while in Brazil a move to clarify the rules of the road for cryptocurrency businesses and thus encourage the industry passed a key committee vote.
At the Office
After last week’s slew of Serenity demos we did a tear down and rebuild to position it for the next phase of development, getting it back up and running in a matter of days. We have four weeks left until our next big round of digital asset hedge fund demos, and will be heads-down on those sprints to get as far as we can in showcasing the product. Boris, Sonakshi and Ilya are deep in the weeds building models, and we also got our first test market data connectivity set up and expanded the data pipelines. We migrated our deal pipeline to Pipedrive to help plan the coming months of sales work and Jia Yng activated Singapore payroll in preparation for. We closed two more key executive hires this week, with public announcements due out in the coming weeks; we also secured a UX designer to work with Barry on refining Serenity’s user experience and visual design. We are seeking senior digital asset quants in both NYC and Singapore currently as well as senior Python developers, so if you are excited to be part of the digital asset risk revolution, reach out via our careers page.