Blockchain Confidential - 4 February 2022

Alphabet apes in, Wormhole hacked, and the tax man cometh

The Week

The DEX aggregator 1Inch rolled out new liquidity pools optimized for stablecoin swaps, e.g. USDC/USDT. The 0x Protocol, another aggregator, expanded its offering with cross-chain NFT swaps, allowing for an open foundation for NFT marketplaces to build on. NFT Legos anyone? Aave passed its first cross-chain governance proposal, though not without some controversy given concerns swirling around bridging mechanisms. The big news in DeFi was definitely the Wormhole hack, with $320 million lost from the Solana bridge. They were back up a day later thanks to Jump Trading, who made the users whole after the vulnerability was patched.

In TradFi and Big Tech news, it looks like one of the entry points for the bigger banks in crypto for 2022 will be in building their sell-side crypto research offerings. Last quarter Visa saw $2.5B in crypto-linked card payments. Alphabet’s CEO stated that they are looking to expand their blockchain and Web 3.0 research and see how it can apply across their cloud offerings, YouTube and other services. Mitsui announced plans for a gold-linked cryptocurrency based off of a permissioned blockchain.

The Good Read

Chainalysis’s on-chain research is almost always interesting, and this week they had a post on NFT wash trading & money laundering. Read Crime and NFTs.

Regulator Radar

SEC Commissioner Hester Pierce expressed concern that proposals for government securities trading regulation could impinge on DeFi and crypto exchanges due to its expansive wording. With “Project Hamilton” MIT and the Boston Fed open-sourced a CBDC platform. The Bank of Russia continued threading the needle of what they will and will not support in the digital asset space by approving Atomyze’s application as the nation’s first digital asset manager.

But the big theme this week around the world was definitely crypto taxation. A bipartisan bill was introduced this week in the U.S. House of Representatives which would exempt small crypto transactions from capital gains taxes, which could help support crypto-based micropayments. A U.S. court ruled that unrealized gains on staking protocols are not taxable, while the U.K. issued guidance on tax treatment for DeFi and staking; in both cases the interesting questions revolve around what is income vs. a capital gain in this rapidly-changing space. Thailand dropped plans for a 15% capital gains tax on crypto while India announced a 30% levy as well as expanding on its plans for a digital rupee CBDC. Your head is spinning? Coinbase and TurboTax are teaming up to help streamline crypto tax refunds.

At the Office

We continued sprinting toward our first client demos, with a sneak-preview demo now planned for mid-February in addition to the big end-March prototype demo; this week’s focus was on building initial portfolio visualizations. At the start of the week Boris Skorodumov joined Cloudwall Capital in NYC as a senior quant and Sanat Mouli joined us as a Python contractor. We also signed a contract with AquaQ to bring on board more Python developers to help with the build-out. Client outreach is a constant theme as well, as we look to meet with companies managing more complex digital asset portfolios to understand their risk management needs, and we are also working on a comprehensive sales & marketing plan.