Crypto Highlights May 2022 – Crypto Valley Journal

Macro and rules

US consumer prices rose 8.3% in April, the fastest in four decades. Inflation hit emerging markets even harder, with consumer prices rising by more than 200% in countries such as Lebanon and Venezuela. The World Bank declared a global food crisis and estimated that food prices have risen by 37% compared to last year. To combat inflation, the Federal Reserve raised interest rates from 0.50% to 0.75-1% on 4 May.

This month saw a number of developments in global rules dealing with the crypto industry. In response to Coinbase’s latest revelations, the Biden administration is reportedly pushing for a bill. This would effectively separate customer funds from their own corporate funds in a centralized crypto exchange. Germany exempts people who sell Bitcoin (BTC) or Ethereum (ETH) more than 12 months after the purchase, to pay tax on the sale. One week after this announcement, Binance’s CEO confirmed that his team is in talks with German regulators to seek approval in Europe’s largest economy.

The Norwegian parliament has rejected a bill banning bitcoin mining, which was introduced back in March. Norway contributes up to one percent to the global bitcoin hash rate by utilizing the country’s renewable energy generated by hydropower. Other notable developments in the world:

  • Argentina banned financial institutions from offering digital asset agreements to their customers, which are not regulated by the central bank.
  • Nigeria is upgrading its digital central bank currency (CBDC), eNaira. This makes it possible to use the currency for a wider range of goods. The UN has expressed concern that these efforts are crippling Nigeria’s fintech sector.
  • Portugal, once considered a tax haven for crypto investors, will tax crypto exchanges and cryptocurrencies in the near future.
  • The United States rejected Tether’s request to hide documents describing the nature of its cash reserves from the public.
  • Korea sentenced Terras founder fines $ 78 million for tax evasion.

The introduction of cryptocurrencies continues to increase despite the sour market sentiment. Nomura, Japan’s largest investment bank, has recently started offering Bitcoin derivatives and is working on establishing a subsidiary. This is intended to support institutional clients in diversifying into cryptocurrencies, DeFi and NFTs. One of Switzerland’s oldest asset management firms, Julius Baer, ​​will offer exposure to cryptocurrencies to its wealthy clients.

Decentralized Economy (DeFi)

May was a relentless field for testing stack coins, but it was also a month of departures. Due to structural vulnerabilities, UST, Terra’s algorithmic stablecoin, was quickly decoupled from its peg to the dollar, pulling LUNA down to zero. The crash was largely due to the unsecured nature of the UST, whose curve was then flattened out by the unsustainably high yield of the anchor protocol – 75% of the UST outstanding promised up to 20% APY. After the founder of Terra failed to save his coin, he presented a plan for recovery. This was not an exclusive battlefield. Phantom (fUSD) stablecoin and DEUS Finance (DEI) lost their bond to the dollar.

A Phantom lending protocol locked the price of the unbound stack coins on its platform at $ 1, causing $ 35 million in bad debt. Venus Protocol and Blizz Finance on Avalanche were also leveraged due to the difference between the LUNA price and the Chainlink price feed. Curve’s liquidity pool fell victim to the domino effect and dragged Tether’s USDT, which was briefly under point but returned in less than 24 hours. USDT was not the only stablecoin that survived the battle. Tron’s algorithmic USDD was launched in the middle of the carnage and has held up excellently so far. Also on a positive note, leaders in traditional finance this month have confided in DeFi, namely stack coins. Jane Street raised a $ 25 million USDC loan from BlockTower Capital through the institutionalized Clearpool protocol.

NFTs, DAOs and Metaverse

Social media platforms have made fun of NFTs this month and we can safely say that it is the other way around. Instagram allowed some artists and collectors to display their NFT collections in feeds and stories via their respective Metamask, Trust and Rainbow wallets. In response to requests from industry partners, Spotify has allowed some users to view a select number of NFTs through an artist’s profile page. Users can then learn more about a specific NFT and purchase it through an external marketplace. Among other things, Aave introduced its Lens protocol, a decentralized social graph that allows developers to build Web3 social media platforms on top of the Polygon network. Users can create a profile, follow others and create posts as well as collect them – all in the chain.

In an effort to get closer to the community, Dubai’s virtual asset regulator has opened its headquarters in the sandbox. This step aims to facilitate cooperation between crypto service providers and international regulators. In addition, Opensea announced the launch of the Seaport Protocol, which will allow users to purchase NFTs in a variety of ways. For example, if you have an NFT worth 40 ETH and want another one worth 100 ETH, you can swap it with your NFT and 60 ETH.

On the gaming front, VC giant Andreessen Horowitz (a16z) has launched GAME FUND ONE, which plans to invest $ 600 million in game studios, game-related consumer applications and infrastructure. The foundation is based on the assumption that games will play a crucial role in how we interact, play and work in the next century. In addition, a16z believes gaming infrastructure and technologies will be key building blocks of Metaverse, an opportunity that can surpass the current $ 300M gaming industry.

Data and crypto infrastructure

Crypto-infrastructure levels have had some attraction to institutions. Chainlink Keepers was hired after securing billions of dollars invested in DeFi markets. This allows you to make automated payments to a real estate platform in Latin America. LaProp allows investors to buy tokenized shares in various real-world properties that earn a percentage of the income from rental payments. Norway is also using Nahmii, an interoperable Layer 2 solution on Ethereum, to experiment with its CBDC.

According to the Arabic proverb “a crisis for one people can be seen as a gain for others”, Polygon, Phantom and Juno promote their network. Their goal is to attract developers to Terra. Other developments in the data and crypto infrastructure infrastructure were as follows:

  • Flow raised $ 725 million to fund blockchain growth with a focus on games, infrastructure, DeFi, content and developers.
  • Polkadot introduced XCM, a new cross-chain communication protocol that is secured at the same level as Polkadot’s relay chain and offers much higher security than the infamous bridges.
  • The merger of Ethereum from Proof of Work to Proof of Stake will take place in August at the earliest and no later than October.
  • Optimism introduced the Bedrock upgrade, which increases speed, reduces costs and “aims for EVM equivalence.”
  • Binance added Optimism support to reduce costs and increase transaction speeds. As long as the stock market’s wallets are not sufficiently full, the activity on which Optimism is applied is limited to deposits.
  • Coinbase users can now access Ethereum dApps through the Coinbase mobile browser.
  • Robinhood introduces a semi-depot wallet.
  • Ledger has added a browser extension to its hardware wallet called Ledger Connect.

What we expect

One thing is for sure, we will see more enforceable measures to regulate stablecoins. Over the past month, regulators have raised concerns and issued warnings. As Congress prepares to create a framework for stack coins before the end of the year, regulators around the world are likely to take similar action. The UK, which allowed stack coins as a means of payment in April, has already taken steps to do so.

Price measures will continue to move sideways until macro factors and the general market mood improve. However, rising inflation rates combined with deflationary disposable income can put the consumer credit market in a difficult environment if defaults occur. LendingClub reports that 36% of people with an annual income of $ 250,000 or more live on payslips. Therefore, we can see less capital inflow to risky assets than in a month before the Russo-Ukrainian conflict broke out.

In addition, investors’ sentiment is consistently negative, especially after the Terra / Luna debacle. Net unrealized loss of profit indicates that market sentiment is in a state of dread; the indicator is 0.18. The last time this was achieved was after the crash in March 2020. At 21Shares, we strongly believe in innovation, and in times of low risk, we look at the basics: the true value of this asset class comes from the underlying technology.

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