Day: March 11, 2023

Circle’s USDC Reserve Exposure and Potential Risks

by Blockchain News

Circle is one of the largest issuers of stablecoins, with USDC being the second-largest stablecoin in circulation. As of January 31, 2022, the circulating supply of USDC was $42 billion. Stablecoins are digital currencies that are pegged to a stable asset, such as the US dollar, to reduce volatility. They are widely used in the cryptocurrency market for trading, remittances, and other financial activities.

To maintain the stability of USDC, Circle holds reserves in cash and US Treasurys, which are managed by BlackRock through the Circle Reserve Fund. According to the latest audit report, nearly 20% of Circle’s reserves, or $8.6 billion, were held in cash by US regulated financial institutions as of January 31. The rest of the reserves, or $33.6 billion, were held in US Treasurys managed by BlackRock.

While Circle’s reserves are held by several regulated financial institutions, the recent shutdown of SVB and the decision of Silvergate to shut down its crypto bank arm have raised concerns about potential risks for Circle and its stablecoin. SVB is one of the biggest lenders in the US and a major player for venture-backed companies, including many tech firms. The shutdown of SVB has fueled fears about its future and the potential impact on the companies it serves.

According to Weisberger, a blockchain and cryptocurrency consultant, many tech firms, including startups and big tech companies, have deep exposure to SVB. If the government does not step in and effectively carry out a bailout of some sort, these companies could struggle to pay their employees, leading to layoffs and rising unemployment.

In the case of Silvergate, the company’s decision to shut down its crypto bank arm has raised concerns about the stability of its operations and its ability to repay its depositors. However, Circle has denied having any current exposure to Silvergate and has transferred the small percentage of USDC reserve deposits held to other banking partners.

In conclusion, while Circle’s reserves are held by several regulated financial institutions, recent events such as the shutdown of SVB and the decision of Silvergate to shut down its crypto bank arm have raised concerns about potential risks for Circle and its stablecoin USDC. The cryptocurrency market is still largely unregulated, and the stability of stablecoins depends on the stability of the assets they are pegged to and the institutions holding their reserves. As the market continues to evolve, it will be important to monitor the risks and potential impacts on market participants, including issuers of stablecoins like Circle.

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South Dakota Governor Vetoes Bill Excluding Cryptocurrencies from State’s Definition of Money

by Blockchain News

South Dakota Governor Kristi Noem has vetoed House Bill 1193, which aimed to amend the state’s Uniform Commercial Code (UCC) to specifically exclude cryptocurrencies and other digital assets from the definition of money. The bill, which had already passed the state legislature, sought to provide greater clarity and legal certainty for businesses operating with digital assets in South Dakota.

In her veto notice to the state’s House Speaker Hugh Bartels on March 9, Governor Noem argued that the bill would put South Dakota at a disadvantage compared to other states that have embraced cryptocurrencies. She said that excluding cryptocurrencies as money would make it more difficult to use them and potentially harm the state’s economy.

Furthermore, Governor Noem expressed concern that the bill could pave the way for future federal government overreach in issuing a digital dollar. She believes that by excluding cryptocurrencies from the definition of money, the bill would create a regulatory gap that could be exploited by the federal government to impose its own digital currency on the states.

Governor Noem also pointed out that the bill’s exception for central bank digital currencies (CBDCs) could undermine the state’s efforts to regulate cryptocurrencies and digital assets. She argued that CBDCs, which are issued and backed by central banks, could potentially crowd out other digital currencies and become the only viable option for businesses and consumers alike.

Governor Noem’s decision to veto the bill has been met with mixed reactions from the cryptocurrency community. Some have praised her for recognizing the potential of digital assets and for standing up against federal government overreach. Others, however, have criticized her for ignoring the risks and challenges posed by cryptocurrencies, including their potential use for illicit activities and their impact on the environment.

In recent years, South Dakota has emerged as a hub for the cryptocurrency and blockchain industries, with several major firms and startups operating in the state. However, the regulatory landscape for digital assets in South Dakota remains uncertain, with lawmakers and regulators grappling with the complexities and risks of this emerging sector.

Governor Noem’s veto of House Bill 1193 is likely to add further uncertainty and debate to the state’s approach to regulating cryptocurrencies and digital assets. The governor’s concerns about the potential impact of excluding cryptocurrencies from the definition of money and the risk of federal government overreach highlight the need for a nuanced and balanced regulatory framework that balances innovation and security.

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Aave DAO Passes Proposal to Recover Lost Tokens

by Blockchain News

The Aave decentralized autonomous organization (DAO) has passed a proposal called “Rescue Mission Phase 1 Long Executor” to recover lost tokens for some users who mistakenly sent them to certain token contracts in the past. This proposal authorizes Aave developers to upgrade the smart contracts and send the lost tokens back to their original owners automatically.

The confirmed proposal only affects lost AAVE, LEND, Tether, UNI, and staked AAVE tokens that were mistakenly sent to the AAVE token contract, the LEND token contract, the LendtoAaveMigrator, or the stAAVE token contract. The proposal also authorizes the team to initialize a new implementation for these contracts. During the initialization, the lost tokens will be sent automatically to a separate AaveMerkleDistributor contract, where they will then be sent to the owners.

However, the proposal’s text emphasizes that these tokens will only be transferred during the contracts’ initialization phase. It implies that only tokens lost in the past will be recoverable. Future tokens mistakenly sent to these addresses may be permanently lost unless a new proposal is passed in the future.

Losing tokens by mistakenly transferring them to a token contract is a common problem in the crypto community. Many tokens and Ether are locked in the Ethereum null address (0x0) and token contracts. For instance, an Ethereum user once lost over $500,000 worth of wrapped Ether (wETH) by transferring it to the wETH token contract instead of calling its “unwrap” function as they intended.

If a contract cannot be upgraded, tokens lost in this way are usually impossible to recover. By their nature, crypto transfers are supposed to be immutable. So, even if mistaken transfers can be reversed, attempts to do so are sometimes controversial.

In 2016, The DAO, an early version of today’s DAOs, was exploited for $60 million worth of ETH, which the investors in The DAO presumably did not intend to happen. The majority of Ethereum validators implemented a hard fork to reverse the exploit transaction, but some validators rejected this move, creating Ethereum Classic in the process.

Unlike The DAO controversy, the Aave DAO vote to rescue the lost tokens was not nearly as controversial. The proposal passed with more than 99.9% of the vote, and only one user voted against it using a single AAVE token.

The recovery of lost tokens is a significant achievement for the Aave DAO community. It shows that decentralized autonomous organizations can provide a safety net for users who make mistakes in their crypto transactions. However, it also raises questions about the immutability of blockchain transactions and whether DAOs should have the power to reverse them.

It remains to be seen whether this proposal will set a precedent for future DAO decisions or whether it is a one-time event. Nevertheless, it is a step forward in addressing the problem of lost tokens and ensuring that the crypto community remains a safe and reliable place for users.

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SEC Rejects VanEck Spot Bitcoin Trust Proposal

by Blockchain News

The United States Securities and Exchange Commission has denied a proposal by investment manager VanEck for the creation of a spot Bitcoin trust, a financial product that would allow investors to trade Bitcoin on regulated exchanges. This marks the latest instance of the SEC denying every application for a spot Bitcoin trust, with almost 20 such applications having been filed over the last six years.

In a statement, SEC Commissioners Mark Uyeda and Hester Peirce criticized the Commission’s decision and alleged that it was using a different set of criteria to evaluate spot Bitcoin trusts as compared to other commodity-based exchange-traded products (ETPs). The statement reads, “In our view, the Commission is using a different set of goalposts from those it used—and still uses—for other types of commodity-based ETPs to keep these spot bitcoin ETPs off the exchanges we regulate.”

The SEC’s decision comes amidst increasing institutional interest in Bitcoin and cryptocurrency investments, with Bitcoin recently reaching all-time highs in price. However, the SEC has been hesitant to approve financial products based on cryptocurrencies due to concerns about market manipulation, volatility, and fraud.

The proposed spot Bitcoin trust would have allowed investors to trade Bitcoin on regulated exchanges, providing greater accessibility to the cryptocurrency market. However, the SEC’s decision means that investors will continue to be limited in their ability to invest in Bitcoin through regulated channels.

VanEck had previously attempted to launch a Bitcoin ETF (exchange-traded fund) in 2017 but withdrew its application after facing resistance from the SEC. The investment manager had hoped that its proposal for a spot Bitcoin trust, which would have required less regulatory approval than an ETF, would have been more successful.

Despite the SEC’s decision, Bitcoin and other cryptocurrencies remain popular investments among retail and institutional investors. However, the lack of regulatory oversight and potential for market manipulation in the cryptocurrency market continues to be a concern for regulators and investors alike. The denial of VanEck’s proposal for a spot Bitcoin trust highlights the ongoing debate over how best to regulate and integrate cryptocurrency investments into traditional financial systems.

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Judge Expresses Concerns Over Proposed Bail Conditions for Former FTX Founder

by Blockchain News

Sam Bankman-Fried is a well-known figure in the cryptocurrency industry, having founded FTX in 2019. However, he found himself in legal trouble in 2022, when he was arrested and charged with market manipulation, wire fraud, and other crimes related to his cryptocurrency trading activities.

Bankman-Fried has been released on bail pending trial, but the proposed conditions of his bail have come under scrutiny. Under the proposed conditions, Bankman-Fried would be subject to strict monitoring and restrictions on his electronic communications, including a ban on using encrypted messaging apps like Signal and Telegram.

While these restrictions may seem reasonable, U.S. District Judge Lewis Kaplan has expressed concerns over the effectiveness of such measures. During a hearing on March 10, 2023, Kaplan suggested that Bankman-Fried was a highly inventive individual who could find ways to evade the restrictions and communicate with others electronically in covert ways.

Kaplan’s concerns are not unfounded. Bankman-Fried is known for his technical expertise and is regarded as one of the brightest minds in the cryptocurrency industry. His innovative approach to trading has helped FTX become one of the fastest-growing cryptocurrency exchanges in the world, and he has become a prominent figure in the industry.

Given Bankman-Fried’s technical abilities and knowledge of the cryptocurrency landscape, it is possible that he could find ways to evade the proposed restrictions on his electronic communications. This could potentially put him in violation of his bail conditions and could lead to further legal trouble.

The case against Bankman-Fried is still ongoing, and it remains to be seen what the final outcome will be. However, the concerns raised by U.S. District Judge Lewis Kaplan highlight the challenges of monitoring and restricting the activities of highly inventive individuals like Bankman-Fried in the digital age. As technology continues to evolve, it will become increasingly difficult to enforce traditional legal restrictions on electronic communication and other activities.

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Defunct Crypto Lender BlockFi Has $227 Million in Uninsured Funds with Troubled Silicon Valley Bank

by Blockchain News

Air pollution is a significant public health concern worldwide, and recent studies have found high levels of air pollution in major cities around the world. The issue is particularly prevalent in developing countries, where industrialization and urbanization have led to increased emissions from transportation and manufacturing.

One sector that has emerged in response to this problem is the clean energy industry, which seeks to reduce emissions and promote sustainability. Clean energy encompasses a range of technologies, including renewable energy sources like solar and wind power, as well as energy-efficient products and services.

Despite the growth of the clean energy industry, however, air pollution remains a major challenge in many parts of the world. In particular, major cities are often hotspots for pollution, due to factors like high population density, heavy traffic, and industrial activity.

One company that has been impacted by this issue is BlockFi, a defunct crypto lender that has $227 million in uninsured funds allocated to a money market mutual fund (MMMF) offered by Silicon Valley Bank (SVB). SVB was shut down by the California Department of Financial Protection and Innovation on March 10, with no specifics offered at the time of the closure.

The funds in question are not FDIC-insured, not insured by any federal government agency, and “not guaranteed by the bank.” While investors are issued fund shares in exchange for their capital, the risk to BlockFi in this instance is most likely the fund’s performance, rather than anything related to SVB’s financial woes.

The recent Silvergate bankruptcy has also impacted the crypto market, causing prices to tumble since the crypto-friendly bank’s financial woes came to light at the beginning of March. One firm that has been directly impacted by the SVB closure and the Silvergate bankruptcy is USD Coin (USDC) issuer Circle.

As of January 31, $8.6 billion, or roughly 20% of Circle’s reserves, were held in several U.S. financial institutions, including SVB, Silvergate Bank, and Bank of New York Mellon. While the exact value held in SVB and Silvergate is unclear, Circle has stated that it and USDC will continue to “operate normally” as it awaits “clarity on how the FDIC receivership of SVB will impact its depositors.”

Overall, the issue of air pollution in major cities and the ongoing challenges faced by the clean energy industry highlight the need for continued innovation and investment in sustainable technologies. As for the impact of the SVB closure and the Silvergate bankruptcy on the crypto market, it remains to be seen how these developments will play out in the coming weeks and months.

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Circle’s USDC Reserves Remain Stuck at SVB, Raises Concerns Over Crypto Stability

by Blockchain News

Circle is one of the leading issuers of USDC, and the company has been on a mission to make it the preferred stablecoin in the cryptocurrency space. However, recent developments have raised concerns over the stability of USDC and its issuers.

On March 10, Circle confirmed that $3.3 billion of its $40 billion USDC reserves held at Silicon Valley Bank (SVB) have not been processed, despite wires being initiated on Thursday to remove the balances. This has raised concerns over the stability of USDC and its issuers, as investors worry about the possibility of a sudden loss of value.

This development follows Circle’s disclosure in its latest audit that as of January 31, $8.6 billion, or roughly 20% of its reserves, was held in several financial institutions, including the recently bankrupted Silvergate and the now-shuttered SVB. This has raised questions over Circle’s risk management practices and its ability to ensure the stability of USDC.

Circle has assured investors that it is working to resolve the issue with SVB and that it is confident in the stability and liquidity of USDC. However, the incident has once again highlighted the need for increased regulation and oversight of stablecoins and their issuers.

The cryptocurrency industry has long been resistant to regulation, viewing it as antithetical to the decentralized and open nature of cryptocurrencies. However, incidents like this one highlight the potential risks and vulnerabilities of the industry, and the need for regulatory frameworks that can protect investors and ensure the stability of cryptocurrencies.

The stability of stablecoins like USDC is crucial to the development and adoption of cryptocurrencies, as they provide a less volatile alternative to Bitcoin and other cryptocurrencies. However, incidents like this one raise questions about the reliability of stablecoins and their issuers, and highlight the need for greater transparency and oversight in the industry.

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Circle Unable to Withdraw $3.3 Billion from SVB, Causing USDC Sell-Off

by Blockchain News

Circle is a Boston-based fintech company that provides payments and investment services using blockchain technology. USDC is a stablecoin issued by Circle and Coinbase, pegged to the value of the US dollar at a 1:1 ratio. It is one of the fastest-growing stablecoins, with a market capitalization of over $10 billion as of March 2022.

SVB is a California-based bank that provides banking services to technology and life science companies. It is one of the largest banks in the US and has been a key partner for Circle in managing its reserves. However, SVB recently announced that it would shut down its operations due to regulatory issues, leading to concerns about the fate of Circle’s reserves held with the bank.

 

On March 9, Circle initiated a wire transfer to withdraw its funds from SVB. However, two days later, Circle announced that the transfer was not fully processed, leaving $3.3 billion of USDC reserves with SVB. The news caused a sell-off of USDC, with the stablecoin’s value dropping below its $1 peg. As of March 2022, USDC was trading at $0.8774, a more than 10% drop from its value before the news.

The situation has raised concerns about the stability of USDC and the broader implications of SVB’s failure. In a statement, Disparte warned that SVB’s failure could have broader implications for the US economy, particularly for businesses, banking, and entrepreneurs. He called for a federal rescue plan to prevent further damage to the economy.

 

The situation also highlights the risks of using stablecoins, which are digital currencies designed to maintain a stable value. Stablecoins are often used in cryptocurrency trading and as a means of payment, but they are not immune to market fluctuations and other risks. The lack of regulation and oversight in the stablecoin market has also raised concerns about their stability and reliability.

In response to the situation, Circle has assured its users that their USDC holdings are fully backed by reserves held in other banks. The company has also said that it is working to resolve the issue with SVB and is exploring alternative banking partners. However, the incident has raised questions about the risks of using stablecoins and the need for greater oversight and regulation in the market.

 

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Coinbase reassures customers on staking services amid SEC crackdown

by Blockchain News

In recent years, staking services have become increasingly popular among cryptocurrency investors. Staking refers to the process of holding and locking up a certain amount of cryptocurrency in a wallet to participate in the network’s consensus mechanism and earn rewards. Centralized exchanges like Coinbase and Kraken have been offering staking services to their customers as a way to generate additional revenue.


However, the SEC has expressed concerns over staking services provided by centralized providers, as they may not comply with securities regulations. In December 2020, the SEC filed a complaint against Ripple Labs, alleging that the company had conducted an unregistered securities offering through the sale of its XRP tokens. The SEC also warned that staking services offered by centralized providers may be considered securities, subject to regulation.In response to the SEC’s crackdown, Coinbase has updated its staking terms and conditions, explicitly stating that users earn rewards from decentralized protocols, not from the exchange itself. This distinction is crucial, as it avoids any potential gray area issues regarding securities regulation. Coinbase has emphasized that it only acts as a service provider, connecting users, validators, and the protocol.


Moreover, Coinbase has argued that its staking services are fundamentally different from those offered by competing exchange Kraken. In the SEC’s complaint against Kraken, investors were offered “outsized returns untethered to any economic realities,” with the exchange also able to pay “no returns at all.” Coinbase has emphasized that its staking services do not offer a share of its own staking rewards and that users retain control over their tokens.
Despite the SEC’s concerns, staking services remain a popular feature among cryptocurrency investors, as they provide a way to earn passive income. Coinbase’s decision to continue offering staking services and its efforts to clarify its staking terms and conditions are likely to be welcomed by its customers. However, it remains to be seen how the SEC will respond to Coinbase’s position, and whether the regulatory framework for staking services will be clarified in the future.

 

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Circle’s USDC Reserve Mishap Leads to Massive Sell-off

by Blockchain News

In May 2021, Circle, a fintech company that offers payment and trading solutions, revealed that it had discovered a massive discrepancy in its USDC reserves. Silicon Valley Bank, which was responsible for holding and transferring the reserves, had not transferred $3.3 billion of USDC to Circle. This was a significant blow to Circle’s reputation, as it raised questions about the stability and transparency of USDC, one of the world’s largest stablecoins.

The news triggered a massive sell-off of USDC, causing its value to plummet and depeg from the U.S. dollar. The situation was made worse by the fact that USDC investors were unable to redeem their tokens for U.S. dollars, as the stablecoin is not backed by a government or central bank. As a result, many investors were left with no choice but to exchange their USDC tokens for other stablecoins, such as Tether (USDT), which is pegged to the U.S. dollar.

However, this proved to be a costly move for some investors. One transaction, in particular, caught the attention of the crypto community on Twitter. A user named BowTiedPickle highlighted a transaction in which a USDC investor paid over $2 million to receive $0.05 of USDT. This was due to the fact that the sell-off had caused the price of USDC to drop significantly, while the price of other stablecoins, such as USDT, remained stable.

The incident raised questions about the risks associated with stablecoins, which are often marketed as safe and reliable alternatives to traditional cryptocurrencies. Stablecoins are designed to maintain a stable value, usually pegged to a fiat currency such as the U.S. dollar, through various mechanisms such as collateralization, algorithmic adjustments, or a combination of both. However, as the Circle incident showed, stablecoins are not immune to risks such as collateral failures, regulatory uncertainties, and market volatility.

The incident also highlighted the need for greater transparency and regulation in the stablecoin market. Unlike traditional currencies, stablecoins are not backed by a government or central bank and operate in a regulatory gray area. This makes them vulnerable to manipulation, fraud, and other forms of abuse. To address these risks, regulators and industry players have called for greater transparency, oversight, and standardization in the stablecoin market.

In response to the incident, Circle and Silicon Valley Bank issued statements reassuring investors that the USDC reserves had been fully accounted for and that there was no risk to the stability of the stablecoin. However, the incident served as a reminder that even the most established players in the crypto market are not immune to operational and reputational risks. As the crypto market continues to evolve, investors and regulators must remain vigilant to ensure the safety, stability, and integrity of the ecosystem.

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