1. Crypto Long & Short: The End of Extreme Leverage
Lower systemwide leverage suggests the crypto markets, famous for their wild swings, might become a touch tamer.
The proverbial punch bowl known as 100 times leverage has been replaced with a weaker blend. Nevertheless, the party is picking up again in the cryptocurrency markets.
Leverage, or trading with borrowed money, is a time-honored method of juicing investors’ profits (or compounding their losses, depending which way the market moves). In traditional markets like stocks, investors typically put up half the value of the trade.
But crypto loves to live dangerously, and until recently exchanges such as Binance and FTX allowed traders to enter into futures or perpetual contracts with as little as 1% down. That changed last month amid growing regulatory and press scrutiny of the market.
FTX lowered its maximum leverage for these derivatives to 20 times, and Binance announced a similar move (which it said was implemented a week prior). BitMEX, whose former executives are facing trial in the U.S., still offers 100 times leverage, but its current CEO said in July that such aggressive borrowing is “very rare” on the platform.
While these actions seemed to signal the end of an exuberant era, they arguably capped off a trend that began months earlier.
“Overall, the amount of leverage in the system is significantly less than it was early in 2021,” said Kristin Boggiano, co-founder and president of CrossTower, a digital asset trading platform that caters to institutions and professional traders. “As prices moved significantly lower from the highs in April, we saw long leverage flushing out of the market.”
2. ‘Rare Pepe’ Steeped in Bitcoin History Fetches $500K on NFT Market OpenSea
Frog-themed digital collectible cards from the mid-2010s are getting retooled for fast sales in the white-hot NFT market.
The newest craze in the hot market for non-fungible tokens (NFTs) may be a vintage series built around the ubiquitous Pepe the Frog meme.
Known as “Rare Pepes,” the tokens were minted as digital collectible cards back in the mid-2010s by blockchain pioneers focused primarily on Bitcoin, and traded using a niche platform known as Counterparty.
Encouraged by the increasingly eye-popping price tags for NFTs, some Rare Pepe collectors have begun using a years-old software protocol known as Emblem Vault to reconfigure the digital cards to run on the Ethereum blockchain. Then, they’re listing these “wrapped” Rare Pepes for sale on the dominant NFT marketplace OpenSea and turning smart profits.
Over the past few days, at least one Rare Pepe has changed hands for 149.99 ether (ETH), worth about $500,000 at current prices. Another copy sold for 111.1 ETH early Monday. Such price tags fall short of the million-dollar sales netted for some CryptoPunk and Bored Ape Yacht Club NFTs, but industry executives speculate the Rare Pepes could eventually reap even richer proceeds due to their historical significance.
“One of the things we have been witnessing is that the all-time highs for these Rare Pepes are doubling or tripling over the past couple weeks, specifically due to them having access to the capital on OpenSea and more broadly on the Ethereum blockchain,” Emblem Vault co-founder Shannon Code told CoinDesk in an interview.
The digital collectible card that sold for $500,000 was minted as one of 300 in September 2016, according to OpenSea. It bears a green-fleshed likeness of Dorian Satoshi Nakamoto, reported by Newsweek in 2014 to be the inventor of Bitcoin, though he denied it.
3. Nigeria Central Bank Issues CBDC Guidelines to Commercial Banks
The CBN is planning to launch a pilot of its digital currency project, called Project Giant, in October.
Nigerian banks will be able to invite their customers to register for the African nation’s central bank digital currency (CBDC), the e-naira, according to a report by the business publication Nairametrics.
The Central Bank of Nigeria (CBN) outlined design features, use cases and guidelines in a document it shared with the country’s banks as it prepares a pilot for an October launch, according to the report published on Sunday.
The e-naira will be a non-interest-bearing CBDC, and customers won’t be charged for user-to-merchant transactions and peer-to-peer wallet transactions.
A presentation circulating via Twitter and WhatsApp, and bearing the insignia of the CBN, said that the CBDC will have the same purchasing power as the naira.
The presentation also indicates that the e-naira project, which is dubbed “Project Giant,” is in phase three of four phases leading up to the October pilot.
Phase three calls for introducing banks to the project, and phase four focuses on educating customers about the digital currency.
E-naira project participants will be involved in five ways, according to Nairametrics, with the CBN handling the issuance and distribution of the currency, while licensed financial institutions will be able to “request currency or issue stablecoins”
The report also notes that the currency will have to comply with anti-money laundering (AML) and know-your-customer (KYC) requirements laid out by the CBN.
4. Polkadot’s Parallel Finance Raises $22M at $150M Valuation
The startup wants to become a DeFi “brand” across multiple blockchains.
Lending startup Parallel Finance raised $22 million in a Series A funding round that valued the polkadot- and kusama-focused decentralized finance (DeFi) protocol at $150 million.
The round, one of the single-largest hauls for a project building on Polkadot’s multi-chain network, comes just months after Parallel’s $2 million pre-seed round of funding. Polychain Capital led the round with participation from Lightspeed Venture Partners, Slow Ventures, Blockchain Capital and Alameda Research.
Parallel looks to bolster growth as a DeFi alternative to Ethereum, the market leader despite low processing speed and high fees. Polkadot, a competing ecosystem that plugs into multiple blockchains, doesn’t yet have as robust a protocol landscape.
Parallel’s answer is a suite of automated market making, staking and derivatives services for polkadot as well as its staging-ground counterpart, kusama.
Project founder Yubo Ruan said Parallel has amassed 3,000 users in the five months after launch. Many of them are institutional — his backers included.
“The reason that we bring a lot of investors — especially Polychain leading the round — is because they are one of the largest DOT holders and kusama (KSM) holders. They want to have yield in this space, they want to have use of DeFi protocols” he said.
5. Money Trail From Liquid Exchange Hack Points to Wasabi Privacy Wallets
Hackers are using Wasabi wallets to launder BTC stolen from Liquid or received in exchange for other stolen cryptos, according to Crystal Blockchain.
Hackers who stole about $97 million in cryptocurrency from the Liquid exchange used the non-custodial, privacy-focused Wasabi wallet to protect some of their gains, according to sleuthing firm Crystal Blockchain.
Bitcoin from the wallets Liquid identified as belonging to the hackers has been on the move over the past two weeks, public blockchain data shows. For example, on Aug. 29, 100 BTC (worth over $4.8 million) from one hacker-linked address was split up and sent to two separate addresses, then further broken into smaller pieces and distributed to yet more addresses.
At least some of that bitcoin (BTC, -2.58%) was then sent to addresses believed to be generated by a Wasabi wallet, according to Crystal Blockchain data.
This was one of many similar transactions that the hackers made using Wasabi, presumably to disconnect the stolen funds from their criminal history, according to Crystal. This would be a necessary step to spend such funds or sell them for fiat money, because centralized exchanges tend to freeze funds that are known to come from hacks, exploits and scams.
Over 437 BTC (worth over $20 million) associated with the Liquid hackers have been laundered using Wasabi’s CoinJoin feature, and the process is still ongoing, according to Crystal.
Earlier this month, CoinDesk tracked other funds funneled out of Liquid, finding that ethereum (ETH, 0.86%) and ERC20 tokens were sent to Ethereum-based online mixer Tornado.cash and decentralized exchanges (DEXs).
Wasabi is a privacy-focused desktop wallet that allows users to make their bitcoin less traceable on the public ledger by arranging so-called CoinJoin transactions. Multiple users can commingle their bitcoin in joint transactions and get it back disconnected from the previous history of payments. It also routes transactions over the Tor network which further helps to conceal the user’s IP address.
Although Wasabi is a non-custodial wallet that doesn’t store users’ funds, it generates addresses for CoinJoin transactions that blockchain analytics tools have learned to identify. Crypto sleuthing firm Elliptic did this last year, following bitcoin coming from the infamous Twitter hack to addresses associated with Wasabi.
According to Kyrylo Chykhradze, product director for Crystal Blockchain, identification of such addresses is more challenging than attributing addresses to custodial crypto services, so Crystal makes “a lot of double-checks before the final labeling” of the addresses in their analytics system.
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August 31, 2021
