BitMEX Case Pushes Crypto to Actual Decentralization, Not DeFi Theatre
Hello Defiers! Here’s what’s happening in decentralized finance,
- BitMEX charges should push crypto further down the decentralization spectrum
- RAC launches community token
- Nexus Mutual adds insurance mining with Keep as first partner
- DEXTF launches structured token which protects traders in case of ETH downside
and more :)
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BitMEX Charges Highlight Case for Real DeFi
CFTC charges against BitMEX are bound to push more cryptocurrency projects towards decentralization — but that means actual* decentralization.
The Commission today filed charges against BitMEX and its owners and operators including CEO Arthur Hayes for operating a trading platform without CFTC approval, and for failing to implement know-your-customer procedures, a customer information program, and anti-money laundering procedures.
At first glance this is concerning for DeFi, a financial system which hails open access —read: lack of KYC and AML— at its core.
But the key here is enforceability. For most DeFi protocols, the goal is to become decentralized enough that no entity or group of persons are solely responsible for the running of a financial application, and instead that power is distributed among many users. Another difference is that these protocols are non-custodial and as such, never touch users’ funds.
The problem lies when these goals are only met halfway, with teams still holding control over the project or custody over users’ private keys. One potential effect of the CFTC’s move will be to push blockchain-based finance to become increasingly and actually decentralized, in a quest to reduce regulatory risk.
Not Operators
The CFTC's complaint against BitMEX highlights some of the key elements of regulated futures commission merchants that generally don't apply in DeFi, said Jake Chervinsky, Compound Finance’s general counsel.
“Most governance token holders don't ‘operate’ a protocol in the way that owners of a centralized exchange company ‘operate’ a trading platform. DeFi protocols are autonomous, self-executing code.” Chervinsky told The Defiant, adding that exchange operators hold customers’ funds, which is also not the case in DeFi.
Test for DeFi
The BitMEX case will probably cause centralized projects which are not compliant with US regulators to consider moving down the decentralization spectrum and it will make existing DeFi projects “re-evaluate how insulated they think they are from issues like this,” said Anil Lulla, co-founder of Delphi Digital.
“In the long term, I think this is bullish for DeFi but it will still be interesting to see whether or not DeFi products can really dodge KYC/AML in the future,” Lulla told The Defiant. “They may be hard to shut down, but regulators could adapt with different types of penalties.”
It’s worth noting that another reason why regulators are coming after centralized exchanges is because “they do insider trading and market manipulation, which isn't possible on an open-source DEX,” said Lasse Clausen of crypto venture fund 1Kx. “To be more precise, there is no privileged positions for the operator to cheat.”
Clausen said DeFi projects are likely protected from regulators, but only if the projects are truly decentralized.
“That's another reason why real decentralization matters,” he said. “Not just decentralization theater.”
Grammy-Winning DJ Releases $RAC Community Token
One of DeFi’s favorite artists - RAC - has released a community token to bypass the music industry’s many intermediaries and create a direct link with fans.
RAC @RACToday we’re launching something completely new. ✨ It’s called $RAC - a community token by @ourZORA. Built on ethereum. blog.ourzora.com/introducing-rac
8:01 PM ∙ Sep 30, 2020569Likes103Retweets
The new token, called $RAC, can’t be bought and can only be earned. It will be distributed retroactively to the Grammy-winning musician’s most loyal fans: Bandcamp, Twitch and Patreon supporters, those who bought his merch, and holders of $TAPE and $EGO, which are other tokens issued by him, with the difference that they were linked to specific products.
Increased Access
$RAC holders will be able to access token-permissioned channels and content, along with early access to future drops and merchandise.
“I see this as a meta-layer on top of all social media platforms,” RAC tweeted. “It's a true fan club, platform agnostic and flexible to integrate with anything in the future.”
The token was issued in tandem with Zora, a creator collective specialized in limited-edition goods. The two had teamed up previously on the release of $TAPE - a tokenized cassette tape limited to 100 copies in parallel with RAC’s latest album, BOY.
$TAPE Soars
On the back of the announcement, TAPE briefly became the most expensive cassette in recorded history, trading at just south of $5000 moments after news broke that TAPE redeemers stand to earn 1000 $RAC tokens.
For the musician, $RAC is a means of introducing his fans to the world of crypto through a somewhat familiar onramp. Supporters were emailed an onboarding link to Zora, where $RAC tokens are available to claim - no gas required.
“I wanted to reward the people that cared enough to support me.” RAC told The Defiant. “Community goes both ways.”
Stab at Mainstream
Holders of EGO - a commemorative token of RAC’s last album - also received an airdrop, furthering the trend of rewarding value-added actors for their past contributions.
Now, users who receive $RAC can withdraw to Metamask and join a private Discord channel restricted to users with more than 100 tokens. Moving forward, RAC will be exploring new creative distributions, offering a monthly allocation of tokens to future Patreon subscribers alongside a suite of forthcoming NFTs.
As the trend around community tokens continues to grow, launches like $RAC are taking their stab at bringing crypto to the mainstream.
Yield Farming to Incentivize a Safer DeFi
Nexus Mutual wants to incentivize more coverage by allowing any project listed on the platform to reward providers with their native protocol token using a system they call Shield Mining.
The decentralized insurance protocol announced Keep Network will be its first Shield Mining partner, which means coverage providers will be rewarded with Keep’s tokens in addition to NXM tokens they were already receiving from Nexus Mutual.
“Shield Mining takes the best aspects of yield farming to genuinely benefit everyone involved,” Nexus Mutual founder Hugh Karp told The Defiant. “Security focused projects can get more cover available on Nexus to protect their users and Nexus Risk Assessors have greater incentives to stake. Ultimately this means more users can be protected against smart contract risks.”
2 KEEP for Every NXM
As a discretionary mutual, Nexus allows users to stake NXM on contracts they believe to be secure, and earn fees when other mutual members purchase insurance on those contracts.
In practice, mutual members stand to earn 2 KEEP for every 1 NXM staked. Nexus Mutual allows users to stake up their total NXM deposit (say 100 NXM) on up to 10 different contracts, meaning members could stake 1000 NXM across multiple contracts they find to be secure.
Cap Reached in Days
With this principle in place, it’s no surprise that the Shield Mining cap of 750,000 KEEP was reached less than a week after launch.
Matt Luongo @mhluongoWow, that went fast! 750k KEEP in shield mining rewards has opened up over $10M (!!!) of purchaseable cover for tBTC minters. You can purchase cover for your BTC deposits here app.nexusmutual.io/cover/buy/sele…
FreeMarketsBatman.eth🦇 @BatmanDeFiSo @keep_project is the first project to implement $KEEP x $NXM #ShieldMining🛡 with @NexusMutual. Imagine we were early and @CurveFinance @BalancerLabs @compoundfinance all implemented this.. Well, we still have a fresh round of 🔥🆕 #NFT projects! #Insurance x #NFT 🔥 https://t.co/INmxM7lB7B4:15 PM ∙ Sep 29, 202045Likes14Retweets
Now, any skeptics riding tBTC for its rocky start can rest assured that extensive auditing and a deep pool of Nexus Mutual insurance underwriting the trustless Bitcoin bridge are a healthy signal towards user safety.
For NXM stakers, please note that when a stake is removed, you are still exposed to being slashed for 90 days afterward if a hack happens. While the incentives seem like an easy win, be sure to think twice about future shield mining programs as a cooldown against a risky program may not always be worth the short term yield.
DeFi Has a New Primitive; the Structured Token
DEXTF, a non-custodial asset management portfolio, this weekunveiled its first structured product, designed to allow buyers to protect against the downside while gaining with its upside of ETH.
Decentralized Structured Tokens (DEXSTs) are hybrid tokens which can combine multiple DeFi projects. The first DEXST created by the project is a so-called Capital Protected Structured Token (CPST), which combines a yield generating asset plus an option.
In simple terms, the CPST on ETH allows investors to gain from the upside of ETH while having a floor to the value of the token. The catch is that while buyers are protected from losses on their original capital, they are foregoing some of the upside.
Tokens on Uniswap
Anyone can mint CPSTs and a front-end is in the works so readers will be able to design them as well. DEXTF will launch the first batch of structured tokens on Uniswap to make trading easier.
For these tokens to work more efficiently, there would have to exist zero-coupon tokens and long term options. DEXTF is using Yearn vaults to generate fixed income properties and short term Opyn options.
Arbitrage Opportunity
The ability to either buy these tokens on Uniswap or mint them directly should also create arbitrage opportunities, as the price on Uniswap tokens is bound to be higher.
While the goal of this instrument is to cap the downside, it’s an early experiment and as such, has many risks, which the team underlined here.
Compound, Gauntlet Founders Raise $4M for DeFi Fund: CoinDesk
Robert Leshner’s and Tarun Chitra’s Robot Ventures has secured $4 million in funding, led by Galaxy Digital with additional participation by Coinbase co-founder Fred Ehrsam’s Paradigm, CoinDesk reported. Robot Ventures will act as seed investors in DeFi projects, helping the larger entities get an early read on opportunities for later rounds.
Coinbase Offers Exit Package After Armstrong’s Post: The Block
Coinbase is offering a package for employees who want to leave the firm after CEO Brian Armstrong’s blog post outlining why the crypto exchange operator will take on an apolitical mission, The Block reported.
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About the founder: I’m Camila Russo, author of The Infinite Machine, the first book on the history of Ethereum. I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.
