This is Why We Have Crypto!

For many of us living in so-called ‘Western’ countries, these last two years have been our first real taste of high inflation. Thanks in large part to the pandemic and the efforts to deal with it, inflation has been wreaking havoc and - for the more grizzled among us - bringing back memories of the 1970s.

It’s easy to forget however that the levels of inflation seen in places like the United States, European Union and United Kingdom are but a drop in the bucket when compared to what people in some countries have had to endure. For the long-suffering citizens of places like Lebanon, Venezuela and Zimbabwe, hyperinflation has been an issue since long before Covid-19 reared its head.

There are many reasons for this, but they all lead back to the same ultimate culprit - the rottenness of the fiat financial system and the ease with which it can be abused at the expense of ordinary people. And of course, this is what inspired Satoshi Nakamoto to create Bitcoin.

In today’s video, we explore what hyperinflation looks like in those countries and what it means for those who have to live with it. We look at how it came about and, of course, how crypto is providing a lifeline to its victims.

You can watch that video here.

📈 Crypto Market Forecast 📈

Could be another fascinating week folks. According to Coinshares, traders have stopped shorting BTC for the first time in three months. This has been taken as a contrarian indicator of sorts, because it suggests that everyone is bullish. At the same time, it means that the massive short squeeze rallies we’ve been seeing have probably stopped for the time being.

This begs the question of why traders seem to be bullish, and the answer seems to be because of another banking crisis. In case you missed the news, Moody’s downgraded ten banks last week, citing financial risks from rising interest rates. This caused the stocks for those banks to tank, leading to speculation that another bank bailout could be coming.

However, this speculation seems to have cooled off, thanks to the slightly lower than forecast CPI print for July. The fact that inflation is cooling faster than investors expected means that the Fed is less likely to raise interest rates come September, which would take some pressure off these banks. We will know for sure once the August CPI is released.

But, back to the crypto side of the story. You’d be forgiven for thinking that less shorting means less leverage overall. As many on Twitter have pointed out though, leverage on crypto exchanges is actually close to hitting another all-time high. Logically, most of this leverage must be long, which means that there’s a massive risk of long liquidations.

This risk isn’t just present on exchanges either. Some of you may have heard the news that MakerDAO’s Spark Protocol is offering DAI holders a whopping 8% on their ‘decentralised’ stablecoins. If you’re wondering where this interest is coming from, the answer is partially the protocol’s DAI reserves. If this sounds familiar, that’s because Terra did something similar.

To refresh your memory, Terra had a DeFi protocol called Anchor which promised a stable 20% yield on its UST stablecoin. In theory, these yields came from staked crypto, but in practice these yields came from the protocol’s UST reserves. What’s scary is that Anchor Protocol proposed reducing the yield to a more sustainable level shortly before Terra’s collapse.

This is scary, because MakerDAO co-founder Rune Christensen recently noted on Twitter that he tabled a proposal to bring DAI’s yields down to a more sustainable level. This comes at a time when DAI’s supply has spiked by more than 500 million in a single week, driven mostly by mints from existing collateral held by DeFi whales (Tron’s Justin Sun being one of them).

MakerDAO is now discussing a proposal to airdrop a token to Spark Protocol users, which will of course incentivise even more DAI minting and saving. The reason why this is being brought up is because we’ve seen this story before. It doesn’t necessarily mean that it’s going to end the same way, but it’s something that you need to watch out for (DAI has a 5.5b market cap!)

And, speaking of DeFi, it appears that the founder of Curve Finance has started taking out more CRV-backed loans after being bailed out by some of the biggest names in the industry (Binance literally bought 5 million dollars worth of CRV). This has left everyone wondering why he’s being so reckless, and some on-chain sleuths think they may have the answer.

As pointed out by TruthLabs, more than half of the total value locked in Curve Finance’s famous stablecoin pool (3pool) is held by the unknown entity who exploited algo crypto trader Wintermute. If and when this entity decides to exit, Curve Finance is in big trouble, and even the crypto media is starting to notice that the Curve saga isn’t quite over.

As always, the only question is when.

💲 pyUSD 💲

PayPal, one of the biggest giants in the TradFi space, has finally entered one of the most lucrative business models in the crypto space. Stablecoins.

That’s right, PayPal has launched pyUSD - a US dollar-pegged redeemable stablecoin that’s fully backed by US dollar deposits, short-term US Treasuries and similar cash equivalents. The stablecoin is issued by Paxos and will exist on the Ethereum blockchain.

As with most things in crypto, the news of the launch received mixed reactions.

Some consider the move to be extremely bullish for crypto, while others believe the launch is nothing more than a quick cash grab aimed at distracting shareholders from the company’s not-so-outstanding stock performance in recent times.

One of the main criticisms of the project came from crypto sleuths, who discovered that the pyUSD stablecoin contract used an old version of Solidity from 2018 - potentially exposing it to vulnerabilities that have been fixed in newer versions.

They also pointed out that the contract came with functions that allow the owner to pause all transfers, freeze addresses, and increase the total supply at will. Features which they claim make the product no different from centralised entities such as banks.  

Ironically, these features aren’t something new. They’re common among stablecoins issued by centralised entities and are seen in stablecoins like USDT, USDC and BUSD.

Both Tether and Circle have already demonstrated their willingness to freeze their users’ USDT and USDC holdings in the past. However, they still remain the most widely-used stablecoins, and are the two largest by market cap.

As for the old code in the pyUSD contract, most of it was copied from an older contract used by Paxos for its other stablecoin projects - BUSD, USDP and PAXG. I’d argue this gives the pyUSD contract some Lindy effect, as it makes the contract battle-tested and long-standing, even though it is older.

Having said that though, we have to ask - why stablecoins and why now?

Well, the answer to that lies in the numbers. As pointed out by DeFi analyst Taiki Maeda, the most profitable business in crypto at the moment is Tether.

Tether CTO Paolo Ardoino reported that the company made over $1B in profits just in Q2. Notably, a bulk of those profits came from the interest generated by the T-bills that Tether holds as part of the reserves backing its USDT stablecoin.

A simple high-margin, low-risk strategy to generate yields, at least while interest rates remain high. Combining this with the additional benefits of lower transaction costs in facilitating cross-border payments via stablecoins, PayPal can potentially eliminate some of its biggest criticisms - high fees and long transaction times.

Still, why would anyone choose pyUSD over USDT or USDC?

Well, according to 6th Man Ventures Partner Carl Vogel, who claims to have previously worked on the pyUSD project, pyUSD, unlike USDT and USDC, is a bankruptcy remote stablecoin. This means that even if anything were to happen to Paxos or PayPal, all stablecoin reserves would be untouchable by creditors.

Lastly, PayPal is a huge financial institution, with a network of merchants and partners around the world. In terms of cross-border payments, this makes PayPal one of the few platforms that can begin to solve global payments at scale.

While there is potential, adoption is ultimately a matter of execution on multiple fronts. We’ll certainly be watching how this plays out.

📊 Personal Portfolio 📊

BTC 37.52% | ETH 31.15% | USDC 17.20% | USDT 6.88% | USD 3.48% | ATOM 2.59% | DOT 1.18%

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🔮 Video Pipeline 🔮

  • Crypto Wallet Security Report: Startling revelations?
  • X Crypto Payments: What Musk is Planning! 
  • China’s CBDC: It’s as bad as you think!
  • SBF is Going To Jail!! Latest From FTX
  • Coinbase Base Tutorial: All you need to know!
  • The FED’s New Crypto Warning!
  • PayPal’s New Stablecoin: Worth It?

🏆 What's New At This Week? 🏆

Top 5 Polygon Wallets in 2023: Store Your Matic Safely!
Aave (LEND) Review: Decentralised Lending Platform
Worldcoin Analysis: Utopian Dream or Dystopian Nightmare?
How to Get Started on Bitget: Step-by-Step Guide
Types of Crypto Wallets: The 5 Top Options for Coin Storage

📖 Quote of the Week 📖

If you are new to the crypto investing game, you are going to make mistakes along the way - this is guaranteed. However, what’s really important is to make sure that you’re aware of your mistakes and you correct your portfolio / trades. Doubling down on a losing formula is doubling your losses.

“It’s ok to be wrong; it’s unforgivable to stay wrong” - Martin Zweig

Team Coin Bureau

Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.

Guy Turner

Guy is one of the founding members and face of the Coin Bureau. Like many of us, he is just an average joe who became “crypto curious” back in 2013. After recognising the potential of blockchain technology, Guy set off on a mission to create crypto educational content, working with others to start the Coin Bureau website and released our first video on YouTube in 2019. You can learn more about him in his Who is Guy? blogpost.

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