Crypto

The Dollar Can Be a Protocol for Future Money

Published

2 years ago

October 1, 2022

This week in San Francisco I attended Circle Internet Financial’s star-studded Converge conference and was struck by the wide array of projects working with its USDC stablecoin.

Participants included Latin America-based payments company Ripio, which is seeing surging demand for USDC transfers in Brazil and Argentina, or the Web3 service provider Recur, which solely accepts the stablecoin from users of its various metaverse worlds, including Star Trek Continuum.

It seems USDC, the second most-traded stablecoin, is developing its own “ecosystem,” a word (perhaps overused) that open-source advocates apply to networks of third-party developers and providers that build on a tech platform.

Below I’ll get to a lesson I see here for U.S. lawmakers contemplating what digital form the dollar should take. But let’s first reflect on these ecosystem ideas as they pertain to a stablecoin like USDC. It’s not an obvious concept, though its implications are profound.

You’re reading Money Reimagined, a weekly look at the technological, economic and social events and trends that are redefining our relationship with money and transforming the global financial system.

Let’s compare Converge to NEARCon, the annual conference sponsored by the Near Foundation I attended two weeks ago in Lisbon. It’s easier to understand that event as an “ecosystem conference.”

Like other such gatherings – Ethereum’s Devcon being a prime example – Near uses it to bring together and energize the far-flung community of developers and companies building dapps and other services with smart contracts that run on its protocol.

USDC isn’t a smart contract protocol for dapps. It’s primarily a payment vehicle, conceived of by most people as a “coin.” It is a tokenized expression of dollar-based value that happens to be more fluid than non-digital dollars, one that can be exchanged peer-to-peer over public blockchains. (Circle’s launch on Wednesday of a new cross-chain transfer protocol brings USDC a little closer to a more common definition of a crypto protocol, but it’s not why all those third-party, USDC-tied providers attended the event.)

Yet, as I see it, USDC is developing the mother of all protocols.

Money as protocol

When Fortune’s Jeff John Roberts asked Circle CEO Jeremy Allaire at a press conference on Wednesday to clarify what he meant by USDC as a “platform,” his two-part answer was instructive.

The first part focused on USDC’s application programming interface (API), which provides outside programmers open access to coding tools and data to ingest into their programs.

That was consistent with the classic idea of a tech platform/protocol that encourages outside software development to grow overall value.

But then Allaire turned to the dollar itself, describing it as the established value “standard” for the internet. His idea was that the U.S. currency, now expressed in “programmable” form via USDC and other dollar-based stablecoins, can become its own “extensible platform.”

This got me thinking about the wider notion of “protocol” beyond its software-specific meaning. At their core, protocols are agreed sets of rules by which independent parties engage with each other. They provide a standardizing function vital to commerce and society generally. They are integral to civilization and come in many forms.

A language, for example, is a protocol. When two people converse using the English protocol, they tacitly agree that the objects they’re sitting on are “chairs.” But if they switch to Spanish, the seats are “sillas.” Neither word is right or wrong in a natural sense. They are made up. But by agreeing to commonly use the rule, we enable communication. (It’s no coincidence software code can be written in different “languages.”)

Money is also a made up concept. It’s an agreed reference for measuring and referencing a benchmark of value. In this sense, it is a protocol.

The dollar is the most successful value exchange protocol in history. And if, as Allaire says, that standard can flourish in an open-source, permissionless software environment, it will foster an explosion of new ideas and applications, along with massive value creation, just as the internet’s permissionless, global extensible platform did.

Yes, but …

Count me in as sold. I think this thesis is correct.

And it’s one U.S. lawmakers should seriously consider. When weighing competing proposals for regulating stablecoins, they must recognize that if they leave the development of digital dollars up to government, via a central bank digital currency (CBDC), they will get nowhere near the innovation and value creation that a global community of open-source developers will unleash with stablecoins. With the U.S. worried about losing a digital arms race to a Chinese-Russian alliance, it can spread U.S. interests by encouraging such an ecosystem.

But something that’s in the U.S. government’s interests is not necessarily in the world’s interest.

For one, as the activist and author Brett Scott reminded me during a fireside chat at NEARCon, the global expansion of dollars equates to a loss of sovereignty in other places. Foreign local populations will lose control over their money supply, with credit conditions instead determined by Washington. One could argue that a hyper-dollarized financial internet is a form of U.S. digital colonialism.

And, while I agree with Allaire’s analysis of how to align U.S. interests with the latest financial innovations, we must be careful of putting too much power in the hands of a few private corporations like Circle. We made that mistake once with Web2.

Circle talks a good game in its lobbying efforts, encouraging open stablecoin competition, and I think we can take that, for now at least, in going ood faith. But as we’ve seen from how Google, Amazon, Facebook, et al. have doubled down on their extractive, privacy-abusing business models, despite a growing public outcry, any successful stablecoin company will face relentless profit-maximizing pressure from shareholders to carve out anti-competitive positions.

I think both of those problems can be addressed if U.S. lawmakers apply both an international approach and competition-promoting principles. Is there a model, for example, that allows communities outside the U.S. – be they national or local – to forge new tokenized expressions of value that give them agency over their resources and economic futures? (I’m particularly interested in nature-backed digital currencies such as those created by Single Earth to incentivize the protection of biodiversity and carbon sinks in developing countries.)

Also, to truly unleash the power of platform innovation with digital dollars, we must loosen the access constraints created by Know Your Customer (KYC) and Anti-Money Laundering (AML) rules and reduce U.S. banks’ transaction surveillance powers. Create freer access to dollars among the world’s financially excluded and amazing things will happen.

Circle’s vision contains the possibility of a radically redefined global financial system, overcoming the abuses of an incumbent one that’s increasingly proving to be broken. But that vision must be framed within thoughtful, inclusive and human-first principles.

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Crypto

Bitcoin’s Recovery – the Downturn Is Over

Published

5 months ago

July 16, 2024

The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.

Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.

In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.

“No Man’s Land”

Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.

Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.

While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.

Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.

First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.

“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.

A News-Driven Environment

Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.

Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.

Reports /Trainviral/

Crypto

Bitcoin ETFs Saw $300M in Daily Net Inflows

Published

5 months ago

July 16, 2024

BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.

The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.

None of the ETFs recorded outflows for the day.

Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan

According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.

Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.

A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.

What’s Next For Bitcoin?

Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.

But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.

Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.

“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”

Reports /Trainviral/

Crypto

LI.FI DeFi Platform Exploited, Over $8M Lost

Published

5 months ago

July 16, 2024

PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.

The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.

Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.

LI.FI Issues Warning After $8 Million Exploit

LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.

According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.

Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.

Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.

“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.

This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.

But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.

Recent Exploit Mirrors March 2022 Attack

Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.

The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.

“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.

Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.

LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.

Reports /Trainviral/