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Crisis hidden in the clear view of Crypto-POLITICO

With the help of Derek Robertson

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The current crypto crisis is out of the chain.

It is also very on the chain. With the general fall in crypto prices, fans are afraid that more crypto finance businesses will fail and further push the market down. This is one of the differences from other financial crises.

Many of the crises occur in a clear view that anyone who knows where to look can see.

This is a major change from the 2008 financial crisis, where, for example, a huge iceberg of risk was essentially hidden by major banks and trading companies.

This is all part of the decentralized finance design, transactions are publicly recorded in real time on the blockchain, and copies are stored individually on many computers at once.

That doesn’t mean that investors, citizens, or even regulators can understand everything that’s happening. Computer programs running blockchain record transactions in blocks of data that look awkward to most people. Most people need tools to convert them into a recognizable format.

And just because you can see the transaction going on doesn’t mean you know who is at either end of it. Even so, the full financial health of the participants is probably not incorporated into the on-chain information. Many actions are still happening off-chain. For example, if a crypto hedge fund is at risk of bankruptcy, its fate may depend on a desperate behind-the-scenes effort to secure an old-fashioned dollar loan sent through the banking system. ..

But you can collect a lot from what’s happening on the chain. It’s a dynamic that influences market behavior in real time, a way and speed that regulators (or anyone else) can analyze what happened in a post-crisis.

In traditional finance, regulators and the general public learn about the state of the industry in several different ways. Following the 2007-08 global financial crisis, the federal government began conducting annual stress tests on major banks, examining balance sheets to see if banks were in a position to survive the crisis. .. Listed companies post SEC disclosures quarterly or within a few days for certain significant events. If something goes wrong, the regulatory agency may then ambush with a subpoena.

In both traditional and crypto finance, industry rumors and news reports can show where risks lie during a crisis.

However, with cryptocurrencies, there is also on-chain analysis. This created a sub-industry of companies that read the blockchain and report what they see there. Some of these companies have already produced post-reports that shed light on the algorithmic explosion of Stablecoin Terra last month. 1 Report from Chainalysis By tracking the surge in redemption of other stablecoins (users remove them) before and after the collapse, we generally measured the impact of Terra’s collapse on our belief in stablecoin.

another Report by NansenAnother blockchain analytics firm, claims that on-chain evidence undermines the theory that Terra’s collapse is the result of a financial attack by a single sophisticated actor.

On-chain analysis is also being done in real time in this week’s market jitter round, which began with cryptocurrency lender Celsius. Paused drawer..

This kind of transparency is conceptually good for the market. However, it does not necessarily improve the functionality of the market. This is partly because not all users know it. All users are identified by a string of numbers and letters, but only some of these strings are linked to the actual entity.

In the case of Celsius, we can see that the market is pledged loan collateral in the form of Ethereum and synthetic Bitcoin on the DeFi platform MakerDAO. As the prices of Ethereum and Bitcoin fall, the risk of unsecured loans entering the clearing territory increases. The market is currently monitoring loan collateral cushions fluctuate in real time.

Alex Thorn, head of research at Galaxy Digital, a financial services company for digital assets, said the dynamics represent a significant departure from traditional finance, where little information is available about the state of the system.

“In stress testing situations, the Fed may have direct access to the data,” said Thorn, who previously worked at Fidelity. But in the case of a crypto crisis, he said, “the whole world can see the maker DAO vault in Celsius.”

In some cases, this replaces the general uncertainty air that tends to prevail during a financial crisis with a more serious form of uncertainty. Market participants tend to wait for what happens when they see large loans approaching the clearing territory, Thorn said. “It freezes the market a bit.”

As of Friday afternoon, the market has more places to look for risks on the chain.Hong Kong-based creditor Babel Finance temporarily Paused drawer Today, hedge fund Three Arrows Capital Floating The market is Watch closely Address belonging to the company.

At the very least, embarrassed investors can be comforted by the knowledge that their suffering will generate a rich dataset that will help the general understanding of blockchain finance over the years to come.

Late yesterday afternoon, FTC voted public a Report on AI usage To mitigate online harm such as fraud and illegal content — to take a more proactive position for the Commission to monitor technology-related policy issues in the second year under the chair and technical observers. , Here are some important points Lina Khan:

  • The report is holistic Deeply skeptical Moderate the Internet using AI tools and ultimately worry more about irresponsible use by private stakeholders. “Therefore, the key conclusions of this report are over-reliance on governments, platforms, and others, or even for the important purpose of reducing harm.”
  • In addition, regulators say that the tool itself Too rudimentary To achieve the stated goals, “the datasets that support them are often not robust or accurate enough to avoid false positives and false positives,” he wrote.
  • The report is More transparency The company that develops these tools says, “Look and allow the investigation behind the opaque screen of the platform (in a way that considers user privacy),” making the tool an overall policy framework. It states that it needs to be integrated.

And when it comes to legislation, FTC is straightforward. “Parliament generally needs to circumvent legislation that requires, envisions, or puts pressure on businesses to implement AI tools to detect harmful content,” “the first legislative focus is prioritized. Must be transparent and accountable. ”— — Derek Robertson

Prada and Jewelery House Bulgari Both recently Announced Metaverse project, latest development A cozy relationship that grows fast Between the world of fashion and VR.

Prada will be released The NFT collection associated with gender-neutral real-world clothing and a variety of perks for buyers, and the Discord server where Prada fans can discuss fashion, art, movies, music, and Web3.Bvlgari offerings feature features paired with NFTs Luxuriously expensive With a ruby ​​and emerald necklace, and one of the digital-only jewelery, the company advertises it as “the first NFT jewelery that transcends the boundaries of materiality, an intangible creation.”

The concept of “digital twins” is an important selling point for NFT advocates who see it as an online element. “Permanent identity” They say blockchain technology makes it possible. There isn’t much weird explanation why high-end companies like Prada and Bvlgari are so interested in this area.The Metaverse is mostly conceptual so far and doesn’t really need much conduct Apart from raising the flag and matching the brand with positive and wealthy people, the two companies have been doing it for a long time. — — Derek Robertson

Stay in touch with the entire team: Ben Schreckinger ([email protected]); Derek Robertson ([email protected]); Constantine Kakaes ([email protected]); And HeidiVogt ([email protected]). Follow us on Twitter @DigitalFuture..

Ben Schreckinger is responsible for POLITICO’s technology, finance and politics. He is an investor in cryptocurrencies.

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Crisis hidden in the clear view of Crypto-POLITICO

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