Posted In:

Crypto, Stablecoin


#437
The Dark Side Of The Moon

Published:

May 14, 2022


Author:

Roxy Horrie

Posted In:

Crypto, Stablecoin

Published:

May 14, 2022


Author:

Roxy Horrie


Share:

It is often said that crypto is on a path of speedrunning through the lessons of 100 years of modern finance (h/t Matt Levine). This week’s unwind of Terra (Luna), which was one of the largest blockchain and stablecoin ecosystems within the crypto economy, had the unfortunate hallmarks of some of the more painful financial lessons of the past century.

Much has been written this week surrounding the post mortem of the UST stablecoin; an algorithmic stablecoin built on the Terra blockchain. As a summary, unlike other popular stablecoins that are often backed and redeemable by reserve assets such as cash and US treasuries, algorithmic stablecoins such as Terra’s UST were supported by a seigniorage mechanism which allows anyone to swap 1 UST with $1 worth of LUNA tokens, and vice versa. This algorithmic model has historically been challenged and at a severe risk of destabilization when users lose confidence in the peg mechanism, and rapidly exit out of the stablecoin and don’t bid and support the associated seigniorage token. With no reserve assets to redeem, once an algorithmically fixed peg is broken, reflexivity to the downside takes over.

While a challenging stress test for the broader crypto ecosystem, the upshot of events like this week is the hope for community-wide alignment in recognizing the pitfalls in specific economic system designs and continuing to iterate and build more robust crypto incentives going forward. Fortunately for the industry, the most widely used stablecoins are indeed not algorithmic, but 1:1 asset-backed with fiat and cash equivalents, such as USD Coin and Tether. These stablecoins have a mint-and-redemption mechanism that allow centralized issuers to liquidate collateral backing the tokens should the underlying stablecoin deviate too far from their desired peg.

At its best, crypto and stablecoins have the potential to be an enormous equalizer for the world: a decentralized financial system that provides equitable financial access globally at the speed of the internet. It's still early, but the results thus far have captivated a wave of global enthusiasm across developers, investors, and financial institutions alike — who all see the bright side.

Portfolio News


Jack Henry and NYDIG to offer bitcoin services to financial institutions - Many consumers and businesses are looking to their financial institutions to provide bitcoin services, which this relationship will solve. Consumer and business accounts will be able to access NYDIG's buy-hold-sell capabilities through the Banno Digital Platform, with JHA PayCenter facilitating payments to and from NYDIG over the RTP network. Read more

Plaid FinRise is now Plaid Accelerate – and applications are open for the 3rd Cohort! - During the five-month long intensive program, participants will have access to the Plaid team and technology, tailored programming and mentorship, as well as support from a strong partner network of industry leaders – from VCs, to law firms, to technical experts – who have come together to offer their time, expertise, and resources to help founders as they launch and grow their businesses. Interested in accelerating your startup? The first step is to apply here. Read more

The Dark Side Of The Moon


Terra crunch shakes foundations of crypto stablecoin complex - TerraUSD, or UST, and its related token Luna, had a long way to fall. They both recently climbed into the top 10 tokens by market value after Terra founder Do Kwon established the Luna Foundation Guard, which bought billions of dollars of Bitcoin to back it up. On Wednesday, Kwon announced measures aimed at bringing TerraUSD back to the $1 peg, which includes minting Luna at an increased pace. Read more

Stablecoins are vulnerable to runs, may heighten risks, Fed says - Designed to maintain a peg to a hard currency like the U.S. dollar, stablecoins are backed by assets that may lose value or become illiquid during stress. The U.S. central bank repeated its concerns that the tokens are therefore “vulnerable to runs” and said a lack of transparency around the assets may exacerbate those vulnerabilities. Read more

Tether declines to reveal details on $40b Treasury cache after dollar peg snaps - Tether has refused to disclose details on its $40bn hoard of US government bonds for fear of revealing its “secret sauce”, even as one of the world’s most important crypto assets comes under strain from heavy selling pressure. Read more

Industry News


Cloud computing powers the world’s financial exchanges - Traditional institutions such as financial exchanges are drawn to cloud infrastructure because they want to “increase market access” and “streamline operations”, according to Adrian Poole, head of financial services at Google Cloud UK. He explains that they can achieve these goals due to the flexible and scalable nature of cloud technology, which enables organizations to scale capacity up or down, at any time. Read more

Global banks flee the monster SPAC market they helped create - Their pullback follows an intense boom in the vehicles over the past couple of years, as financiers, politicians and celebrities piled into the deals. But new guidelines from the Securities and Exchange Commission have sucked air out of the balloon, which was already rapidly deflating thanks to souring markets, jittery regulators and dwindling returns for the deals. Read more

Robinhood shares pop more than 20% after Sam Bankman-Fried buys 7.6% stake - Bankman-Fried currently has no intention to take other actions but at some point if circumstances change, he may review “options for enhancing stockholder value through, among other things, various strategic alternatives or operational or management initiatives,” according to the document. It also says he could acquire additional shares. Read more

Google launches Google Wallet to help you store your credit cards, tickets and more - Currently, Google Pay is available in 42 markets, Google says. Because in 39 of those markets, Google Pay is still primarily a wallet, those users will simply see the Google Pay app update to the new Google Wallet app. But in the U.S. and Singapore, Google Pay will remain the payments-focused app while the Wallet app will exist in parallel to focus on storing your digital cards. Read more

FTX.US applies for trust charter in New York - The crypto exchange, the American affiliate of FTX, seems to be inching closer to opening up its services to New York residents. As it waits for approval from regulators, FTX.US has also started gearing up for the possible launch of a New York State limited purpose trust company. Read more

Checkout.com to acquire identity verification startup Ubble - Identity verification is particularly important for crypto merchants and fintech companies. And it turns out that Checkout.com has quite a few customers in these two areas. In addition to complying with “know-your-customer” regulation, identity verification can be used to check the age of the customers or identify potential fraud before it happens. Read more

Ex-Meta crypto chief David Marcus launches Bitcoin payments startup backed by a16z and Paradigm - After his departure from Facebook in November, many crypto industry insiders speculated where long-time executive David Marcus would land. Today, the former Messenger boss and Paypal executive offered some early details on his next company Lightspark, which will be building on Bitcoin’s Lightning network. A short press release notes that the startup is aiming “to explore, build and extend the capabilities and utility of Bitcoin.” Read more

Santander migrates 80% of IT infrastructure to the cloud - The Spanish lender says it is one of the first major banks in the world to digitize its core banking, using the Gravity bespoke software and tapping into a team of 16,500 software developers and engineers. The shift will allow easier and faster access to data, more simplicity and faster time-to-market, making it possible to deliver new capabilities in hours, instead of days, and more frequent app updates, says Santander. Read more

Magazine Luiza launches its fintech arm, Fintech Magalu - The new business arm will integrate other financial products and services already offered by Magazine Luiza, and is a new step in the company’s strategy of diversifying its portfolio, aiming at user retention and recurrence. Read more

Nubank’s 50m+ customers will be able to trade Bitcoin and Ethereum as of Wednesday - Nubank has partnered with blockchain startup Paxos Trust Co. to allow its customers to trade cryptocurrencies. Paxos has seen demand increase for digital assets in Brazil, and the move is expected to create more financial inclusion for Nubank’s customers by giving them access to more payment methods. Read more

Select Financings


Altro - San Francisco based online credit building platform raised $18 million in Series A funding led by Pendulum. Read more

Arianee - Paris based provider of digital ownership and authenticity certificates for brands raised €20m in Series A funding led by Tiger Global. Read more

BVNK - London based provider of banking services and payments for crypto-native businesses raised $40m in Series A funding led by Tiger Global. Read more

Casa - Denver based bitcoin storage company raised $21m in Series A funding led by Acrew Capital. Read more

Chainalysis - New York based blockchain analysis company raised $170m in Series F funding led by GIC. Read more

Chainflip Labs - Berlin based cross-chain decentralized exchange raised $10m in new funding led by Framework Ventures. Read more

Crowdz - California based invoice financing company raised $10m in new funding led by Citi and Global Cleantech Capital. Read more

Cushion - San Francisco based bank and credit card fee negotiation startup raised $12m in Series A funding led by Rose Park Advisors. Read more

Dock - São Paulo based full-stack payments platform raised $110m in new funding led by Lightrock and Silver Lake Waterman. Read more

Habi - Bogotá based home ownership startup raised $200m in Series C funding led by Homebrew and SoftBank Latin America Fund. Read more

Highlight - San Francisco based web3 community membership platform raised $11m in Seed funding led by Haun Ventures. Read more

Infinicept - Denver based embedded payments company raised $23m in new funding led by SVB Financial Group. Read more

Interswitch - Nigeria based payments company raised $110m in growth funding led by LeapFrog Investments and Tana Africa Capital. Read more

KuCoin - Seychelles based crypto exchange raised $150m in Series B funding led by Jump Crypto. Read more

MARA - Nairobi based pan-African crypto exchange raised $23m via equity and token sale from investors including Coinbase Ventures, Alameda Research (FTX) and Distributed Global. Read more

Mashgin - Palo Alto based touchless self-checkout system provider raised $62.5m in Series B funding led by NEA. Read more

Meld - San Francisco based fintech devops company raised $8m in Seed funding led by Coatue. Read more

Moralis - Stockholm based web3 development platform raised $40m in Series A funding led by EQT Ventures. Read more

Ness - New York based maker of a fintech app that rewards users for healthy behavior raised $15.5m in Seed funding led by Will Ventures. Read more

Oasis Pro - Connecticut based fintech and blockchain firm raised $27m in Series A funding from investors including UDHC, Blizzard the Avalanche Fund, Inveniam, Redwood Trust, TrustLabs, Mirae Asset Venture Investment, Gate Ventures, LedgerPrime, and StableNode. Read more

Opn - Japan based payment processor raised $120m in Series C funding led by Japan Investment Corp. Read more

Paddle - UK based provider of payments infrastructure for SaaS companies raised $200m in Series D equity and debt funding led by KKR. Read more

Paper - San Francisco based crypto-focused payments processor raised $7m in Seed funding led by Electric Capital and Initialized Capital. Read more

Paymob - Egypt based digital payments acceptance solution for merchants raised $50m in Series B funding led by PayPal Ventures, Kora Capital and Clay Point. Read more

Talos - New York based crypto trading infrastructure startup raised $105m in Series B funding led by General Atlantic. Read more

TIFIN - Boulder based wealth management company raised $109m in Series D funding led by Franklin Resources. Read more

Token.io - London based account-to-account payments platform raised $40m in new funding led by Cota Capital and TempoCap. Read more

Tumelo - UK based shareholder voting platform raised $19m in Series A funding led by Treasury. Read more


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