Did FTX Ruin Crypto's Image, Japan Welcomes a Crypto Future & Riding the Crypto Derivatives Wave
The Web Three Newsletter | 1st Feb, 2023
We curate and summarize three key opinion pieces or industry updates from the world of crypto, weekly
This week, we take a look at:
1️⃣ Did FTX Ruin Crypto’s Image in Washington DC? | Key takeaways from an episode on the Bankless Podcast
2️⃣ Japan Welcomes a Crypto Future | Summary of an opinion piece published in the Coindesk Consensus magazine
3️⃣ Riding the Wave of Crypto Derivatives - The Rise of DEXs and Emerging Players | Summary of twitter thread by @ViktorDefi
Section 1 : Did FTX Ruin Crypto’s Image in Washington DC?
This episode of Unchained, a crypto podcast hosted by Laura Shin, discusses whether the FTX saga ruined crypto’s image in Washington DC . The discussion features DC insiders Sheila Warren, CEO for the Crypto Council for Innovation and Miller White House Levine, policy director at the D5 education fund.
The Current State of Crypto Legislation: An Analysis 💻️
The recent FTX collapse and the new Congress have drastically changed the landscape for crypto legislation. It will be a challenge to get legislation passed with a split Chambers and a republican house that may not be able to work with the democrats.
Policymakers are rethinking their views on the crypto industry and there is a division among lawmakers on whether the collapse was a failure of people or technology.
It will be difficult for these two groups to reach a consensus on crypto legislation, making the possibility of legislative action remote. There will be a lot of activity in Congress with the introduction of bills and new coalitions forming.
FTX Donations to Congress and its Impact on Crypto Regulation 💸
The discussion then delves into the investigation that found 196 members of Congress, one in three, received money from FTX executives, including Sam Thingman Freed, who is now facing numerous federal law enforcement agencies over potential or alleged campaign finance violations and fraud.
Tthe reactions of different individuals to the FTX scandal are discussed, from the average crypto user to members of Congress. The speakers conclude that the impact on crypto regulation is dependent on the individual and their views on crypto. Some see it as a Sam problem, while others see it as a crypto problem. The situation has also become a political talking point for some, like Senator Elizabeth Warren.
The Reckoning of the Industry: Regulations and Preventing Another FTX 💬
The crypto industry is facing a reckoning after the collapse of FTX. While regulators and lawmakers discuss potential laws and regulations, some argue that the system already worked and that the culprit was brought to justice.
The industry is also taking a closer look at itself and the "cult of personality" around tech geniuses that has emerged in recent years. In addition to regulation, the crypto industry is exploring ways to make the accountability and governance structure a part of the system itself. The conversation about regulation is context-dependent and the industry is still in a "what happened" mode. The non-custodial exchange model and decentralized protocols are being considered as ways to eliminate some of the risks in the crypto market.
2023 Policy Goals: What to Expect from Congress and Global Regulators 👇️
The speakers then delve into the goals of their respective organizations for the year 2023. They anticipate that the congress will be "absolutely crypto obsessed" and will introduce more bills than ever before. They also expect the SEC to have some open rule makings that could be problematic and litigation to be more important than ever.
They discuss the current UKIDAO case, their engagement in Brussels and the UK, and their increased presence at the state level in California. They also mention that while the legislative branch is in focus, it's important to consider the judicial and executive branches too. They believe that litigation through the judicial branch may be a more efficient solution than seeking legislative remedies.
Crypto Legislation Update: Is it Dead or Alive? 💡
The host checks in on the status of major crypto legislation that was proposed previously, the DCCPA and the Jilla Brand Lemus bill. While they need to be reintroduced, the question remains what the appetite will be for these bills. The language agreed upon in these bills is important, as it brings together a coalition of participants from across the political spectrum.
Despite everything that has happened, the language is still live and ripe for being pulled into other legislation. The next few weeks and months in Washington will be crucial in determining what coalitions will start forming and how the crypto Congress will engage with the topic of crypto regulation.
Stable Coin Regulation: What To Expect In Congress?💰️
The topic of stablecoin regulation in the US Congress was then explored. The speakers discuss that while it was previously believed that stable coin legislation would be the first type of crypto legislation to be implemented in the US, no progress was made in the previous year.
However, with the Treasury Department's focus on custodial stable coin regulation, there is a strong motivation for Congress to act. The former Pennsylvania senator Pat Toomey's bill is seen as a thoughtful example of what the regulation could look like. The speakers believe that custodial stable coin regulation should be the first priority, but it's hard to say what might come first with so many factors at play.
A Legal Battle Over Asset Classification - Securities or Commodities? 💰️
With the upcoming resolution of the XRP case, the industry is buzzing with speculation. Whether the case will be a win for Ripple or the SEC remains to be seen, but the bigger question on everyone's mind is what impact it will have on the asset classification of cryptocurrencies.
Despite conflicting interests and slow progress in Congress, the case could potentially clarify the matter through the judiciary. There is a growing concern over the SEC's enforcement actions and their attempt to assert authority in the absence of formal guidelines.
The legal battle over asset classification is a question of which authority the CFTC and SEC have over cryptocurrencies and where the boundary lies. The industry is calling for regulatory clarity, hoping for a resolution that will provide guidance for the future.
SEC Chair Gary Gensler's Leadership Under Fire? 🔥
Gary Gensler, the SEC Chair, has come under criticism from different quarters, including members of Congress and the media. Some have criticized the SEC's approach to regulation in the crypto space, with allegations of exempting certain companies from regulation. Despite this criticism, it is unlikely that Gensler will lose his job as his stance on crypto is popular among his supporters.
However, the SEC is facing other issues, including an unusually high staff turnover rate, and a fight with the SEC Union. The SEC's rule-making approach is ambitious and controversial, with some Republicans pushing for a narrower remit for agencies, and some Democrats uncomfortable with the rule-making process. Some have criticized the SEC's black and white approach to crypto, while others believe the agency should be smaller.
The rest of the podcast discusses Bitcoin ETFs, Defi Regulations, Tornado Cash, MicA, and China & CBDCs.
Section 2 : Japan Welcomes a Crypto Future
While many other countries are shrugging their shoulders in the face of the crypto crisis, Japan is positioned to play a unique role in the industry. According to a proposal by Japan’s ruling Liberal Democratic Party Web3 project team, Japan sees opportunity where other nations fear crisis.
Why is Japan Embracing Crypto Now? 💡
The simplest explanation could be that Japan has already been through the ups and downs of the crypto world and has proven that it can weather the storm. In 2014, Japanese exchange Mt. Gox was hacked, followed by a hack of over $500 million from Japanese exchange Coincheck in early 2018, the biggest hack in crypto history.
These hacks required Japan to separate customer assets and exchange assets, with most exchange assets kept in cold wallets. Japan’s regulatory approach showed its strengths during the FTX implosion and Japan may allow user withdrawals as early as February.
Ghosts of Hackers Past 💀
Following the hacks, Japan required that customer assets and exchange assets be separated, and that most exchange assets be kept in cold wallets. This makes it easier for FTX Japan to return the money and Japan’s regulatory approach showed its strengths during the FTX implosion.
The segregation of assets is a result of the lessons learned from the past incidents like the Mt. Gox and Coincheck hacks. Japan has become knowledgeable in handling these situations compared to other jurisdictions.
Stablecoins Enter Japan 💰️🇯🇵
Japan may end up leading the regulation of stablecoins. America is still debating how to regulate stablecoins, while the European Union is in the final stages of approving stablecoin rules in its Markets in Crypto Assets (MiCA) Regulation.
Japan, on the other hand, may be the first country to regulate permissionless stablecoins. The stablecoin law in Japan will take effect in June 2023. A consortium of banks and trust banks, led by MUFG, will launch stablecoins on both private and public blockchains such as Ethereum. The software platform, known as Progmat, is supposed to launch later this year.
Crypto in the Land of the Rising Sun 🌞
A small but active group of politicians in Japan is proposing guidelines for everything from decentralized autonomous organizations (DAO) to non-fungible tokens (NFT). It’s getting easier for Japanese exchanges to list tokens and one onerous tax requirement has been revised, marking a major win for crypto entrepreneurs.
The departure of Coinbase and Kraken from Japan has not affected the crypto industry, as Binance, which irked Japanese regulators in the past, managed to acquire a Japanese exchange.
Conclusion 💡
In conclusion, Japan has a unique opportunity to play a significant role in the crypto industry. Despite the setbacks from the hacks, Japan has taken the necessary steps to ensure the safety of customer assets and is now moving forward with the regulation of stablecoins.
The active group of politicians proposing guidelines for different aspects of the crypto industry, along with the ease of listing tokens on exchanges, has made it an attractive market for crypto entrepreneurs. Japan's cautious approach to the crypto industry is what sets it apart from other countries, making it a leader in the field.
Section 3 : Riding the Wave of Crypto Derivatives - The Rise of DEXs and Emerging Players
There’s a gold rush emerging in the crypto derivatives space in 2023. DEX derivatives exploded in 2022, and new players are coming up now….
The Growth of DEX Derivatives in Crypto 💹
The crypto world has seen a tremendous growth in the derivatives market in the past year, with leading players like GMX, PREP, GNS, and DYDX leading the way. The crypto derivatives market has been growing steadily on both centralized and decentralized exchanges, with more and more users gravitating towards DEX derivatives. The trend is likely due to the fall of FTX and the need for self-custodian practices.
Why Users Prefer DEX Derivatives 👍️
Users prefer DEX derivatives for several reasons, including real yields, the ability to hedge against the market, organic growth, and capital efficiency. Some of the top DEX derivatives are performing incredibly well, with GMX being among the top 3 highest revenue-generating protocols, Gains Network recently reaching an ATH of over $1B in weekly trading volume, and Perp Protocol having the highest number of transactions per day in Optimism.
Emerging DEX Derivative Players 📊
With the growing interest in DEX derivatives, there are also a lot of promising emerging players that are set to ride the next wave of growth and institutional adoption. One such player is Vela Exchange, where users can create positions against the performance of synthetic assets with leverage up to 100x. The platform has an impressive reward structure and innovative technology.
In conclusion, the DEX derivatives market is one to watch in the crypto world, with a promising future ahead. With more and more players emerging, the growth of DEX derivatives is likely to continue, presenting new opportunities for investors and traders alike.