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Market insights
June 25, 2024
5 minutes

Digital Asset Intelligence Weekly | Issue 15

Digital Asset Intelligence Weekly | Issue 15

Regulators deliver two hits to the market

Key headlines this week:
Binance partner Paxos ordered to stop minting BUSD, and an SEC settlement with Kraken triggered the year’s first market correction.

New from Nuant

This week’s headlines draw attention once again to the difficult situation regarding regulation in the US. Instead of clarity, we have erratic and unpredictable enforcement of rules that critics say are hard to apply to crypto assets. With the administration renewing pressure to make headway, what can we expect? Our latest research article explains.

Inside Crypto

  • Paxos, the company that operates BUSD, has been ordered by New York authorities to stop minting the Binance-branded stablecoin. The order followed complaints from rival Circle regarding Binance’s failure to ensure sufficient backing for tokens it issues, including Binance-peg BUSD and other stablecoins. Binance’s native token BNB slid over 7% on the news, and the exchange saw heavy outflows, although CEO Changpeng Zhao was quick to distance the exchange from the stablecoin. The Wall Street Journal also reports that the Securities & Exchange Commission is planning to sue Paxos for issuing unregistered securities.

  • Decentralized stablecoin protocols such as Liquity and Curve benefited from the news, which the market took as a harbinger of further crackdowns on centralized services.

  • Binance.US rushed to reassure markets that customer funds were safe and to distance itself from parent company Binance after the latter announced last week, without explanation, the suspension of dollar transactions using bank accounts.

Infrastructure & Regulation

  • Tether has announced more than US$700 million in net profit, without providing further details. The figure was not backed by audited financial results, nor included in its attestation of reserves by BDO Italia.

DeFi and CeFi

  • Kraken was forced to end its staking program in a US$30 million settlement with the SEC. Liquid staking tokens such as LDO saw an uptick on the news, highlighting the distinction between their form of staking and Kraken’s less transparent yield program.

  • Decentralized exchange GMX has enjoyed a user upswing that took it to $5 million in 24-hour fee revenue over the weekend. The fee take was boosted by a few big transactions such as the closing of Andrew Kang’s long positions on ETH and BTC.

  • DeFi protocol Clearpool is readying its institutional platform Clearpool Prime, to be launched on Ethereum sidechain Polygon. Institutional business is expected to be increasingly important for DeFi this year as the industry reconfigures.

  • In an innovation connecting on-chain and off-chain finance, Flux Finance has launched to offer yield farming backed by tokenized US government securities.

Infrastructure and Regulation

  • EU banks handling cryptocurrencies will face stringent restrictions, under the draft legislation published last week. The rules give crypto the heaviest risk weighting, meaning banks would need to hold capital matching their crypto holdings.

  • Singapore bank DBS is keen to apply for a crypto license in Hong Kong, once the bank “understands exactly the framework”. Hong Kong remains committed to becoming a crypto hub, while Singapore has taken a more cautious approach following high-profile crashes such as that of Three Arrows Capital.

  • The Bank of England is keen to distance its digital pound project from cryptocurrencies, complaining that the press term “Britcoin” is misleading to the public. No decision has been made on whether distributed ledger technology will underpin the CBDC.

Insight of the Week

Although last week’s correction fulfilled some expectations, it is notable that the downturn came in part as a result of the Kraken news – stoking fears that the entire staking sector could be in regulatory crosshairs – rather than underlying market factors. 

With the broader economic outlook remaining uncertain, analysts expect continued volatility, but see both macro and technical grounds for optimism by year-end.

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Updated on
June 25, 2024