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Blockchain Bites: OKEx Freezes Withdrawals, DeFi Audits Queue, Nigeria Urges Crypto Adoption

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OKEx has frozen withdrawals, audit firms are experiencing a backlog of DeFi projects and the Trump administration is examining DLT for national defense.

Top shelf

Audit (back)logs
Crypto code audit firms say they are swamped with decentralized finance (DeFi) projects. Three of the most well-regarded auditors in the space – OpenZeppelin, Quantstamp and Trail of Bits – told CoinDesk’s William Foxley they are all booked until at least Q1 2021. For example, Quantstamp’s Juliano Martinez said the “high volume” of applicants has led to his company “rejecting lots of projects.” The months-long backlog comes amid a sharp pullback across the $11 billion DeFi market, with most tokens down 19% over the last 30 days, according to Messari.

Bitcoin grants
Coinbase is sponsoring at least two Bitcoin Core developers with its new Crypto Community Fund. The San Francisco-based exchange announced the grant program Thursday, after years of pushback from the crypto community that Coinbase was profiting from bitcoin’s open-source nature without paying in. Direct contributions to and review of Bitcoin Core, contributor tooling, Bitcoin libraries and testing improvements are all applicable to the grant program. Coinbase would not reveal the size of the fund but did say in an emailed statement that it hopes to increase the fund over time. 

DLT defense
The Trump Administration has included “distributed ledger technologies” (DLT) in its strategy for preserving America’s technological supremacy over China and Russia. DLT is one of 20 focus areas on the National Security Council’s “critical and emerging technologies” shortlist, released Thursday. The NSC’s strategy calls for investing in, developing, adopting and promoting the priority technologies, which also include AI, data science, quantum computing and “space technologies,” weapons of mass destruction mitigation technologies, and others.

Election 2020
The Associated Press has teamed up with Wikipedia alternative Everipedia to preserve the 2020 U.S. election results. More than 7,000 state and national election race calls will be recorded on Everipedia’s EOS-based platform. Once a race is called, that information is entered into another internal AP system. Everipedia will pull the final declaration from an API and record it on its own ledger, permanently storing what AP sees as the final result. That said, race calls themselves will be recorded on the Ethereum blockchain and Chainlink will serve as intermediary between the AP data and Everipedia.

Digital Nigeria
Nigeria’s federal government is reportedly developing an ambitious plan to facilitate national crypto adoption with the vision of creating a “Digital Nigeria.” According to an early draft of the strategy framework obtained by local publication Technology Times, the country’s Federal Ministry of Communications and Digital Economy and the National Information Technology Development Agency (NITDA) have partnered to develop a blueprint for national blockchain adoption. Nigeria’s mission is to drive adoption of the technology in public administration, leading to improved efficiency, transparency and accountability, according to the document. 

Quick bites

At stake

Everything OK?
Crypto’s reaction to news of one of the industry’s most active spot and derivatives exchanges, OKEx, pausing withdrawals has been decidedly muted. 

Friday morning local time, the Hong Kong-headquartered (but Malta-based) trading platform announced it has suspended all cryptocurrency withdrawals indefinitely. One of the necessary signatories, OKEx co-founder Mingxing “Star” Xu, had been taken into police custody.

Bitcoin dropped approximately 3% on the news. Most other large-cap cryptos also fell. 

OKEx CEO Jay Hao said over Weibo the key holder’s cooperation with officials was due to a “personal issue” and the investigation would not affect the business. The exchange clarified hours later, “funds are safe and all other functions on OKEx are unaffected.”

Approximately 200,000 bitcoins – worth some $2.3 billion – are currently held in OKEx wallets, according to Glassnode. The company claims on its website to serve millions of customers in 100 countries.

Star – taken into custody a week ago for unknown, though supposedly “personal” reasons – being out of touch prevented withdrawal authorization from being completed. “We will resume digital assets/cryptocurrencies withdrawals immediately once the concerned private key holder is able to authorize the transaction,” the exchange wrote.

The incident draws parallels to last year’s collapse of QuadrigaX, a Canadian exchange that held its and customer assets in cold storage protected by a single key setup. That signatory has died under mysterious circumstances, leading to an ongoing effort to return assets to their owners. 

“Read between the lines – OKEx has a single point of failure in their key management architecture, and it’s currently failing,” Jameson Lopp, CTO of Casa, tweeted. He added later, “Either they have a distributed redundant setup as claimed on their security page OR there is a single key holder whose disappearance halts spending.”

Others have noted OKEx previously boasted of its contingency plans put in place for such scenarios.

In either case, with approximately 1.1% of the total circulating BTC supply currently frozen, market analysts remain cool-headed.

“I don’t think BTC will necessarily dive from here; the fund flow may look for venues that are based in countries with clearer regulatory stance and policy outlook,” Denis Vinokourov, head of research at London-based prime brokerage Bequant, told CoinDesk’s Omkar Godbole.

That said, larger macro forces are likely at play, including a devastating U.S. unemployment report Thursday, slipping stocks and whipsaw U.S. stimulus talks.

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R3 Corda Network Set to Go DeFi With XDC Digital Currency

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A group of former bankers building on R3’s public Corda Network are touting the first digital currency for that ecosystem, dubbed XDC. 

Announced Tuesday, the Cordite Society, a co-operative registered in the U.K., released the XDC crypto token on public Corda, the open-source version of R3’s network. The new regulation-friendly cryptocoin will open the door, say its creators at Cordite, to various decentralized finance (DeFi) applications running on Corda’s distributed ledger technology (DLT).

R3 began life as a pay-to-join DLT consortium of big banks, which over time realized the value of hosting a large developer community and created the open-source Corda Network alongside the commercial version of the software. 

In fact, the idea of a “Corda Coin” was floated at last year’s CordaCon, the annual developer gathering, but only as a research project at that time. Now a reality, the Cordite Society will be minting the first run of 1 million XDC to lubricate applications on Corda. This cooperative is taking advantage of existing U.K. legal structures for mutual societies, a provision also used by DeFi risk mitigation platform Nexus Mutual. 

“XDC is a digital currency in its own right,” said ex-RBS banker and Cordite CEO Richard Crook. “It is issued as an exchange token to Cordite Society members, and as it’s minted or created, will be evenly distributed amongst those cooperative society members.”

The XDC and Cordite Society announcement is timed to coincide with this year’s CordaCon event. R3 did not return requests for comment by press time.

Read more: 85% of Italian Banks Are Exchanging Interbank Transfer Data on Corda

Crook said membership for the newly-convened Cordite Society is now open, and members will vote on the rate of supply of XDC and other points of governance going forward. Firms participating in the Cordite decentralized autonomous organization (DAO) will have compliance baked in, Crook added, since R3 designed the Corda network such that each node represents a legal entity, identified by a trusted identity certificate. 

This ensures that XDC meets the G20-sanctioned Financial Action Task Force (FATF) standards on digital assets to deal with anti-money laundering (AML) risks, a challenge that Ethereum-based DeFi projects continue to be unable to address, Crook said. 

“Regulators have set the requirements for what a digital currency needs to be, and that’s exactly where XDC fits in,” said Crook. “It meets the requirements of most jurisdictions as a digital currency and is therefore a step ahead. We’re a next-generation Bitcoin or XRP.”

XDC DeFi

In addition, Crook said the XDC code will pave the way for things like central bank digital currencies (CBDCs) to run on Corda (especially since federal regulators in the U.S. recently announced that national banks can hold reserves for stablecoin issuers), and also allow for what he called “a cleaned-up” expansion of DeFi.

“Anything in finance needs to solve the know-your-customer identity problem out of the box, as well as provide privacy between the parties that are transacting,” said Crook. “With many DeFi projects to date, if the technology doesn’t solve that, they seemingly ignore those requirements and wait for regulators to give chase.”

The XDC system, with its reliance on the U.K.’s mutual societies legal structure, shows that the core tenets of DeFi are actually centuries old, said Crook.

Read more: R3 Corda Partners With Kaleido After Ethereum Startup Spins Out of ConsenSys

“It takes us back to that ability for legal entities to come together and share equity or debt and work together for a common aim,” Crook said. “That’s why cooperatives were created in the first place. And that’s why we are showing that with XDC, you can mix the legal and the technology components to solve this DeFi requirement set.”

U.K.-based institutional crypto player BCB Prime Services (which works with Bitstamp, Coinbase, Galaxy and Kraken) will provide OTC liquidity and custody services for XDC.



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‘Boring’ Bitcoin Market Sends Miners’ Fee Earnings to 3-Month Low

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Bitcoin’s transaction activity has cooled amid the recent lull in price action – and that’s hurting miners’ earnings.



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First Mover: ‘Blue Wave’ in US Senate Could Mean Flood of Stimulus for Bitcoin

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Bitcoin was lower, tracking what appears to be a new range between roughly $11,200 and $11,700. It’s a step up from levels that prevailed over most of September, between $10,100 and $11,000.

“As the bulls push for a return to a $12,000 handle, resistance will be found just below, at $11,900,” Matt Blom, head of sales and trading for the cryptocurrency exchange owner Diginex, wrote in a daily newsletter. 

In traditional markets, U.S. stock futures rose on fresh optimism that lawmakers might reach agreement on a new federal stimulus package. Gold strengthened. 

Happening Monday: Federal Reserve Chair Jerome Powell is scheduled to appear at a panel sponsored by the International Monetary Fund on “the benefits and risks of cross-border” digital currencies. 

Market moves

Alert readers will recall that First Mover argued in this column last week that next month’s U.S. presidential elections may not matter too much for bitcoin’s price – because trillions of dollars of stimulus money are likely no matter who wins. 

The calculus may also hold for whoever wins the upper chamber of the U.S. legislature, the Senate. 

President Donald Trump is trailing in polls with just two weeks left until the Nov. 3 election day, so Wall Street analysts are starting to handicap the likely market reaction if the U.S. leader’s lack of popularity translates into a takeover of the Senate by the opposition Democratic party.  

The scenario “most likely to occur under a Democratic blue wave” is one of “overly easy” fiscal policy, eventually eliciting a response from the Fed, Deutsche Bank Chief International Strategist Alan Ruskin wrote last week in a report. A weaker U.S. dollar could result, Ruskin wrote, which could be good for bitcoin prices. 

Even if Trump’s Republican party holds the Senate and fiscal policy were “inappropriately too tight,” then the “burden of responsibility” would fall on the Fed to pursue additional money printing to keep markets from convulsing.

There’s little pressure at the moment to impose fiscal austerity. None other than the International Monetary Fund recommended last week that governments spend more to fight the pandemic and bolster economies despite public debt reaching record levels. 

Kristalina Georgieva, the IMF’s managing director, noted in published remarks that governments had allocated $12 trillion of extra aid this year and central banks had expanded their balance sheets by about $7.5 trillion. She said she expects debt levels in 2021 to rise to about 125% of gross domestic product in “advanced economies.”  

“The scale of government money committed is extraordinary,” Deutsche Bank strategist Jim Reid wrote in a separate note last week. “With [COVID-19] spreading and restrictions mounting, this won’t be the end of such fiscal support and will maybe herald a new era of fiscal largesse.” 

With nearly $20 trillion pumped into the economy this year by governments and central banks, prices for bitcoin, seen by many investors as a potential hedge against inflation, have surged 60%. Bitcoin traders can be forgiven for betting that prices will rise further as trillions of dollars more in stimulus are deployed.  

Chart showing advanced-economy government debt as a percentage of gross domestic product. The dotted line in the blue on the upper right signifies the IMF’s forecast.
Source: Deutsche Bank

Bitcoin watch

bitcoin-longs-cme

CME Bitcoin futures market positioning.
Source: Skew.

BTC’s recent resilience to several exchange-related issues seems to have given institutions the confidence to increase their bullish bets.

In the week ended Oct. 13, institutional investors increased long positions by over 9%, taking the tally of bullish bets to the record high of 3,500 contracts reached in mid-September.

The numbers were revealed by the Commitment of Traders (COT) report published by the U.S. Commodity Futures Trading Commission (CFTC) on Friday.

Bitcoin’s price rose to multi-week highs above $11,700 during the seven days to Oct. 12. Since then, however, the cryptocurrency has remained sidelined largely in the range of $11,200 to $11,700.

The on-chain activity has cooled due to the comatose price action. Bitcoin’s blockchain processed 231,437 transactions on Oct. 18, the lowest since May 24, according to data provided by the blockchain analytics firm Glassnode. 

The combination of low volatility consolidation and pullback in transaction count often creates bullish conditions. That’s because, exchanges earn fewer BTC in fees with the slide in transaction count. As such, supply of BTC from exchanges drops, putting floor under prices. 

That, coupled with record institutional bullish positioning suggests the path of least resistance is to the higher side. At press time, bitcoin is trading near $10,480.

Read More: ‘Boring’ Bitcoin Market Sends Miners’ Fee Earnings to 3-Month Low

Token watch

OKB (OKB): OKEx exchange token loses 30% of market value since withdrawal suspension due to private keyholder being “out of touch.”   

Filecoin (FIL): Wild first days of trading in decentralized data-storage company’s tokens end with price around $34 and market cap of $560 million, according to CoinGecko, though variations are large across exchanges. 

What’s hot

Huobi contrasts security approach with rival OKEx’s, saying “multiple people and multiple backups ensure the availability of the private key.” (CoinDesk) 

Sweden’s top central banker pushes hard for launch of “e-krona” digital currency in new economic note. (CoinDesk)

Diginex management’s projection of 5x Coinbase’s trading volume by 2023 “seems ambitious.” (CoinDesk Research)

Release of Filecoin’s FIL tokens signals growing market for “storage tokens.” (CoinMarketCap) 

DeFi 3Q revenue dwarfed previous three-month periods by “a few orders or magnitude.” (Bankless):

defi-quarterly-revenue

Quarterly revenue of DeFi projects, based on data from Token Terminal.
Source: Bankless

Analogs

The latest on the economy and traditional finance

China growth hits 4.9% versus a year earlier, on track to be world’s only major economy to expand this year. (WSJ) 

JPMorgan CEO Jamie Dimon says biggest U.S. bank has $300B of cash and doesn’t want to put money into investments returning 0.6% to “get a teeny bit more” of interest income. (Bloomberg) 

Nancy Pelosi says she’s optimistic about legislation being passed before Nov. 3 presidential election. (CNBC)

After last week‘s IMF and World Bank meetings, columnist suggests that government stimulus funds should be used for investment in infrastructure, education and climate-change mitigation rather than “ill-targeted subsidies.” (South China Morning Post)

U.S. budget gap tripled to record $3.1T in fiscal 2020 ended Sept. 30 (WSJ):

deficit

U.S. federal budget deficit/surplus since 1950.
Source: Federal Reserve Bank of St. Louis

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