Kiffmeister’s #Fintech Daily Digest (09/01/2020)

Crypto Opportunists Create 500 More Coins in New Phase of Mania

Fueled by a spike in speculative appetite, crypto-asset entrepreneurs are offering new digital coins at a torrid pace reminiscent of the initial coin offering (ICO) boom three years ago. Among the freshly listed: Porkchop, Davecoin, Spaghetti, Newtonium and Whale. Many have no obvious utility, but investors have poured billions into them up in hopes of riding one to an easy profit. This time, buzz is growing over decentralized finance applications that seek to cut out institutions from things like lending. Now, central banks are plowing trillions into the system, depressing bond yields and sparking a rush into alternative assets. More than 500 coins have been listed in the past month. 

Government of Bermuda Pilots Stimulus Token in Response to COVID Crisis

The government of Bermuda has commenced a pilot of a digital stimulus token in partnership with local private payments platform Stablehouse, which is expected to provide initial feedback on the viability of digital tokens in facilitating the purchase of essential products and services. In 2019, Bermuda began developing a blockchain-based digital ID system and announced that the public could pay their taxes with USDC stablecoins. The development of the stimulus token kicked off later in the year as part of the government’s larger initiative to create a comprehensive crypto ecosystem on the island that supports the adoption of digital currencies. The pilot token is based on Blockstream’s Liquid blockchain protocol while the Greenwallet app will enable payments via a point-of-sale terminal provided by Stablehouse. 

Using a DeFi protocol now costs more than $50 as Ethereum fees skyrocket

Gas prices on Ethereum posted fresh all-time highs on Tuesday as making a transaction now requires bidding more than 450 gwei, according to EthGasStation. Fees reach as low as 2 gwei in calm periods and were previously considered high at 30 gwei. The gas price is a generalized indicator of average prices, but translating it into actual transaction costs is not straightforward. Since different types of transfers consume varying amounts of gas, there is a very significant difference between simple Ether (ETH) transfers and interacting with a DeFi smart contract. Interacting with decentralized finance protocols has now become so costly that all but the wealthiest of users are priced out of DeFi. 

Data vs collateral

Collateral is used in debt contracts to mitigate the difficulties (“agency problems”) that arise when the lender’s knowledge of the borrower is incomplete (“asymmetric information”). Banks usually require borrowers to pledge tangible assets, such as real estate, to help offset such problems in credit assessment, or to reduce moral hazard and enforcement problems. By contrast, large technology firms (“big techs”) can use massive amounts of data (“big data”) to better assess firms’ creditworthiness. These capabilities could help to reduce the importance of collateral in solving asymmetric information problems in credit markets. 

BitMEX Launches Mobile Trading App in 140 Countries

BitMEX launched a mobile trading app in 140 countries, two weeks after BitMEX’s first-ever identity verification requirement was announced. Built completely in-house, the mobile trading product closely matches the desktop experience, including biometric unlocks and fingerprint scanning, and it is already up and running. 

MakerDAO Eyes Adding Gemini and Binance USD as Collateral

Maker (MKR) holders have voted to prioritize adding Gemini USD, Binance USD, and several other tokens as collateral assets to the Maker DAO protocol so those tokens can be used to generate DAI stablecoins. As a result, Maker “Domain Teams”—elected community members—will analyze these tokens and determine whether or not the protocol can handle them before the community takes a final vote to accept or reject them as collateral assets. 

AMPLs and YAMs aren’t Monies; They are Gambling Technologies

It’s hard to see why Ampleforth (AMPL) or YAM could ever replace a dollar. While the price of these tokens is relatively benign, their quantity fluctuates wildly. So the total purchasing power of AMPLs (or YAMs) held in one’s wallet is quite volatile despite the purchasing power of a given AMPL (or YAM) being stable. Put plainly, these aren’t dollar substitutes. The main use case for AMPLs and YAMs is as tokens in a financial betting game. Think of them as an access point to a self-referential guessing game—that is, a Keynesian beauty contest. 

What the Fed’s New Inflation Policy Means for Stablecoins

Changes in the Fed’s policy open a real possibility for building the new economy based on programmable money and regularly complaint payment rails operating entirely (or mostly) outside of the existing banking system. The broad expansion of payment mechanisms will democratize finance and make it much more inclusive and equitable. It will also force banks to become more nimble and agile to remain economically relevant. 

DeFi: The Hot New Crypto Trend Of 2020

DeFi stands for “Decentralized Finance”, which aims to recreate the traditional financial system with less, well, middlemen. Many of the traditional actions in the markets such as lending, borrowing, structuring derivative products, and the buying and selling of securities, can now be done through a decentralized open-source network. The vast majority of these applications are currently created on Ethereum, but in principle, other platforms with smart contract capabilities could work too. 

Narrow Banking with Modern Depository Institutions: Is There a Reason to Panic?

What would be the effect of imposing a 100 percent reserve requirement to depository institutions? This paper contends that reserves do not compete with loans on the asset side of banks’ balance sheets. Thus, they only affect liquidity provision by banks indirectly through their impact on the cost of loan and deposit creation. This cost could be driven to zero if, as the Eurosystem does, central banks remunerated required reserves at the same rate of their refinancing operations. The paper argues that the crucial constraint imposed by a fully backed banking system is collateral availability by depository institutions. 

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