A Halifax court has granted an extension to QuadrigaCX’s creditor protection deadline. The story of the now-defunct crypto exchange that has most gripped the space so far in 2019 is therefore set to continue.According to court documents, QuadrigaCX’s CEO, Gerard Cotten, died with the only knowledge of how to access the firm’s crypto cold storage solution. There is an estimated $145 million missing, a large potion of which is owed to the exchange’s customers.Quadriga Given a Month and a Half to Find Missing CryptoMuch talked-about digital asset exchange platform QuadrigaCX has been granted an additional 45 days worth of creditor protection. The decision was made by a Nova Scotia Supreme Court Justice, Michael Wood, earlier today.Wood also approved the motion to allow for the appointment of a chief restructuring officer to oversee the now-insolvent firm. However, the Justice was keen to point out that said officer would need to be monitored by a court-appointed delegate to ensure that professional fees did not run up too high. This monitor is also to have access to transnational data stored with Amazon Web Services, which may help in finding the missing funds.The decision to extend the creditor protection afforded to Quadriga may well be a response to the recent report by “Big Four” auditing firm, Ernst & Young. It states that the company had successfully identified six of the supposed cold storage wallets used by Quadriga yet they were largely empty. In fact, apart from one single payment of $500,000 into them, there have been no deposits made in any since April 2018.According to Toronto-based news publication The Star, of the US$145 million total missing, over US$52 million is owed to Quadriga customers.Quadriga users leaving funds on the exchange stand to lose out.This has caused various theories to abound about the whereabouts of the money, particularly given some of the circumstances surrounding Cotten’s death. Firstly, the Quadriga CEO died in a part of India known for having “fake death mafias” – organised gangs who will take care of all the paper work needed to make someone vanish administratively. Many have therefore accused the late Cotten of exit scamming his way out of Quadriga.More recently, allegations have been made that the funds are in fact sitting on several large exchanges, including: Poloniex, Kraken, and Bitfinex. Research leading to this conclusion was published on the Zerononcense Blog.However, Kraken CEO Jesse Powell refuted this narrative, whilst also reminding those who have lost funds thanks to the Quadriga missing keys debacle that the best chance of them getting their money back was if the money was indeed resting in a couple of exchange accounts.Powell has himself been particularly active in the hunt for the Quadriga millions. The CEO even pledged to gift $100,000 in either cryptocurrency or fiat to whoever could give meaningful information leading to the recovery of the missing money. Related Reading: QuadrigaCX Imbroglio Continues: Cotten Mentioned Bitcoin Key Loss In 2014Featured Images from Shutterstock.
Archives for March 5, 2019
The cryptocurrency market surged by $6 billion on Tuesday, propelling litecoin to a new yearly high and launching bitcoin one step closer to a major hurdle it needs to cross before it can slay its historic bear market.
As of the time of writing, the cryptocurrency market had a total valuation of $132.3 billion. Daily volume stood at more than $33 billion, a full $5 billion above where it was at this time on Monday.
Binance Coin, Litecoin Headline Buoyant Crypto Market
In what seems to be a developing trend, the bitcoin price did not lead the charge. Instead, two altcoins – first binance coin and later litecoin – catalyzed the rally.
Binance coin, the utility token from the world’s largest cryptocurrency exchange, rose a staggering 17.84 percent to $13.40. Its $1.9 billion market cap places it just $150 million behind stablecoin giant tether on the market cap charts.
Hours later, the litecoin price began to surge, rising more than 10 percent in a matter of minutes. For the day, the coin is up 13.86 percent to a present global average $52.93. At its peak, litecoin reached $54.68, marking a new 2019 high.
Bitcoin Price Moves Closer to Key $4,000 Level
Bitcoin did see gains, of course, rising a solid 3.29 percent to clear the $3,830 level on Bitstamp and Coinbase. Its global average stood at $3,872, a full $168 above its previous-day low according to Yahoo/CryptoCompare.
However, its lagging performance relative to other large-cap assets caused it to lose market share. “Bitcoin Dominance” stands at 51.7 percent, down from 52.4 percent on March 4.
Will Bitcoin Price Retest Major Resistance Level?
It’s not clear what triggered today’s upward grind.
Analysts searched for fundamental indicators, pointing to litecoin’s move toward increased privacy, as well as a high-profile partnership to allow KPOP fans to pay for concert tickets using LTC. However, both of those factors stem back into February and January, making it unlikely that either of them would spark such a dramatic rally nearly a week into March.
There’s also the report that Starbucks will accept bitcoin, but that news is not as cut-and-dried as it initially appeared, nor would it explain why bitcoin failed to lead the advance.
— Peter Brandt (@PeterLBrandt) March 5, 2019
More likely is that traders want to retest upside targets following Sunday’s sell-off and subsequent consolidation. Bitcoin, for instance, traded as low as $3,670 on March and had shed $520 after it failed to clear resistance at $4,200 on Feb. 23. It still has considerable breathing room before it would need grapple with that technical wall again, even after today’s rally.
On the off chance that it does manage to get there within the short-term, the flagship cryptocurrency would still have a long way to escape its longest-ever bear market. How far? According to analysts at crypto broker BitOoda, bitcoin must eclipse the $6,000 mark before the market officially turns bullish.
Unless you’re tax-evading bitcoin bull John McAfee, this is the time of year when Americans begrudgingly prepare to file their tax returns. To streamline this process, Big Four accounting firm Ernst & Young introduced a cryptocurrency tax tool.
Ernst & Young said it designed its EY Crypto-Asset Accounting and Tax (CAAT) program specifically for its clients who invest in cryptocurrencies. The accounting juggernaut said the U.S. rollout of the software is part of its strategy to become a leader in blockchain services.
“EY CAAT has the ability to source transaction-level information from virtually all major exchanges.
It consolidates data from multiple sources and allows for the automated production of various reports and dashboards, and preparation of IRS tax returns related to crypto-assets.”
Coinbase Partnered with TurboTax in January
EY is following in the footsteps of Intuit, which teamed up with cryptocurrency exchange Coinbase in January. Under that partnership, Coinbase customers can import all their Coinbase transactions directly onto Intuit’s TurboTax tax-preparation software.
The IRS released its initial guidance on cryptocurrency taxes in 2014, when the bitcoin price never topped $640. By 2017, the bitcoin price rocketed to a record high approaching $20,000.
The industry’s meteoric growth caused mass confusion among bitcoin investors, many of whom claimed they didn’t know they were required to pay taxes on their capital gains.
Lawmakers Urge IRS to Clarify Tax Guidelines
In September 2018, a group of U.S. lawmakers asked the Internal Revenue Service to provide updated guidelines on how taxpayers should report profits from their crypto investments.
In a strongly-worded letter, the lawmakers rebuked the IRS for not providing more clarity even as it aggressively pursued alleged tax evaders.
“More than a year after our initial letter [in May 2017], the IRS continues to expand its enforcement activities without issuing any further guidance for taxpayers.
We therefore write again to strongly urge the IRS to issue updated guidance, providing additional clarity for taxpayers seeking to better understand and comply with their tax obligations when using virtual currencies.”
Here’s What Is Taxed
Not every crypto transaction is taxed. According to TurboTax, you are required to report cryptocurrency as income if you did the following:
- Sold bitcoin (or any other crypto).
- Converted bitcoin to fiat currency.
- Used cryptocurrencies to pay for goods or services.
- Received free crypto through a fork or an airdrop.
Your transactions are not taxed if you:
- Bought bitcoin but never sold it.
- Gave crypto as a gift to a friend or family member, and the gift was less than $15,000.
- Purchased crypto with a Self-Directed IRA or Solo 401(k).
John McAfee Is On the Run for Tax Evasion
If you follow the aforementioned guidelines, you probably won’t run afoul of the IRS like bitcoin evangelist John McAfee has.
As CCN reported, the IRS is hunting the software mogul after he admitted that he has not filed a tax return in 8 years.
In January, McAfee boldly declared that he would rather go to war with the IRS than back down because “taxation is theft.”
Besides, McAfee — whose net worth once topped $100 million — said he has paid more than his fair share of taxes during his lifetime, and enough is enough.
McAfee then goaded the IRS, saying:
“I have prepared my entire life for this battle. We will not be able to shrug off the yoke of this corrupt and insane government without a struggle…Here I am.”
We declared our independence from Britain and fought a bloody war to escape burdensome taxes, yet here we are, less than 250 years later, being burdened by income taxes that are more crushing than anythung rhe British dreamed of. Free yourselves people!https://t.co/mYy6z06tHc
— John McAfee (@officialmcafee) January 4, 2019
McAfee: Free Yourselves from the Government
McAfee’s defiant stance has made him a quasi-folk hero among some in the crypto community. Interestingly, being on the run from the law has not stopped McAfee from running for U.S. president.
Unlike his rivals, McAfee has an unusual campaign slogan: “Don’t vote McAfee.” The software pioneer says his goal is to champion cryptocurrencies and to fuel a populist, anti-government movement.
“My campaign platform contains one item: how do we free ourselves from a government that no longer serves us, but instead has become our master – controlling our every action.
It is a government that has gone insane. While we carry the burden of this government, we are not free. Any attempt to address national problems, of any nature, is doomed to failure. Until we free ourselves, we are powerless to create any real change.”
Great F—ing article about my campaign. Rare. The media usualy snorts my dirty underwear or rummages through my garbage to get a story. Have no idea where this came from.https://t.co/OKVuXETP11
— John McAfee (@officialmcafee) January 30, 2019
It took six months for the Bitcoin price to register a positive 30-day performance.The world’s leading digital asset, which continues to be in its most extended bearish cycle, corrected 10.4% to the upside in February. It marked the third time in the past 12-months that bitcoin registered a profitable month, the last being July and April, which posted 21.5% and 25.1% returns, respectively.BTC Performance Over the Years | Source: RPTR45Twitterati RPTR45 noted that February was the lowest volatility month of bitcoin in comparison to July and April 2018. Per monthly data, BTC’s volatility rate in February 2019 was 2.70%. At the same time, July and April 2018’s volatility rates over their respective 30-day course were 3.28% and 4.53%. Also, on an annual basis, February was the lowest volatility month since April 2017 that posted positive BTC performance.0/ February was the first positive month for $BTC performance since July of ’18 snapping a 6-month losing streak (the longest on record). And only the 3rd + month in the last 12. pic.twitter.com/73Xj6LkzmS— Rptr45 (@Rptr45) March 4, 2019Did Bitcoin Bottom-Out?The jury is divided over bitcoin’s next potential price direction. Some analysts believe that the digital asset is due for another bearish breakdown – perhaps towards $1,5000. At the same time, others say that bitcoin has bottomed out at $3,100, a level from where the asset bounced during the recent mid-December session.That big bitcoin resistance bar on 1D chart | Source: TradingView.comBitcoin Hasn’t Performed Well in 2018 But Analysts Say It’s Just Fine to Hold BTCAt the current rate, the bitcoin-to-dollar exchange price has corrected 23.55% since the 2018 low. Meanwhile, on five occasions, the pair have attempted to breach above 4100-4423 area. That pretty much puts the BTC market in a wait-for-the-break mood, where small investors wait for big whales to make drastic price moves. In reality, it is a $1,300-wide consolidation area confirming a significant interim bias conflict.
The reality is that the predictions are unpredictable for an asset whose 90% of the trades take place in unregulated markets. Last year, almost every major crypto investor had called $6,000 a bitcoin bottom. But what happened during the November 2018 bloodbath shot many of such analysis down. The bitcoin price was way below $6,000, and unless we reclaim that level for good, there is no chance we have bottomed out completely.
In the end, it is about an investor’s timeframe within which it wants to long or short its BTC positions. It brings us to the near-term price actions to realize potential opportunities that are closer. To that end, is March looking any better than February for Bitcoin?
Let’s leave the famous million dollar price predictions aside, and study bitcoin through its latest price actions.
According to the TradingView.com chart above and data sourced from a regulated spot exchange Coinbase, one can notice how BTC earlier formed two falling wedge patterns, followed by a breakout action.
As of now, the bitcoin price action is looking to repeat the same pattern. It means that the price could trend lower during the first half of the March month while fluctuating between the parameters of its newly formed falling wedge. Upon reaching the apex of the wedge, BTC could likely see a drop in volume and volatility on the daily chart. And again, it could attempt an upside break towards the resistance area as discussed above – in the second half of March.
Frankly, March is looking as good as February based on the latest price behaviors.
Beyond March – and quite fundamentally – bitcoin pros outperform its cons. The institutional market is already in its final steps before it integrates BTC trading products wholly. That includes the launch of Bakkt, a bitcoin futures platform, and a potentially favorable outcome for the first bitcoin exchange-traded fund that is awaiting US regulatory approval.
Tron’s TRX jumped 8.5-percent against the US dollar per its 24-hour adjusted timeframe.
The TRX-to-dollar instrument (TRX/USD) was trading at 0.023 by 1400 UTC, down 4.16-percent from its intraday high. In contrast, the pair had dropped massively during Monday’s trading session, establishing a lower low towards 0.021. However, a market-wide upside correction saw to TRX/USD revival during Monday’s US session. The sentiment rippled through today’s Asian and European trading hours. As a result, the pair managed to settle a fresh intraday high towards 0.024.
In total, the cryptocurrency market cap has surged from $125.418 billion to $130.66 billion in the past 24 hours. Among the high cap assets, Binance Coin and Litecoin are leading the bullish correction with gains ranging between 13-, and 18-percent. At the same time, Ethereum and Bitcoin Cash have registered close to 5-percent appreciation. Meanwhile, Bitcoin, XRP, and Stellar have jumped a modest 2- to 3-percent.
Tron (TRX) – Fundamentals
While Tron is naturally moving in the direction the overall market trend, its upside has more potential to sustain owing to strong fundamental factors. On Monday, controversial crypto firm Tether announced that it would launch its stablecoin USDT on Tron blockchain. The addition expects to elevate Tron’s decentralized application ecosystem, increase their decentralized exchange liquidity, and make Tron more available to institutional investors.
#TRON is partnering with @Tether_to, officially introducing USDT into the TRON #blockchain. This integration will elevate our dApp ecosystem, increase DEX liquidity, and enhance accessibility for Partners and institutional investors. $TRX $BTT https://t.co/OL6gFK1C0h
— TRON Foundation (@Tronfoundation) March 4, 2019
Tron CEO Justin Sun also announced today that they would launch their second BitTorrent Token airdrop on March 11, 0000 UTC. The event would see TRX holders receiving 990,000,000 BTT tokens. That also explains why TRX could sustain its bullish correction until the date of the airdrop – at least.
Tron (TRX) – Technicals
As the TRX/USD market heads into a new US session, the pair’s upside momentum is being capped by a 200-period simple moving average (depicted in the red curve). At the same time, TRX is religiously supported by an ascending trendline, which has helped the price rise 9.66% across 28 bar formations. TRX/USD expects to trend between these two key levels this Tuesday.
Tron could attempt to break above the 200-SMA once provided with adequate trade volume, which is relatively lower at the press time. Should it happen, the digital asset will enter a false breakout area defined by 0.024 and 0.025. Apparently, the same area served as a consolidation range to the TRX price action between Feb 24 and March 2. Therefore, a jump above 200-SMA opens decent long opportunities towards levels defined inside the 0.024-0.025 area.
Meanwhile, a converse price action could push TRX/USD towards the ascending trendline as mentioned above. Therefore, a pullback action coupled with an increase in volume could open a short intraday opportunity towards the said trendline.
Just over a week after launching a Bitcoin exchange traded product, SIX Swiss Exchange has announced an Ethereum ETP. The new financial products trading at the largest stock exchange in Switzerland have been issued by Amun AG, a digital currency startup based in crypto-friendly Swiss alpine town of Zug.Neither the Ethereum ETP announced today or the Bitcoin one launched at the end of last month is a first for SIX and Amun AG, however. The startup helped the exchange launch the HODL5 fund – an index of five leading digital assets – at the end of 2018.Is Swiss ETP a Sign of Ethereum Going Institutional Along With Bitcoin?Swiss crypto startup Anum AG and the nation’s largest stock exchange, SIX, have announced the launch of an Ethereum exchange traded product (ETP) according to the latter’s website. The news comes a matter of days after the exchange first listed its Bitcoin exchange traded product.The Ethereum ETP will be listed under the symbol AETH. Meanwhile, the Bitcoin one is referenced as ABTC. SIX will charge a 2.5 percent management fee for traders buying and selling either product. Both are also to be traded against the US dollar.SIX Swiss Exchange previously launched a basket of five major cryptocurrencies to give investors exposure to the market without requiring technical knowledge of digital asset storage or the risk that it can entail. HODL5 is comprised of Bitcoin (BTC), XRP, Ether (ETH), Bitcoin Cash (BCH), and Litecoin (LTC). The percentage included of each in the index corresponds to the relevant crypto’s market share and is adjusted each month.The AETH and ABTC ETPs by SIX should not be confused with ETFs.Those who remember the launch of SIX’s previous exchange traded product last November might recall that there was a lot of confusion over the difference between an exchange traded fund, like those much-anticipated examples proposed by the Winklevoss Twins and VanEck, and the ABTC, AETH, and HODL5 ETPs offered by SIX.An ETF is a special type of ETP. There are already examples of crypto ETPs even serving the US market. The Bitcoin Investment Trust by Grayscale Investments is one. Since the SEC or other relevant financial regulatory body (FINMA in the case of Switzerland) does not need to approve an ETP, they are easier to create.Likewise, however, because ETPs such as those launched by SIX do not need the same approval as those ETFs currently being considered by the SEC, they are not seen as such a potential catalyst for big sentiment shifts in the Bitcoin and surrounding cryptocurrency markets as “the ETF” is. This is because a green lighted ETF would be deemed to be approval of the asset class by one of the planet’s largest financial regulators. Since the SEC’s rulings are often followed world wide, it would make it more likely that other jurisdictions would adopt similar, crypto-friendly policies going forward. Related Reading: 58% of US Investors Would Invest in Bitcoin via ETF: Major Hedge FundFeatured Images from Shutterstock.
An article in The Block yesterday includes the following statement: “Only U.S. customers will be able to pay in bitcoin initially.” They’re referring to Starbucks’ recent deal with Bakkt, the great hope of the crypto industry, which might manage to pull off the first crypto ETF. The deal gives Starbucks significant equity in Bakkt, but at no point does it actually require Starbucks to accept Bitcoin. And, for its part, Starbucks reportedly has no intention of doing so – at least not in the conventional manner.
Starbucks: We’ll Help You Convert Crypto to Cash
The company told The Next Web that rather than accept crypto directly, it will create more ways for customers to convert bitcoin and other assets into fiat, which can then be used at their stores (emphasis added):
“Our role as the flagship retailer for Bakkt is to consult and develop applications for customers to convert their digital assets into US dollars, which can then be used in our stores. We anticipate that a range of cryptocurrencies will gain traction with customers and, through our work with Bakkt, we will be uniquely positioned to constantly consider and offer customers new and unique ways to pay seamlessly, at Starbucks. As we continue to move forward with this work, we anticipate we’ll have more to share in the coming months.”
So, some type of gift card situation is what’s brewing at Starbucks. Some kind of Bakkt-powered seamless payment platform seems possible. As regards the Seattle-based coffee giant, however, the notion of a Bitcoin QR code at checkout seems far-fetched.
Hardcore Bitcoiners Don’t Want Coffee on the Blockchain Anyway
These days, actual Bitcoin acceptance is more complicated than ever. Mainstream Bitcoin Core supporters eschew the idea of paying for things like coffee with Bitcoin – unless you’re talking about using the Lightning Network. Unfortunately, that puts an even greater technical demand on companies like Starbucks, who are already unlikely to integrate crypto payments.
Bitcoin Cash, on the other hand, wants exactly this type of transaction. But neither is currently in the running for replacement of gift cards or the Starbucks app. It seems the goal of the Bakkt partnership is to be a test case for expanding payment options.
International travelers might get the best of the deal – maybe some type of stablecoin settlement mechanism. Perhaps you will able to instantly convert your funds from back-home for daily use at international merchants, beginning with Starbucks.
As The Next Web’s Yessi Bellow Perez says:
“Starbucks allowing consumers to convert their cryptocurrency into fiat is certainly not the same as Starbucks accepting payments in digital currency […]”
Other blockchains could arguably handle it, but there’s an issue of user demand. Historically speaking, dozens of companies have integrated crypto payments only to find that a lack of demand makes it less than worthwhile. Major companies like Expedia have quietly discontinued Bitcoin payments, and we have to ask ourselves if we want Starbucks to be the next on the list of companies to do so.
Coinbase CEO Brian Armstrong has responded to criticisms about betraying the values of Bitcoin and crypto more broadly with its recent acquisition of Neutrino.
Those Neutrino team members who previously worked at Hacking Team will “transition out of Coinbase,” the chief executive said late Monday. Hacking Team, one may recall, was a pioneer in selling hacking tools exploited by authoritarian governments to crack down on journalists and dissidents instead of criminals.
Congrats to Coinbase on the acquisition of chain analysis startup Neutrino!
FYI, the CEO, Giancarlo Russo, was ex-COO of HackingTeam (https://t.co/qyQ6mLU8XE), who sold “offensive intrusion and surveillance capabilities to governments, law enforcement agencies and corporations.” pic.twitter.com/VVza5AjIYa
— Arjun Balaji (@arjunblj) February 19, 2019
Reiterating that “Neutrino had some of the best technology” among blockchain analytics providers, Armstrong explained in a blog post:
“However, we had a gap in our diligence process. While we looked hard at the technology and security of the Neutrino product, we did not properly evaluate everything from the perspective of our mission and values as a crypto company.”
“We took some time to dig into this over the past week, and together with the Neutrino team have come to an agreement: those who previously worked at Hacking Team (despite the fact they have no current affiliation with Hacking Team), will transition out of Coinbase. This was not an easy decision, but their prior work does present a conflict with our mission.”
“This was not an easy decision, but their prior work does present a conflict with our mission.”
Actually, it’s one of the easiest decisions imaginable.
— ⚡️Crypto Roth₿ard⚡️ (@CryptoRothbard) March 5, 2019
Bitcoin Exchange Reveals That Vendors Were Selling Client Data to ‘Outside Sources’
Neutrino had been the target of criticism as a result of the fact some of its top employees were integral team members at Hacking Team, a company that built hacking tools to sell to the police and federal security organizations.
Over the weekend, Coinbase head of sales Christine Sandler said that the company had a “compelling” reason to acquire Neutrino for blockchain intelligence: Coinbase’s vendors had been selling client data to “outside sources.”
Sandler told Cheddar:
“It was really important for us to migrate away from our current providers — our current providers were actually selling client data to outside sources. It was really compelling for us to kind of get control over that and have proprietary technology that we could leverage to keep the data safe, and to protect our clients.”
Give Credit to Coinbase
In seeking to acquire Neutrino, Coinbase had a just motive: to protect client data. In pursuit of that goal, the company obtained what it thought was the best tech solution, but it overshot its goal.
The new technological solution will hopefully ensure the integrity of client data, but it also brought what many perceived to be unethical baggage.
A #DeleteCoinbase movement even briefly formed on Twitter.
— BLOCKTV (@BLOCKTVnews) March 4, 2019
The company has shown, though, that it has listened to the crypto community. It could have put out a flowery, cleverly-crafted statement about how it plans to conduct a thorough investigation and still cares deeply about its mission. Instead, it took action: those who worked with Hacking Team will not be a part of Coinbase moving forward. And actions speak louder than words. Kudos, Coinbase.
“We sometimes need to make practical tradeoffs to run a modern, regulated exchange, but we did not make the right tradeoff in this specific case. We will fix it and find another way to serve our customers while complying with the law.”
Questions Linger About Just What Happened to Client Data
Coinbase’s prompt and decisive action is to be heralded, but it’s still not clear what client data was initially compromised or how long it had been compromised for before Nuetrino’s technology was added in mid-February.
— WhalePanda (@WhalePanda) March 5, 2019
Coinbase has declined to respond to CCN’s inquiries into these matters. We’ll update you as soon as the information becomes available.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.
The open-source developer group behind the dollar-pegged, ethereum-backed stablecoin DAI is considering whether higher fees could help stave off mounting liquidity issues.
During the weekly developer call on Feb. 28, some token holders, including MakerDAO founder Rune Christensen, voiced concerns about whether the peg, the mechanism by which the cryptocurrency holds a stable value, can continue under the present design constraints.
Christensen said last Thursday that the dai’s dollar-peg is “almost at a breaking point” as a lack of organic demand threatens to start a “dangerous feedback loop” driven by “a speculative drop in the price.” He then called for a community poll to guide stakeholder votes about increasing fees and raising the stablecoin system’s debt ceiling.
Launched Monday, people who hold MKR governance tokens are now able to vote on whether to raise the “Dai Stability Fee” from 1.5 percent to 3.5 percent. According to CoinMarketCap, the stablecoin has fluctuated between $0.98 and $1.02 across global markets so far in 2019. On Coinbase Pro and Bitfinex in particular, the range has consistently hovered around $0.98 since January.
“We were giving out a good deal but unfortunately, we’ve got to lock that back a little bit until we find the right level of stability fees,” said risk management lead at MakerDAO Cypress Younessi Tuesday during a public call.
Back in February, MKR holders voted to increase the fee twice by 0.5 percent. However, an official Reddit post published today warns that “the impact of this combined 1 percent increase was negligible” and further states:
“Accordingly, the Internal Risk Team suggests that the incremental step size for this and future proposals be increased by 2 percent until the trend in the peg has been corrected.”
The impact of these fee increases could have far-reaching effects on several applications already leveraging the popular stablecoin for in-house operations.
For example, Gitcoin bounties are frequently denominated and paid out in DAI coins, and entire payment channel platforms – such as the Connext Network that will soon see a mainnet launch on ethereum – leverage DAI as their primary transaction medium.
At present, there are currently over 2 million ether tokens locked in MakerDAO smart contracts, accounting for roughly 2 percent of the total ether supply.
Still, most dai adoption at the moment is taking the form of a “collateralized debt position,” meaning the user locks three times the amount of ether in a smart contract that they want to withdraw in the dollar-pegged DAI. Then, DAI holders generally liquidate the dai on external exchanges to pay fiat bills.
The growing popularity of such loans could be a contributing factor to the destabilization of the broader network. In short, it appears organic demand for DAI itself isn’t growing as quickly as demand for loans that have essentially become a fiat off-ramp.
Based on MakerDAO’s data, the gap between DAI holders who sold out their positions and those that return to purchase DAI later that same month (presumably to pay off loans), is widening in 2019.
To be fair, MakerDAO contributors and employees are working to increase demand for the stablecoin beyond the ethereum ecosystem.
Nadia Alvarez, MakerDAO’s business development associate for Latin America, told CoinDesk that crypto-financial service companies now use DAI for backend value transfers. For example, the bitcoin exchange BuenBit and the fiat currency exchange BuenGiro both use dai for value transfers behind the scenes.
Meanwhile, according to MakerDAO’s own statistics, the majority of new DAI holders spend the stablecoin loot within the first hour of acquiring it, presumably to liquidate the asset.
Plus, the ether collateral in any DAI CDP is automatically liquidated if the ETH price drops below 150 percent, compared to the original 300 percent collateralized. Users are not guaranteed they will get all of their collateral back. Therein lies the contradiction of DAI CDPs.
So far, it’s unclear who is in charge of feeding the price-tracking data into the smart contract.
There are several players in this ecosystem, including the DAI-centric project MakerDAO and the nonprofit MKR Foundation, with a secondary MKR token that grants holders the ability to vote on DAI governance issues.
A MakerDAO spokesperson said the year-old CDP smart contract was written by “Maker developers,” including the project’s “head of Oracles,” Mariano Conti, and has also been used by companies such as Compound Finance and Gnosis.
Without specifying any person or company by name, “for security reasons,” the spokesperson explained that a “decentralized network of Maker employees, community members and people from other projects” queries roughly 14 sources, aggregates their price data and calculates the overall median price of ether.
The spokesperson added that people who hold MKR tokens are the only ones with the power to vote to add or remove data sources. This becomes a crucial focal point as dai holders grapple with conflicting opinions on whether to increase the dai treasury’s debt ceiling.
Talk of “liquidating the [ether] collateral” if the broader market drops is a real prospect discussed during public governance meetings, although during the call Christensen emphasized this consideration is only hypothetical at the moment and the team aims to prevent that type of worst-case scenario.
And, according to a study by the venture capital firm Placeholder, less than 10 percent of MKR token holders participated in the previous vote to raise stability fees to 2 percent.
In order for this stablecoin to survive, it will require a diverse ecosystem of stakeholders. For now, DAI governance is managed by investors who hold the foundation’s MKR tokens, of which 6 percent is owned by Andreessen Horowitz’s a16z fund.
According to Etherscan, the top three MKR holders own a combined 55 percent of the tokens, with the top holder alone controlling 27 percent. A spokesperson for crypto hedge fund Polychain Capital confirmed it owns a “significant portion” of MKR tokens.
Likewise, 1confirmation co-founder Nick Tomanio confirmed his hedge fund is also a significant holder of MKR tokens, adding:
“MakerDAO is slowly turning [bitcoin] maximalists into cryptocurrency realists and is undeniably one of the most exciting projects in the ecosystem right now in terms of both ambition and real-world usage.”
As for the rest of the top 10 holders, their names are not publicly listed. Spokespeople for both ethereum co-founder Joseph Lubin, who owns the ConsenSys conglomerate that incubates MetaMask and GitCoin, and the Ethereum Foundation declined to comment on whether they own significant portions of MKR. Regardless of whether ConsenSys owns MKR, it is undoubtedly a key player pushing for broader retail adoption.
Austin Griffith, director of research at Gitcoin, developed the xDai burner wallet to help users join the system without generating private keys. According to Griffith, simplifying access to that first transaction and denominating value in dollars could make crypto more approachable for people who aren’t already familiar with tokens.
“We’re finally ready to make some of these tradeoffs,” Griffith said, “not having to think about .0001 ETH when you can just say you have one DAI and DAI is pegged to a dollar.”
Transparency and liability
The Maker Foundation, run by MKR token holders, funds the MakerDAO project, which is responsible for maintaining the price-monitoring system that’s referred to as an Oracle.
According to MakerDAO COO Steven Becker, by 2020, DAI users will be able to take dollar-pegged loans leveraging diverse tokens, such as those formerly used by ethereum projects in token sales and invested in heavily by companies like Polychain Capital.
In the meantime, Stephen Palley, a partner at the Washington, D.C.-based law firm Anderson Kill, told CoinDesk the lack of transparency around the DAI ecosystem and its Oracle could leave room for liability.
“They are paradoxically creating something that is supposed to transparent, but basing it on something that they apparently won’t explain,” Palley said. “What assurance is there that liquidations are based on rational, objective, reasonable analysis? I suspect – though I don’t know – that there is an Oz behind the word Oracle. I’d be curious to know who sits behind that curtain.”
The plan for the revamped Oracle system has dai users like Richard Burton, CEO of crypto wallet company Balance, feeling bullish. Burton took out a CDP to pay salaries at his startup. Likewise, former SpankChain employee Chelsea Palmer, who was laid off when ether prices tanked, tweeted that she plans to put her remaining ether into dai CDPs to pay her fiat bills.
Regarding the growing use of CDP loans, Burton told CoinDesk:
“The reason Maker has gotten people so excited, including myself, is it’s finally started to deliver to people something meaningful and tangible.”
Christine Kim contributed reporting.
MakerDAO image via ETHDenver YouTube