#58 The FTX Crash. Mastercard Announces New Blockchain Program for Startups.
Disclaimer: Everything we write in "The Crypto Insider Report" is an x-ray of the industry as we see it, through the lens of publicly available information. We are not financial advisors.
The FTX Crash
It’s Friday, [some of] the dust has settled after the FTX events unfolded and I wanted to first of all provide a summary of what we know so far, as well as some thoughts I have about this and what it means for Crypto & Blockchain long term.
Why a summary? Well, as always, the purpose of our newsletter is to get you up to date with key events and provide guidance for where to look for more if you want to. A lot has been written on this event, so I suggest if you want to dive deeper to start from the tweets I’ll link, as well as the usual long-form places like CoinDesk and Cointelegraph. Last but not least, Onchain Wizard wrote a great play-by-play. Onwards!
First of all, SBF ran two companies that proved to be closer than everyone thought (I’ll explain) - FTX, the centralized exchange and Alameda Research, a trading firm, also market maker for FTX. Everything seemed fine and SBF seemed unstoppable, with FTX growing and Alameda doing great, even rescuing distressed BlockFi and Voyager after the LUNA crash.
What we didn’t know at the time was that Alameda was likely to crash as well when the LUNA incident happened, but SBF transferred (borrowed) customer funds from FTX to Alameda in order to prevent that from happening.
Time passed, nobody noticed anything, SBF looked like a winner. That is, until this month (November 2022) when concerns were raised about Alameda’s balance sheet. Basically, it looked like it had a lot of debt and not a lot of real assets, the highest being a huge bag of FTT (FTX’s token), which didn’t really have a lot of value to them as given the position’s size, selling it on the market would have essentially nuke its price.
Enter CZ, SBF’s sparring partner, who announces that due to recent revelations, Binance has decided to sell its own FTT bag. There’s a lot of room for speculation here. Some say that SBF’s lobbying efforts have been detrimental to CZ and Binance and that this might have been the underlying reason. Others say it simply was a good opportunity to take out a competitor. We don’t know.
FTT’s price started going down, increasing the risk of entities borrowing against it getting liquidated (entities such as Alameda!), causing concerns, causing people in the end to 1. sell whatever FTT they had and 2. get their funds off FTX, causing what is traditionally called a bank run. CZ offered to buy FTX pending due diligence and, guess what, decided not to. Apparently, the hole FTX was in was too big.
To wrap it up, at least to the point of what we know today, FTX handled about 6 billion USD of outflows until it had no more to give and suspended withdrawals. The Securities Commission of The Bahamas (where FTX International is based) froze its assets and deemed the company bankrupt. The US Department of Justice started looking into the matter as well. And if I were to bet, it’s probably not over yet, with the risk of more things blowing up still.
So what does this mean for Crypto? Well, there’s no hiding the fact that this is yet another instance where skeptics get to say I told you so and the fact that one of the top 3 exchanges gets to be called a scam is not a great look. To find a silver lining to all of this, I think there are a couple of things to point out:
On chain transparency is what made it possible for people to find proof of the transactions between FTX and Alameda; the fear of getting caught might be the biggest motivator for doing the right thing moving forward;
DeFi (on chain) loans were the first to be paid off when all went south - why? Because algorithms and technology can’t be persuaded - they do what they are supposed to do, as opposed to humans running things. This might be a good vote of confidence for DeFi and on-chain activity moving on. CZ masterfully speculated this already, calling for Proof of Reserves for centralized exchanges;
Finally, as always, we will learn from this and better regulation will emerge to protect all the involved parties.
We are still early. What better proof than what just happened, right?
Delay in EU crypto regulation
Back in 2020, the European Union launched the Digital Finance Package (DFP) which includes the proposal for digital assets regulation, Markets in Crypto Assets (MiCA). Basically, the EU started regulating the sector given recent fintech, blockchain and other financial advancements and a relative lack of regulation. It’s meant to create a regulatory framework and a single market (as opposed to the ways digital tokens are currently regulated, individually by each country).
Sure, we’ve heard Gensler’s investor protection speeches but the EU tends to be more thorough and articulated when drafting such proposals. The proposal focuses on both tokens themselves (e-money, utility, asset-referenced) and their issuers (necessity for authorization and compliance) as well as services (custody, administration). BNP Paribas has a great, short presentation on it and i encourage you to check it out.
Earlier this week, the proposal was delayed (although it was voted by the EU Parliament) because of purely technical reasons: the lawyer linguists have a lot to go through. Hence, it was rescheduled for February 2023 and the proposal could go into effect in 2024.
It seems like the EU is doing what the US isn’t comfortable yet, trying to grasp and regulate tokens. It’s the only logical step for governments getting ready for a more digital economy and, while it may not be perfect as of now, its definitely a great foundation to be reiterated and discussed on in the future.
Mastercard Announces New Blockchain Program for Startups
Credit card giant Mastercard announced that it’s welcoming seven new startups into its global startup engagement program, Mastercard Start Path.
Since its inception in 2014, Mastercard Start Path has fielded applications from over 1,500 startups every year and the program has helped more than 350 businesses attract well over $3.5 billion in funding. Successful applicants are welcomed into Mastercard’s fintech network, where they’re given “growth-essential opportunities” to collaborate, receive mentoring and tap Mastercard’s existing connections and clientele in order to accelerate blockchain, Web3, and fintech innovation.
The following startups are joining Start Path to harness innovation in a way that powers economies and empowers people:
Digital Treasures Center (DTC) [Singapore] empowers merchants to pay, receive and transfer funds including card, cash and crypto, as well as process major currencies using DTC Pay.
Fasset [Abu Dhabi] is an emerging markets digital asset exchange, pioneering Web3 use cases for the next billion to enhance the way people own, connect and share digital assets.
Loot Bolt [U.S.] empowers organizations to build, grow and scale passionate communities by leveraging a Web3-powered social payments system.
Quadrata [U.S.] uses privacy-preserving and Sybil-resistant technology to bring identity and compliance to public blockchains, while also lowering reputational risk.
Stable® [Colombia] offers global remittances, peer-to-peer payments and card use based on a technology that stabilizes all global currencies, including stablecoins, safely and simply.
TBTM (Take Back the Mic) Studios [Dubai] is building the world’s first blockchain-based media fintech, turning culture into currency by rewarding fans and compensating creators for building communities around great content.
Uptop [U.S.] uses blockchain to create a clutter-free place for brands to control their customer relationships and for shoppers to receive fun, personalized rewards.
Mastercard’s support of the web3 innovative space has also been seen as part of their partnership with MultiversX ( Ex: Elrond) at their event, XDay, in Paris. Christian Rau, Senior Vice President Crypto and Fintech Enablement @ Mastercard Europe spoke on stage with Beniamin Mincu, MultiversX Co-Founder, about blockchains' payment rails and the metaverse. Backstage, Christian was also a guest of our special edition The Stakeborg Talks @XDAY. The episode will premiere today at 20:00 and the link can be found below.
Mastercard SUPPORTS INNOVATION IN CRYPTO. Christian Rau SVP Crypto Enabler Mastercard la XDay Paris
For more educational crypto content, check out the links below:
The Stakeborg DAO Talks on YouTube: https://www.youtube.com/playlist?list=PLOrFZZifNn4Nx4nSQL3WS52ALPXgrTSVG
Discord channel: https://discord.com/channels/901898461568442458/903006233584341052
StakeborgDAO Quarterly Reports: https://docs.stakeborgdao.com/reports/dao-quarterly-reports
Stakeborg Academy: https://academy.stakeborg.com/