The DeFi Frontier - March 24, 2023

Welcome to another edition of the DeFi Frontier, a newsletter about DeFi innovation for the real world! Crypto headlines were spicy this week, featuring regulatory drama involving an eclectic group of players (including Lindsay Lohan??). But as always, at Tribal, we’re focused on cutting through the noise and building products that change people’s lives for the better. Read on to find out what we’re watching this week!

News Wire

Drama and intrigue 👀

• March 22 - SEC to charge Coinbase with securities law violations. Coinbase received a Wells notice, which alerts recipients of impending SEC enforcement actions. This is despite Coinbase’s well-documented attempts to comply fully with all relevant regulations. (link)

• March 22 - SEC sues Justin Sun for securities law violations related to TRX and BTT. The SEC alleged the sale of unregistered securities, fraud, and market manipulation. Numerous celebrities, including Lindsay Lohan, settled with the SEC on charges of having promoted the assets without properly disclosing their compensation. (link)

Scaling 🏗️

• March 23 - Salesforce partners with Polygon to enable NFT loyalty programs. Through this partnership, Salesforce will allow clients to launch token-based loyalty programs. (link)

• March 21 - Coinbase integrates Brazil’s Pix payment network and adds Brazilian Portuguese language support. Coinbase announced the integration of Brazil’s real-time payment network Pix, reflecting the company’s expansion plans for Latin America’s largest crypto market. (link)

• March 20 - Microsoft tests built-in ETH wallet for Edge browser. Screenshots of the built-in wallet were leaked on Twitter. According to Statcounter.com, Microsoft Edge is the world’s third largest browser by market share, with 5% share. (link)

• March 18 - Major banks including JPMorgan are opening accounts for crypto customers. Despite attempts by regulators to discourage bank interactions with crypto, banks like JPMorgan, Citi, and HSBC are reportedly still open to crypto customers. (link)

Innovation ⚡

• March 22 - Obligate debt protocol completes first tokenized bond issuance without bank involvement. Obligate facilitated the sale of tokenized corporate bonds for Muff Trading AG, a Swiss physical commodities trader. These tokenized bonds are issued on Polygon. (link)

• March 22 - Telegram enables USDT transfers between users. USDT Tron was added to the @wallet marketplace. Users can now add USDT as attachments within chats. (link)

Analysis 🔎

This week, U.S. regulators intensified their campaign against the crypto industry, with the SEC announcing investigations or enforcement actions concerning a wide range of industry players. Frankly, we’re not sure which target of SEC charges is more surprising: Coinbase or Lindsay Lohan.

Ok, it’s definitely Lindsay Lohan, but still, the potential charges against Coinbase are shocking. There are definitely some shady players in the crypto ecosystem, but Coinbase is not one of them. Coinbase’s blog post on the subject is well worth a read.

Continuing on the subject of digital asset regulation, we wanted to share some thoughts on an adjacent topic: Central Bank Digital Currencies (CBDCs), or digital versions of a country’s fiat currency. CBDCs are often lumped together with cryptocurrencies. However, the two digital asset classes are fundamentally very different. Certainly, there might be some technical commonalities between CBDCs and certain types of cryptocurrencies. For example, some CBDC systems might permit direct ownership of a digital currency via a digital wallet, similarly to how one can custody a crypto asset. Currently, in most banking systems, consumers and businesses must have an account with a financial institution to hold electronic deposits. Additionally, some CBDCs might be built using blockchain technology (though almost certainly with permissioned, rather than public blockchains). For example, Brazil’s CBDC has reportedly been built using a private implementation of Hyperledger Besu fabric, which borrows elements from Ethereum.

This potential technical overlap notwithstanding, CBDCs and cryptocurrencies differ significantly with respect to the issues of monetary policy and governance. Unsurprisingly given their name, CBDCs would be centralized financial instruments issued on centrally-managed ledgers. The issuing central bank would control the supply and access points for the CBDC, making CBDCs subject to the same sort of mischief currently associated with fiat currencies. Indeed, apart from some potential technical efficiencies, CBDCs wouldn’t radically change the payments landscape in most countries. (See an analysis of Brazil’s planned CBDC initiative by Tribal Credit Sr. Crypto Research Analyst Tim Jacklich here).

Some academics and activists have voiced privacy concerns related to CBDCs, suggesting that CBDCs might enable additional government surveillance. However, most existing electronic payment methods already give regulators the ability to closely surveil transactions, and it’s not obvious that CBDCs would dramatically expand this capability. Some CBDC scenarios imagine a digital currency replacing cash altogether, in which case all economic activity would take place via a digital government ledger. However, many countries, especially in Europe, have already achieved that reality without a CBDC (try paying with cash instead of card at a cafe in France, and see how the waiter reacts). Ultimately, the consequences - good or bad - of highly digital payments systems depend upon the policies and government accountability measures employed by each country.

In conclusion, CBDCs and cryptocurrencies solve very different problems and reflect fundamentally divergent economic philosophies.