Bao Finance

Ben Strack

The net losses endured by Meta’s division responsible for producing metaverse-related technology continue to grow quarter over quarter — as the damage amounted to nearly $4.3 billion in the final three months of 2022.



Despite the hit to the unit known as Reality Labs, the tech giant’s net income for the quarter stood at $4.65 billion, as its family of apps unit posted a gain of $10.7 billion. The segment includes Facebook, Instagram, Messenger and WhatsApp.



Meta’s stock price was $153.12 at the end of the trading day, down more than 50% over the past year but up about 23% in the last month. The price was up about 19% in after-hours trading, as of 6 p.m. ET.



The results came after Meta revealed on its November earnings call that Reality Labs <a href="https://blockworks.co/news/metas-metaverse-division-loses-nearly-3-7b-in-q3" target="_blank" rel="noreferrer noopener">lost nearly $3.7 billion</a> during the third quarter — up from the division’s <a href="https://s21.q4cdn.com/399680738/files/doc_news/Meta-Reports-Second-Quarter-2022-Results-2022.pdf" target="_blank" rel="noreferrer noopener">second-quarter loss</a> of $2.8 billion and a $2.9 billion loss in the first quarter. &nbsp;



Reality Labs’ net loss totaled $13.7 billion last year, the company revealed Wednesday.



The division includes augmented reality, virtual reality and the company’s metaverse software platform.



Then-Meta Chief Financial Officer David Wehner said in a November statement that the company was expecting Reality Labs’ operating losses to grow year over year in 2023.



Susan Li, who has since taken over as Meta’s chief financial officer, reiterated that projection during Meta’s earnings call Wednesday.&nbsp;



“We’re going to continue to invest meaningfully in this area given the significant long-term opportunities that we see,” she said.



Meta CEO Mark Zuckerberg added the company is “constantly tuning the roadmap” for Reality Labs. 



“Even though none of the signals I’ve seen so far suggest that we should shift the Reality Labs strategy long-term, we are constantly adjusting the specifics of how we execute this,” Zuckerberg said.&nbsp;



The continued losses in this business segment come after Facebook <a href="https://blockworks.co/zuckerberg-says-facebooks-new-name-will-be-meta" target="_blank" rel="noreferrer noopener">changed</a> its name to Meta in October 2021 to capitalize on the anticipated metaverse trend.&nbsp;



Zuckerberg said on the company’s November call its future initiatives include a social metaverse platform with avatars, augmented reality and neural interfaces.



“I get that a lot of people might disagree with this investment,” the CEO added at the time. “But from what I can tell, I think this is going to be a very important thing, and I think it would be a mistake to not focus on any of these areas, which I think will be fundamentally important to the future.”



About a week later, Zuckerberg said in <a href="https://about.fb.com/news/2022/11/mark-zuckerberg-layoff-message-to-employees/" target="_blank" rel="noreferrer noopener">a letter</a> the company decided to layoff about 11,000 employees — roughly 13% of Meta’s workforce.



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Meta Metaverse Division Posts $4.3B Net Loss in Q4 2022

Bessie Liu

In the latest “Big Ideas” report by ARK Invest, the popular US asset manager claims blockchain will be one of the most significant technologies to shape an already technological era.



The report highlights 14 different technologies pegged to impact multiple sectors and serve as essential platforms for further innovation — including smart contracts and cryptocurrencies.



With global adoption, smart contracts and public blockchains will play a pivotal role in verifying digital scarcity and proof of ownership, Ark said.



“The financial ecosystem is likely to reconfigure to accommodate the rise of cryptocurrencies and smart contracts,” the report states.



“These technologies increase transparency, reduce the influence of capital and regulatory controls, and collapse contract execution costs.”



Ark has been a long-time supporter of crypto and blockchain. Its CEO Cathie Wood previously predicted that the price of bitcoin would reach $1 million by 2030.&nbsp;



The firm also boasts a <a href="https://blockworks.co/news/ark-invest-ftx-opportunity-for-coinbase">significant amount of shares</a> in top US exchange Coinbase, owning <a href="https://ark-funds.com/funds/arkk/">4.53%</a> of the company’s stock, representing roughly $347 million dollars.



<h2>An on-chain future driven by blockchain technology</h2>



The cryptocurrency industry has been continuously growing despite the collapse of prominent players in the market, which recently saw around $1.5 trillion wiped from the industry, the report said.



As the market slowly goes into recovery mode, Ark believes there will be a long-term opportunity for Bitcoin, DeFi and Web3. The firm claimed that over the next 10 years, “cryptocurrencies and smart contracts could command $20 trillion and $5 trillion in market value, respectively.”



The total value of all cryptocurrencies is currently just shy of $1.1 trillion; that figure would need to grow by 1,700% for Ark’s prediction to realize.



ARK pegged three revolutions of industry to get us there: upheavals across money, finance and the internet.



<h2>Money</h2>



The money revolution will see a movement away from fiat currencies and central banking systems into a global, more decentralized system. In particular, the report notes the long-term opportunity for Bitcoin is strengthening.



“Bitcoin’s volatility has obscured its long-term returns. Despite five drawdowns greater than 75% since its inception in 2009, bitcoin has delivered positive annualized returns over 3-, 4-, and 5-year time horizons,” Ark said.



Adding that, “the price of one bitcoin could exceed $1 million in the next decade,” more-or-less reiterating Wood’s bullish call.



<h2>Finance</h2>



On the finance side, there’s opportunity for decentralized financial (DeFi) to bring financial services to unbanked communities. Ark reasoned there are over 2 billion people who currently lack access to essential banking services.



“Financial services deployed on open protocols enable anyone with an internet connection access to custody, trading, and lending facilities,” the report said, “As insolvencies mounted across crypto lending businesses like Celsius and Voyager, decentralized lending markets like Aave continued to operate as designed.”



The report notes that if DeFi builders were to charge just a third of legacy finance rates — and financial services were to move to blockchain infrastructure at the same internet adoption rate in the early 2000s — the DeFi industry alone could be valued at $5.3 trillion by 2030.&nbsp;



<h2>Internet</h2>



ARK remains bullish on a potential internet revolution. Web2 thrives under tech monopolies that monetizes via user data — but this could change with the adoption of Web3 technologies which “introduces digital property rights for the first time.”



“Decentralized protocols enable the governance of — and open access to — distributed data, limiting central aggregator control,” the report said.&nbsp;



“Web3 embeds economics into software, enabling users to monetize and participate in network development.”



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The Future of Money and Contracts Is Public Blockchains: ARK

Casey Wagner

In a widely anticipated move, the Federal Reserve moved to bump interest rates by a quarter of a percentage point Wednesday, marking the start of what markets hope will be a prolonged period of smaller hikes.&nbsp;



The US central bank cited <a href="https://blockworks.co/news/crypto-hedge-during-ukraine-war">Russia’s ongoing war in Ukraine</a>, continued heightened inflation and a need to reach maximum employment as reasons for the slower-paced hike.&nbsp;



The move marks the Fed’s eighth <a href="https://blockworks.co/news/cryptos-stocks-rally-on-fourth-straight-0-75-interest-rate-increase">consecutive</a> rate increase, a strategy it hopes will curb the highest inflation the country has seen in more than four decades, but analysts remain worried a soft landing may be a tall order.&nbsp;



“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” Federal Open Market Committee (FOMC) members wrote in a <a href="https://www.federalreserve.gov/monetarypolicy/files/monetary20230201a1.pdf" target="_blank" rel="noreferrer noopener">statement</a> at the end of their two-day policy meeting Wednesday.&nbsp;



Bitcoin and ether fell slightly on the news, declining 0.2% and 0.3%, respectively.&nbsp;



The S&amp;P 500 and Nasdaq Composite indexes also faltered, losing about 0.7% and 0.5%, respectively, immediately after the Fed released its decision.



Even with some relatively promising economic data, the major market moves are far from behind us, Craig Erlam, senior market analyst at Oanda, said, noting that Powell’s 2:30 pm ET remarks will give markets a better idea of whether peak hawkishness has really been achieved.&nbsp;



“There is growing evidence that rate hikes have worked in cooling the economy, inflation, and the labor market, but the question is whether the Fed believes it has done so enough, particularly on the core measure where inflation could prove more stubborn,” Erlam added. 



At the December meeting, committee members stated they believed that interest rates will ultimately hit between&nbsp; 5% and 5.25%, at a median level. These estimates are scheduled to be recalculated in March. When asked his expectations for what the final rate level may be, Powell said there is still uncertainty, but markets should be prepared for a higher level.&nbsp;



“I don&#8217;t feel a lot of certainty about where that will be,” Powell said during Wednesday’s press conference. “It could certainly be higher than we&#8217;re writing down right now.”



Traders should be certain that the Fed will continue to watch macroeconomic conditions, analysts say. While progress has been made, betting on a complete Fed pivot at this stage of the game would be ill advised.&nbsp;



“Clearly, inflation is declining (we are seeing that pretty much everywhere) but we should not expect it to be a linear process (there will be gains and some setbacks), but broadly, disinflation remains a positive for the market, and certainly much better than where we were last year, and that’s encouraging,” Tom Essaye, founder of sevens report research, wrote in a note Wednesday.&nbsp;



This is a developing story.



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Fed Opts for Lower Rate Increase, Crypto, Equities Shimmy

The Ethereum Shanghai hard fork is <a href="https://blockworks.co/news/ethereum-devs-opt-for-withdrawals-in-march-and-nothing-else">less than two months away</a>, and liquid staking derivatives (LSD) are gaining momentum in the cryptocurrency market.



Following Shanghai, users can withdraw ether locked up on the Beacon chain — opening up an exit for long-time Ethereum stakers.



<a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analysts note in a <a href="https://www.blockworksresearch.com/research/eth-liquid-staking-derivatives" target="_blank" rel="noreferrer noopener">report</a> that this upgrade is likely to encourage more ETH holders to lock up their assets over the long term, increasing pressure on stake rate — but it is possible that there could also be a dip in staking demands as withdrawals become available.



Alluvial co-founder and Chief Operating Officer Mike Taormina told Blockworks that the rise in popularity of liquid staking derivatives on Ethereum should come as no surprise, as it’s about more than the debut of withdrawals.



“Liquid staking also solves a real problem: When you lock tokens to participate in the security of the network, those tokens are illiquid,” he said.



Not so, with ether derivatives.



<h2>Liquid staking in proof-of-stake ecosystems</h2>



The ordinary staking process involves locking up cryptocurrency in a proof-of-stake network to support blockchain operations and enable transactions, while simultaneously allowing users to accrue staking rewards.



In the case of Ethereum, an individual user must deposit 32 ETH ($50,900) to the blockchain and activate the validator software to participate in staking.



As ETH holders often do not have enough funds or technical expertise to run their own validator node — now <a href="https://blockworks.co/news/ethereum-to-reach-500000-validators">exceeding 510,000 worldwide</a> — liquid staking protocols, including Lido, Rocket Pool and Frax, remove the barrier to entry by allowing ether holders to participate in staking without having to lock in any money.



This is often referred to as pooled staking, and users who participate are given ERC-20-compliant liquidity tokens that represent their staked ether, which they can hold in their wallets and use in other DeFi applications. But using decentralized exchanges, they can also sell back into normal unstaked ether at any time.



Of course, liquid staking is not only limited to the Ethereum blockchain. The Solana network has been actively looking at ways to grow its total value locked (TVL) — particularly following events related to FTX, <a href="https://blockworks.co/news/top-solana-nft-projects-are-jumping-ship-to-ethereum-polygon">which hit Solana hard</a> — and liquid staking derivatives may address some of these challenges.



Marinade Finance, a non-custodial liquid staking protocol built on the Solana blockchain, is hoping to increase DeFi activity on its network by launching a program that will distribute its governance token MNDE to individuals and protocols in hopes of growing mSOL TVL.&nbsp;



“There’s so much locked SOL that’s staking. It&#8217;s helping decentralization and validation, but it’s not helping liquidity, so what we want to see is some of that stake turn into liquidity — and help DeFi protocols — and liquid staking tokens is really the mechanism for that,” Brandon Tucker, a growth lead at the DAO, told Blockworks.&nbsp;



<h2>Setting a new liquid staking derivative standard</h2>



Following the Shanghai upgrade, Taormina believes that liquid staking tokens may become even more popular — driving increased confidence in the Ethereum blockchain and welcoming a new cohort of mainstream adopters.&nbsp;



Ethereum has a much lower percentage of its token staked — <a href="https://dune.com/blockworks_research/eth" target="_blank" rel="noreferrer noopener">less than 14%</a> per Blockworks Research — compared to other blockchains, Taormina said.&nbsp;



<figure class="wp-block-image size-large"><a href="https://www.blockworksresearch.com/research/eth-liquid-staking-derivatives" target="_blank" rel="noreferrer noopener"><img decoding="async" loading="lazy" width="1024" height="213" src="https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-1024x213.jpg" alt="" class="wp-image-45241" srcset="https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-1024x213.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-300x63.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-768x160.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-428x89.jpg 428w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-470x98.jpg 470w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-389x81.jpg 389w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-80x17.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner.jpg 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></figure>



“There’s something holding Ethereum holders back from participating in staking, this is why the upgrade is so important,” he said. “The Shanghai upgrade will finally enable withdrawals and remove uncertainty…we think that more people will end up participating [in staking].”



In anticipation of a growth in staking participants, Taormina and his team at Alluvial are partnering with a handful of Web3 teams to design a new liquid staking standard.&nbsp;&nbsp;



This new standard, dubbed ‘Liquid Collective,’ will be an enterprise-grade liquid standard built to attract enterprise-grade users to Web3.



“This is important because it helps onboard a cohort of users that are on the sidelines that would be interested in staking but need experience to meet some minimum thresholds that aren’t currently met today,” Taormina said.



If you want to read more about the current state of liquid staking derivatives on Ethereum and their yield market share, you can subscribe to <a href="https://www.blockworksresearch.com" target="_blank" rel="noreferrer noopener">Blockworks Research</a> and read <a href="https://www.blockworksresearch.com/research/eth-liquid-staking-derivatives" target="_blank" rel="noreferrer noopener">their latest report</a> at no charge for the next 24 hours.



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All Eyes on Liquid Staking Derivatives as Shanghai Upgrade Nears

Crypto firms are adding lobbyists as regulatory scrutiny is expected to intensify following a whirlwind year for the segment that featured the crashes of large industry players.



Binance has registered three new lobbyists from legal counsel firm Ice Miller, according to a <a href="https://lda.senate.gov/filings/public/filing/6a74c35b-89fc-45bf-bebf-8535e2be9fdd/print/" target="_blank" rel="noreferrer noopener">filing</a>, in a move spurred in part by the fall of one of the crypto exchange’s biggest rivals.



&#8220;Following <a href="https://blockworks.co/news/sam-bankman-fried-arrested-in-bahamas">the arrest of FTX&#8217;s former CEO</a>, Binance.com received several inquiries from congressional offices seeking our perspective,” a spokesperson told Blockworks in an email. “As Binance.com had never previously engaged in Washington DC, we sought government affairs consultants that understood both crypto and our CEO&#8217;s role in the industry.”



Ice Miller, which had previously supported Binance.US, was “a natural option,” the representative added. The exchange’s US arm first hired lobbyists from the firm in 2021, Politico <a href="https://www.politico.com/newsletters/politico-influence/2021/10/04/binanceus-rover-add-first-lobbyists-798018" target="_blank" rel="noreferrer noopener">reported</a>.



The latest lobbyist additions, which went into effect Tuesday, include the nephew of former US Vice President Mike Pence.



John Pence, now Ice Miller’s director of public affairs, was a senior adviser for the Trump-Pence presidential campaign from 2016 to 2020.



He “helps with issue monitoring and engagement at the federal level for clients,” according to the Ice Miller’s website. Pence is not licensed to practice law in any state and does not provide legal services.



Jarrod Loadholt and Meagan Bolton are also set to lobby for the crypto exchange, the filing shows.&nbsp;



Loadholt, a partner in Ice Miller’s public affairs group, formerly acted as a senior counsel to the US House of Representatives’ Subcommittee on Financial Institutions and Consumer Credit. He also worked as senior oversight counsel to the Oversight and Investigations Subcommittee.



More recently, Loadholt was head of Credit Karma’s first director of legislative and regulatory affairs, a role in which he managed the company’s government relations function.



Before joining Ice Miller, Bolton was technology, telecommunications and judiciary counsel for US Sen. Gary Peters, chair of the Homeland Security and Governmental Affairs Committee.&nbsp;



She was also previously the tech and telecom counsel for the US House Committee on Small Business.



A Binance spokesperson did not comment on what Pence, Loadholt and Bolton will be doing for the company specifically. The lobbyists’ assistant did not immediately return a request for comment.&nbsp;



<h2>Others looking to engage more with DC, too</h2>



Tether, Bakkt, a16z and Riot Platforms are also looking to lobby in DC, Politico first <a href="https://www.politico.com/newsletters/politico-influence/2023/01/31/k-streets-crypto-gold-rush-continues-00080529" target="_blank" rel="noreferrer noopener">reported</a>. 



Venture capital firm a16z has registered Collin McCune as its first lobbyist, a spokesperson confirmed. McCune <a href="https://a16zcrypto.com/collin-mccune/" target="_blank" rel="noreferrer noopener">joined</a> the company as its head of government affairs in November. 



For nearly four years before that, he was deputy staff director of the House Financial Services Committee.&nbsp;



“With crypto legislation now at the forefront of the policymakers’ minds, we felt it was essential to take this step,” an a16z representative told Blockworks.



<blockquote class="wp-block-quote">
“We look forward to working with policymakers to ensure that crypto legislation strikes the balance of providing consumer protections while not stifling the future of Web3’s promise,” they said.
</blockquote>



Crypto marketplace Bakkt added Steptoe &amp; Johnson as a lobbyist in December, while Tether registered Continental Strategy to lobby on its behalf last month, separate filings show.&nbsp;



“We expect the legislative and regulatory conversation to accelerate this year and we plan to meaningfully contribute to it on important topics such as consumer protection, risk and controls, and sound governance,” a Bakkt spokesperson said.



The market capitalization of stablecoin <a href="https://blockworks.co/price/usdt" target="_blank" rel="noreferrer noopener">tether</a> is roughly $68 billion, behind only bitcoin and ether. Stablecoin regulation will be a major priority for Congress this year, Bitwise’s general counsel <a href="https://blockworks.co/news/stablecoin-regulation-congress-priority">told Blockworks</a> last month. 



&#8220;As the creator of the stablecoin, we feel it is critical for our voices to be heard so that we can help ensure lawmakers, regulators and anyone engaging in digital commerce have a complete and accurate understanding of the utility of these assets,” a Tether representative told Blockworks.



Riot Platforms also registered Brian Morgenstern as a lobbyist last month, according to a <a href="https://lda.senate.gov/filings/public/filing/13b31a1d-5633-4b36-b788-e7371412ee4a/print/" target="_blank" rel="noreferrer noopener">filing</a>, after hiring him as its head of public policy. 



Morgenstern was a deputy assistant secretary at the US Department of the Treasury and was a deputy communications director and special assistant to then-President Donald Trump.&nbsp;



A spokesperson did not immediately return a request for comment.



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Mike Pence’s Nephew Among Binance’s Newest Lobbyists

David Canellis

In bull cycles past, bitcoin proponents have pushed crypto as an inflation hedge — specifically BTC.



It’s a rosy and simplified view of bitcoin’s role in our world. But it’s somewhat true if one zooms out far enough — the price of bitcoin has jumped about 170% over the past five years, while the cumulative rate of inflation is just 16.5% across the same period.



On a more granular level, bitcoin doesn’t always work as an inflation hedge. Bitcoin is down nearly 40% over the past year, while the annual rate of inflation hit 6.5% in December — using bitcoin as an inflation hedge would’ve only made things worse.



But where cryptocurrency really shines is in places where local currency is rapidly devaluing. Crypto usage <a href="https://www.dw.com/en/venezuelans-try-to-beat-hyperinflation-with-cryptocurrency-revolution/a-57219083" target="_blank" rel="noreferrer noopener">exploded</a> in Venezuela, for example, as hyperinflation wrecked its local currency.



More recently, dollar-pegged stablecoins tether (USDT) and binance USD (BUSD) served as a hedge against the devaluation of the Ukrainian hryvnia (UAH) and Russian ruble (RUB), as the long-running conflict <a href="https://blockworks.co/news/market-wrap-cryptos-crumble-after-russia-bombs-major-ukraine-nuclear-power-plant">spiraled into all-out war last February</a>.



The Ukrainian hryvnia has lost 32% of its value against the US dollar since 2020. The Russian ruble, on the other hand, shed 10% over the same time frame, but fell as low as almost 40% as strict Western sanctions struck the local economy last March.



Blockworks analyzed trade volumes in UAH and RUB crypto pairs across exchanges including Binance and Huobi alongside European venues Whitebit and CEXIO over the past three years.&nbsp;



The goal: Determine which real-world events triggered the most activity for crypto traders with UAH and RUB fiat balances, while mapping general trends of crypto usage to the devaluation of those fiat currencies.



It must be noted that only UAH and RUB pairs were studied, not all crypto markets available to traders based in Russia and Ukraine.&nbsp;



This is intended to capture specific activity: swapping fiat directly for cryptoassets to hedge against potential devaluation. It’s likely this data also includes speculative investments not directly related to such endeavors.



<h2>Ukrainian hryvnia volumes spiked for stablecoins amid sudden devaluation</h2>



<ul>
<li>UAH pairs on those platforms altogether saw almost $7.3 billion in trade volumes since Jan. 29, 2020.</li>



<li>Nearly half of that volume occurred after Russia invaded Ukraine on Feb. 24, 2022.</li>



<li>Bitcoin made up more than 85% of trade volumes before stablecoin pairs were first listed in July 2020, now dollar-pegged tokens make up the overwhelming majority.</li>
</ul>



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12613668/embed#?secret=bKdr4vEuwr" data-secret="bKdr4vEuwr" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Click the BTC/USD swatch to directly compare UAH with trade volumes (hint: toggle the stablecoin outliers to see how the trend has shifted) | Chart by David Canellis</figcaption></figure>



Crypto trade volumes for hryvnia pairs — particularly bitcoin — understandably picked up in October 2020, as did volumes across the rest of the world. <a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a> was worth $10,000 at the time and just starting its first run to $60,000.



Much of the UAH trade activity around that time can be attributed to the general crypto bullishness that gripped markets the following year.&nbsp;



In fact, UAH-stablecoin pairs briefly made up more than 90% of such fiat markets in mid-October before swinging to under 9% the following March.&nbsp;



The trend hints at waves of Ukrainian fiat holders swapping UAH for dollar-pegged stablecoins at the beginning of the bull run, presumably to trade for other cryptocurrencies due to the small number of UAH pairs available.&nbsp;



Subsequent fiat volumes were instead directed at bitcoin and ether as BTC peaked in March, showing many bought (and sold) the top.



But stablecoin volumes rose significantly leading up to Sept. 2021, alongside <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/01/joint-statement-on-the-u-s-ukraine-strategic-partnership/" target="_blank" rel="noreferrer noopener">wartime posturing</a>, after months of <a href="https://www.csis.org/analysis/russian-and-ukrainian-spring-2021-war-scare" target="_blank" rel="noreferrer noopener">reports</a> indicating Russian troops were massing along the Ukrainian border.



Throughout the year, average UAH-stablecoin volumes had hovered at $16.4 million — that figure jumped to nearly $42 million through September until the end of December.



UAH was worth $0.037 at the time; it’s now worth 30% less.



After a three-month lull, stablecoin volumes gathered steam as Russia invaded Ukraine on Feb. 24, 2022. The National Bank of Ukraine quickly <a href="https://bank.gov.ua/en/news/all/pro-robotu-bankivskoyi-sistemi-ta-valyutnogo-rinku-z-24-lyutogo-2022-roku-za-umovi-voyennogo-stanu-po-vsiy-teritoriyi-ukrayini" target="_blank" rel="noreferrer noopener">implemented</a> strict foreign exchange controls to stop the hryvnia from spiraling further.&nbsp;



Average weekly UAH-stablecoin volumes reached $100 million between Russia’s invasion and late July — more than doubling since the US and Ukraine formed a strategic alliance in response to Russia’s aggressive stance.



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12594379/embed#?secret=05Xio2WSxp" data-secret="05Xio2WSxp" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Bitcoin was once the most popular asset to purchase with UAH on these exchanges. Not anymore. | Chart by David Canellis</figcaption></figure>



But some of the biggest spikes in UAH-stablecoin activity came just before the country’s central bank <a href="https://www.reuters.com/markets/rates-bonds/ukraines-central-bank-devalues-hryvnia-by-25-against-us-dollar-2022-07-21/" target="_blank" rel="noreferrer noopener">devalued</a> its local currency by 25% against the dollar on Jul. 21, 2022. The move was made to help the local economy deal with a strengthening US dollar against the grim backdrop of war at home.



Nearly $566 million in UAH-stablecoin volume was recorded in July, equating to $135 million in average weekly volume, a 35% jump.



Any fiat holder who’d stayed in US dollar stablecoins would’ve found protection against the UAH’s sudden devaluation — although a giant spike in trade volumes just after indicates some were a little too late. Trade volumes across UAH pairs have since fallen significantly.



<h2>Russian ruble pairs saw major surge following temporary crash</h2>



<ul>
<li>RUB pairs across these platforms have seen $10.2 billion in trade volumes since Jan. 29, 2020.</li>



<li>Weekly trade volumes more than doubled as the ruble briefly collapsed 45% under strict Western sanctions at the start of the invasion.</li>



<li>US-dollar stablecoins today make up nearly half of all RUB pair activity.</li>
</ul>



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12614070/embed#?secret=BSAC1KBdRE" data-secret="BSAC1KBdRE" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Notice the major spikes as the ruble crashed in Feb. 2022 | Chart by David Canellis</figcaption></figure>



Ruble-based trade has trended somewhat differently to the hryvnia, with stablecoins and bitcoin both maintaining steady volume dominance amid the 2021 bull run.



Still, relatively high volumes during that year can be similarly attributed to increased interest around cryptocurrencies during bull markets.&nbsp;



A major spike in May 2021 directly coincided with bitcoin’s retracement from $58,000 to under $34,000, suggesting RUB traders both bought the dip and tried to take profits.



But volumes indicate many traders saw opportunities to escape the effects of Western sanctions on the ruble in the week of Russia’s invasion some 10 months later — and not just via dollar-pegged stablecoins.



In the three months preceding, RUB pairs saw on average $98.6 million in weekly volume. As the ruble rapidly descended 45% in late Feb. 2022, those markets saw more than double on average — mostly as it collapsed, but significant amounts were recorded as it bounced back to 2017 levels.



RUB-stablecoin volumes were sporadically high as 2022 rolled on, but eventually dwindled as the ruble regained momentum.



The lion’s share (99%) of RUB trade occurred on Binance, which boasts 15 pairs, nearly triple the number of Ukrainian hryvnia pairs.&nbsp;



Cutting Russia-based users off from crypto trading platforms was a touchy subject for the ecosystem in the early days of the war, as parts of the global financial <a href="https://www.bbc.com/news/business-60521822" target="_blank" rel="noreferrer noopener">system</a> moved to disconnect itself from the Russian economy along with major <a href="https://som.yale.edu/story/2022/over-1000-companies-have-curtailed-operations-russia-some-remain" target="_blank" rel="noreferrer noopener">corporations</a>.



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12594544/embed#?secret=U1mx5UQToK" data-secret="U1mx5UQToK" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Ruble traders have more choices but still gravitate toward stablecoins | Chart by David Canellis</figcaption></figure>



Binance CEO Changpeng Zhao, while pledging to adhere to all international sanctions, at the time commented that <a href="https://blockworks.co/news/crypto-exchanges-weigh-blocking-russian-accounts-as-sanctions-intensify">outright banning local users would be unethical</a>.&nbsp;



Major platforms Coinbase and Kraken telegraphed similar stances, only intending to block users directly sanctioned by international authorities. Binance <a href="https://blockworks.co/news/binance-to-limit-services-to-russians-following-latest-round-of-eu-sanctions">throttled certain services to Russia-based users</a> in Apr. 2022, placing accounts with more than 10,000 euros ($10,860) into withdrawal-only mode.&nbsp;



Binance has reported processing nearly $1.9 billion in ruble-to-crypto trades since then, 45% USDT-based per TradingView data, although how much of that volume is directly tied to Russian users is unclear.



A question remains: While it’s obvious that cryptocurrencies offered a way to preserve value amidst the onset of war, could bad actors have benefitted from the availability of these fiat pairs, tangentially skirting the impact of global sanctions?



<h2>USDT was more valuable than fiat cash by 30% as war broke out</h2>



Nick Smart, director of blockchain intelligence at analytics firm Crystal Blockchain, told Blockworks that filtering bad actors “has to be an integrated, risk-based approach.” But Smart warned that there’s no way for crypto exchanges to eliminate risk entirely unless they don’t accept any clients.



In October, the European Union moved to restrict Russia-based users’ access to crypto markets in their eighth <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_22_5989" target="_blank" rel="noreferrer noopener">package</a> of sanctions against Russia.&nbsp;



As part of that package, the EU outright banned the provision of services related to cryptocurrencies, particularly for citizens and companies of the Russian Federation.



“So, if the exchange continues to serve citizens and companies of the Russian Federation, this will be a direct violation of the sanctions,” Lex Fisun, co-founder at Global Ledger Protocol, told Blockworks.



The sanctions aren’t aimed at the ruble itself, Fisun explained, but only at citizens and Russian companies. Russians can still circumvent those sanctions through crypto exchanges under certain conditions, especially those who aren’t specifically registered with the EU.



“Cryptocurrency-related sanctions will not apply to Russians who have citizenship, residence permit or permanent residence of the EU countries, as well as Switzerland,” Fisun said.



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12608750/embed#?secret=nI7YLmdDpG" data-secret="nI7YLmdDpG" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">On a long enough time horizon, bitcoin was a great hedge against currency devaluation | Chart by David Canellis</figcaption></figure>



Still, Fisun noted that anticipation of war, alongside panic and anxiety, definitely drove some to crypto and stablecoins. Also, many people in Ukraine and Russia use over-the-counter exchanges or platforms based on Telegram — like <a href="https://blockworks.co/news/bitzlato-law-enforcement-significance">Bitzlato</a> — so the true volumes will be much bigger than published by the exchanges analyzed for this report, he said.



To that end, Michael Chobanian, long-serving Ukrainian crypto entrepreneur and founder of the nation’s first exchange, Kuna, told Blockworks that most of the trade surrounding the breakout of total war was done in cash — not crypto or even stablecoins. “This is how Ukraine mostly operates,” he said.&nbsp;



“The obvious non-scientific answer is: ‘Yes, a lot of people escaped to USDT.’ In the first days of [the] war — even weeks — USDT was more valuable than physical US dollars by a factor of 30%. Cash was risk.”



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Ukraine War Proved Crypto Can Hedge Against Currency Devaluation

Ethereum Name Service (ENS), a decentralized naming system for Ethereum addresses, is voting to execute the swap of 10,000 ETH into stablecoin USDC.



The ENS DAO, which oversees the ENS protocol and its treasury, currently holds an estimated $1.2 billion in funds, with $227 million in liquid assets, <a href="https://deepdao.io/organization/228c8be1-9d1e-440c-8afb-a40d6ee480f2/organization_data/finance" target="_blank" rel="noreferrer noopener">according</a> to DeepDAO.&nbsp;



10,000 ETH, about $16 million, is equivalent to 25% of the total ether held in its treasury and register controller, the DAO <a href="https://docs.ens.domains/v/governance/governance-proposals/term-3/ep3.3-executable-sell-eth-to-usdc" target="_blank" rel="noreferrer noopener">said in a proposal</a>.&nbsp;



When the proposal was written, it was expected that the sale of its ETH holdings would generate more than $13 million USDC, which will cover ENS DAO’s operational expenses over the next 18 to 24 months. At current prices, $10,000 ETH is worth $15.8 million.



As DAO operations are often quite expensive — with a majority of its expenses funneled into salaries — it would be necessary for organizations to have a steady source of income.



If the proposal were to be approved, the trade would occur on CoW Swap, decentralized exchange aggregator that leverages Batch Auctions as its price-finding mechanism.



Since entering the bear market, ether prices have been fluctuating. At the time of writing, ether is trading around $1,600, down 44% over the past year. Exchanging a portion of ENS’ ether for a dollar-pegged asset like <a href="https://blockworks.co/price/usdc" target="_blank" rel="noreferrer noopener">USDC</a> would go a long way if the bear market extends much further.



Token Terminal, a cryptocurrency data aggregator, <a href="https://tokenterminal.com/crypto-research/how-much-does-it-really-cost-to-run-a-dao">estimates</a> annual salaries for DAO members for MakerDAO, Lido, and SushiSwap cost $205,000, $132,000, and $256,000, respectively.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">6/ As a result, running a DAO can be quite expensive, with average annual salaries at MakerDAO, Lido, and SushiSwap landing at $205k, $132k, and $256k, respectively.&mdash; Token Terminal (@tokenterminal) <a href="https://twitter.com/tokenterminal/status/1620107323296608256?ref_src=twsrc%5Etfw">January 30, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h2>Ethereum Name Service DAO members worry about USDC</h2>



In the case of ENS, pseudonymous community member <a href="https://twitter.com/futurealisha" target="_blank" rel="noreferrer noopener">futurealisha</a> noted the majority of USDC expenses at the DAO come from ENS Labs, the Singapore-based non-profit powering ENS development.



“ENS Labs receives a daily stream of $11,500 USDC, which amounts to [around $4.2 million per year. Over two years, that is [roughly $8.4 million],” futurealisha <a href="https://discuss.ens.domains/u/alisha.eth" target="_blank" rel="noreferrer noopener">wrote</a> in a discussion forum.&nbsp;



Another source of USDC spending would be working groups, “This budget would allow working groups to claim up to [about $1.5 million] in USDC per term between them. This amounts to [around $3 million per year and $6 million over two years],” she said.&nbsp;



Not all community members are thrilled about the swap. Another <a href="https://discuss.ens.domains/u/Ronald" target="_blank" rel="noreferrer noopener">user</a> <a href="https://discuss.ens.domains/t/ep3-3-executable-sell-eth-into-usdc/15906/16" target="_blank" rel="noreferrer noopener">posted</a> that USDC is a centralized token which could be blacklisted by the US government, echoing <a href="https://blockworks.co/news/makerdao-plans-to-yolo-usdc-into-eth">concerns raised by MakerDAO members last year</a>.



“The DAO will have little recourse to recover the funds in this instance as the ENS token will be considered an illegal security if things get to this point,” they said.



The on-chain proposal vote is currently live on <a href="https://www.tally.xyz/gov/ens/proposal/45461903078948131870051132081249892009497709518413744958551889217805827301425" target="_blank" rel="noreferrer noopener">Tally</a>, with 98% of voters currently in favor of the proposal. A quorum of 1 million has also passed — though voting will continue until Feb. 7.



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ENS DAO’s $16M ETH Sale Would Cover up to 2 Years Runway

Just days after highlighting how difficult it is for crypto companies to get the green light to operate in the United Kingdom, the country proposes new, stricter guidelines for approval.&nbsp;



In an 82-page <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1133404/TR_Privacy_edits_Future_financial_services_regulatory_regime_for_cryptoassets_vP.pdf" target="_blank" rel="noreferrer noopener">proposal</a> published Wednesday, the UK Treasury highlights a need for increased communication between regulators and crypto firms in order for the country to establish itself as a “competitive location for sustainable finance.” 



The document covers a wide range of topics, including NTFs, <a href="https://blockworks.co/news/nuclear-bitcoin-mining-hits-snag">bitcoin mining</a> and stablecoins.&nbsp;



“Former chancellor Philip Hammond has declared that the UK needs to take measured risk in order for the UK to excel as a leader in cryptocurrencies, but for that the community needs measurements to abide by,” Katharine Wooller, business unit director at digital asset protection firm Coincover, told Blockworks.&nbsp;



“If we want to get ahead as a global leader in digital assets, we need to stop assessing firms, and start working with them to develop a regulatory framework.”



Crypto exchange Binance head Changpeng “CZ” Zhao tweeted he was “happy” to see progress being made toward “progressive” regulation.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Happy to see the UK, a global leader in fintech, work on progressive crypto regulation. We hope their plans reflect <a href="https://twitter.com/FinStbBoard?ref_src=twsrc%5Etfw">@FinStbBoard</a> recommendations: the regulation should be coordinated, consistent, comprehensive and proportionate to the nature, scale and complexity of risks. <a href="https://t.co/3w4pHJQZIN">https://t.co/3w4pHJQZIN</a>&mdash; CZ 🔶 Binance (@cz_binance) <a href="https://twitter.com/cz_binance/status/1620754665918050315?ref_src=twsrc%5Etfw">February 1, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The proposal comes as more crypto companies urge for clear and achievable guidelines around digital assets.



The UK’s Financial Conduct Authority (FCA) said last week only <a href="https://blockworks.co/news/uk-tougher-on-crypto-companies">around 15% of applicants are successful</a> in securing a spot on the agency’s cryptoasset firm registry, a must for any business hoping to conduct operations in the country.&nbsp;



The Treasury is seeking to take the registration process a step further, requiring crypto firms — even those already registered with the FCA — to apply for authorization under the new “Financial Services and Markets Act (FSMA)-based regime.”&nbsp;



The new FSMA rules would be stricter on anti-financial crime and anti-money laundering regulations, the proposal added.&nbsp;



<h3>UK regulators may still fear crypto</h3>



The suggestion is unlikely to go over well with companies who already went through the rigorous process of registering with the FCA. Only 41 firms have successfully done so to date.&nbsp;



The FCA cited concerns with personnel leading various companies as reasons for denying many applications.&nbsp;



“It is difficult to judge whether leading personnel in firms ‘lack appropriate knowledge, skills and experience’ when it is judged against a lack of transparency and an absence of benchmarks and guidance from the FCA,” Alexander Carter-Silk, cryptocurrency solicitor at Keystone Law, told Blockworks.&nbsp;



“There is no clear explanation as to what is applicable to crypto asset businesses, possibly because the FCA is fearful of the new technology.”&nbsp;



The period for public comment on the proposal will end on April 20, 2023, the government said.



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UK Crypto Proposal Would Tighten Screws on Crypto Even Harder

Sebastian Sinclair

Silvergate shares sprung to life Monday after BlackRock, the world’s largest asset manager, reported an increased stake in the crypto bank.



BlackRock bumped <a href="https://www.sec.gov/Archives/edgar/data/1312109/000130655023005093/us82837p4081_013123.txt">its Silvergate stake</a> to 7.2%, but that has done little to correct the course for this year’s worst-performing crypto stock.



In year-to-date terms, Silvergate is down 18% to around $14.25 per share while all other crypto-related equities have seen their prices soar, with stocks in certain sectors more than doubling in value.&nbsp;



Of the 49 crypto stocks Blockworks reviewed, Silvergate remains the only outlier across an otherwise lucrative bet on a number of the industry’s sectors, including mining, this year.



Repeated attempts to reclaim positive gains, including a <a href="https://blockworks.co/news/silvergate-stock-surges-20-despite-1b-quarterly-earnings-loss">20% surge</a> in its stock in mid-January, have made little impact on its 94% tumble from all-time highs of $239 per share, seen Nov. 21, 2021.



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By comparison, publicly-listed rival Signature Bank, which recently announced it would only handle <a href="https://blockworks.co/news/signature-bank-limit-on-swift-transactions-with-binance-affects-few-users">crypto transactions above $100,000</a> for its customers via SWIFT, is up nearly 14% over the same period, NASDAQ data show.



Silvergate’s total digital asset customer deposits declined from $11.9 billion at the end of the third quarter to $3.8 billion by the end of last year.&nbsp;



Spooked market participants rushed to withdraw more than $8 billion in digital assets from the bank following concerns over its ability to continue operating business as usual.



In a bid to fulfill those withdrawals and generate liquidity, the bank <a href="https://blockworks.co/news/bottom-feeders-who-would-be-interested-in-silvergate-now">had to sell assets at an inopportune time</a>, it said in a fourth-quarter earnings report. As a result, the bank <a href="https://blockworks.co/news/silvergate-stock-surges-20-despite-1b-quarterly-earnings-loss">booked a $1 billion loss</a>.



The impact on its business has been attributed to concerns over the bank’s exposure to bankrupt <a href="https://blockworks.co/tag/ftx">FTX</a>, which it serviced right up until the exchange’s collapse in November, as well as widespread fear over market contagion.



Last month, Silvergate also <a href="https://blockworks.co/news/silvergate-stock-plummets-45-on-major-staff-cuts-massive-withdrawals">announced a 40% cut to its staff</a> in an attempt to further reduce its expenditures.



Silvergate did not immediately respond to a request for comment.



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Silvergate Worst Performing Crypto Stock YTD

Castle Funds is seeking to fill a gap in the insurance dedicated funds (IDF) space by launching an index fund for investment advisors and insurance professionals that want to allocate client money to crypto.&nbsp;&nbsp;



The California-based digital asset fund manager’s new Castle Digital Index Fund offers exposure to bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>), ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) and other cryptocurrencies available within an IDF.



IDFs are generally only open for direct investment by insurance carriers. Individuals are typically able to invest in the IDFs through private placement life insurance or <a href="https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/variable-annuities#What_Is" target="_blank" rel="noreferrer noopener">variable annuity</a> policies they purchase from insurance carriers.



The investment <a href="https://www.castlefunds.com/#Intro" target="_blank" rel="noreferrer noopener">firm</a> partnered with a multinational life insurance carrier, though declined to name which one. The carrier has added Castle’s IDF to its menu of public-market, liquid and illiquid alternatives investment options for policyholders seeking to invest their insurance premiums, a spokesperson told Blockworks



“We’re trying to focus their attention on the crypto aspect of it and make the other aspects of the ownership experience feel as much like a traditional institutional investment product as possible,” Castle Funds Director <a href="https://www.castlefunds.com/team/dan-hoover" target="_blank" rel="noreferrer noopener">Dan Hoover</a> told Blockworks.



In addition to BTC and ETH, Hoover said the fund, set to rebalance monthly, could initially hold cryptocurrencies such as cardano (<a href="https://blockworks.co/price/ada" target="_blank" rel="noreferrer noopener">ADA</a>), dogecoin (<a href="https://blockworks.co/price/doge" target="_blank" rel="noreferrer noopener">DOGE</a>), polygon (<a href="https://blockworks.co/price/matic" target="_blank" rel="noreferrer noopener">MATIC</a>), solana (<a href="https://blockworks.co/price/sol" target="_blank" rel="noreferrer noopener">SOL</a>) and polkadot (<a href="https://blockworks.co/price/dot" target="_blank" rel="noreferrer noopener">DOT</a>).



The weighting of any single asset in the portfolio, which excludes stablecoins, is capped at 35%.



Castle Funds has managed private funds invested in digital assets since 2017.&nbsp;



But Hoover said the firm saw demand from investors wanting a more tax-efficient way to buy crypto indexes, adding he believes insurance dedicated funds present “one of the largest growth areas” in the insurance space.



Investors pay taxes related to gains on the invested premiums when they make withdrawals from the annuity.



“People that are entering into these variable annuity or variable universal life products can come in and say OK, I have a suite of alternative investment options in here … but I need a diversifier,” Hoover said. “So we felt there was a gap in the market for something that was liquid, that had monthly redemptions.”



<h3>Crypto gains another access point </h3>



Castle Funds President Peter Eberle said in a statement the firm has focused on crypto investment strategies that work with existing financial vehicles, such as self-directed individual retirement accounts (IRAs).



“The IDF is an additional access path for investors who are seeking tax- and cost-efficient ways to access these markets, and their portfolio diversification benefits, over a longer term,” he added.



Castle Funds’ existing hedge fund products are accepted by major self-directed IRA custodians, such as Millennium Trust, Entrust Group and Pacific Premier Trust as qualified investments for their self-directed IRA plans.



The company, however, has no plans to offer a fund for such plans that tracks the same index as the Castle Digital Index Fund.&nbsp;



While self-directed IRAs remain a compelling way to defer taxes on tax-inefficient investments like crypto, Hoover said, the Castle Funds director expects 401(k)s, for example, to remain closed to crypto for the time being.



Crypto exposure in IRAs has been a <a href="https://www.wsj.com/articles/investors-who-bet-on-bitcoin-fund-in-retirement-accounts-pay-the-price-11675049243" target="_blank" rel="noreferrer noopener">touchy</a> subject due to Grayscale Bitcoin Trust’s <a href="https://blockworks.co/news/asset-managers-potential-gbtc-takeover" target="_blank" rel="noreferrer noopener">underperformance</a>, as well as <a href="https://blockworks.co/news/ontario-teachers-fund-sank-95m-in-failed-ftx-empire" target="_blank" rel="noreferrer noopener">write-offs</a> by pension funds invested in failed crypto firms <a href="https://www.ft.com/content/67048159-82aa-4e96-bfb3-f1764f632375" target="_blank" rel="noreferrer noopener">Celsius</a> and FTX.



The Department of Labor said in <a href="https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/compliance-assistance-releases/2022-01" target="_blank" rel="noreferrer noopener">March 2022 guidelines</a> the Employee Benefits Security Administration (EBSA) expects to investigate plans that offer participant investments in cryptocurrencies and related products. 



“This expectation has chilled interest by plan sponsors and fiduciaries in direct cryptocurrency investments for now,” Hoover added.&nbsp;



Similar to the crypto within the retirement arena, the executive said, such exposure in the insurance space is still in its infancy.



The Castle Digital Index Fund is private and limited to insurance companies and qualified purchasers — generally a person holding an investment portfolio with a value of $5 million or more.



“This is the first step,” Hoover said. “The real killer in the variable annuity space is getting through to retail.”



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Castle Funds Seeks To Fill Gap in Insurance With Crypto Exposure

Shalini Nagarajan

Social NFT platform Rally, roiled by a challenging year for the crypto industry, is shutting down and warned users that they may no longer be able to access their assets.&nbsp;



The firm told customers in an email Tuesday that its Ethereum <a href="https://www.blockworksresearch.com/glossary#sidechain">sidechain</a> will sunset from Jan. 31 onwards. The site will no longer be supported and users will find the service no longer functions, it added.



CEO Rob Collier told Decrypt, which first <a href="https://decrypt.co/120285/social-token-platform-rally-shutting-down">reported</a> the shut-down, that the move was due to lack of ongoing support, adding that maintaining the sidechain was too expensive compared to other recently launched layer-1 tech stacks.



Rally told its community that the team had been impacted by the concerns surrounding the crypto industry and it had tried to find a way forward, but the “challenges and macro headwinds are too overwhelming to overcome in the current environment.”&nbsp;



“Additionally, since NFTs on the Rally side chain are not transferable to [Ethereum’s] main net, these will not be accessible once the site shuts down,” Rally said.



The platform <a href="https://rally.io/articles/introducing-nfts-on-rally-and-why-were-focusing-on-utility-over-scarcity">launched</a> in Aug. 2021, attracting users for not charging fees for exchange of NFTs.



“Feeless exchange of NFTs will allow more revenue to be captured by the creator, who will take home more of the value of their NFTs immediately upon sale, while also earning more over time through feeless, ongoing royalties and by increasing demand for their social tokens,” Rally said at the time.&nbsp;



Crypto VC Mike Dudas said on Twitter that Rally is “completely rugging owners of assets on the chain — not transferrable to [E]thereum.”



Holders of <a href="https://blockworks.co/news/ftx-nftx-are-mia">NFTs on the bankrupt FTX similarly learned</a> the hard lesson that a lack of permanent NFT storage on-chain can result in a loss of assets. In this case, Rally NFTs relied on the continuation of the Rally sidechain, rather than the immutable Ethereum mainnet.



Other projects that store NFTs on sidechains, such as Gnosis’ (formerly xDAI) <a href="https://www.poap.delivery/">POAP</a> project allow users to <a href="https://www.one37pm.com/nft/what-are-poaps-and-why-are-they-important">migrate</a> NFTs to Ethereum at any time.



Data from <a href="https://www.tradingview.com/chart/Joio31kT/?symbol=GEMINI%3ARLYUSD">TradingView</a> shows Rally’s native token RLY has dropped nearly 95% in the last 12 months.



It appears that Rally is still exploring whether it can build other products to empower creators, but it isn’t yet clear whether it has the resources to do so.



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Rally Leaves Social Token NFTs in Limbo After Abrupt Exit

The US Air Force (USAF) has for a while experimented with blockchain solutions to manage&nbsp;cash flow and streamline data management operations.



It was already collaborating with blockchain-as-a-service provider SIMBA Chain to develop a blockchain-based system for certain functions including supply chain quality and management.



This week, the Air Force <a href="https://www.businesswire.com/news/home/20230131005262/en/SIMBA-Chain-Awarded-30M-U.S.-Air-Force-STRATFI" target="_blank" rel="noreferrer noopener">selected</a> SIMBA for a $30 million strategic technology initiative, representing a significant bump to its budget for blockchain initiatives.



The investment will go to development of blockchain-powered applications in support of supply chain management by the Office of the Undersecretary of Defense for Research &amp; Engineering, the USAF, US Navy, US Army and the Defense Logistics Agency.



“Our new project for the USAF will pave the way to more efficient and comprehensive management of assets within the Department of Defense supply chain,” Stacy Betlej-Amodeo, vice president of government operations at SIMBA, said in a statement.



In 2021, SIMBA chain <a href="https://simbachain.com/news/simba-chain-raises-25-million-in-series-a/">secured</a> $25 million in a Series A funding round led by Valley Capital Partners. Other individual investors affiliated with tech giants Amazon, Apple, Meta, SpaceX and Microsoft participated in the round, the firm said at the time.



SIMBA previously secured seven contracts with the US Air Force, the most recent being tokenization of its supply chain budget to keep checks on potential risks and imbalances. The first contract was <a href="https://www.newswire.com/news/simba-chain-chosen-for-air-force-supply-chain-security-20979563" target="_blank" rel="noreferrer noopener">executed</a> in 2019.&nbsp;



SIMBA has also worked with other divisions of the Department of Defense (DoD), including a $9.5 million <a href="https://apnews.com/article/technology-business-us-navy-1ba4a0329153b8664e970512a812557d" target="_blank" rel="noreferrer noopener">US Navy contract</a> in 2020 related to secure communications. 



SIMBA&#8217;s platform allows clientele to work with both public, private and hybrid blockchain networks, although it&#8217;s likely the US Air Force would gravitate towards permissioned systems only. Blockworks has reached out to SIMBA to learn more.



The firm isn’t the only blockchain startup to offer such services to the military. Constellation Network has also <a href="https://cointelegraph.com/news/us-air-force-prioritizes-blockchain-security-with-new-constellation-network-contract" target="_blank" rel="noreferrer noopener">worked with the DoD</a> and other partners for secure data transmission, and partnered with the USAF on a data security solution through blockchain encryption.&nbsp;



Analytics unit Chainalysis has also <a href="https://www.usaspending.gov/recipient/93c1b742-3801-7f06-775d-da2c3fff3fd6-C/latest" target="_blank" rel="noreferrer noopener">secured</a> numerous contracts to work with US agencies, including the DoD.



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US Air Force Pumps $30M Into Blockchain for Supply Chains

Open interest for <a href="https://blockworks.co/price/btc">bitcoin</a> futures contracts remains near one-month highs as demand for digital assets continues to drive this year&#8217;s unexpected rally.&nbsp;



Bitcoin futures are trading at $23,230 as of 6:30 am ET on the Chicago Mercantile Exchange, recovering from a 3.85% loss on Monday. The asset is now up 40% year-to-date.



<a href="https://blockworks.co/tag/open-interest">Open interest</a>, which measures the number of outstanding contracts on the bitcoin futures market, reached a peak of 289,720 last week on the Deribit exchange before dipping to around 260,000, according to published <a href="https://metrics.deribit.com/options/BTC" target="_blank" rel="noreferrer noopener">data</a>.&nbsp;



That was the highest point for the number of outstanding contracts since the end of last year.&nbsp;



Interest in traditional finance and economic data has led to greater anticipation of volatility in digital assets, as seen by the increase in futures market activity and the underlying spot price of bitcoin.&nbsp;



Bullish bets for contracts expiring on Feb. 1 are pointing to a strike price near $23,250, with a put/call ratio of 0.81. Open interest by strike price for contracts expiring on Feb. 3 places bitcoin in the higher range near $24,000, with a put/call ratio of around 0.59, according to Deribit data.



A low put/call ratio below 1 suggests a greater number of call options are being traded relative to put options, which is generally considered a bullish sign as market participants anticipate an upward trend in the underlying asset&#8217;s price.



Open interest by strike price refers to the number of outstanding futures or options contracts not yet settled and written at a certain price level. The data can provide information about trader expectations, as well as the market&#8217;s overall risk tolerance and potential for future price volatility.



If a large concentration of open interest exists at a specific strike price, it may indicate a high level of market risk as many traders are betting on the asset reaching that price level.&nbsp;



While open interest is not a definitive measurement of bull/bear market bias, it can be interpreted as a sign of increased demand for an asset driven by factors such as increased economic activity.



A reading of 0.7 on <a href="https://www.questionpro.com/blog/spearmans-rank-coefficient-of-correlation/" target="_blank" rel="noreferrer noopener">Spearman&#8217;s rank correlation</a> between traditional equities and crypto means digital assets continue to move in tandem and are likely to be impacted by wider macroeconomic events in traditional markets.



The US Federal Reserve is expected to announce a <a href="https://blockworks.co/news/crypto-rally-relies-on-dovish-fed">softer rate hike</a> of 25 basis points on Wednesday, down from previous hikes of 50 and 75 basis points. A number of tech companies with blockchain exposure, including Meta, Google, and Amazon, are also expected to release their quarterly results this week.



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Bitcoin Open Interest at Month-Long High Ahead of FOMC Decision

Hong Kong’s Monetary Authority is weighing whether to implement or amend existing legislation that would effectively ban algorithmic stablecoins within the special administrative region.



The regulatory framework will focus on several key principles, including comprehensive regulation in areas such as ownership, governance and asset management.



Stablecoins that derive their value based on arbitrage or an algorithm will not be accepted into the region’s proposed licensing regime, the central bank said in a conclusion to a previously issued <a href="https://www.hkma.gov.hk/media/eng/doc/key-information/press-release/2023/20230131e9a1.pdf" target="_blank" rel="noreferrer noopener">discussion paper</a> on Monday.



The collapse of the Terra ecosystem in May 2022, after infamous algorithmic stablecoin Terra USD (UST) lost its US dollar peg, drew the ire of regulators worldwide. It’s that type of “financial stability risks” the central bank is hoping to contain, it said.



Financial resources requirements, risk management, anti-money laundering, counter-terrorist financing, user protection, regular audits and disclosure requirements are also being considered.



It comes after a discussion paper was issued on the subject in January of last year, which received 58 submissions from stakeholders.&nbsp;



The new law would apply to all entities operating within the jurisdiction, including those conducting a regulated activity and those actively marketing such activity to the public.&nbsp;



Stablecoins targeting the value of the Hong Kong dollar would also fall under the law’s purview.



The value of reserve assets will be required to meet the value of the outstanding stablecoins at all times, and those assets will be required to possess “high quality and high liquidity.”



“Stablecoin holders should be able to redeem the stablecoins into the referenced fiat currency at par within a reasonable period,” the regulator said.



Further detailed consultations with more precise information about the regime will be conducted sometime this year or early next year, according to the discussion paper.



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Hong Kong Contemplates Ban on Algorithmic Stablecoins

“Shark Tank” investor <a href="https://blockworks.co/tag/mark-cuban">Mark Cuban</a> filed a motion arguing the Voyager class-action lawsuit in which he was accused of promoting a “Ponzi scheme” should be moved from Florida to Texas.



The transfer of venue declarations were made by Sigmund Wissner-Gross, a partner at Brown Rudnick and counsel to Cuban and his team, along with Mavericks employee Ryan Mackey.



A <a href="https://storage.courtlistener.com/recap/gov.uscourts.flsd.618110/gov.uscourts.flsd.618110.89.0.pdf" target="_blank" rel="noreferrer noopener">court filing</a> released Tuesday doesn’t include the full details regarding their intent to move the case, as Cuban and the Mavericks have asked the court to file their motion under seal, a procedure allowing the defendants to keep contents hidden so that the information in them doesn’t become public record.



Confidential information, such as the plaintiffs’ Voyager account information, their addresses and the last four digits of their social security numbers, were redacted in the filings.



Wissner-Gross’ declaration also included excerpts from Voyager’s agreement with Dallas Basketball, which they want to be kept private because of a confidentiality clause that prohibits its public distribution.



Voyager investors put forward <a href="https://blockworks.co/news/lawsuit-likens-voyager-to-ponzi-sues-mark-cuban-for-promotion">allegations against Cuban</a> and CEO Steve Ehrlich last year, saying they personally reached out to potential customers to convince them into putting money into the “deceptive platform.” His NBA team, the Dallas Mavericks, was also named as a defendant in the suit. 



They “went to great lengths to use their experience as investors to dupe millions of Americans into investing,” the complaint said.



Cuban has now said that the investor plaintiffs engaged in “transparent forum shopping and gamesmanship,” according to <a href="https://www.law360.com/cybersecurity-privacy/articles/1571285" target="_blank" rel="noreferrer noopener">Law360</a>.



Blockworks has reached out to Cuban and attorney Wissner-Gross for comment.



Cuban is scheduled to be deposed as part of the lawsuit on Feb. 2 in Dallas, Texas. Mackey and Kyle Tapply, team executives for corporate partnerships at the Mavericks, are also set to be deposed before Feb. 23.



Voyager <a href="https://blockworks.co/news/voyager-files-for-bankruptcy-days-after-freezing-withdrawals">filed for bankruptcy</a> in July after suffering massive losses from its exposure to crypto hedge fund Three Arrows Capital, with Sam Bankman-Fried’s Alameda Research listed as its biggest creditor.



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Mark Cuban Accuses Plaintiffs Suing Him of ‘Forum Shopping and Gamesmanship’

Macauley Peterson

Little known outside of Japan, Astar Network, a blockchain in the Polkadot (<a href="https://blockworks.co/price/dot" target="_blank" rel="noreferrer noopener">DOT</a>) ecosystem, has gotten noticed by one of the world’s largest private enterprises: Toyota Motor Corporation.



A developer hackathon, which starts on Feb. 25, will be held in a metaverse environment on the Astar Network with Toyota as its main sponsor and one of the judges evaluating participating teams.



The amount of Toyota’s sponsorship was not disclosed, but the Astar Foundation and the Polkadot-focused Web3 Foundation are kicking in $75,000 and $25,000, respectively.



<h2>Making it in Japan</h2>



Shun Ishikawa, chief operating officer at Astar Network, told Blockworks that the Japanese market is “unique” on account of “its inherent language and cultural differences.”



“Entering and doing business in the Japanese market is very different from doing it in other countries,” he said.



Astar’s founder Sota Watanabe hails from the country, and Isikawa said the team works closely with top Japanese brands and Japanese politicians, helping Astar to become a leader in the Japanese blockchain market.



A non-scientific <a href="https://twitter.com/J_Blockchain/status/1472831730348601345" target="_blank" rel="noreferrer noopener">Twitter poll</a> by the Japan Blockchain Association (JBA) in December found that, of 332 respondents, a plurality chose Astar as the chain they would most like to use over alternatives Polygon, Solana and Avalanche.



It was also <a href="https://medium.com/astar-network/astar-network-sota-watanabe-receive-prestigious-awards-for-2022-d1d0cdbc63aa" target="_blank" rel="noreferrer noopener">chosen</a> as “product of the year” for 2022 by the JBA. Watanabe was the JBA’s “person of the year.”



He <a href="https://medium.com/astar-network/astar-network-sota-watanabe-receive-prestigious-awards-for-2022-d1d0cdbc63aa" target="_blank" rel="noreferrer noopener">appeared</a> on a recent cover of Forbes Japan, and regularly touts his political connections on Twitter.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Fortunately, I had the opportunity to speak directly with the Minister of Finance, Government of Japan today in person. As a result, I am now more bullish on this year&#39;s Web3 in Japan.&mdash; Sota Watanabe (@WatanabeSota) <a href="https://twitter.com/WatanabeSota/status/1613596682587107330?ref_src=twsrc%5Etfw">January 12, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Wantanabe’s efforts have grown the smart contract platform’s brand recognition in Japan, even as the growth in Polkadot as a whole has stagnated.



Although Astar has grown to become the largest <a href="https://www.blockworksresearch.com/glossary#parachain-polkadot-and-kusama" target="_blank" rel="noreferrer noopener">parachain</a> by total-value locked (TVL), at around $42 million, that figure is about a tenth of its peak TVL in April 2022, <a href="https://defillama.com/chain/Astar" target="_blank" rel="noreferrer noopener">data</a> from DefiLlama shows.



Only 34 <a href="https://parachains.info/#" target="_blank" rel="noreferrer noopener">parachain auctions</a> have actually taken place on Polkadot, far fewer than the 100 initially envisioned. Polkadot has averaged 30 active monthly developers over the past year, according to GitHub activity data collected by The Tie, about half that of Cosmos, and a small fraction of Ethereum’s active devs.



Momentum in 2021, fueled by the March <a href="https://medium.com/compound-finance/gateway-623f6f48d2b6" target="_blank" rel="noreferrer noopener">announcement</a> from Compound Labs of a multi-chain initiative using Polkadot’s <a href="https://www.blockworksresearch.com/glossary#substrate-polkadot-development-framework" target="_blank" rel="noreferrer noopener">Substrate</a>, stalled in 2022, alongside <a href="https://www.comp.xyz/t/multi-chain-strategy/2903" target="_blank" rel="noreferrer noopener">backpedaling</a> from Compound.



Polkadot governance forums have little activity, and founder Gavin Wood <a href="https://blockworks.co/news/polkadot-co-founder-gavin-wood-offloads-ceo-title">stepped down in October</a> from the CEO role at Parity Technologies, the ecosystem&#8217;s leading development shop.



Still, Astar’s native token ASTR has performed well in 2023, up more than 50% since the turn of the new year, beating the performance of both DOT and bitcoin.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12608010/embed#?secret=q39e4ti0Us" data-secret="q39e4ti0Us" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">ASTR has held its own against bitcoin and ether over the past year | Chart by David Canellis</figcaption></figure>



<h2>Is WASM the future?</h2>



In the realm of smart contract coding, the Ethereum Virtual Machine, and its programming language, Solidity, dominates.



Astar instead uses WebAssembly (WASM), as do smart contract chains in the Cosmos ecosystem. WASM has some key advantages, chief among them, the ability to write smart contracts in a variety of popular programming languages such as C/C++, GO, TypeScript and RUST, which potentially opens Web3 to a larger developer community.



WASM proponents like <a href="https://medium.com/astar-network/why-wasm-smart-contract-are-the-future-b37e4f4e6d41" target="_blank" rel="noreferrer noopener">Astar network</a> also tout its potential to be faster and more secure than Solidity, although the verdict <a href="https://arxiv.org/pdf/2012.01032.pdf" target="_blank" rel="noreferrer noopener">is far from in</a> on that score.



Polkadot’s own EVM-compatible chain, Moonbeam, recently <a href="https://twitter.com/MoonbeamNetwork/status/1613196662322728964" target="_blank" rel="noreferrer noopener">celebrated</a> its one-year anniversary, but in a crowded EVM landscape (even wholly unrelated projects like <a href="https://iohk.io/en/blog/posts/2022/07/06/introducing-the-cardano-evm-sidechain/" target="_blank" rel="noreferrer noopener">Cardano</a> and <a href="https://www.algorand.foundation/news/10-million-evm-compatibility-grant" target="_blank" rel="noreferrer noopener">Algorand</a> have EVM-based projects), it’s hard to be a standout.



Polkadot’s answer to Cosmos’ IBC protocol, XCM, is a pale shadow of <a href="https://medium.com/the-interchain-foundation/ibc-and-xcmp-a-comparison-of-interoperability-protocols-3d1700e30015" target="_blank" rel="noreferrer noopener">its rival</a> in terms of economic value moving around. The top 10 parachains across both Polkadot and its sister network Kusama registered about $2.3 million in inbound transfer volume over the past 7 days, according to <a href="https://polkaholic.io/" target="_blank" rel="noreferrer noopener">polkaholic.io</a>. IBC&#8217;s <a href="https://www.mapofzones.com/home?columnKey=ibcVolume&amp;period=7d" target="_blank" rel="noreferrer noopener">top 10, in the same span</a>, collectively are more than 20x greater.



Astar hopes its <a href="https://medium.com/astar-network/cross-virtual-machine-creating-a-portal-to-the-future-of-smart-contracts-a96c6d2f79b8" target="_blank" rel="noreferrer noopener">latest</a> tech novelty, called Cross-Virtual Machine (XVM) will catch on, letting developers build dapps that are interoperable between the EVM and WASM smart contracts.&nbsp;



But for now, the future of Astar Network looks very much linked to the personal networking of its charismatic founder.



The winners of the Web3 hackathon will be announced following a “pitch event” on March 25.



Spencer Hughes and Ryan West contributed reporting.



This story was updated on Feb. 1, 2023 at 12:00 with additional <a href="https://moonbeam.subscan.io/xcm_dashboard" target="_blank" rel="noreferrer noopener">data on XCM</a> and IBC transfers, provided by Moonbeam.



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