What Went Wrong With Crypto?
TLDR: Cryptocurrencies were once a hot investment option, but now DeFi protocols associated with TerraUSD (UST) are down by 80% . Why?
On May 11, the toppling of stablecoins had a devastating impact on the cryptocurrency market, with projects with any link to the decentralized finance (DeFi) industry seeing their prices hit. The prices have plummeted as a result of the market sell-off amid concerns of rising inflation and slowing economic growth, causing further panic amongst investors. The forced liquidation of Bitcoin (BTC) holdings that underpinned a portion of UST, also played a role in BTC's present fall to $29,000. Which left investors in fear of DeFi platforms with liquidity pools primarily made up of UST and LUNA going bankrupt and collapsing. All of the protocols in question are DeFi-focused, which means they had a significant integration with UST as the main stablecoin for their liquidity pairs, as well as LUNA as a major source of value locked up in their smart contracts.
The odds of these protocols bouncing back and recovering from today's fall are extremely low as long as UST stays off its $1.00 peg and LUNA declines 98% from where it was just seven days ago. As the market absorbs recent declines and news of fund and protocol failures spread, we'll see how other stablecoin protocols perform. Will crypto traders avoid these projects for more centralized options?
European Union Plans Pilot Project on DeFi Supervision
TLDR: The ability of regulatory bodies to automatically check compliance with the regulatory framework via blockchain transaction data may significantly reduce the need for market participants to collect, verify, and submit information to supervisory authorities.
While the innovation may be considered to be an opportunity, there are still several risks associated with DeFi. Owing to the critical role played by stablecoins, there's a concern about future financial stability ramifications as the DeFi ecosystem expands at such a rapid pace. The current crypto market collapse around the world only highlights the risks related to stablecoins. The US Treasury has also issued another warning about stablecoins during a Senate hearing on Tuesday, keeping up with the EU. The introduction of a decentralized ecosystem to the EU financial services regulatory framework will necessitate a reconsideration. In other words, this would entail the implementation of activity-based regulations rather than entity-based ones. The European Commission recommends concentrating regulation on smart contracts that help to execute transactions on DeFi, target smart contract developers, and hold them accountable for their work, challenging the widely-held belief that "code is the law."
This constructive (optimistic) attitude to DeFi might assist its development in the region. DeFi has thus far remained unregulated worldwide, and while the industry's growth has been accelerated by the low barriers to entry, it has also suffered from several forms of fraud. DeFi platforms can do more to ensure security and to prevent becoming a tempting target for hackers.
Stablecoins Pose Significant Risk to Financial Stability
TLDR: Stablecoins are rapidly growing phenomena that is being seen as a potential risk to jeopardize future financial stability as the DeFi ecosystem grows and crypto markets plunge.
The crypto market has grown to be larger than the subprime mortgage industry, which triggered a global financial crisis in 2007 and 2008. Cryptocurrencies are not without risk and with stablecoins we often encounter risks associated with a payment system and its integrity, and risks linked to increased concentration if stablecoins are issued by firms with considerable market power. These risks are not just theoretical; they are taking place in real-time. For example, the price of a cryptocurrency known as TerraUSD tumbled dramatically, plummeting to $0.65, from $1 in late January 2022.
The concerns about stablecoins represent a significant push by the U.S. Congress and the White House to regulate the cryptocurrency sector. Regulators are considering the possibility of a central bank digital currency, but it carries a risk if it allows the government to keep track of people's spending. All this highlights rapidly developing risks in stablecoins space.
Blockchain + AI In Finance: How Opposites Attract
TLDR: The combination of AI and blockchain technology may be used to identify suspicious transactions and activity, as well as to stop them at the source.
Blockchain and artificial intelligence are revolutionizing the financial sector, allowing financial institutions to exploit massive amounts of data to extract more insights, automate routine operations, and detect fraud by looking for unusual patterns. The secure transactions may not be tampered with when blockchain is utilized, and it ensures that each transaction adheres to the rules set forth by the blockchain (either preprogrammed into the platform or programmed as smart contracts). The blockchain's security may assist in preventing fraudulent transactions and improving fraud detection. Layering AI on top of transactions will allow for the detection of anomalies on a wide scale. For instance, If a client maintains the same amount in an ETF every month and one month, the amount of investment is ten times greater than usual, such transaction would be flagged as suspicious and possibly fraudulent by fraud detection software at the banks.
AI struggles with transparency and privacy, whereas blockchain faces problems with scalability and efficiency, making the two technologies an excellent match since each may address the other's shortcomings. Blockchain allows AI to have trust, privacy, and accountability, while AI enables scalability, efficiency, and security for blockchain.
The current structure of the financial technology sector is highly specialized and centralized. Blockchain and artificial intelligence technologies can be powerful drivers for FinTech 2.0, focusing on comprehensive solutions with improved transaction speeds, transparency, and security. Furthermore, as more people get access to financial markets, DeFi might result in a larger pool of investors. The more investors there are, the more data AI will have to process.
Blockchain establishes the basis for smart contracts to enhance transparency and data management, while AI may be used to scale processes, speed up transactions, and obtain insights from large amounts of data. Although AI and blockchain are unlikely to completely overhaul the financial sector as we know it, they will certainly alter how we interact with financial data.
Five US States Order Virtual Casino to Stop Selling NFTs
TLDR: Everything has a price. A 'High-Tech Scam' faces an emergency cease-and-desist order in five states with an immediate halt on the sale of its non-fungible tokens, or NFTs.
The metaverse casino misled hopeful investors with fraudulent claims of business ties with legitimate companies, as well as promises of technological advancements and financial gains. This civil filing is the latest and most concerted attempt by state officials to regulate some of what goes on in the metaverse, where growth and speculation have created a fertile environment for fraud, theft, and deception.
When you think about blockchain transactions and digital assets, a lot of people associate them with cryptocurrencies like Bitcoin or Ether. We're talking about hidden individuals who are hiding their location, so when the cash is sent... we may not be able to retrieve it. It's shunted into a black hole via the blockchain, and individuals might lose everything because of insufficient rules and security. This occurrence might have been avoided, and the states are now trying to play catch up with nefarious actors.
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