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Welcome to the latest edition of Cointelegraph’s decentralized finance newsletter.
As the crypto community filled its crypto stockings for the holiday season, the Grinch emerged to gift a grimacing fate to two DeFi platforms, stealing their festive spirit and a whole lot of dollars.
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Binance Labs, the venture capital side of global crypto exchange Binance, facilitated a $60-million capital funding raise for cross-chain router protocol Multichain. Other notable participants included Sequoia China, IDG Capital and Three Arrows Capital.
Amid Multichain’s corporate rebrand from AnySwap last week, analytical estimates placed the protocol’s total value above $5 billion and reported over 300,000 users on the platform. The funds raised will be utilized across various domains, including research and development of crypto algorithms, audits, security and general ecosystem growth.
In addition to the capital support, Binance has also pledged to develop a broader relationship with the protocol, announcing that Multichain will be officially recommended as a tool to bridge bToken across chains through Binance’s smart contract platform, the Binance Smart Chain (BSC).
BSC expressed high praise of Multichain, noting that it is “one of the biggest routers on BSC.” Zhaojun, a co-founder of Multichain, stated that the protocol connects “more public blockchains and crypto assets than anyone else, with lower transaction fees, shorter bridging time and higher security levels.”
— Multichain (Previously Anyswap) (@MultichainOrg) December 20, 2021
DeFi infrastructure startup Interlay announced a $6.5-million Series A funding round led by venture fund DFG Capital with additional participation from Hypersphere and Nexo Finance, among others.
The funding is set to support the construction of DeFi applications cross-chain to Ethereum, Cosmos and Polkadot, as well as onboard new developers to the team.
Interlay was designed to enhance the interoperability of crypto assets such as Bitcoin (BTC) to networks that typically facilitate DeFi activity such as Ethereum and Polkadot, a vision that the Web3 Foundation understood when it invested in the platform via a grant in March 2020.
Interlay’s core product, a Bitcoin-backed digital asset titled InterBTC, can be utilized within the Polkadot ecosystem for various DeFi activities such as yield farming, lending and acting as a collateral asset. Tokenizing a Bitcoin derivative opens the possibility of greater utility for the asset in comparison to the functional capacity of the Bitcoin network.
Speaking on the funding raise, James Wo, founder and CEO of DFG, stated that Interlay’s solution would “expand the cross-chain possibilities for Bitcoin” before tweeting:
We are glad to lead the recent round of @InterlayHQ I believe what they do is very fundamental to the Polkadot ecosystem. If they gain 1% of BTC to use InterBTC, that’s $9 billion! @DFG_OfficiaI @inter_btc $DOT https://t.co/phFpVXeG0L
— James Wo (@realjameswo) December 21, 2021
DeFi protocol Grim Finance reported over $30 million in losses this week after an “external attacker” gained access to the protocol’s vault contract via five reentrancy loops. This made it the sixth platform to encounter a security breach in the month of December, following high-profile hacks such as BadgerDAO’s $120 million loss.
In a damning explanatory tweet thread, DeFi security service RugDoc stated that Grim Finance’s largest mistake was not implementing a reentrancy guard on the before-after pattern in the protocol’s smart contract coding. Another mistake was granting the user “more privilege than is necessary” in enabling them to choose the preferred deposit token. RugDoc further explained:
“Hopefully, all projects can draw lessons from this incident that there is much knowledge most experienced solidity devs have at hand. If you haven’t acquired this yet, don’t build multi-million dollar projects. Don’t get audits from companies which everyone knows are useless.”
Similarly, fellow DeFi platform Bent Finance, known for its capabilities of staking and yield farming, also suffered a malicious exploit this week to the tune of 440 Ether (ETH), or just above $1.6 million at the time of writing.
1/ There was an exploit from the bent deployer address, it added balance of cvxcrv and mim to an address on an unvierifed update 20 days ago. We just discovered this today. There are multiple members on this team and we will make this right.
— Bent Finance (@BENT_Finance) December 21, 2021
Analytical data reveals that DeFi’s total value locked has increased 15.74% across the week to a figure of $142.58 billion, engulfing the losses printed in last week’s market downturn.
Yearn.finance (YFI) registered two weeks of gains with 53.28%. Terra (LUNA) rose 36.6%, while Aave (AAVE) printed gains of 34.2%. Curve DAO Token (CRV) and Compound (COMP) claimed fourth and fifth places this week with 28.6% and 15.4%, respectively.
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Thanks for reading our summary of this week’s most impactful DeFi developments. Join us again next Friday for more stories, insights and education in this dynamically advancing space.
The larger loss was mainly the result of the crypto market downturn and investments in Galaxy’s trading business, the firm said on Monday. The firm reported a loss of $182.9 million for the second quarter of last year.
Shrugging off the backward-looking loss, Galaxy’s Toronto-listed shares are surging over 20% in Monday’s trading session after gains in cryptocurrencies over the weekend. Bitcoin (BTC) is up about 4.4% to over $24,000 while Ethereum (ETH) gains 5.6% to about $1,799.
As of June 30, the firm had a liquidity position of $1.5 billion, while partners capital at the end of the quarter was $1.8 billion, up 23% from $1.5 billion from the year-ago level.
The firm’s reported preliminary assets under management stood at nearly $1.7 billion at the end of the second quarter, up modestly from a year ago, but down 40% from three months earlier.
Mining business revenue in Q2 was $10.9 million and the segment’s comprehensive net income tripled from a year ago.
Investments stood at $753.9 million at of the end of June, a decrease of about 25% for the quarter alongside the general slump in cryptos.
Speaking on the earnings call CEO Michael Novogratz said “I don’t feel nearly as bad as I thought I would, and I hope it’s the worst quarter this firm ever has.”
Over the last eight weeks, said Novogratz, Galaxy took a “really serious look” at all of its business units and costs as it looks to control spending.
On the employee front, Novogratz expects Galaxy to finish the year with over 400 people from about 375 right now. “We are a growth company,” Novogratz said. Galaxy is investing in people, products, and engineering teams not only for the near-term but for years to come, he added.
“While the crypto landscape is less certain than it was, my confidence of where it’s going in the medium-term hasn’t waned a bit,” Novogratz said.
Uppsala, a blockchain security service provider for crypto AML/CTF, transaction risk management, regulatory compliance, and transaction tracking, has announced today that it has signed a contract to supply digital asset AML solutions to KODA (Korea Digital Asset), a South Korean crypto exchange.
Through the contract with Uppsala Security, KODA will receive full access to Uppsala Security’s Threat Intelligence Database (TRDB), Crypto Analysis Transaction Visualization (CATV), and Crypto Analysis Risk Assessment (CARA) tools.
KODA is a digital asset custody service company established by Kookmin Bank (KB), South Korea’s largest bank, based on technology provided by blockchain developer Haechi Labs and in association with Hashed. The company provides a one-stop digital asset custody service specialized in corporations and institutions and has signed Wemade as its first customer.
By becoming an active user of Uppsala Security’s Threat Intelligence data hub (TRDB), KODA can strengthen its Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) fund monitoring functions by checking and reviewing in advance whether the wallet addresses of the deposited funds are blacklisted wallets related to the Dark Web or hacking/financial crimes.
In addition, Uppsala Security’s CARA tool, which uses Artificial Intelligence (AI) and Machine Learning (ML) mechanisms to detect various on-chain transaction patterns based on blacklisted wallet addresses behavior, helps with associating a risk level to wallet addresses that are not labeled yet in Uppsala Security’s Threat Intelligence data hub (TRDB), so that the risk of interacting with suspicious wallets can be mitigated and categorized in advance by grading them.
Uppsala Security also explained that if virtual asset transactions involved in crimes such as fraud are discovered at a later time, wallet transaction flows can be tracked and monitored in real-time through the Virtual Asset Tracking Security Solution (CATV) to further strengthen Regulatory Compliance and prevent virtual asset Money Laundering.
According to Uppsala Security, the company is currently working full steam ahead on developing a completely new leading-edge digital asset Fraud Detection System (FDS) solution that can block high-risk transactions in advance by pre-checking the risk of a large number of wallet addresses with just one click.
“KODA’s AML and internal control security system are already operating at the level of the existing financial sector and industry’s requirements, but we expect to be able to handle digital assets above the Government’s regulatory standards by additionally introducing Uppsala Security’s Anti-Money Laundering and Transaction Tracking solutions. We are also reviewing the introduction of a digital asset-specialized FDS solution that Uppsala Security will soon launch.”
– Ko Young-joo, Chief Information Security Officer (CISO) at KODA
The United Kingdom is paving the road for cryptocurrency services, courting startups and established players alike while leading the way in pioneering regulation on stablecoins and nonfungible tokens.
But a lot has changed. After two years of deliberations, European Union lawmakers achieved agreement on the Markets in Crypto-Assets (MiCA) regulation, marking a pivotal moment for harmonized supervision of the sector on such a scale. This followed United States President Joe Biden’s executive order recommending a whole-of-government approach toward the responsible development of digital assets within the United States.
The U.K. has also seen major political shifts during this period, including the resignation of Treasury Minister John Glen, whose April speech supporting the industry represented the most emphatic from a U.K. official to date.
While Glen was broadly supportive of a regulated and nurturing framework for the sector, other U.K. institutions have voiced concern about the safety and viability of cryptocurrency. In fact, on the same day as Glen’s speech, Bank of England Governor Andrew Bailey called the crypto market an “opportunity for the downright criminal.”
It’s precisely this sort of mixed messaging that could hinder the industry’s development just as the starting pistol is fired. Uncertainty breeds stagnation. Evidence suggests that a lack of regulatory clarity has already put the brakes on the wide adoption of cryptocurrency by consumers.
The industry will not be able to enjoy any comfort until regulators align their thinking.
With a new prime minister and government on the horizon, it is vital that whoever takes up residence at 11 Downing Street unifies the government’s position with the Bank of England and the country’s regulators so that the U.K. can become a true leader in innovative technology and standards setting.
The crypto sector has reached a point where it is both achieving global recognition as an incubator for fast-moving financial technology and missing out due to inconsistent approaches.
The crypto market holds approximately $1 trillion in value. That figure will increase as consumer and commercial adoption grow, creating jobs, improving financial inclusion, and providing fresh alternatives to legacy systems in the financial services sector.
The U.K. is one of Europe’s leading fintech hubs and finds itself in a fortunate position, equipped with the infrastructure, investment and talent to champion the crypto industry. But in order to cement this position, it needs to continue to attract best-of-breed challenger financial services brands. To achieve this, it must take a decisive and unilateral stance on cryptocurrency — consistent with the points delivered by Glen — that shows it is the home for building and growing innovative digital asset companies. After all, effective financial regulations exist to protect consumers without stifling innovation that ultimately benefits them.
This isn’t to say that Bailey’s concerns regarding the possibility of crypto being used for illicit activity are unwarranted. But addressing this point should not preclude the U.K. government from demonstrating it is not fearful of new technology and the positive changes crypto specifically is capable of delivering.
To that end, Glen’s statements regarding the delivery of a financial market infrastructure sandbox and the establishment of a crypto-asset Engagement Group are welcome steps that we believe will allow the U.K. to continue to serve as a leader in this space in active collaboration with the industry.
Taking a single unified approach to crypto regulation is also important. With MiCA, the EU is setting the bar and must be applauded for demonstrating the benefits of a unified approach to crypto regulation.
As the U.K. considers additional regulation in this space and the newly introduced Financial Services and Markets Bill makes its way through parliament, it would behoove the U.K. to build on the EU’s approach with MiCA, working with industry and consumers alike to discourage uncertainty and doubt.
UK Govt has today published 330 page long Financial Services and Markets Bill.
It will roll back many post-crash reforms, including capital adequacy rules.
Impose a duty of competitiveness on the regulator – effectively a race to the bottom.
This won’t have a happy ending.
— Prem Sikka (@premnsikka) July 21, 2022
Similarly, the upcoming consultation on the government’s approach to crypto assets represents a good opportunity for policymakers to hear from the industry about how to best build the regulation that will protect businesses and consumers while empowering innovation to thrive.
Of course, building regulation is only one part of the puzzle. Communicating government policy to those subject to regulation is as important as policymakers understanding the industry they are regulating. To that end, robust public-private collaboration is vital to adapt financial regulations to new technologies.
Only through a unified approach to crypto regulation will businesses have the confidence that they are operating in a market where the authorities are fully invested in the success of the sector, and consumers can feel protected by effective regulatory oversight.
To mitigate the current period of economic uncertainty, the U.K. will need to rely more heavily on its flagship industries, such as fintech, to drive growth, create jobs, and help the country to “Build Back Better.” To achieve this, it needs to encourage innovation in digital assets underpinned by a resilient and comprehensive regulatory framework. At this early stage, when a number of nations are seeking to grab the crypto crown, the U.K. cannot afford to allow mixed messaging to stymie its crypto ambitions.
The opinions expressed are the author’s alone and do not necessarily reflect the views of Cointelegraph. This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice.
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