Mandala Exchange

Hello Mandalarians! We are back with ‘Industry Insiders’, a dedicated biweekly newsletter that scours the internet to inform and educate people about what’s happening out there in the crypto world in an engaging and entertaining manner.

The cryptocurrencies market is in the reds. One of the reasons this has been attributed to is the Federal Reserve raising its key interest rate by 0.50%, the biggest increase since 2000. The last time it happened, cryptocurrencies didn’t even exist. The existing geopolitical climate in the world isn’t the best for markets either. Why is the Fed increasing rates? Supposedly, to keep the economy stable. With inflation at 8.5% and rising faster than it has in 40 years, it’s raising rates to make it more expensive to borrow money. The idea is to slow spending and bring down inflation without triggering a recession, but that’s a hard line to walk. What you plan to do while this happens is a personal decision? But, as we’ve said in previous editions too, the best way to win in the cryptocurrencies market is doing your own research, having a long-term approach and aiming to survive in both upward & downward market cycles. Let us know your thoughts on this. With that being said, let’s dive into what happened in the past two weeks!

The Great Depegging of 2022

What happens when a stablecoin doesn’t remain stable anymore? That’s what we witnessed with the depegging of UST (Terra USD) and the crash of Luna, the governance token of Terra’s ecosystem. When UST lost its peg, millions of dollars were wiped out in a matter of days. The coin, which used to carry a redeemable-for-a-dollar guarantee is barely worth anything now. LUNA, which last month had a market cap of more than $30 billion, has a market cap of less than a billion dollars now. This implosion of a multi-billion dollar protocol also caused a sell-off across cryptocurrencies more broadly.

Terraform Labs is the firm that developed UST and LUNA. Unlike fiat-backed & commodity-backed stablecoins, UST was not backed by any fiat currency or commodities, but instead relied on a complex mix of code and sister token Luna to stabilize its price. UST is referred to as an algorithmic stablecoin, meaning that its value is not determined by the financial collateral in the traditional markets but by lines of complex computer code. It had grown to a $18 billion+ market cap through its Anchor dApp, which offered supposedly stable yields of 20% on UST. 

The downfall started on May 7th. The UST peg briefly fell and saw a brief flight to safety as some users sold out of Anchor. Terra had significant holdings of Bitcoin on its balance sheet which it can use to maintain the $1 peg if needed. Through a series of market events, some market makers sold sizable BTC positions in the open market, causing a decline in price and further exacerbating the selling pressure on UST. Anchor saw its deposits cut in half from $14 billion before the weekend to ~$6 billion on May 9th. Withdrawals from Terra caused the UST peg to fall below $0.70 before eventually recovering to $0.90. LUNA was down about 50%. Continued rumors caused even more buying pressure, and an inflationary mechanism that introduced massive LUNA supply into the market resulted in LUNA price crashing to $0.

This event has had a serious impact on investor trust in the cryptocurrency market. Billions of dollars being wiped out of the market has hurt many retail investors, and our heart goes out to them. It also invites regulator attention & scrutiny to the nascent market of stablecoins.

Ethereum’s Merge in August’22?

For those who are not aware, the ‘merge’ refers to a highly anticipated upgrade to Ethereum that, if all goes smoothly, will shift the major blockchain from a proof-of-work mechanism to proof-of-stake. Currently, Ethereum relies on a proof-of-work model, where miners race to complete complex puzzles to validate transactions. This requires a lot of computer power and energy. In shifting to proof-of-stake, where transactions are validated by those who contribute, or “stake,” to the network, Ethereum is supposed to become more eco-friendly and efficient.

After years of delays, Ethereum co-founder Vitalik Buterin confirmed that the “merge” will finally happen this summer. At the ETH Shanghai Web 3.0 Developer Summit, Vitalik said “If there are no problems, then the merge will happen in August.”

Ethereum core developer Preston Van Loon also told a panel at the Permissionless Conference in Palm Beach, Florida, that the Ethereum Merge could happen as soon as August.

Nuggets from the cryptoverse📊

• Do Kwon, the co-founder and CEO of the firm behind the Terra blockchain, was revealed to be the cofounder of an earlier algorithmic stablecoin called Basis Cash which failed back in 2021.  
• SEC chair Gary Gensler said that crypto exchanges that offer multiple services to customers are often in conflict with one another, including custody, market-making and trading. He raised concerns with stablecoins affiliated with exchanges, like Tether, USD Coin (USDC) and Binance USD. 
• Treasury Secretary Janet Yellen pushed for stablecoin regulation by the end of the year during annual testimony in front of the Senate Banking Committee. She spoke as Terra’s algorithmic stablecoin was depegging.
• Dapper Labs announced a $725 million ecosystem fund for its Flow blockchain.
• According to a new report from Chainalysis, 97% of the $1.7 billion of crypto stolen in 2022 so far has come from DeFi protocols. This is largely driven by 2 major attacks: $622 million from Axie Infinity’s Ronin Bridge and $320 million from the Solana/Ethereum Wormhole bridge.  
• Crypto users were targeted by phishing attacks on Etherscan, CoinGecko and other sites via a malicious ad code introduced by crypto ad platform Coinzilla.  
• Binance indefinitely suspended the trading of Terraform Labs’ Terra (LUNA) and TerraUSD (UST) tokens after the tokens lost nearly 100% of their value in just a few days. Other exchanges like FTX, Crypto.com, KuCoin, and OKX also suspended trading. Meanwhile Terraform Labs halted its Terra blockchain for the second time this week while it worked on a plan to reconstitute the protocol. 
• Emirates Airline will begin accepting Bitcoin as a payment method.  
• Aave, a popular lending protocol, has launched an NFT-based decentralized social media platform called Lens. The new platforms let users own, control, and profit from their own content.
• David Marcus, the former head of Meta’s crypto strategy, launched Lightspark, a crypto startup that is building backend infrastructure for companies, developers and merchants looking to transact on Bitcoin’s Lightning network. 
• Covert miners in China account for more than one-fifth of the Bitcoin network’s hash rate, according to data from the Cambridge Digital Assets Programme (CDAP). Even after last year’s Bitcoin mining ban in China, the nation remains second only to the U.S. in terms of capacity.
• Gucci will start to accept crypto at some of their stores.The stores will accept various digital currencies, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Dogecoin, and Shiba Inu.
• Ethereum developers have reached another milestone on their way to the long-awaited ETH 2.0 network upgrade—the Ropsten public testnet will undergo an upgrade to proof-of-stake consensus on June 8. In the run-up to upgrading the mainnet, the Ethereum Foundation has also doubled reward payouts for its bug bounty program.

From the World of Web3, NFTs & the Metaverse🔮

• The founder of NFT collection Azuki published a blog post revealing his involvement in past NFT projects, causing the collection’s floor price to fall. Community voiced concerns the founder’s other projects were ‘rugpulls’, when a team abandons a project shortly after launch (while taking money raised). 
• Instagram is planning NFT integrations for Ethereum, Polygon, Solana and Flow and plans to charge users for posting and sharing NFTs.
• Madonna and Beeple announced a three-video NFT collaboration called “Mother of Creation”. The series was auctioned on SuperRare with proceeds donated to three charities.
• NFT platform Zora raised $50 million from Haun Ventures at a $600 million valuation. Zora operates an open-source marketplace protocol.
• Napster, the once popular p2p audio file sharing platform, was acquired by Hivemind and Algorand. The group plans to recreate Napster in Web3.
• Fantasy sports app Sorare will create a crypto game with the MLB. Fans will be able to buy and sell NFTs of baseball cards and assemble their fantasy teams.  
• Yuga Labs, the company behind Bored Ape Yacht Club and metaverse Otherside, refunded gas fees for those with failed transactions during the Otherdeed mint.  
• Facebook has filed 5 new trademarks for Meta Pay, their digital payments product. The trademarks cover things like a crypto wallet and an exchange. 
• The stock photo powerhouse, Getty Images, is breaking into the world of photography NFTs. They plan to take their collection of over 465 million images and make “never-before-seen archival works” into NFTs. Their first NFTs would be minted on the Palm blockchain, an Ethereum-compatible sidechain.
• NASA is offering $70k as a prize for the developer that can create the best design for a Martian Metaverse. 
• Universal Music Group, the major music label behind artists like Taylor Swift, U2, Kendrick Lamar, and BTS will let artists drop NFTs on the new Web3 version of LimeWire. Previously a peer-to-peer music sharing service, LimeWire will launch a music-centric NFT marketplace on Algorand.
• VC firm Andreessen Horowitz has launched a $600 million fund focused on metaverse games. The gaming industry generated more than $300 billion last year.
• The creator of Rick and Morty is creating a new blockchain animated series called Krapopolis. There are going to be NFTs and tokens that provide exclusive perks and rewards to fans.