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GameStop tale exposes regulatory paternalism and DeFi’s true value

Republished by Plato

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Though seemingly coming from nowhere for many, the themes behind the Reddit-fueled r/Wallstreetbets pump of GameStop feel familiar. Watching it unfold, I tried to figure out just why it had captured my interest to such a degree, and, to me, it was a spillover into the traditional markets of some pervasive themes driving crypto.

Despite some competition in the narrative, I view the motivating force — and by it, I mean the social media-fueled spread of the message that drew enough widespread interest to have an impact in the market — behind the GME pump as analogous with what, at one point, was an impetus behind Bitcoin (BTC). It is a driver for (depending on your level of cynicism) the crypto markets more broadly and the decentralized finance movement — a desire for the “democratization of finance.” Behind that movement is the view that finance and financial products should be open-sourced, accessible to all, as opposed to hinging on whether you are an accredited (read: high-net-worth) or an institutional player.

Related: Time to shine? Crypto should be given a chance after GameStop drama

Accredited investor rules, long the subject of critique, were recently expanded in 2020. Far short of a revolution, the amendment allowed additional classes of investors with certain financial credentials, like a Series 7 and knowledgeable employees of PE funds, to meet the definition among other changes that did not amount to anything meaningful. See the Securities and Exchange Commission’s press release describing the recent amendments to the definition.

There was a folkloric element to the narrative, a David and Goliath tale of sorts, where the everyday man was able to pull off a coup in inspiring a sizable crowdfunded movement in the market. Yet, while it evoked some degree of euphoria, the episode also brings to the forefront some of the simmering underlying tensions in U.S. society, including a strong sense of paternalism toward the poor, in this case, the retail investor, and mounting generational tensions.

Related: GameStop saga reveals legacy finance is rigged, and DeFi is the answer

The regulatory paternalism

In the United States, as a somewhat toxic offshoot of self-determination, there is the underlying bias or presupposition that those who are wealthy became so because of their personal attributes and, likewise, those who are poor will remain poor as a result of some personal failing on their part. Outside the academic setting, policy toward retail hasn’t reflected much exploration into the social and economic factors that allow people to accumulate wealth and the feeling that “the game is rigged” through increasing barriers to achieving upward mobility in the United States.

This manifests itself in regulatory paternalism, the government imposing limitations on who it deems able to afford to make investments or has access to certain financial products. Most visibly, this has left those who are non-accredited without access to early-stage investments. Many have argued that the wealth test systematically disenfranchises any and all investors capable of understanding risk despite their income level, making an argument that I agree with, that “being wealthy is no proxy for financial sophistication.”

But at the same time, this allows access to casinos and lottery tickets, payday loans and other predatory financial instruments, such as reverse mortgages, presumably where a competing interest, such as state budgetary shortfalls or effective lobbying on the part of industry, won out.

What you end up with is a system that seems engineered to reinforce class-based barriers — where the wealthy get to shape law and dictate the narrative as well. This is most starkly evidenced by the Melvin Capital sympathetic content that ran on CNBC portraying the hedge funds as the protagonists, leveraging the dogmatic network-wide belief system that, somehow, Melvin’s actions were good for society and universally just.

This was juxtaposed against a characterization of the Redditors as huddled, unwashed masses who, through chaos and destruction, embarked like lemmings on a path toward personal financial ruin and created a situation where there was some sort of systemic risk created by touting a random low volume stock. Not to put too fine a point on it, but while rich people lost some money here, among others, it is not exactly the financial apocalypse it was portrayed to be.

To me, putting aside the unending joy of having mainstream finance publications quote Reddit netizens like u/DadBod39 and prompting untold memes around Robinhood changing its name to Prince John’s Trading or RobingtheHood, this episode in the stock market captured my attention by highlighting the above-described tension, as well as a generational shift to social-media-based messaging, where the internet can be leveraged widely to produce decentralized market forces.

A paradigm shift

Fueled by (semi)-anonymous decentralized actors, this episode brings forward one of my core fascinations with crypto: the prospect of a paradigm shift that challenges existing regulations. Much like the regulatory challenges applicable to decentralized finance, how do you address a movement of the masses when law presupposes there is a central figure with more culpability than Keith Gill, to which you can attach liability? Addressing this poses a conundrum, as regulators are increasingly faced with cutting heads off hydras with the prospect of more growing back.

Most recently, the House Committee on Financial Services had a post-mortem hearing on GameStop and the surrounding market volatility, and while I always go into these with the lowest of expectations, I come out each time with a sense of renewed nihilism and hopelessness. While the recent House hearing on Feb. 18, 2021, provided an opportunity for a rehashing of the r/Wallstreetbets pump from those with a first-row view of the events that transpired and gave legislators the opportunity to saber rattle and virtue signal to their respective constituents, there were no clear signs of a path forward.

Related: Twitter, GameStop… enough! The world needs true decentralization

There was a cursory discussion of the merits of reducing settlement time (and yes, blockchain), the downsides of relying on high-growth fintech startups to provide market infrastructure type services, and the balancing act, as Sean Casten put it, of trying to democratize finance while not “being a conduit to feed fish to sharks.”

It was also an opportunity for legislators to play “who can be the most tone-deaf to the underlying market incentives” that fuel today’s ad tech and surveillance-driven economy, questioning whether this was indeed a free service for consumers — in this case, retail investors (breaking news, it isn’t) while remaining a for-profit institution. One House member asked if Robinhood would stop the practice of earning revenue by allowing Citadel to “pay for order flow” and allowing for the institutional players to front-run retail, pointing out that the practices that Robinhood engages in are legal, with disclosure, and certainly not unique, and are used by Fidelity, E-Trade, Charles Schwab and TD Ameritrade, among others, according to SEC Rule 606 disclosures. The answer was clearly and universally no, or, as Casten, cited earlier, put it: “There is a tension in [Robinhood’s] business model.”

This is the same legislature that has stalled in an attempt to stem consumer data from being bought and sold as a business model, thereby achieving peak-level hypocrisy in the triple threat of: (1) allowing the monetization of violations of privacy and somehow both; (2) blaming free-market actors for making money off acts that are legal; and (3) also suggesting at times that regulation was the cause of the harm that was done.

In a particularly depressing segment of the hearing, Robinhood was all at once villainized for not providing the committee with disclosure forms that are publicly available; for not foreseeing a tenfold spike in the capital it would need; and for taking emergency steps to meet capital requirements, which involved some degree of discretion in how to address but not as much as House members insinuated.

Others suggested that Robinhood should be responsible for the relative gains in its users’ portfolios, and still, others decried that there were capital requirements for Robinhood in the first place, suggesting that regulations were the root cause of the capital crunch. Altogether, the hearing left no discernable path forward except that we should expect more hearings.

In all, the fallout continues, with a couple of indications that there is certainly more to come. Maxine Waters has stated that regulators will be present to testify at additional hearings of the House Financial Services Committee, and class actions have been filed naming Keith Gill.

I view this as likely a beginning rather than a one-off, where we can look forward to additional skirmishes breaking out with increasing frequency as well as corresponding pressure on regulators to address them. Though I am not hopeful there will be any more movement in the accredited investor definition, maybe it is an opportunity for market regulators to reexamine underlying regulatory bias, as this has shone a spotlight on the need to create new opportunities for younger generations to build wealth.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Sarah H. Brennan is counsel and leader of the digital assets and disruptive technologies practice at Harter Secrest & Emery LLP. Sarah has a broad range of experience in corporate and transactional matters. She focuses primarily on corporate and securities law, representing public and private companies, venture capital and private equity firms, investors, and clients in every stage of the corporate life cycle.

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Source: https://cointelegraph.com/news/gamestop-tale-exposes-regulatory-paternalism-and-defi-s-true-value

Blockchain

Bitcoin Bull Mike Novogratz Predicts Existential Crisis Unless the US Creates a Digital Dollar

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Mike Novogratz, a veteran investor, and a huge Bitcoin supporter noted the U.S. is currently in a good economic position. Still, the nation can face a major competitive disadvantage unless it engineers a digital dollar soon.

The Importance Of An E-Dollar

Novogratz, chief executive of digital merchant bank Galaxy Digital GLXY, underlined the value that a digital dollar could bring to the US. In a Friday interview with MarketWatch, he stated:

”To me it is an existential crisis, we need a digital dollar.”

Furthermore, the investor expressed his view over the current COVID pandemic and the negative impact on the U.S. market and the world, in general. He referred to the trillions of dollars of monetary and fiscal spending done to help eliminate the worst of the economic aftershocks the disease caused:

”If our fiscal and monetary policy starts looking like it’s from a Banana Republic…you are going to run into some Minsky moment where confidence breaks down.”

With his statement, Mike Novogratz referenced Hyman Minsky, who exposed a view in the recent past that a period of distortions in the financial system eventually ends very badly.


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The existence of a digital dollar sounds even more important after some stock-market investors have been warning about a surge in US inflation in the past weeks.

The Competition With China

During the interview, Novgorotz claimed that while in the U.S., the development of an e-dollar is still under question and researches, China has fired the first salvo on the digital currency front.

The biggest economy in Asia conveys great support to its digital yuan. According to some experts in the field, its new currency is a weapon that the country can use to compete with the U.S. and other developed economies.

As CryptoPotato recently reported, PayPal CEO Peter Thiel said that Bitcoin could be used as a Chinese financial weapon against the U.S.

In the meantime, Novogratz said that there is ”zero evidence of the Chinese government buying Bitcoin” much less weaponizing it, referring to the comments made by Peter Thiel:

”Sometimes he likes to say things that are provocative.”

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Source: https://cryptopotato.com/bitcoin-bull-mike-novogratz-predicts-existential-crisis-unless-the-us-creates-a-digital-dollar/

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Blockchain

Ripple becomes tidal wave, leads weekend pump and notches legal victories

Republished by Plato

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Amid a weekend pump carrying multiple cryptocurrencies higher, Ripple’s XRP looks to be leading the way with a push as high as 30% on the daily — carried on the back of a string of legal victories and rumors of relisting at some exchanges. 

Where Bitcoin and Ethereum are up merely 2.7% and 3.4% respectively on the day, XRP climbed to $1.36 before retreating to $1.32, where it sits at the time of publication. The digital currency is now up 111% on a 7 day basis, and a staggering 544% on the year. The recent push has also buoyed XRP back into the top 10 cryptocurrencies by marketcap, behind only BTC, ETH, and BNB at #4.

The rally flies in the face of a lawsuit from the Securities and Exchange Commission, which charges that XRP’s $1.3 billion ICO was an “unregistered securities offering.” The news led multiple exchanges to delist the currency, and XRP lost its place as the 3rd largest currency by marketcap, at time looking as if it would even fall out of the top ten. 

The bad news for XRP didn’t stop with the SEC, either. In March Ripple CEO Brad Garlinghouse announced that the company would be “winding down” its relationship with Moneygram — a once highly-touted partnership that investors often pointed to as proof of the digital currency being on a path towards becoming “the standard” for payments and settlement.

Despite the deluge of negative headlines, it appears all buyers needed was a small ray of hope to jump back in — and they’ve gotten exactly that. Ripple lawyers have notched two victories in their legal battle against the SEC, including winning access to internal SEC discussion history regarding cryptocurrencies, and a court denied the SEC the ability to disclose the financial records of two Ripple execs, including Garlinghouse.

Ripple executives themselves seem heartened by the news, with CTO David Schwartz saying the US isn’t “prepared” to regulate cryptocurrencies (a possible dig at the ongoing legal proceedings).

All in all, it’s just another week for one of the most controversial cryptocurrencies in the space.

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cointelegraph.com/news/ripple-becomes-tidal-wave-leads-weekend-pump-and-notches-legal-victories

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Blockchain

Why this OlympusDAO’s product could be amongst DeFi most lucrative

Republished by Plato

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Taking the market by storm, OlympusDAO’s native OHM is up 95.8% this week alone and 31.1% in the past two weeks. At the time of writing, OHM is trading at $812,76 with 7.3% profits in the 24-hour chart.

With a market cap of just $68 million, OlympusDAO might have gone unnoticed by many investors. However, it has a mechanism called Bonds which promises to be one most important and lucrative in the DeFi sector.

According to research firm Messari, this protocol is attempting to create a stable currency backing every OHM with DAI and OHM-DAI. The objective is to maintain a “fundamental check on inflation” and a currency with an undiluted purchasing power.

Unlike Tether and other stablecoins, OHM is not pegged to any other asset. Its stability is achieved via the DAO (Decentralized Autonomous Organization) when it alters variables to obtain more profitability for stakers.

This is done via the sales contract connected to the protocol’s treasury and a liquidity pool (OMH-DAI) on decentralized exchange Sushiswap, as shown below. Messari explains:

When OHM trades above 1 DAI, the protocol mints and sells new OHM. When OHM trades below 1 DAI, the protocol buys back and burns OHM. In each case the protocol makes a profit. Olympus DAO distributes these profits 90% to OHM stakers pro rata and 10% to a DAO.

OlympusDAO OHM
Source: Messari

How OlympusDAO’s bonds operate

The Bonds are a treasury component to get liquidity with it users can trade Stake Liquidity Provider tokens to get OHM directly with the protocol, as an OlympusDAO developer explained.

Once the trade is completed there is a vesting schedule of 5 days. During this time, the user can redeem the tokens but has incentives to get them at a discount. The latter is determined by the number of bonds in the protocol, more bonds are equal to a lower discount.

Via this mechanism, as the developer said, OlympusDAO restrains its own growth, to have become “steadier”.

The liquidity from a bond is locked in the treasury and used to back new $OHM. That liquidity now belongs to the market and, by extension, the token holders. The more liquidity the protocol builds up, the more confident holders can feel.

The users are basically contributing to OlympusDAO by adding liquidity. In retribution, the user gets a reward in OHM at a much cheaper price during a specific period. That way, both the user and the protocol can benefit.

OlympusDAO offers LP a variety of strategies around OHM which they can leverage to obtain a bigger profit than on the spot market. The developer claims:

All of this serves to create a long-term, sustainable bootstrapping mechanism for the protocol, with participants as the main beneficiaries. A good system shouldn’t offer one opportunity to “make it”; it should offer them in perpetuity with diminishing returns. This is how you produce wealth; slowly, through compounding gains.

Ethereum is trading at $2096,58 with a 1.2% profit in the 24-hour chart, after dropping from its ATH at $2,198.

OlympusDAO OHM Ethereum ETHUSD
ETH with small profits in the 24-hour chart. Source: ETHUSD Tradingview

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Source: https://www.newsbtc.com/news/why-this-olympusdaos-product-could-be-amongst-defi-most-lucrative/

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