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News Overview 8/16: Ethereum, Tornado Cash, Acala, Coinbase, Nuri, Hodlnaut

The final date for Ethereum’s The Merge update has been set. Tornado Cash was blacklisted by the US government. Acala’s stablecoin collapsed as a result of hacking. Coinbase suffered losses of over a billion dollars for Q2. Nuri and Hodlnaut are the latest victims of the crypto market cooldown.

The Merge has an official date

Ethereum’s The Merge update has been constantly in the news at And not without reason, as this is the biggest event in the crypto world since the last Bitcoin halving (2020) and the Bitcoin “block war” of 2017.

Recently, the final stage of testing was reached. The Merge update was successfully pushed to the Goerli test network last week. This was the last TestNet run before Ethereum’s MainNet. The Goerli update went smoothly, so Ethereum founder Vitalik Buterin announced the official date for The Merge on Thursday.

Technically speaking, the update is performed at the moment when the difficulty level of Ethereum mining has reached a certain point. Mining is deliberately made more difficult (eventually impossible) so that miners are forced to stop. The most visible change in The Merge is precisely the shift from mining to the Proof of Stake consensus.

The final date of The Merge will be affected by the Bellatrix hard fork in early September. This update will start the countdown, so to speak. Bellatrix will take place either on the 1st of September or on the 6th of September. The Merge will take place two weeks later, on the 15h or 20th of September.

Investors have plenty to think about because such updates are often ‘buy the rumor, sell the news’ type events in the crypto world. The hype is built in the weeks leading up to the event, but when the actual event takes place, whales dump their investments and reap the profits.

This could also be the case for The Merge. Keep that in mind if you are speculating on the price of Ether short-term. The biggest effects of The Merge will only be seen over a longer period of time. It is likely to be a very strong price driver for Ethereum over the next 6-12 months.

A lot will also depend on the general development of the crypto market around the time of The Merge. Cryptos are still closely following the stock market. If we see a decline in stocks in the coming weeks, Ethereum is unlikely to buck this trend.

Tornado Cash was blacklisted by the US government

Tornado Cash has been the biggest topic of discussion lately. This is a so-called mixing service on the Ethereum platform. Tornado Cash also runs on other EVM-compatible blockchains such as Avalanche and Polygon. Mixing services are also available on the Bitcoin network.

The idea behind a crypto mixer is simple. You can send a transaction of 1 ETH to its pool, for example. There it will be mixed with transactions sent by other users. The mixing service then forwards the transaction to the recipient. The sender’s address gets lost.

Mixing services have been in the headlines before. Some crypto xchanges have banned their customers from using them. Tornado Cash has surfaced after the DeFi hacks over the past year.

The US decided to take a hard line and blacklisted Tornado Cash and the 40 Ethereum addresses that used it from OFAC. This is no small matter, as anyone who violates the sanctions faces a maximum fine of $10 million and 30 years in prison.

There have been new updates in recent days.

The Ethereum community was in a huge uproar a few days ago when the Dutch authorities arrested a Tornado Cash developer. Apparently, there are already several arrests at this point.

The case has sparked a huge debate about the future of the whole ecosystem. How much, for example, should DeFi applications bend to the demands of the US administration? What if individual blocks in the blockchain start to get blocked by validators containing transactions from blacklisted addresses?

A similar issue also surfaced last spring with Bitcoin. At that time, the mining company Marathon began to skip transactions sent from addresses on OFAC’s blacklist. However, Marathon had to bow down to the Bitcoin community and very quickly lifted the blocking.

It is likely that the issue of a protocol-level block will be discussed for a long time to come. The US-based Coin Center is already planning to challenge the sanctions in court.

Acala’s stablecoin collapsed

The world of DeFi has seen yet another hack and the collapse of a stablecoin. This time it is the Acala Network, a smart contract platform created for the Polkadot ecosystem. Acala’s stablecoin aUSD was hit by hackers a few days ago.

This was an error in the configuration of a liquidity pool. The new aUSD-based pool was launched on Sunday, but just moments later a hacker managed to create 1.3 billion aUSD coins from scratch. This instantly crashed the value of aUSD by 99%.

Acala USD is not backed by dollars like Tether or USD Coin, but it does have crypto collateral. They were of no use in this case, though.

The good thing is that the Acala team has managed to save their stablecoin.

Acala reacted quickly and organized a proposal to destroy the incorrectly minted aUSD tokens. This operation has now been completed. At the same time, the price of aUSD  has recovered rapidly. It is still not quite at parity with a dollar, but at least the major destruction has been avoided.

Hacks in the DeFi sector have been a huge pain in 2021-2022. Losses are already in the multi-billion range, although some funds have been recovered.

Coinbase suffered heavy losses in Q2

Coinbase is a cryptocurrency exchange familiar to many retail investors. However, it differs from other exchanges since Coinbase is also a publicly traded company. Coinbase’s stock (ticker: COIN) was listed on the US Nasdaq stock exchange about 1.5 years ago.

As Coinbase is a publicly traded company, it is required to publish quarterly reports on its performance. These are interesting readings, as Coinbase’s situation reflects much of the development of the industry as a whole. For example, we can gauge the interest of small investors and the state of the bear market from these reports.

Coinbase published its Q2-2022 report last week. You can read the PDF file from this link. Let’s go through the main points.

coinbase q2

The table above gives a stark picture of the evolution of the result. A year ago Coinbase made a net profit of 1.6 billion, but this year the figure was 1.1 billion below zero. Lending volumes have also plummeted by more than 50% from last year’s peak, although the number of active customers has remained relatively stable.

Despite the result, the company’s cash position is healthy. Coinbase has almost $5.7 billion on its balance sheet, which is about $1.3 billion more than a year ago.

The following table shows the distribution of the volume of escrow between the different cryptocurrencies.

coinbase q2

The trend is clear: Bitcoin’s share of trading will rise significantly as the market deteriorates. Ethereum’s share is also rising compared to other altcoins. Investors are therefore focusing on the two largest cryptocurrencies in difficult times.

The share of retail investors in trust volume has also decreased after 2021. This again underlines the fact that we are deep in a bear market.

Coinbase stock price received a big boost last week from the BlackRock news. COIN has still fallen 75% since the bear market started in November 2021. It will be interesting to see if Coinbase can improve its performance in Q3.

Nuri and Hodlnaut are the latest victims of the crypto downturn

The ongoing bear market (or “crypto winter”) has already claimed numerous victims. Many small investors have lost the majority of their portfolios during the price falls, but the biggest losses have been seen in the corporate world. The bankruptcies of Celsius and 3AC have shaken the entire market.

Many other crypto services have also gone down. In some cases, this is due to losses on Celsius and 3AC loans, while others are in trouble for other reasons. Last week, two new names were added to the list: Nuri and Hodlnaut.

Some readers may know Nuri as Bitwala. It is one of the largest crypto services in Germany, with half a million customers. Now the company has filed for bankruptcy. Nuri says in a press release that the collapses of Celsius and Terra contributed to this. The good thing about Nuri’s bankruptcy is that customers’ funds are safe.

Hodlnaut is a Singapore-based crypto exchange. It announced the suspension of its payouts and service operations just over a week ago.

According to Hodlnaut, this is due to “difficult market conditions”. Hodlnaut was a relatively new player in the market, founded in 2019, and had already commented in June that it was on the clear of any Celsius and 3AC loans. Apparently, there are other problems in the background.

2022 has been a brutal year for cryptocurrency investors. In addition to massive bankruptcies and price drops, hackers have caused investors to lose billions of dollars.

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