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News summary 2/1: Meta, Ethereum, FTX, Binance, Fed and USA

Meta’s stablecoin project is over for good. Ethereum wants to abandon the term Ethereum 2.0. FTX cryptocurrency exchange gained an unbelievable valuation. Binance brings back SEPA deposits. Jerome Powell’s much-awaited speech was neutral. There’s a new debate regarding the crypto regulation in the United States.

Meta’s stablecoin project is officially over

The two-and-a-half-year drama with Meta’s (ex-Facebook) stablecoin project was completed last week. The project started in 2019 under the name Libra and got a lot of attention in media around the world.

Meta was immediately squeezed by the regulators, which scared its largest partners. Mastercard, PayPal, and many others left the project just months after Libra was announced. Mark Zuckerberg was also grilled by the U.S. Congress.

The idea was to create a stablecoin backed by a basket of fiat currencies. Libra could have operated as a means of payment within Facebook as well as in other applications owned by Meta, such as Instagram and WhatsApp.

Meta tried to save the project through rebranding: Libra became Diem in December 2020. In October 2021 Novi wallet was launched. It eventually became the only product the project completed during these years.

Meta’s stablecoin project had lots of issues from the start. Now we can say that the project is dead and buried.

The Diem Association has decided to sell all its assets to Silvergate Capital for a price of approximately $200 million. Silvergate Capital is an American bank that became a partner of Diem in the summer of 2021. Even this cooperation did not help the project.

According to some industry experts, Diem was the project that awakened regulators, especially in the United States. Facebook’s two billion users would have provided the company a tremendously good platform for adopting its own stablecoin. This was not approved by governments and central banks.

The debate on regulation has undoubtedly reached a new level since 2019. And not just in the United States, but all over the world. It would probably have started even without Libra, but this project undoubtedly acted as a trigger.

Meta will now focus on the world of metaverses. As part of this project, the company changed its name from Facebook to Meta. It may be that Meta will also try again in the stablecoin market a little later.

Developers want to abandon Ethereum 2.0

The past 12-14 months have been critical in Ethereum’s history. The project has progressed towards a historic change to Ethereum 2.0 and Proof of Stake consensus. The first step was the launch of the Proof of Stake blockchain (Beacon Chain) in December 2020.

Beacon Chain has been running for about 14 months. For now, staking is the only function in this blockchain. A staggering 9.2 million Ethers have already been staked into the Beacon Chain with a total value of over $25 billion. This corresponds to approximately 8 % of Ethereum’s market value.

In 2021, there was also the EIP-1559 update, which has burned already more than 1.7 million Ethers from the market with a total value of about $4.7 billion. The Altair hard fork, completed in October, was the final step before entering Ethereum 2.0.

The next step is called The Merge. This refers to the above Proof of Stake consensus and the current Ethereum network. In practice, it is about to end the Proof of Work.

ethereums upgrade path

The Merge has been seen as the creation of Ethereum 2.0. Now, however, Ethereum developers want to get rid of the term Ethereum 2.0. You can read more from this article, which is titled “The Great Renaming: What Happened to Eth2?”

In the future, Ethereum developers want to talk about two layers instead: the execution layer and the consensus layer. The first one is the current Ethereum (minus Proof of Work) and the consensus layer is the new Proof of Stake consensus.

Hopefully, the name change will also make things easier for beginners. When The Merge will start, the internet will be full of different scams designed to sell “the new Ethereum 2.0 coin” or scare investors in other ways.

Although Ethereum 2.0 is wiped off as a concept, there are no changes to the schedule. We are talking about six months here. Proof of Work will then be moved to history. At the same time, Bitcoin will become the only top 10 ranked cryptocurrency to use Proof of Work. The next ones are Dogecoin and Litecoin.

It’s worth noticing that Proof of Stake alone doesn’t dramatically improve Ethereum’s scalability or lower transaction fees. Layer 2 solutions and side chains such as Polygon will help the main chain to scale. Ethereum’s transaction capacity will improve through sharding in 2023.

FTX exchange reached a spectacular valuation

FTX has been the hottest exchange on the market since 2021. We have reported on its huge growth many times. The founder of the exchange, Sam Bankman-Fried, also became the world’s richest person under 30 in 2021. By then, his fortune was over $22 billion.

Bankman-Fried climbed again a few places on the billionaires’ rankings as the FTX reached a new valuation with a funding round. The exchange raised $400 million from investors with a staggering $32 billion valuation!

The growth has been amazing. Last summer FTX reached a valuation of $18 billion. A year ago the valuation was only $1 billion. The entire company was founded in spring 2019, which means that it has risen from zero to over $30 billion in less than three years.

A recent interview with Bankman-Fried on CNBC is below.

The recent valuation is especially interesting, as FTX is really starting to approach another market giant, Coinbase. This exchange was listed on the Nasdaq stock exchange in the spring of 2021. The market value of Coinbase is about $50 billion at yesterday’s closing price.

When the valuation of FTX  is summed up with the FTX U.S., an exchange registered in the United States, the company reaches $40 billion.

Interestingly, FTX has reached this valuation with 5 million users. Coinbase has more than 70 million users, according to its previous report. However, FTX’s trading volumes have been higher than in Coinbase, suggesting that FTX has more professional traders.

It would be no surprise if FTX will go past Coinbase in market value during 2022. FTX reported a 1,500 percent increase in new registrations last year.

The popularity of FTX is also influenced by Sam Bankman-Fried himself. Coinbase’s CEO Brian Armstrong has a bad reputation, especially among Bitcoin enthusiasts. Bankman-Fried is a casual guy driving a Toyota Corolla and wearing a T-shirt. He is very popular among crypto enthusiasts.

Binance brought back SEPA transfers and confirmed the $1 billion SAFU fund

More news about cryptocurrency exchanges. The market leader Binance announced last week that it would bring back SEPA transfers. This is big news, as SEPA transfers are an important and popular way of transferring money in Europe. SEPA transfers have been out of service since July 2021.

According to Binance’s blog, SEPA transfers will first start as a pilot for a small group before they take effect more widely. Binance implements SEPA transfers in cooperation with Paysafe.

Binance also reported that its SAFU fund has grown to the size of $1 billion.

SAFU was founded in 2018. Its purpose is to act as collateral in case of possible hacks. We witnessed an exchange hack just last week when more than 400 customers lost funds.

Well-known exchanges have compensated possible losses for their customers in recent years. However, it is not known how large hacks they could theoretically cover. Binance has revealed the blockchain addresses of its own SAFU fund. SAFU currently consists of Bitcoin, Binance Coin, and BUSD stablecoin.

Jerome Powell kept his cool

The most significant event last week was the statement by the Federal Reserve on Wednesday night. Fed directors gathered for a two-day meeting to discuss the state of the market. At the end of that, President Jerome Powell announced future policies.

Powell’s policy speech was followed around the world with high interest. Will the Fed remain tough, or will Powell begin retracting his earlier statements on interest rate increases? You can watch Powell’s speech in the video below, starting at 22:00.

The statement was overall quite neutral. Fed could have raised interest rates as early as last week, which would probably have collapsed all markets. Powell announced instead that Fed would probably start raising interest rates in March. Fed also plans to run down its securities purchase program, as announced earlier.

Powell had to be very careful with his statement. Fed clearly had to maintain its credibility and stick to its earlier plans. On the other hand, Powell did not want to be too tough to scare the market into a new crash.

As we have reported before, the crypto market is currently following the stock market very strongly. Both are in a downtrend due to the Fed’s plans to raise interest rates and tighten monetary policy. This all is due to high inflation.

At the moment it looks like the Fed is going to raise interest rates. The timing will be the worst possible as the US economy is declining. Most likely Powell intends to tighten the monetary policy on the overall bad economic situation, which will lead to a fall in the market.

However, it is unlikely that the Fed will allow the market to collapse too much. It would have such devastating effects on the portfolio of politicians and other powerful people, let alone pension savings. It is likely that during 2022 we will see more money printing. Before that, there may be a very bouncy and uncertain spring in the crypto market.

New debate on regulation begins in the United States

Let’s refer back to the first news of article, which mentioned the United States and the regulation. A new battle has begun in this field.

U.S. President Joe Biden is about to sign an executive order to regulators of the country in relation to cryptocurrencies. The intention is apparently to confirm the regulation of cryptocurrencies, which is still in a bit of a state of confusion at the moment.

This can mean both good and bad. Clarification of regulation is good for the industry if it is done correctly. There are already two battles going on at the moment.

The SEC, which oversees the US securities market, has already published a bill whose sections are very worrying. This blog post will tell you more about the bill. The SEC is working to extend the definition of a stock exchange to DeFi services to bring them under its control. Only 30 days have been given for comments.

THE COMPETES Act mentioned in the tweet above is a proposal for legislative amendments of more than 2900 pages in a wide range of sectors. It includes a very nasty proposal that would give the US Treasury the right to close any crypto exchange without warning.

In addition to these, the infrastructure package, which was pushed through at the end of 2021, is still open. It includes very harmful content related to cryptocurrencies.

The situation is therefore confusing at the moment. However, hopes are high that the final regulation of the United States would make sense for cryptocurrencies.

A similar debate will certainly also take place in the EU in the next few years. The trend is that the whole sector is wanted for really strict AML/KYC control. This applies also to DeFi applications and private wallets.