The EU votes again on a cryptocurrency law, this time the outcome looks bad. Terra plans a $10 billion Bitcoin reserve. Also news from Cardano, Avalanche, Exxon, Russia, and El Salvador.
EU vote is a threat to personal crypto wallets
The EU has been in the spotlight in recent weeks over cryptocurrencies. As you can guess, it is about tightening regulations. First, there was an attempt to get a bill through to ban Proof of Work, effectively Bitcoin. The proposal was luckily canceled. It was brought to another vote, but the attempt failed again.
The crypto industry was just recovering from this news until Patrick Hansen set the alarm bells ringing again.
1/ I hate to ring the alarm bell again, but the EU Parliament leaves us no choice 🚨🚨
This time it concerns a crackdown on unhosted wallets in the upcoming crypto AML regulation (TFR).
The ECON committee vote is on Thursday and the draft includes some absolute red flags 👇
— Patrick Hansen (@paddi_hansen) March 26, 2022
The EU will vote on the so-called FATF Travel Rule this week. FATF stands for Financial Action Task Force. It is an organization under the OECD that works to prevent money laundering and the financing of terrorism.
The FATF Travel Rule refers to a regulation that requires industry operators to identify the recipient of a transaction. The FATF essentially wants to remove anonymity from the cryptocurrency network and link every cryptocurrency address to personal data.
The process is already underway in many countries. Coinbase, for example, already has to ask for the recipient’s address details when transferring cryptocurrency to its own wallet. For now, this regulation only applies to citizens of Canada, Japan, and Singapore.
Henry Brade, the founder of Coinmotion, commented on the situation on Twitter. As Brade explains, he has been expecting FATF Travel Rule to be introduced one way or another.
As an industry participant, I have been well aware for a long time that the FATF travel rule is going to be implemented in the crypto regulation in some form. It is very concerning. https://t.co/IP4S7pryVl
— Henry Brade ⚡ (@Technom4ge) March 27, 2022
Problems will arise if the EU pushes for too strict implementation of the FATF regulations, which basically means forcing crypto operators to verify the provided data. It is one thing to collect information, but quite another to verify its accuracy.
The verification process would likely be so difficult that crypto operators would simply block transfers to their own wallets to meet regulatory requirements. This is the biggest threat to future regulation.
The PoW ban was voted down a couple of weeks ago, but Thursday’s vote doesn’t look good. Most of the delegates seem to be on the same page this time. The result of the vote does not yet mean a direct change in the law, but it is a beginning of a process. According to Patrick Hansen, the new law would probably come into force in early 2023.
Terra acquires $10 billion Bitcoin reserve
The Terra platform has been a big topic in the crypto industry recently. This time Terra is planning to add as much as $10 billion in Bitcoin collateral to its UST stablecoin! This is a unique event in the history of cryptocurrencies.
Anthony Pompliano summarizes the idea in this three-minute video.
Terra’s UST is an algorithmic stablecoin. It is not backed by no dollars or other securities, as is the case with USDC and USDT. The UST keeps its price against the dollar through arbitrage on LUNA token purchases and sales. So far, the UST has performed very well, but investors have their doubts.
Concerns about a possible collapse of the UST have been raised by the increase in its market value. Terra has decided to solve the problem by acquiring a huge Bitcoin reserve for UST. If the value of the LUNA token takes a dive and the UST’s guarantee threatens to break, the Bitcoin reserve will be brought into play.
Terra has already started buying Bitcoin and has accumulated more than a billion dollars in reserves. According to founder Do Kwon, the Luna Foundation Guard, which controls Terra’s development, has $3 billion in buying power at the moment.
UST is now created by burning the equivalent dollar value of LUNA tokens. In the future, the burn rate could be as low as 60%, for example, and 40% could be used to gain Bitcoin reserves.
UST’s popularity is driven by the DeFi protocol Anchor, which offers a fixed annual interest rate of 20% on UST deposits. This is significantly higher than the 10-15% rate for other stablecoins. The difference has so far been paid by Terra, but last week a change was made in the Anchor protocol.
The Anchor rate will be adjusted monthly – up to a maximum of 1.5% one way or the other. The coming months will show whether a possible decrease in the interest rate will affect the demand for UST.
News from Cardano and Avalanche
Let’s highlight some news on other smart platforms.
Cardano received positive news last week when leading cryptocurrency exchange Coinbase added ADA token staking to its selection. Coinbase pays ADA stakers an annual interest rate of 3.75%. ADA tokens remain in the user’s account for the entire duration of the staking.
Cardano also intends to improve the scalability of the platform. This will be done through diffusion pipelining technology, which will be introduced with the Vasil hard fork in June. You can read more about this in this IOHK blog post.
Many investors are also enthusiastic about Grayscale’s new investment fund. It is a collection of seven different smart contract platforms that are competitors to Ethereum. Cardano is in with the largest share together with Solana.
Then let’s check out Cardano’s rival, Avalanche. Avalanche Summit was held last week, and a couple of big announcements were made.
— Emin Gün Sirer🔺 (@el33th4xor) March 22, 2022
Avalanche will launch its own wallet called Core. It’s a full-blooded Web 3 wallet, and Ava Labs, the developer of the wallet, was very enthusiastic about it: “Core is not just a wallet. It’s a curated Web3 operating system that combines secure wallet architecture with technology not found in any other wallet.”
Until now, Avalanche’s DeFi apps have been used with MetaMask and a separate Avalanche Bridge. Core is effectively a replacement for MetaMask in the Avalanche blockchain.
Avalanche also announced that support for Bitcoin will be added to Avalanche Bridge. Avalanche Bridge is the most valuable token bridge from Ethereum in terms of liquidity, with over 6-billion-dollar TVL.
In the future, the bridge will also allow the transfer of bitcoins directly from the Bitcoin blockchain to Avalanche. In practice, bitcoins are sent to a smart contract that locks them, releasing bitcoin tokens wrapped in the Avalanche blockchain. These can then be used in Avalanche’s DeFi applications.
News topics: Russia, El Salvador, and Exxon
Lastly, let’s briefly review three separate news. The first relates to Russia, which made a very interesting statement last week. Russia accepts Bitcoin as a means of payment for the purchase of natural gas. This is definitely a milestone in the history of Bitcoin.
Pavel Zavalny, Chairman of the Russian Energy Commission, commented: “There can be a variety of currencies, and that’s standard practice. If they want bitcoin, we will trade in bitcoin.” The bitcoin trading possibility would apply to so-called Russia-friendly countries such as Turkey and China.
Another piece of news relates to energy production.
Big day for #Bitcoin and the energy markets (oil+gas)! Exxon, the largest U.S. oil and gas firm is using excess natural gas to mine Bitcoin and Russia allows gas payments in Bitcoin for friendly countries. Sometimes nothing happens for years and sometimes years happen in days. pic.twitter.com/e2avXUXmeS
— Gabor Gurbacs (@gaborgurbacs) March 24, 2022
Exxon is the largest US oil and gas producer. It is now using surplus gas to mine Bitcoin. Natural gas production is constantly releasing natural gas into the air that cannot be transported through pipelines. Now that gas can be directed to power Bitcoin miners. In this way, mining actually reduces climate emissions!
Lastly, let’s move to El Salvador, where the Bitcoin bond or the so-called Volcano bond is awaited. President Nayib Bukele announced this historic loan at the end of last year. The listing of the bonds has been slightly delayed, but the demand seems to be even surprisingly strong.
💥BREAKING: El Salvador has $1.5b demand for its $1b #Bitcoin Bond – Financial Times
— Bitcoin Archive 🗄🚀🌔 (@BTC_Archive) March 21, 2022
El Salvador’s Bitcoin bond pays an annual interest rate of 6.5%. The first phase will seek funding of one billion dollars. El Salvador will invest half of the money in the infrastructure of the future Bitcoin City and half in Bitcoin.
Despite the delay in the launch, the bonds are likely to be issued within a month. Bitfinex exchange is El Salvador’s partner in the project.