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There is a new DeFi lending platform in the market that wants to let users stake their “digital reputations” to access loans. Called Sublime Finance, the platform wants to help borrowers tap into their “social capital.”

Sublime has received backing from investors such as Galaxy Digital and Electric Capital, both of which co-led its $2.5 million seed funding round. Other investors included FinTech Collective, Collab+Currency, and angel investors, including Jill Carlson Gunter and Ryan Selkis.

The funding was secured via a Simple Agreement for Future Tokens (SAFT) sale, Sublime founder Ritik Dutta told The Block. With the new capital, India-based Sublime plans to continue developing its platform and launch it in the coming weeks.

Replacing credit checks with on-chain histories

Sublime says today’s DeFi market mainly focuses on projects that require lending agreements to be overcollateralized. This means that borrowers have to lock in a higher value of collateral than they are borrowing. This system has drawbacks, according to Dutta, compared to the traditional lending market that usually involves an element of trust.

But instead of a typical credit check, Sublime will let users leverage their digital identities to get undercollateralized loans.

Each loan request will act as an independent pool on Sublime, meaning borrowers will be able to create customizable loan requests that lenders can fulfill. Lenders can assess borrowers by looking up their digital identities, past loan performance, and other users they have interacted with online.

In addition to social media profiles, Sublime will also support crypto and NFTs as collateral. To begin with, the platform will accept ERC-20 tokens such as wrapped ether (WETH), wrapped bitcoin (WBTC), Uniswap (UNI), and Compound (COMP) as collateral. As for NFTs, Sublime is internally testing out CryptoPunks, said Dutta.

Initially, the Sublime Foundation will impose thresholds on some parameters, such as the loan size and minimum collateral ratios, said Dutta. Over time, the platform expects to reach maturity and remove these restrictions to allow for “organic discovery of optimal parameters” for loans.

Sublime’s business model is to earn loan origination fees, said Dutta. As for its use cases, the platform hopes to serve decentralized autonomous organizations (DAOs) and institutions.

“DAOs looking to raise debt can borrow by creating pools. Pools are functionally similar to bonds and allow different levels of seniority,” said Dutta. “Institutions can utilize them to create anonymous credit lines amongst themselves.”

Sublime will launch its token, LIME, in December, said Dutta. He added that the token will be used to decentralize governance, i.e., onboarding new verifiers and supporting more assets, as well as incentivizing the participation of borrowers and lenders.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

NYSE Arca has filed to list Grayscale’s proposed bitcoin exchange-traded fund, starting the clock on a decision from the Securities and Exchange Commission (SEC).

Grayscale was said to be ramping up its efforts to convert its flagship fund, the Grayscale Bitcoin Trust (GBTC), into an ETF this July. It announced it would offload fund account and administration functions to BNY Mellon in October. At the time, CEO Michael Sonnenshein said engaging BNY Mellon was an important milestone for converting the trust.

In February, Sonnenshein told The Block during a podcast recording the firm planned to ” register and uplift GBTC onto a national securities exchange as a bonafide ETF.”

To that end, it has also hired David LaValle as global head of ETFs, the previous CEO of index provider at Alerian and once head of ETF capital markets at State Street. 

Grayscale has said that ETF status is the end game for its products. Earlier steps in the life cycle also include registering the funds as SEC-reporting companies, which both its bitcoin and ether funds have achieved.

Despite the SEC’s allowance of a futures-based ETF, the Commission has yet to let a spot ETF through. In previous rejections, the Commission has cited concerns of market manipulation in spot venues. The recently allowed futures ETF holds futures traded on CME, a federally-regulated exchange, which some say makes the difference.

Still, Grayscale argues that if a regulator is comfortable with a derivative, it must be comfortable with the underlying asset. 

“At Grayscale, we believe that if regulators are comfortable with ETFs that hold futures of a given asset, they should also be comfortable with ETFs that offer exposure to the spot price of that same asset,” said Dave LaValle, Global Head of ETFs at Grayscale Investments, in a statement.

The SEC most recently punted the decision on four applications to the end of 2021. For all applicants, it was not the first extension received. VanEck is the furthest along in the life cycle and can expect an answer by November 14. 

ProShares’ bitcoin futures-based ETF began trading on the NYSE Tuesday. 

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

OLB Group (NASDAQ: OLB) shares jumped more than 10% on Tuesday, after the e-commerce merchant service provider said its DMint unit started mining bitcoin with Antminer S19j Pro miners.

• DMint expects to have a total of 1,000 miners in operation at its newly installed Bradford, Pa. data center by the end of 2021.
• The company plans to have a total of 24,000 mining computers by the fall of 2023, with capacity to achieve 2.4 exahash per second hashrate.
• “Once all 1,000 miners are fully operational, OLB Group will have the capacity for an additional $1.1 million in revenue monthly, assuming a base market price of $45,000 per bitcoin,” Chairman and CEO Ronny Yakov said in a statement.
• The move comes as bitcoin mining has been a very profitable business, given the cryptocurrency’s recent bull run. Recently, Wall Street firm DA Davidson said that the miners are “literally printing money” in the current market.

Grayscale Investments, the world’s largest digital currency asset manager, has filed with the Securities and Exchange Commission to convert its Grayscale Bitcoin Trust (GBTC) into a bitcoin spot ETF, the company announced in a press release Tuesday.

• The move comes just after the SEC cleared the way on Friday for bitcoin futures ETFs to trade, with ProShares Bitcoin Strategy ETF scheduled to start trading on the NYSE on Tuesday.
• GBTC first launched in 2013 and has become the largest bitcoin investment vehicle in the world, with assets under management of close to $40 billion. It holds roughly 3.44% of all bitcoin in circulation, according to Grayscale.
• Grayscale has talked repeatedly about its plans to convert GBTC, as well as its 14 other crypto trusts, into ETFs.
• Grayscale’s ETF would be backed by actual units of the cryptocurrency, not simply linked to it via derivatives contracts such as futures. Should the proposal gain approval, it would be a further expansion of the leading cryptocurrency as a recognized investible asset.
• Some analysts feel the likelihood of Grayscale getting approval of a bitcoin spot ETF anytime soon are slim, given SEC chair Gary Gensler’s often-stated preference for a futures product that might confer more investor protections.
• The SEC will now have 75 days to review Grayscale’s application.

Grayscale is a unit of Digital Currency Group, which is also the parent of CoinDesk.

UPDATE (Oct. 19, 14:06 UTC): Added information in fifth bullet point.

Facebook’s crypto wallet Novi is inching forward with a “small pilot” in the U.S. and Guatemala, according to a tweet thread by David Marcus. 

The wallet project, which gatecrashed the crypto world in 2019 alongside a digital token dubbed Libra (now Diem), represents one of Facebook’s attempts to lean into the fast-growing crypto market as well as the market for payments and remittances. 

As uncertainty hangs over Diem, Novi moved ahead with Pax Dollar for the pilot. The Block first reported that the project was weighing such a deal in August. 

Still, Marcus said that Novi’s “support for Diem hasn’t changed and we intend to launch Novi with Diem once it receives regulatory approval and goes live.”

“Beyond the pilot, our business model is clear,” Marcus added.

“We’re a challenger in payments. We’ll offer free person-to-person payments using Novi. Once we have a solid customer base, we’ll offer cheaper merchant payments and make a profit on merchant services,” he said. 

Meanwhile, Novi is also working with Coinbase. Pilot users’ funds will be held by Coinbase’s trust company as its custody provider, the firm said.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Facebook’s Novi wallet is ready to launch – but it won’t be launching with the Diem (formerly Libra) stablecoin.

Novi, a digital wallet subsidiary to Facebook, will go live in the U.S. and Guatemala in a pilot program, allowing users to start trading the Paxos Dollar (USDP), the social media giant announced Tuesday. Crypto exchange Coinbase will provide custody services for the program.

Users can purchase USDP through Novi, and Novi will deposit the funds with Coinbase, according to a Coinbase blog post.

“This does not mean our support for Diem has changed. We intend to launch Novi with Diem once it receives regulatory approval and goes live,” the Facebook press release said.

The pilot has already gone live, but is being rolled out slowly on the Apple App Store and Google Play Store, Facebook said.

“Decentralization theater” is something which crops up in my inbox on an almost daily basis. By this I mean the development, release and marketing of software which leverages decentralized infrastructure for one, several or even most of its components, but not all of them.

The principal reason why an entrepreneur might decentralize most, but not all, of the things, is obvious: although calling a product “decentralized” is edgy and in vogue, writing software is a messy business that is never truly complete. Writing software on a blockchain is an especially messy business that is very difficult to fix.

Preston Byrne, a CoinDesk columnist, is a partner in Anderson Kill’s Technology, Media and Distributed Systems Group. This op-ed is part of CoinDesk’s Policy Week, a forum for discussing how regulators are reckoning with crypto (and vice versa).

See, for example, Bitclout for one instance of decentralization theater in action. Bitclout has long traded on its claims to be a “decentralized,” blockchain-based social networking system. At the time of its launch, CoinDesk breathlessly reported:

BitClout is not a company. It is a proof-of-work blockchain designed for running social media. It was created by an anonymous group of developers. Backers only hold its token, BTCLT. Nevertheless, a set of prominent investors and crypto businesses have bought in.

This was not, in fact, true. Prior to launch, those navigating to Bitclout’s webpage would see the following message:

Having run more than my fair share of blockchain clients in the past several years, when I navigated to Bitclout’s site it was immediately clear to me that there was no node. I was navigating to a webpage, hosted on a web server, a server which, in Bitclout’s case, was hosted on Google Cloud.

Some blockchain!

From a technical standpoint, Bitclout’s go-live a short time later did not make it any more or less decentralized than its pre-launch. Famously, Bitclout scraped the profiles of 20,000-odd Twitter users, including my own; pre-populated its own website with our profiles; and then awarded balances of “creator coins” to each profile, presumably to induce creators to claim the balances and begin generating content for the site.

Unimpressed, and being a troll, I tweeted a cease-and-desist to the real identity of Bitclout’s founder, Nader al-Naji:

Dear @nadertheory: you do not have my permission to use my name and likeness to sell shitcoins. I demand that you remove this misleading and deceptive page from your site immediately.

Please confirm in writing that this has been removed. pic.twitter.com/yILsbpiQyX

— Preston Byrne (@prestonjbyrne) March 22, 2021

Fewer than 24 hours later, my profile was gone:

Update: “prestonjbyrne” on Bitclout is ded

How did that happen if it’s a decentralized system, I wonder? pic.twitter.com/Z6qEU7USBz

— Preston Byrne (@prestonjbyrne) March 22, 2021

It’s a Christmas decentralization miracle!

Of course, it didn’t actually disappear from the Bitclout blockchain; it was merely deindexed by the Bitclout UI (user interface). The fact that Bitclout could deindex my profile from its site tells us that it is not the blockchain or the users, but Bitclout’s site admin who is in charge of the platform.

Part of the reason I feel confident pooh-poohing Bitclout on this point is that the OGs have all known that if you want to decentralize social media, you can’t just print an altcoin (which sometimes goes by a more unsavory, scatological term) and call it a day. You have to decentralize, i.e. eliminate, the webservers themselves. Bitclout has a webserver, ergo it’s not decentralized.

A little-known fact is that before I ran a law practice, I – as part of a team of three including lawyer-coder Casey Kuhlman and quantum mathematician Dr. Tyler Jackson – designed and built the first Ethereum DAO back on the POC3 testnet in 2014.

Being the least software-proficient of the group, my role was mainly to write the paper and provide some of the legal-structural considerations. The product was called “Eris” and it was basically a decentralized version of Reddit. It included voting, discussion, moderation and content posting functionality.

The objective of the exercise was to develop a system that could eliminate all centralization. At the time, we wrote:

Where Bitcoin was designed to solve this problem in relation to point-of-sale and banking transactions, [we are] working on solving this issue for internet-based communications, social networking and community governance – bearing in mind that for free internet services such as e-mail, social networking, search and “open data,” intrusion into users’ private lives and the accumulation and centralization of vast quantities of personal information in centralized silos is not some minor and ancillary nuisance[…]. As such, Eris is not another web service; Eris is significantly different because it has been designed and implemented specifically to not use [web]servers.

Back in 2014, our issue was that we were nearly a decade too early; layer 1 architecture capable of being amended by majority vote had yet to be built (hard forks only), the problem decentralized social media fixes simply didn’t exist, and VCs regarded social as something of a “death zone” where existing behemoths like Twitter and Facebook controlled the battlespace. Nobody needed, or even wanted, to express themselves anywhere else.

Put another way, in 2014, nobody needed decentralized social media, because it was still a time when the internet could be described as free and open. That’s before GamerGate, before Trump, before Brexit and before successive rounds of increasing corporate censorship and mass media partisanship.

Fast forward to the present day, and I take several calls per week from entrepreneurs, some funded, some not, looking to decentralize aspects of social media. All recognize that Web 3 won’t use web servers, because web servers are a point of contact on which a regulator or a tyrant can apply pressure to get the entire service taken offline.

In an increasingly politically volatile world, the need is for software that will continue to run, as Bitcoin does, regardless of social or legal pressure – state-driven, mob-driven or corporation-driven – directed at the system as a whole. The software will need to be architected in such a way as allows serious unlawful use to be targeted and excised (if necessary node-by-node) but makes lawful use very difficult to obstruct. This will likely be a mix of self-hosted infrastructure for content and decentralized infrastructure for coordination.

What will Web 3 look like, then? At minimum, it will be entirely peer to peer. A blockchain need not serve a role, as we see with Mastodon’s federated model, but it could provide some function – either as publicly accessible PKI infrastructure (similar to Mastodon or Microsoft’s ION Digital ID) or accounting infrastructure (which rewards the provision of the service’s infrastructure, similar to Helium). The blockchain will likely not host content, a task better left to users.

For so long as quasi-decentralized services possess even a scintilla of centralization, regulatory pressure can and will be applied. Any centralized infrastructure could be leveraged to eliminate the decentralized product. Eventually, however, and soon, someone is going to figure out the precise mix, the secret sauce, of how to build, and incentivize the continued provision of, user-friendly, wholly decentralized apps, with all functionality being run on a client running locally on users’ own machines rather than via a web server.

As a lawyer, I’m often asked what sort of regulation is appropriate for Bitcoin and crypto. Usually I shrug my shoulders and say that existing regulation works perfectly well – mainly because, having worked in the crypto space since 2013, I have a good sense of what’s decentralized versus what’s decentralization theater. We are fast approaching a point, however, where there will no longer be decentralization theater. At that point, the actors our laws traditionally relegate – in social media, finance and other verticals – will have ceased to exist. After that point, crafting new laws – laws that allow the state to satisfy certain minimum standards for operating that infrastructure in civilized society on the one hand, but do not crush innovation completely on the other – will be a challenging task indeed.

More from Policy Week

Stablecoins Not CBDCs: An interview with Rep. Tom Emmer

Crypto Learns to Play DC’s Influence Game

Kristin Smith: Crypto Is Too Big for Partisan Politics

Lyn Ulbricht: Put America’s Geeks to Work, Don’t Cage Them

Riot Blockchain plans to increase its crypto mining hashrate potentially by up to 50% through adopting 200 megawatts of immersion-cooling technology at its Whinstone facility in Texas.

The technology allows the mining rigs to be submerged in a specialized fluid, which helps them operate at lower temperatures, resulting in a more efficient and stable environment, the Colorado-based miner said in a statement on Tuesday. The initial deployment of ASIC miners in the immersion-cooled buildings is expected to commence by the fourth quarter of 2021.

“Based on industry data and the Company’s own preliminary immersion-cooling test results, an estimated 25% increase in hash rate is expected, with an estimated potential to increase ASIC performance by as much as 50%,” Riot said. The company expects more test results from its pilot project by the end of the first quarter in 2022.

“If successful, Riot will be able to leverage its infrastructure development capabilities to increase its Bitcoin mining hash rate without relying solely on purchasing additional mining equipment, resulting in increased operating efficiencies, and thus, capital efficiencies,” the miner added.

Riot currently has hashrate capacity of 2.6 exahash per second and plans to ramp up to 7.7 by the fourth quarter of 2022.

Riot will apply the technology to 200 megawatts of its previously announced 400-megawatt expansion of its Whinstone facility, hosting about 46,000 S19 Antminers from the miner’s existing mining rigs.

This is not the first time a miner is using this technology. Recently a Canadian cleantech cryptocurrency miner, MintGreen, said it will be using its own immersion technology to heat the city of North Vancouver, British Columbia, from bitcoin mining.

However, Riot says its deployment of immersion technology will be the first to be used by any miner at this scale.

Revolut, the $33 billion British digital bank, has slashed fees for customers in the United States across a range of products.

The fintech firm’s U.S. customers will now be able to trade up to $200,000 in crypto each month without getting charged commission fees on trades. Previously, standard Revolut users could trade just $200 a month before incurring fees.

Other changes allow users to withdraw a certain amount of money a month, send up to 10 international remittances a month and set up five accounts for their children free of charge.

Ron Oliveira, CEO of Revolut in the U.S., told The Block that the move is about boosting awareness of the company locally. Revolut launched in the U.S. in March 2020, just as the Covid-19 pandemic struck. The unfortunate timing hampered its early marketing efforts, according to Oliveira.

“We had a very quiet opening,” he said. “Now it’s about where are we going from here. What we’ve discovered is that we have the deepest and widest offering of any fintech in the United States today.”

Segmented banking

Launched in London in 2015, Revolut began as a foreign exchange tool. It now fashions itself as a financial “super-app,” offering current accounts, stock and crypto trading, and a range of other products. CNBC recently revealed that the startup plans to roll out stock trading for U.S. customers in the coming months.

Revolut is also pursuing a banking charter in the U.S., as it plans to in many of the markets in which it operates. The startup submitted a draft application with the Federal Deposit Insurance Corporation and the California Department of Financial Protection and Innovation in March.

“Part of our strategic plan globally is that we want to have banking licenses either in countries where we already have a large presence, or where we think the upside is great, and the U.S. is of course the latter,” said Oliveira, adding that a charter would give Revolut the ability to offer a much wider range of products. The firm is already looking to roll out credit cards and unsecured lines of credit in the U.S., he said.

For its charter bid to be successful, however, Revolut will need to convince regulators that banking and crypto products can coexist within the same service.

“Crypto’s one of their top questions. ‘Well, how is crypto going to be handled, inside or outside the bank?’ That’s the key question. Is crypto inside or outside the bank?” said Oliveira. “For us, crypto is outside the bank… How it’s structured is that if you have the Revolut app and you want to buy crypto, you’re not going into the bank to buy that, you’re going outside the bank. You’re going to a different entity to do that.”

The proposed structure is reminiscent of the model adopted by Zopa, the British peer-to-peer lender founded in 2005. The company launched a licensed bank in the United Kingdom in the summer of 2020, which it now runs alongside — but segmented from — its peer-to-peer lending business.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Singapore-headquartered Atlas Mining, which previously had extensive Bitcoin mining operations in China, is set to move a significant amount of hash rate to North America.

Atlas Mining said in an announcement on Tuesday that it has signed a partnership with U.S-based mining colocation provider Compute North for over 100 megawatts (MW) of hosting capacity. The deployment for Atlas Mining’s equipment will start in Q1 next year, the firms said in the announcement, which will produce about 3.7 exahashes per second (EH/s) of hash rate at full deployment. 

The deal with Compute North comes just weeks after Atlas Mining announced another hosting partnership with U.S-based Core Scientific also for more than 100 megawatts, which is being deployed over the next 15 months.

The moves are part of Atlas’ global migration and expansion plan after China shut down Bitcoin mining operations over the summer. The company is also focusing on other top destinations, such as North Europe and Central Asia.

Atlas Mining is the Bitcoin mining arm of Shanghai-based crypto and blockchain fund Fundamental Labs, which raised a $44 million Bitcoin mining fund in 2019 to invest in tens of thousands of new equipment at the time. Its operations were mainly located in major Chinese mining hubs prior to the country’s crackdown on the space in June.

Atlas Mining said in a statement today that it has bought over 200,000 units of the newest generation of equipment to date and “aims to continue this trend over the next few years.” It said it has so far reserved over 400 megawatts of capacity for self-mining through local hosting partners in different regions. 

Bitcoin hash rate growth slows down — for now

As The Block reported previously, while Bitcoin’s hash rate had steadily recovered half of its loss from the crash in June, Bitcoin mining firms that previously had operations in China still have a long way to go to complete the migration process. This is due to the global shortage of hosting capacity.

Dave Perrill, CEO of Compute North, told The Block in an email last month that the firm has a number of Chinese customer migrating. “But we were already fully sold out in Q3 and Q4, so [the] migrations are occurring next year for these clients. We are seeing deployments ranging from 30MW to 150MW,” he said.

That could help to explain the slowdown of Bitcoin’s hashing power growth — at least in the short term — which is likely going to resume at a higher rate early next year. Bitcoin’s mining difficulty adjusted on Tuesday with merely a 1% increase while the average Bitcoin hash rate remains at about 145 EH/s, based on The Block’s Data Dashboard.

While U.S-based colocation providers are fueling a mining infrastructure boom in North America in order to fulfill expansion and relocation demands, Bitcoin mining firms are also building facilities themselves through joint ventures in the region. This has helped it to replace China as the destination with the largest market share of Bitcoin mining.

U.S-listed BIT Mining, previously known as 500.com with major operations inside China, said on Monday it is investing another $11 million in its Ohio mining site that is being jointly developed by Viking Data Centers. The investment top-up will increase the facility’s capacity by another 65 MW and bring the total capacity up to 150 MW.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.