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Quick Take

• A recent bill to temporarily halt crypto mining centers operating in New York has drawn the ire of the industry. 
• The bill’s author sat down with The Block to explain her side of the argument. 
• Critics of the new mining centers point to their use of outdated power plants and creative corporate structuring, as well as a 2019 law that mandates New York to undertake a significant reduction in emissions and energy use in coming decades. 

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The share price of companies operating in the crypto market has fallen sharply amid the wider rout in coins like bitcoin and ether. 

Coinbase—the poster child for retail crypto trading—is trading down more than 9% at $215 a share. That’s a decline of more than 34% since its listing debut in mid-April. 

Elsewhere, MicroStrategy—which has purchased tens of thousands of bitcoin on its balance sheet and is viewed by some as a proxy for a bitcoin ETF—is trading down 11.85% at $429 a share. 

Galaxy Digital, which has surged since the beginning of the year, is down 14.65%. Its CEO, billionaire Mike Novogratz, said on CNBC that the market was showing signs of “capitulation.”

It’s not clear exactly what’s behind the market turmoil, but several traders have told The Block that derivatives traders offshore were positioned to heavily short gamma—meaning sell to hedge—at the $40,000 price level, exacerbating the market sell-off. 

“My money would be on deribit short gamma guys forcing liquidations and making it even worse for themselves and dragging the whole market down,” said Evgeny Gaevoy, CEO of market making firm Wintermute, in a message. 

© 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.

MicroStrategy CEO Michael Saylor claims that entities he control have now acquired 111,000 bitcoin.

In a post on Twitter Wednesday, Saylor did not specify which entities or the distribution between them.

“Entities I control have now acquired 111,000 #BTC and have not sold a single satoshi,” he tweeted.

This total amount presumably includes MicroStrategy’s 92,079 BTC —which it topped up yesterday — and may include Saylor’s personal stash of bitcoin, which, unlike with MicroStrategy, he doesn’t reveal through SEC filings.

The last time he revealed how much he personally owns was on October 28, 2020, when he said he possessed 17,732 bitcoin. Combined, this comes to a total of 109,811 bitcoin, suggesting he may have bought some more himself.

Saylor’s tweet comes during a period of significant market volatility. The price of bitcoin has dropped to $35,700 today, down 18%. Similarly, the price of ether has fallen to $2,500, down 26%. 

© 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.

Maple Finance, a decentralized finance (DeFi) lending protocol, has kicked off with its first lending pool of $17 million.

That means lenders and borrowers can now interact with each other via Maple’s marketplace. The first lenders include Blockchain.com and CoinShares, and borrowers include trading firms Alameda Research, Wintermute and Amber Group, and others.

Borrowers use loans to enlarge their trading activity, Maple Finance co-founder and CEO Sidney Powell told The Block. “They can borrow and earn much more using loans than their cost of interest, so borrowing enables them to grow their equity and size of their business much faster,” he said.

With Maple, borrowers don’t have to post over 100% of their debt as collateral, which is its competitive edge, according to Powell. He said Maple does this by allowing borrowers to borrow from pools of capital. Each of these pools is managed by a “pool delegate,” a trusted party that credit assesses borrowers and approves their loan terms, he said.

The first pool delegate of the $17 million lending pool is trading firm Orthogonal Trading. The firm will also manage Maple’s upcoming $23 million worth of lending pool, scheduled to go live in June and July, said Powell.

Each of the first borrowers will receive a loan maximum of $2 million. As for the terms of the loan, Powell told The Block that Maple’s loans are fixed-rate, have a fixed duration, and a fixed collateral amount.

The rates are between 10-15% per annum depending on the level of collateralization, he said, adding that the collateralization levels vary between 0 and 50%, with strong and creditworthy borrowers being able to borrow uncollateralized.

As for the duration, the first borrowers’ loans are for 90 days, and the loans are provided in the USDC stablecoin.

But what is Maple’s business model? Its treasury receives half of the establishment fee paid by borrowers, Powell told The Block. An establishment fee is charged at the beginning of a loan when the loan money is deposited into a borrower’s account. Pool delegates earn the other half of the establishment fee, he said.

As for holders of Maple’s native token MPL, they are able to earn one-tenth of the interest yield from pools to which they stake the MPL token, said Powell.

Maple Finance is backed by venture firms, including Framework Ventures and Polychain Capital. The project has raised a total of $13.4 million to date across various funding rounds, Powell told The Block.

© 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.

Bitcoin and ether shed billions in market cap during Wednesday morning’s trading session as traders sounded the alarms about “bearish sentiment” gripping the market. 

At the time of writing, bitcoin was trading in the $30,000s — a decline of more than 20% during the past 24 hours, according to TradingView. Meanwhile, Ether — which was outperforming bitcoin earlier this week — was trading down nearly 40% at $2,126. In terms of liquidations, there’s been more than $3.3 billion worth of position liquidations within a single hour during this morning’s session. 

The recent price action kicked off in full force this past weekend, while billionaire Elon Musk fired off several controversial tweets about bitcoin’s energy use. 

An executive at a trading firm told The Block on Tuesday evening that dealers were mostly short gamma — trader parlance for selling more to hedge. This can lead to large price swings. 

“$40,000 is the level they are looking at where we will cut risk and walk away,” the person added. 

It appears the market has been short gamma for some time, with Asian trading firm QCP Capital noting on May 16 that the market will be “VERY short gamma past 40k.”

“We cannot stress enough the importance of holding the 40k on a closing basis in BTC for all of Crypto,” the firm said in a May 19 note.

“The BTC enthusiasm has been sucked out last week by the confluence of Elon’s corporate ESG stamp of disapproval, the SEC’s public un-enthusiasm for any ETF & the CME backwardation. Three strikes on the institutional front and hope for fresh inflows.”

Still, participants see a very different market relative to the drawback last March—despite being close to the historic drawdown in terms of percentages. 

“Lenders/babel finances of the world were all pretty hedged up, so nothing of the sorts of March 12 2020-like event,” he said.

“State of the market is a lot healthier than it was then,” the aforementioned trading executive said. “Last year, bearish sentiment was exacerbated by lenders who had to liquidate aggressively because they weren’t positioned right. There’s less of that.”

© 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.

Venus Protocol faced massive liquidations of over $200 million on Wednesday due to a possible price manipulation of its native XVS token.

For the uninitiated, the Venus protocol offers decentralized finance (DeFi) lending and borrowing services on Binance Smart Chain. It allows users to borrow funds using XVS as collateral. In all cases, the value of the borrowed funds should always be lower than the collateral provided.

A price spike and subsequent crash were the main causes of the liquidations. The price of the XVS token shot up nearly 90% from $76 to $144 around midnight ET time on Wednesday. This provided users with the collateral to borrow greater amounts of funds, in other tokens, such as bitcoin and ether.

When the price dropped, the loans became undercollateralized. But rather than paying back the loan in time, these borrowers elected to keep their newly acquired tokens and default on the loan. The protocol then worked as expected, liquidating the remaining collateral.

Only the value of the collateral had fallen so much that, even when sold, it was less than the original loans.

As a result, Venus occurred a bad debt of more than $95 million in the form of 2,000 bitcoin (worth nearly $79 million at current prices) and 5,700 ether (worth almost $17 million at current prices). Bad debt means Venus won’t be able to collect the dues from the users.

What caused the price spike?

According to Venus Protocol founder Joselito Lizarondo, who is also a founder of Binance-owned crypto wallet and debit card provider Swipe, the causes of the price spike were large market orders coupled with a limited supply of tokens (because many users stake their coins).

Venus uses Chainlink as its price oracle, and it looks like Chainlink fetches its XVS price data only from Binance. The crypto exchange is usually known for its high liquidity, but for XVS, it had low liquidity, and thus its price could easily be manipulated, according to The Block Research’s Igor Igamberdiev. So when the price rose on Binance, the Venus protocol took that as indicative of the entire market and approved the bigger loans.

Lizarondo claimed that “the protocol worked as intended” and “no funds are lost.” But he acknowledged the bad debt, stating that Venus will use its grant program and “utilize XVS” to cover the shortfall.

Last November, a price increase in the DAI stablecoin led to $88 million worth of liquidations at DeFi protocol Compound. In March 2020, the “Black Thursday” event led to over $8 million worth of liquidations at DeFi protocol MakerDAO. As such, the liquidations on Venus are possibly the highest to date in DeFi’s history. 

© 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.

Quick Take

• The rise of DeFi has enabled projects to launch, build teams, and attract capital from anywhere in the world
• The headquarters and legal domiciles of registered DeFi companies often provide insight into both team demographics and strategy as they transition toward decentralization
• Targeted strategies for specific geographies can ultimately have a significant effect on the international makeup of protocol users

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In its latest effort to drive out local crypto mining operations, the Inner Mongolia government has set up a platform asking the general public to reveal their whereabouts.

The Inner Mongolia Development and Reform Commission (DRC) said in an announcement on Tuesday that it has set up a dedicated hotline, email and mail address for local people to inform the government if they know of any crypto mining operations that are still active in the region.

The scope of the platform also targets any local crypto mining operation that is enjoying tax, land and power perks under the disguise of a data center or any company that offers land rental services for crypto mining operations.

The measure follows a March announcement by the Inner Mongolia DRC where the government agency sought to shut down crypto miners in the region that mainly use fossil fuels.

Since then, crypto mining companies in the area have been gradually shifting their operations elsewhere in the country. But Inner Mongolia is one of China’s largest provinces by land size at 1.183 million square kilometers, 1.6 times that of Texas.

The effort to curb crypto miners is part of Inner Mongolia’s bigger plan to meet the carbon emission metrics in the next five years set by the National DRC (NDRC), a central government agency that’s in charge of China’s macro economic plan. 

The NDRC, one of the 26 cabinet ministers of the central government, has outlined various measures of success for each of the country’s five-year macroeconomic plans. One of the goals for the 13th five-year plan (2016-2020) was to reduce national energy consumption per GDP by 15% compared to the previous five-year period.

This was as much an overall national goal as a local one. But Inner Mongolia was the only province that failed to achieve this as of the end of 2019 — and, based on a government review, the first half of 2020 was even worse.

© 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.

A change of heart? The government of India may reportedly form a new panel of experts to study the possibility of regulating cryptocurrency in the country.

The Economic Times reported the news on Tuesday, citing “three sources privy of the discussions.” The discussions are said to be at an early stage, and no formal commitment has been made yet.

The new committee could suggest ways to regulate crypto as digital assets instead of a currency. This view has commonly been shared by crypto exchange operators in India, as The Block reported recently.

India’s previous crypto committee, which was headed by former finance secretary Subhash Garg, had recommended a blanket ban on crypto in 2019. Those recommendations are now said to be outdated, and the government could freshly assess the matter.

“There is a view within the government that the recommendations made by the Subhash Garg [committee] are dated and a fresh look is needed at use of cryptos rather than a total ban,” an official in the know of the matter told The Economic Times.

New panel?

India’s junior finance minister Anurag Thakur could be part of the new crypto panel, per the report, among a dozen other members. Thakur is said to have met with members from the crypto and banking industry forums in this regard.

Both Thakur and India’s finance minister Nirmala Sitharaman recently said that the government would take a “calibrated” approach in regulating crypto, but did not specify details at the time.

The finance ministry is now reportedly monitoring the growing volume of crypto trading in India. Sitharaman’s team is expected to brief her later this month around ongoing developments in the crypto space, per the report.

Earlier this year, the government of India was scheduled to discuss a crypto bill, but that was postponed for unknown reasons. That bill is now expected to be discussed in the upcoming monsoon session, which runs from July to September. But it is not clear whether that bill’s contents match the 2019 draft bill by the Garg committee that had recommended banning crypto in almost all forms.

Garg himself now seems to be in favor of regulating crypto as an asset class. He recently said that “crypto assets as assets perhaps can be one area where the government can look at, but with lots of caveats.” But using it as a currency should not be allowed, he argued at the time.

Overall, the crypto situation in India remains murky to date. In 2018, the Reserve Bank of India (RBI) passed a rule that restricted banks from dealing with crypto clients. The Supreme Court of India overturned that rule in 2020. Yet, crypto participants in India are facing new difficulties as the RBI reportedly informally urged banks this month to cut ties with crypto exchanges and traders.

Crypto exchanges, including WazirX and CoinSwitch Kuber, have suspended rupee deposits for new users on their platforms after some banks severed ties with them.

Still, crypto exchanges in India recently told The Block that they are hopeful that the government will consider regulating crypto as an asset class.

© 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.

Bitcoin’s price has dropped below $40,000 for the first time since February 9.

The world’s largest cryptocurrency by market capitalization is now changing hands around $39,600 on Coinbase Pro. It’s the lowest point in 14 weeks, according to data from CoinGecko.

Meanwhile, ether has slumped below $3,000 and is trading at $2,949 as of press time.

The overall crypto market plunge has continued over the past week and further extended after Tuesday news that three Chinese self-regulatory organizations reiterated the country’s 2017 stance on crypto ban.

Data from Bybt shows that over $1 billion in all crypto futures long positions were liquidated in the past 12 hours with half of them being long positions on bitcoin.

© 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.