What a Friday, folks! As the week comes to a close, the crypto market continues to plunge deeper into the red.
Despite major cryptocurrencies drifting lower, one coin, Terra ($LUNA.X), caught the attention of the investors as it gained 7%, making it to the coveted top-10 cryptocurrencies list (as measured by market cap). Terra’s promotion stemmed from the coin’s recent network upgrade and upcoming changes to how the coin is used in its own payment network.
Hoping there’s news that the downturn won’t last long, here are some stories to end the week:
- Goldman Sachs and other banks are exploring bitcoin-backed loans
- Walmart-owned Flipkart files an application for a blockchain fund in India
- A chat with the credit rating firm’s senior official on why the credit score is still a missing piece of the DeFi world
- The UK-based institute identifies money laundering risks among NFTs
Check how the major cryptocurrencies are performing:
|Binance Coin (BNB)||
U.S. Banks Want To Use Bitcoin As Loan Collateral
After ignoring (and criticizing) cryptocurrencies for years, U.S. banks are now weighing whether or not to use them as collateral for loans. Goldman Sachs, for one, will not operate on the cryptocurrency spot market, preferring to focus on synthetic crypto products such as futures, per a Coindesk report. It comes at the same time as the bank mammoth has called for institutional adoption to move forward with the crypto options market.
The report says that banks are finding ways to adopt “tri-party repo type arrangements” where funds are borrowed by selling securities with an agreement to repurchase them in the future with the involvement of a third party.
“Goldman was working on getting approved for lending against collateral and tri-party repo,” one source told CoinDesk. “And if they had a liquidation agent, then they were just doing secured lending without ever having bitcoin touch their balance sheet.”
The report cited Coinbase and Fidelity Digital Assets as potential custodians that the banks were in discussions with.
This is not the first time that a giant bank has considered bitcoin as loan collateral. Banks have slowly come to realize the potential of blockchain and the future of finance. Earlier this year, Silvergate and Signature announced bitcoin-backed cash loans.
Traditional banks will have plenty of untraditional competition awaiting them in the crypto lending space. DeFi loans already number in the billions, collecting the lion’s share of lending opportunities for crypto whales. While some DeFi loans have variable interest rates and are affected by the market’s demand for certain assets, others come with set rock-bottom interest rates. Traditional banks, however, can’t be hacked; and likely will insure against loss.
Walmart-Owned Flipkart Files For a Blockchain Fund in India
Amid regulatory uncertainty in India, Navi Mutual Fund, backed by Walmart-owned Flipkart founder Sachin Bansal-backed, has filed for a blockchain fund.
The Navi Blockchain Index Fund of Funds will invest in other funds that track the Indxx Blockchain Index rather than investing directly in crypto or blockchain-related companies, as per the filing. The Indxx Blockchain Index evaluates the performance of companies based in emerging or developing economies that are using or are considering the use of blockchain technology.
The timing of Navi Mutual Fund’s filing is notable as it comes after Invesco delayed the launch of its blockchain ETF in India last month due to regulatory uncertainty. Navi MF is a part of the financial services company Navi Group, which was started by Bansal. The company has also filed for Navi World Index FoF, which will invest in units of an international index fund or ETF that tracks the performance of the MSCI World Index.
It’s clear that India’s crypto industry isn’t swayed by the government’s recent ban on private cryptocurrencies, but rather is doubling down and launching more and more products and pursuing those launches even while the government is working on a crypto bill that will be introduced in parliament soon.
One on One
The Never-Ending Mystery Behind The Crypto Credit Score
A credit score is still far from being effective in the crypto world. One reason is the pseudonymous nature of blockchain transactions. Credmark, a Singapore-based crypto credit bureau that generates credit data, is taking on the challenge. We spoke to Momin Ahmad, Chief Strategy Officer at Credmark, to throw light on the issue:
ST: How do you assign credit scores to individual crypto users, as well as research and analysis on the crypto lending industry?
MA: We use on-chain data which is entirely public. It means that the raw data is agreed upon by all parties involved; however, the interpretation of that data leaves much to be desired.
We’re attempting to do two things: first, we want to give some consensus as to how we calculate different metrics, and second, we want to make sure that those metrics are the most appropriate for the task at hand.
For example, if we want to know how much ETH is being borrowed against a lender, we need to agree on whether or not we consider interest at this moment in time to be relevant, or if the amount of deposited ETH is all that matters.
It seems inconsequential at first, but if we don’t consider this, we can’t predict when it becomes insolvent. That’s an example of risk we’re currently blind to.
ST: Credmark spent three years trying to develop credit scoring for crypto users. What type of challenges did you face?
MA: Due to the lack of history, lack of standardization in data interpretation and statistical analysis, and pseudonymous/anonymous nature of crypto, there is no clear path to creating a metric that is predictive of a retail investor/consumers’ likelihood of behaving positively in a financial market. There is also a resistance to any sort of KYC/AML in spaces like DeFi. The ‘black-box’ nature adds to the problem.
ST: Credmark has combined with other firms for data collection. What’s that?
MA: To build our credit scoring system, we combined with Dune Analytics. For our smart pool application — an app used to create and manage pools on Uniswap, we leveraged The Graph.
As a company, we hope to provide data that is structured in a way that allows data modelers to build risk tools that require little effort on their end as it pertains to data quality and allows them to focus entirely on building the best model
ST: What are the plans to make the data-collection process easier?
MA: Without better data, all DeFi is left with is over-collateralization. We are focusing on offering more friendly for less crypto-savvy retail users by risk scoring DeFi protocols.
Instead of black-box methods of calculating risk and higher-order data metrics, we’ll be offering fully transparent data and data interpretations.
UK Think Tank Highlights NFT Money Laundering Risks
As non-fungible tokens (NFTs) remain a hot topic in crypto and with cryptocurrency exchanges like Blockchain.com, FTX, Crypto.com, and Coinbase committing resources to build NFT marketplaces, a British think tank is raising a serious red flag.
The Royal United Services Institute (RUSI) recently released a report claiming that the new craze has become a “new frontier” for money laundering.
“To start with, NFTs are most often purchased with cryptocurrencies on online marketplaces. Cryptocurrencies are routinely exploited for malicious means, such as obfuscating the source of criminal proceeds and, despite transactions being traceable, more sophisticated criminal actors use a variety of techniques to disrupt investigations by law enforcement,” per report.
Money laundering is only one challenge that NFTs face. Hackers are another. The think tank said the criminals could hack users’ accounts to steal NFTs and then sell them later at a higher price.
These problems are just the tip of the iceberg, though. Regulating and addressing them poses a greater challenge. The report suggested that NFTs might benefit from the same regulatory framework applied to cryptocurrencies to combat money laundering. This may include a ‘Know Your Customer’ (or KYC) process to monitor who is involved with the NFTs.
‘‘With the development of guidance for KYC best practices, strong cyber security measures and a stolen art registry, many of the money-laundering risks of NFTs can be mitigated without restricting the growth of this new market,’’ the report said.