Weekly review calendar week 32 - 2021

What has been happening around Blockchain Technology and Cryptocurrencies this week? The most relevant local and international developments as well as appealing background reports in a pointed and compact weekly review.

Despite progress in recent years, the topic of digital asset regulation remains a dominant issue in the area. Without clear guidance, established players are unwilling to enter the emerging sector. Abrupt legislative changes can drastically affect the business environment. Even the new U.S. infrastructure program, which envisions comprehensive packages worth $1 trillion, affects the regulatory environment of crypto-currencies. The accompanying industry-specific laws are expected to raise more tax dollars. The crypto industry is also affected by these measures. The current vague wording of the law would have devastating implications for the innovative industry, which is why cryptocurrencies have become a central topic in the U.S. Congress. Proposed amendments to mitigate shortcomings were not unanimously approved until recently. It remains to be seen whether the House of Representatives or the President will intervene. The legislation will take at least another 2.5 years to be implemented.

Monetary policymakers have taken notice of cryptocurrencies and are trying to position themselves in the new space. Although central banks do not embrace digital currencies, the vast majority of monetary guardians recognize their legitimacy. The situation is different in the area of blockchain tokens, whose values are pegged to fiat currencies - the so-called stablecoins. Citing examples such as Facebook's "Libra" (new Diem), central banks demonstrated that they do not want to transfer control of their currency to private companies under any circumstances. Even towards already established projects in the crypto space such as Tether, their approach is characterized by skepticism. The American issuer of the second largest stablecoin USDC, Circle, consequently wants to undergo stricter control as a precautionary measure and has submitted an application for a banking license. With a regulatory clearance, Circle would operate under the supervision of the Federal Reserve Bank, the U.S. Treasury Department, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), and could legitimize itself as an issuer of dollar-pegged stablecoins.

Unique digital images represented by NFTs are currently experiencing an enormous boom. Tradable digital rights, unique and verifiable on a blockchain, are reaching a broader investor base and are enjoying weekly sales in the triple-digit millions. After nearly four years of silent existence, the value of exclusive and limited digital images is beginning to be recognized by the art community. Most commonly, NFTs are created on the Ethereum blockchain and are used as a proof of ownership of digital images. The most popular items are currently considered to be the "Cryptopunks" images, which are limited to 10,000 unique pieces. These images of punks with randomly generated attributes such as facial hair, skin color, headgear and eye color are frequently used as profile pictures on social media. Since "punks" with rare attributes are now traded for amounts in the millions, they established themselves as a digital status symbol. There is now a broad ecosystem for NFTs, with traded amounts in the hundreds of millions of dollars.

The field of decentralized financial applications (DeFi) is experiencing high levels of utilization. Basically, the area includes traditional financial applications that are freely accessible via its decentralized network without the interaction of a third party. Trading cryptocurrencies represents the most popular DeFi application. Liquidity pools ensure 24/7 liquidity in countless currency pairs. Uniswap is currently the exchange (DEX) with the largest volume. The DeFi platform was launched in 2018 and is now maintaining several billion U.S. dollars in daily trading volume. The sector is also facing regulatory challenges. With no central entity, authorities cannot hold companies accountable for investor protection violations.

In addition: The DeFi sector has grown strongly over the last year. Since mid-2020, the number of assets deposited in protocols has increased 100-fold and currently stands at an estimated $140 billion. With the rapid growth, security vulnerabilities have also come to light. Due to the permissionless structure, anyone can create applications in the DeFi area. Since many projects are still immature, attacks on the underlying code occur frequently. This week, the largest "hack" yet occurred, stealing $600 million worth of cryptocurrencies. Although the hacker has since returned the stolen assets, the incident illustrates that the field is still in its infancy and should be used with caution.