Good morning, and welcome to Protocol Fintech. This Monday: testing the digital dollar, questioning GameStop’s token dump, and making Wormhole whole.
Off the chain
Crypto bounced back Friday, with bitcoin jumping 10% to cross $40,000 and other coins seeing similar gains. So can we put away our crypto winter coats? It might be too early, as the Great Deflate continues to put pressure on risk assets. But here’s a crypto winter move you might not have expected: Miners in Texas are turning off their rigs to help keep the state’s grid stable as a storm approaches.
— Owen Thomas (email | twitter)
A super-fast digital dollar? It’s doable. That’s not the question.
Researchers have found that a U.S. CBDC could be fast and efficient. But that’s not really the problem.
Two weeks after the Fed said that a central bank digital currency would represent “a highly significant innovation in American money,” a team from the Federal Reserve Bank of Boston — an independent but interrelated part of the central banking system — and MIT said it came up with a design for a highly efficient and robust digital dollar.
The Boston Fed-MIT group hastened to say it wasn't making an argument about whether the U.S. should do a digital dollar — just that it could. And it didn’t provide answers for the tough questions policymakers must address.
“I don't think technology will become a hurdle” in drafting a plan for a digital dollar, Klaros Group Partner Jonah Crane told Protoco, as the Boston experiment made that clear.
- The Boston Fed-MIT project, codenamed Project Hamilton, describes “a theoretical high-performance and resilient transaction processor for a CBDC” that could handle “1.7 million transactions per second.”
- That’s impressive. Compare that to VisaNet’s (claimed and somewhat theoretical) rate of 65,000 transaction messages per second, which is said to be comparable to the Solana blockchain. The bitcoin and Ethereum blockchains are significantly slower.
- In other words, “they've built a processor that appears to be able to handle transactions in more or less real time at scale. That is a big deal,” said Crane, who is also a project adviser at the Digital Dollar Project.
But speed and tech aren’t the only issues. The debate over the creation of a digital dollar will likely focus on many other issues, including “whether or how to adopt a central bank payment system for the United States," Neha Narula, director of MIT’s Digital Currency Initiative, said.
- The most contentious issue is privacy. The Fed has stressed its importance in designing a digital dollar, but it also noted the importance of complying with rules “designed to combat money laundering and the financing of terrorism.”
- This has sparked fears that the Fed will create a digital dollar that gives the central bank the ability to track each and every digital dollar — a scenario that led Minnesota Rep. Tom Emmer to warn against “digital authoritarianism.”
- Project Hamilton sought to address these fears in its FAQs, though it did not give a definitive response to the question: “Will a Federal Reserve-issued general-purpose CBDC be used as a surveillance tool?” Its hypothetical digital dollar system, OpenCBDC, “is intended to be a rigorous privacy-preserving tool that does not leak unnecessary information to third parties,” the researchers wrote.
The digital dollar debate is far from over. There are reasons to get excited about the promise of a CBDC based on the Boston Fed report. There are also many more questions to wrestle with. “It’s still early days,” Crane said. The project’s namesake, Alexander Hamilton, managed to create the first Bank of the United States, but it only lasted 20 years. Expect more experiments as central banking goes digital.
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On the money
Binance CEO Changpeng Zhao warned customers about an SMS phishing scam. The crypto exchange CEO issued the warning on his Twitter after receiving word of an SMS scam where users were provided with a link to cancel withdrawals, which actually led to a harvesting of user credentials.
On Protocol: GameStop dumped $47 million worth of IMX tokens right after its NFT marketplace announcement. After Immunity X granted the video game retailer over 56.2 million IMX tokens as part of their partnership deal, GameStop has already unloaded almost a third of its stash.
Jump Trading helped restore lost ether after the $320 million Wormhole exploit. Wormhole’s parent company jumped in to replace 120,000 ETH after a hacker fraudulently minted them, stating that they were doing so “to make community members whole and support Wormhole now as it continues to develop."
Nike is suing StockX for selling Nike sneaker NFTs. StockX was selling the Nike NFTs unauthorized, claiming that buyers could redeem the NFTs for physical versions soon, according to the federal lawsuit.
The U.S. Treasury says NFTs can be used for money laundering schemes, adding to an existing problem in the art world. The report found that the problem could be exacerbated due to NFTs' instantaneous, borderless nature. However, blockchain analysis firm Chainalysis reported that wash trading was a far greater problem.
Overheard
Lamborghini is launching an NFT project called “Space Time Memory.” “Memories are rooted in the physical world; we make them in reality. We then store them in our brains, what could be considered the digital world,” Fabian Oefner, creator of the project, said in a press release.
Sen.Pat Toomey wants to warn the U.S. government about China’s CBDC and its potential for foreign use. "While the United States is still evaluating the concept of a digital dollar, China is using the Beijing Winter Olympics as an international test for the digital yuan,” he wrote in a letter to the Treasury and State Departments.
Michael Cembalest, chairman of Market and Investment Strategy at J.P. MorganAsset & Wealth Management, put crypto on blast in a recent report titled “The Maltese Falcoin.” “Crypto collateral can be ‘rehypothecated’ to back multiple activities. If you don’t remember what that word means, type ‘rehypothecation’ into Google along with the words ‘financial crisis,’” he wrote in the report.
Coming up
The House will hold a hearing on stablecoin regulation Tuesday. The virtual hearing on “Digital Assets and the Future of Finance” lists Nellie Liang, Treasury undersecretary for domestic finance, as the sole witness. Liang wrote extensively about financial stability as a senior fellow at the Brookings Institution before joining the Treasury.
S&P Global, Paycom and Alibaba report earnings Tuesday. SPGI’s average estimated EPS is at $3.13, down 11.6% from last quarter. PAYC’s average estimated EPS is at $0.77, up 48.1% from last quarter. BABA’s average estimated EPS is at $1.92, up 48.9% from last quarter.
What is the future of crypto regulation? Join Protocol’s Ben Pimentel and Rep. Don Beyer, along with a panel of experts, this Wednesday at 10 a.m. PT/1p.m. ET for a conversation on crypto regulation: “From buyer beware to federal oversight.”
A Senate hearing on digital assets is set for Wednesday. CFTC Chair Rostin Behnam will testify as a witness at the hearing. Other witnesses include Sandra Ro, CEO of the Global Blockchain Business Council, and FTX CEO Sam Bankman-Fried.
Four earnings calls drop Thursday: Global Payments, Affirm, Western Union and SuperCom. GPN’s average estimated EPS is at $2.04, up 2% from last quarter. AFRM’s average estimated EPS is at -$0.44, down 10% from last quarter. WU’s average estimated EPS is at $0.53, down 15.9% from last quarter. SPCB’s average estimated EPS is at -$0.1, down 233% from last quarter.
PaySafe’s earnings call is set for Friday. PSFE’s average estimated EPS is at $0.01, up 105% from last quarter.
A MESSAGE FROM PLAID
Like any other payment rail, ACH isn’t perfect and carries some risk. In this guide, you’ll learn how to implement ACH to minimize risks and liabilities while creating new financial opportunities for your business.
Thanks for reading — see you tomorrow!