The Breakdown - Stablecoin Wars at Davos!

Episode Date: January 18, 2024

Tether and Circle both position around the WEF for a digital dollar future. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Wednesday, January 17th, and today we are talking about the stablecoin battle at Davos. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation. Come join us on the Breakers Discord. You can find a link of the show notes or go to bit.ly. breakdown pod. So friends, like I said, it is Davos Week, the World Economic Forum, the obviously favorite event of all Bitcoiners. And while in many ways crypto is on a down swing at this event as compared to years past, with AI taking the role of hot technology that's all hyped up everywhere,

there is still a lot of interesting discussion in and around the crypto space and in particular when it comes to stablecoins. Take for example Cantor Fitzgerald's CEO Howard Lutnik, speaking live to Bloomberg, Lutnik once again put his credibility on the line to support Tether. Completely unprompted, the Wall Street Maverick shifted the interview to talk crypto. After some brief comments on Bitcoin, Lutnik said, There's a company I like, it's called Tether. Now, we learned last year that Cantor Fitzgerald manages a significant portion of Tether's U.S. Treasury reserves.

This is not information that we had before that. Lutnik continued, from what we've seen and we did a lot of work, they have the money they say they have. He referred to Tether's September attestation report, where Tethner's September attestation report, where Tether claimed to have 86.4 billion in assets held against 83.2 billion in liabilities. Drilling the point home, Lutnik said, I've seen the whole lot and they have the money. There's always been a lot of talk, do they have it or not?

So I'm with you guys saying, we've seen it, and they haven't. After you finished with the Tether pitch, Lutnik was asked a little bit more about Bitcoin. He responded, Why are Americans having anything to do with Bitcoin anyway? Why are they having anything to do with stablecoins anyway? I can give you money on Venmo or PayPal. It's not an American thing.

This is just Americans screwing around like buying tech. Tesla stock. However, he explained that for countries like Argentina, Venezuela, and Turkey, quote, these crypto assets matter. Stablecoins matter in those countries. They really do. It's a way to hold on to the dollar. Now, like I said, in December, Lutnik had made similar comments about Tether on a CNBC podcast. By doubling down in such a high-profile interview, Lutnik seems to be tying his reputation even more closely to Tether's legitimacy. Now, just for a little bit of context, Lutnik is a very prominent Wall Street CEO. Cantor Fitzgerald is a 79-year-old investment bank, with a large prime brokerage business and over $3 billion in assets under management for their investment

business. James Safart, an ETF analyst at Bloomberg, said, Nothing brand new, but these are even more definitive statements backing up Tether than the ones Lutnik made a couple weeks back. Will Clemente wrote, Kander Fitzgerald putting their reputation behind Tether, Truthers, in disbelief. Evgeny Gavey, the CEO of Wintermute said, At this stage, Tether Truthers have two options. One, give up. Two, switch to a broader, more global conspiracy construct, where it's not just Tether and crypto in general, but also canter and the DOJ and maybe throw the CIA into the mix.

Nick Carter wrote, Tether Truthers spent six years trying to convince everyone Tether would collapse and drag down the industry. It didn't. Crypto had other problems, but they were fixated on the one thing that stood firm. That's pretty wild. They could have picked literally anything else. Not sure anyone has ever been more wrong about anything. Dunking on them is a moral obligation. Now, still, earlier in the week, Tether was called out in a United Nations report for facilitating money laundering. The UN Office on Drugs and Crime warned that tether as being used in illicit economies across East and Southeast Asia. According to a report released on Monday, illicit casinos and romance scams are rapidly growing in the Macong region. The report noted that

a specialized travel industry has emerged to provide junkets for patrons of the underground casinos. It explained, junket operators have been able to serve as international bank-like entities providing a variety of underground financial services, including credit issuance, currency exchange, and multi-currency payment and settlement solutions, remittances, and extra-legal debt collection mechanisms which have been exploited by organized crime. The report specifically highlighted Tether on the Tron blockchain as the preferred cryptocurrency used in these operations. It was also alleged that local crypto exchanges play a key role in money laundering, disguising its prevalence through inflated transaction volumes. Tether, for their part, said they were

disappointed with the report, stating, the monitoring of Tether tokens through our collaboration with global law enforcement ensures unparalleled monitoring, surpassing traditional banking systems that for decades have been the vessel for laundering substantial sums proven by the fines that have been levied on them. They said that the UN report, quote, ignores the traceability of tether tokens and the proven record tether has of collaborating with law enforcement. Now, some people had a conspiratorial take about the report. Arnhem NASCAR wrote, same day, same stablecoin-related risks. One entity gains market share each day, yet only one circle is championed at Davos, while the other, tether is subject to a fud article. Now you guess who is winning the market share.

Palo Arduino, the CEO at Tether said, must be a coincidence. Now, speaking of Circle, Circle CEO Jeremy Aller is also currently at Davos to promote the merits of USC. During an interview with CNBC, he emphasized Circle's intention to operate as a, quote, trusted, transparent, well-regulated company. Speaking to the prospect of stablecoin legislation this year, Aller said, there's progress being made in Congress, there's progress being made in terms of the court looking at the law, and there's progress being made from regulators. He added, in every major market in the world, we are seeing progress.

on stablecoin legislation. Stablecoin laws are going to be on the books in almost every major global financial market in 2024. That's a backdrop for growth. Aller explained how he expects global regulations to push U.S. policy forward, stating, digital dollars are happening around the world. Other governments are regulating digital dollar currencies before the United States. And so I think there is a very strong desire to act and assert U.S. leadership and get the right consumer protections involved. I think there's momentum. I think there's a very good chance of seeing this pass into law this year. Turning to other developments in the crypto industry, Allaire isn't worried about Bitcoin trading moving to the ETFs and potentially cutting down the use of

USDC on crypto exchanges. He said the ETFs would be, quote, definitely a tide that lifts all boats. Overall, Aller put forward a strong growth story for Circle stating, our view is a growing market and a growing participation in the market is just going to continue to drive more demand for digital dollars on the internet. And actually, we think, an accelerant to what can happen with USC. Now, of course, these confident statements in the trip to Davos come after Circle applied to IPO last week. The firm had originally intended to go public via SPAC in 2022 with the deal originally valuing Circle at $9 billion. This Circle IPO, should it come to fruition later this year, would be the largest public listing for the crypto industry since the Coinbase IPO in 2021.

Around the event, Circle tweeted, here's why we are energized to take part in this year's World Economic Forum meeting in Davos. Trust is critical. We've built our business on it. This year's Davos theme, rebuilding trust. For us, the effort begins by being open about who we are, what we do, how we do it, and why we do it. It's embedded in our programming, emblazoned on the walls of our promenade's doorfront, and enshrined in our values. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, what if? It invites people,

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are positioning themselves as the leader in the digital dollar space. Circle has continued the theme that it's always had, which is that it's the best regulated, most open and transparent version of a digital dollar. But Tether, which has been taking market share from Circle ever since the banking crisis last year has also moved into that legitimate space. The Kander Fitzgerald comments are part of that. It's also clear that Tether is positioning itself as the leader-driving adoption in the global South. Now, what's going on behind the scenes when it comes to the regulatory battle is, I'm sure, pretty interesting. Morgan Stanley also got in on this discussion with a new report that analyzed

the global impact of currency digitization and the competition surrounding this trend. Andrew Peel, Morgan Stanley's head of digital asset markets wrote, The recent growth in interest of digital assets such as Bitcoin, growth of stablecoin volumes, and the promise of central bank digital currencies, have potential to significantly alter the currency landscape. Peel's thesis is that the crypto industry has the potential to either erode or strengthen the dollar's dominance depending on policy choices. He noted that U.S. monetary policy ballooning deficits and the use of sanctions have driven some regions to look for alternatives, adding that a, quote, clear shift towards reducing dollar dependency is evident, simultaneously fueling interest in digital currencies such as

Bitcoin, Stablecoins, and CBDCs. The other side of the coin is U.S. dollar-stable coins, which enhance global access to the currency in an unprecedented manner. Peel wrote, Their continued evolution and growing acceptance by mainstream financial entities underscores their potential to significantly alter the landscape of global finance and, in fact, reinforce the dollar as the dominant global currency. Touching on the third path, CBDCs, Peel noted that if a multitude of digital fiat currencies become more widely embraced, interoperability could reduce frictions.

He wrote, they hold the potential to establish a unified standard for cross-eastern, border payments, which could diminish the reliance on intermediaries like Swift and the use of dominant currencies such as the dollar. So, as you can see, not anything all that particularly new, but interesting that Morgan Stanley is taking on these themes. Now, one more stablecoin story, overnight on Monday, Hong Kong-based stablecoin True USD, deep-pegged, trading down as low as 98.4 cents. Now, the acute phase of the depegging event appears to be over, but T-USD is still trading at 99 cents, implying that markets are still pricing some risk in the product. TUSD has been criticized over recent years for a lack of clarity around its operations.

Bradley Park, an analyst at CryptoQuant said, TUSD is related to Justin's son and its market cap is constantly shrinking. It's likely due to the potential impact of the HTX and Polonex hacks. Now, this was the first major depegging event for TUSD since 2021, and appears to have been catalyzed by a loss of legitimacy on Binance. Early last year, TUSD was the favorite stablecoin on Binance, receiving promotional trading discounts. The stablecoin was similarly favored on HTX, formerly.

Huobi and Polonex, two exchanges which are also linked to Justin's son. In December, Binance switched trading promotions to favor first Digital USD, a rival Hong Kong-based stable coin. On Monday, Binance followed up this move by not including TUSD as a staking option on its launchpad for new L1 protocol, Manta. TUSD saw over $430 million in trading volume following the announcement, with an associated market cap drop of $140 million. Since November, TUSD has lost $1.4 billion in market cap, or around 40%. Nick Ruck, the chief operating officer at ContentFi Lab, said, The massive sell-off of TUSD reveals panic for its holders over the uncertainty of its reserves and instability related to Poloniacs. After a recent hacking incident that targeted Poloniacs,

TUSD holders find themselves in an increasingly difficult situation to find stability with the USD-pegged stable coin. Justin Dan and then head of APEC business development of Crypto-Market Maker Keyrock thought this week was the last straw for many, explaining it feels like such a little catalyst, but with the recent announcement of Manta in Binance's launch pool program and the need to stake BNB or FDUSD at the expense of other stable coins like TUSD that might have been used in the past for launch pool staking, it seems that a horde of investors are selling the latter for the former. TrueUSD responded to the depegging in a statement, saying that, quote, recent community mining activities in relation to Binance launch pool have been noted leading to short-term arbitrage

opportunities, which are part of the normal market dynamics and liquidity adjustment. Our focus has always been on and continues to be the enhancement of TUSD services through innovative technologies and industry partnerships. Attestations continue in the ordinary course of business and any suggestion that the contrary is false. The spokesperson also said that Justin Sun is not a shareholder in the company behind True USD. Lastly today, one more follow-up from a story we covered earlier. The trial in the SEC's lawsuit against Terraform Labs has indeed been delayed until late March, on the assumption that Doe Kwan will be extradited to the U.S. by that. Now, this is not the anticipated criminal fraud trial against the Terraform co-founder,

but rather, a regulatory enforcement action brought by the SEC. The court already decided that UST and Ludo were sold as unregistered securities in a summary judgment handed down in December. So the trial will deal with allegations of securities fraud related to those tokens. Over recent weeks, Terraform has represented to the court and the SEC that Kwan had agreed to be extradited and would be sent to the U.S. imminently. The SEC agreed to delay the trial on Monday. In making his order, the judge wrote,

Despite Kwan's representation that he has consented to his extradition from Montenegro, where he is presently being held, there is absolutely no guarantee that he will be released in time for his appearance at a late March trial. Nevertheless, the court will indulge his counsel's request, given their express recognition that the trial cannot be further postponed. Now, what makes all of this confusing is that Terraform Labs in this case is saying that Kwan had tried to be extradited, but reporting on the ground has the situation basically the opposite.

it. Quan's four-month sentence technically concluded sometime late last year, but he's being held in prison pending extradition. Over the past month, Kwan has repeatedly appealed extradition decisions made by Montenegrin courts in an attempt to avoid being sent to the U.S. Earlier this week, Kondesk reported that Kwan's lawyer in Montenegro was still fighting the appeal. He said that the extradition order, quote, drastically violates the provisions of the law, the European Convention on Extradition, and the bilateral treaty with America on extradition. He added that, there is also political pressure on the court all to the detriment of Doe Kwan. So it seems very confusing as to what the actual situation is, but based on the judge's

statements, this thing is happening in March come hell or high water, whether Kwan is there or not. Anyways, friends, that is going to do it for today's breakdown. One more big thank you to my sponsor for today's show, Cracken. Go to crackin.com and see what crypto can be. Until next time, be safe and take care of each other. Peace.