Sun shines light on stablecoins

Justin Sun, the Tron founder, is known for his love of drama and dramatic gestures. This is the man who spent $4.5 million on a lunch with Warren Buffett and $28.5 million on a ticket to space with Blue Origin. So, any announcement from him tends to come with a big ticket price.

How about $10 billion? Five days ago, on 21st April, Sun published a blog post announcing that TRON DAO would be taking out $10 billion in collateral “to launch an algorithmic stablecoin and offer a 30% annual percentage yield to investors.” It will be called USDD and is supposed to launch on 5th May. Sun says it will be “the most decentralized stablecoin in human history.” 

In his blog, he writes that USDD will achieve full on-chain decentralization and “will not rely on any centralized institutions for redemption, management, and storage.” USDD will be pegged to TRON’s native cryptocurrency TRX and is managed by an algorithm that will keep USDD stable at 1:1 against the US dollar.

Unsurprisngly, crypto Twitter leapt into action. Branson Bollinger, a venture capitalist specializing in crypto, tweeted, “I wouldn’t go anywhere near it. There are so many super smart people in this space, so going anywhere near a project that has a questionable leader is just unnecessary.” Others were sceptical about the 30% APY. One called @Route2FI tweeted, “My first impression is that 30% APY seems way too high. I mean, look at Anchor Protocol. They’re struggling with 20% APY. How is Justin Sun going to sustain 30%?”

However, Tron has strength in the stablecoin space. Since it launched in 2017, it  has processed more than $4T of USDT transactions and has become the largest global stablecoin network.

Sun’s move comes at a time when we are seeing a surge in decentralized stablecoins. MakerDAO’s stablecoin DAI has a total value locked (TVL) of over $14 billion, and Terra’s UST has around $30 billion TVL.

Do Kwon, Terra’s CEO, who calls himself the “Master of Stablecoin” has also taken some major steps by pledging $10 billion in Bitcoin-denominated collateral for its own stablecoin earlier this year. His response to Sun’s announcement was to tweet, “Decentralized economies deserve decentralized money — every blockchain will run on dect. stables soon.” He later tweeted, “currencies are ultimately backed by the economies that use them, and the future is clearly opting to use decentralized and self sovereign stablecoin.”

How to Survive a Bear Market

The year has not started well for crypto investors. Many of you will be trapped in the falling market and unable to cash out without incurring heavy losses. According to data from Intotheblock, 28% of Bitcoin investors and over 31% of Ethereum investors are in a situation where the assets are worth less than they paid for them.

The question most would like an answer to, is how can I survive this? Here are a few suggestions.

  1. Use dollar-cost averaging

If  you have stablecoins or fiat, you can buy the dip. But when you do, the most recommended strategy is to implement something called “dollar-cost averaging (DCA).” For example, let’s say you have $1,000 in reserve funds. A good DCA strategy would be to break up the amount into five tranches of $200 or even 10 tranches of $100 and place trades using those smaller amounts. So, instead of spending all your money in one go, it usually works out better to buy a small amount and wait to see if the asset falls in price further. If it does, buy a little more, and so on.

  • Diversify your investments

One way to hedge your bets is to use DCA for a range of different crypto assets. To choose your assets, look at the following: 1. Previous all-time-high; 2. Past performance and 3. Future roadmap announcements.

You should also look at whether an asset is considered to be ‘overbought’ or ‘oversold’. If an asset is deemed to be ‘overbought’, it means that its price is considered to be too high and that it will fall soon. If it is oversold, its price is considered to be undervalued, and that is usually a sign that prices will rise soon.

  • Don’t panic

In a bear market, you really need to manage your emotions as much as your money. Fear and greed can lead to investors making foolish, snap decisions that result in losses. Greed, for example, often leads to investors staying in a a trade beyond your take profit level in the hope the asset will rise even higher in price. What you need to do is set a stop for losses. Basically, take profits when you can and don’t panic when the bears arrive!

UK financial regulator warns again regulatory overreach

Charles Randall, the Chair of the United Kingdom’s Financial Conduct Authority (FCA) has warned that whilst regulators should increase consumer protection for consumers investing in crypto tokens, they should also be wary of going too far.

Randall made his comments during a speech for the Cambridge International Symposium on Economic Crime, when talking about the risks for consumers who dive into the crypto world without really knowing how to manage these risks.

Tackling crypto promotions a priority

Significantly for those crypto projects that might be considering hiring a high profile influencer to help promote their tokens, Randall tackled this head on. In particular he mentioned Kim Kardashian’s recent Instagram promotion of EthereumMax (EMAX); a brand-new token issued by “unknown developers.” He commented that this “may have been the financial promotion with the single biggest audience reach in history.” 

Whilst Randall didn’t say that EthereumMax was fraudulent, he said that he had used it as an example of the issues around influencers and paid-for advertising, pointing out that using a celebrity like Kim Kardashian meant the campaign had a massive reach and that it had the potential to mislead under-informed consumers. He emphasised that this is the kind of marketing activity that regulators should be taking greater notice of in the interest of consumers, because “many consumers remain blind to the financial risks they are courting by trusting influencer endorsements and savvy online token campaigns.”

Randall went on to tell the audience that 2.3 million UK citizens own crypto and that 14% of them had bought it using a credit card, which in his view was a worrying scenario. Moreover, 12% of the UK’s crypto holders mistakenly believe the FCA, or the Financial Services Compensation Scheme, would protect them should things go wrong, according to the FCA’s research.

Don’t strangle crypto with excessive regulation

However, Randall appeared to be wary of too much regulation in the case of cryptocurrencies. As he said, the British consumer had multiple opportunities to invest in other unregulated speculative activities — from gold and foreign currencies to Pokemon cards — despite there being “no shortage of consumer harm in many of those markets.” He said:

“So why should we regulate purely speculative digital tokens? And if we do regulate these tokens, will this lead people to think that they are bona fide investments? That is, will the involvement of the FCA give them a ’halo effect’ that raises unrealistic expectations of consumer protection?”

Stablecoins and security tokens offer useful ideas

The FCA currently regulates cryptocurrency exchanges in the UK, and has banned the sale of crypto derivatives to retail customers. Going forward, Randall proposed that its measures should focus on stablecoins and security tokens, which would be a limited intervention. He said that both of these forms of digital asset offered, “encouraging useful new ideas” for cross-border payments, financial infrastructures and financial inclusion, and should not be hampered by “overbearing red tape.” Instead, he argued for a moderate approach, in line with existing rules for other FCA-regulated entities, to ensure that token issuers and blockchain firms are solvent and transparent.