Market Summary

Bitcoin Price: US$ 28,715.32 (-5.68%)
Ethereum Price: US$ 1915.11 (-8.40%)

Stablecoin Supply

• Among the four top stablecoins, USDT and DAI have experienced significant redemptions lately. Between 9th to 15th of May, the circulating supply of USDT dropped by 7.46bn, a -9% decline within the week of the Terra blowup.
• DAI’s circulating supply declined -24% dropping from $8.46bn to $6.4bn between the 7th and 15th of May.
• On the contrary, USDC has benefited from these outflows as investors deem it “safer” than its Tether counterpart. USDC is fully backed by relatively safe assets consisting of cash and short-dated U.S. government obligations whereas USDT is backed by riskier assets like commercial paper that have a higher chance of default.
• Currently, USDT owns the lion’s share of the stablecoin market at ~48% (Source: Defillama), although this has been decreasing as more decentralized alternatives take center stage.
• Tether’s sell-off resulted in a momentary depeg of USDT, but it has since re-pegged, and all four stablecoins are trading near par.
• Fully collateralized stablecoins have generally held up well since the UST crash, but a few algorithmic stablecoins like Deus Finance’s DEI and Kava Network’s USDX have suffered depegs as well.

Learnings From Last Week

• Last week, Terra’s $UST fell prey to an algorithmic stablecoin death spiral, wiping out nearly $40B in market cap across $UST and $LUNA. It’s unclear at this point whether it was a coordinated attack by a large player or a classic bank run, but it hardly matters either way. This is arguably the most catastrophic event to happen to crypto since Mt Gox.
• Our core mission at Delphi has always been to make crypto happen better and faster, which is why last week’s events have had such a disheartening impact on us all. The irony that something we believed in caused the opposite to occur ripped at the very fabric of who we are and what we stand for.
• Delphi Ventures Master Fund purchased a small amount of $LUNA (~0.5% of our NAV) on the secondary market in Q1 2021. Net, we only increased our exposure since our original purchase and are currently sitting on a large unrealized loss. Even at LUNA’s peak price this year, LUNA and other Terra assets made up only ~13% of NAV across Delphi Ventures. On a deal-count basis, less than 5% of Ventures’ total number of deals were in companies or protocols related to the Terra ecosystem. This includes Delphi Ventures’ participation in the recent LFG raise (February 2022) – a $10M investment which, based on the current LUNA price, is entirely lost. Delphi Ventures did not sell any LUNA during this event.
• Ultimately, we believed in the Terra ecosystem, we made a big bet on it, and it didn’t turn out as expected, costing us significant money and time. Fortunately, Delphi is fully self-funded, and when we make high-conviction bets like this it’s our own capital at risk. We understood the risks of the algorithmic model upfront and sought to be transparent about them throughout; however, it’s clear we miscalculated the risks. To the vocal critics of Terra’s algorithmic design–you were right and we were wrong.

‘Grim Reapers’ financial crimes unit revived to investigate Terra collapse

• Legal troubles are mounting for the co-founder of failed Terra crypto project Do Kwon as the South Korean government revives the dormant “Grim Reapers of Yeoui-do” to investigate Terra’s fall.
• The special investigative and prosecutorial team consists of members from various financial regulators, and is designed to prosecute securities fraud and unfair trading schemes. Potentially at risk are co-founders Do Kwon and Shin Hyun-seong, along with core members of the Terra team. Yeoui-do is the financial center of Seoul.
• Korean news outlet SBS News confirmed on Wednesday that the Terra case would be the first the resurrected Securities Crimes Joint Investigation Team would investigate. A representative from the team told SBS News that, “The Terra case caused severe damage to average citizens which led us to designate this as the first investigation.”
• Reforming the feared investigative team may be a political move by the new conservative President Yoon Seok-yeol, reversing the decision by the previous liberal Moon Jae-in administration to disband it. However, the severity of the Terra situation is illustrated by the fact that it is the first case the investigators will handle in two years.

Russia will inevitably legalize crypto payments says trade minister

• Russia will legalize crypto payments “sooner or later” according to the Ministry of Industry and Trade of the Russian Federation, Denis Manturov.
• The country’s government has been exploring various crypto adoption plays throughout 2022, but is yet to finalize any concrete policy concerning digital asset payments. However, its legalization has been recommended by Russia’s finance ministry via its “On Digital Currency” bill from April.
• According to a translation of a May 19 report from local media outlet TASS, Manturov was questioned at the New Horizon educational forum this week on whether legalized crypto payments were in the works.
• “I think so. The question is when this will happen, how it will happen and how it will be regulated. Now both the Central Bank and the government are actively engaged in this. But everyone is inclined to understand that this is a trend of the time, and sooner or later in one format or another, it will be carried out.”
• “But, once again, it must be legal, correct, in accordance with the rules that will be formulated,” he added.

Meta trademark filing hints at plans for crypto payments platform

• Social media giant Facebook’s parent company, Meta, may be planning to launch a payments platform with support for cryptocurrency. 
• According to records submitted to the United States Patent and Trademark Office, or USPTO, on May 13, Meta filed five applications for its namesake to be used in a platform called Meta Pay. The filings included Meta’s name for use in a “online social networking service for investors allowing financial trades and exchange of digital currency, virtual currency, cryptocurrency, digital and blockchain assets, digitized assets, digital tokens, crypto tokens and utility tokens.”

Merit Circle partners with expansive metaverse Axes Metaverse

• We are excited to announce our partnership with Axes Metaverse, a blockchain-based meta-universe created by Azur Games, one of the world’s leading mobile game publishers. Azur Games aims to increase the adoption of blockchain technology by reaching the ‘casual’ gaming audience. As part of the partnership, Merit Circle has invested $500,000.
• The Axes Metaverse brings together a variety of games from different genres, each offering its own unique gaming experience. These include playing as a solo hero, commanding a squad of heroes in tactical teams and battles, and finally participating in multiplayer wars for land ownership. The common thread that ties these together is the goal of earning as many Axes Metaverse Shards as possible, alongside attaining a high ranking.

Dutch regulator says crypto not yet suitable as means of payment or investment

• A Dutch regulator stated that the crypto derivatives market should be restricted to wholesale trade. The reasons are not unfamiliar — lack of transparency, market manipulation and “other forms of criminal activity.”
• On Thursday, the head of Capital Markets and Transparency Supervision at the Dutch Authority for Financial Markets (AFM), Paul-Willem van Gerwen, shared his opinion on the crypto derivatives trade at the Amsterdam Propriety Traders Managers Meeting.
• Van Gerwen highlighted, that despite (or perhaps because of) the market’s rising interest in crypto derivatives trading, the AFM regards “such trade as entailing risks” and considers this market to be less mature than other derivatives markets. A specific problem arising from the volatility of the crypto products, according to van Gerwen, leads to a question of whether “the parties to the derivative transaction will be in a position to fulfill their promises.”
• Hence, the AFM believes that operations with crypto derivatives should be restricted to the wholesale trade. The official acknowledged that, unlike its British counterparts from the Financial Conduct Authority (FCA), the AFM has not banned such trade, but alluded that it surely might do so:
• “Don’t get caught up in the excitement of this trading, don’t let yourself be tempted into retail trading.”

Axie Infinity’s Discord bot compromised, hackers issue fake minting message

• Axie Infinity, the popular play-to-earn nonfungible token (NFT) game, faced another attack on its Discord server earlier on Wednesday, leading to a compromise of its MEE6 bot.
• MEE6 is a popular discord bot mainly used for automating roles and messages and is used by numerous crypto projects. The attackers used the compromised bot to add permissions to a fake Jiho account and later issued a fake announcement regarding a mint.
• The developers managed to remove the compromised MEE6 bot from the main server and deleted the fake messages as well. However, the official Twitter account of the project warned that many users might still see the fake message until they restart their Discord.
• The developers also claimed that the compromise of MEE6 is not a new phenomenon and many projects have faced similar issues. However, the official MEE6 Discord support channel denied allegations of a hack and claimed they have verified with their engineers and didn’t see any unusual activity.

The Lightning Network Lunch: A Bitcoin contactless payment story

• The Lightning Network (LN) just got a bit faster, as the suitably named Bolt Card now enables Bitcoin (BTC) enthusiasts to pay for goods and services using contactless technology. 
• A data analyst at the company behind the card, CoinCorner, took the Bolt card on a trial run on the Isle of Man, a British Crown dependency in the Irish Sea. “MSW” — as he is known — tapped to pay at more than eight point-of-sale (PoS) devices during his lunchtime investigation.
• It worked like this: For any PoS device showing a Lightning invoice, MSW simply hovered the NFC-enabled Bolt Card nearby. In total, MSW 20 paid for 20 breakfasts, lunches, drinks and snacks using the LN prior to the Bolt Card’s release.

Nifty News: Robinhood to launch a Web3 wallet, LimeWire inks deal with Universal and more

• Popular trading platform Robinhood is creating a noncustodial crypto wallet that will be compatible with multiple blockchains.
• The wallet will be a standalone application with the ability to store nonfungible tokens (NFTs) and connect to NFT marketplaces. A promo video released for the wallet shows a demonstration using Ethereum-based NFTs.
• The app is a significant step for the company in providing crypto services. Prior to January 2022, trading crypto on Robinhood was a closed system with users unable to withdraw cryptocurrency.

South Korean legislature considering new licensing system for crypto

• A report commissioned by South Korea’s federal government recommends the domestic crypto industry adopt a licensing system for exchanges and token issuers as a way of protecting investors.
• The report issued by the Financial Services Commission (FSC) to the National Assembly, the country’s legislature, also calls for new regulations to mitigate insider trading, pump-and-dump schemes and wash trading.
• The new regulations would be stricter, and the penalties for failure to comply would be harsher than those in the Capital Markets Act that the domestic crypto industry currently abides by.
• “The Comparative Analysis of the Virtual Property Industry Act” report obtained exclusively by Korea Economic Daily on Tuesday reveals a recommendation to establish a licensing system that would apply to coin issuers such as companies that operate initial coin offerings (ICO) and crypto exchanges. Varying degrees of licenses would be issued based on the risk involved.
• Regulating coin issuers through a robust licensing system is considered to be the “most urgently needed protection” in the market today. That position may be underscored by the untimely market crash sparked by the fall of the Terra project, whose South Korean founder Do Kwon may find himself called before the National Assembly to explain what happened.