• The U.S. government recently announced plans to backstop deposits at two failed banks, and also pledged to secure 8% of the collateral for the USDC stablecoin.
• Circle CEO Jeremy Allaire discussed emergency measures his company took, as well as their game theorizing to spread out its cash and turn stablecoins into “straight-through government obligation money”.
• Stablecoins may be a bridge between crypto and the real economy, but should also retain some of the aspects that make crypto unique.
The Banking Crisis Has Been Good for Stablecoin Experimentation
U.S. Government Bailout Benefits Circle
The U.S Treasury Department, Federal Reserve and FDIC recently announced plans to backstop all deposits at two failed banks, which was good news for Circle, who were working overtime last weekend while USDC depegged from the U.S Dollar. In an episode of “Bankless” with host Ryan Sean Adams, Circle CEO Jeremy Allaire discussed how his company took emergency measures during this crisis and how they have played serious game theorizing over the past two years to spread out its cash reserve assets at about six banks in order to eventually turn stablecoins into “straight-through government obligation money” in the future if necessary.
Stablecoins: Bridge Between Crypto & Real Economy
Stablecoins are becoming increasingly popular tools due to their ability to act as a bridge between cryptocurrency and traditional financial systems by allowing users access 24/7 with a different transaction settlement mechanism than fiat currencies often offer; this is why USDC is currently backed by 8% of its collateral from the U.S Government bailout plan mentioned above . However, these digital tokens must also be able to retain some unique aspects of cryptocurrency – like decentralization – in order for them to stay true to both worlds simultaneously without sacrificing either one’s characteristics too heavily in favor of another.
Circle Game Theorizing
Circle has been pushing forward on their game theorizing agenda in order to achieve their goal of turning stablecoins into “straight-through government obligation money” – meaning they will play a role similar CBDCs (Central Bank Digital Currencies). To do this they have been spreading out their cash reserve assets across multiple banking institutions so that if any one fails or experiences difficulty then it won’t affect USDC’s stability too drastically overall since it will still be supported by other banking partners accordingly.. This way users can continue using USDC without worrying too much about it being pegged or not due unforeseen circumstances beyond anyone’s control suddenly affecting its value significantly as has happened before when two banks recently failed despite having deposits backed up by governments previously like outlined above in regards to Circle specifically now taking advantage of this situation going forward with such innovative methods potentially revolutionizing cryptocurrencies even further than what we’ve seen thus far even before then!
Stablecoins may be the key link between crypto and traditional financial systems, but they will only truly thrive if they remain true both worlds – retaining some unique aspects that make cryptocurrency special while offering users 24/7 access and a different transaction settlement mechanism than fiat currency often offers simultaneously without sacrificing either world’s characteristics too heavily in favor of another. With companies like Circle continuing their game theorizing agenda towards achieving goals like turning stablecoins into “straight-through government obligation money” (functioning similarly CBDCs) through innovative means such as spreading out cash reserves across multiple banking institutions then perhaps we’ll see even more revolutionary changes come about within cryptocurrencies soon enough!
• U.S. President Joe Biden’s proposed budget, set to be unveiled Thursday, will include a provision to close tax loss harvesting on crypto transactions.
• The provision would be expected to raise up $24 billion and lower the U.S. deficit by $3 trillion over the next 10 years.
• In 2021, the Bipartisan Infrastructure Framework passed into law a controversial tax provision that would impose certain reporting rules onto brokers facilitating crypto transactions.
Biden Budget Plan Includes Crypto Tax Loss Harvesting Loophole Closure
U.S. President Joe Biden is set to unveil his budget proposal on Thursday which will include a provision to close the tax loss harvesting loophole on crypto transactions. This measure is expected to generate an additional $24 billion in revenue and reduce the U.S.’s deficit by $3 trillion over the next 10 years according to White House officials speaking with the Wall Street Journal.
What Is Tax Loss Harvesting?
Tax loss harvesting is a method of reducing one’s overall taxes by selling any cryptocurrencies at a loss and then claiming it on their taxes before repurchasing them again at potentially lower prices than when they were sold off originally, resulting in a net profit after taxes are paid for those involved in such activities.
Infrastructure Investment & Jobs Act
In 2021, the Bipartisan Infrastructure Framework was passed into law as an Infrastructure Investment and Jobs Act which included a controversial tax provision that would impose certain reporting rules onto brokers facilitating crypto transactions, effectively narrowing down its definition of “broker” from what many in the industry deemed overly broad due to it encompassing miners as well as other types of entities not directly involved in transaction facilitation or personal information collection for taxation purposes .
Passage Through Congress Necessary For Finalization
Any budget proposal must pass through both chambers of Congress before being sent back for presidential signature before becoming fully enacted into law; however, lawmakers have already introduced bills aiming at closing this particular loophole even prior to its inclusion in this budget proposal put forth by President Biden..
The inclusion of this measure within President Biden’s proposed budget further highlights his administration’s desire towards greater regulatory oversight within cryptocurrency markets while simultaneously attempting to reduce government deficits caused by large-scale spending plans like infrastructure investment packages through increasing revenue sources such as these targeted taxation measures against certain cryptocurrency trading practices like wash sale trading via tax loss harvesting schemes
• Voyager Digital conducted a single due diligence call with Three Arrows Capital prior to the latter’s bankruptcy filing.
• The call resulted in a one-page net asset value statement that estimated 3AC’s NAV at $2.4 billion.
• Several crypto firms reported substantial losses due to 3AC’s bankruptcy, including Genesis Global Holdco, Celsius Network and BlockFi.
Voyager Digital and Three Arrows Capital
Court documents filed Tuesday show that just weeks before filing for bankruptcy protection, crypto hedge fund Three Arrows Capital (3AC) sent lender Voyager Digital a one-page net asset value (NAV) statement. A single due-diligence call was conducted between the two firms on February 28th, 2022, and lasted either 30 minutes or an hour depending on who was interviewed.
The document dated May 13th, 2022 gave Three Arrows Capital’s NAV as just under $2.4 billion and revealed the level of due diligence carried out by Voyager Digital with regard to the hedge fund’s financial standing prior to its filing for Chapter 15 bankruptcy in New York on July 1st.
Genesis Global Holdco reported that its Asia-Pacific unit had lent 3AC $2.4 billion in cash and digital assets, while Crypto lender Celsius Network cited loans worth $75 million and BlockFi also said it suffered “material losses” from the bankruptcy because 3AC was one of its largest borrowers. During interviews conducted by court personnel it became apparent that none of these parties had any background in credit risk management or performed any stress testing of 3AC’s liquidity prior to extending their loans to them.
Loan Portfolio Impacted
The loan extended by Voyager accounted for almost 58% of its loan portfolio and totaled $654 million; leading to further financial troubles when 3AC declared bankruptcy shortly afterwards. This caused a wave of collapses among other crypto firms whose investments were bound up with those made by Voyager Digital into Three Arrows Capital’s NAV statement prior to their downfall.
These court documents provide insight into the extent of due diligence undertaken by Voyager Digital when considering an investment into Three Arrows Capital’s NAV statement back in May 2022; which ultimately proved insufficient when it came to protecting against such significant losses upon the hedge funds subsequent bankruptcy declaration three months later in July 2022