Decentralized finance (DeFi) oracle Umbrella Network, which acts as a bridge between smart contracts and off-chain data feeds, is shifting its base from Ethereum to relatively low-cost smart contract platform Binance Smart Chain (BSC).

“Integrating with BSC offers Umbrella multiple advantages when compared to working on other platforms, including transaction fees that are over 90% lower than what is incurred on Ethereum,” the company said in an announcement on Monday. “For example, while the Ethereum transaction to get a data point onchain might cost $50, that same transaction might only cost 50 cents via BSC.”

So, with the BSC integration, Umbrella Network can run frequent data updates and provide the most current price for smart contracts using its feeds.

BSC has been on a tear of late, having surpassed Ethereum in daily unique active wallets and transaction count early this year. Ethereum has become a victim of its own success, with record activity leading to network congestion and high transaction costs and increased demand for rival blockchains, layer 2 sidechains.

On Saturday, BSC processed 7.3 million transactions, nearly six times greater than Ethereum’s tally of 1.42 million, according to data source BscScan.com.

Per DeBank, PancakeSwap, the top BSC-based decentralized exchange, now has a total value locked of nearly $10.4 billion, making it bigger than the top three Ethereum-based DeFi protocols – Uniswap, Compound and DeFi.

“From our first product roadmap, we have planned to integrate into BSC, and the timing couldn’t be better, given the platform’s exploding ecosystem,” Umbrella’s founding partner Sam Kim said.

Some researchers have recently voiced concerns about possible centralization on BSC, as the smart contract platform relies on just 21 validators selected daily to approve transactions. Meanwhile, ether (ETH, -1.71%) has more than 125,000 validators, data source BeaconScan shows.

Umbrella Network, however, said it is confident that the shift to the less decentralized BSC will facilitate faster decentralization of its own network.

“Lower operating costs on BSC will allow Umbrella to move faster toward its goals of full decentralization by giving more members of the community the opportunity to participate as validators almost immediately,” Kim noted in the press release. “On Ethereum, that network’s prohibitive costs required node operators to have large capital bases to operate effectively.”

The oracle network plans to use the savings generated from the shift to BSC to deepen its data library. “The low-cost structure enables Umbrella to add more data points to the industry-leading 1,000+ data pairs already available via the Umbrella Network,” Kim said.

The migration kicks off Umbrella’s “BSC Month” event, during which the oracle network will announce new partnerships with more than 10 BSC-based projects, beginning this week with the first three: Smoothy, BlockBank and UnoRe.

In addition, Umbrella Network recently signed partnerships with cryptocurrency exchange Huobi, and Asia-based infrastructure provider HashQuark. In the future, the project envisions interoperability with other layer 1 platforms, including Avalanche, Solana, Polkadot and others, according to the press release.

After spending most of the day in negative territory, cryptocurrencies made a late surge on Friday with bitcoin hitting its highest level since mid-May. Bitcoin is currently trading above $41,000 at press time and is up more than 15% over the past week. Bullish sentiment has returned after a sharp sell-off in May and two months of consolidation above the $30,000 support level.

Some analysts are optimistic and expect buyers to remain active above the 50-day moving average, which is above $34,000 now.

Latest prices

Cryptocurrencies:

• Bitcoin (BTC) $41239.73 +3.66%
• Ether (ETH) $2439.5, +4.58%

Traditional markets:

• S&P 500: 4395, -0.54%
• Gold: $1813.5, -0.8%
• 10-year Treasury yield closed 1.236%, compared with 1.274% on Thursday.

“We have been talking about the market having lower liquidity during the summer for a few weeks now and we think this helps explain the sharp price action we saw that triggered the short squeeze of nearly $1 billion in futures liquidations,” David Grider, a strategist at FundStrat, wrote in a Thursday newsletter.

Grider stated that bitcoin’s spike could reflect a flight to safety from Chinese investors looking to “get out at any cost,” given the recent sell-off in Asian equities. “Bitcoin could have been trading as a proxy tool for investors looking for a hedge,” Grider wrote.

Next Fed rate-hiking cycle might be shallow

Federal Reserve Chairman Jerome Powell assured markets this week that the U.S. central bank is considering when to start winding down its program of purchasing $120 billion in bonds every month, but Wall Street analysts are already wondering what will come after that.

According to Bank of America, the Fed may not get around to raising interest rates anywhere close to the levels that were considered normal historically, anytime soon. That implies that monetary policy could stay loose for years, even after the Fed stops actively printing money to pay for the purchases of U.S. Treasuries and mortgage bonds. 

The dynamic might be bullish for bitcoin, because many investors see the cryptocurrency as a hedge against the inflation and dollar debasement that might come from easy-money policies. 

A similar shallow tightening pattern was seen toward the end of 2018, when the Fed pushed the benchmark interest rate up to around 2.5%, traditional financial markets went into a swoon, and by early 2019, the central bank had reversed course and started cutting rates again. 

According to the Bank of America analysts, bond market investors may already be anticipating the dynamic, which may explain why 10-year U.S. Treasury yields are at historically low levels of around 1.2%, well below the most-recent annual inflation rate of 5.4%

“We think the level of rates in the U.S. reflects a market expectation that the Fed will produce only a shallow hiking cycle,” the analysts wrote.

Bitcoin active entities

The active entities of bitcoin have surged over the last week, rising 30% to 325,000 active entities per day, according to Glassnode. The number has been in decline from January to mid-July. 

Entities refer to “a cluster of addresses that are controlled by the same network entity and are estimated through advanced heuristics and Glassnode’s proprietary clustering algorithms,” according to Glassnode. Active entities include those active either as a sender or receiver.

Ether resistance levels

Ether, the world’s second largest cryptocurrency, faces resistance near $2,500, where resistance is defined by the 100-day moving average. Ether is up about 10% over the past week and rallied nearly 30% after holding support at $1,720 on July 20. Lower support is seen at $2,000, which could stabilize a pullback.

Ether is consolidating relative to bitcoin and is on traders’ watch for a potential breakout. The ETH/BTC ratio has initial support at 0.054, which must hold in order to keep ETH’s relative uptrend intact.

Altcoin roundup

Flow soars: Flow, a token powering a blockchain network focused on non-fungible tokens (NFT), surged in price after the big cryptocurrency exchange Binance said Friday it would list the project. Binance said at 7:00 UTC (3 a.m. ET) that it would list the FLOW token; since then, the price has rallied 61% to $29 from $18. On a 24-hour basis, the cryptocurrency is up 30%.

Framework to Regulate Crypto, Stablecoins: Legislation before Congress to provide a “comprehensive legal framework” to regulate the digital asset market and possibly grant the federal government the ability to ban some stablecoins was introduced in the U.S. House of Representatives Wednesday. According to sponsor Rep. Don Beyer (D-Va.), chairman of the U.S. Congress Joint Economic Committee, the existing digital asset market structure and regulatory framework are too “ambiguous and dangerous for investors and consumers.”

Six Dapps to Go Live on SKALE: Ethereum scaling project Skale has announced which decentralized applications (dapps) will first go live on its network. Skale Labs CEO Jack O’Holleran told CoinDesk that teams will be releasing their dapps between now and the end of this summer. Boot.Finance, Covey, CurioDAO, Human Protocol, Ivy and Minds are the projects in the initial cohort. rm.

Relevant News:

Other markets

Most digital assets on CoinDesk 20 ended up higher on Friday. 

Notable winners of 22:45 UTC (6:45 p.m. ET):

chainlink (LINK) +14.73%

uniswap (UNI) +6.17%

tezos (XTZ) +3.76%

Notable losers:

the graph (GRT) -1.91%

algorand (ALGO) -1.19%

cardano (ADA) -0.04%

The New York State Department of Financial Services (NYDFS) is launching an initiative to promote diversity, equity and inclusion (DEI) in the banking and crypto industries. 

According to an industry letter published by NYDFS Superintendent Linda Lacewell on Thursday, under the initiative the department plans to collect and publish data from New York’s regulated banking institutions, non-depository financial institutions and virtual currency service providers that reflects the diversity of their corporate boards and management.

The issue of diversity in the crypto industry made headlines last year against the backdrop of nationwide Black Lives Matter protests, when the CEO of the U.S.-based cryptocurrency exchange Coinbase, Brian Armstrong, announced the exchange was taking a stance against employee-driven social activism. Within a month, 5% of its employees accepted a severance package. Later in the year, the New York Times published a lengthy report revealing racist and discriminatory treatment of African American employees in the company followed by another report that claimed the company paid women and minorities well under the tech industry average. 

Having considered a number of possible actions, the NYDFS determined that publishing management diversity data is the best way to support the finance industry’s diversity efforts, Lacewell explained in the letter.

“Given the limited availability of banking and non-depository financial institution-specific diversity data, making that information public will allow companies to assess where they stand compared to their peers and raise the bar for the entire industry,” Lacewell said. 

The letter also said the data will be collected in the fall of 2021 via a survey, and its results are to be published in the first quarter of 2022, categorized by the type of institution and other factors.  

NYDFS stepping in

In Thursday’s letter, Lacewell made it clear that applicable financial institutions will be required to participate in the upcoming NYDFS diversity survey. 

“Under Banking Law §37(3) the Superintendent may require any banking organization to make special reports to her at such times as she may prescribe,” the letter said. 

The letter explains the DSF will collect data from New York-regulated banking institutions with more than $100 million in assets and all regulated non-depository financial institutions with more than $100 million in gross revenue. 

The revenue threshold does not appear to apply to crypto entities, but the diversity survey will also seek to collect data from all authorised virtual currency service providers including “BitLicensees” and virtual currency trust companies, according to the letter.  

All qualifying institutions will provide data “related to the gender, racial and ethnic composition of their boards or equivalent body and senior management as of December 31, 2019 and 2020, including information about board tenure and key board and senior management roles.” 

This includes Coinbase, Genesis Global Trading, Paxos and others. (Genesis is a CoinDesk sister company.)

A timely response

The NYDFS letter, which included diversity statistics for institutions in the banking and crypto industries noted that female participation in the cryptocurrency community is very low.  

“The percentage of women in the sector, including developers, investors and interested individuals, usually hovers between 4% and 6%,” the letter said, citing data from crypto statistics and services platform CoinDance from 2018. 

That figure has since improved slightly: In 2020, engagement in the bitcoin (BTC, -4.8%) community by gender was 86% male. The letter adds that 92% of venture-backed cryptocurrency and blockchain companies founded around the world from 2012 to 2018 had a founding team that was entirely male, compared to the tech industry standard of 82% for that same period. 

On Thursday, as the NYDFS letter was published, the Black Women Blockchain Council (BWBC) a global benefit organization that aims to improve inclusion in the industry, announced it has partnered with ConsenSys to launch a global initiative to train 500,000 black female blockchain developers by 2030.  

According to Olayinka Odeniran, founder of BWBC, of the small number of software developers who are specifically focused on blockchain, a smaller percentage are part of the African diaspora, and an even smaller percentage are females. 

“We wanted to increase that number because we believe that being able to participate as a creator, as opposed to a consumer, is going to greatly benefit our community,” Odeniran said. 

According to the new partnership, BWBC and ConsenSys will be launching specialized programming for black women in blockchain by 2022. The details of the training programs and courses are still in the works, Odeniran said.  

Odeniran commended the NYDFS for taking steps to hold institutions accountable for what they say. 

“While the public statements from Regulated Banking Institutions and Regulated Non-Depository Financial Institutions in support of DEI initiatives are significant and necessary, it is time to act on those words and make good on good intentions to begin to achieve real change,” the letter said. 

As BWBC’s own initiative takes shape, Odeniran is not sure how the industry will respond to the diversity survey. 

“I think it’s a good attempt. Now, whether or not organizations will take it seriously, that’s up to those organizations,” Odeniran said. 

Yele Bademosi, the founder and CEO of the Nigeria-based crypto payments app Bundle Africa, is stepping down as the head of the company. 

Bademosi announced his decision to step away from his current role, effective today, in a blog post on Friday. He wrote that he intends to focus on driving digital currency adoption across Africa. He will be succeeded by Binance Africa director Emmanuel Babalola, at least on an interim basis.

“My focus for the next 12 to 18 months is really building infrastructure that can allow the inflow of capital to support innovation beyond the buying and selling of crypto,” Bademosi told CoinDesk. 

Bundle Africa launched last year with backing from global cryptocurrency exchange Binance, which contributed $450,000 in seed funding for the creation of the payments app. According to Bademosi, the app has about 350,000 users now. Bademosi, who grew up in Nigeria, was a former director of Binance Labs before creating Bundle. 

Babalola is not only familiar with Africa’s crypto market. but he also knows how to navigate the global crypto sector comfortably, Bademosi said of his successor.

“[Babalola] is someone that I trust because we have the same mission and values, and I basically can’t imagine anybody else taking over,” Bademosi said. 

Bademosi did not specify his future projects, but said he has seen a lot of innovation in Africa’s crypto market in the last few months and there is a lot of room for innovation in social tokens, non-fungible tokens and peer-to-peer payments. 

“I’m very excited,” Bademosi said. 

In a potentially hugely disruptive move, a last-minute provision of a major bipartisan infrastructure bill moving through the U.S. Congress would impose stricter reporting requirements on cryptocurrency transfers, which the bill estimates would raise an additional $28 billion in tax revenue.

But the legislation, according to at least two crypto-regulatory experts, is so badly flawed it might be unenforceable. Specifically, the rule as written appears to define any actor who participates in a transfer of cryptocurrency as a “broker.” That could impose transaction reporting requirements on a strange array of players, including miners and decentralized exchanges.

This article is excerpted from The Node, CoinDesk's daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here. 

The creators of software wallets could even be required to track and report user transactions, according to both crypto lobbyist Jerry Brito of Coin Center and Blockchain Association head Kristin Smith. Software and hardware crypto wallets, of course, do not track or report user transactions, which would make the law impossible to comply with.

The disconnect highlights the shaky foundations of U.S. attempts to tax or regulate crypto. There are at least two separate bills in the House of Representatives attempting to establish basic definitions, jurisdictions and standards for crypto regulation. Having those in place before trying to rush through a poorly conceived tax might have been a good idea.

The case of software wallets is illustrative. They’re fundamentally tools for interacting with a database, not tremendously different from a web browser. They are not services, any more than your leather wallet is a “service” for holding dollar bills. There is in fact no “service” managing bitcoin (BTC, -4.8%) or any other legitimate cryptocurrency, a fact that fundamentally clashes with the regulatory framework legislators are trying to shove it into.

These flaws are particularly worrisome because the measure has been introduced as a revenue-generating element of the much larger bipartisan infrastructure bill, creating a rushed environment with little margin for subtlety or revision. On Twitter, Brito described the bill as “must-pass,” and said that Coin Center staff “worked all day [Wednesday] trying to fix” the measure, and continued into Thursday. The good news is the bill is still in process, so there’s at least the possibility for things to change.

Aside from their technical shortcomings, the new tax rules lean on near-universal monitoring and automated reporting, rather than on a privacy-protecting system of voluntary reporting, with investigation and enforcement for those who break the law. This potential law, much like the new European money laundering rules introduced this month, would likely create huge honeypots of personal and financial data to be targeted by hackers – including your data, whether you sought to evade taxes or not.

The sins of this poorly designed tax, though, shouldn’t be laid at the feet of taxation as a whole: Strange as it may seem, cryptocurrency development has been advanced to a huge degree by investments funded by past tax revenue. SHA-256 cryptography was developed by the National Security Administration. The internet itself was created largely by the Defense Department’s DARPA (Defense Advanced Research Projects Agency) program. David Chaum, one of the 10 or so most important pioneers of digital cash, earned a PhD at University of California, Berkeley in the 1970s, when public funding kept tuition costs to about $800 a year.

Most world-transforming innovations rely on a similar level of collective support, because basic or speculative research is usually not profitable fast enough for the private sector to invest in. So there’s nothing inherently objectionable about crypto being expected to give back to support the next generation of innovators. But the current rushed and technically flawed approach could significantly harm the very innovation that took so many years and resources to bring to life in the first place.

How decentralized, really, is DeFi? 

That’s a question sparked by Uniswap’s move to restrict investor access to certain tokens on its platform, seemingly in response to threats from regulators, and the topic of our column this week. We also explore the relationship between bitcoin (BTC, -4.8%) difficulty and price and the meme fun that was had with Sen. Elizabeth Warren’s (D-Mass.) description of cryptocurrency developers as “shadowy super-coders.”

In our podcast this week, Sheila Warren and I were joined by my old friend and former CoinDesk colleague Noelle Acheson, who is now head of Markets Insights at Genesis, a CoinDesk sister company. The three of us picked apart a couple of prominent essays that were critical of Bitcoin and crypto assets. Have a listen after you read the newsletter. 

The crypto founder’s dilemma – DeFi edition

It’s a question you hear a lot from crypto outsiders: Why did Satoshi Nakamoto choose anonymity? Why not write your name into the history books as a contributor to the march of progress?

I can’t answer the question definitively, of course. I don’t have Satoshi’s ear – not that I know of, at least. (He/she/they may well be among the many Bitcoin OGs (original gangsters) I’ve spoken to over the years.) But I do know this: If Bitcoin’s inventor was an identifiable human being or group of human beings, it would not have been able to grow as it has. In fact, it may well have died shortly after its birth, much like e-Gold before it or Liberty Reserve after it.

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One can imagine state or federal regulators knocking on the fully identified Satoshi Nakamoto’s door and hitting him/her/them with a cease-and-desist order for running an unlicensed money transmission business. The Bitcoin founder could have protested, “The network is decentralized”/“neither me nor my fellow node operators hold custody of customer assets”/“it’s code, protected by the First Amendment.”  But the power of law enforcement at such times often means that nuances like that are lost. 

There’s a lesson here for the folks who built automated money maker Uniswap as well as for other protocol developers in the decentralized finance (DeFi) industry. 

Uniswap is a decentralized exchange. Unlike centralized crypto exchanges and wallets, it takes no custody of customer assets. In theory, it’s governed by a decentralized community, whose members use its native token, UNI (-2.61%), to coordinate voting on financial conditions and other elements of the system. 

But last week Uniswap Labs, the company that launched the protocol, announced it would limit trading in certain financial assets on its site. Citing “a shifting regulatory landscape,” the company restricted access to tokens that are synthetically linked to the value of stocks and other traditional financial instruments. The move came after U.S. Securities and Exchange Commission Chairman Gary Gensler warned that stablecoin tokens pegged to traditional securities may themselves constitute securities that are subject to its oversight. 

With this one outcome, DeFi is suddenly looking a bit less decentralized. 

For some time, DeFi advocates speculated that regulators who’ve found ways to impose anti-money laundering, know-your-customer and securities rules on centralized, custodial crypto exchanges and wallets such as Coinbase would run into a dilemma with decentralized exchanges because, supposedly, there is no one in charge for them to go after. But Uniswap’s quick response to a regulator’s public comment is a reminder this was an overly optimistic view. The protocol might be distributed, but if there’s an identifiable, centralized entity running the interface with that protocol, and it can be pressured to block access to it, the distinction seems moot. 

Regulatory test

It may still be that there’s a decentralization threshold beyond which regulators can’t or won’t intervene. Administration of a protocol’s governance could evolve to where it’s out of the hands of its founders and is guided by the decisions of its network, and so it escapes the scope of regulation. That’s kind of what SEC Director of Corporation Finance William Hinman said in a much-cited speech about Ethereum in 2019. 

If so, a big test of that idea may come with MakerDAO, the decentralized lending platform that runs the dai (+0.12%) stablecoin. In a blog post last week, founder Rune Christensen said the MakerDAO Foundation, which runs the lending system, will hand over control entirely to a decentralized autonomous organization (DAO), also called MakerDAO. 

As Christensen explained on our podcast recently, the founders quickly learned it was impossible to launch an entirely decentralized platform from the start. The decision-making of the foundation was needed for the system to run effectively at first, but the founders worked to build out the participation, liquidity and a structure that would eventually allow the protocol to run by itself. 

Whether the formal move in that direction now is enough to protect dai from the stablecoin regulation that is also expected to be forthcoming is another thing. Legislation to provide a “comprehensive legal framework” to regulate cryptocurrencies and stablecoins was introduced in the House of Representatives Wednesday.

It does look as if DeFi is now very much in the U.S. government’s crosshairs.

Hot on the heels of Gensler’s message and the Uniswap response, a new infrastructure bill that’s looking to raise tax revenue from crypto traders included decentralized exchanges and peer-to-peer marketplaces in its definition of the brokers from which information would be demanded.

As Anderson Kill lawyer and CoinDesk columnist Preston Byrne argued last week, the recent round of cease-and-desist actions by state-based securities regulators’ against centralized crypto lending platform BlockFi (see Relevant Reads below) may be a precursor to similar moves against DeFi. These agencies are viewing crypto interest-bearing products as investment contracts, and thus subject to securities laws, irrespective of whether they are offered by CeFi (centralized finance) or DeFi. 

This is not to say DeFi doesn’t pose legal or even moral challenges for regulators. Many have argued that regulators are crossing some fat red lines by going after the developers of open-source code if those developers are making that software available to others in an open, token-regulated system and not taking custody of users’ funds or assets. 

In other settings, software code has been recognized as a form of speech, protected by the First Amendment. And as Protocol Labs general counsel Marta Belcher has argued, some of these actions could constitute breaches of civil liberties based on invasions of privacy.

Still, law enforcement is coming. So, does that mean that the only solution is the Satoshi solution? Is the only way for a project to launch for the founder to use a pseudonym and stay in the shadows? 

Sadly, that option may also now be unavailable. 

As the Blue Kirby problem demonstrated, where a pseudonymous coder made off with investors’ funds, the market itself is now inclined to demand identity. It’s the best way for investors to protect themselves from a fraudulent founder. 

Satoshi’s genius move to build something outside of the glare of public view may have been a once-in-a-lifetime opportunity, available precisely because so few people knew about it and because, to start with at least, there was not much at stake in the way of dollar value.

To me, DeFi founders capture the same inventive spirit that Satoshi embodied. It would be a pity if regulators quash their ability to turn it into something valuable and lasting.

Off the charts: diving difficulty

Bitcoin difficulty, a measure of how much hashing power is needed to mine a block of bitcoin transactions, underwent its biggest drop ever earlier this month. The cause: the massive reduction in hashing power brought about by China’s crackdown against bitcoin mining in what was once the world’s leading region for such activity. 

The Bitcoin protocol automatically institutes an adjustment every 2,016 blocks, or roughly two weeks, to reflect changes in hashrate to maintain a more or less even spread of bitcoin issuance and reward distribution over time. 

As the chart below shows, the recent massive drop in difficulty came slightly after the sharp decline in price from bitcoin’s mid-April all-time high of $64,829. 

That’s a trend seen at other times of falling prices, as lower profitability can lead miners to shut down inefficient equipment, which lowers the hashrate, triggering difficulty adjustments. But if you look at the rising trend during the first part of the post-bubble price correction in 2018, you’ll notice that it’s not a lockstep function. It wasn’t until bitcoin took another leg lower in late 2018/early 2019, that miner profit margins were squeezed far enough to prompt hashrate and difficulty reductions.

In the latest case, despite the correlation, there’s also a strong case to be made that the price and difficulty adjustment relationship is at least partly coincidental. The China crackdown would have prompted a hashrate retrenchment regardless of price, though it’s also likely a decline in profitability accelerated the exodus by Chinese miners and dissuaded competitors from outside China from quickly jumping in to take their place. 

The bigger question is: What now? Well, the lower difficulty rate makes existing mining less expensive, which means there’s a new profit incentive to offset the loss of a lower price. So with bitcoin back around $40,000 after dropping below $30,000 a week ago, and with Chinese miners starting to relocate to new locations, some could argue that the bottom has been reached.