Welcome, and thank you for being part of the MyZucoins community! Let’s get into an interesting piece of crypto, finance, or tech news to stay ahead.
Honest State Of The Traditional Crypto Industry
You probably won’t see an article like this in the mainstream crypto news.
But it’s one you need to read to get a real sense of things, from a different height.
It’s the sort of thing we look at regularly to connect the dots on potential scenarios in the crypto industry.
Buckle up.
Peter, one of our loyal readers, recently reached out to us with a video that he believed would be of solid value to the Zucoin community.
Here’s a snippet from his email:
“I came across this video and thought it might be relevant for us, the Zucoiners. It could help explain the prudence Zucoins is exercising when listing on platforms and why, in comparison, we are all eagerly awaiting Zutopia.”
With Peter’s recommendation in mind, we delved into the video to provide a comprehensive review for our fellow Zucoiners.
MyZucoins and indeed the team at Zucoins, are working to counter and provide solutions for many of these issues and effects, in a very different way (as we regularly cover in these newsletters).
False Safety Of Cryptocurrency Exchanges: Murky Waters Of Trust And Transparency
In the bustling world of cryptocurrency, trust is paramount.
Yet, as the digital landscape expands, so do the shadows that cast doubt on the platforms where we trade and store our digital assets.
The recent collapse of the FTX exchange was a stark reminder of the vulnerabilities inherent in centralized systems, intensifying concerns about the safety of other exchanges.
Amidst a whirlwind of online rumors, skepticism, and outright fear, it’s essential to separate fact from fiction and tread with caution.
Understanding “Proof Of Reserves”
Imagine walking into a bank and asking the manager to show you all the money they claim to have.
In the world of cryptocurrency exchanges, this is called “Proof of Reserves.”
It’s a digital mechanism allowing exchanges to demonstrate they possess the coins or tokens they claim.
If an exchange hesitates or fails to provide this proof, it’s akin to a bank admitting a shortage of funds—a glaring red flag for any investor.
However, even this “proof” can sometimes be misleading, with some exchanges using creative accounting or other tactics to present a rosier picture than reality.
“The PoR relies on a snapshot of assets at a given date. This means that, even if properly executed, the picture drawn by PoR is only valid at a specific point in time; this ignores what might have happened before and after that point.”
For example, some exchanges appear to be pooling together resources as needed to prove their reserves equal a total, moving assets around to each other when it’s their turn.
Major accounting firm PWC released a great report on this, check it out here.
What’s more, Proof of Reserves is only a recently implemented mechanism, gaining popularity since FTX’s collapse in 2022, that many exchanges still don’t publicly provide.
Coinbase: Gold Standard Or Wobbly Frame?
Coinbase, often likened to the popular kid in school that everyone knows and trusts, stands out in the crypto community.
It’s the only cryptocurrency exchange platform listed on a significant global stock index, a testament to its transparency and reliability as a publicly traded company.
This listing mandates rigorous openness about their financial dealings.
Instead of relying on the typical “Proof of Reserves,” Coinbase has its financial books meticulously checked by top-tier accounting firms.
Coinbase has gone to great lengths to correct the wild-west image of the emerging crypto industry, by building trust and developing great products, and they’re doing great work.
Yet, even with such efforts, there’s an undercurrent of doubt held by some.
Are there undisclosed liabilities or off-the-books transactions?
In Coinbase’s original public stock offering document, they listed all kinds of risks that everyday crypto users never think about, including exposure to power outside of their control.
We’ll get into those next.
Binance: Pioneer Facing Tons Of Headwinds
The star of the hype-crazed crypto world, Binance, currently finds itself in turbulent waters.
Engulfed in legal challenges and facing scrutiny from multiple fronts, Binance’s journey has been tumultuous.
Their commitment to transparency remains unwavering, but the shadows of doubt persist.
With so many challenges, can users truly feel secure?
We cover the topic of Binance here regularly, as it’ll affect a huge number of crypto users and the wider industry if their business goes horribly wrong.
Binance exchange executive indictment recommended by Brazilian committee.
World’s biggest crypto exchange, Binance, is melting down?
Risky business – The dangers of many crypto exchanges.
Binance exchange’s UK setback.
Binance faces massive withdrawals amid SEC charges.
Tether: Gigantic Danger Hidden In Plain Sight
Tether (USDT) is a stablecoin, meaning it is designed to maintain a 1:1 peg with a government’s own backed currency—their local “fiat” currency.
In this case, Tether is expected to be backed 1:1 with the U.S. dollar.
One US dollar should give you one Tether USDT and vice-versa.
Stablecoins are often used as a middleman token to swap between a person’s local currency and a cryptocurrency.
However, there have been concerns and criticisms about Tether’s stablecoin for several years, centering around a few key issues.
Even though Tether has done a great job spreading crypto adoption around the world, some serious risks keep popping up about the stablecoin.
Lack Of Transparency
Critics argue that Tether has not been fully transparent about its reserve holdings.
Tether claims that each USDT token is backed by one U.S. dollar, but there has been limited trustworthy, independent verification to confirm this.
Regulatory Scrutiny
Tether has come under continuous investigation by regulatory bodies around the world.
For instance, the New York Attorney General’s office reached a settlement with Tether and Bitfinex (a sister company), in 2021, requiring them to pay $18.5 million for misrepresenting the degree to which USDT was backed by fiat collateral.
Systemic Risk
As one of the most widely used stablecoins, Tether plays a significant role in the cryptocurrency ecosystem.
If Tether were to collapse or face severe regulatory action, it could trigger a major crisis in the wider cryptocurrency market.
Potentially, the biggest the crypto world has ever seen, far eclipsing the collapse of Terra’s or FTX’s tokens in recent years.
Tether is the most actively traded digital token in the crypto space—yes, bigger than Bitcoin.
“Although Tether’s market cap is lower than Bitcoin’s and Ethereum’s, it is currently the most actively traded crypto asset in the world. On 5 May 2023, Tether’s daily trading volume is listed at $22.4 billion USD, notably higher than Bitcoin’s trading volume of $15 billion.”
Financial Audits
Tether has not undergone a full financial audit by a reputable, independent accounting firm.
Instead, the company has provided attestations, which are considered to be less rigorous.
Diversified Reserves
Although claiming to be backed 1:1 by U.S. dollars, it was later revealed that Tether’s reserves mostly include assets other than fiat money, which could introduce additional risks.
“In May 2021, Tether published a report showing that 2.9% of Tether was backed by fiat USD, with over 49.6% backed by commercial paper, and the remaining amount backed by other assets. Tether Limited continues to refuse to allow an independent audit to verify its claims of full backing.” (source)
This spread changes, as it has in recent times, with Tether buying US government treasury bonds, gold, and Bitcoin to back its own stablecoin.
“According to the consolidated reserve report, signed by accounting firm BDO Italia, Tether’s total assets at the end of March stood at $81.8 billion, the majority of which are in US Treasury Bills.” (source)
Tether’s come a long way to improve the stability of its stablecoin, but the lack of transparency shows the items Tether has backing its crypto token are not a 1:1 fiat currency swap, but are in assets that would need to be liquidated.
If things swing quickly, Tether could get caught out.
Odd Behaviour With Alternative Blockchains
The amount of Tether on the Tron blockchain has exceeded the amount of Tether on Ethereum.
To many, this seems odd.
Some have reasoned this could be due to factors like Ethereum’s high fees.
However, there could be more to it.
Remember Terra—the stablecoin which spectacularly collapsed in 2022?
Tron’s own stablecoin has many potential flaws that are similar to Terra’s stablecoin.
Is Tether attempting to issue more of its own stablecoin token to balance the books, moving to a blockchain platform that allows for things like this to happen more easily?
Of course, this is just an outsider’s thoughts wandering, looking at various reports.
Or, is Tether aiming to be a new global currency?
Tether hit a milestone of 60% of all stablecoins in circulation.
If so, that’s great news for Tether, but if things go south, it would be disastrous for all cryptos exposed to Tether.
Tether is currently one of the main vehicles to get local currencies on and off crypto exchanges.
It’s even traded more often than Bitcoin.
The Tether team has done tons of work to improve the stablecoin’s situation in recent years, but until transparency improves, it’s worth being cautious about it.
Australia prepares to regulate digital asset platforms, including exchanges
Binance exchange executive indictment recommended by Brazilian committee.
World’s biggest crypto exchange, Binance, is melting down.
Risky business – The dangers of many crypto exchanges.
Coinbase’s SEC clash and Crypto.com’s internal trading concerns.
Signaling the transition from a ‘Wild West’ mentality to a more regulated future.
Zucoins, Zutopia, And A Different Path To Wider Adoption
The allure of cryptocurrency is undeniable, but the world of centralized exchanges is fraught with risks.
There are all kinds of considerations that the Zucoins team goes through when making decisions.
Building Splitchain is a long-term vision, not a short-term flash-in-the-pan.
Splitchain is solving the hardest problems in the crypto industry, to make the technology useful and usable every day.
Misleading reporting, potential hidden liabilities, and the ever-present threat of hacks make treading with caution and knowledge imperative.
The less exposure Zucoins has to this, the better.
Many exchanges should be approached with skepticism, by default.
Exchanges should fight to win your trust.
While exchange platforms like Coinbase, OKX, Bybit, and Binance have worked to improve their transparency and security, the golden rule remains: The safest place for your crypto is in self-custody.
This means managing your own crypto in your own self-managed wallet.
This is how the Zucoins wallet itself works, for good reason.
In the ever-evolving world of cryptocurrency, being informed is not just an advantage—it’s a necessity.
The space is moving fast and full of chaos, as all new industries typically evolve.
Traditional crypto players are going through a rough period.
Institutions are moving in, aiming to provide stability to connect parts to their traditional systems.
They could drive a resurgence in digital ledger systems, but only after they’ve moved in pushing what seems to be mostly centralized solutions.
Real solutions to the issues with crypto systems are needed.
Most are currently looking at short-term fixes.
Institutions know this and are playing on the flaws within traditional crypto systems.
Current approaches with traditional blockchains are continually adding more complexity and patches in an attempt to fix underlying system architecture flaws.
Splitchain is designed to solve numerous issues from the ground up.
That’s the goal and the team will keep soldiering on to create a system unlike any other, hitting more milestones along the way, adding to their long list of completed achievements.
The world of cryptocurrency is a blend of vast potential and intricate challenges.
In response to these challenges, Zucoins is meticulously crafting its journey with the introduction of the Zutopia marketplace.
Zutopia isn’t merely another platform in the vast sea of crypto exchanges—it represents Zucoins’ vision to provide a balanced, transparent, and safer environment for its users.
However, Zucoins recognizes the importance of established crypto exchanges in expanding its market reach and driving adoption, but it’s got to be done carefully.
A collaboration with a specialized consulting group has been initiated to navigate this complex landscape and ensure Zucoins finds its rightful place on the most reputable exchanges.
This group’s expertise lies in evaluating and integrating cryptocurrencies into leading exchanges.
Their involvement is a testament to Zucoins’ strategic approach—ensuring a broad market presence while maintaining the integrity and trustworthiness of the coin.
In the grand scheme of things, Zucoins is not merely adapting to the existing crypto ecosystem but is proactively shaping its future trajectory.
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All the best,
Peter & Rob
MyZucoins
Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.