DeFi protocol Venus seeks to patch $270K hole from oracle incident

December 11, 2023 Coin Telegraph

What is fiscal policy, and why does it matter?

March 25, 2023 Coin Telegraph

Borrowing

Fiscal policy shapes economies through government spending, taxation and borrowing.

Fiscal policy is a tool used by governments to regulate economic activities in their country. It involves the use of government spending, taxation and borrowing to influence economic growth, stabilize inflation and maintain a stable economy. This article will explain what fiscal policy is, how it works, and why it is important.

What is fiscal policy?

Fiscal policy is a tool used by governments to regulate economic activities in their country. It is one of the two main categories of economic policy, along with monetary policy. The main goal of fiscal policy is to control the economy through government spending and taxation.

How does fiscal policy work?

The government has a number of ways to affect the economy through fiscal policy. One of the primary methods used is government spending. The government may boost economic activity and create jobs by raising spending, which will add more money to the economy.

Another way that fiscal policy works is through taxation. The government can boost disposable income, which in turn can boost consumer spending, by decreasing taxes. This could encourage economic expansion and boost activity.

Important old chart of mine.

Fiscal policy created inflation to a much larger extent than QE pic.twitter.com/zeT5jLqwVA
— AndreasStenoLarsen (@AndreasSteno) March 18, 2023

Finally, fiscal policy is also used for controlling inflation. If the government considers inflation to be a concern, it may raise taxes or cut spending, both of which could help to lower demand and limit inflation.

Why is fiscal policy important?

Fiscal policy is important because it can have a significant impact on the economy. By adjusting government spending and taxation, the government can influence economic growth, inflation and employment levels.

Stimulating economic growth

The promotion of economic growth is one of fiscal policy’s main goals. The government can promote economic activity and employment by raising spending. As a result, there may be an increase in tax collections and corporate and individual chances for growth in the economy.

Regulating inflation

Inflation control is another key responsibility of fiscal policy. When there is an excess of money chasing an insufficient amount of goods, inflation can result in price increases. The government can lower demand by altering expenditure and taxation, which can aid in reducing inflation.

Reducing employment

Furthermore, fiscal policy can be used to reduce unemployment. The government can promote economic activity and employment by raising spending. As a result, there may be less unemployment and more options for employment.

Managing debt

Fiscal policy can also be used to manage government debt. By adjusting government spending and taxation, the government can influence the amount of money it borrows. This can help manage the government’s debt levels and ensure that it is able to meet its financial obligations.

➡️ New: Legislature's personal income tax & corporate tax proposals would raise between $1.6 – $2.1 billion:

• Senate & Assembly income tax increase: $710M

• Assembly corporate tax increase: $1.2B for MTA & other transit

• Senate corporate tax MTA surcharge: $930M for MTA pic.twitter.com/zj4gYE319K
— Fiscal Policy Institute (@NYFiscalPolicy) March 16, 2023

Do cryptocurrencies have a fiscal policy?

Due to their decentralization and lack of centralized management, cryptocurrencies do not have a fiscal policy in the conventional sense. Yet the supply and demand of some cryptocurrencies may be impacted by the fact that they may have their own distinct monetary policies and rules written into their code.

For example, Bitcoin (BTC) has a fixed maximum supply of 21 million coins, which is hardcoded into its blockchain protocol. This means that no more than 21 million BTC can ever be created, and this limit helps to regulate its supply and demand.

Even though cryptocurrencies lack a traditional fiscal policy, the rules and protocols incorporated into their coding can nonetheless significantly affect their adoption and value. For instance, alterations to the supply or consensus algorithm of a cryptocurrency may have an impact on its security and scarcity, which may have an impact on its price and market demand.

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Expert Warns of Possible Deflationary Depression as Money Supply Contracts: ‘Pay Attention to QT and the Money Supply’

March 9, 2023 Bitcoin.com

Treasury Secretary Yellen Urges Swift Action to Increase Spending Limit, Avert Default on US Obligations

January 14, 2023 Bitcoin.com

Maple Finance 2.0 overhaul aimed at speeding up the defaulting process

December 14, 2022 Coin Telegraph

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The overhaul of the protocol, dubbed "Maple 2.0" comes only weeks after the platform saw two major defaults on the back of FTX's collapse.

Maple Finance is a decentralized credit market powered by blockchain technology. Instead of requiring overcollaterlization of loans, it instead allows managers, called “Pool Delegates” to issue loans from its lending pools based on a set of risk-management criteria, according to the protocol’s documents.

Introducing Maple 2.0.

Maple 2.0 is a fundamental overhaul of the smart contract architecture. The new contracts are modular and robust and will facilitate Maple bringing capital markets on-chain. pic.twitter.com/5GGsMXaXhv
— Maple (@maplefinance) December 14, 2022

However, in the wake of FTX's collap, the platform experienced two major defaults from borrowers on the platform.

On Dec. 1, algo trading and market maker Auros Global missed its payment of 2,400 Wrapped Ether (wETH) following Alameda’s demise, causing the loan to go into a five-day grace period. That grace period has since passed, and the borrower has begun to incur penalties, according to a post by lender M11Credit.

Days later on Dec. 6, crypto hedge fund Orthogonal Trading admitted to having been “severely impacted by the collapse of FTX,” prompting M11Credit to issue a notice of default on the funds $36 million of loans.

The new protocol overhaul, dubbed “Maple 2.0” will upgrade its smart contracts so that defaults such as these can be more quickly handled and settled by Pool Delegate.

Previously, loans could only be put into default if a borrower missed a payment and the grace period passed. This meant that collateral could not be liquidated even if the borrower admitted in advance that they couldn’t make payments.

In a blog post explaining the platform’s new features, Maple said that in the instance that a borrower meets a condition of default, a Pool Delegate will now be able to declare an early default, which will bring the loan payable immediately.

Furthermore, when a borrower doesn’t pay within the grace period, the Delegate can liquidate the loan — meaning all lenders within the pool can realize a loss immediately while recovery is pursued, it added.

The new version of Maple Finance also includes features meant to make quality of life changes to the lending platform.

Withdrawals can now be scheduled and prorated, and lenders can request withdrawals at any time, whereas previously they needed to wait a minimum of 30 days to withdraw after their deposit.

Pool delegates now provide First Loss Capital, making them the first to suffer in the event of a default. The Maple team believes this will more closely align pool delegates' interests with the interest of lenders.

It also introducing automatic compounding of interest so that interest earned is automatically reinvested into the pool, removing the administration of redepositing.

Other changes include the adoption of ERC-4626 standards, allowing for more decentralized finance (DeFi) integrations and partnerships, as well as improved data and dashboards.

Crypto lending platform Maple Finance has unveiled a major protocol upgrade aimed at making defaults and liquidation procedures less cumbersome in the wake of recent defaults.

DefiLlama founder moves to NFT lending to tackle liquidity constraints

October 10, 2022 Coin Telegraph

0xngmi

The anonymous creator, 0xngmi, has developed a new protocol allowing users to become liquidity providers for their nonfungible token collections.

According to a recent Twitter post by 0xngmi, the anonymous creator of decentralized finance (DeFi) project aggregator DefiLlama, the smart contract code for a novel nonfungible tokens (NFT) borrowing and lending protocol dubbed "LlamaLend" is near completion. The protocol aims to solve the problem of NFT holders needing to obtain liquidity when holding their digital collectibles and primarily targets small NFT collections.

The project's LlamaLend GitHub page explains: "If a holder needs liquid money because a good opportunity has appeared, all they can do [now] is just sell their NFTs."

As per its GitHub page, LlamaLend will allow users to deposit their NFTs, get a signed price attestation from a server and borrow Ether (ETH) up to one-third of the NFT's floor value. Users can repay the loan anytime and would only be charged interest for the time used. The loan will bear fixed interest based on a pool utilization rate.

finally finished the llamalend contracts and will be launching it soon

anyone interested in trying to break them?https://t.co/qfbFXOPbT6
— 0xngmi (grazing arc) (@0xngmi) October 9, 2022

0xngmi writes that pools on LlamaLend won't have a built-in liquidation system. Instead, the liquidator is the owner of the NFT collection — they have the power to decide how to deal with bad debt. Examples include holding an auction for the NFTs, or extending repayment plans. Though, 0xngmi proposes an extra late fee that scales linearly by 100% of the borrowed amount every 24 hours to deter repayments.

The protocol will also use an oracle system with a single request to determine the NFT borrow price and none thereafter. 0xngmi explains that the move would be the most cost efficient for NFTs with very little borrowing volume as they do not need to update their prices on-chain constantly.

NFT lending protocols have recently suffered due to the bear market removing much of their liquidity. One project, BendDAO, became engulfed in a state of crisis after interest rates on borrowed loans skyrocketed, leading to many users simply opting to let go of their NFTs instead of paying back the loans, resulting in a spiral of bad debts.

What is a decentralized money market and how does it work?

August 6, 2022 Coin Telegraph

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Decentralized money markets function without a custodian, allowing only the original user to withdraw funds deposited by lenders and borrowers.

The seamless flow of capital between borrowers and lenders is a key aspect of a vibrant economy. Anyone with an extra asset can lend it to put their idle capital to work, while people needing it to grow business or meet operational costs can easily access it.

Money markets are the platforms where borrowers and lenders can meet. Throughout history, money markets have been generators of economic activities. Though the structure of money markets has altered with time, their role has remained unchanged.

How does the money market work?

Conventionally, money markets were centralized structures facilitating the deals between lenders and borrowers. Borrowers would approach money markets to get a short-term loan (under a year) that might be collateralized. If the borrowers can’t pay back their loans, the lenders can sell the collateral to recover the loaned funds. When the loan is repaid, the collateral is returned.

Borrowers are required to pay interest to the lenders (for providing them working capital) and a fee to the money market (for facilitating the deal). The interest rate provides adequate liquidity for borrowers as well as lenders. The fee paid to the money market helps them meet their operating expenses.

There is a problem with centralized structure, though. It simply puts too much power and influence regarding user funds in the hands of a single entity that can change the terms and conditions for other stakeholders in an arbitrary manner. Worse, they can even siphon off the funds in their custody gains. A decentralized structure provides a robust alternative to centralized money markets.

What is a decentralized money market?

Working atop a blockchain, a decentralized money market is a self-propelled structure run by a smart contract, a software program. Once it is running, a smart contract cannot be interfered with, thus making it free of human prejudices.

Managed by a global community of stakeholders through a highly decentralized network of nodes, the market rules out any role for intermediaries. In popular lingo, the money market is placed under the domain of decentralized finance (DeFi).

Let’s understand the functioning of a decentralized money market through an example. Fringe Finance ($FRIN) is a decentralized money market that unlocks the dormant capital in all-tier cryptocurrency assets by rolling out collateralized loans. The platform facilitates decentralized lending and borrowing. Fringe Finance is a primary lending platform where anyone can lend extra funds and earn interest or collateralize altcoins to take a stablecoin loan.

As mentioned, decentralized finance lenders and borrowers operate through on-chain programmatic code controlled by decentralized nodes, thus ending the monopoly of a single entity in control and reducing the points of failure. Here are a few benefits that decentralized money markets bring in:

Permissionless

In a decentralized environment, users don't need to ask permission from a central authority before engaging in any money market activity. Anyone online can earn interest on their capital and/or borrow funds for their needs seamlessly. The decentralized protocols have an inherent censorship-resistant structure.

Noncustodial

In centralized money markets, users' funds lie in the custody of the central gatekeeper. However, DeFi protocols like money markets are noncustodial, and funds are directly in the control of borrowers and lenders. On-chain smart contracts, running on pre-defined logic, assure funds that cannot be compromised while users have full control on them.

Overcollateralized

Centralized financial markets have usually functioned in an undercollateralized and fractional reserve manner. These markets, under peer pressure to gain more business, allow borrowers to withdraw more funds than what they have deposited as collateral. Decentralized money markets follow overcollateralization, bringing stability to the system. The smart contract simply liquidates the collateral of the borrowers who fail to pay back the debts.

Composability

Composability is a design principle that allows for components of a system to interoperate with one another. Various applications and protocols can interact seamlessly in a permissionless way. DeFi apps are composable, creating a blank canvas with endless possibilities for novel mechanisms like yield extraction and complex derivatives.

How upcoming decentralized money markets are stepping into unexplored territory

In the initial years of DeFi, money market protocols were tilted in favor of better known cryptocurrencies with large market capitalizations and high liquidity. Upcoming money markets, however, are looking to try new models. Fringe Finance, for instance, focuses on altcoins having smaller market capitalizations and lower liquidity. Most DeFi money market protocols do not support altcoins and this is where Fringe Finance moves in.

As altcoins apply to a niche use case, they tend to be more speculative than large cap digital coins. However, as few decentralized finance lenders and borrowers were catering to such altcoins, the capital locked in them had gone untapped. Despite that, Fringe Finance has altered this scenario. Please be aware that altcoins are inherently more volatile, which does bring in some associated stability risks that the potential of profit can balance.

How does an altcoin money market maintain financial stability?

To neutralize volatility in altcoins, the money market protocol uses a slew of borrowing parameters and relevant mechanisms. Let’s continue the Fringe Finance example to better understand it. The parameters applied by Fringe Finance include a platform-wide maximum borrowing capacity for each collateral asset and automated computation of the LVR (loan to value ratio). For adequate implementation of these mechanisms, the system takes into account the asset's available liquidity, historic volatility and other non-subjective metrics.

The platform offers a sustained model of economic incentives for all participants like lenders, borrowers, altcoin projects, stablecoin holders, stakers and liquidators. For instance, it rolls out incentives for liquidators to help stabilize the platform like allowing native $FRIN token holders to stake coins to earn rewards from fees. To widen its operational base, a DeFi money market could include cross-chain collateralization, lending against NFTs, fixed-interest loans, embedded insurance and a decentralized UI as the platform grows.

The future of decentralized money markets

In an environment where people have become wary of self-serving biases in centralized money markets, the DeFi protocols have given them a lucrative option. The latter usually provides governance rights to all holding native coins and presents a blockchain-based ecosystem in its true decentralized ethos.

Similar to the money markets that used to focus on popular cryptocurrency projects with significant market capitalization, novel projects are now focusing on altcoins, unlocking the value stored there. Going forward, it can be expected that upcoming DeFi money market protocols will explore territories previously untouched.

Tether Liquidates Celsius Bitcoin Loan — ‘Position Has Been Liquidated With No Losses’ to the Company

July 9, 2022 Bitcoin.com

Compound Treasury receives B- credit rating from S&P Global Ratings

May 9, 2022 Coin Telegraph

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Though the protocol offers an arguably lucrative yield of 4% per year, it's only available to accredited investors as of now.

On Monday, decentralized finance, or DeFi, protocol Compound Treasury announced that it received a credit rating of B- from S&P Global Ratings. As told by the team at Compound, this represents the first time a major credit agency has issued a rating for an institutionalized DeFi protocol. The S&P Global Ratings' investment suitability scale ranges from AAA (extremely strong) to D (in default). A score of B- indicates the issuer can meet financial commitments, though vulnerabilities to business, financial and economic conditions persist.

Regarding Compound's rating specifically, S&P Global cites the uncertain regulatory regime for stablecoins such as USD Coin (USDC), stablecoin-to-fiat convertibility risks and the Treasury's "limited capital base" along with a 4.00% per annum return obligation for the decision. However, the rating agency says that the Compound protocol's record of zero losses measured in USDC partially mitigates the risks of the offering.

With regards to the development, Compound Treasury's general manager Reid Cuming commented "S&P's rating helps our institutional clients more easily understand the opportunity and risks of crypto-powered cash management." As part of ongoing discussions with S&P Global, Compound Treasury's ratings could be upgraded in the event of greater regulatory clarity for digital assets or a longer track record of solid performance.

The Compound Treasury and its yield is supported by its underlying DeFi lending Compound protocol. At the time of publication, 301,650 suppliers have injected $6.94 billion worth of digital assets into the protocol, while 9,275 borrowers have taken out $1.83 billion worth of loans. While above the savings rates of major U.S. banks, the yield from Compound Treasury is only accessible to accredited investors or those meeting significant income and net worth thresholds.

Uncollateralized Lending Platform Truefi Reveals $100 Million Single-Borrower Pool Designed for Blockchain.com

April 25, 2022 Bitcoin.com

Borrowing

What is fiscal policy?

How does fiscal policy work?

Why is fiscal policy important?

Stimulating economic growth

Regulating inflation

Reducing employment

Managing debt

Do cryptocurrencies have a fiscal policy?

How does the money market work?

What is a decentralized money market?

Permissionless

Noncustodial

Overcollateralized

Composability

How upcoming decentralized money markets are stepping into unexplored territory

How does an altcoin money market maintain financial stability?

The future of decentralized money markets

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