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Prices on 2020-07-21 05:30 UTC.

Centralized stablecoins on decentralized blockchains

Some background:

  • There are two major types of stablecoins: centralized and decentralized.

  • For many years the crypto space has been dominated by the centralized stablecoin USDT, issued by Tether Ltd. However, the company was involved in several controversies and accused of a lack of transparency, which fueled the creation of many other stablecoins in the recent years.

  • Major centralized stablecoins are essentially custodial in their nature. A user holds a token that represents a US dollar stored in the vaults of a token-issuer. This user can transfer these tokens using the permissionless, censorship-resistant blockchains on which these tokens were minted. However, in order to transfer them, a user has to interact with a smart contract, which is controlled by the stablecoin-issuer. As a result, companies behind these centralized stablecoins can blacklist user’s addresses from interacting with the contract, basically freezing the tokens held by the user and thus seizing the US dollars that these tokens represent.

What happened?

The CENTRE Consortium blacklisted an Ethereum address for the first time due to a law enforcement request, essentially freezing $100,000 worth of USDC. The stablecoin is issued on a decentralized permissionless Ethereum blockchain, but in order to transfer USDC tokens users have to use a smart contract controlled by CENTRE — an open source project bootstrapped by Circle and Coinbase.

Shortly after the news made headlines in cryptocurrency media, an Ethereum researcher at Horizon Games, Philippe Castonguay, pointed out that Tether has banned 40 Ethereum addresses since 2017. More than $7 million worth of USDT were frozen just this year.

In response to the blacklisting procedures, Stuart Hoegner, General Counsel at Bitfinex — a sister company of Tether — claimed that Tether is assisting international law enforcement agencies in their investigations, according to The Block.

These incidents once again reminded about the limitations of services built by regulated businesses, on top of decentralized technologies.

51% attack

Bitcoin Gold has been attacked again

Bitcoin Gold (BTG) has experienced an extremely long 51% attack, in which an adversary was secretly mining a separate chain with rented hashrate for 9 days straight, before releasing it to the network. According to the developers, the attacker was renting computing power from cloud mining marketplace NiceHash, which was previously used to perform a similar 51% attack on Bitcoin Gold and other blockchains.

The team behind BTG detected the attack attempt early on, and decided to upgrade its software by introducing a checkpoint at block 640650, stopping the attacker from reorganizing the blockchain in his favor. Such move may be considered the equivalent of asking people to follow the so-called “honest” chain instead of the longest one, basically censoring the attacker’s blocks. Controversy about decentralization and censorship-resistance of Bitcoin Gold network sparked immediately after in the crypto community.

It is worth noting, that a 51% attack is a potential attack in which a miner controls more than 50% of the network’s hashrate, allowing him to reverse transactions in order to double-spend his coins. Bitcoin Gold (BTG) is a fork of Bitcoin (BTC) that runs on a modified Proof-of-Work mining algorithm called Equihash.

This was the third attack of this kind on Bitcoin Gold network since 2018.

In other news

  • San Francisco-based custodial exchange Coinbase is selling its blockchain analytics software to the U.S. Secret Service, which is a part of the Department of Homeland Security, according to a public record obtained by The Block. Last month, Coinbase was reportedly planning to sell its analytics software to two other U.S. government agencies.

  • Coinbase is reportedly planning to apply for a stock market listing (IPO) with the SEC, making it the first U.S.-based cryptocurrency exchange to go public. No official filings have been made, but the company is currently in conversations with investment banks and law firms to assist with the IPO process, Reuters reported citing three people familiar with the matter.

  • The combined value of all Ethereum-based ERC20 tokens has surpassed the market capitalization of ETH itself. Such a strong rise in the value of these tokens is associated with a recent boom of decentralized finance (DeFi) products.

  • One of the largest Ethereum-based lending protocols, Aave, introduced undercollateralized loans to DeFi. Now users will be able to borrow funds based on social reputation without collateral.

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