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April 8, 2023

🥛 The gov’t comes for DeFi 👊

GM. This is Milk Road. We make you feel the way waking up on a Saturday morning without an alarm feels. Pure…bliss…

Here's what we're serving up today:

  • The U.S. Treasury’s report on DeFi 🗒️

  • The Digital Gold Rush ⛏️

  • Visual of the day: Bitcoin’s hash rate/difficulty is up 📈

  • DOGE disappears from Twitter 🍪

Prices as of 10 AM ET

Today's edition is brought to you by CoinTracker, the easiest software for filing your crypto taxes.

THE U.S. TREASURY'S REPORT ON DEFI 🗒️

The U.S. government says there’s a new threat to national security…

Decentralized Finance. That’s right, the U.S. Treasury just dropped a 42-page report talking all about DeFi and the risks associated with it.

Lucky for you, the Milk Man did all the reading so you wouldn’t have to. Here are the top things the U.S. Treasury said:

  • Criminals, ransomware attackers, scammers, etc. all use DeFi to launder stolen funds. *Cough N. Korea cough*

  • DeFi is used to launder money because it isn’t regulated. DeFi services don’t follow anti-money laundering (AML) or countering the financing of terrorism (CFT) laws.

  • The Treasury suggests the U.S. government should look at strengthening these regulations for DeFi services. AKA a new wave of DeFi regulation could be coming soon…

So what? This is the first risk assessment ever done by the U.S. government on DeFi.

And although there aren’t any new policies going into effect right now, it’s a warning that it could happen soon.

Regulators have come after centralized exchanges, stablecoins, NFTs, staking services and now they have their eyes set on DeFi. The government hit crypto with a 4-punch combo and is winding up a haymaker next.

We’ve seen what regulatory pressure does to DEXs before. ShapeShift (crypto exchange) added a KYC requirement in 2018 after getting hounded. It lost 95% of its users and has since transitioned back to a decentralized business structure.

Here's how people on Twitter are reacting:

Milk Road Take: Even though this is just a report, it’s still bad news.

It’s the U.S. government's warning before it breaks through your front door. It’s the email before they send you the follow up “as per my last email."

And although it's up for debate whether DeFi will need to follow these regulations (they don’t handle user funds and aren’t intermediaries so they aren’t subject to certain laws,) it will surely scare away any DeFi services from serving U.S. customers.

The kicker in all of this? The government admitted that most money laundering happens using… *drumroll*… fiat currencies. AKA the money they made…

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GOLD-BACKED STABLECOIN MARKET CAP PASSES $1B ⛏️

Crypto has a new buzzword: tokenized real world assets (RWA.) They’re digital tokens that represent physical items like stocks, commodities, or real estate.

Well, one type of RWA just hit a major milestone and passed a $1B market cap: gold-backed stablecoins. That’s enough to fill Scrooge McDuck’s swimming pool.

How do gold-backed stablecoins work? Each token you buy is backed by an ounce of gold. The physical gold is stored in a vault for you and you’re issued a digital token on the blockchain.

This gives token holders all the benefits that blockchain tech provides like transparency, decentralization, and increased security.

So what? It’s estimated the RWA market could reach $16T by 2030.

And with all the recent U.S. regulations surrounding regular stablecoins, it might push people to look into other alternatives, like stablecoins backed by RWA.

RWAs may be shaping up to be the Gold Rush of the 21st century. This time, no need to bring a shovel.

VISUAL OF THE DAY: BITCOIN HASH RATE AT AN ATH 📈

Something has been climbing over the last few weeks, and it isn’t the Milk Man’s cookie intake. (summer bod coming soon)

It’s… Bitcoin’s hash rate. It just hit a new all-time high (342.16 EH/s.)

You see, Bitcoin miners all compete to solve complex, computational problems. In return, they get Bitcoin.

Hash rate measures how much computational power is being used by Bitcoin miners. It’s a good way to measure the “health” of the mining ecosystem and how active it is.

The higher the hash rate, the more mining activity. The lower the hash rate, the less mining activity. I’ll give you a quick analogy….

In 3rd grade, my teacher Ms. Johnson decided to host math challenges during recess. She’d put up some math problems, students would guess the answer, and the first few to guess correctly would win a prize.

At first, Ms. Johnson was giving out Tootsie Rolls and Laffy Taffy (yuck). So there were very few students coming in to guess the answers to the problems (AKA a low hash rate.)

But then Ms. Johnson started giving out pizza slices and Capri Suns as prizes. All of a sudden, every student turned into a mathematician and tried solving the problems. (AKA a high hash rate)

So why is Bitcoin’s hash rate up? Bitcoin has been rallying this year (+69%) and it’s profitable to mine Bitcoin again.

AKA there are better prizes now so more people are trying to solve the problems.

Overall, this is a win-win for Bitcoin. High hash rates = more active miners = more security for the network. When there are more miners competing, it gets harder & costlier for an attacker to gain control of the network.

MILK & COOKIES 🍪

Days after the change, Twitter just removed “Doge” as their logo. The token declined 8% on the change and gave back all prior gains.

Thailand's opposition leader promised a $300 crypto airdrop per citizen if he’s elected Prime Minister in May. Going for the Andrew Yang approach.

Kyle Davies is now looking at a cloudkitchen to kick off his new restaurant venture. This is right after his OPNX exchange had a meh debut.

OpenEden, the first smart contract U.S. Treasury Bills tokenized vault, went live. Bringing risk-free rates to the blockchain.

Russia is the world’s second largest crypto miner. The spot was previously occupied by Kazakhstan.

Fidelity and Bank of America bought over $75M of Microstrategy stock in Q1. Tell me you're into Bitcoin without telling me you're into Bitcoin.

MILKY MEMES 🤣

That's a wrap for today. Meet us on Twitter to talk all about it. It’s kinda like a family BBQ but better – no screaming kids, awkward photos, or drunk uncles telling weird stories (@MilkRoadDaily)

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.