April 20, 2022 | Issue #216

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India's Crypto Dilemma

India continues to establish itself as a hotbed for the crypto industry... both positively and negatively.

From 2020-2021, India's crypto market grew 641% according to Chainalysis. Today, there are an estimated 15 million crypto users in the country, but with a population of more than 1.4 billion people that skew young and well-educated, it's obvious that the country could be a major player in the future of crypto.

All Eyes On India:
Due to this potential, it's no wonder that Coinbase is pushing into the country, announcing they would hire over 1,000 people in their India hub this year alone.

But it doesn't stop with companies hiring. Large crypto players are also making more direct moves into the country.

This week, Indian crypto exchange CoinDCX announced the raise of $135 million at a $2 billion valuation. What makes the round interesting is not the traditional VC firms backing the company, but the fact that Coinbase Ventures was a major investor in the round. That's because Coinbase was also a major investor in CoinDCX's direct competitor, CoinSwitch Kuber, which raised $260 million at a $1.9 billion valuation late last year. All in, Coinbase has announced they have invested more than $150 million into the country with more to come.

Coinbase isn't the only exchange looking to break into India. In 2019, Binance acquired the Indian-based exchange, WazirX, with the two companies then setting up a $50 million fund to invest in the Indian crypto ecosystem.

Reports also state that FTX is in talks to invest in the Indian gaming startup MPL, which recently raised money at a $2.5 billion valuation.

The Government Punches Back:
Even though the population is beginning to embrace crypto and the government states that it sees its potential for tax revenue, the industry still faces determent from the central bank.

While India's central bank wouldn't be the first to criticize crypto, the Reserve Bank of India has been particularly cumbersome, comparing the asset class to the Dutch tulip bubble and ponzi schemes, as well as stating that it should be banned as it threatens financial stability.

Going further, on April 7th, Coinbase debuted crypto trading for India by supporting the UPI, a payments infrastructure developed by a coalition of Indian retail banks. Only three days later, the company suspended operations after the National Payments Corporation of India made a strange announcement.

This all comes at a time when India has proposed a new taxation law that doesn't allow people to offset loss on one asset against profit from another and will tax income from the transfer of any virtual assets at 30%.

Although some were happy as the new law would help legitimize crypto in India, others... not so much.

Sandeep Nailwal, the founder of Polygon, the largest Layer 2 protocol for Ethereum, said that the new rules are causing a brain drain in India and that “the way the regulatory uncertainty is... it doesn’t make sense for us or for any team to expose their protocols to local risks.”

This uncertainty has caused companies like Polygon and WazirX to move operations to Dubai. So, the future remains unclear for India's crypto ecosystem. Regardless, we expect to see a lot more positive and negative announcements alike emerging from the country.

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 DEEP DIVES 

State Of The Market

While it's a quiet week on the newswire, today we're going to do some catching up on the overall markets.

In their latest State of the Network report, CoinMetrics checks in on some important Bitcoin metrics around network economics, security, adoption, market mechanics, and the quickly evolving technology stack. Charts galore.

In a similar fashion, CoinGecko just dropped their Q1 2022 Market report. The report provides an awesome overview of altcoin performance, ETH staking, and monthly volumes across the board.

Here are the highlights, for those who want to cut right to the chase:

• Of the top 5 cryptocurrencies by market cap, only BTC and XRP managed to finish Q1 above water, in sharp contrast to the exuberance and astronomical gains of 2021.
• In contrast with the rest of the crypto market, the market cap of the top 5 stablecoins grew by 13%, signaling the potential onset of the bear market as traders flee to safer waters.
• Not all is doom and gloom, however, as ETH staking is gaining momentum. Despite a dip in ETH price, total staked ETH saw strong upward momentum (+25%) in Q1 2022.
• Meanwhile, altchains continued to gain ground with Terra leading the way. Ethereum's overall Total Value Locked (TVL) has reduced by 9% to $177 billion. Ethereum’s share of TVL is now 54%, down from 61% in Dec 2021.
• Total spot trading volume took a dip to an average $1.26 trillion monthly volume in Q1 2022. Overall, Q1 2022 spot trading volume across the top-10 centralized and decentralized exchanges declined from $6.08 trillion to $3.79 trillion compared to Q4 2021. 😮

$1 Billion In One Week

According to Dove Metrics, ~$1 billion was raised across 42 different funding rounds in the past week alone. Here are some of the more noteworthy announcements:

• SoftBank-backed game platform Sandbox gears up to raise $400 million at a $4 billion valuation
• Framework Ventures launches $400 million fund to back Web 3 gaming & DeFi
• Ethereum-focused BlockApps raised $41 million to expand into the enterprise blockchain space
• Blockchain analytics company Flipside Crypto raises $50 million
• Crypto startup Context announced a $19.5 million seed round led by early-stage investors Variant Fund and OpenAI CEO Sam Altman 
• EPNS has raised $10.1 million to continue building out the communication infrastructure for the decentralized future
• Solana DeFi platform Hedge raises $3.7 million to offer interest-free loans

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 REGULATORY FRONT 

US Officials Tie North Korea’s ‘Lazarus’ Hackers to $625M Crypto Theft

On Monday, the FBI, CISA and the U.S. Treasury, in a joint announcement stated that North Korean-backed hackers are actively targeting a variety of organizations in the blockchain and cryptocurrency industries.

This included "cryptocurrency exchanges, decentralized finance (DeFi) protocols, play-to-earn cryptocurrency video games, cryptocurrency trading companies, venture capital funds investing in cryptocurrency, and individual holders of large amounts of cryptocurrency or valuable non-fungible tokens (NFTs)."

Only days later, the Treasury Department alleged that Lazarus, a North Korean hacking group, was responsible for the $600 million Ronin Network hack which we covered here at CoinSnacks.

Now hacks in crypto (and outside of crypto) aren't uncommon, but when a nation state is backing the group responsible, it begins to get more worrisome. In just the last few days we have learned about potential attack vectors from MetaMask as well as Google Chrome.

To better understand what to look out for from phishing attacks, we suggest taking a look at this thread from Taylor Monahan showing examples of malicious phishing emails, messages, and sites designed to trick you.

SEC Proposal to Redefine 'Exchange' Is 'Unconstitutional'

It's rulemaking season over at the U.S. Securities and Exchange Commission (SEC). The SEC overlords are expected to make several rule adjustments likely pertaining to ESG disclosures, share buybacks, SPACs, and – how could we forget – cryptocurrency.

As a result, crypto lobbying groups are on high alert to make sure nothing slips through the cracks. And boy, aren't we glad they exist.

As a prime example, this week Washington, D.C.-based advocacy group Coin Center (as well as Coinbase's Chief Legal Officer here) is directing attention to the SEC's proposed redefinition of the term "exchange" within the Securities Exchange Act.

Without getting too deep into the details, the proposed rulemaking poses a direct threat to "anyone writing or distributing [decentralized exchange] software" according to Coin Center's Peter Van Valkenburgh.

Coin Center also writes that while the change is meant to bring other "financial services organizations" under the act's umbrella, "the way it does so, however, would create an inappropriately broad standard for registration that would impose an unconstitutional prior restraint on the protected speech activities of countless software developers and technologists."

The public comments period on the proposed rule closed on April 18. From here, the SEC will determine whether to incorporate any changes as part of a final rule.

 TWEET OF THE WEEK 

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