Non-native tokens on Ethereum are circulated through smart contracts, their transactions evade broadcasting and AML/CFT policies. To recall, transaction execution through smart contracts does not possess ledger records on parties’ addresses, both senders and receivers (see Note 89. «Smart Contracts: Wolf In The Sheep’s Clothing»).

Thus, the Ethereum ledger possesses records only on its native Ether (ETH) token which is not ERC-20 standard and incompatible with smart contracts.

Yet, the population of such non-native tokens is constantly growing. Among them are stablecoins (incl. Societe Generale’s EURCV, PayPal’s PUSD, Tether’s USDT, Circle’s USDC, etc.); non-fungible tokens (NFTs); liquid staking tokens; DAO’s governance and utility tokens; DeFi’s and the rest derivative tokens like Worldcoin; and wrapped versions of native tokens from various blockchains (like the Ethereum’s emulation of Bitcoin — wrapped Bitcoin, wBTC).

Besides, stablecoins represent the only massive tool to provide fiat cash to the crypto industry outside centralised exchanges (CEXs). For instance, they serve as a basis for crypto-to-fiat (on-ramp) and fiat-to-crypto (off-ramp) conversions on decentralised exchanges (DEXs).

In modern reality, Ethereum supplied a global channel for unlimited transmission of financial flows with unclear origin and ownership. It processes transactions between pseudonymous holders within the multiple blockchains that exist nowadays.

So, smart contracts produce a network of unregulated cash flows under the hidden watch and accomplice of Ethereum core developers and originators. Simply put, they backbone the existence of Ethereum’s BlackBox of cross-border illicit finance.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 90) by Dr. Olga D. Khon

The persistence with which crypto companies insist they allegedly fulfil regulation on AML/CFT while applying smart contracts never ceases to amaze. Usually, they appeal to bank statements to provide evidence when the crucial part remains hidden in the deposits of blockchain.

Foremost, transaction execution through smart contracts does not possess ledger records on parties’ addresses, both senders and receivers. The transfers accomplished through smart contracts are untraceable for regulators (and the general public) and processed as simple updates of account balances around blockchain.

Bank accounts for such crypto projects serve as cash-in and cash-out gates where they could report on profits or losses from token trades and KYC on these stages of asset flows. However, in any circumstances, they just can’t provide solid evidence of AML/CFT policies and the legal origin of the funds shifting inside the blockchain (through smart contracts).

Smart contracts serve as a basis for so-called smart accounts for multiple users’ ownership of one single account. It makes even account balance updates meaningless in tracing the crypto assets’ origin.

In brief, the blockchain account holder (or multiple holders) could interact with several counterparties worldwide and execute multiple transactions while their initial balance could remain slightly changed or even completely unchanged.

Besides, smart contracts as ‘self-executing if-then code’ do not work autonomously. The human interaction is required to initiate any smart contract functionality.

So, when do you think about the smart contracts involved? Almost everywhere in modern blockchain and crypto:

- layers-two and numerous ‘scalability’ tools (among users of which one could find popular crypto wallet service providers such as MetaMask, and centralised exchanges like Coinbase);

- crypto bridges and multiple-blockchain ‘interoperability’ cases;

- crypto mixers and asset obscuration techniques;

- stablecoins and the rest non-native tokens (incl. ERC-20 governance and other utility tokens for decentralised autonomous organisations, DAOs, on Ethereum) and non-fungible tokens (NFTs) like ERC-721 and ERC-1155 on Ethereum;

- the entire decentralised finance (DeFi) area with its decentralised applications (dApps) and services for yield farming, lending protocols, liquidity providers, flash loans, and so on;

- the whole sub-field of real-world assets (RWA) tokenization.

This disputable smart contract usability poses tremendous risks to financial stability and international efforts to pursue anti-money laundering and combating the financing of terrorism (AML/CFT).

Thus, smart contracts, that determine the survival of modern blockchain, are wolves in sheep’s clothing for the health of the global financial system.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 89) by Dr. Olga D. Khon

When Coinbase shifted core transaction execution to its layer-two “Base” built on Ethereum (through the service of “Optimism”), it simultaneously lost all the chances to accomplish profound financial compliance and AML/CFT policies.

To recall, layers-two in blockchain are functioning through smart contracts only. Thus, Coinbase which used to be represented as a more transparent centralized exchange (CEX) trivially turned into the decentralized counterparty (DEX) in August 2023. Since the DEXs’ vitality solely depends on smart contracts, ex-ante they represent the shadow segment for unregulated and unlimited flows of crypto assets.

Besides, all the transactions sent through smart contracts are completely obscure, with no records on the blockchain public ledger. In plain words, when users send transactions through smart contracts, neither the public nor regulators can’t observe and check this interaction, just balance updates are available.

Imagine, that Coinbase’s users could even interact with themselves to execute wash trading or other market manipulation techniques.

Moreover, Coinbase’s layer-2 “Base” is deployed through the service of outside crypto intermediary “Optimism” — the representative of so-called optimistic rollups thriving through a bunch of smart contracts. So, Coinbase shares all the user transactional data with Optimism developers along with core Ethereum developers and originators. According to publicly unspoken but default settings of smart contracts on Ethereum, this data leak occurs beyond user consent and general awareness of potential privacy abuse.

The question is whom the public trusts the most: the trustworthy financial regulators and consumer protection or irresponsible before the law and undisclosed blockchain developers?

Nonetheless, Coinbase’s active involvement within layer-2 providers on Ethereum represents a massive path for money laundering in action…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 88) by Dr. Olga D. Khon

Complete untraceability of every transaction is the trick of stablecoins and all derivate tokens built on smart contracts, like the Societe Generale’s newbie — EURCV.

Transactions in stablecoins have no records on the underlying blockchain ledger at all due to the functionality of smart contracts.

Simply put, when a user sends stablecoins to their crypto peer or institutional entity, the transaction executes through a “call function” to the smart contract. The latter updates the account balances of interacting parties, both for senders and receivers. Zero transaction records occur on a publicly available blockchain ledger. The pipeline dream of criminals of all times is realized in a trivial but quite hazardous manner.

Now, imagine the scope of such “payments” of stablecoins and the rest of derivative tokens like ERC-20 on Ethereum processed through smart contracts on a blockchain (incl. decentralized finance, DeFi)…

Thus, no AML/CFT or proper KYC policies exist in the smart contract domain, so the entire “programmable agenda” is a dead-end for financial compliance by default.

Hard to believe but this simple truth about smart contracts is the Achilles’ heel of crypto, indeed.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 87) by Dr. Olga D. Khon

Once again crypto exaggerates rumours around Bitcoin Spot ETFs and their potential approval.

Meanwhile, if they’re approved, the crypto spot ETFs will create destructive black holes in the global AML/CFT policies.

Foremost, based on blockchain infrastructural drawbacks, crypto applies interoperability and composability tools for money laundering and asset obscuration. And Bitcoin (BTC) token is no exception, since it:

1) has the same pitfalls that the rest of crypto tokens possess being circulated as bridged-wrapped versions amid the crypto industry along with Ethereum’s DeFi and layers-2;

2) limited supply model and consequential rewards’ halving make the network inclined to congestion and rapid growth of transaction costs the ordinary investors should cover;

3) exists inside the Bitcoin blockchain which runs its layer-2 called Lightning Network that prevents transparent and informative tracing of the layer-1 public ledger.

Furthermore, every Bitcoin Spot ETF is:

a) the fund that follows the price of Bitcoin (BTC) tokens — the purely speculative assets prone to market manipulation executed daily through arbitrage and subordinate techniques such as flash loans, wash trading, etc.;

b) to be issued by crypto funds — the largest BTC holders (crypto whales) shielding their actual possessions under crypto anonymity of ownership, and constructing a significant conflict of interest with their clients;

c) the only option for ETF issuers (crypto funds) to cover their losses and, if needed, partially leave the disgraced crypto market painlessly (by shifting the load on ordinary investors and the country’s financial stability);

d) the channel for unlimited crypto-fiat (on-ramp) and fiat-crypto (off-ramp) conversion that serves to provide liquidity to the fragmented crypto market, whilst producing an extreme inflationary burden to the country of ETF’s origination along with sourcing global illicit finance.

To sum up, crypto generates more and more pseudoscientific terms and definitions. However, under such colourful verbal patterns, crypto just hides its massive fraud so corrosive to the global financial system.

Thus, this desperate battle for Bitcoin Spot ETFs proves one simple but existential case. It’s the very last chance for crypto funds to preserve their business face likewise the entire crypto industry tries to survive at the expense of mainstream finance’s stability.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 86) by Dr. Olga D. Khon

You might be surprised, but the false allure of distributed ledgers is elevated in a published working paper by Markus K. Brunnermeier (Princeton University) and Jonathan Payne (Princeton University): https://www.nber.org/papers/w31561

The authors present general equilibrium models for monopoly ‘private currency ledger operator’ to justify blockchain interoperability (bridges) and smart contracts.

In short, there is an undermining issue towards user privacy data incorporated in the paper: “agents have publicly verifiable identities” while transactions are recorded to the public ledger since it “is updated publicly at the end of each time period” (see p.7). How many people would like their financial records along with their full identities to be disclosed to the unlimited circles, including criminals?

Guess, in this instance, authors should be demanded on any need and longevity of the approach presented.

Even if by those “publicly verifiable identities” authors assumed the ledger accounts under pseudonymity of holdings, models would remain useless. Given the η-number of “agents”, it does not represent its actual number but the delusion of multiple ledger accounts. That hidden the capital concentration, backing its influence on price P and exchange rate E (within “reserve-in-advance constraints” reverting the consecutive market equilibrium) (see p.11). Despite similar sad cases we’ve already witnessed on the crypto market.

Moreover, the paper ignores the nature of distributed ledger technology (DLT) with its crucial technical underpinnings, namely:

1. Node infrastructure the “private ledger operator” is relied on to produce blocks and store ledger records.

This node architecture defines the network throughput as the number of transactions per second (TPS) executed. Taking into account the public distributed ledger of the models, the discussion missed the scalability issue unveiling timing and costs of token agents (and profits of ‘monopoly ledger operator’) during network congestion and the growing size of the ledger itself.

So, the authors’ wish for “one large ledger provider can better enforce contracts than a collection of non-cooperative smaller ledger providers” (p.22) within public records is a pipe dream in reality.

And it also contradicts the paper’s declaration that “the more transactions that are paid for with private tokens on the ledger, the easier it is for the ledger controller to incentivize contract enforcement” while enabling agent slashing.

Herein should be additionally covered that agents need a front-end application (application layer) to interact with the ledger infrastructure, bearing additional costs when the third-party node providers are involved.

2. Misunderstanding of smart contracts as the common notion of contracts (which, probably, incorrectly comes from their title). Smart contracts are just codes with their owner’s instructions to execute a charged limited functionality. In fact, the deal security under smart contracts is questionable due to their openness to changes in the post-deployment stage.

There is always a risk of hack exploitation since the “ledger is programmed to supply tokens equals to a supply of dollars’’ (see p.6). To recall, smart contracts need to appeal to outside oracles to obtain data on the “supply of dollar”.

Besides, the token compatibility was missed in the paper space but ultimately required in regards to the models’ perspective. Thus, the ledger’s token should simultaneously be: a) fungible with token standard common for all η — agents; b) native to ledger protocol to pay transaction fees to overcome basic frictions.

3. No clarity on mutability or immutability of the ledger provided, while calling for multiple ledger’s interoperability (like crypto bridges) “allowing competition between ledgers”. Such intentions fail at the core underestimating the need for cryptographic security of distributed ledger technology to ever exist.

The paper reminds us that ledger technology with its pitfalls thrives on the one side, while theoretical exacerbation in academic research — on the other, and they would hardly meet each other.

Unfortunately, it depicts the vicious public misguidance when advanced math is at service to a crew of crypto accomplices…

* The review was originally published on my social media accounts in August 2023.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 85) by Dr. Olga D. Khon

A vivid example of crypto propaganda is a conference paper by Eric Budish (Chicago Booth) and Adi Sunderam (Harvard) about stablecoins’ future. The paper is full of theoretical assumptions that have gone far from blockchain limitations but yet applied to propagate the alleged benefits of crypto and stablecoins in mainstream finance (or TradFi).

Foremost, the authors do not provide the design details of an “ideal” blockchain-built data structure, but “instead posit that the ideal data structure exists and explore what economic gains it might provide” (pp.4–5). Now, just think for a moment, based on an illusory image of the model without a design description authors constructed an academic research paper presented during the Sveriges Riksbank Conference…

So, let’s provide a few comments on the paper since the authors incorrectly:

1) assert that “smart contracts could potentially allow the automation of complex decisions that are currently made by human traders, brokers, and market makers” (p.6). It contradicts the notion that smart contracts are created, deployed, and initiated by blockchain developers (the very human beings, indeed) to collect extra fees from users.

2) claim blockchain serves for cost reduction (pp.6–7) and higher transaction speed (pp.7–9). On the opposite, modern blockchain suffers from scalability issues, network congestion, and accidental fee spikes. They jointly lead to greater costs and lower transaction speed in blokchain along with extra manipulations from MEV (maximal extractable value) collectors and arbitrageurs.

3) advocate for blockchain as facilitating cooperation illustrated on the augmented Prisoners’ dilemma (pp.12–17). On the contrary, consensus protocols and blockchain developers determine the user engagement rules, not the users themselves (neither individual nor institutional-typed ones).

4) state about the verification improvement by the application of the zero-knowledge proof (p.17–18). In fact, modern blockchain refers to zero-knowledge proofs to boost intensive off-chain transactions, asset obfuscations, and non-transparent tracing of financial flows.

5) pose the elimitation of intermediation (p.18). However, the underlying node infrastructure is essential for blockchain operability and creates a massive network of intermediaries for each user and service provider.

6) argue that “stablecoins do not require conversion back to the underlying medium of exchange in a transaction” (p.20). Instead, stablecoins exist only inside the blockchain and crypto area. The end-users do need to exchange stablecoins to extract the real-world fiat currency they peg to anyway. And usually, stablecoins’ exchange rate differs from the stated 1-to-1 peg benchmark.

7) propose “the creation of a smart-contract bank that issues stablecoins (deposits) backed by risky assets” (p.24). To disagree, let’s recall once more: there are no stablecoins beyond smart contracts and blockchain, primarily on Ethereum. Stablecoins are standard tokens, and they do require interoperability within the global architecture to be widely adopted. Simply put, stablecoins are just one type of crypto. Herewith, the authors propose to create a mainstream bank that will issue crypto and erode global financial stability.

To sum up, the only message that hits you while reading this paper by Budish and Sunderam. The authors have little idea of what modern blockchain is, and how it disastrously works and is stuck in reality. It’s a quite surprising fact given authors’ high ranks in the academic world…

The entire paper reminds us of mental exercises or criminal crypto propaganda in our world where crypto triggers illicit finance channelled to the most outrageous crimes and international war conflicts.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 84) by Dr. Olga D. Khon

This week Ethereum came out with an idea to revive ‘plasma chains’ on a large scale to perform more transactions off-chain. In short, plasma chains serve to eschew even records of batched transaction data to the public ledger, unlike the optimistic and zero-knowledge rollups.

Herein Ethereum developers proudly claim they are eager to solve the scalability issue.

Wait a minute… The same old off-chain transactions within the anonymity of holdings that completely fail any financial compliance, and require the blind trust toward shadow blockchain developers with their legal-free responsibility?

Exactly. Even worse.

Transactions on plasma chains do not possess transactional records on the blockchain ledger, as it is trivially called a ‘data unavailability’ problem.

To execute transactions on plasma chains under their own validation mechanism, users lock (deposit) crypto assets to the plasma’s smart contract deployed on Ethereum beforehand. Then, they could send and receive transactions on the plasma chain beyond being broadcasted to the Ethereum ledger.

To claim their own assets back, users need to: 1) request an exit proposal (withdrawal), 2) pay an extra fee (bounty), and 3) wait for a challenge period for the refund to be approved. Seems that the time cost of money doesn’t bother Ethereum blockchain developers when it comes to user interests…

Besides, plasma operators enlarge the network of shadow intermediaries who hide under smart contracts and so-called ZK-SNARKS (Zero-knowledge Succinct Non-Interactive Argument of Knowledge) to completely obfuscate financial transaction data. Herewith Ethereum continues to mislead the general public as it uses cryptographic data compression for cross-border financial flows under the anonymity of ownership.

And, thus, it provides fertile soil for unlimited money laundering, asset obfuscation, and war crimes financing.

Indeed, Ethereum is just replicating the destiny of the dead Homunculus not being revived ever…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 83) by Dr. Olga D. Khon

Should you investigate stablecoins, there are four essentials to consider:

1) it’s the only source of fiat cash for decentralised finance (DeFi) and the entire crypto industry outside centralised exchanges (CEXs);

2) they exist only inside the blockchain ledger;

3) all of them are derivative non-native (to underlying blockchain) tokens issued through smart contracts (mainly, on Ethereum);

4) their token standard is compatible with every derivative crypto token (incl. DeFi with DAOs and dApps) and bridge-interoperable to the entire crypto sphere (e.g. ERC-20 on Ethereum).

In general, public discussion points out that stablecoins are backed crypto assets with a ‘stable’ price pegged to fiat currencies, primarily, to US dollars on a 1-to-1 basis.

Although, the crypto market price of stablecoins permanently fluctuates from the 1-to-1 peg, and it’s prone to market manipulation as well.

As to financial compliance and AML/CFT policies, the issuers of stablecoins could just guarantee the KYC for the first- and last-round owners while completely obfuscating multi-round flows in the middle. These risks are significant due to the current geopolitical tensions and international sanctions imposed.

Given the opportunity for DeFi with its yield farming, multi-level collateralization, and flash loans, stablecoins backed by real-world assets (RWA) produce extra inflationary pressure on the global economy.

To sum up, under the shield of crypto ‘safe-haven’, stablecoins represent the welcome door to crypto into the global financial system along with its illicit finance and criminal activities executed on a daily basis so far.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 82) by Dr. Olga D. Khon

In a nutshell, crypto spurs human greed and addiction to the highest levels the world has ever seen. They are the most primitive and basic human instincts. And flash loans are a vital part of the story.

For starters, the flash loan is an uncollateralized and instantaneous lending mechanism, where a loan and its repayment are executed simultaneously in one single blockchain transaction. Should one perceive the crypto market as in line with mainstream finance, they might be puzzled.

Meantime, the crypto market is not a united and coordinated entity. It’s an accumulation of numerous exchanges prone to liquidity shortage and, thus, token price tampering. Just imagine a plethora of different fragmented marketplaces spread worldwide and trading the same tokens accordingly.

For sure, price discrepancy and disparity of trading volumes occur amid various exchanges. But above all, it’s an opportunity for artificial sublimation in fluctuations of token pricing. Such market inefficiencies make crypto the hot spot for arbitrage trading and market manipulations on an enormous cross-border scale.

Given the fact that flash loans upscale leverage positions within the crypto market under arbitrage demand, hard to overestimate the massive inflationary pressure this domain exerts on global financial markets. More precisely, the negative impact on developed countries in which fiat currencies are actively involved in off- and on-ramp crypto conversion. Namely, the USA, the EU, and the UK.

From a functional point of view, flash loans fully rely on smart contracts. The potential borrower writes down the code of the smart contract and stitches the set of transactions needed inside. Wherein the first transaction represents the borrowing of tokens from the flash loan’s lender (within the decentralised finance, DeFi), and the last one covers the loan repayment along with the interest fee paid. In case of insufficient repayment, the entire set of transactions constructed by flash loan would be reversed.

Well, flash loans are based on conditional smart contracts that require the fulfilment of the pre-determined rules, otherwise the loan should be cancelled while transactions reversed. The crypto industry even came up with the term “atomicity” for this idea, which, in fact, serves to recreate the supposedly scientific image of blockchain solutions.

Although it works to confuse the general public, crypto forgot to mention one essential notion. That this atomicity reverses the entire blockchain agenda as trustless technology on which transactions are immutable and irreversible. Simply put, blockchain is the space where crypto atomicity is impossible.

Moreover, flash loans share advantages to primarily blockchain developers rather than ordinary users who are demanded to provide advanced coding skills to create workable smart contracts. So, actually, crypto is not a democratic payment system for everyone but the exploitation of the general public and society by a much smaller group of blockchain developers.

It’s a case in point of boosting social inequality worldwide. Indeed, flash loans represent nothing but the greed and manipulation of blockchain developers.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 81) by Dr. Olga D. Khon

Crypto advocates call for the anonymity of holdings to be preserved in blockchain forever. They claim the industry provides the same functionality as the world of fiat cash. Are you ready to argue about that?

Foremost, the anonymity the crypto promotes is the hide-and-seek with regulators, not the blockchain developers who disturb user privacy data and anonymity of transactions without their consent so far. Simply put, user data along with transactions are always disclosed to blockchain developers.

Besides, crypto tokens are limited in their operability in comparison to fully convertible fiat currencies. The single spot for so-called on- and off-ramps (crypto-fiat and fiat-crypto conversions) is centralised exchanges (CEXs).

Neither decentralised exchanges (DEXs) nor the rest of decentralised finance (DeFi) are able to implement the service by itself. Even by the means of stablecoins, since they possess the issuer managing the underlying reserves. Besides, DeFi is built on smart contracts and depends on the outsource oracle services (third parties as they are) responsible for the supply of off-chain information such as token prices.

Could you imagine this? The whole decentralised and disintermediate agenda of crypto stands on the shoulders of purely centralised intermediaries, collecting extra fees from users.

Moreover, blockchain-minted tokens, including those identified as “crypto coins”, are speculative assets and prone to market manipulations per se. Given the favourite feature of anonymity, wash trading is incorporated into crypto pricing on an unlimited cross-border scale. It happens while the lack of liquidity on the widely dispersed regional marketplaces gives the biggest players (aka crypto whales) an option to manipulate the global market.

To sum up, it’s the anonymity of holding unlimited funds within the market manipulations that attracts a plethora of shadow players into the blockchain. So a trivial but criminal attribute that withholds the global AML/CFT policies, international taxes and sanctions imposed worldwide.

And, thus, the crypto prices are just anonymity-based manipulations, indeed.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 79) by Dr. Olga D. Khon

Proof-of-work (PoW) blockchains built on crypto mining are massively promoted as joint efforts of users and its native tokens, therefore, used to be seen more as commodities. Guess, we should argue on that.

In brief, crypto mining depicts the process of minting new tokens in reward for producing the next block on PoW blockchains. Primarily, Bitcoin launched in 2009 and Pre-Merge Ethereum (between 2015 and 2022).

PoW states that the crucial aspect of winning the race among miners (block producers in PoW) is to be the first in solving complex computational problems in regard to the current hash rate (a measure of the PoW-network difficulty).

Clearly, chances are higher with the more advanced computational power that led to the whole strands of recommendation of which hardware to acquire and how to construct highly-performing mining rigs (e.g. ASIC, GPU, CPU, and even cloud services). The profound hardware requires substantial energy consumption on a permanent basis as well.

Is it all? Well, one may be surprised, but disregard the complexity of the miner’s hardware, it’s the mining software that determines the entire process. Simply put, it’s the software solves the mathematical puzzles by using the miners’ hardware provided.

The delivery of mining software is, probably, the most interesting part of the discussion. Since it comes from the numerous PoW-blockchain developers. At the core, crypto mining is known as an act of lending users’ hardware within the processing power to the blockchain networks. To do so these users (miners) buy expensive hardware by investing their own resources to lend it to the PoW-blockchain developers (while installing and running their mining software) for the chance to get the reward in return for the investments made.

Although most crypto mining software is distributed for free, the more advanced features within the benefits are usually available to paid users only. Thus, by enlarging the network of miners, PoW developers superficially support blockchain functionality.

It also inevitably pushes the hash rate up (as competition rises) and provides considerable advantages to greater computational power. Or, in other words, the institutionally-typed mining pools (aka intermediaries in PoW) that successfully overbid the ordinary solo miners most of the time. The trend triggers solo miners to join the mining pools’ services.

Besides, some of the mining software could trace the activity of miners along with access to their personal data (without user consent). The issue undermines the crypto advertisement of a completely anonymous solution, where hidden data is collected by unnamed blockchain developers.

It reminds me of the “nodular magic”. As soon as you pull the string the imperative of PoW-blockchain developers is exposed. Crypto mining depicts just an investment for the profits to be derived from the efforts of others, indeed…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 78) by Dr. Olga D. Khon

Grayscale persists in calling for Bitcoin Spot ETF’s approval. Well, let’s reflect on the topic a bit.

To start with, Grayscale is a unit of Digital Currency Group (parent company of CoinDesk).

Blockchain analysts tend to believe that Grayscale is one of the top-5 biggest owners (so-called crypto whales) of both Bitcoin (BTC) and Ether (ETH) tokens. Yet, the trick through the pseudonymity of holdings within unlimited unidentified accounts to manage provides Grayscale with an opportunity to cover the genuine scale of its crypto possessions.

However, it could be fruitful if Grayscale discloses its total ownership of crypto assets to regulators before any actions linked to the possible launch of Bitcoin Spot ETF (where ETF stands for the Exchange-Traded Fund). For the needs of the company and similar projects to be tested on its influence on the crypto market and token pricing.

To remind you, the crypto market does suffer from the lack of liquidity since it consists of numerous, rather scattered trading marketplaces. Therefore, the crypto market is quite sensitive to the selling pressure provided by crypto whales’ trades.

These parties invested substantial funds and could hardly exit the market while being unnoticed. Moreover, whale alarms could trigger fire sales and liquidations in decentralised finance (DeFi).

Apparently, crypto whales are trapped inside the blockchain for a long. Thus, institutional players along with Grayscale try to do as much as they can for the crypto’s questionable adoption under broader public involvement. It is assumed to be the fresh channel of enormous cash provision to crypto given the top-priced BTC token and the scale of the US financial market. Though, unfortunately, all is to be done diregard the inflationary pressure and evasion risks for international taxes and sanctions implied along with global AML/CFT procedures.

Indeed, beyond the Bitcoin Spot ETF, crypto survival is a great deal of doubt, and the industry is well aware of that. So, the fight for spot ETFs represents nothing but the All-in of crypto whales and their shadow accomplices…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 77) by Dr. Olga D. Khon

The plans to launch BitVM and bring smart contracts to the Bitcoin blockchain were revealed last week. What does mean?

Well, above all it goes far beyond the sole turning of Bitcoin into an Ethereum-like blockchain.

Foremost, this represents a desperate attempt by blockchain developers to preserve crypto existence. The incorporation of smart contracts seems more plausible for their allegedly autonomous agenda when public judgment could be placed in a rather crypto-advantageous manner.

For instance, through the claims of self-coding execution which, in fact, serves to overcome the evidence that a bunch of blockchain third parties are involved. Such misguidance shields the run of smart contracts under their owners’ will, who create and deploy the code to the network, as well as pay substantial transaction costs for their prior deployment.

To recall, smart contracts allow to recording of multiple transactions as a single one to the blockchain ledger. They also provide a variety of tools for multiple-holders to interact through the single united account. In addition, smart contracts are exclusively responsible for the solutions to execute original transactions off-chain and broadcast the generalised batched version of it to the blockchain ledger (on-chain). These actions obscure a transparent tracing which is imminent for the blockchain to operate as trustless technology ever.

Given the possibilities of BitVM launch, smart contracts, probably, represent the major tool the blockchain developers to implement for further upgrades. As it happened on Ethereum with Account abstraction under ERC-4337 induction.

Besides, this approach additionally benefits core blockchain developers and originators by pushing institutional users and the biggest players to lock advanced funds into the blockchain beforehand.

Besides, if an observer tries to interrogate the transaction history of smart contracts’ accounts, they could be surprised by the lack of relevant information. Since the smart contracts operate through the “call” function and execute transactions on behalf of other blockchain accounts.

Apparently, smart contracts, in particular, build the promotion of so-called “programmable money” and the rest of “programmable” financial services. Disregard that beyond the fashionable title, it brings larger risks for the global financial system, undermining the joint efforts to safeguard financial stability worldwide.

For obvious reasons, blockchain-based finance running through the smart contracts functionality could not provide any substantial financial compliance or even prevent malicious usage facilitating illicit finance and criminal inclusion.

Meanwhile, we could definitely point out the primary vector of the blockchain industry’s misinformation. These are smart contracts — the crypto’s fake last resort.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 76) by Dr. Olga D. Khon

Grayscale along with numerous crypto funds tries to push for Bitcoin ETFs further. Well, they rush to strew crypto space by cash they are so needed.

Apparently, many of such groups, backing crypto ETFs (exchange-traded funds), are the largest crypto owners (aka whales), even if they attempt to hide the fact. Usually, they play on anonymity of holdings amplified by crypto asset obfuscation techniques. Primarily, crypto mixers and wrapping bridges that serve for token swaps beyond exchange trades occurred.

The application of decentralised finance (DeFi) built on smart contracts functionality provides the deeper hide-and-seek with regulation. For instance, lending protocols and liquidity providers overuse multi-collateralization of tokens and intentionally create chaos under transactional history.

To recall, smart contracts aid shadow crypto intermediaries (teams of core blockchain developers and originators) both collect extra fees and conceal from legal responsibility and law enforcement. The same smart contracts are the ground of so-called layer-two blockchains, whose essence is to get transaction execution off-chain and, thus, obscure crypto assets’ tracing.

Besides, institutional players smoothly apply to multisig-accounts (one account for multiple users) runned on smart contracts. The tool is more costly than single-user accounts whilst mixing transaction history and funds sourcing. As well as push the speed for transaction execution (e.g. by higher tips paid to block producers). And, therefore, represents the very roots of social inequality.

Given smart contracts are incorporated in the entire crypto-transmitting blockchain industry, there is no way to protect ordinary investors from wash and insider trading. So as no guarantees for the consistent policies against money laundering, taxes or sanctions evasion and international illicit finance.

It should be mentioned that cryptomania spurs human addiction up to psychopathology and psychological deformation of personality. So, the current massive promotion for crypto ETFs just depicts the pseudo-truth to order, and nothing more…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 75) by Dr. Olga D. Khon

On September 11, 2023, PayPal released the USD Off-Ramp: a direct crypto-to-fiat conversion service. Amplified by the previous On-Ramps (fiat-to-crypto), PayPal turned into the immense cash provider for crypto.

In general, Off-Ramps let users convert tokens from their crypto wallets to US dollars on their PayPal or bank accounts. Actually, it enables the execution of crypto exchange trades beyond records being done, but PayPal receives its commission.

On the one hand, PayPal verified users and bank account owners under KYC policies do normally disclose their real identity to mainstream service providers. On the other, public addresses of crypto wallets within transaction history are openly stored on blockchain ledgers. While crypto wallet providers like MetaMask represent shadow intermediaries claiming they preserve the anonymity of holdings.

So, what happens when PayPal users execute Off-Ramps converting crypto and sending USD to their PayPal or bank accounts?

Smoothly these users share with PayPal the data on their crypto accounts and transactions to be attached to the real world ID. Besides, it’s not only PayPal but crypto wallet service providers along with multiple dApps and NFT marketplaces who acquire this knowledge of crypto account transactions under user personal data.

Herein PayPal risks the security of their own clients and becomes the full accomplice of the crypto domain with every token circulated. Simultaneously, the entire crypto industry tries to withhold silently acquired personal user data from financial regulation.

Thus, users applying to PayPal’s Off-Ramps do share all their financial transactions to shadow crypto folks and criminals, rather than trusted financial regulators? Or are they just unaware of these risks?..

Although such disclosure gaps refer primarily to ordinary crypto users. Whilst multisig wallets for multi-users-control, introduced by ERC-4337 on Ethereum, could play tricks both with public and regulators. Multisig wallets depict the next example of boosting social inequality, since they are operated through smart contracts and too costly for ordinary investors. Herein, the bunch of crypto projects overbid regular investors again.

Well, crypto in their desperate run for cash could not provide either anonymity or pseudonymity of holdings they advertised to the general public for years. Unfortunately, the crypto fraud is implemented at the expense of regular investors and most vulnerable communities.

In short, crypto is exploiting the global financial system by playing on misguidance and psychological manipulation for malicious “getting-rich-quick at all costs”. And PayPal intentionally turned into the global crypto ATM so far.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 74) by Dr. Olga D. Khon

The payment system Visa announced the testing of running a ‘paymaster’ on Ethereum.

Herein, the Visa seeks to become a cash provider for suspicious EVM-compatible blockchains, while profiting on its own clients.

So, what is Ethereum’s paymaster and where does it come from?

To recall, transaction fees on Ethereum are called gas and could be paid solely in its native cryptocurrency Ether (ETH) which has a denomination — gwei (and 1 Ether = 1 billion gwei). And Ether (ETH) is not an ERC-20 token standard type.

The paymasters, introduced by Ethereum developers, are intermediaries who run commercial services to cover ETH gas on behalf of their clients. These paymasters could accept either fiat currencies (Verifying Paymaster) or ERC-20 tokens (ERC-20 Paymaster) in return. Paymasters is a part of ERC-4337 Ethereum’s update, known as account abstraction saga for deeper obfuscation of asset tracing, delivered on March 1, 2023 (for more details see Note 54. ERC-4337: «Hide-And-Seek» of Ethereum Developers).

Well, what’s left behind the advertising of further crypto adoption?

Providers of such Ethereum paymasters, being run through smart contracts, have to lock a substantial amount of ETH to the Entry Point smart contract owned, deployed and controlled by Ethereum core developers — through the Ethereum Foundation’s umbrella. Regarding the Entry Point is a smart contract the whole functionality of ERC-4337 update was launched, it intentionally marks any institutional participant an Ethereum accomplice.

In the case of the Visa running paymaster, it means investment into Ethereum leading to extra demand for ETH tokens. So that the VIsa could apparently become the one of so-called whales directly interested in crypto survival.

Given the liquidity shortage, once entered the crypto institutional whales are stuck there and hesitate to exit completely.

Besides, Ethereum’s co-founder Buterin has just recently publicly admitted (2023 Korea Blockchain Week) that the majority of underlying infrastructure (blockchain nodes) is based on centralised services like Amazon AWS. And suggested solving the issue in the next ten or even twenty years… Yet, crypto fans bizarrely persist; it’s a decentralised world so far.

Well, the Visa participation, at least, questions multilateral actions took against illicit finance worldwide. If Visa’s paymaster on Ethereum appears in the real world, it will be the crypto “check mate in three moves” to the global financial system.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 73) by Dr. Olga D. Khon

SWIFT released updates on its partnership with Chainlink. Well, we witness the next attempt of the crypto interference into the very heart of mainstream finance.

Chainlink is a crypto project introduced by co-founder Sergey Nazarov in September 2017 and launched in May 2019. It’s built on Ethereum to provide the service manipulatively called oracles for smart contracts.

Despite their solid archetypical title, oracles in crypto are just intermediary suppliers of data stored off-chain like crypto market prices. Since smart contracts are primitive in their essence being locked inside the underlying (layer-1) blockchain, as they say “living on-chain”. The functionality of smart contracts works on sending messages under user calls — the only way blockchain transactions are broadcasted

Thus, smart contracts themselves are helpless when they need real world info (off-chain data). So, here is where the blockchain oracles occur.

Through Chainlink those entities cooperate on allegedly decentralised oracles networks (DONs), whose participants are numerous node operators who settle their own commission for users to retrieve under each data request.

In a broader sense, DONs represent the peculiar level of extra fee collectors incorporated inside the entire Ethereum ecosystem within multiple Ethereum Virtual Machine (EVM) — compatible blockchains, such as the Solana network.

Besides, Chainlink’s own cryptocurrency LINK simply represents the next Ethereum derivative ERC-20 token. So that proclaimed distributed network of node operators consists of those who join Chainlink community by staking LINK tokens to receive incentives (user fees) in the identical cryptocurrency.

Therefore, Chainlink has a vested interest in Ethereum and its accomplices, where the new ones evolving on the shoulder of others. Within the only target — to enrichen blockchain developers. Apparently, they also determines the existence of so-called decentralized finance (DeFi) built on smart contracts and the future of “programmable money”.

Unlike mainstream finance, crypto is hugely vulnerable to cascade collapses, based on enormous systemic risks in blockchain infrastructure. That’s not just bank runs phenomenon but precisely architectural runs exclusive for blockchain space.

In short, one single point of failure inside crucial blockchain infrastructure could swiftly damage or even destroy the entire system. Could you imagine the same happens to the global financial system? Nonetheless, should Chainlink persist here, it will reveal to the world the catastrophic chain reaction not only in crypto…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 72) by Dr. Olga D. Khon

There is a simple basic truth: Crypto can NOT survive beyond mainstream finance.

And the desperate battle for Grayscale’s Bitcoin ETF is the next convincing proof.

While ETF stands for exchange traded fund, Bitcoin ETF is supposed to rely on the price of purely speculative crypto assets vulnerable to wash trading and money laundering by default. Since it comes from the crypto design of anonymity of holdings and blockchain limits on scalability.

Besides, there are distinct discrepancies of crypto from the real world assets (RWA) under ETFs:

1.Manipulative market indicators: Crypto market prices are usually derived from so-called price aggregators (like CoinMarketCap and Coingecko) collected data from hundreds of exchanges. In general, quite fractured markets under volatile liquidity. That led to a high sensitivity towards any significant move driven by the crypto biggest holders (aka whales). Given the anonymity of ownership, it provide a vast opportunity for market price manipulations.

2.Lack of neutrality: Crypto service providers, as centralised exchanges (CEXs) or crypto funds, for instance, mostly being the whales themselves, unable to preserve neutrality and possess the direct commercial and personal interest toward Web3 industry.

3.Blockchain dependence: Crypto-related ETFs completely depend on blockchain nodes that settle service fees and transaction costs. Crypto assets as digital tokens exist and could be transferred solely throughout blockchain infrastructure. So, unlike mainstream derivatives, the crypto analogues crash as soon as the nodes infrastructure does.

4.Vulnerabilities for AML/KYC compliance and investor protection: Crypto service providers, inevitably grant the full disclosure of users (peer-to-peer, p2p) transaction data to the outside third parties — various groups of blockchain developers (e.g. Optimism sequencer for the Coinbase’s Base). In the dry residue, blockchain intermediaries acquire detailed transactional history whilst regulators and general public are fed by rather useless batched and compressed ledger data.

Well, definitely, Bitcoin or any other crypto ETF would harm the global financial system.

Though tensions are rising, and crypto goes all-in with its last bet…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 71) by Dr. Olga D. Khon

As far as I dig deeper in blockchain details, both functional and infrastructural, there is only discovery to share. That’s the absence of a self-proclaimed “peer-to-peer (aka P2P, decentralized or Web 3) innovative payment solution”.

What about the creative side of crypto? Well, it definitely refers to the ingenious and devious criminal schemes. Although particular details of each illicit finance’s crime differ, their malicious blockchain’s ground remains the same:

1.The entire space of blockchain or so-called distributed ledger technology (DLT) projects possesses a high degree of intermediation, at least, the same as those operating in mainstream finance. And even more in such ecosystems like Ethereum’s virtual machine (EVM) and EVM-compatible ones with (not so) smart contracts.

2.Continious public manipulation based on exploitation of psychological archetypes and enormously flexible concepts, proving their permanent shifts under global trends. When some terms acquire negative connotation, they could easily be substituted by the next solid-sound ones, for instance, programmable money, self-executed contracts, asset tokenization, credit ledgers, etc.

3.Populistic myth of decentralization since a significant part of the blockchain nodes (essential infrastructure) run through the centralized (aka Web 2) cloud service providers (e.g. Amazon AWS and Google Cloud).

4.Harmful penetration to academic society aimed to place Science in the service of ruthless criminals, go way beyond any public good and common interest.

5.Push for greater social inequality while targeting the most vulnerable communities and enriching criminals hidden behind the limited group of IT-specialists (aka blockchain developers).

To sum up, blockchain provides global fabric for the most outrageous crimes executed around the world, such as wars, sanction and tax evasion, money laundering, frauds, banned nuclear programs, human trafficking, slavery, etc. And, unfortunately, many more to come from crypto if not being prohibited.

As to address pro-crypto academic researchers, who glorify blockchain by numerous pseudoscientific theories, they graciously laboured as the accomplices to counterfeiters minting the myriad of false coins…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 70) by Dr. Olga D. Khon

Russian full-scale invasion of Ukraine and 17-months ongoing war force us to focus on the exact timing of origination for the dominant blockchains. Namely, the interconnected network of Bitcoin and Ethereum…

07 August 2008: Russia aggressively attacked Georgia. The five-days tension led to 20% of Georgian territory to be occupied by Russia till the very recent days.

18 August 2008: the domain “bitcoin.org” was registered, marking the stage of sooner creation of the first so-called cryptocurrency.

31 October 2008: Bitcoin’s Whitepaper initially appeared in public.

….

11 January 2014: Ethereum’s whitepaper was published (allegedly conceived in late 2013).

20 February — 26 March 2014: Russia attacked Ukraine and annexed the Crimean Peninsula.

…

February 2022: Rapid growth of inflows to Tera’s ecosystem within its stablecoin TerraUSD along with Ethereum staking.

24 February 2022 — … : Russia began the barbaric full-scale invasion of Ukraine.

09–10 May 2022: Following the asset boosting, Terra’s ecosystem has crashed.

So, whether the timing does matter in blockchain origination is up to the readers to decide…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 69) by Dr. Olga D. Khon

The crypto world is trembling these days on the public confession of Vitalik Buterin, one of Ethereum’s founders, made during his interview. Buterin admitted that core developers within Ethereum Foundation do have access to all the layer-two (L2) rollups and could intervene when needed ‘in case of bugs and other issues’.

What does it mean in reality?

Well, L2-rollups are currently used as the primary solution for cheaper gas fees (transaction cost) on Ethereum. These L2 rollups operate on smart contracts while shifting end-user transactions off-chain. And, thus, every smart contract deployed on Ethereum layer-one Mainnet (L1) is achievable for its core developers and originators (within user data and cross-chain transaction history hidden from the public and regulators).

Though, it’s not solely L2-rollups, but crypto bridges, crypto mixers, issuers of numerous ERC-20 tokens (incl. Worldcoins, Paypal’s PYUSD and other stablecoins — like USDC and USDT, liquid staking derivatives, interchain wrapped tokens — such as WETH, WBTC, etc.).

Besides, many crypto projects built on Ethereum smart contracts initially have to pay gas for their deployment on L1. That represents a blockchain service cost required on Ethereum, indeed.

Guess, the case points to doubtful attempts by those projects’ owners trying to persuade the global community of the ability to preserve user security and international AML/KYC compliance.

It also questions the outside audit services previously provided for Ethereum smart contracts.

Right now, the world revealed that Ethereum developers previously misguided their clients, again. And it’s done at the expense of their stakers — investors who deposited assets to run validator nodes, so far. Here we are, witnessing how smart contracts act for the vicious circle of Ethereum…

PS. But a way, Buterin received an honorary doctorate from the University of Basel in November 2018 without any undergraduate degree.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 68) by Dr. Olga D. Khon

The emergency launch of Paypal’s stablecoin (PYUSD) spurs interest in this topic.

Well, I’d suggest, the actual reason lies elsewhere. The timing signals us of the primary function stablecoins execute in crypto, and it’s not the peg fixing the price volatility.

Foremost, stablecoins serve as medium for enabling fiat-into-crypto swaps in decentralised finance (DeFi) and the whole area behind centralised exchanges (CEXs). The latter is currently going through hard times though.

Simply put, beyond CEXs stablecoins are the only resultive case for crypto to interfere with mainstream finance. Given the scale internationally imposed sanctions, stablecoins are probably the last hope for criminals to reach major fiat currencies nowadays.

Besides, Paypal’s stablecoin PYUSD is the next application of blockchain-based service with dark holes for global AML/KYC procedures and financial compliance.

From a technological point of view, PYUSD is an ERC-20 token issued on Ethereum, just like Worldcoin (WLD) we’ve recently discussed (see Note 66.«Worldcoin (WLD): An Incubator Child of Ethereum»). So, PYUSD holds at least the same birthmarks WLD bears considering the use of crypto bridges and layers-2.

In fact, due to kaleidoscope of interoperability tools blockchain space operates on, there is no possibility to distinguish illicit financial flows from the rest of crypto assets.

Should the crypto be a welcome door for criminals to the global financial system, stablecoins are their trump card here…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 67) by Dr. Olga D. Khon

Were you surprised when Worldcoin proclaimed to be “a new, collectively owned global currency”?

First of all, mainstream finance provides much more reliable ones, like USD, EURO, GBP, to the global world.

Then, why on Earth does someone need Worldcoin (WLD), if at all?

To remind, WLD is a crypto ERC-20 token and used to “grant” users for sharing their eyeball scans to the World ID project. Here is the trick: these grants are delivered on Ethereum layer-2 (L2) — the Optimism network — to which WLD tokens are bridged for the bulk of major transactions.

Simply put, WLD does NOT provide any independent infrastructure. And its financial architecture is an intermediary-provided blockchain use, fully dependent on Ethereum existence. You’ve got it right: there is no WLD without Ethereum.

Anyway, WLD is a colorful example of how crypto promotion works. And it pushed to recall peculiar Ethereum features remain behind the scenes:

1. WLDs as ERC-20 tokens are issued through the functions of smart contracts by its owner (the team behind World ID). This contract owner (an issuer of tokens) initially creates code, deploys smart contracts to Ethereum Mainnet (layer-1, L1), and pays gas fees (transaction costs) that are higher than regular token swap’s transaction.

2. Prior to ERC-4337, gas should be paid in Ether (ETH) (native Ethereum token) which itself is not an ERC-20 token. Therefore, DeFi space operates by the bridge-wrapped ERC-20 version of ETH, called WETH. Indeed, Ethereum operability solely survives on WETH-ETH bridges. Even though that since ERC-4337 (March 1, 2023) users could pay gas in various ERC-20 tokens or fiat currencies through a third-party service, they should cover additional costs.

3.WLDs (to be moved to Optimism network — an Ethereum’s L2 optimistic rollup) are wrapped through the Optimism bridge bearing next commission for the service. So, the issuer of WLD pays extra fees to Optimism for the use of its network while interacting with its own project participants.

4. There is a single centralised Sequencer — the only block producer that operates on L2 Optimism, collecting all the L2 execution fees. Meanwhile, L2 Optimism collects the other L1 data (or security) fee from users, though.

5.WLD tokens’ transition from L1 Ethereum to L2 Optimism breaks the case for public tracing, providing more vulnerabilities for insider and wash trading within other illicit activities. Given WLD transactions on Optimism are executed off-chain, risks are extremely high for ordinary users. When no single consecutive transparent link is served between each L2 transaction and L1 public ledger’s record. Besides, L2 blocks filled by L2 transactions are stored NOT on Optimism’s smart contract address on L1.

To sum up, there are too many intermediaries in the race of Worldcoin, just an incubator child of Ethereum, to be squeezed out like a lemon and thrown away.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 66) by Dr. Olga D. Khon

.Central bank digital currencies (CBDCs) were always perceived as cutting-edge financial innovation.

Until the case reached a “digital ruble”…

Such a duo of rotted ruble and the mystic “Russian digitalization” (see also Note 63. «Crypto in Russia: Prosecute Not Donate»).

Since the full-scale war against Ukraine within international sanctions and global isolation completely has the ending of the Russian economy.

So, digital ruble is an attempt for invisible transition of remaining capital outside the country utilising illegal crypto channels (incl. assets tokenization, interoperability tools, smart contracts, etc.).

Simply put, in the hands of war criminals, those popular crypto entities are decisively turned into the global criminal platform. This led not only to their personal enrichment but a long-term financing for a brutal war machine.

Apparently, ruble has already done the same hit before. While crypto, in particular, enabled criminal money to intervene directly into the legal part of the global financial system. Thus, through the assistance of the digital ruble, the entire financial world would be flooded with dirty money flows to be cleaned up for a long time to go.

In fact, the Russian version of CBDCs today is a sanctioned ruble runned-through an international crypto laundry for subsequent illegal conversion to the most liquid currencies in the world.

It reminds of a plot of the tale about Buratino and the Field of Wonders. Where Cat and Fox persuaded trusting Buratino to earth the coins and the Money Tree would grow.

Should digital ruble succeed in its homegrown trick to expand to Western markets, the only beneficiary would be the ruling elites. As for Russian people, they’d get colourful advertising and the next expropriation of any savings left.

Here is, unfortunately, “the Field of Wonders for a Dictator”…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 65) by Dr. Olga D. Khon

Debates around Ripple’s native token XRP to be labeled as security remind me of a story about legitimate children and otherwise.

In the case of Ripple, it has moved far beyond. A kid from a quite prosperous family is trying to convince the children’s service of them representing an orphan.

Well, but what if the birth certificate would be found?

The world of blockchain survives on the notion of the so-called interoperability tools. When tokens of multiple blockchains and numerous token standards could be transferred from one network to the other by the means of wrapping done through crypto bridges. Such services, generally, are based on smart contract technology.

In the context of public ledger, it depicts the break for transparent transaction history within the blockage for informative tracing. But most importantly, tokens could be skillfully replaced by each other amidst ‘undesirable’ regulatory regimes in various jurisdictions.

Let’s imagine a situation in which some tokens were legally recognised as securities, and its owners or issuers willing to overcome the regulation. In this instance, wrapping to different token standards is a trivial but, unfortunately, quite productive trick. Since that sort of activity executes beyond exchange trades with a subsequent use of alternative blockchain.

Therefore, tokens — Not_securities could act as derivatives for tokens-Securities (like ADA, SOL, etc.) which in turn safeguard the notion of underlying assets, and vice versa.

In this multi-level system of substitution the whole crypto tokens community represents a big family of blockchain, where Securities easily converts into Not_securities.

One is clear: Ripple alongwith its XRP token is just a pseudoorphan with living parents…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 64) by Dr. Olga D. Khon

It seemed Russian crypto promotion has hardly anything to surprise. Meanwhile, the issue came from the side nobody expected.

The next video instruction shared on the web guides newbies on how to buy crypto in Russia. The clip is rather superficial and could be a “garbage” one, if not pay attention to its creators. And this is a solid team of Russian opposition in exile.

Let’s try to point out the correct emphasis here.

First of all, the purchase of cryptocurrencies in Russia, under international sanctions imposed, is itself an intentional action for sanction evasion. And yet, the team from outside of Russia calls for such violations — in the name of so coveted crypto donations.

Second, it’s a quite risky path for any resident of Russia. The scheme suggested under the dictatorship could not probably protect sponsors from prosecution by the authorities. Even more, it plays on the security forces’ side.

The authors refer the viewer to the aggregator of shadow crypto exchanges serving Russian users within the country. And these services accept cash foreign currencies and rubles through the cards of sanctioned Russian banks.

In short, the criminal popularity of crypto is based on the option of account anonymity. The identification of real owners following their crypto wallets is a rather complicated task.

Although the dictatorship makes its own adjustments. Thus, every bank card transaction is already in the folder of security agencies. The shadow crypto exchanges are ready to share information covering data on crypto wallets and user transactions. So that names of the entire opposition crypto donators would reflect on the supervisory display of authorities.

Besides, these kinds of crypto exchanges depict the Russian authority itself — the collector of exorbitant commissions and unfavourable conversion rates. Anyway, the regime neutralises the anonymity of Russian crypto owners by default.

Worth to be noticed, the authors of that video do not provide any know-how. They simply appeal to one of the existing practices in Russia so far. But become the tough crypto promoters by application of their own media channels. Thereby deeply compromising the security of their sponsors to be severely prosecuted. And to those promo claims “execute not, donate” from Russia the better answer would be: “Execute, Not Donate”!..

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 63) by Dr. Olga D. Khon

Crypto fans have been trying to penetrate academic research for years. While working on public misguidance and science impersonation, this activity tends to build confidence in pseudoscientific crypto narratives.

Among other doubtful attempts is a recent one aimed to recreate the illusion of scientific explanation for purely speculative events. Namely, the price volatility of crypto assets or exchange rate fluctuations.

Well, such a superficial approach towards crypto pricing surprises even pro-active proponents, widely admitting the ex-ante speculative nature of the process. Since crypto assets could be simply swapped beyond any traditional exchange trades executed. For instance, through lending protocols, liquidity pools, bridges, or staking services as part of multi-level asset tokenization and collateralization (for more details, see the benchmark expertise of The US Treasury Review on IIllicit Finance Risk Assessment of Decentralized Finance).

These are all the various techniques peculiar to the crypto industry and have no direct impact on prices and exchange rates there. The case in the point here is so-called chain-hopping, when users move tokens rapidly between different blockchains interacting with decentralised exchanges (DEXs), aggregators or cross-chain bridges.

Given the anonymity of pseudonymity of holdings, price manipulation is an inevitable part of crypto markets. This particular feature within tools for obscured ledger tracing multiplied by unlimited amounts of cross-border transferrable funds makes crypto a favorite spot for malign players interested in money laundering, sanction evasion, tax avoidance and other criminal activities.

Therefore, the relevance of exchange rates and price levels inside the crypto sphere is a big question, as well as the volume of trading activity reported by the parties involved. Besides, crypto assets crack the gate for global wash trading. When tokens are artificially exchanged multiple times to imitate the trading activity between the same owners, running from legal responsibility under anonymity or pseudonymity is granted.

Urgent to emphasize that blockchain-minted crypto assets have purely speculative existential agenda. Rooting by zero intrinsic value and market manipulation is permanently incorporated for its survival and promotion.

So, the idea of mainstream asset pricing to be blindly replicating crypto as an allegedly scientific contribution inevitably fails by default. Even if one calculates a sort of money multiplier for crypto, this number would be just a useless informational appendage, confusing common research outline and misleading the general audience.

At the end of the day, genuine science would prevail anyway. Wish it will happen soon. And committed scholars would help to prevent the spread of speculation-driven pseudoscience with impunity praising market manipulations under the name of crypto asset pricing studies.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 62) by Dr. Olga D. Khon

Why is the special regulatory treatment for stablecoins a threat to the global financial system? In short, crypto injects dangerous criminal pitfalls into mainstream finance (TradFi), while stablecoins act as a welcome gate for the entire crypto initiative.

Despite all, stablecoins, particularly, asset-backed ones, are inaccurately promoted as a public good in contrast to the rest of crypto tokens. These arguments refer to the TradFi underlying reserves provided in the instance, such as fiat currencies, securities, or commodities — used to fix a peg for each stablecoin.

Although to depict stablecoins as something distinct from crypto drama is, at least, utopian. Stablecoins are indistinguishable from the other crypto assets and blockchain infrastructure by design.

From a technological perspective, stablecoins do not possess independent architecture ever to exist. They just represent derivative fungible tokens built on commonly established standards of peculiar blockchains (e.g. ERC-20 on Ethereum) and issued through smart contracts on a mint-and-burn basis. So, it’s fully dependent on underlying blockchain infrastructure (within inefficiencies incorporated by consensus mechanism), and the validity of data received from the oracles (a type of off-chain data providers).

Not to mention, it’s the same general token standards under identical functionality of smart contracts applied by so-called decentralised finance (DeFi) or centralised VASPs (virtual assets service providers), primarily, centralised exchanges (CEXs) and crypto lenders. These entities mostly issue their tokens using the same tool as stablecoins. Herein, stablecoins are the card in the deck of various crypto surrogates, including governance and other utility tokens or infamous memecoins.

By default, each transfer of stablecoins requires a blockchain transaction to be executed and recorded to the public ledger. In fact, these ledger records could not be as informative, transparent and traceable, as being currently advertised. For instance, multi-transactions could be broadcasted as a single record between multi-users’ sole accounts. Like the reality ERC-4337 recently brought to the Ethereum — yet the dominant blockchain for stablecoins origin nowadays.

Meantime, the data privacy of stablecoins’ owners is a big issue itself. While the information of interacted parties could remain undisclosed for the public and even regulators, it is always available for the private knowledge of core blockchain developers — beyond any user consent. So, the private data of clients would be revealed to legally unrelated pseudonymous third parties — blockchain developers, who totally control every smart contract launched ever.

As for the speed of transactions, stablecoins are vulnerable to sharp spikes in transaction fees and network congestion (and, thus, extended time of execution). Similar incidents occurred during waves of memecoins mania or non-fungible tokens (NFTs) allure. Besides, network congestion inside contemporary blockchain could be very human-made market manipulations.

By the way, stablecoins as representative of universally compatible token standards (for underlying blockchain ecosystem), could be swiftly transmitted into numerous cryptocurrencies while no trades and ledger records needed. These practices are available through so-called interoperability tools (e.g. cross-chain bridges) or other mixing-wrapping techniques (by the sort of “chain-hopping”, for example).

It works so that even those stablecoins’ owners who pass every inch of obligatory AML/CFT rules, could further engage in a bunch of criminal activities without raising red flags for regulators. Thereby, the life cycle of every stablecoin is an obscure path under weak investor protection (if any), criminal counterparties, and a mix of assets with doubtful origin.

Hence, regulatory control of AML/CFT policies for TradFi-circulated stablecoins could cover the primary market, and only partially. The secondary market would always be the fertile ground for illicit finance, money laundering, tax avoidance, and sanction evasion.

Evidently, modern stablecoins are simple applications to the existing blockchain and crypto industry. These artificial tokens work for the exploitation of public interests in global finance and purely serve to enlarge long hands of crypto in TradFi.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 61) by Dr. Olga D. Khon

What’s striking the most, when one encounters a crypto fan these days?

It’s the same old narrative applied since 2009 to promote blockchain as an allegedly innovative trustless technology for peer-to-peer (p2p) transactions beyond intermediaries.

So, an obsolete myth of trustless disintermediation the blockchain and, thus, all the cryptocurrencies should introduce to finance. Although the keen observer could easily cast a reasonable doubt on it — just at a superficial glance on blockchains, such as Bitcoin or Ethereum.

Right after modern blockchains incorporated so-called layer-2 solutions to cope with scalability problems, they openly turned into networks of numerous intermediaries. Where the former thrives on the activity of the latter.

So, in response to scalability limits, each layer-1 blockchain suffers, the crypto developers suggested layers-2, also known as a type of off-chain solution.

In other words, a bunch of intermediaries to trust. Trust toward unknown third parties fleeing financial regulation under obscure transaction records. In general, a layer-2 representative is an intermediary that batches multiple transactions off-chain into a single one finally recorded on-chain (to the distributed ledger). As they often say: “without a need for each transaction to be broadcasted to the entire network”.

Hereby layers-2 utilize the opportunity to save transaction fees (both for themselves and their clients), while in addition harvesting their own commission from the clients. Indeed, these layers-2 are quite commercially-interested entities.

Besides, the existence of layers-2 itself amplifies the crucial role of trust to be implemented inside the blockchain. Since every single transaction recorded to the public ledger through layers-2 infrastructure does not provide any information value or transparency of data. Neither for senders nor receivers of blockchain-executed transactions.

Should we say that consensus mechanisms of proof-of-work Bitcoin and proof-of-stake Ethereum, based on economic incentives per se, are the source of social inequality by praising intermediaries? Those staking and mining pools are just intermediaries themselves. By design, they acquire dominant mining and validating power. Thus, enormously beating ordinary investors (solo-stakers and solo-miners) in collecting more rewards, transaction fees within maximum extractable value (MEV) levels and extra commissions. Herein MEV collectors stand apart but also contribute to intermediation and inequality.

To conclude, there is no modern popular blockchain that meets the requirements of complete p2p-technology applicable to legal finance. And we should state the crypto failure with its ideology of trustless disintermediation!

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 60) by Dr. Olga D. Khon

For so many years, the phenomenon of Silicon Valley was perceived as the Mecca of the world’s cutting-edge science and technology. And how painful to realize, it turned into a dark place manured by crypto scammers, enormously harming the global financial system…

To recall, the backbone of the crypto industry’s survival is massive manipulation within the minds of investors and the general public. Then the major research centres bear the great responsibility to reveal and stress those hidden risks in front of a global society. The peculiar task of academic universities — the leaders of public opinion, serving to protect and establish a more solid ground of financial stability worldwide.

Besides, pretending the crypto sphere doesn’t exist while ignoring the risks it brings leads to such illustrative collapses like the one of Silicon Valley Bank. The irony is the bank carried the name of that Mecca of Science…

What has modern history taught us? Crypto represents a huge malicious tumour on the body of the global financial system, causing metastases. And we are all aware that urgent surgical removal is needed in a fight for life. Otherwise, the entire world would sense lost illusions that Silicon Valley has gone through crypto deception these days…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 59) by Dr. Olga D. Khon

How deeply have crypto projects undermined confidence towards banks and mainstream finance for years? Guess, they’ve gotten too far since mercilessly exploiting the core pillar of financial stability — consumer confidence in finance.

Well, the decade of history presents that crypto commenced building trust on the ground of mainstream finance (TradFi). For instance, through the claims that some “decentralised” initiatives are as safe as TradFi, but just being the more profitable version of it.

One of the prominent examples of such harmful behaviour is the experience of so-called crypto lenders and their infamous failures last year. Among them were Voyager Digital, Celcius, BlockFi, and Gemini. To recall crypto lenders were the entities attempting to assure the clients of the same coverage as FDIC bank deposit insurance provides, and, unfortunately, the manipulation succeeded, at least, in the past — prior to the crash.

Yet another controversy is a staking, on Ethereum in particular, which pretends to be like bank deposits. Clients of the same service nowadays face a severe bottleneck in regard to unstaking (staking withdrawals), the queue might take months or even years.

So, is it a coincidence that the primary source of the latest trembles amidst US regional banks was the one who cooperated with the crypto industry, namely Silicon Valley Bank? The bank engaged with eminent-size crypto clients, like the Circle — the issuer of one of the dominant stablecoins (USDC).

Wondering, how many other crypto projects were the clients of this bank and rushed to run first, boosting rumours, fears, and panic? In general, it’s the psychology of fraudsters — to not trust anyone…

So, if crypto represents itself as an alternative to TradFi, as it claims, then why does it always apply to TradFi tools to borrow part of the stability?

The bitter truth is, while being advertised, crypto projects always position themselves to be a kind of innovative alternative. But right after the obstacles occur, they appeal to the recovery instruments of the mainstream finance, and beg for rescue.

Indeed, the global financial system should protect confidence in finance and prevent the subversive activity of crypto …

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 58) by Dr. Olga D. Khon

UPD: Oracles included (May 3, 2023)

Indeed, how not to wonder about the resourcefulness of crypto developers to implement fundamental concepts into their own system? Nothing else but Dao, Ether, Oracle, Democracy, Privacy, and so on.

Sounds like a magic spell, right? In fact, these definitions, even remotely, have nothing in common with such important scientific notions.

In Ancient Chinese philosophy, Dao was stand for human spiritual evolution. Tens of thousands of pages were devoted to this development. According to blockchain developers, Dao is another commercial structure under allegedly autonomous management.

Ether is a luminiferous phenomenon based on electromagnetic oscillations. Or hyperfine matter pervading the entire universe. In line with Ethereum developers, Ether is just a cryptocurrency with no opportunity to rebut.

Oracle is a predictor of the future, whose divinations have never been in doubt. While in terms of crypto, Oracle banally refers to any third-party provider of data for smart contracts.

Democracy, as is known, represents the people’s power. So that the majority obtains the advantage in solving socially significant issues. In terms of crypto promoters, Democracy is free access to the blockchain system for every user through the extensive network of intermediaries.

Privacy means the protection of user data. In the hands of developers, privacy is a permissiveness.

I’ve noticed an extremely important trend that characterizes the ideologists of crypto as skilled equilibrists of conceptual tools. They apply Archetypical Images which function out of ratio and critique, to be the words of the first semantic series.

Profound experts argue Archetypes are inherent to all human beings, regardless of nationality, age, and geolocation. Little-studied psychological substances, settled in the depth of the human subconscious to affect reflective behavior.

These are the ones, who at the mercy of ignorant pragmatists obsessed with a delusion of pickings, become the catalyst of dehumanising manipulations!

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 57) by Dr. Olga D. Khon

Why does every stablecoin create on Ethereum inevitably fail proper AML/CFT control? And why was the case strongly exacerbated in the aftermath of EIP-4337 and Shapella Upgrade implemented this April?

Well, the genuine clue lies in the technological design of stablecoins per se. By default, stablecoins are tokens non-native to the underlying (layer -1) blockchain they are issued on. In other words, each stablecoin is a derivative token constructed in line with a particular fungible token standard (like ERC-20 on Ethereum), and under issuance as the mint-and-burn mechanism executed by smart contracts.

These primarily imply that all pitfalls of underlying blockchain impose the burden upon stablecoins, regardless of the volume and quality of its collateral, or other security mechanism, if any.

It also left the stablecoins legacy at the mercy of core Ethereum developers and originators, who publicly claimed to hold control under each smart contract (within users’ data so far) deployed to its blockchain.

Besides, any transfer of stablecoins between interested parties is a transaction executed on blockchain to be recorded on the ledger (initially used to possess a separate record). But given the current state of Ethereum with so-called smart accounts and gas abstraction, public and regulatory tracing of assets’ origin is enormously limited.

To recall options for transaction records through the public ledger, let’s point out several features available on Ethereum, nowadays:

1) participants are nudged to the use of off-chain transactions to be bunched for single-transaction-record on the ledger;

2) multiple users could execute numerous transactions from one single account (multisig wallet);

3) peculiar intermediaries could accept bank cards and ERC-20 tokens for gas fee (transaction cost on Ethereum) payments, erasing links between transaction senders and receivers;

4) amplification of social inequality when developers have access to lower gas fees whereas ordinary users lack the option.

Usually, the issuer of stablecoins is represented by some crypto project outside mainstream finance (TradFi). And herein above-mentioned obstacles for AML/CFT policies seem to raise red flags clearly enough.

Meantime, misconception could occur when, for instance, commercial banks issue their own stablecoin on Ethereum backed by fiat currency. Although risks and blocks towards AML/CFT procedures remain the same. And such commercial banks in this instance would miss proper AML/CFT filters.

Even if the bank-issuer obliges to distribute stablecoins among solely institutional clients, who would successfully pass complete AML/CFT checks. Simply because the eye of control dumps as soon as stablecoins enter a blockchain area. Neither the bank issuer nor its trusted clients could guarantee the absence of criminal use. Especially, when stablecoins would return to reclaim fiat currency.

Does the global society ready for the wave of vulnerabilities that Ethereum (in)stablecoins boost in a nutshell?..

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 56) by Dr. Olga D. Khon

Since the Merge (September 15, 2022), the case was solid: Ethereum developers wouldn’t let go stakers that easily. Simply because without their validators (who are the only block producers at the proof-of-stake consensus mechanism) there is no Ethereum at all. And the recent “Shapella” (Shanghai and Capella) update proved the conjecture.

To recall, a staker deposits a minimum of 32 Ether (ETH) to run one validator. Prior to Shapella, this initial stake (principal) and all further staking rewards were locked at the validator account on the consensus layer (CL) (starting with the launch of Beacon Chain in December 2020). And stakers neither had access to their assets nor could voluntarily leave. Despite this, Ethereum staking was massively and incorrectly promoted as a bank-deposit-like financial service.

For now, staking withdrawals are externally served at the crypto table. But, in fact, Ethereum stakers go through a narrow bottleneck of the final withdrawal queue. It means several queues to overcome, and an indefinite period of time to lose. Thus, alternative costs are at stake, as well. Given the price volatility of cryptocurrencies, it reminds me of a roller coaster played on stakers patience.

Let’s dig in. In short, there are two types of withdrawals available:

1) full withdrawal (or unstaking) of the entire validator account — staking rewards and the initial stake;

2) partial withdrawal (or skimming) of an excess stake (staking rewards atop 32 ETH balance).

To become eligible for any kind of withdrawal, validators should update their withdrawal credentials from 0x00 (BLS public key) to 0x01 (Ethereum address). This preliminary requirement creates a first-step freeze, tipping up hours to days for validators to wait (Nansen shows 79 848 validators need to change credentials, as of April 23, 2023).

Once a rotation of withdrawal credentials succeeds, partial withdrawals join the automatic loop of execution, known as “validator sweep”, while processing the final withdrawal queue. The line has a constrained throughput: 16 eligible withdrawals (both partial and full) per block (in a slot of 12 seconds) or a maximum of 512 per epoch (32 slots) or 115200 per day (225 epochs).

Meantime, to unlock full withdrawal, the validator should tentatively pass the “exit queue” — to leave an active validator set. This process itself represents restrictions and time delays. Herein validator:

1) sends a “voluntary exit” message and waits for approval;

2) joins the exit queue which processed a minimum of 4 and a maximum of “churn limit” (which currently equals 8 and represents the number of active validators divided by 65536) of validator exits per epoch;

3) passes exit queue (becomes slashed) and receives a fully “withdrawable” status;

4) waits for extra 256 epochs (around 27 hours) for a check of existing slashing penalties;

5) joins the final withdrawal queue along with skimming requests (maximum 512 partial and full withdrawals per epoch).

Besides, every “few days” fresh partial withdrawal requests (the maximum total number of active validators, around 560 000, as of April 23, 2023) are added to the final withdrawal queue, round by round of validator sweeps. So, full withdrawals are definitely too slow in execution, and months and months to stand by in the manner of a boiling coolant in an ageing engine.

Guess, these are dominant obstacles the so-called solo-stakers encounter. Although, the majority of Ethereum staking (more than 75%, according to Beaconscan data) relies on staking as service providers (e.g. staking pools, centralised exchanges, etc.). These intermediaries could implement additional restrictions for clients, enlarging the waiting period for their withdrawal claims.

And foremost, there is a case of clear precaution for possible money laundering and tax evasion. It’s the way Shapella revealed Ethereum staking withdrawals. The scheme depicts the ETH tokens migration from consensus to the execution layer (EL) as a type of burn-and-mint procedure, disturbing visual public links between the validator account on CL and the designated Ethereum address on EL. Simply put, when a withdrawal is executed, accumulated tokens on the validator account are burnt on CL, and new tokens for the designated Ethereum address are minted on EL. Therefore, Ethereum withdrawals have no ledger records, since no transactions occurred and no gas was paid.

It seems obvious that Ethereum has been transformed into a unilateral developers’ domain, who solely establish rules under their own distorted view of the world. Post-Shapella Ethereum depicts the vicious klondike of developers, who are eager to avoid responsibility before the society and the law.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 55) by Dr. Olga D. Khon

It’s been a month since the ERC-4337 launch in Ethereum. So let’s point to the shadows it brought to the blockchain, despite the loud dithyrambs chanted recently.

To recall, the ERC-4337 standard is praised for the opportunity to restore access to a user-controlled account (externally owned account, EOA) even if the seed phrase (private key) is lost. The procedure is titled «account abstraction». And, in brief, it allows the transformation of an EOA into a contract account (CA) or smart contract wallet (SCW) — a user account with smart contract functionality.

That should sound positive. Meanwhile, ERC-4337, in fact, presents clear a path towards illicit finance (sanctions and taxes evasion, money laundering, etc.). Depicting the next attempt of Ethereum developers to amplify the exploitation of traditional finance (TradFi).

First of all, ERC-4337 pushes every owner of SCW-account toward off-chain transactions. So that to initiate a transaction, SCW-user should create «UserOperation» (an analogue of a peer-to-peer transaction between two EOAs) and send it to a «Bundler». The latter bundles off-chain many of other SCWs’ UserOperations into a single transaction and executes it from the own bundler’s EOA. This record finally appears on-chain on Ethereum’s mainnet public ledger. Thus, by all accounts the bunch of plural off-chain SCWs transactions packaged as single on-chain records oppose any public blockchain tracing, crashing the concept of trustless technology so far. Guess, it would invite fraudsters to be more actively involved in Ethereum, indeed.

Moreover, the bundler pays so-called gas (transaction fee in Ethereum) while executing of the transaction on behalf of each SCW-user who compensates for the costs. And to cover such fee payment ERC-4337 provides SCW-user with an optional feature called «Paymaster», also known as «gas abstraction». And here is the trick. The provision of gas abstraction is linked to either an off-chain process through «Verifying Paymaster» (e.g. payments by credit cards or subscription services), or on-chain as «Deposit Paymaster» for transfers in ERC-20 tokens.

Verifying Paymaster creates additional concerns regarding proper anti-money laundering (AML) practices, given these underpinning Ethereum details:

A) an unlimited nature of transaction fee, based on which users do compete to attract block producers (bundlers under ERC-4337) for the transaction to be added to the block and executed first;

B) initial transactions sent by SCW-users, namely UserOperations, receive an off-chain record;

C) gas fees paid by smart-contract-type accounts are higher than those required for EOA.

Therefore, the option of Verifying Paymaster to accept fiat-based card payments for gas fee coverage diminishes the possibility of legal checks for these transfers inside TradFi. Meaning the criminal part of SWC-users would be ready to pay more to obscure money origin and outbid ordinary users.

Besides, inter alia, ERC-4337 enables various users to authorize transactions from one account through «multisig wallets». The greedy feature works on complicating the identification of crypto asset ownership.

In other words, since ERC-4337 the entire Ethereum ecosystem massively transformed into a global money-laundering machine, where illegal funds could navigate around the globe, crossing multinational borders and preventing public tracing on a blockchain. The standard represents the next «hide-and-seek» of Ethereum core developers.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 54) by Dr. Olga D. Khon

Crypto supporters used to hype turbulence in the banking system to falsely promote their industry as a better alternative. And this time is no different.

Meanwhile, the crypto world has experienced the event, the technicality of which, I suppose, swiftly reverses the confidence in blockchain promotion. At least, Ethereum existential agenda. But first things first.

At the beginning of March 2023, Ethereum developers vociferously declared that the ERC-4337 update was deployed. As stated, several renewals, primarily, account abstraction and direct access to off-chain transactions for ordinary users became available since then.

Despite massive discussion of functionality, one crucial detail of the ERC-4337 seems to remain on the sidelines. And this is the way ERC-4337 was speedy and easily deployed: as an addition with no protocol changes made through a smart contract titled EasyPoint. The move built a new layer atop Ethereum Mainnet.

Guess, this demonstrates that developers’ ability for further protocol updates on Ethereum is rather limited. And should any sensitive issues be solved, they would replicate the number of layer-2 storeys over its Mainnet. By the means of smart contracts among others, for sure.

Given the possibility of creating so-called upgradable smart contracts, and the full control of developers over its changes within every off-chain transaction executed, — the total authority concern is on the raise in the Ethereum ecosystem.

And this refers to a wide range of crypto projects. Such as issuers of stablecoins, NFTs (non-fungible tokens), utility tokens of DAOs (decentralised autonomous organisations) and other derivative ones, so as the entire DeFi (decentralised finance) with its dApps (decentralised applications).

Should the greater power the Ethereum originators and developers possess over crypto participants, would they face check or mate before the law?..

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 53) by Dr. Olga D. Khon

There is no doubt TradFi banking system attracted public attention last week. And it’s all about the swift collapse of Silicon Valley Bank (SVB) followed by a few others facing vulnerabilities, including Signature Bank.

Apparently, such a scandal case of Silicon Valley Bank shed the light on rather hard issues of the crypto industry as well. And, foremost, the so-called fiat-backed stablecoins.

If prior to the SVB collapse, it was quite enough to possess adequate reserves — to be attractive for crypto investors. Then, since the SVB crash, the need for safety and prominent risk management revealed its urgency for the emitter of any stablecoin.

As was unveiled, the crypto company Circle, the issuer of USDC stablecoins, held 3.3 bln. US dollars from the reserves for USDC as deposits made to SVB. Beyond regulatory assistance announced later this weekend, USDC rapidly de-pegged from one USD to about 88 cents. And it could be worse if not for the in-time actions of US regulators.

Besides, the impact spread not solely on TradFi, this de-peg of USDC caused chaos inside DeFi simultaneously, where stablecoins represent a popular collateral asset. And once again it was particularly TradFi and US regulators who prevented the panic inside DeFi and the entire crypto industry, which used to position itself as a tough opponent to the global financial system.

Actually, the SVB case brought us a prompt reminder of stablecoins’ fragility. Should we recall the complete dependence of any stablecoins on the infrastructure of underlying blockchains? Indeed, given that stablecoins themselves just represent derivative tokens built according to the pre-determined standards, so as minted and burnt through smart contracts deployed on each particular network. For instance, the majority of USDC is ERC-20 tokens on Ethereum (more than 94% of the total 39,4 bln. USDC in circulation, as of March 14, 2023).

Therefore, the future of all stablecoins is grounded on the shaky infrastructure of blockchains struggling with scalability issues so far. The same stablecoins are thought of as the most stable asset of crypto. Meanwhile, it’s just “thin ice”, nowadays…

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 52) by Dr. Olga D. Khon

Crypto DAOs are the next trigger of crypto advertising nowadays. To recall, crypto DAOs are massively promoted as community-oriented structures, with no central entity, that operates differently from traditional organizations, but is it so?

Bet the public is getting misled. So, let’s break down the context usually applied to present DAO or so-called Decentralized Autonomous Organisations as innovative governance.

The frequently shared justification is straightforward. DAOs arose in the crypto subfield known as DeFi (decentralised finance), and represent projects built upon so-called smart contracts: the automatic code execution programs.

The latter gives crypto promoters an option to rely on smart contracts’ functionality while arguing for non-human interaction involved and, thus, discrete regulation needed, as they say.

In fact, smart contracts are created by specific project developers to realize tasks required by the team of originators (they could traditionally be dressed into DAO’s foundations). Such teams often perform through the departments of HR, accounting, engineering, analytics, etc. Many of them even operate through physical offices around the world.

As for the rest of community-led participation in DAOs, the indication comes from its utility tokens whose holders could vote on decision-making. Guess, there is nothing extraordinary here, it’s the same way shareholders of traditional companies engage in similar procedures. Thus, everyone could call common stocks a concept of community-led governance, existing for a long time.

Then, is there something unique in DAO’s governance to require special benevolent regulation? Apparently, one peculiarity exists and is ubiquitous for the entire crypto industry. And it’s the anonymity or pseudonymity of holdings. Meanwhile, it raises much more questions for rather stricter regulation than the softer ones.

In general, the majority of voting rights belong to several accounts of DAO’s originators (foundation within developers, management team, and staff). Such cases place the postulate of decentralised governance in doubt.

Given the feature of anonymity or pseudonymity, the central authority rights could be visually dispersed on multiple accounts to create an illusion of decentralised ownership. Besides, the myth of the absence of central authority for DAO’s projects eliminates the responsibility in many ways, particularly, in the case of bankruptcy-like events.

Could you imagine a tech company hiding shareholders’ identities from regulators and asking for special treatment in return? That sounds ridicoulous. Yet crypto DAOs do the same before your eyes right now.

Crypto DAOs have nothing in common with the archetype of Dao — the symbol of spiritual personality development. Alarming the fact that manipulators misuse centuries-old unconscious archetypes for their self-serving purposes.

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 50) by Dr. Olga D. Khon

If you’ve ever thought that the crypto world encourages the evasion of international sanctions, you aren’t alone. And here is the new proof.

Currently, news outlets reported that Iran and Russia are planning to launch a gold-secured token for the application at their foreign trade settlements. Apparently, it would be a new stablecoin, the originators said.

Well, guess, issuing a stablecoin is not a big deal here, while it fails within the sanctioned borders.

Meanwhile, precise attention of the international regulatory community should be paid to the particular design applied. Above all, breach aspects referred to underlying infrastructure (e.g. the cross-border geography of nodes, multilateral participants involved in pseudonymity features, distribution of economic incentives, etc.) and interoperability loopholes (like those achieved through token wrapping, cross-chain bridging, off-chain mixing, and other techniques).

Thus, critical warnings would come from the stack of operations aimed at illegal interference with the global financial system throughout the crypto industry. And for worst — to fund criminal activities worldwide.

Indeed, there should be no way for sanction evasion done by banned state regimes! And it is more than important in times of global and local wars!

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 49) by Dr. Olga D. Khon

Why everyone should be cautious facing the enthusiasm of the next Shanghai upgrade on Ethereum?

Well, if succeeded, the hoped-for staking withdrawals would be enabled. So, stakers (investors) could demand their validators to leave Ethereum blockchain and unlock (unstake) Ether (ETH) deposited (staked) and earned as staking rewards.

At the same time, even following Shanghai, Ethereum’s developers might continue to hold stakers in tenacious hands. While being allowed to, validators should exit at a very limited rate. That is only six validators per epoch (32 slots for 12 seconds each or around 6,4 minutes) or a maximum of 1350 validators every day.

To remind you, there are 496 388 validators running on Ethereum, as of January 5, 2022, according to BeaconScan data. Thus, the bottleneck arranges a queue for more than a year for all validators willing to quit Ethereum.

Here is the question: was every investor deposited to Ethereum staking (either solo or through third-party services) aware of withdrawals to be strictly limited? Was it crystal clear to the public during intense advertising companies?

Recently, it’s been declared to expect Shanghai in March 2023. Still, nobody knows the exact terms of execution, whilst the timeline of “6 to 12 months after the Merge” mysteriously disappeared from Ethereum’s website at the end of 2022. Yet the industry reflected on multiple delays before the Merge, finally, happened in mid-September 2022.

Besides, despite the fact that validators are not the solely full nodes running on Ethereum, they are definitely the only ones responsible for block-producing on this blockchain.

Therefore, many crypto services within their tokens, like ERC-20 (e.g. stablecoins, utility tokens, etc.) and ERC-721 (various NFTs), are deeply dependent on validators to participate in Ethereum — the very underlying layer-1 blockchain for all of them.

In short, a number of active validators determine the vitality of Ethereum’s ecosystem per se. Once they exit, there would be no Ethereum at all. It looks like validators serve as galley slaves for Ethereum infrastructure.

Guess, UNstaking is pretty rotten icing on Ethereum’s cake. And who’d dare to taste it first?..

Published on Medium.com  "TradFi and DeFi: Broaden Horizons" (Note 48) by Dr. Olga D. Khon