This week in crypto: digital art, DAI, and (of course) coronavirus

The coronavirus may be throwing the world into disarray, but it’s not the only news out there this week. Despite the chaos, other interesting stuff has happened: The Winklevoss twins launched a digital art marketplace, and Bakkt raised a lot of money. But looming over everything else is COVID-19, which prompted the US government to delay the tax deadline. Which is good news for crypto holders trying to work out the intricacies of their liabilities.

Coronavirus triggers US tax extension

With the coronavirus pandemic showing no signs of abating, the US Treasury this week announced an extension to the 2020 tax deadline on up to $1 million in owed taxes until July 15, 2020. A statement on Wednesday by Treasury Secretary Steven T. Mnuchin stressed that taxpayers should still file their returns by April in order to claim on potential rebates.

"Americans should file their tax returns by April 15 because many will receive a refund. Those filing will be able to take advantage of their refunds sooner," said Mnuchin. 

"This deferment allows those who owe a payment to the IRS to defer the payment until July 15 without interest or penalties,” he added. “Treasury and IRS are ensuring that hardworking Americans and businesses have additional liquidity for the next several months."

Deferring the tax deadline will introduce "additional liquidity" into the market, he said, which will hopefully boost the economy by $300 billion. This measure comes shortly after the White House proposed plans to roll out a trillion-dollar stimulus package.

If you’re a crypto holder looking to file your US tax return, we’ve produced a handy guide to the process, and some of the pitfalls to avoid.

Winklevoss twins launch a digital marketplace for art.

This week, Cameron and Tyler Winklevoss launched a digital art marketplace called Nifty Gateway. It’s the first investment from Gemini, the crypto empire started by the Winklevoss brothers. 

Nifty is a neologism that refers to NFTs, or non-fungible tokens. These are the life-force behind crypto collectibles such as tokenized digital artwork. The premise is that, because these tokens are provably unique, they have scarcity and can represent digital stores of value. 

So a JPEG, worthless by itself, is worth something when represented by a digital token. Don’t buy the idea? Well, others—who spend hundreds of thousands of dollars on these things—do. 

Gemini’s new marketplace, Nifty Gateway, is in fact the shoe-shined, 2.0 version of the platform that’s been live for over a year. It’s now backed by Gemini’s own technology, and launches with two artists, and… an MMA world champion fighter, who’s selling digital paintings of herself. 

There will be a new exhibition every few weeks, with new paintings or artists each time, all featured on the front page. Unlike other marketplaces such as OpenSea, it seems as though Gemini’s focusing on a select few artists (rather than many). All the best, boys!

A stablecoin is backed by… a stablecoin

Remember how crypto was supposed to be a safe haven and then… wasn’t, and the crypto market tracked global markets, crashing amid uncertainty caused by the coronavirus pandemic? 

DAI, the decentralized stablecoin built by the MakerDAO Foundation, is now partially backed by a less-than-decentralized stablecoin, USDC, which is run by Coinbase and Circle. It’s all to plug a several-million-dollar hole of bad debt left by the crash of the price of ETH last week. 

Understanding how DAI works is complicated, so here’s what you need to know to understand the significance of the situation: users of the platform can pledge ETH or BAT (two popular cryptocurrencies) to take out loans of DAI, a stablecoin pegged to the US dollar. It’s tricky, but it means that DAI is stabilized by the price of crypto. 

Due to the way DAI is set up, when ETH crashed by around 30%, there wasn’t enough money backing DAI to maintain a stable peg to the US dollar. At its worst moment, DAI was worth 90 cents, with several million dollars of bad debt. For a stablecoin, that’s bad news.

To remedy the situation, the holders of MKR, the governance token of MakerDAO (don’t ask, just… “the community”), voted in favor of using the stablecoin USDC to back DAI. 

Still don’t understand? A centralized stablecoin is now backing a decentralized stablecoin. 

USDC is maintained by Coinbase and Circle, whose reserves are audited by Grant Thornton, a professional services firm whose offices in Central London are housed in the dreariest, greyest of skyscrapers, near a dismal train station called Euston—crypto’s ivory towers be damned. This “introduces more centralization risk to DAI,” Stani Kulechov, founder and CEO of DeFi lending protocol Aave, told Decrypt.

Yuk! Crypto is supposed to be protocols, numbers, lines of code, according to people within the industry. Not disgusting, hairy, sweaty, people! They’re prone to betraying, tricking, and fooling me… er, I mean, people. 

However, Kulechov noted that the community has set the “stability fee” for USDC—a fee that determines how expensive it is to take out loans of DAI—40 times higher than for ETH loans. “It seems that the idea is to keep a high stability fee, so as not to flood the system with too much USDC,” he explained. 

Bakkt raises $300 million

Remember Bakkt? The physically delivered Bitcoin futures contracts platform, pushed by the Inter Continental Exchange, the same organization that runs the failing New York Stock Exchange, where physically delivered refers to contracts where people guess the price of Bitcoin in Bitcoin, rather than placing bets (er, trades), in US dollars?

Amid terrible markets, Bakkt this week announced that it has raised $300 million in a Series B funding round. It was led by Microsoft, the Intercontinental Exchange, and PayU, among others.

Bakkt is moving into a wider variety of products, including  consumer loyalty points, in-game currencies, cryptocurrency, and cash. “Despite the size of this market, consumers still find digital assets to be difficult to access, confusing to keep track of, and challenging to use,” Bakkt CEO Mike Blandina said in a Medium post.

Bakkt’s upcoming consumer app, which will launch next season, will allow people to trade things like loyalty rewards and in-game currencies, which are normally non-fungible and stuck within corporate systems, for cash, the company said. Blandina said that Bakkt has so far partnered with 4,500 loyalty and incentives programs, among them seven financial institutions and two large US airlines. 

Blandina is particularly excited at the potential to unlock “nearly $1 trillion of digital assets when the Bakkt app launches this summer,” he said. Fortnite V-Bucks and CounterStrike knives at the ready!