News : Buterin’s billion-dollar Covid relief donation shrinks to $381 million

Wednesday, October 6, 2021

Buterin’s billion-dollar Covid relief donation shrinks to $381 million

Tokenised is your weekly read to navigate and mine the rich vein of crypto developments that flow through India and SouthEast Asia

Good Afternoon Dear Reader,

I hope you enjoyed Seema’s new newsletter Green Margins today morning. She laid out how India could soon be knocking on the doors of an energy crisis, quite like Europe and China, and how these frequent crises are a symptom of the bigger climate questions that face the world. If you haven’t read it yet, I highly recommend that you do.

But now, after a retail therapy break courtesy Seetharaman and a sobering climate change piece from Seema, we’re back to finance. But not the familiar kind.

With a combined market cap of US$2.2 trillion, cryptocurrencies have become too big to ignore but are still shrouded in many unanswered questions. Crypto companies have popped up all over the map and I am hoping this newsletter becomes a steady part of your information diet. Especially if you’re curious about the dizzying pace of developments in this sector.

Each Wednesday at 4 pm India time, Tokenised will land in your inbox with stories from India and Southeast Asia’s crypto-ecosystem.

We will keep the “x coin’s price went up, y’s went down” trope at arm’s length to focus, instead, on the utility these tokens actually hope to offer. And whether they live up to these promises. After all, that’s a tenet of ours here at The Ken: Others tell you the ‘what’, we tell you the ‘so what?’

Another principle we live by wholeheartedly is to listen to our readers and, to the best of our ability, shape our coverage to meet their needs. So please feel free to reach out to me with any questions, feedback, or topics you’d like covered at tokenised@the-ken.com.

With that, let’s dive right into this week’s edition:

Vitalik Buterin's billion-dollar Covid relief donation shrinks to $381 Million

Imagine dispatching a US$100 cheque to a charity and finding out that by the time it made it to their account, it lost over 60% of its value.

That’s pretty much what played out with a donation made by Vitalik Buterin, founder of the Ethereum blockchain, towards Covid-related relief work in India.

In May 2021, the country was in the grip of a terrifying second wave of Covid infections and help started pouring in from every direction. One unusual source was a donation of crypto meme tokens, worth US$1.2 billion at the time, made by Buterin.

Around the same time that India was grappling with a resurgent pandemic, creators of a dog-themed crypto token called Shiba Inu gifted Buterin 50% of its overall supply—about 500 trillion tokens. The gift was part of a marketing stunt that eventually backfired, but it is also the genesis point for our story.

Shiba Inu is a copycat of Dogecoin, another dog-themed crypto token created as a joke. While Dogecoin has limited inherent value and its creators did not intend for it to be taken seriously, it is wildly popular and has a market capitalization of US$31 billion.

Shortly after receiving them, Buterin destroyed 90% of the Shiba tokens and gave the rest away as charity. He donated 50 trillion tokens to India Covid Crypto Relief, a fund set up by Indian blockchain entrepreneur Sandeep Naliwal.

“When Vitalik’s donation came in, to be honest, it was a total surprise,” Punit Agarwal, a volunteer with the fund, told The Ken. The fund had collected about Rs 50 crore (US$6.7 million) up until then and was beginning to think about how to raise more. Buterin’s donation took care of that problem, but came with a few conundrums of its own.

To begin with, it triggered a 50% drop in the token’s price. Token holders figured that the massive donation would be liquidated, putting downward pressure on Shiba’s price, and decided to front-run the dip by selling their own holdings.

From trading at US$0.000032 on 12 May, 2021—the day the donation was made—Shiba Inu’s price dropped to US$0.000016 by the morning of May 13, 2021.

“Since it was in Shiba, there was peer pressure from volunteers... ‘Hey! Sell. Sell. Sell,’” Agarwal said. Eventually, the fund decided not to sell all of it at once because they also wanted to protect retail investors who had put their money into the token, he added.

[Source: CoinMarketCap]

The fund started looking for market makers (wholesale buyers and sellers in capital markets) to help liquidate the tokens in tranches instead. Wintermute, an algorithmic market maker that works with marquee crypto exchanges such as Coinbase, Kraken, and FTX, volunteered its services and proposed a plan of action to convert the Shiba tokens into USDC, a token that tracks the value of the US dollar.

“It’s not often that we can use these trading algorithms for anything but making money. So it was a great opportunity to use them for a good cause,” Evgeny Gaevoy, chief executive at Wintermute, told The Ken. He added that each Shiba tranche worth about US$50-70 million took about a week to sell.

Over the next few months the Shiba Inu tokens were sold in the open market and converted to USDC. The sale concluded only in the last week of September and by the time the dust settled, US$1.2 billion had become US$381 million. The value erosion was the result of both price fluctuations and a sobering of the initial excitement around Shiba.

[Source: India’s Crypto Covid Relief]

But getting the tokens into USDC was just one leg of the marathon. The other half was dealing with onerous regulations that govern foreign contributions to charities in India. Having converted Shiba into the stablecoin, the fund then converted the stablecoin into dollars and moved it into a US bank account used by its UAE-based entity.

Then the funds were moved to the accounts of India-based NGOs that are approved by the central government to receive foreign contributions under the Foreign Contribution Regulation Act (FCRA). “Basically the government has put up a notice that all the NGOs that have the FCRA [license] should have only one account, which is at the State Bank of India’s Parliament Street branch” in New Delhi, said Agarwal.

The relief fund has dispatched about US$37 million to aid organizations and research institutes such as the Indian Institute of Science (IISC), UNICEF, and Goonj, according to records shared on its website. While the donation to UNICEF went towards procuring injection syringes for vaccinations, the money given to IISC will be used to help set up a genome sequencing lab.

“Now we’re focusing towards long-term medical infrastructure for India,” Nailwal told The Ken. The fund is currently sitting on about US$410 million in crypto tokens and US$14 million in bank accounts, and while Naliwal says there isn’t a strict timeline around deploying it, the fund has become famous among NGO circles in India since, “all NGO(s) know that… Crypto Relief has money.” The fund gets about 15 to 20 pitches from aid groups and charities each month.

This story serves to illustrate two things quite well: It’s probably not a great idea to make large donations in illiquid meme tokens. And when it comes to stories in the crypto-sphere, looking beyond the headline (billion dollar donation, anyone?) is all the more important.

Though a counterpoint worth remembering here is that Buterin’s Shiba donation produced some good out of a token that might have otherwise remained just another speculative crypto-asset for people to bet on. Valuations change direction more frequently than the wind in crypto land, but if something good comes out of it, it’s perhaps worth a hat tip.

That’s also part of the reason why I chose this as the first spotlight story for Tokenised; a way to urge you to sift through the hype when you think about this buzzy technology. And I’ll surely be around to keep nudging you with reminders such as this one.

With that, let’s turn to some other notable things that happened in the crypto-world over the past few days.

At a Glance

Indian crypto exchange CoinSwitch Kuber raised a $260 million funding round co-led by Andreessen Horowitz and Coinbase Ventures. [TechCrunch]
Bhutan’s central bank has partnered up with crypto firm Ripple to pilot a central bank digital currency built on a private blockchain. [Ripple]
India’s crypto market ballooned by 641% over the last year, according to blockchain analytics firm Chainalysis. Vietnam and Pakistan were also key contributors to the growth of crypto in the region. [Bloomberg]
Twitter is working on a way for users to verify their non-fungible token (NFT) profile images. A preview shared by an executive at the microblogging giant shows that it’ll involve users linking their crypto wallets with the platform. [Twitter]
As China clamps down on crypto businesses and many of them leave Hong Kong, Singapore is betting that it has struck the right balance between caution and regulation. [Financial Times]

Back of the envelope

Stablecoin - Crypto-assets that track the value of a national currency like the US Dollar, British Pound Sterling, or Chinese Yuan. They usually don’t change too much in value unlike other volatile crypto-assets that are pegged to little but trader sentiment.

Popular stablecoins - Tether (USDT), USD Coin (USDC), Binance USD (BUSD)

Market capitalisation - Tether, USD Coin and Binance USD have a combined market capitalization of about US$113 billion.

What caught my eye this week

Blockchain play-to-earn game Axie Infinity now has a bigger market capitalisation than Ubisoft and Zynga, according to Messari’s research. Ubisoft makes popular games like Assassin's Creed and Watch Dogs, and Zynga is the studio behind titles like Farmville and Zynga Poker.

As reported by The Ken’s Jon Russell, the play-to-earn game has exploded in the Philippines and other countries in the region where players are managing to earn more playing than through regular employment. Venture capital has also begun pouring into blockchain games with VC juggernaut Andreessen Horowitz leading a US$152 million dollar funding round in Sky Mavis, the studio behind Axie Infinity.