Bitesize Blockchain - June 2022 - PKF Francis Clark
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Bitesize Blockchain – June 2022

Welcome to our first monthly round up of all things blockchain. Here, over the coming months, we will digest some of the biggest news that has taken place within the industry with articles from our team.

If you’re new to this space or a hardened blockchain veteran, you are most welcome.

This month, we break down all things UST/Luna, consider hibernating through crypto winter, explore digital fashion, and attend Pride in the metaverse.

Lets get stuck in.

Polygon Punk NFTVictory at all costs, victory in spite of all Terra…

by OP_Return

We are now at the end of June, and this article is a tad behind the times. I still feel like this topic needs to be discussed and understood. This is because I see daily news articles about the state of the crypto markets (which have looked better), but rarely do the articles talk about the incendiary spark that caused so much. The global economy looks… bleak. Inflation rates are spinning out of control like an unsupervised Catherine wheel, and there are a host of macroeconomic factors that are affecting not just the crypto market.

But lets draw attention to the stable coin, TerraUSD (UST). For anyone who just asked ‘what’s a stablecoin?’ let me break that down.

A stablecoin in crypto, is a coin that is designed to be exactly that. Stable. To date, they have generally come in two different forms, algorithmic and non-algorithmic. URGH MORE JARGON. I know, I’m sorry, and there’s more to come, so if I’ve lost you already, skip to the next article.

“OK I’m still here, algorithmic what?”

It’s actually easier to start with non-algorithmic stablecoins, as these maintain their peg (or link) to a fiat currency as the tokens are back by cash or bonds (i.e. they are collateralised by fiat related instruments). So, the basic premise is one token equals $1. This allows and facilitates a lot of transactions within decentralised finance (DeFi), as tokens can be used for loans or redemptions that maintain their value.

Algorithmic stablecoins may or may not have sufficient collateral backing them, but use complex algorithms to maintain their peg to the currency they track. They can also manipulate investor behaviour in order to maintain the peg.

Back to TerraUSD. Terra was an under-collateralised algorithmic stablecoin. Based on my explanations above, perhaps the alarms are already ringing. Why hold UST? Well because you could place it on a DeFi platform, and earn 20% on your holding. Certainly better than what you could can get at the bank. UST had a sister token, Luna, whose price was determined by the market but they were linked so that you were always able to swap 1 UST for $1 of Luna.

So what happened? This part, I will try and simplify. In a very short space of time, a few transactions swapped $185m UST to a completely different stablecoin (USDC). This was enough for UST to temporarily lose it’s peg to the dollar. Some investors started to panic, some realised the gain that could be made by swapping UST for Luna. This sent Luna into hyperinflation, supply entered the trillions and prices fell. Once the market cap of Luna sunk below UST, it was clear that not everyone would be able to get their money out, and there was no escaping the death spiral. In a last attempt to try and regain the peg, the foundation behind the project disposed of nearly $3bn of bitcoin (the rest of its reserves) to swap for UST, but it was too late. UST holders sold at lower and lower prices until there was no value left and the stablecoin collapsed.

$60bn worth of value disappeared in a matter of days.

The human toll of this project is far reaching. On paper, the more widely this project was adopted, the more stable it would be, and no-one saw this coming.


In times of crisis people usually turn to a leader. In this case, the leader of this project was Do Kwon, an individual whose confidence has not seemed to have faltered throughout, and in days after the collapse of UST and Luna… announced he was working on Luna 2.0.

When things go wrong, scrutiny starts to seep through the cracks. Twitter accounts were already likening Do Kwon to Bernie Maddoff (the American fraudster, one time chairman of the NASDAQ, who ran the largest ponzi scheme in history, defrauding around $64.8bn, penalised with a 150 year sentence), before they discovered Do Kwon was allegedly cashing out $80m in crypto on a monthly basis before the collapse. This came to light as part of an investigation by the US SEC as they suspect Kwon of money laundering.

Infamous hacker group Anonymous have also released a video targeting Do Kwon, and his previous involvement with another failed stablecoin project, citing his arrogance in the public domain.

It feels like a Netflix documentary that is unfolding in real time, and we certainly won’t have heard the last of it. Will this be the death of algorithmic stablecoins, or will the industry reflect, learn, and resolve to prevent another incident like this from happening again?

Time will tell. Some have lost pennies, others fortunes, and that pain isn’t limited to the digital space.

Bear with me – How do you plan to hibernate in the crypto winter?

by Walter

The sun is shining in a glorious British summer but in the deep dark recesses of the internet something strange has been taking place. Bitcoin, which has seen a long period of relative stability across 2021 and 2022 has begun to slump; its not a collapse with hysertia to sell but a steady decline across the market. Cryptocurrency is often a canary in the coal mine with the large price drop in early June 2022 reflecting the massive rise in inflation across the world and the increase in cost of living.

The reduction in Bitcoin value is reflected in the top Alt coins with Ethereum, BNB and Cardano’s graphs mirroring it. This decline across the sector indicates that we have entered a bear market and we have already seen the death of a major project, the stable coin TerraUSD.

A bear market occurs when prices in a market decline by more than 20%, often accompanied by negative investor sentiment and declining economic prospects. It is certainly a gauntlet for established and new blockchain projects as trust, liquidity and publicity all work against them. As interest rates rise obtaining funds to purchase into crypto become more expensive and present a higher risk to potential investors.

People working within this sector have been some of the first to take a hit with some of the largest exchanges laying off staff en masse.

Coinbase – Laid off 1,100 employees which represent 18% of their workforce.

Gemini – Have stated it will be cutting 10% of their workforce, representing 100 people. – Are set to lay off 5% of its workforce or 260 employees.

BlockFi – Announced it is reducing staff by 20% or 170 employees.

It is not all doom and gloom as Binance announced that they could still afford to hire more than 2,000 new staff and with the layoffs across the industry good talent should be available.

Key tips for keeping warm in the crypto winter:

  1. Always carry a towel
  2. Don’t panic
  3. Two heads aren’t necessarily better than one

Sorry, those are the rules from The Hitchhiker’s Guide to the Galaxy. Here you go:

  1. Research – Lots of projects will fail but others will rise. With the technology ever evolving there will always be new innovative projects. Keeping a keen eye on trends and new technology could give you an edge before the next bull run.
  2. Don’t panic (familiar?) – Keep a calm head and don’t make rash decisions based in fear or greed. Crypto is volatile but high-risk investments based on emotion or fear rarely succeed, stay calm and don’t panic.
  3. Take a break – Watching price graphs all day is exhilarating and exhausting, either way it’s good to step away. Exercise, play some video games or catchup with friends and family, the graphs (and crypto) will still be there when you get home.

The Rise of Digital Fashion

by Aurora

Born on the cusp of the millennium, I’ve never known a life without fast fashion.


Fast fashion is a new phenomenon born in the 1990s and 2000s. It is the mass production of cheap and trendy, poor quality, disposable clothing and it is causing serious damage to our planet.


Online shopping has taken off over the last 20 years and fast fashion retailers dominate our high-streets and social media. These retailers take the looks and design elements from the top fashion houses and reproduces them quickly and cheaply. Fast fashion has meant more people are now able to shop for on-trend clothes whenever they want so it’s easy to understand how the phenomenon caught on so quickly.


Growing up I would always look forward to my annual trip to Oxford Street with my mum. Nothing could compare to the buzz on that street with consumers flooding in and out of the shops. But even for me, clothes shopping was only an occasional event—something that happened a few times a year when the seasons changed or when we outgrew what we had. But even then, the clothes were poor quality, cheap and came in and out of fashion faster than you can say ‘cryptocurrency’. Clothes became cheaper, trend cycles sped up, and shopping became a hobby. A hobby that is damaging our planet.


To keep up to date with trends these hobbyists are buying more low-cost clothes, produced in third world countries, destined for the landfill.


Digital Fashion?


‘Digital fashion’, ‘The Metaverse’ and ‘NFTs’ are now buzz words that are being heard everywhere in the industry right now. But what is the fuss all about? So many big names in fashion are excited about the merging of technology with fashion but so many are apprehensive as well.


How could an in-store experience be replaced with a virtual experience of buying digitised fashion with cryptocurrency, and why would that benefit me? I can’t buy wear digital fashion?

Fashion is evolving. Consumers no longer need to visit a store to find out what is trending. This information can be obtained from platforms such as Pinterest and Instagram. Social media marketing and online shopping experiences have slowly and steadily digitised the shopping experience.


20 years ago there was huge scepticism surrounding e-commerce but today, digital shops have evolved to include experiences online that include trying an outfit by simply using your own photo, trying various shades of hair colour by face recognition, or view a 360-degree high quality image of a luxury sneaker before purchase.


The Metaverse is a digital sandbox, graphically rich in space where people can shop, socialise and play, and represent themselves through an avatar however they wish (for those that remember, think ‘second life’). Users can pay to purchase fashion items for their avatar to wear in virtual space.


Fashion experiences in the Metaverse is in its early infancy, an experiment that the industry is starting to dip their collective toes in, much like the early days of e-commerce. Online shopping platforms were slowly being built and worked upon but have since grown into some of the most influential spaces to buy, display and understand fashion. Now digital fashion teams are creating modern strategies to launch the big fashion houses into the Metaverse through NFTs (non-fungible tokens).


Fashion and art are intertwined. The look and style of a piece of clothing being combined with a sense of exclusivity. NFTs can provide exclusivity, and act as provenance to digital, or real world, items. We have seen NFTs already facilitate the buying, selling, and trading of items like art, real estate, music, sculptures, and also fashion.


Burberry, Coach, and Longines are already beginning to sell NFTs in their virtual fashion exhibition in the Metaverse. NFTs are providing an outlet for fashion brands, icons, and artists to showcase and sell their work.


Some brands such as DressX are combining fashion with augmented reality, with stunning success. Allowing for photos and videos to be taken in real-time of individuals wearing digital items. Want a summer dress for a photo in the garden? Well put your jammies on, and cycle through the digital items available for that perfect photo. No raw materials used, no questionable labour force.


Fashion on Blockchain


One element in fashion that Blockchain technology can improve is the transparency to consumers in terms of tracing product histories and a product’s authenticity. Customers can trace the origins of raw materials used to each item. This an exciting piece of tech for the new ethically conscious consumer. You can find out where the materials came from and if they are sustainably sourced.


The fashion industry is embracing blockchain. Prada, Richemont, and LVMH have partnered up and created the “Aura” blockchain group to offer such tracing solutions for their customers.

It’s hard sometimes to know where all this technology will take us. Who really knows what the future holds? Crypto fanatics, fashion fanatics and accountants like me are excited to see how big this whole digital fashion world will grow. Will we start editing new clothes onto our insta recent? Or start collecting NFT versions of exclusive sneakers instead of the physical ones?

Where have we been this week in the metaverse?


This month we have mostly been checking out Pride in decentraland, which ran through June. We attended Known Origin’s closing party for a bit, and checked out a number of the floats and displays. Check out the photos below.


Reader’s corner – the bit where we talk about books that we’ve read for any other bookworms out there

June’s book: “The Missing Cryptoqueen” by Jamie Bartlett, released June 2022

What is it about? Building on the work Jamie conducted when working on the incredible podcast series for BBC Radio 5 back in 2019, The Missing Cryptoqueen prises open one of the biggest scams in crypto history. It’s magnitude and reach is simply unreal.

What did we learn? In the crypto space, don’t buy into hype. Do. Your. Research.

Nothing included within this article is considered or intended to constitute tax, investment or financial advice.

For disclosure purposes the authors contributing to this article hold a number of different cryptocurrency tokens.

For more information contact the cryptocurrency tax team.

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