Seeds of Wisdom RV and Economic Updates Thursday Afternoon 3-06-25
Good Afternoon Dinar Recaps,
ESMA ACCUSED OF OVERREACH RE NON-EU CRYPTO PROVIDER GUIDANCE
Last Thursday Europe’s Target2 (T2) and Target2 Securities (T2S) interbank payment systems went down throughout normal business hours.
The European Central Bank (ECB) extended operating hours until midnight, as the system only came back online at 18:00, when the real time gross settlement (RTGS) would usually be taking its last instructions. It’s a relatively rare failure, but not unheard off – another outage of similar scale happened in October 2020.
There was one critical difference. The 2020 outage was on a slow Friday afternoon. This year’s was the day before month end, a busy time for both mainstream payments and securities settlement.
If there were a wholesale central bank digital currency (wCBDC) system, similar to the Banque de France’s DL3S, would that help to provide redundancy? At this stage our analysis is only ‘maybe’ and it will take a while.
Database failures and blockchain redundancy
At first the ECB identified a database error. Hence, it initially thought it couldn’t switch to the failover location because it was corrupted. Late in the day it found the problem was “an infrastructure component,” which we’d assume means a hardware failure. Hence, the database was switched to the failover location and the system was restarted after checks.
Without using blockchain, it’s possible to replicate databases in real time. That’s the way most large internet systems work. And from the description, we believe T2 does this.
Until recently, the approach used to be referred to as a master and slave database, which while politically incorrect, describes the relationship more clearly than primary and secondary.
If the primary database has been corrupted in some way, the replicated database is a copy that’s in exactly the same state. However, if one can identify a point (or transaction) where the problem starts, it’s often possible to roll back a few transactions on the replica, and get up and running from there.
By contrast, a blockchain works differently. Like database replications, there are multiple nodes.
But it provides redundancy because in the case of validating nodes (which can write to the ledger), each node’s ledger contents are not just copied from the primary ledger, they’re independently created based on transaction verifications. A bogus transaction can get approved by all nodes, but is likely to be deliberate.
The two bucket metaphor
An imperfect analogy is havings two taps, each with a bucket. In the replicated database case, one bucket has a flow of water and reaches a certain level.
The second bucket then has a tap that automatically switches on and aims to get to the same level. By then, the first tap is already filling up further.
In the blockchain case, the taps would drip water into their respective buckets in a synchronized fashion at the same rate.
However, blockchains aren’t really designed for situations where just one party (the central bank) writes transactions. If the sole purpose is redundancy, it’s a significant overhead to run a blockchain system that has to arrive at a consensus between nodes in order to write to multiple separate databases.
On the other hand, if there’s another purpose, such as enabling atomic settlement for securities transactions and programmability, then it might just be worth it.
The ECB has other redundancies
The ECB already has multiple strategies for T2 redundancy. In addition to the failover location, there’s also the Enhanced Contingency Solution II (ECONS II). However, it does not have the same level of functionality as T2, so it was only used for foreign exchange payments to CLS and margin calls by central counterparties (CCPs).
If something like France’s wCBDC had been in production, it would still need to tokenize money transferred from the RTGS (or escrowed) in order to function.
So in the first instance, if T2 was down, the wCBDC might also be out of action. If ECONS II were allowed to be used for banks to top up their wCBDC balances, then banks could potentially make some settlements that way. But ECONS II often requires additional collateral from banks.
There’s a much bigger reason why a wCBDC – in the early stages – is unlikely to help with redundancy. wCBDC systems are not designed to clone the functionality of an RTGS.
They usually have specific purposes targeted at the settlement of transactions relating to tokenized assets, whether that’s a digital bond or the interbank settlement of tokenized deposits. Hence, their integration with commercial bank systems will be focused on these functionalities alone.
That said, if there were a tokenized deposit system that was up and running with most banks onboarded, in a crisis it might be possible to switch to tokenized deposits and wCBDC as a primary solution for payments. But we’re currently a way off from that happening.
@ Newshounds News™
Source: Ledger Insights
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ECB CUTS INTEREST RATES TO 2.65% – WHAT IT MEANS FOR MARKETS & CRYPTO
▪The European Central Bank has reduced key interest rates to 2.65% to stimulate economic growth.
▪While lower rates may boost markets, inflation remains a concern, and bond market volatility suggests potential instability.
▪Geopolitical factors and internal ECB divisions make future rate cut timelines and impacts unpredictable.
The European Central Bank (ECB) has cut interest rates to 2.65%, down from its previous peak of 4.5%. This move follows a global trend where central banks are easing financial policies to support economic growth. In the U.S., traders expect at least three rate cuts from the Federal Reserve in 2025, while Germany and China are using government spending to keep their economies stable.
ECB’s Rate Cut: What Changed?
According to the ECB’s statement, key interest rates have been reduced by 0.25 percentage points. The deposit facility rate is now 2.50%, the main refinancing rate 2.65%, and the marginal lending rate 2.90%. These changes take effect on March 12, 2025.
Lower interest rates typically increase the flow of money, which can boost stock markets and riskier assets like cryptocurrencies. Analysts believe this easing cycle could push crypto prices higher, despite concerns over slowing economic growth. However, some worry that cutting rates too aggressively could cause long-term issues, especially since inflation in Europe is still above the ECB’s 2% target.
Bond Markets in Chaos
The bond market has already responded. Germany’s 10-year government bond yield has surged to 2.8%, its highest level in over a decade. This has narrowed the gap between German and U.S. bond yields, putting downward pressure on the U.S. dollar. The situation is similar to market shifts seen during Donald Trump’s first term, when global financial changes impacted currency values.
Meanwhile, U.K. bond yields have also risen, now surpassing those of the U.S. In Japan, the country’s 10-year bond yield has reached 1.5%, its highest in 17 years. The Bank of Japan, which recently raised interest rates after years of keeping them low, is now struggling to keep inflation in check.
Will Crypto Benefit From Lower Rates?
While the ECB’s rate cut may provide short-term relief, financial markets remain uncertain. If bond market volatility continues, investors might be more cautious with riskier assets like cryptocurrencies. While lower interest rates usually benefit crypto, sudden market changes could still bring instability.
Uncertainty Ahead: Inflation, Politics, and Growth Risks
Market analyst Max Wienke notes that while the ECB is expected to cut rates further, the outlook remains unclear. Inflation in the Eurozone has dropped slightly to 2.4%, which supports more rate cuts. However, unpredictable factors—such as Trump’s trade policies and the ongoing Ukraine war—add complexity. Divisions within the ECB are also growing, making it harder to predict the pace of future cuts.
The key concern is balancing inflation control with economic growth: aggressive easing could fuel inflation, while slow cuts might weaken recovery.
@ Newshounds News™
Source: Coinpedia
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BREAKING: TEXAS SENATE PASSES BITCOIN RESERVE BILL
This marks a major breakthrough for state-level SBR bills that so far have struggled to gain traction.
The Texas Senate has just voted in favor of a strategic Bitcoin reserve bill (SBR). The bill (SB21) has passed in a 25-5 vote. This marks a significant breakthrough for state-level SBR bills after some other states rejected them in quick succession.
Senator Charles Schwertner has stated that Bitcoin has proven itself to be "the most preferred because of its limited supply and adaptability."
The SB21 bill, which was originally filed on Feb. 12, stipulates that the reserve would be funded from appropriations, revenues as well as donations. It does not set a specific investment limit.
It allows investing in Bitcoin or an altcoin that has a market capitalization of at least $500 billion. Overall, more than 20 states have already introduced state-level SBR bills.
@ Newshounds News™
Source: U Today
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