Hello and welcome to the inaugural issue of the Web3 Rewind!

As the crypto winter continues to freeze the momentum of the market as a whole, some are experiencing what could be described as more of an ice age from the latest storms. Chief among these is the de-pegging of Acala following a hack that depleted the stable coin’s liquidity pool. The stable coin’s breach resulted in its developers turning the network off, begging several questions around the importance of centralization for networks, as well as the feasibility of asset backed vs. protocol focused stable coins. While it’s hard to know the damage caused by Acala, as Polkadot isn’t as populated as Ethereum, it’s another example of a centralized service blowing up, which is not good for wider confidence.

Other cracks in the ice can be seen as dealmakers weigh their investment decisions more heavily and now have higher expectations for their capital. Though this trend can be seen in other sectors it reaffirms that the macro outlook is not as bullish as it once was. In this same vein, other capital allocators have doubled down on the importance of value and the need to be more conscientious with the future development of the space. The goal of which is to separate the wheat from the chaff and establish a foundation that can be built upon, outside of the seasonality of bull markets. 

—Parker Dresdow, DeCential Media

DeFi Platform Acala’s Stablecoin Falls 99% After Hackers Issue 1.3B Tokens

Here we go again. The stablecoin aUSD, issued by the defi platform Acala on the Polkadot blockchain, lost 99 percent of its value after a hackers minted 1.28 billion tokens. D’oh! We last saw a crash like this was when Terra and its associated stable coin UST went to zero almost overnight in May. Terra Classic, formerly a top 10 coin, went from a high of $120 to zero while UST — which was supposed to hold parity with the U.S. dollar — crashed as low as 13 cents.

The aUSD hack appears to involve a bug in the open source code that was used to improperly mint billions of new coins. Here is the paradox of open source — it’s amazingly powerful in allowing developers all over the world to see the code and make improvements or adjustments. But on the darker side, it allows would-be hackers the chance to comb through the code to find any vulnerabilities. And if you’ve been paying attention to crypto, you know that once an exploit is triggered those funds are gone.

The damage here in monetary terms has been estimated at up to $10 million. In reputation terms, though, failures like this only serve to push new entrants from defi and web3, and the question of how and when security protocols will take precedence over speed to market or get rich quick schemes has to be asked.

The Taxman Cometh: Crypto Tax Enforcement is on the Rise

The pace of developing a tax regimen for crypto at the IRS could be called glacial, but that would be doing a disservice to glaciers. The IRS first had thoughts on it in 2014 and then like a hibernating bear went to sleep, except for five long years. It’s reminiscent of how the U.S. Securities and Exchange Commission has dealt with crypto — by basically not dealing with it at all until it announces its latest enforcement action. Oh, you thought your defi protocol wasn’t issuing unregistered securities? Tough shit, we’ll see you in court.

The IRS clearly has a can of worms on its hands, and it’s only getting more complicated as defi evolves. Airdrops, anyone? Read the story above for lots more gory details, and we’ll leave you with this ominous quote from tax attorney Guinevere Moore, “the IRS is not waiting for such guidance to be issued before enforcing the tax laws.”

Great! Now go trade!

DeCent People Podcast With Shevy Smith & Khalid Jones of the Ultimate Playlist App

A great conversation with the co-founders of the Ultimate Playlist App, which is letting musicians and fans interact in new ways, with the possibility of winning money just by listening to new stuff.

Why Kevin Zhou Believes Ethereum Will Have 3 Forks After the Merge