Liz Coyne

In the weekly roundup episode of Blockworks&#8217; podcast &#8220;<a href="https://podcasts.apple.com/us/podcast/lyn-alden-explains-connection-between-inflation-bitcoin/id1558223079?i=1000513411286" rel="noreferrer noopener" target="_blank">On the Margin</a>,&#8221; Michael Ippolito, co-founder, sits down with Senior Editor Tyler Neville to talk about the news in macro, including: <a href="https://cms.blockworks.co/fis-opens-bitcoin-floodgates-for-banks/" target="_blank" rel="noreferrer noopener">NYDIG</a> rolling out bitcoin to &#8220;hundreds of US banks,&#8221; <a href="https://cms.blockworks.co/goldman-sachs-doubles-down-on-crypto-with-derivatives-trading-team/" target="_blank" rel="noreferrer noopener">Goldman</a> and <a href="https://cms.blockworks.co/citigroup-gets-back-into-crypto/" target="_blank" rel="noreferrer noopener">Citi</a> mulling trading desks, and Cathie Wood&#8217;s ARK ETF dips 30%.



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&#8220;On the Margin&#8221; is a two-part show.&nbsp;Once a week, Mike interviews industry experts, and then at the end of the week he is joined by co-host <a href="https://cms.blockworks.co/newsletter/" target="_blank" rel="noreferrer noopener">Tyler Neville</a> where they break down the top crypto and macro stories. Episodes go live every Wednesday and Saturday morning.



Subscribe to &#8220;On the Margin&#8221; today on <a href="https://podcasts.apple.com/us/podcast/lyn-alden-explains-connection-between-inflation-bitcoin/id1558223079?i=1000513411286" target="_blank" rel="noreferrer noopener">Apple</a> or <a href="https://spoti.fi/3bTa9uw" target="_blank" rel="noreferrer noopener">Spotify</a>, or watch the episode on <a href="https://www.youtube.com/playlist?list=PLvER9nHSRN3xVs_p-dl7L7K_ZgL6lSudu" target="_blank" rel="noreferrer noopener">YouTube</a>.

Banks Offer Bitcoin, Cathie Wood’s ARK Stumbles

Shalini Nagarajan

Blockchain data analytics platform Nansen recently suffered a security incident that exposed some users&#8217; email addresses and passwords.



The breach appears to have originated from a third-party vendor whose system was compromised, allowing an attacker to obtain admin rights to an account used for granting customer access to Nansen.



Nansen CEO Alex Svanevik stated that the company became aware of the attack on Sept. 20. Initial investigations indicate that about 6.8% of its users are affected by the breach.



“These users had their email addresses exposed, a smaller portion also had password hashes exposed, and a last, smallest group also had their blockchain address exposed,” Svanevik <a href="https://twitter.com/nansen_ai/status/1705137387838574904">said</a> in an X post on Friday.



“We have informed our users via email if and how they’ve been affected,” he added.



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<blockquote class="twitter-tweet" data-width="550" data-dnt="true">🚨 Important update from us at Nansen. Please take a moment to read this. <a href="https://t.co/syKE0sNnC6">pic.twitter.com/syKE0sNnC6</a>&mdash; Nansen 🧭 (@nansen_ai) <a href="https://twitter.com/nansen_ai/status/1705137387838574904?ref_src=twsrc%5Etfw">September 22, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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A Nansen spokesperson declined to disclose the name of the vendor, but said it has asked them to communicate on the incident publicly in case others are affected.



Nansen contacted affected users via emails sent from its official support@nansen.ai email address on Sept. 21 between 5 pm and 9 pm UTC, instructing them to reset their passwords.



The team also informed users that while their passwords are not stored in plaintext, malicious attackers could still attempt to gain access to accounts using the compromised password and email address.



Data breaches have become increasingly frequent in the industry of late.



NFT platform OpenSea <a href="https://blockworks.co/news/opensea-warns-of-phishing-attacks-due-to-data-breach">told users about a data breach</a> in June last year when staff discovered that email addresses had been shared with an external party.



Last month, ConsenSys <a href="https://blockworks.co/news/metamask-security-breach-consensys-says">disclosed</a> that about 7,000 MetaMask users had their private information, including email addresses, compromised between Aug. 2021 and Feb. 2023.



Also in August, embattled crypto companies BlockFi and FTX also <a href="https://blockworks.co/news/block-ftx-data-breach-kroll">reported being indirectly impacted</a> by a cybersecurity breach related to third-party claims administration platform Kroll.



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Nansen alerts users to security breach involving vendor

Sebastian Sinclair

Options contracts for the quarter on the leading global crypto derivatives exchange are due to expire at month&#8217;s end, a timeframe that has traditionally seen heightened market volatility.



The week ahead marks the month-end and quarter-end expiry date for bitcoin (BTC) and ether (ETH) options contracts for Deribit, with nearly $5 billion notional expiring on Sept. 29.



Luuk Strijers, Chief Commercial Officer at Deribit, told Blockworks the figures this September are consistent with this year’s trend when compared to the previous June&#8217;s $5.4 billion and March&#8217;s $5.2 billion expiries.



The current quarter&#8217;s expiries account for 35% of the platform&#8217;s open interest, involving 113,000 BTC and 1.1 million ETH options contracts, <a href="https://metrics.deribit.com/options/BTC">Deribit data</a> shows.



“Quarterly expiries are typically the most significant, in terms of volume and value,” Strijers said. “In the past month, we have seen stable markets while the Gamma of the September expiries has increased gradually as a function of time.”



In simple terms, Gamma measures how sensitive an option&#8217;s price is to a change in the price of the underlying asset, in this case, BTC and ETH. A rising Gamma means that, as the asset&#8217;s price changes, the option&#8217;s price will change quickly.



In spot markets, a rising Gamma in options can have a ripple effect. When Gamma increases for options, market participants holding those options may have to adjust their positions more frequently to hedge their risks.&nbsp;



Adjustments often involve buying or selling the underlying in the spot market. If Gamma is rising and the price of BTC increases, an option holder might need to buy more BTC in the spot market to remain hedged. Conversely, if BTC&#8217;s price falls, they might need to sell BTC.&nbsp;



The effect of an options expiry depends on the open interest for particular strike prices and how they relate to the current market price, Strijers said.&nbsp;



If a position has a strike price significantly different from the current price, it will likely expire worthless, lessening its impact on trading.&nbsp;



On the other hand, if the strike price is close to the current market price, it could attract more trading activity, potentially leading to increased price fluctuations and volatility, the Deribit executive added.



“The impact of an uneven distribution of Gamma amongst traders would have [previously] resulted in much more volatility as compared to what we have seen these days,” Strijers said. “Therefore we don&#8217;t anticipate strong market moves in the coming week.”&nbsp;



The consensus around September’s expiry is forecasted to have little effect on digital asset spot prices, according to other analysts Blockworks spoke with.



Le Shi, head of trading at Auros said lower volatility in crypto is affecting institutional interest, implying a stable crypto market is likely, especially when juxtaposed with other financial markets that offer higher returns.



“Lower implied volatilities are reflective of the market consensus that not much is expected to happen in the near term,” Shi said.



Markus Thielen, Head of Research and Strategy at Matrixport agreed, adding there existed waning interest in options trading, specifically the decline in premium prices for option sellers.



“While volatility tended to trade at a hefty premium, the decline in premium is now synonymous with picking up pennies in front of a steamroller, Thielen said. “The potential approval of a US-listed bitcoin ETF has added event risk to the mix that is tough to manage for option sellers.”



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Deribit quarterly bitcoin options to expire, but volatility impact should be minor

On Thursday, a federal judge in California denied a motion to dismiss a case against key figures in Compound Labs and its associated entities, following allegations they violated financial regulations by selling unregistered securities in the form of COMP governance tokens.



Plaintiffs in the case, initially filed 13 months ago, argue those in control of Compound effectively acted as unregistered &#8220;sellers&#8221; of securities under their soliciting role.



&#8220;They assert one cause of action against a range of defendants for violation of sections 5 and 12(a) of the Securities Act of 1933,&#8221; according to a court filing in the US District Court of Northern California on Tuesday. 



They’re also unhappy with the price of the tokens, which have since fallen significantly from a peak in May 2021, when it reached more than $850. COMP is currently trading at a little over $38, down more than 95% from its all-time high.



The individual defendants include Compound Labs&#8217; co-founders Robert Leshner and Geoffrey Hayes. Associated entities include Bain Capital Ventures, Polychain Academy, AH Capital Management, Paradigm Operations and Gauntlet Networks.



Collectively, these entities allegedly control a significant portion of the <a href="https://blockworks.co/price/comp">COMP</a> token voting power, per the filing. It’s alleged fewer than ten people control over 50% of COMP tokens and, therefore, have significant influence over the protocol’s governance.



Blockworks reached out to Leshner and Compound representatives but has yet to receive a response.



Compound was initially created by Hayes and Leshner in 2017 with its Mainnet launching a year later. The protocol allows users to lend and borrow crypto, relying on smart contracts to handle operations.



Each COMP token holder can suggest and vote on modifications to the protocol, including the way its reserves and treasury are managed. A single COMP token equates to one vote, purportedly allowing for democratic decision-making.&nbsp;



If a token holder chooses not to participate in voting personally, they can assign their voting rights to another holder wanting to be actively involved.



The court found that the plaintiffs had &#8220;plausibly alleged&#8221; that each defendant solicited the public to purchase COMP tokens, thereby denying the motion to dismiss the case. A case management conference is scheduled for Oct. 10.



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Securities lawsuit against Compound founders, investors to proceed

Bitmain has agreed to invest $53 million in embattled bitcoin miner Core Scientific alongside a new hosting agreement, as the sector grapples with historically low prices.



The Beijing-headquartered ASIC supplier will plow $23.1 million in cash into the mining company, with the remainder slated for Core Scientific shares, the companies revealed Thursday.



The agreement is contingent upon a year-end approval of a Chapter 11 reorganization plan for the mining firm. Bitmain’s hosting contract with Core Scientific is intended to back its mining operations, the companies said.



It includes the supply of 27,000 Bitmain S19J bitcoin mining servers, with a maximum <a href="https://blockworks.co/tag/hashrate">hashrate</a> of 151Th/s, to Core Scientific. The servers are slated for delivery in the fourth quarter of 2023 and are expected to add 4.1 EX/s to Core Scientific&#8217;s self-mining hashrate, they said.&nbsp;



It comes as the mining sector stares down historically low hash prices — the expected revenue per petahash per second of hashing capability for a miner, according to the <a href="https://data.hashrateindex.com/chart/bitcoin-hashprice-index">Hashrate Index</a>.&nbsp;



Core Scientific says it operates more than 200,000 miners, 99% of which are Bitmain S19 models. The new hardware is expected to improve Core Scientific&#8217;s mining efficiency.



As of the end of August 2023, Core Scientific had a total energized hash rate of 22 EX/s per second, according to a statement. The two companies have also agreed to upgrade older Bitmain models hosted at Core Scientific&#8217;s facilities, aiming to further increase the company&#8217;s hashing power.



Core Scientific, currently in the throes of <a href="https://blockworks.co/news/bitcoin-miner-core-scientific-to-file-bankruptcy-stock-tanks-30">bankruptcy proceedings</a>, is attempting to shore up its business after being caught up in the chaos of last year’s market rout.&nbsp;



CEO Adam Sullivan, <a href="https://blockworks.co/news/core-scientific-new-ceo">recently hired in Augus</a>t, hopes to pull the company back on track and is anticipating an <a href="https://blockworks.co/news/core-scientific-new-ceo-2">exit of its bankruptcy</a> by year’s end — though no definitive timeframe has yet been given.



The Texas-based miner fell on hard times following the collapse of FTX which sent crypto prices reeling alongside a hike in operational costs, namely, rising electricity prices for crypto miners.



In a securities document dated Nov. 21, the company revealed it needed more cash to sustain operations through 2023 and expressed uncertainty about its capacity to secure financing or tap into capital markets.



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Core Scientific gets $53M from Bitmain in bid to re-energize bitcoin mining business

James Cirrone

In the ongoing FTX case, Judge Lewis Kaplan accepted the US government’s motion to disallow testimony from seven individuals who Sam Bankman-Fried and his legal team believed could educate the court on the fallen crypto exchange’s procedures.



Attorneys representing the Department of Justice moved to throw out all of Bankman-Fried’s proposed witnesses in late August, and they have now gotten their way.



One desired witness for the defense — Lawrence Akka, an English barrister — was set to testify on FTX’s terms of service, stating that it “did not contain a declaration of trust over any fiat currency, but gave rise only to a contractual creditor-debtor relationship,” according to a Aug. 29 court filing from US attorneys.



Now, the court says that Akka’s testimony isn’t something that would help the jury understand FTX’s terms of service but rather that he’s simply offering “legal opinions as to the meaning of the contract terms at issue.”&nbsp;



Read more: <a href="https://blockworks.co/news/sam-bankman-fried-doj-discovery-testimonies">Government moves to toss seven testimonies in Sam Bankman-Fried case</a>



Therefore, his testimony wouldn’t qualify under the <a href="https://uscode.house.gov/view.xhtml?req=granuleid:USC-1999-title28a-node246-article7-rule702&amp;num=0&amp;edition=1999#:~:text=If%20scientific%2C%20technical%2C%20or%20other,L.">US code’s Rule 702</a>, which states that if a witness’s expertise can assist in the jury’s understanding of matters of fact, that person can opine in the courtroom.



The defense also sought testimony from consultants Thomas Bishop and Joseph Pimbley and data analytics expert Brian Kim on topics relating to FTX’s financials, its software, and document metadata.&nbsp;



The judge denied all of their potential testimony on the grounds of <a href="https://www.law.cornell.edu/rules/frcrmp/rule_16#:~:text=of%20the%20Disclosure.-,The%20disclosure%20for%20each%20expert%20witness%20must%20contain%3A,the%20previous%2010%20years%3B%20and">Rule 16</a>, which ensures the government discloses certain evidence it plans to use during the trial. If <a href="https://blockworks.co/tag/sam-bankman-fried">Bankman-Fried</a>’s attorneys believe that the witnesses can push back against government witnesses, then Bankman-Fried can file to allow certain witnesses to testify. However, the government may object to the filing.



<a href="https://blockworks.co/news/sbf-bail-decision">Bankman-Fried’s bail was revoked in early August</a> after the court said he engaged in witness tampering by allegedly leaking Caroline Ellison’s diary <a href="http://nytimes.com/2023/07/20/technology/ftx-caroline-ellison-bankman-fried.html">entry</a> to the New York Times. He’s now in jail at the Metropolitan Detention Center in Brooklyn awaiting trial, which begins on Oct. 3.



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Bankman-Fried’s expert witnesses can’t testify, judge says

Bessie Liu

Aztec has revealed a new testing environment for developers who want to build privacy-focused smart contract apps.



Joe Andrews, Aztec’s co-founder and head of product, told Blockworks that the Aztec Sandbox brings together software pieces that represent “a full implementation of the future execution environment that the Aztec rollout will have.”



Developers will have access to a private execution environment, or an RPC server, which can generate proofs.&nbsp;



This means developers can construct a transfer transaction that will create a zero-knowledge proof, which mutates the encrypted data, and change it in a way that can not be observed — proving to the network that a transaction is accurate without revealing the information.



According to Zac Williamson, co-founder and CEO of Aztec, there are three privacy categories when it comes to blockchains.



“You have user privacy, data privacy and code privacy,” Williamson explained. “User privacy is hiding the identity of the transaction center. Data privacy is hiding the information and encrypting the information that they are transacting with. Code privacy is hiding the actual knowledge of the contracts that they are communicating with.”



Williamson went on to note that Aztec is designed to achieve these privacy categories. This means that when a transaction is sent on the network, the only thing that will be visible from the observer&#8217;s perspective, is that the encrypted information would be added to the network state.&nbsp;



“All of this gets bundled together into an easy-to-use package that you can download as a developer, open up Visual Studio code, and start writing contracts on Aztec and test it against the Sandbox,” Andrews said.



Aztec’s major focus is building a platform for engineers who want to write smart contracts with strong privacy guarantees but lack the complicated mathematical know-how typically required.



“We’re creating a lot of patterns and designs from scratch, which has made our roadmap more complicated than other [layer-2s],” Williamson said.



The Sandbox is the first step on the development roadmap for Aztec.&nbsp;



The team is currently working toward a testnet launch with the goal of going live next year. Aztec’s execution environment, fee model, sequencers and provers are future points on the roadmap.



“We want to launch Aztec as a fully decentralized [layer-2],”&nbsp; Williamson said. “You can’t have identity on blockchains without strong user privacy guarantees.”



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Aztec advances privacy product roadmap with test environment launch

Andrew Thurman

A “routine” Binance account consolidation process sent gas fees on Ethereum soaring, prompting accusations of incompetence on Thursday.&nbsp;



At approximately 6 am ET, an address labeled Binance 14 received hundreds of incoming ether transactions. Per Etherscan, the process sent gas prices as high as 280 gwei — over twenty times more expensive than the 13 gwei at the time of writing. 



The activity briefly made the address one of the largest gas guzzlers on Ethereum, as the wallet was responsible for 83% of fees at the peak of the transfers. Top spenders tend to include the decentralized exchange Uniswap, various MEV bots, and layer-2 networks settling transactions to the base chain.


<div class="wp-block-image">
<figure class="aligncenter"><img decoding="async" src="https://lh3.googleusercontent.com/6M72JeG1TyD9gcp0l1MsumSsNMXeJ5au8t8rPiecxwBZUWlQT8ZHJLNLJH9V5qM9wllDD05AfXeccn2TgOfT2gFEH9F3gGmgR9s3c-1jx649jT9IipIFbsBnOV5Cbwm4_Gy4VpRbXvKfJ1Ucn8E53l4" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://etherscan.io/dashboards/gas-guzzler">Etherscan</a></figcaption></figure></div>


The <a href="https://etherscan.io/address/0x28c6c06298d514db089934071355e5743bf21d60#analytics-txfees">Binance 14</a> address has spent $842,000 in total gas fees on a 24-hour basis, and just $562 in the last three hours. Over the course of its existence, the address — which currently accounts for $250 million of Binance’s <a href="https://portfolio.nansen.ai/dashboard/binance">nearly</a> $56 billion in holdings — is responsible for $95 million in gas expenditure between both incoming and outgoing transfers. 



In a statement to Blockworks, a Binance spokesperson said, &#8220;Binance carried out a routine consolidation of [ether] <a href="https://blockworks.co/price/eth">ETH</a> to one of its wallets. Any impact to gas prices was unintentional but quickly resolved.&#8221;



Indeed, throughout its existence the Binance 14 address has seen a number of gas spend spikes, including one on Dec. 9, 2022 that led to an 880 ETH spend over a 24-hour period.&nbsp;



Binance was the target of ire on social media as a result of the account consolidation process, with many observers noting that if they had simply spread the transactions out over a longer period of time, the gas spike would have been significantly subdued.&nbsp;



As a result of what some <a href="https://twitter.com/SOLenjoyoor/status/1704810573928767644">labeled</a> as inefficient methodology, Binance ended up spending more on gas than they would have otherwise and made the network more expensive for others.&nbsp;



“Every interaction I have had with them screams of incompetence,” said Rotki app founder Lefteris Karapetsas of the transfers.



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Binance account consolidation sends Ethereum gas fees soaring

Katherine Ross

The Financial Conduct Authority gave crypto firms marketing to UK customers a “final warning” ahead of the financial promotion regime implementation.&nbsp;



The regime comes into effect on Oct. 3.&nbsp;



“All firms marketing crypto assets to UK consumers, including firms based overseas, must comply with this regime,” a letter from the FCA stated.&nbsp;



The FCA published a <a href="https://www.fca.org.uk/publications/good-poor-practice/firms-preparations-cryptoasset-financial-promotions-regime#:~:text=and%20poor%20practice-,Firms'%20preparations%20to%20comply%20with%20the%20cryptoasset%20financial%20promotions%20regime,on%20good%20and%20poor%20practice&amp;text=Ahead%20of%20the%20cryptoasset%20financial,understand%20how%20prepared%20they%20were.">post</a> detailing good and bad practices on Sept. 9.



“It is up to consumers to decide whether they buy crypto assets, but they should do so based on fair and accurate information that helps them make effective investment decisions,” the FCA said. As part of the&nbsp;



The Sept. 21 <a href="https://www.fca.org.uk/publication/correspondence/final-warning-cryptoasset-firms-marketing-consumers.pdf">letter</a> comes as the FCA expresses concern about the “poor engagement from many unregistered, overseas crypto asset firms who have UK customers…”



The letter also said that the firms “refused to engage with the FCA” despite efforts, and “only 24 firms responded to a survey that was sent to over 150 firms.”&nbsp;&nbsp;



Read more: <a href="https://blockworks.co/news/uk-proposes-bringing-crypto-under-regulatory-eye">UK proposes bringing crypto under regulatory eye</a>



Once the regime is in place, unregistered firms caught violating the law could face “up to 2 years imprisonment, an unlimited fine, or both.”



As <a href="https://blockworks.co/news/uk-fca-deadline-crypto-marketing-regulation">part of the new framework,</a> crypto companies are expected to make their marketing fair and accurately labeled with risk warnings. Campaigns that engage in incentive schemes are prohibited, such as marketing that uses a refer-a-friend bonus.



The regulations establish four legal avenues to market to UK customers, which include both qualifying for exemptions and regulatory approval.



“From this October, crypto firms must market to UK consumers clearly, fairly and honestly. And they must provide risk warnings people understand,” said Lucy Castledine, director of consumer investment, in a statement.



However, in early September, the regulator <a href="https://www.fca.org.uk/news/press-releases/fca-sets-expectations-ahead-incoming-crypto-marketing-rules">said</a> that there was a possibility that some firms could be given until Jan. 8 of next year “to introduce features that require greater technical development.” Firms are required to submit an application for flexibility, and they must be registered or authorized with the <a href="https://blockworks.co/tag/fca">FCA</a>.



Earlier this week, the former chair of the FCA <a href="https://blockworks.co/news/uk-fca-crypto-firms">alluded to politicians pushing for crypto</a> firms to enter the market and insinuated that the regulator should have been more cautious.



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FCA issues ‘final warning’ to crypto firms ahead of Oct. 3 marketing regulation rollout

Upland, a metaverse platform mapped to the real world, is launching an NFT fundraiser to help support an American nonprofit building playgrounds in neighborhoods that historically haven’t had access to them.&nbsp;



KABOOM! has built or renovated over 17,000 playspaces since its founding more than 25 years ago. According to Upland chief of staff Danny Brown Wolf, ending playspace inequity is a mission that resonated with users of the Upland metaverse.&nbsp;



“Our community members who are avid Uplanders brought in…KABOOM!,” Wolf said, adding that some of those members participate in real world fundraisers for the playground manufacturer.&nbsp;



Thanks to the community members, KABOOM! was able to get in touch with the Upland team so a fundraiser could be facilitated in the metaverse through in-game map assets.&nbsp;



Map assets in Upland equate to <a href="https://blockworks.co/tag/nfts">NFTs</a>, and users can buy assets such as land, houses, apartments and even decorations for their virtual living spaces. 



So, in that same vein, Upland is selling an NFT playground collection with 1800 NFTs, the proceeds of which will be going to KABOOM! Upland takes a 10% transaction fee.



The minting process, visible to all metaverse participants through an in-game representation of a factory churning out the playgrounds, will be underway on Thursday. The first sales will begin on Friday.



The collection was designed by an Uplander who is a graphic artist. It features five different playgrounds that, once bought by a user, can be put in their virtual backyard, Wolf said.&nbsp;



This isn&#8217;t Upland&#8217;s first charitable endeavor. In December 2022, Upland launched a similarly-styled fundraising campaign, this time with UNICEF Brazil to fund its “youth program teaching metaverse and Web3 skills to young adults who wish to work in the industry,” according to Wolf.



This sale featured ornaments and winter gnomes that people could buy to adorn their virtual homes for winter — just like in the real world, Upland has seasons.&nbsp;



Leveraging its established relationship with UNICEF, Upland initiated a sale of items in February to aid the victims of the 7.8 magnitude earthquake in Turkey and Syria.



Both sales of these winter decorations raised a combined $89,692, Wolf told Blockworks.&nbsp;



Wolf views the UNICEF fundraiser, as well as Upland&#8217;s involvement in other metaverse funding projects, as testament to the medium&#8217;s validity and a confirmation of its future business model.



Wolf said that “just like every impact organization has a social media team that does GoFundMe campaigns on Facebook,” she wants to see the same use case play out in a broader sense in the metaverse.



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Upland to sell NFTs to raise money for equitable playground access

Ben Strack

The upcoming bitcoin halving could be a boon for the share price of payment company Block, as Berenberg Capital Markets analysts argued bitcoin’s impact on the stock is more than it should be.&nbsp;&nbsp;&nbsp;&nbsp;



The correlation between Block shares and the price of bitcoin — standing at 0.61 — “appears to be a case in which investors’ perception of the impact of bitcoin on the company’s prospects matters more than the reality,” the analysts said in a Wednesday research note.



A potential price boost to <a href="https://blockworks.co/price/btc">bitcoin</a> with the <a href="https://blockworks.co/news/bitcoin-halving-a-year-out">upcoming halving set for April 2024</a> — an event when rewards offered to bitcoin miners are cut in half — could support Block’s stock price, the note adds.



History would suggest bitcoin’s price could spike in the upcoming halving’s aftermath, <a href="https://blockworks.co/news/anniversary-of-2016-btc-halving">industry watchers have said</a>. Matt Lason, chief investment officer at crypto hedge fund Globe 3 Capital, told Blockworks in July that such events “serve as a great reminder for everyone of the power of bitcoin’s monetary policy and the true value of scarcity in an inflationary world.”



<a href="https://blockworks.co/tag/block">Block</a> — formerly known as Square — was founded by <a href="https://blockworks.co/tag/jack-dorsey">Jack Dorsey</a> and Jim McKelvey in 2009. Square remains the name of its payments platform for businesses, while mobile payment service Cash App is another one of its main offerings.&nbsp;



The company’s stock price was $45.39 at 1 pm ET Thursday — down about 30% year to date. Berenberg’s price target for Block shares is $75.&nbsp;



<h2 class="wp-block-heading">A questionable correlation?</h2>



Investors have used stock in Block as a means of gaining bitcoin exposure since the company announced in November 2017 that it would facilitate BTC trading for customers, according to Berenberg analyst Mark Palmer.



“There are more equities that provide that kind of exposure now, but Block stands out because of its high profile and large market capitalization,” Palmer told Blockworks.



Stock prices with a correlation to bitcoin higher than Block’s 0.61 correlation include Coinbase and MicroStrategy — at 0.93 and 0.90, respectively, he added.&nbsp;



Read more: <a href="https://blockworks.co/news/microstrategy-bitcoin-buying?utm_source=CryptoNews&amp;utm_medium=app">Will MicroStrategy ever stop buying bitcoin?</a>



Block officially launched bitcoin trading on Cash App in 2018. The total sale amount of bitcoin sold to customers of the mobile payment service during this year’s second quarter <a href="https://blockworks.co/news/block-earnings-cash-app-bitcoin">jumped 34% year over year to $2.39 billion</a>.



The company invested $50 million in <a href="https://blockworks.co/tag/bitcoin">bitcoin</a> during the final quarter of 2020 and an additional $170 million in the crypto asset during the first three months of 2021. The fair value of the company’s bitcoin investment was $245 million, as of June 30.&nbsp;



Block’s affiliates include Spiral, an independent team focused on open-source work around the Bitcoin blockchain and TBD, a builder of decentralized platforms, protocols and tools.&nbsp;&nbsp;



Still, <a href="https://blockworks.co/tag/cash-app">Cash App</a> reported just $44 million in gross profit from bitcoin transactions in the second quarter — a fraction of its total gross profit was $968 million in the three-month span.&nbsp;



The bitcoin that Block held on its balance sheet at the mid-year point — when adjusted for fair market value — represented 0.79% of its total assets, Berenberg analysts said.



“The impact of bitcoin on Block’s operating performance is not all that significant at this point,” the Wednesday Berenberg note states.



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Bitcoin, Block shares more correlated than they should be: Berenberg

Darren Kleine

“It’s a wild time to be building in crypto,” says Josh Cornelius. “The macro environment is obviously horrible. Twitter sentiment is horrible. NFT volume is horrible.”



“But then you look at some of these new tech stacks that are emerging — and it&#8217;s just such an exciting time to actually be building in consumer crypto.”



Speaking on the On the Other Side podcast (<a href="https://open.spotify.com/episode/2l4CfSyfXhfRNU9TuWXuQq">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/90-the-next-wave-of-consumer-crypto-w-seed-club/id1570685120?i=1000628720852">Apple</a>), the Seed Club incubator partner explains that the program is focused on supporting the development of consumer-facing Web3 apps. “We ended up selecting 10 [projects], all pushing on interesting and weird edges of consumer crypto.”



These aren’t your typical DeFi or DAO-tooling projects, Cornelius insists, saying the new projects are focused on the consumer experience “through and through.”



As most crypto investors fled to the <a href="http://blockworks.co/news/quicknode-blockchain-development-platform">relative safety of building infrastructure </a>during recent <a href="https://blockworks.co/news/bitcoin-short-term-apathy">bearish conditions</a>, Seed Club founder Jess Sloss says “the world never looked better for building consumer experiences in crypto.”



“The infrastructure had never been better.”



“What we&#8217;re hearing from builders,” Sloss continues, “is that they had the tools to go do interesting things, but that maybe the interest from the money wasn&#8217;t quite there.” Sloss says he observed a “mismatch” between builders and money, giving Seed Club the opportunity to “step in.”&nbsp;



“We have deep belief in this stuff. And we believe we can find some incredible teams who are pushing it at new and novel edges.”



<h2 class="wp-block-heading">Feels nothing like Web2</h2>



The Seed Club incubator program’s most recent cohort saw nearly 300 applications, from which they chose 10 to support, Sloss explains. “What&#8217;s interesting from that experience is, you get to see a wide selection of the visions people have out there in the space.”



“We have 10 teams of incredible builders with big visions and over the last two and a half months, we&#8217;ve seen them just run at it very, very hard,” Sloss says, adding that he’s excited to “open the doors and let other people see what we’ve been seeing for the last few months.”



Sloss explains that the new projects will tap into “new potential mechanisms for value creation that exist in the <a href="http://blockworks.co/tag/web3">Web3</a> space.”



“We&#8217;ll see which ones are enduring and create lasting value. But at the very least, we&#8217;re running at new, interesting opportunities rather than the sort of the <a href="https://blockworks.co/news/investors-guide-blockchain-gaming">very thin games</a> that exist today.”



Cornelius says the current cohort of Seed Club’s developing projects consist of “novel consumer experiences that feel nothing…like Web2.”



“We have a project called Sofamon, which is hard to describe,” he says. The app is a browser extension that acts as a wallet interface, he explains. “It&#8217;s this cute little bunny that reacts to all of your on-chain interactions. If a friend sends you tokens, if something happens in your wallet, it reacts.”



“Your friend can jump onto your screen and, you know, slap you if you did something dumb on-chain. They&#8217;re building this completely new social layer to on-chain experiences.”



Cornelius mentions a few other projects that focus on building a “lifestyle culture layer” for IRL experiences and “ephemeral art installations” that enrich the experience and “make it fun to be there.”



Sloss then details another project dubbed SenSpace. “They&#8217;re being very methodical in building their core community of creators,” he says. “They’re not <a href="http://blockworks.co/news/magic-eden-nfts">running at the 10K PFP</a>, not running at the speculation side, but using these <a href="https://blockworks.co/tag/nfts">NFTs</a> as a way of really bringing those creators into this world of SenSpace.”



“Each entity is a <a href="https://blockworks.co/news/mastering-nfts">soulbound token</a>, but more importantly, each one is a character and a world that is designed specifically for that creator.”



Sloss explains that the tokens act as a means to encourage buy-in to the community, where the creators then collaborate with others in the network. “You start to see the compounding effects of that, even over the last two months that we&#8217;ve been working with the team.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG7692827018" width="100%"></iframe>







It’s an implementation of NFT technology where the “asset ties a group of people together,” Sloss says, “but speculation isn&#8217;t the core incentive.”



“It&#8217;s going to lead to new, interesting opportunities — and we&#8217;re seeing the early stages of that already.”



“At the core,” Sloss says, “is this novelty around <a href="https://blockworks.co/news/real-world-assets-empire-buzzwords-defi">what a token can be used for</a> and how it can bring people together, coordinate people and create value together.”



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Seed Club’s latest cohort focuses on apps that ‘feel nothing like Web2’

Gamers hate NFTs, according to Helius co-founder Mert Mumtaz.



And due to the broader gaming community’s disdain for blockchain tech, he doesn’t believe it makes a whole lot of fiscal sense for game producers to pursue Web3 possibilities.



On the Lightspeed podcast (<a href="https://open.spotify.com/episode/7pYuukmg8wwVjqE8KmsUrp?si=WrfH_pExTbKGXUp98mWWHA">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/web3-gaming-a-false-hope-or-cryptos-path-to-mass/id1697548240?i=1000628690075">Apple</a>), Mumtaz asks Ryan Wyatt, the former global head of gaming at YouTube and current president of Polygon Labs, what it will take for the Web3 space to overcome the hate.



“It’s gonna be a great game,” he says. “There’s not [any] great games yet.”



Wyatt acknowledges that many <a href="https://blockworks.co/news/investors-guide-blockchain-gaming">blockchain-based games</a> are “really interesting, conceptually,” but there are no “good games” yet.



“The thing about all this is capital,” Wyatt explains. “Last year, between <a href="https://blockworks.co/tag/polygon">Polygon</a> and <a href="https://blockworks.co/tag/immutable">Immutable</a>, the amount of capital deployed and games that are building on one of those two stacks was one and a half, two billion, something like that” via <a href="https://blockworks.co/news/framework-ventures-crypto-games">venture capital funding</a>.



“How many of those games are pivoting back into Web2?” he asks. “Probably a decent amount.”



Out of those who remain in <a href="https://blockworks.co/tag/web3">Web3</a>, Wyatt asks, “how many of them are going to be good games?”



Wyatt says consumers must first enjoy a game simply because it’s good, after which they may realize, “Oh shit, I can do these things” with blockchain technology. “The experiences just have to unfold and happen,” he says.



“The problem with betting on games being the catalyst for blockchain and crypto is [that] good games take a very long time to make,” he says, “and this has gotten harder over the years.”



Wyatt explains that the top-performing games own a “disproportionate amount of market share,” making it increasingly difficult to attract consumers to alternatives.



“But at the end of the day,” he says, “it&#8217;s not actually that complicated. You just make a really great game. Gamers will start to play it and they&#8217;ll just start to interact.”



<h2 class="wp-block-heading">Pay-to-win?</h2>



A good blockchain-based game will still have to overcome a range of user-experience hurdles, Wyatt says. “I&#8217;m going to create this wallet and <a href="https://blockworks.co/news/what-are-seed-phrases">seed phrase</a>, and then I’ve got to link it over here. And then I go to a <a href="https://blockworks.co/news/thailand-facebook-phishing">phishing scam</a> and it&#8217;s gone.”



“We have some work to do, it will take many years to do,” he says, “but that is what will happen.”



Wyatt adds that a Web3 game doesn&#8217;t need to be “high-fidelity” for it to break the popularity barrier. “Minecraft is what changed YouTube for gaming, and that game looked like complete shit when it first came out.”



“The base layer of that game was very basic in a lot of ways, but fascinating in others — [it] totally changed YouTube gaming forever.”



Wyatt reflects on the success of games he describes as “pay-to-win” in traditional gaming, such as Diablo Immortals and a variety of mobile card games. “Crypto attracts those categories, but I don&#8217;t like that. I don&#8217;t think that&#8217;s where the interest is best fit.”



Wyatt sees a more natural fit for blockchain in games based on open economies and marketplaces as well as in games that focus on user-generated content (UGC), “like a Roblox where you can create mods or game modes or maps or whatever.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG5362803788" width="100%"></iframe>







Wyatt suggests <a href="https://blockworks.co/news/crypto-gaming-web3-argus-labs-web2">blockchain will likely best fit in games</a> where money doesn’t influence outcomes, but enhances the ecosystem itself. “Where you actually are leveraging these UGC ecosystems and digital ownership is where the beauty is.”



“Games where money dictates outcome always scare me with crypto,” he says, “because crypto will take advantage of that. Just inherently, I think it does.”



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What will it take for gamers to stop hating NFTs? Great games, says Polygon’s Wyatt

Patrick White

In 2022, the crypto world was captivated by a lawsuit that wasn&#8217;t about Coinbase, Ripple or Grayscale. It was about Joshua and Jessica Jarrett, two Tennessee taxpayers who took on the IRS over Tezos tokens created through staking. Instead of choosing a position, the IRS demurred, sent a refund, and the case was dismissed.&nbsp;



This left the crypto community, eager for regulatory guidance, in limbo. Fast forward to July 31, 2023, and the IRS has released new guidance on staking rewards.&nbsp;



Spoiler alert: It&#8217;s a mess.&nbsp;



The IRS&#8217;s new stance is inconsistent with current tax laws and burdens staking providers.



Why is this so complicated?&nbsp;



Well, as with all things crypto, staking is anything but straightforward. At times, staking can feel like mining — you validate a few blocks, and suddenly, a coin is deposited into your wallet, ready for immediate use. That certainly feels like income.&nbsp;



But more often than not, unlocking those staking rewards is a Herculean task. You might have to unstake your assets, wait out a period or even navigate a vesting schedule. In these cases, labeling it as “&#8217;instant income” is a tough sell.



<h2 class="wp-block-heading">The IRS&#8217;s misguided approach</h2>



The IRS has decided that staking rewards should be included in gross income the moment the taxpayer controls them. But remember, these revenue rulings aren&#8217;t law; they&#8217;re more like &#8220;strong suggestions.&#8221;&nbsp;



The IRS&#8217;s opinion is just that — an opinion. And it&#8217;s one that courts, especially the Tax Court, don&#8217;t necessarily have to follow. So, before you start calculating how much you owe Uncle Sam for your staking rewards, remember that this isn&#8217;t set in stone.



<h2 class="wp-block-heading">The art of taxation: Why creating value isn’t the same as earning income</h2>



Tax law is like a Rubik&#8217;s Cube — complicated but solvable. The IRS&#8217;s broad definition of gross income comes with caveats. You&#8217;re not taxed for creating value; you&#8217;re taxed when that value is realized through a sale or exchange. This principle is rooted in case law and IRS rulings that have stood the test of time.&nbsp;



For instance, if you&#8217;re an artist and you create a painting, you&#8217;re not taxed on the value of that painting when you finish it. You would be taxed on any income you earn from selling the painting. Wouldn’t the same hold true for digital assets? The IRS doesn’t think so.



Let&#8217;s delve into the IRS&#8217;s glaring omissions. The ruling is mum on whether tokens received from staking are &#8220;newly created property&#8221; for which the taxpayer is the original owner, which could land them in the bucket of nontaxable self-created property.



The ruling does make a passing mention that &#8220;validation rewards typically consist of newly created units of cryptocurrency.&#8221; However, this statement is conspicuously absent from the IRS&#8217;s core arguments. It&#8217;s like saying, &#8220;We know it, but we won&#8217;t admit it.&#8221;



The IRS also conveniently sidesteps key elements of landmark cases. Take the US Supreme Court case Commissioner v. Glenshaw Glass Co., which defines income as &#8220;undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.&#8221; The IRS ruling acknowledges &#8220;accessions to wealth&#8221; and &#8220;complete dominion,&#8221; but is eerily silent on the &#8220;clearly realized&#8221; part.



Read more from our opinion section: <a href="https://blockworks.co/news/crypto-wall-street-adoption">Yes, crypto is ready for Wall Street</a>



Moreover, the IRS disregards a century of case law supporting the non-taxability of self-created property. They can&#8217;t just ignore Supreme Court rulings like Eisner v. Macomber, which established that income isn&#8217;t taxable until realized, or Anschutz v. Commissioner, which reinforced that a taxable event occurs upon sale or exchange, not creation.



<h2 class="wp-block-heading">The unbearable weight of staking taxes</h2>



Locked rewards aren&#8217;t taxable until you can use them, but the IRS&#8217;s guidance would create an administrative nightmare and force stakers into financial gymnastics just to pay their tax bills.&nbsp;



If you declare your staking rewards as immediate income, you&#8217;re cornered into unenviable choices: Liquidate your new tokens, compromising network security; halt some staking, reducing your holdings; divert other investment funds; or, heaven forbid, evade taxes (don&#8217;t do it). And let&#8217;s not forget the phantom income menace — owing taxes on tokens that have tanked in value by tax season. You could be taxed on &#8220;ghost money.&#8221;



<h2 class="wp-block-heading">A missed opportunity for the IRS</h2>



The IRS&#8217;s guidance leaves us with more questions than answers. From slashing penalties to the tax obligations of foreign stakers, the IRS has a lot more explaining to do.&nbsp;



Should slashing penalties be considered ordinary losses if rewards are ordinary income? The IRS is tight-lipped. Do foreign stakers owe US income tax if they delegate staking to US nodes? Could this be considered a &#8220;US trade or business?” Will the standard 30% withholding tax apply to these foreign stakers? How will liquid staking assets like Lido&#8217;s stETH be treated? Many argue they should qualify for capital gains treatment. Until these questions are answered, the tax landscape for staking remains as clear as mud.



The IRS had a golden opportunity to craft nuanced regulations for this complex area of tax law. Instead, they&#8217;ve given us a one-size-fits-all approach that fits no one. This issue is far from settled and is likely headed for the courtroom unless Congress steps in.&nbsp;



The IRS&#8217;s guidance is a half-baked attempt that could stifle innovation and burden an emerging industry. It&#8217;s time for a more thoughtful approach.



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<div class="wp-block-post-author-biography">Pat White is the co-founder and CEO of Bitwave, the leading enterprise accounting platform for digital assets. Bitwave helps enterprise accounting and finance professionals mitigate digital asset complexities with services for crypto accounting, tax tracking, bookkeeping, DeFi ROI monitoring, and crypto AR/AP. Pat is a recognized software engineering leader with over ten years of experience building enterprise software at Intuit, Microsoft, Five9, and Fortify Software (now HP Security). Pat launched an enterprise software consulting firm (Ally Software) in 2009, which he ran for three years before creating Synata, an enterprise search engine that Cisco acquired in 2016. He has contributed code to Bitcoin, Ethereum, and several other cryptocurrency projects. He is a co-host of The DeFi Daily podcast and a University of Southern California graduate.</div>


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The IRS’ crypto tax guidance is a slow creep toward rationality

Jack Kubinec

After countless forum posts and Discord back-and-forths, MakerDAO’s expansive “endgame” plan is finally seeing concrete action.



Maker passed a poll initiating the Spark Lend DeFi protocol on the Gnosis Chain. This sets the stage for the impending launch of its DeFi-focused subDAO. The move is meant as an example for how Spark Lend can proceed after the Maker “endgame” is finalized and the subDAO becomes fully autonomous.&nbsp;



In preparation for the endgame, MakerDAO has launched a <a href="https://blockworks.co/news/are-subdaos-the-future-of-dao-governance">prototypical set of so-called subDAOs</a> meant to govern different aspects of the DAO. SparkDAO is Maker’s DeFi subDAO, and its <a href="https://blockworks.co/news/dai-savings-rate-us">Spark Protocol lending platform has been buoyed by the popularity of sDAI</a>, or savings DAI, a yield-bearing token benefiting from high Treasury returns.



Users can now access Spark Lend, an Aave fork with similar features, on both Gnosis Chain and Ethereum. While demand grows, Karpatkey — the treasury manager for Gnosis — is providing liquidity to the DAI market, essentially acting as a stand-in for Maker until it assumes the operations itself.



The endgame is largely aimed at reducing DAO governance fatigue, an issue MakerDAO founder Rune Christensen called the “central issue” of DAOs on the Unchained podcast this week. For now, the protocol’s governance process remains unchanged, and the passed proposal is headed to a second “executive” vote.



Maker subDAOs are meant to be specialized groups who can make decisions quickly. They operate with their own governance tokens and have a reduced number of stakeholders voting on each proposal.&nbsp;



Currently, Spark and other initial Maker subDAOs lack their own tokens and are not autonomous. While subDAOs could eventually overturn Spark&#8217;s work, Phoenix Labs CEO Sam MacPherson believes Spark sets a precedent for future subDAOs. Until SparkDAO governance starts in earnest, Maker&#8217;s focus remains on expanding Spark Lend&#8217;s deployment.



“Other chains will be putting out proposals, and we’re going to go to all of them is the idea,” MacPherson said.&nbsp;



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Maker subDAO branches out beyond Ethereum

The deadline for repayments related to funds lost in the Mt. Gox exchange hack has been pushed back yet again.



Initially set for the end of this October, a letter released on Thursday announced a one-year extension to the repayment schedule.



The once-popular Japanese exchange suffered multiple hacks between September 2011 and May 2014, leading to the loss of roughly 850,000 bitcoins belonging to customers and the company. Following the hack, Mt. Gox filed for bankruptcy and began liquidation proceedings in 2014.&nbsp;



The deadline extension to Oct. 31, 2024 is due in part to “the time required for rehabilitation creditors to provide the necessary information,” the <a href="https://www.mtgox.com/img/pdf/20230921_announcement_en.pdf">notice</a> states.&nbsp;



The rehabilitation trustee — named as attorney Nobuaki Kobayashi in the letter — must then “confirm such information and engage in discussions and share information with banks, fund transfer service providers, and designated cryptocurrency exchanges…involved in the repayments,” it adds.



The Tokyo District Court permitted the Mt. Gox trustee to push the deadline by a year for the base, early lump-sum and intermediate repayment, according to the letter.&nbsp;



Some waiting on repayments could still receive them in the near term, however.



According to the letter, those who have submitted the required information to the rehabilitation trustee could potentially receive their repayments by the end of this year. However, this timeline is “subject to change depending on the circumstances.”&nbsp;&nbsp;



Hedge fund firm Off The Chain Capital began acquiring Mt. Gox bankruptcy claims in 2019, <a href="https://blockworks.co/news/off-the-chain-capital-mt-gox">CEO Brian Estes told Blockworks in July</a>. Such claims accounted for about 25% of the company’s Off The Chain LP fund portfolio at the time, he noted.



“We expect distribution by the end of the year since we have been in the queue for several months,” Estes told Blockworks in an email Thursday.



The deadline extension comes after the US Department of Justice in June <a href="https://blockworks.co/news/doj-unseals-mt-gox-charges">brought charges against Alexey Bilyuchenko and Aleksandr Verner</a> in relation to the Mt. Gox hack. The two, along with unnamed co-conspirators, allegedly conspired to launder roughly 647,000 bitcoins, <a href="https://www.justice.gov/opa/pr/russian-nationals-charged-hacking-one-cryptocurrency-exchange-and-illicitly-operating-another">according</a> to the DOJ.&nbsp;



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Mt. Gox repayments postponed another year — at least for some

Busan is well on its way toward building an urban blockchain and a digital asset exchange, a local South Korean outlet reported Thursday.&nbsp;



The South Korean city sits at the southeastern tip of the peninsula and has started to become something of a blockchain hub of the country.&nbsp;



The purpose of the urban blockchain is to unify all the various blockchain services currently offered on chains such as Ethereum and Cosmos onto a single citywide platform, News1 <a href="https://m.news1.kr/articles/?5179142">reported</a>.



One well publicized use case is an identity management program called <a href="https://coinplug.com/EN/busan">BPASS</a>. Busan and Coinplug pioneered the program, which uses decentralized identifiers (DID) so residents can anonymously authenticate themselves when applying for public or private services. BPASS users can store their driver’s license, library card and even university graduation certificates on mobile devices.&nbsp;



There was no timeline given for the upcoming Busan blockchain, but the city plans for it to be public and interoperable with Ethereum and Cosmos.



Read more: <a href="https://blockworks.co/news/south-korea-insider-trading-law">South Korea passes crypto legislation to crack down on ‘illegal trading practices’</a>



A city digital asset exchange, initially announced sometime in January 2023, is also part of Busan’s recent blockchain push.&nbsp;



The exchange is set to debut tokenized precious metals and raw materials, with full-scale operations launching in the first half of 2024. The corporation overseeing the exchange will launch in November 2023, following a public offering in October.



News1 reported that crypto assets won’t be available for trade initially, but there are plans to expand tradable assets to global intellectual property rights, carbon emissions and tokenized securities.



To support all of this new building in the sector, Busan also announced a blockchain innovation fund. Its goal is to raise 100 billion won ($74.3 million) from public financial institutions, News1 reported.



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Busan to build urban blockchain and digital asset exchange

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Sam Martin

Research Analyst

Base: Signs of Early Success

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