Empire Newsletter: Counting Farcaster users while Uniswap spills the SEC beans

Can’t believe it’s not botter

Farcaster’s big raise came with a mission attached: Grow the number of daily active users.

But measuring DAU in anything crypto can be really hard, as returning Empire readers would know. 

What founder Dan Romero said in his fundraising announcement post is true. Farcaster, a social media protocol powering the crypto-native app Warpcast, has seen a 50x increase in network activity since last October, at least according to this Dune dashboard. 

And the growth doesn’t seem to be slowing. There were almost 35,000 daily unique users after Farcaster’s initial hype peak in February. Then, after a brief lull, Farcaster beat that by 30% in March before reaching an all-time high of over 48,000 earlier this month.

Romero pledged to focus on bringing in more daily active users for the rest of the year. But it’s likely nobody knows how many active users Farcaster has — as in real people using the platform.

What’s knowable is the number of paid signups: In total, there have been more than 382,000 unique addresses interacting with Farcaster, and it’s highly likely that some individuals paid multiple times for additional Farcaster IDs.

Some of those individuals could be running botfarms to hoover up DEGEN tips, making a straight reading of Farcaster’s DAU practically infeasible.

A post from Ethereum team lead Péter Szilágyi ran through the thought experiment more directly in an X post earlier this month:

 “Farcaster DAU printer:

– Bots pay 5$ to FC to sign up.

– Bots circle-jerk to amass DEGEN tips.

– Degen tokens cover the signup fees.

Rinse and repeat.”

DEGEN, which is unaffiliated with Farcaster, started out as an ERC-20 token for tipping other users within Warpcast’s channel community, /degen, complete with its own Blur-style points program.

It quickly took on a life of its own across the platform and is now seen as the de facto currency within the Warpcast universe, while its team has since launched their own layer-3 (mostly for trading memecoins) that uses DEGEN as its native asset.

Spam on Farcaster is easy to point to, as is the case with most other networks in and around crypto. But there are also organic Warpcast communities unassociated with DEGEN seeing traction, including ones for devs, travel, art, food, positivity and gambling on virtual Russian roulette.

Still, the steps laid out by Szilágyi are most surely being abused right now. Let’s say he is correct to the extreme and every address who tips DEGEN is a bot: There were nearly 44,000 daily unique casters yesterday, and under 16,000 unique DEGEN tippers, as shown on the above chart.

That leaves 28,000 daily users definitely not part of a bot-powered racket to capture tips from real humans by sending DEGEN amongst themselves. And that number, while lower, is growing even as DEGEN trade volumes cool.

It’s certainly possible that the same bot scheme is playing out elsewhere, boosting engagement stats in other token-driven communities, like the ones about fried chicken. That bot activity wouldn’t be measured by tracking DEGEN tip farming.

When I spoke to Romero in February, he expressed that Farcaster wanted to “double down on being an amazing opportunity for anyone building anything onchain to immediately go to market and find interested users.”

Romero also said the sudden growth uptick was a sign of “a ton of pent up demand by developers to be able to actually have opportunities to get distribution for their experiences that they want to build.” 

If that includes building experiences for points-farming botnets, then who’s to stop them?

— David Canellis

Data Center

• Daily active accounts on Degen are back above 300,000 after days-long unexpected downtime last week.
• Arbitrum was third for daily DEX volume yesterday with $1.1 billion, behind Ethereum and Solana but ahead of BSC.
• Global stablecoin supplies are basically flat this month, hovering between $160 billion and $161 billion. 
• ETH is holding above $3,700 after a 28% rally in the past week — but still a quarter below its November 2021 record.
• Only TON, TRX and WIF are down over the same period, with the former losing 3%.

Wells, wells, wells

Uniswap Labs took a line out of Coinbase’s book yesterday and said it’s ready to fight back if the Securities and Exchange Commission takes the crypto firm to court.

Uniswap responded to the SEC’s Wells notice, calling the SEC’s claims “weak” and further referring to them as “theories” rather than allegations. 

For the first time, we got an idea of why the SEC is targeting Uniswap. 

“The SEC asserts that the Uniswap Protocol is an unregistered securities exchange controlled by Uniswap Labs, that the Uniswap interface is an unregistered securities broker-dealer, and that the UNI token is an investment contract,” Uniswap wrote. 

That likely sounds familiar because the SEC raised similar allegations against Coinbase, Binance and, allegedly, Consensys. In a lawsuit filed in Texas, Consensys said it was also served with a Wells notice. 

Here’s what Uniswap said: Secondary market trading through a protocol isn’t an investment contract and the volume traded is composed of bitcoin, ether, stablecoins, or foreign transactions. None of which, they argued, fall under the SEC’s jurisdiction. 

Uniswap added that its protocol was never designed for securities trading which is a staple requirement for a, well, securities exchange. It’s also not a marketplace.

The big question, outside of when, is what the lawsuits will look like. Now that Uniswap’s revealed some of the claims being made by the SEC, it’s a lot clearer what legal action the SEC could be plotting and it’s not surprising that it falls under the same umbrella as previous actions. However, there are more precedents to back up arguments for and against the allegations.

For example, Judge Katherine Polk Failla sided with Coinbase in dismissing the SEC’s claims that its wallet service acted as an unregistered broker. The crypto company wasn’t able to get other claims dropped, but this one could become important for Uniswap. 

One argument that might not be as favorable for Uniswap is the major questions doctrine. 

Like the allegations from the SEC, this is one tactic we’ve seen used by a few crypto companies now. However, it has yet to be successfully argued, with two judges shooting down attempts by Coinbase and Terraform Labs to use it. 

Not only can Uniswap fall back on legal precedent — and has already started to do so in its 43-page response — but there’s also the shifting political environment to consider. 

Bloomberg analyst James Seyffart told us yesterday that he believes there may be a political push behind the SEC’s sudden rush to engage with potential ETH ETF issuers. If there is an ounce of truth to the political play here, the SEC may have to rethink its regulation-by-enforcement approach. (Note: The SEC is meant to be an apolitical regulatory body.)

But even if that playbook isn’t retired, there are still plenty of legal precedents set for the teams at Robinhood, Uniswap and Consensys to push back on. 

As I’ve said before, if nothing’s changed and the SEC follows the timeline we saw for Coinbase, then we could see three prominent legal battles begin this summer — right as Coinbase and Binance celebrate their one-year anniversaries of fighting Gary Gensler’s agency.

With an election in November, and crypto now a political hot potato, it’ll be interesting to see what happens next.

— Katherine Ross

The Works

• SEC Chair Gary Gensler said a crypto market bill set for a vote today in Congress “would create new regulatory gaps and undermine decades of precedent.”
• Reminder: That bill, the Financial Innovation and Technology for the 21st Century Act, is expected to receive a vote this afternoon in the US House of Representatives. 
• The American Prospect reports that former House Speaker Nancy Pelosi, D-Calif., is a possible yes vote on the measure — a sign of the bill’s bipartisan support. 
• Speaking of politics: Donald Trump’s campaign is now accepting crypto donations, including shiba inu, via Coinbase. 
• A Hong Kong regulator ordered Worldcoin to cease operations, accusing it of violating data privacy rules. 

The Morning Riff

Crypto is growing old. 

Bitcoin’s genesis block was more than 15 years ago. Vitalik Buterin was only 20 during the Ethereum initial coin offering, and now he’s in his early 30s. 

The recent hubbub about two long-standing Ethereum figures taking paychecks to advise new-kid-on-the-block EigenLayer is another sign that crypto may no longer be a young man’s game.

Much of the controversy reflects concerns around conflicts of interest: Can someone reasonably separate determining what’s good for Ethereum from what’s good for EigenLayer, if they’re being paid by both camps?

Who knows. Maybe, maybe not. What’s important is that the conflicts are disclosed, which both individuals have done.

Idealism, even to the point of maximalism, can make sense for those still in their early income-earning years. But as life goes on, major paychecks tend to be harder to ignore, as this post from former Ethereum contributor Hudson Jameson alludes. 

It’ll only get messier from here.

— David Canellis

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