Sam Reynolds

<div id="highlights-block_61a8a5dda00d2" class="highlights">
 <ul>
 <li>The CEO of Korea’s stock exchange, the KRX, has said that it&#8217;s time to embrace virtual assets and called for proper regulation to help institutionalize the asset class</li>
 <li>He also revealed that trading volume for crypto might soon catch up to equities in the country</li>
 </ul>
 
</div>



Sohn Byung-doo, a former regulator and now CEO of Korea Exchange, the operator of the country’s sole stock exchange, has called for a comprehensive set of regulations for cryptocurrency. He said that it&#8217;s time to “embrace digital assets” as any other component of capital markets.&nbsp;



“The virtual asset market is no different from the capital market in that it must support investor protection and transaction stability,” Sohn said during a speech at the 2021 Global ETP Conference.



<blockquote class="wp-block-quote">&#8220;Since virtual assets have become &#8216;major&#8217; investment assets, it is time to prepare an institutional framework.&#8221;</blockquote>



Sohn believes that Korea’s regulatory patchwork, which categorizes digital assets as something similar to intellectual property or patents — intangible assets, in accountant speak — isn’t conducive to domestic development of the sector.&nbsp;



Within Korea, the government is set to implement a <a href="https://cms.blockworks.co/macro-factors-driving-koreans-to-crypto-lending/" target="_blank" rel="noreferrer noopener">steep capital gains tax</a> on capital gains from digital assets next year. In addition, in order to push for higher KYC/AML compliance, local exchanges will <a href="https://cms.blockworks.co/morgan-stanleys-rumored-bithumb-play-shows-institutional-interest-in-koreas-digital-asset-infrastructure/" target="_blank" rel="noreferrer noopener">soon be required to partner</a> with legacy banks. 



In turn, this has driven many traders offshore, as they don’t feel confident with the Korean regulatory regime.&nbsp;



“Now is the time for exchanges to compete directly with overseas exchanges,” he said, saying that the world is now in a “global one market era” which requires competition between regulators.&nbsp;



Sohn said that there are an estimated five million onshore digital assets traders in Korea, with more offshore.&nbsp;



And these millions of traders are able to push nearly $12 billion in daily volume. For comparison, Korea’s composite index, the KOSPI, has a daily volume of $16.1 billion.



In some ways, Korea finds itself in a <a href="https://www.thejakartapost.com/news/2021/08/05/indonesia-now-has-more-crypto-investors-than-stock-market-investors.html" target="_blank" rel="noreferrer noopener">similar situation to Indonesia</a>, where there are more digital asset traders than stock traders. Indonesia’s daily turnover of trading is around <a href="https://www.idx.co.id/en-us" target="_blank" rel="noreferrer noopener">$900 million</a> a day while its cryptoasset volume <a href="https://kr-asia.com/over-6-5-million-indonesians-bought-or-sold-crypto-in-first-5-months-of-2021-ministry-of-trade-says" target="_blank" rel="noreferrer noopener">is about $166 million</a>, showing that digital assets trading in-country is the domain of small, retail investors. Unlike in Korea, Indonesia’s digital asset trading industry is facing headwinds from the country’s <a href="https://cms.blockworks.co/indonesian-religious-council-says-crypto-is-forbidden/" target="_blank" rel="noreferrer noopener">national religious council</a>, which, in mid-November, said that Muslims are forbidden to trade crypto.



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Korea Stock Exchange Executive Calls For More Legislation as Crypto Volume Catches up to Equities Volume

Ben Strack

The share of US-based blockchain developers is shrinking, according to a recent study, though the country has a chance to regain a lead as an upcoming boom of such jobs is expected over the next decade. 



The US has lost 2% of its share of the blockchain developer market per year for the last five years — sinking to 29% market share, venture capital firm Electric Capital found.



Europe is also currently home to 29% of blockchain developers, the data shows, while Asia accounts for 13%.&nbsp;&nbsp;



The number of active open source software engineers grew to 23,343 by the end of 2022, according to Electric Capital, despite crypto prices declining. The <a href="https://www.developerreport.com/developer-report-geography" target="_blank" rel="noreferrer noopener">report</a> estimates that ​​one million new blockchain-related open-source developer jobs could be created by 2030, giving the US a chance to catch up. 



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2400" height="1320" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=1024&amp;h=1024" alt="" class="wp-image-50544" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=2400 2400w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=80 80w" sizes="(max-width: 2400px) 100vw, 2400px" /><figcaption class="wp-element-caption">The USA&#8217;s blockchain developer share has shrunk 2% per year since 2017, according to Electric Capital</figcaption></figure>



Regulatory clarity could go a long way to attracting a chunk of that talent, though some industry participants have said they aren’t particularly optimistic. In the absence of a comprehensive crypto framework, the SEC and CFTC have launched enforcement actions against crypto companies and executives in recent months, <a href="https://blockworks.co/news/binance-cftc-damning-quotes" target="_blank" rel="noreferrer noopener">including Binance</a>.



“Providing clear and supportive regulations for the cryptocurrency and blockchain industries will encourage more innovation and foster growth within the country,” the report states. “This will make the US an attractive destination for both new and established developers.”



Coinbase, an industry player <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation" target="_blank" rel="noreferrer noopener">the SEC has targeted</a> recently, said in a blog post Wednesday that “regulation by enforcement” in the US was indeed pushing tech innovation to other parts of the world. 



CEO Brian Armstrong said the company would be “happy to go to court” if necessary to offer some clarity to the industry.&nbsp;



“The US is now losing market share to regions with more regulatory clarity and openness to crypto innovation like Europe and Asia, as well as emerging markets like LATAM, India, and Africa,” the crypto exchange’s <a href="https://www.coinbase.com/blog/new-report-shows-1m-tech-jobs-at-stake-in-us-crypto-policy" target="_blank" rel="noreferrer noopener">blog</a> post states.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2403" height="1335" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=1024&amp;h=1024" alt="" class="wp-image-50548" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=2403 2403w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=80 80w" sizes="(max-width: 2403px) 100vw, 2403px" /><figcaption class="wp-element-caption">Where will the next million Web3 developers go?</figcaption></figure>



While the US, Europe and Asia have the most blockchain developers, India’s share of such professionals has grown more consistently — from 2% in 2017 to 6% in 2022.



“Still the United States has amazing builders, but then India is another ecosystem that is coming on line in the last couple of months and years in a really really big way,” said Ruben Amenyogbo, head of partnerships for Protocol Labs.



Ukraine has been a standout European country in terms of growth, as its share of blockchain developers rose 2% in the last three years.&nbsp;



Macaulay Peterson contributed reporting. 



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US Losing Ground on Blockchain Developer Share: Study

Bessie Liu

Judges of the United States District Court of Southern California have denied the motion to excuse governance token holders from bZx decentralized autonomous organization (DAO), claiming they are plausibly liable for the loss of $55 million in an exploit occurred in 2021.



Users demanded that bZx be held accountable for the lost funds after it was revealed that a bZx developer had fallen for a “phishing” scam that gave a hacker access to the protocol’s private keys.



After failing to return stolen funds, the court emphasized that DAO governance members fell under the arrangement of a “general partnership” and dismissed a motion against them.&nbsp;



This means that despite not being the individual responsible for the attacks, the governing members of the DAO are all plausibly liable to each of the victims, making it possible that each and every token holder is responsible for the return of the lost funds.&nbsp;



​​In a <a href="https://twitter.com/adamscochran/status/1640526928376483842" target="_blank" rel="noreferrer noopener">Twitter</a> post, Adam Cochran, a managing partner at Cinneamhain Ventures said that “dismissing the motion does not mean the court decided that owning the token makes you 100% liable — yet. It just means they refused to take it off the table.”



“It means that they feel there is some grounds for the case that a DeFi app with a DAO structure could extend legal liability to anyone who simply holds the token in certain circumstances — and that argument merits more discussion in court,” Cochran said.



It is important to note that in the United States, by default, general partnerships imply that there is an equal amount of voting power, which is often not the case for DAOs, where different token holders have a very different amount of control over the protocol.&nbsp;



Although partnership structures could benefit certain DAOs, <a href="https://twitter.com/emjicy" target="_blank" rel="noreferrer noopener">Mel.eth</a>, a pseudonymous DAO contributor to Index Coop, told Blockworks, not all DAOs are organized as such. And DAOs that are not structured like this should not be categorized inappropriately.



“The current framework of law isn’t coordinated enough to provide viable solutions and this fact will become increasingly obvious as we see increasingly misfit applications of outdated terminology and organizational strictures,” Mel said. “DAOs are not partnerships in my considered opinion, but a partnership structure might befit some DAOs.”



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DAO Governance Could Change Following This Court Ruling

Shalini Nagarajan

EigenLayer, a restaking protocol that aims to help scale Ethereum, has raised $50 million in a Series A round led by Blockchain Capital.



Other investors in the round include Electric Capital, Polychain Capital, Hack VC, Finality Capital and Coinbase Ventures.&nbsp;



The protocol’s fundraising round is noteworthy given that venture capital funding for crypto startups <a href="https://blockworks.co/news/funding-wrap-venture-funding-down-but-not-out">slowed</a> significantly during the crypto bear market. It previously raised a $14.5 million seed round last year led by Polychain Capital and Ethereal Ventures.&nbsp;



EigenLayer seeks to extend crypto-economic security to applications being built on the Ethereum network through restaking. Fragmented security is seen as one of the key issues within the blockchain ecosystem, meaning applications on Ethereum are responsible for generating their own trust mechanisms.&nbsp;



Founder Sreeram Kannan, who has been an associate professor of Artificial Intelligence and blockchain applications at the University of Washington for more than 8 years, said the mission of EigenLabs is to build protocols and infrastructure that boosts open innovation.



“One of the central bottlenecks to innovation in today’s crypto ecosystem is the requirement for projects to bootstrap trust, or crypto-economic security,” he said in a <a href="https://twitter.com/eigenlayer/status/1640755205443829760" target="_blank" rel="noreferrer noopener">statement</a>. By contrast, EigenLayer would allow developers to become consumers of trust generated by staked ether, according to its <a href="https://docs.eigenlayer.xyz/whitepaper.pdf" target="_blank" rel="noreferrer noopener">white paper</a>.



Kannan told <a href="https://fortune.com/crypto/2023/03/28/eigenlabs-eigenlayer-50m-funding-round-blockchain-capital-infrastructure/" target="_blank" rel="noreferrer noopener">Fortune</a> that blockchain infrastructure is currently blocked from supporting big ideas like Uber or social networks because it’s just not ready yet. And EigenLayer could be a fix for that.



Speaking to Blockworks’ <a href="https://youtu.be/O-uzBSevklk?t=1158" target="_blank" rel="noreferrer noopener">0xResearch podcast</a> in January, Kannan said that EigenLayer will allow staked ether to be used in a variety of cross-chain contexts.



“You can think of EigenLayer as enhancing the expressivity and flexibility of what the Ethereum trust network can do,” he said.



The protocol’s process of restaking, in which Ethereum’s security is redirected to alternative middleware, allows blockchain services to rely on itself for security rather than on the value of their own tokens. It essentially gives users an opt-in function that grants EigenLayer enforcement rights on their staked ETH, which can then be applied to other applications.



Viktor Bunin, a protocol specialist at Coinbase and an angel investor who participated in EigenLayer’s seed round, <a href="https://viktorbunin.medium.com/investing-in-eigenlayer-1020608cd69f" target="_blank" rel="noreferrer noopener">wrote</a> about why he is particularly interested in the startup.



“Sreeram and team are tackling an incredibly difficult problem, but one that has the potential for an enormous amount of impact,” he said. “There’s tens of billions of dollars of staked ETH. In the future there will be trillions. Making this capital useful will be a journey that can place crypto as an industry on a better path.”



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EigenLayer Lines Up $50M In Bear Market Fundraise

Some folk view crypto trading as gambling more than investing. Two ambitious entrepreneurs made the most of it by starting crypto casino Stake in 2017.



Stake has since sprung up to become the seventh-largest gambling group in the world by revenue, per the Financial Times, which cited data from strategic advisory firm Regulus Partners. 



DraftKings, one of the most prominent sports betting firms, lags behind. Stake generated nearly $2.6 billion in gross gaming revenue last year alone, the <a href="https://www.ft.com/content/2490279b-9c94-49a8-beff-cbd7c3307586">Financial Times</a> reported. 



That’s up from 1.8 billion Australian dollars ($1.2 billion) in <a href="https://www.afr.com/technology/aussie-crypto-billionaire-alleges-ex-associate-embezzled-millions-20230212-p5cjvq" target="_blank" rel="noreferrer noopener">2021</a> and a big jump from just $105 million in the year prior.



Stake&#8217;s founders, 27-year-old Ed Craven and 28-year-old Bijan Tehrani, were childhood friends who met on online roleplaying game RuneScape, per the FT. They teamed up to create a crypto dice gambling platform Primedice when they were around 20. Craven is now considered Australia’s youngest billionaire.



Primedice ultimately became the foundation of Stake’s beginnings, with the new venture offering video poker, casino games and sports betting. It accepts both fiat and cryptocurrencies, including bitcoin, ether, dogecoin and bitcoin cash, among others.



The site attracted several “high-rollers” — people willing to spend on gambling lavishly — due to big-budget marketing meant to tame the stigma tied to both crypto and gambling, according to Craven. A goal was to reassure customers that the founders wouldn’t run off with their money, a somewhat common occurrence in some areas of the crypto market at the time.



Canadian rapper Drake signed a $100 million-per-year endorsement deal with<a href="http://stake.com"> </a>Stake.com in 2022, the FT said, citing two people familiar with the matter. Drake has reportedly won $38 million by gambling bitcoin on the platform. Blockworks has reached out for comment.



The crypto casino also has the support of some big names, including sponsorship deals with Premier League club Everton and Alfa Romeo’s F1 team.&nbsp;



Other major online gambling sites focus on tightly regulated markets, but the bulk of Stake’s regular users (which the FT reported as 600,000) hail from more loose jurisdictions across Southeast Asian countries, Japan and Brazil.



Stake reportedly has minor gambling operations, not involving crypto, in the US and UK.



It hasn’t been all rosy, though. Former business associate Christopher Freeman, who worked on Primedice, <a href="https://www.afr.com/technology/aussie-crypto-billionaire-alleges-ex-associate-embezzled-millions-20230212-p5cjvq">sued</a> Craven and his co-founder for $400 million last month, arguing they secretly betrayed him by misleading him about the nature of their next venture.



Crypto might still be in the throes of crypto winter. But at least in Stake’s case, there’s no bear market for gambling.



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Crypto Casino Made $2.6B in Gaming Revenue Last Year

Sebastian Sinclair

After a historic weekly run in the price of digital assets in the middle of March, trading activity has cooled into a range consolidation amid profit-taking.



Bitcoin (BTC) rose 26% from $22,200 beginning March 13 to $28,400 by the week’s end — the largest recorded weekly upside since December 2020.



Concerns over banking sector stability and persistent inflationary pressures encouraged traders to reallocate capital away from traditional assets <a href="https://blockworks.co/news/bitcoin-holders-fed-policy">into crypto</a>. The CFTC’s lawsuit against Binance over trading and derivatives allegations, gave participants pause, but the range established since the close of Friday, March 17, remains intact.



“Bitcoin is now just battle-tested against these sorts of stories in the long run,” Sam Holman, an analyst at Australian trading firm Zerocap told Blockworks. “We tend to see short-term sell-offs when the headlines are published, but longer term it tends to play out like we&#8217;re seeing now with bitcoin&#8217;s price action overnight.”



The asset has managed to consolidate above the $26,900 level, indicating the impact Binance’s news has had on price has been minimal, Holman added.



On-chain metrics point to an increase in the volume of coins deposited to exchanges, signaling a willingness to realize some profits, with the majority of selling pressure coming from short-term holders, <a href="https://insights.glassnode.com/the-week-onchain-week-13-2023/" target="_blank" rel="noreferrer noopener">Glassnode reported</a> Monday.



Profit-taking had begun to take place shortly before the announcement of the CFTC’s lawsuit, with data suggesting short-term holders dominate more than 90% of total inflow volumes, and with roughly 65% of these individuals in the green. Short-term holders are defined as individuals who’ve held for an average of 21 days.



<h2>Zooming out on the bitcoin price</h2>



Peering across the macro view of on-chain activity, Glassnode’s measure of the utilization of the Bitcoin network relative to its 14-year history — <a href="https://medium.com/@tamas.blummer/liveliness-of-bitcoin-174001d016da" target="_blank" rel="noreferrer noopener">liveliness</a> — shows the ratio of Coin Days Destroyed (CDD) to Coin Days Created (CDC) at its lowest point since Nov 29, 2020.



CDD and CDC are metrics used to measure the activity of a given asset and take into account two factors: the number of coins held in a wallet and the number of days held.



The liveliness of a particular crypto increases when long-term holders sell their positions and decreases when they accumulate coins to hold onto.&nbsp;



Liveliness will continue to trend down when individuals prefer accumulation over further sell-side pressure, hinting at strong investor sentiment despite <a href="https://blockworks.co/news/us-bank-regulators-secret-war-on-crypto">a recent campaign of regulation through litigation</a> by policymakers.



The narrative that really established bitcoin&#8217;s price surge higher in the past month — largely centered on the banking sector issues — would need to change for this trend to start to reverse, Holman said.



“If we start to see easing in these emergency loans from the Fed, then we could start to see some weakness in bitcoin.”



Charles Edwards, quant trader and founder of digital asset hedge fund Capriole, agreed, telling Blockworks Signature Bank going off-line this week would have a larger impact than the Binance news.



“The biggest fiat rails into crypto are officially going off-line on [April 5] — that will affect many large crypto entities if they haven&#8217;t set up new banking relationships,” Edwards said. “Probably most have, but we could see a temporary slowdown in capital flows over the next one-to-four weeks.”



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Bitcoin Price Surges Following Mild Retail Sell-Off, Binance Lawsuit

Digital asset exchange Coinbase has responded to the Australian Treasury’s “token mapping” exercise, expressing its support for the development of the country’s regulatory framework.



Australia’s token mapping, in what is said to be a “<a href="https://blockworks.co/news/australia-to-define-crypto-in-token-mapping-exercise">world first</a>,” will seek to define various digital assets and bring them under the purview of appropriate regulators across the country. While the exercise had been planned for sometime this year, the launch is expected sometime next year.



Coinbase said in a <a href="https://assets.ctfassets.net/c5bd0wqjc7v0/3iZ18bsCBT8Z57O3Ji5DeX/04041b41905063c53822b4eafce8f6e3/Coinbase_Response___Australia_Token_Mapping_Consultation_-_March_2023.pdf" target="_blank" rel="noreferrer noopener">consultation paper</a> on Tuesday, it believes that a well-rounded framework should focus on outcomes as opposed to specific rules. Those rules should achieve a balance across a variety of regulatory objectives, it said.



“Given the constantly evolving nature of digital assets and blockchain technology, a fit-for-purpose regulatory regime must focus on outcomes,” the exchange said.



Coinbase’s involvement in the project follows more than a year after the exchange expanded its services to Australian retail investors via its domestically-registered business, Coinbase Australia Pty Ltd.&nbsp;



While the exchange had offered the sale of digital assets to individuals as early as 2016, buying and selling crypto through a local arm was done via its main platform in the US.



The objectives, as alluded to in the paper, entail preserving financial stability, market integrity and consumer protections while fostering “responsible” innovation and growth.



Coinbase also highlights the importance of blockchain technology generally, including its potential to enhance efficiency, transparency and resiliency to the financial system by cutting down on middlemen. That in turn would cut costs, improve the user experience and increase competition, it said.



The exchange also takes particular note of fiat-backed stablecoins, while highlighting the benefits decentralized finance (DeFi) can bring to the table by exponentially expanding opportunities for financial players.



“Regulators have historically overseen financial markets by imposing and enforcing rules on market intermediaries,” Coinbase said. “No such intermediaries exist in the DeFi ecosystem.”



It comes as Coinbase has been sparring with the US SEC regulator for allegedly violating securities laws and selling unregistered products to retail and institutional investors.



The agency issued the exchange a <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">Wells notice</a> — a type of forerunner to formal action — notifying Coinbase of its intentions to probe its <a href="https://blockworks.co/news/coinbase-reports-sharp-revenue-user-growth-in-q4">$2.5 billion</a> business model. Coinbase said it would <a href="https://blockworks.co/news/coinbase-happy-to-go-to-court-with-sec">fight the SEC in court</a> over the matter in a bid to clear itself of any wrongdoing.



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Coinbase Calls For Flexible Approach to Regulation in Australia

Brazilian asset manager Hashdex will be ready to convert its bitcoin futures ETF to a spot product, a company executive said, considering regulatory clarity around such a fund is coming.&nbsp;&nbsp;&nbsp;



It’s just a matter of time. New legislation or a court ruling are both possible options.&nbsp;



Bruno Sousa, head of Hashdex’s US business, told Blockwork his company’s product has an advantage over other competing products on the market when it comes to making the switch. 



The Hashdex Bitcoin Futures ETF (DEFI), which the company launched <a href="https://blockworks.co/news/teucrium-bitcoin-futures-etf-now-carries-hashdex-brand">with the help of fund issuer Teucrium</a> in September 2022, was filed under the Securities Act of 1933 (‘33 Act). Other futures ETFs were filed under the Investment Company Act of 1940 (‘40 Act).&nbsp;&nbsp;&nbsp;



“The concept was that to hold bitcoin, the ‘33 Act structure is a proper structure,” Sousa said in an interview. “The ‘40 Act can only have securities; it can never hold bitcoin itself…so those ‘40 Act ETFs using bitcoin futures don’t have the structure to take on bitcoin directly at any point.”



The ’33 Act structure could well be easier to convert from holding <a href="https://blockworks.co/price/btc">BTC</a> futures to bitcoins than a ’40 Act fund might be, should that conversion process be approved by the SEC, according to Lara Crigger, editor-in-chief at data firm VettaFi.



“That’s because ’40 Act funds have very strict rules around the diversification of holdings and making distributions; as a result, they can’t invest in ‘riskier’ assets, like commodities,” she told Blockworks in an email. “33 Act funds, however, can take the form of grantor trusts, which hold physical commodities … and commodities pools, which hold futures.”&nbsp;



<h2>Who could be first?</h2>



Sousa’s comments come as the prospect for spot bitcoin ETFs have once again gained prominence.



Grayscale Investments is enveloped in a case against the SEC after the regulator last year declined the proposed conversion of the firm’s flagship Bitcoin Trust (GBTC) into an ETF. GBTC shares are now offered through a private placement exempt from registration under the ‘33 Act. They’re initially only available to accredited investors as a result.&nbsp;



During oral arguments in the DC Circuit Court of Appeals earlier this month, <a href="https://blockworks.co/news/grayscale-appears-to-win-opening-sec">judges grilled the SEC</a> on why the regulator approved bitcoin futures exchange-traded products (ETPs) and not the GBTC conversion.



Industry watchers previously told Blockworks, however, that a <a href="https://blockworks.co/news/grayscale-win-over-sec-might-not-change-much-industry-watchers-say">favorable Grayscale ruling might not mean much</a>, as the SEC might choose to deny GBTC’s conversion, and other spot bitcoin ETF applications, for a different reason.



Hashdex launched the world’s first crypto index ETF in February 2021 on the Bermuda Stock Exchange. Now, Sousa argued DEFI has the most “straightforward process” to gaining spot bitcoin ETF approval when the time comes.



“Our conversion is not really a conversion; it’s just a change in investment policy — a very simple procedure,” he said. “And we will re-file whenever there’s a new fact that can lead us to the idea that the SEC might position itself differently.”



The first bitcoin futures ETF in the US, the ProShares Bitcoin Strategy ETF (BITO), hit the market in October 2021. It was filed under the ‘40 Act structure.



Valkyrie Investments, which launched a bitcoin futures ETF also filed under the ‘40 Act in that month, gained approval for a ‘33 Act <a href="https://blockworks.co/news/another-bitcoin-futures-etf-approved-by-sec-with-no-spot-product-in-sight">bitcoin futures ETF</a> last year.



A Valkyrie spokesperson did not immediately return a request for comment on its plans for the product.&nbsp;



Sumit Roy, a senior analyst at ETF.com, said other issuers could just file for a separate spot bitcoin ETF rather than convert their existing futures-based funds.



“If and when the SEC finally allows a spot bitcoin ETF to come to market, I think — and I would hope — that several such funds would be approved at the same time, and that fund structure wouldn&#8217;t be a deciding factor,” he said.



Keep reading for more excerpts from Blockworks’ interview with Sousa. 



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Blockworks: Hashdex’s bitcoin futures ETF has less than $2 million assets under management, compared to BITO, for example, which has about $960 million. Why has DEFI had such little interest?



Sousa: Last year&#8217;s bear market was a challenging environment for crypto ETFs globally, but bitcoin is clearly on its path to recovery.



We are anticipating more demand from investors as the macro environment shifts and the global banking crisis shines a light on bitcoin’s benefits.



Blockworks: What needs to happen before a spot bitcoin ETF is approved?



Sousa: A lot of the background issue here has been the dispute between the SEC and the CFTC. We’re seeing the commissioner of the CFTC saying that ether is a commodity, and we’re seeing the SEC saying time and time again — and giving indications — that this is a security.



The parallel discussion … is once you have the federal legislation determining who regulates crypto exchanges — we believe that will be the CFTC — and the CFTC rolls out rules for crypto exchanges, then the argument for unregulated markets or market manipulation goes under.



After that, essentially the SEC would be in a position to approve.&nbsp;



Blockworks: When will that be?&nbsp;



Sousa: It depends…but it’s feasible that it can happen this year if the world doesn’t blow up with everything that’s happening, and the folks in DC, New York and other places don’t have to focus on saving the current financial system.



It will eventually come out. It’s closer and closer.



This interview was edited for clarity and brevity.



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Hashdex US Head: BTC ETF ‘Feasible’ in 2023 if the ‘World Doesn’t Blow Up’

Casey Wagner

South Dakota is keeping its crypto regulatory policy as-is for now. Legislators cited concerns about the bill’s treatment of crypto, even though the word is never mentioned in the text.&nbsp;



Republican Governor Kristi Noem vetoed <a href="https://sdlegislature.gov/Session/Bill/23995/250850">House Bill 1193</a>, which would amend the state’s Uniform Commercial Code (UCC) to exclude all digital assets from the definition of money except for a central bank digital currency.&nbsp;



Noem’s main issue with the proposed law was that it could “pave the way for a government-led CBDC,” she <a href="https://twitter.com/KristiNoem/status/1634403770049220608?s=20">told</a> conservative personality Tucker Carlson earlier this month.&nbsp;



“I believe it’s to pave a way for the federal government to control our currency, and thus control people,” Noem added. “It should be alarming to people and it’s being sold as a UCC guidelines update.”



The bill never mentions the term <a href="https://blockworks.co/tag/cbdc">CBDC</a>, but it does define “money” as any medium of exchange “currently authorized or adopted by a domestic or foreign government.”



Bitcoin, even though it has been adopted as legal tender in El Salvador, would likely not fit the definition, considering bitcoin is not backed or controlled by El Salvador — or any other government. And bitcoin was created long before El Salvador’s adoption of the asset.&nbsp;



Money is not “an electronic record that is a medium of exchange recorded and transferable in a system that existed and operated for the medium of exchange before the medium of exchange was authorized or adopted by the government,” the bill said.&nbsp;



Noem vetoed the bill last week, but the South Dakota House of Representatives opted to uphold the decision Monday evening in a 37-30 vote. The House would need a two-thirds majority to override the veto.&nbsp;



Other states are looking into similar UCC update bills, Noem said.&nbsp;



Proponents argue that the changes outlined in the bill say it could have laid the foundation to link governments and cryptocurrencies.



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South Dakota Governor Turns Down Crypto Regulation Bid

Michael Bodley

Interest in tokenized real estate is spreading. All the way to south Texas.&nbsp;



In the latest <a href="https://blockworks.co/news/tokenized-home-nets-thousands">indicator of the once-niche sector’s spread</a>, startup Homebase has closed out the tokenization of its first single-family rental property, the company told Blockworks exclusively.&nbsp;



The McAllen, TX, single-family home was valued at $235,000. Homebase drummed up $246,800 in about two weeks by tokenizing the residence on Solana (<a href="https://blockworks.co/price/sol">SOL</a>) via a smart contract tied to an NFT created for the purpose: “Homebase 1 [<a href="https://explorer.solana.com/address/9dKvUmegQGtW5uNXGr1XH3ud7wtAk1V87xmqSzC57cDj">The Cardinal</a>].”&nbsp;



The total amount <a href="https://explorer.solana.com/address/9dKvUmegQGtW5uNXGr1XH3ud7wtAk1V87xmqSzC57cDj">raised</a> includes $11,800 set aside to “to account for maintenance and other issues,” a spokesperson said in a statement.



Homebase, according to Domingo Valadez, the company’s chief executive and one of three co-founders, spent seven months getting just the legal and compliance details of its real estate offering ready for market.&nbsp;



The overall effort took a year and involved the regulatory and fiat side of things: filing the SEC paperwork to market security tokens to both retail and accredited investors.&nbsp;



Of the 38 participating investors, 30 were non-accredited, according to the filing. The minimum investment for the sale reported to the SEC was $500.&nbsp;



Homebase spent some time weighing the benefits and drawbacks of various blockchains to host the NFTs and smart contracts. Homebase eventually settled on Solana. The startup supports USDC to allow users to buy tokenized property slices “in one click,” the statement said. 



Homebase considered the Ethereum ecosystem, he said, but was put off in part by concerns over ether (<a href="https://blockworks.co/price/eth">ETH</a>) gas fees that were rising.&nbsp;



Polygon (<a href="https://blockworks.co/price/matic">MATIC</a>) was also in contention, according to Valadez, but blockchain bridges that Homebase would have had to employ resulted in funds disappearing for like “15 minutes,” which would have been “especially scary” for investors new to the sector.&nbsp;



<h2>Fractionalizing real estate mints potential</h2>



Valadez, originally from south Texas himself, spent about five years working for Google before leaving to start up Homebase with two additional co-founders in early 2022.&nbsp;



Living in the pricey Bay Area, Valadez realized something: He “still couldn’t afford anything in the Bay Area after working at Google for five years.”&nbsp;



In spite of working tech hours and earning a tech salary, Valadez said buying a property at the time was out of the question. The US housing market has <a href="https://www.bankrate.com/real-estate/is-the-housing-market-about-to-crash/">slowed</a> in recent months, with some analysts eyeing an even more dramatic drop in residential and commercial property prices on the horizon.&nbsp;



A <a href="https://blockworks.co/news/tokenized-real-estate-crypto">number of tokenized real estate initiatives</a> have started to take shape, including Homebase’s first foray into the competitive market. Those maneuvers come as the Federal Reserve has flashed some indicators that it plans to raise interest rates in a more gradual fashion moving forward.



The Fed’s <a href="https://blockworks.co/news/federal-reserve-interest-rate-25-bps-march">March rate hike clocked in at a 0.25%</a> increase, which appeared to have been largely already priced in by both traditional and digital assets markets.&nbsp;



But the Bay Area and other municipal US hotspots remain stubbornly out of reach in terms of price for most, according to Valadez.&nbsp;



The median February Bay Area home went for a whopping $1,050,000, according to real estate data provider Norada.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Why we chose to bring real estate on-chain on Solana, a 🧵👇&mdash; Homebase🏠 (@HomebaseDAO) <a href="https://twitter.com/HomebaseDAO/status/1608604206625132544?ref_src=twsrc%5Etfw">December 29, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Read more: <a href="https://blockworks.co/news/real-estate-investing-guide">The Crypto Native’s Guide to Real Estate Investing</a>&nbsp;



Homebase thinks it can provide a viable alternative — even with real estate prices where they are, by tapping Solana and ensuring compliance with related SEC regulations.&nbsp;



The end goal is to create a product that makes money and helps homeowners, as well as investors, in the process, Valadez said.&nbsp;



<h2>The mechanics of NFT real estate</h2>



Homebase essentially captures a spread on the transaction. The startup put in a small amount of its own capital, which Valadez said was designed to ensure an alignment of financial interest.&nbsp;



“Tokenization in real estate is a means of crowdfunding,” he said. “We see the value in a decentralized future. We see some of the issues in the current financial structures…How do we give more power to individuals when they truly have ownership around their assets?”



Here’s how, in Valadez’s estimation:



<ul>
<li>The Solana tokenization of the McAllen single-family property went live in early March, generating enough demand that a mix of retail and accredited investors filled the Solana order book at the $1,200 average check size in under two weeks.</li>



<li>There was no lien or mortgage on the property, meaning Homebase didn’t have to work around outstanding debt on the transaction. The owner, as a result, held onto 80% of their equity in the property. Homebase took on a 1% interest, and the remaining 19% now belongs to investors in the tokenized offering.&nbsp;</li>



<li>Of that approximately 19%, half was raised in fiat and the remainder was processed by USDC. A total of 38 investors participated, and a spokesperson said the “majority were first-time real estate investors and new to Web3.”</li>



<li>The process resulted in 15 of the 28 backers creating their first Solana wallet, per the company.</li>
</ul>



Homebase started the process by agreeing to exclusive terms with the rental property’s owner. The startup then spun up an SPV (special purpose vehicle) to market the tokenized equity sale.&nbsp;



Investors are required to hold on to their NFTs representing their equity interests for at least one year. The process is verified on-chain.&nbsp;



Backers can then freely buy and sell their Solana NFTs on the open market, and underlying smart contracts tie those transactions to their corresponding equity stakes in the home.&nbsp;



Homebase’s “operating agreements say that non-fungible tokens represent ownership of that SPV,” Valadez said, adding that that way “you don’t have to get a lawyer involved.”&nbsp;



“The way we’re marketing this on the demand side is keep all of your assets on-chain and get to invest in rental properties that are truly able to accrue in value,” he said. “On the homeowner&#8217;s side, it’s an additional option you have when it comes to liquidity — especially in today’s environment, when interest rates are like 6%…[You now have] an additional potential stake to get equity out.”



Homebase’s second tokenized offering is already in the works.



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Real Estate Investors Buy Solana NFT Home for $246,800

The exploiter of DeFi lending protocol Euler Finance has sent a series of messages through the blockchain, apologizing for stealing funds and promising to return all stolen money.&nbsp;



Euler <a href="https://blockworks.co/news/euler-suffers-200m-exploit">suffered a $200 million exploit</a> earlier this month in which a hacker used a series of flash loans to trick Euler’s smart contract into believing it had fewer collateral tokens than debt tokens.&nbsp;



Now, the hacker — who goes by “Jacob” — seems to have had a change of heart.



“Jacob here. I don&#8217;t think what I say will help me in any way but I still want to say it. I fucked up. I didn&#8217;t want to, but I messed with others&#8217; money, others&#8217; jobs, others&#8217; lives,” the hacker <a href="https://etherscan.io/tx/0xedd8102ca037abaeb75ce6a1afe951d2953258392d891ff23510276993a5437c">said</a> in an encoded blockchain message, asking for forgiveness.



In its initial recovery efforts, Euler Foundation launched a <a href="https://blockworks.co/news/euler-bounty-defi-flash-loan-attack">$1 million reward bounty</a> to incentivize the arrest of the attacker.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">euler just sent an on-chain message to the hacker <a href="https://t.co/0wKIW51NjM">pic.twitter.com/0wKIW51NjM</a>&mdash; 0xngmi (llamazip arc) (@0xngmi) <a href="https://twitter.com/0xngmi/status/1635769041909342208?ref_src=twsrc%5Etfw">March 14, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Threats to the culprit came in from multiple angles, as an address associated with the Ronin bridge hacker — believed to be based in North Korea — attempted to trick the Euler hacker into sending over their private key information through a phishing scam.



The Euler team then sent an <a href="https://etherscan.io/tx/0x054409f252ac293a0ed34108b25e5906476817c5489bd3e98a5d3e1ee0825020">on-chain message</a> to the Euler hacker, warning them of the probable phishing attempt and again urged the return of the stolen assets, noting “the simplest way out here is to return funds.”



Since then, things have taken a positive turn. On Saturday, the Euler attacker returned <a href="https://etherscan.io/tx/0xb0308ee113c541e7c6f4623e833417524d68fd6267d23f43d9041f583c14343f">51,000</a> ETH (about $88 million) to a wallet under the Euler team’s control, and more recently an additional <a href="https://etherscan.io/address/0xb66cd966670d962c227b3eaba30a872dbfb995db">four transactions</a> of 7,800 <a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a> and $30 million in the <a href="https://blockworks.co/price/dai" target="_blank" rel="noreferrer noopener">DAI</a> stablecoin has been returned to a wallet labelled Euler multisig 2, alongside a pledge to make good on all of it. 



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Currently, the hacker holds: $18.35M of ETH &#8211; 8K ETH in the Main Caller address &#8211; 2.5K ETH in the Tornado Cash address $13.1M of DAI &#8211; $12M in the Euler Tertiary account &#8211; $1.1M held across Child 1 and 2 They have returned 85K ETH and 30M DAI. That is $177M, 86% of the total. <a href="https://t.co/RuUEZIuZFK">pic.twitter.com/RuUEZIuZFK</a>&mdash; Arkham (@ArkhamIntel) <a href="https://twitter.com/ArkhamIntel/status/1640773421666824195?ref_src=twsrc%5Etfw">March 28, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“The rest of the money will be returned ASAP. I only look after my safety, and that is the reason for the delay. I&#8217;m sorry for any misunderstanding,” Jacob <a href="https://twitter.com/fewture/status/1640594111144292353/photo/1">wrote</a> in a separate on-chain message.



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Euler Exploiter Says ‘Sorry,’ Returns Stolen $177M

Crypto investment firm Paradigm is urging the courts not to embrace what it argues the SEC is pushing for — that crypto tokens are essentially temporary securities.



The argument came in an amicus brief — insight filed by an entity who is not a party in a legal case — in the SEC’s case against Ishan Wahi.&nbsp;



US authorities <a href="https://www.justice.gov/usao-sdny/pr/three-charged-first-ever-cryptocurrency-insider-trading-tipping-scheme">charged</a> Wahi, a former product manager at Coinbase, with wire fraud last July as part of an alleged scheme to commit crypto-related insider trading. He <a href="https://www.justice.gov/usao-sdny/pr/former-coinbase-insider-pleads-guilty-first-ever-cryptocurrency-insider-trading-case">pleaded</a> guilty to two counts of wire fraud conspiracy in Manhattan federal court last month.&nbsp;



But the SEC’s case against Wahi is ongoing. Judge Tana Lin, of the US district court for the western district of Washington, allowed Paradigm’s amicus brief to be filed on Monday, Paradigm crypto counsel Rodrigo Seira said in a tweet.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Today, Judge Tana Lin officially granted <a href="https://twitter.com/paradigm?ref_src=twsrc%5Etfw">@paradigm</a> leave to file our amicus brief in the SEC&#39;s case against Ishan Wahi Our brief rejects the SEC&#39;s expansive and unsupported application of securities laws to crypto secondary markets <a href="https://t.co/OWxiajwuxZ">pic.twitter.com/OWxiajwuxZ</a>&mdash; Rodrigo (@RSSH273) <a href="https://twitter.com/RSSH273/status/1640405640907751424?ref_src=twsrc%5Etfw">March 27, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The US securities regulator alleges that Wahi offered inside information to his brother, Nakhil Wahi, and Sameer Ramani, who then allegedly traded based on that knowledge. This included trading in at least nine crypto assets, according to the SEC — assets the regulator is calling securities.&nbsp;



<h2>Temporary securities?</h2>



Paradigm says in the brief the SEC is incorrectly arguing that because the crypto tokens were sold as transactions defined as investment contracts, the tokens themselves became investment contracts — deemed as a type of security per the Securities Exchange Act of 1934.&nbsp;



The nine tokens would not be considered securities “without considering extrinsic factors,” according to the brief.&nbsp;



“The SEC asks the court to accept the novel idea that these tokens are securities for only so long as they are deemed to “embody” an ongoing investment scheme…making them effectively temporary securities,” Paradigm states.



Accepting this “embodiment theory,” as Paradigm calls it, could have “sweeping and unintended effects” on the crypto industry, the company added.&nbsp;&nbsp;&nbsp;



“Essentially, the SEC seems to suggest that market participants should simply assume that&#8230;virtually all crypto assets are securities until the SEC tells them otherwise, a power not granted to the SEC by the Congress,” Paradigm said.



The SEC did not immediately return a request for comment.&nbsp;



<h2>Securities or not?</h2>



Though Paradigm calls the SEC’s latest argument “a novel idea,” the broader argument of whether crypto tokens are securities is not new.



The SEC alleged in 2020 that Ripple Labs and two of its executives raised more than $1.3 billion in 2013 through the sale of crypto token XRP as part of what it deems to be an unregistered security offering. <a href="https://blockworks.co/news/sec-ripple-xrp-case-trial">That case is ongoing</a>.



The regulator <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">served Coinbase with a Wells notice</a> last week about alleged securities violations, though the exchange has <a href="https://www.coinbase.com/blog/coinbase-does-not-list-securities-end-of-story">argued</a> the digital assets it lists are not securities.&nbsp;



Industry participants have told Blockworks that US regulators are jockeying for position in regulating the crypto industry in the absence of comprehensive regulation.The CFTC <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">called bitcoin, ether and litecoin commodities</a> in a lawsuit brought Monday against Binance and its CEO.



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Paradigm: SEC’s Temporary Securities Theory Could Have ‘Unintended Effects’

Federico Ast

Online organizations are becoming a normal setting for a large part of our social and economic interactions. And just like in the offline world, disagreements are now cropping up in these online spaces.&nbsp;



Web3 is no exception: We have recently witnessed disputes in communities such as <a href="https://www.coindesk.com/business/2022/07/06/is-makerdao-becoming-a-company-run-by-politics/">MakerDAO</a>, <a href="https://medium.com/@ClementLesaege/making-sense-of-recent-drama-in-proof-of-humanity-ccf3082eb0fa">Proof of Humanity</a> and <a href="https://decrypt.co/es/124083/defi-llama-drama-resolved-no-token?amp=1">DefiLlama</a>.



Those conflicts were of political nature and involved deep disagreements between different factions within the projects. Members disagreed on matters ranging from resource allocation (how funds and other assets should be assigned), community norms (how members are expected to treat each other) and legal issues (how to manage compliance requirements).



These recent public community governance dramas have put a spotlight on the fact that we are still learning how to govern decentralized organizations. As such conflicts are more likely to become commonplace, decentralized communities need to start experimenting with how to resolve them.



The problems of DAO governance need to be dealt with by people that understand the value of a humanistic, big-picture approach, who realize that there is ultimately nothing new under the sun. If you look all the way back to the days of ancient Athens, philosophers have been trying to understand how to create environments where humans can collaborate effectively and thrive — and DAOs are no different.



<h2>How to agree to disagree</h2>



What do the philosophers of ancient Athenian democracy and the founding fathers of the United States have in common? A big concern about factionalism as the main threat to a working democracy.



When factions win, citizens turn their focus away from the common good and toward the particular interests of their clan or party.



In the book How Democracies Die, Steven Levitsky argues that a key reason for the success of American democracy was the development of a number of informal norms on how disagreements had to be handled and how one was expected to treat political adversaries. A civilized way to agree to disagree.



Efforts should be taken in DAO communities to develop norms of civility, open debate and mutual respect. While this is easier said than done, the way in which a community recruits and educates their new members can play an important role.



<h2>Who’s in charge?</h2>



Many DAO disputes arise from poorly designed governance systems leaving ambiguity on how decisions should be made and who should make them.



Should every member be allowed to vote on every issue, or only experts get the votes? Who counts as a “community member” anyway? Should the DAO work on a 1 token/1 vote system or 1 person/1 vote system?



For example, the failure of Proof of Humanity DAO was attributed to a lack of clear decision rights, according to an <a href="https://drive.google.com/file/d/1l_faHo8WAr-T4MzagCcLyfvIA7xRlUD5/view">ethnographic research paper</a> published by BlockchainGov.



We are already witnessing the rise of constitution-building processes for DAOs. Clarifying the way in which the governance system works (who gets to decide about what and how) will be an important avenue for conflict prevention in the future.



<h2>Bring on the third parties</h2>



After a conflict starts, it’s typically too late to agree on a dispute resolution method —&nbsp;especially in a decentralized organization that owes its existence to a set of rules. DAO governance rules should have an explicitly stated structure for resolving all disputes from the get-go.



DAOs can take an example from the oil and gas or construction industries and make use of a neutral evaluation process: a non-binding mediation or conciliation facilitated by a trusted third party.



Contracts in these industries usually involve long-term commitments between parties over large amounts of money. If a conflict arises (an economic shock unexpectedly sends the price of oil skyrocketing!) parties need a neutral way to resolve the issue while at the same time avoiding any damage to their business relationship.



If the non-binding agreement fails, then the conflict could potentially escalate to a binding instance, a mechanism similar to a “<a href="https://blog.kleros.io/kleros-a-decentralized-supreme-court-for-daos/">Supreme Court of the DAO</a>” which would have the right to make an authoritative decision.



This process should certainly have clear guidelines (how to start the mediation, the type of evidence that would be acceptable), impartial arbitrators, transparency and an enforcement mechanism.



<h2>A forking procedure (when DAOs get divorced)</h2>



Sometimes disagreements between the different factions go so deep that the only option is divorce. When this happens, a number of decisions will have to be made about how to split the right to use the brand and how to divide the treasury and other assets.



Most sovereign states don’t recognize the right to self-determination through secession in their Constitution. But this isn’t <a href="https://en.wikipedia.org/wiki/Secession#Rights_to_secession">without precedent</a>. For example, <a href="https://en.wikipedia.org/wiki/Withdrawal_from_the_European_Union#Procedure">article 50 of the Treaty of the European Union</a> gives the right to withdraw from the EU, which was used by the UK for Brexit. For DAOs, it&#8217;s way easier, as the majority don&#8217;t have a physical territory. If a DAO has a predefined forking procedure from the get go, then this can avoid lots of conflict about the terms for the split (similarly to how prenup agreements can avoid messy divorces).



A DAO constitution should have some guidelines on how to conduct the forking process in case it happens and to give all parties in the conflict clear expectations about the outcome.



<h2>Humans over machines</h2>



Ultimately, putting aside the technical sophistication of blockchains, DAOs are made up of humans who have emotions, passions and fears. Creating good governance systems for DAOs must be more about dealing with the “mental software” of humans rather than the “computer software” of machines.&nbsp;



Topics such as power, inclusion, opportunism and loyalty have been recurrent throughout history. Even if DAOs are novel forms of human organization due to their structure, we can always remember the words of Winston Churchill, “Study history, study history. In history lies all the secrets of statecraft.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Federico Ast graduated in economics and philosophy from the University of Buenos Aires and holds a PhD in management from IAE Business School. He is founder and president at Kleros, a legaltech company using game theory and blockchain technology in arbitration. As a pioneer in the field of decentralized justice, he has lectured in universities such as Stanford, Oxford and Columbia and in international organizations such as the United Nations.</div>


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Made by Humans but Governed by Code?

John Lee Quigley

A multi-signature wallet is one of the advanced security tools available to cryptocurrency users. Yet, many investors do not use them because they do not understand how multi-signature, or multisig, wallets work.



There is also a false narrative that multi-signature wallets eliminate all security risks associated with holding cryptocurrency. Although multisig wallets provide remarkable security, some high-profile breaches, such as <a href="https://blockworks.co/news/sky-mavis-ronin-network-bridge-exploited-for-over-600m">Ronin Network&#8217;s $625 million hack</a>, have come from <a href="https://blockworks.co/news/nomad-token-bridge-raided-for-190m-in-frenzied-free-for-all">compromised multisig wallets</a>, where the private keys were stored improperly.



Read on to learn what a multisig wallet is and why they are considered a must-have for storing digital assets in a corporate setup, as well as the available types of multisig wallets and the advantages and disadvantages of adopting these solutions.



<h1>What is a multi-signature wallet?</h1>



A multi-signature wallet is a cryptocurrency wallet that requires multiple signatures — instead of just one — to execute each transaction. The signatures are associated with different cryptographic private keys, while a defined threshold of keys must sign a transaction to validate it.



The workflow of a multisig wallet is the same irrespective of the number of signers. Any parties to a multisig wallet can initiate a transaction signed with their private key. However, the transaction is displayed as pending until other parties sign it.&nbsp;



Multisig wallets may implement an N-of-N setup where all signatories must validate a transaction before. The similar example is a 2-of-2 method where two parties must validate a transaction for it to be considered valid.&nbsp;



Alternatively, an N-of-M setting requires a specific subset of signers to approve a transaction. Using a 3-of-4 wallet as an example, three out of four signers must validate the transaction for it to be executed.&nbsp;



In either case, it is essential to distribute multisig private key access among distinct entities. A multisig setup where a single entity holds multiple private keys and stores them in a single location is essentially the same as a single-key wallet. The ideal scenario is giving access to entities in a way that a single security breach does not lead to the loss of two or more keys.



Many blockchains integrate functionality that enables users to implement multi-signature wallets. Cryptocurrency exchanges and custodians also implement multisig wallets and store associated private keys in diverse locations to protect client assets.



<h2>Why use a multisig wallet?</h2>



When used properly, a multisig wallet offers extra security by eliminating the single point of failure risk associated with having one private key. It makes it difficult for hackers to steal funds from a wallet, because they must have the different keys to complete any action.



A multisig feature is especially desirable in a corporate or organizational structure. For instance, a decentralized autonomous organization (DAO) may distribute its multisig wallet key access among distinct ecosystem projects actively contributing to its development. These members must approve new smart contract upgrades or fund transfers for purposes approved by the <a href="https://blockworks.co/news/the-investors-guide-to-daos">DAO</a>. Keyholders must be selected carefully, mindful of the possibility of collusion.



Some security-conscious investors may choose to adopt a multisig wallet as an extra layer of security to <a href="https://blockworks.co/news/cold-wallets-secure-crypto-custody">cold wallets</a>. Such implementation means that users must complete several steps to authorize transfers and may choose to extend responsibility to a trusted third party, such as a family member or an attorney.



<h2>Types of multi-signature wallets</h2>



<ul>
<li>1-of-2 signatures: A 1-of-2 setup is one of the most basic forms of multisig storage. The user binds two private keys to a single wallet, allowing anyone holding either key to approve transactions. This setup is ideal for a small business where either of two founders can transfer funds and trust is established through contractual and personal relations. A 1-of-2 setup is also a useful personal backup solution, as users can recover funds even if they lose one private key.</li>
</ul>



<ul>
<li>2-of-3 signatures: This multisig wallet requires two out of three registered signers to complete a transaction. It is useful for escrow transactions and also implemented by cryptocurrency custodians as an additional security measure.&nbsp;In the latter use case, the company may hold two of the keys with one securely stored offline and the other held online to make the signing process easier. The third key is delegated to a trusted blockchain security company, which may be required if the crypto custodian loses one of its keys.</li>
</ul>



<ul>
<li>3-of-5 signatures: This is a more robust multisig setup that requires three out of five signatures to validate transactions. It is useful for a corporate structure where several decision makers must approve transfers. As long as over 50% of the parties consent to the decision, then they can approve fund transfers. As with other forms of multi-signature setups, delegating signatures to entities in diverse geographical locations could improve security.</li>
</ul>



<ul>
<li>Hosted vs. unhosted: A hosted multisig wallet is one created with a third-party platform such as Coinbase Custody or BitGo. These entities secure cryptocurrencies using institutional-grade solutions, while giving clients access to multi-signature functionality. Thus, clients register approved signatories and define signature thresholds for fund transfers. An unhosted multisig wallet (also known as self-hosted wallet, or <a href="https://blockworks.co/news/warren-unveils-new-crypto-bill">simply a wallet</a>) is one where the individual or organization holds the private keys, instead of using a trusted third-party. The setup process for unhosted wallets is usually more complex as users require security-optimized infrastructure and best practices. However, the user enjoys greater convenience and eliminates the counterparty risk associated with third-parties.</li>
</ul>



<h2>Advantages of multisig wallets</h2>



Multi-signature wallets offer several unique benefits to users. They also serve specific use cases that are generally considered out of reach for single-key wallets.&nbsp;



<h4>Increased security</h4>



Multisig wallets are synonymous with increased security and peace of mind. This is especially important given the growing security concerns in the cryptocurrency space and the irreversibility of blockchain transactions. With a multisig wallet, users can rest assured that the odds of a hacker acquiring all associated private keys are low.



A multisig wallet also provides a backup option. As long as the setup does not require all signatures to validate transactions, users can easily recover their wallets if one or more private keys goes missing. New signatures can also be added to further distribute ownership and improve security.



<h4>Escrow transactions</h4>



Multi-signature wallets are ideal for escrowed transactions. They guarantee that each party will fulfill their obligations once the agreed terms are met. Using the example of a 2-of-3 multisig, the buyer could deposit funds in a wallet with a promise to release the funds to the seller as soon as the purchased goods are received and deemed satisfactory.&nbsp;



The seller also holds a key alongside a trusted third party used as the final signatory to the multisig contract. Both buyer and seller could sign to confirm the trade as soon as the conditions are met. However, the third party could release the funds to either buyer or seller if the other party breaches the contract terms.



<h4>Two-factor authentication (2FA)</h4>



Multi-signature wallets provide a form of two-factor authentication (2FA) because eligible signers must validate any pending transaction before approval. Users can easily halt any malicious actor that gains unauthorized access to an associated key and revoke their access. This security feature is further strengthened by keeping the private keys in multiple locations or with different individuals.&nbsp;



<h4>Cooperation between multiple parties</h4>



A multisig wallet is perfect for an organizational setup where two or more parties must consent to make business decisions. This is especially helpful in an era where an increasing number of strangers meet online to pursue common objectives, such as a DAO.&nbsp;



A multisig wallet checkmates power abuse, gives parties a sense of responsibility and ensures no one can transfer funds without requisite approval. This feature also doubles as voting rights, because signing a transaction represents approval of the business decision.



<h2>Disadvantages of multisig wallets</h2>



The security provided by multisig wallets come at the cost of convenience. This trade-off makes multisig wallets less ideal for certain scenarios.



<h4>Transaction speed</h4>



Users give up speed for security when they choose to use a multisig wallet. It could take anywhere from a few hours to days to execute a transaction from a multisig wallet, with factors such as the number of signatories and geographical boundaries limiting their usage. These limitations make multisig wallets less convenient for emergencies or routine payments.



<h4>Technical knowledge</h4>



Users require more than basic security knowledge and practices to adopt multisig wallets. The setup process may require consulting a third-party wallet provider, installing specific software, or purchasing dedicated equipment such as multiple hardware wallets and safe boxes. These requirements are relatively complex for the average crypto investor and are one of the key factors impeding the adoption of multi-signature wallets.



<h4>Fund recovery and custodian</h4>



Compared to single-key storage, it takes considerably longer and requires more coordination to recover funds stored in a multisig wallet. Further, N-of-N setups fail to provide a backup or recovery solution for rare situations where one of the signers is unavailable.



Meanwhile, entities that choose the relatively easier multisig wallet hosted with a third-party custodian expose themselves to counterparty risk. A security breach at the third-party custodian could have far reaching consequences.



<h2>Should I use multisig?</h2>



Multi-signature wallets are an excellent way to protect your digital assets. However, they are not perfect. You should only use a multisig wallet if you understand cryptocurrencies and consider yourself knowledgeable with advanced operations security (OpSec). That said, multisig users enjoy a greater sense of security and immunity from most basic risks associated with storing cryptocurrencies.&nbsp;



<h2>Multisignature wallets: A secure standard for crypto storage</h2>



A multisig wallet eliminates the single-point of failure risk faced by most cryptocurrency investors. Both individual and corporate investors can adopt different multisig setups depending on their specific needs.&nbsp;



Readers considering multi-signature wallets will find it helpful to study their advantages and disadvantages. That way, they can make research-driven decisions on the best options to provide the highest level of security for their digital assets.



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What Are Multisig Wallets?

The UK appears to have scrapped plans to launch an NFT, a move earlier championed by Prime Minister Rishi Sunak.



Economic Secretary Andrew Griffith said Monday that the Royal Mint’s decision to back away from NFTs was made in consultation with the UK Treasury. The proposal will go under review, he added.&nbsp;



He was responding to a written <a href="https://questions-statements.parliament.uk/written-questions/detail/2023-03-09/162176#">question</a> from conservative politician Harriett Baldwin, who enquired about whether the NFT is still under consideration by the UK’s chief finance minister.



Baldwin, chair of the Treasury Select Committee, guessed that the Treasury’s decision was motivated by insufficient evidence showing the value of NFTs, the <a href="https://www.bbc.com/news/uk-politics-65094297">BBC</a> reported.



&#8220;We have not yet seen a lot of evidence that our constituents should be putting their money in these speculative tokens unless they are prepared to lose all their money,” she said. &#8220;So perhaps that is why the Royal Mint has made this decision in conjunction with the Treasury.&#8221;



The UK’s plans for an NFT first came up when Sunak served as Chancellor of the Exchequer. In April last year, the UK Treasury said Sunak asked the institution to create an NFT by the summer. “This decision shows the forward-looking approach we are determined to take towards cryptoassets in the UK,” the Treasury <a href="https://twitter.com/hmtreasury/status/1510971092072079360">said</a> in a tweet.



The institution did not lay out what the NFT would consist of — an image, video or an object — nor whether it would be utilized for profit by the state. It also wasn’t known whether the Treasury would’ve accepted cryptocurrency for the tokens.



A Treasury spokesperson confirmed that the plans are abandoned for now. “The Royal Mint operates as a commercial business and has confirmed now is not the right time to launch an NFT,” they told Blockworks via email.



“In light of recent developments in the wider crypto market and the Royal Mint’s current capacity for delivery, the Treasury agreed the NFT should not be pursued at this time. However, the Royal Mint will keep this under review.”



<h2>UK PM has been pro-crypto</h2>



Sunak himself has been a vocal crypto enthusiast and has often declared his interest in blockchain.



“It’s my ambition to make the UK a global hub for cryptoasset technology,” he has said. But the crypto ecosystem has faced a slew of critical incidents since, including crashing prices and a string of critical bankruptcies.



London itself has seen more than 600 people in the crypto sector losing their jobs in the last year, according to a recent <a href="https://www.bitcoincasinos.com/blog/2023/02/27/crypto-layoffs/">study</a>. The report predicts that the number of layoffs in 2023 is set to outpace those in 2022.



The UK can still achieve its ambitions by creating a supportive regulatory framework and developing crypto-friendly infrastructure, according to Alexandr Onufriychuk, head of growth at Corite, a firm that creates NFT collections and works with artists in the UK.&nbsp;



Other steps could include encouraging investment in the crypto space, he said, or collaborating with the private sector to develop blockchain-based solutions for supply chain management or digital identity verification.



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UK Treasury: Not the Right Time To Launch Official NFT

Florida lawmakers may have to revise a recently passed bill barring central bank digital currencies (CBDCs) to avoid inadvertently banning bitcoin.



Governor Ron DeSantis’ proposal would make Florida the first US state to ban CBDCs, with a House panel voting 15-5 in favor on Monday.



DeSantis, who has served as Florida governor since 2019, is opposed to the idea of a federally-controlled digital currency, arguing it would hurt innovation and “promote government-sanctioned surveillance.”



The bill blocks the use of a federally-backed <a href="https://blockworks.co/tag/cbdc" target="_blank" rel="noreferrer noopener">CBDC</a> as currency under Florida’s Uniform Commercial Code. It also prohibits CBDCs issued by a foreign reserve or foreign sanctioned central bank, and calls on other states to embrace the same prohibitions.



A CBDC is a type of digital currency, which may or may not run on a blockchain or distributed ledger system, backed and issued by a central bank. <a href="https://blockworks.co/news/biden-signs-crypto-executive-order-promoting-responsible-innovation">US President Joe Biden signed an executive order</a> last year asking federal agencies to study benefits and risks of a US CBDC, but no definite decision has been made on whether the US will actually come up with one.



Even so, the <a href="https://blockworks.co/news/us-treasury-weighs-prospect-for-cbdc-adoption">US Treasury is working on the technology</a> that would be required to create a CBDC if lawmakers do decide to go ahead with the concept.



But there’s a small problem with DeSantis’ bill. Per <a href="https://floridapolitics.com/archives/598740-house-moves-on-gov-desantis-call-for-centralized-digital-currency-ban/">Florida Politics</a>, it defines CBDCs as digital currencies “validated directly by” a foreign government.&nbsp;



While the language is somewhat open to lawmaker interpretation, bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) can fit that description: <a href="https://blockworks.co/tag/el-salvador" target="_blank" rel="noreferrer noopener">El Salvador</a> has adopted bitcoin as legal tender, thereby “validating” it in the non-technical sense (it’s unclear whether El Salvador’s central bank or other government institution runs fully-validating Bitcoin nodes, also known as full nodes).



Wyman Duggan, a member of Florida’s House of Representatives sponsoring the bill, reportedly said they hadn’t set out to ban bitcoin along with CBDCs, and that they may change the bill if necessary.&nbsp;



The Bitcoin Policy Institute, a nonpartisan bitcoin think tank, recently <a href="https://www.btcpolicy.org/articles/in-attempt-to-stop-cbdcs-states-are-rejecting-ostensibly-pro-bitcoin-legislation">warned</a> that anti-CBDC legislation could unwittingly make it more difficult for the bitcoin ecosystem to flourish, unless they include specific language vetting BTC.&nbsp;



DeSantis has previously presented as pro-bitcoin, having floated accepting the top crypto for state taxes last March.



<h2>CBDCs and the US Constitution</h2>



While proponents of CBDCs argue that they can be used to speed up transactions, make cross-border payments more efficient, and discourage criminal activity, opponents like DeSantis believe such a system raises heavy privacy and security concerns.



Some Florida lawmakers have agreed with DeSantis’ view. Rep. Duggan reportedly raised apprehensions that CBDCs would give government in-depth insight into consumer purchases and could potentially freeze or seize anyone’s assets.



DeSantis himself previously <a href="https://floridapolitics.com/archives/596576-gov-desantis-wants-centralized-digital-currency-ban-raises-fear-government-could-control-purchases/">warned</a> that government oversight of digital currency would mean people wouldn’t be able to purchase gas or guns. “Who knows whether they would let you buy a firearm or things they disapprove of?” he said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The Biden Administration’s creation of a central bank digital currency is about one thing &#8211; control. I am calling on the Legislature to prohibit the use of a so-called CBDC in Florida, protecting Floridians from government surveillance and control of their personal finances. <a href="https://t.co/ob1E90R5Gn">pic.twitter.com/ob1E90R5Gn</a>&mdash; Ron DeSantis (@GovRonDeSantis) <a href="https://twitter.com/GovRonDeSantis/status/1638173916299657225?ref_src=twsrc%5Etfw">March 21, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Democrats were among those who voted against the bill. They raised the debate of unconstitutionality, since it is the US Constitution that gives the federal government the power to create and circulate national currency.



Rep. Allison Tant reportedly asked the House panel whether such a move indicated that Florida would be lagging economically. Duggan disagreed that this would happen, but admitted that there could be legal challenges if the bill became law.



“There’s obviously a federal Supremacy Clause in the [US] Constitution. That’s an enumerated power of the federal government, to mint money,” Duggan said. “We’re clearly going to have to have a court explore the contours of this relationship.”



The bill hasn’t yet become law and must pass the entire chamber of the House and Senate, before finally reaching the governor. He can then choose to sign it, or allow it to become law without signature, or veto it.



David Canellis contributed reporting.



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Florida Bill Banning CBDCs Might Accidentally Ban Bitcoin Too

Crypto was created for this moment, Galaxy Digital CEO Mike Novogratz said during the company’s fourth quarter earnings call Tuesday morning.&nbsp;



Galaxy Digital, traded on the Toronto Stock Exchange, hosted the call Tuesday before the open.



“Satoshi Nakamoto, way back in 2009, worried about the breakdown of the legacy financial system, he worried about… constant printing of fiat currencies and a debasement of money and created Bitcoin,” Novogratz said.



“Bitcoin really is the first decentralized store of value or money, which then really gave birth to this whole industry of a decentralized revolution.”



Galaxy <a href="https://viavid.webcasts.com/viewer/event.jsp?ei=1602915&amp;tp_key=afe1222a80" target="_blank" rel="noreferrer noopener">reported</a> a net loss of $288 million for the fourth quarter of 2022, <a href="https://investor.galaxy.com/financials/quarterly-results/default.aspx" target="_blank" rel="noreferrer noopener">earnings</a> show, compared with a net income of $521.3 million during the fourth quarter of 2021. For the year of 2022, Galaxy logged a net loss of $1 billion. 



“The loss was primarily attributable to unrealized marks to market on investments in our Principal Investments portfolio, driven by depressed market conditions,” the earnings report noted.



Galaxy Trading’s counterparty trading volume increased about 19% from the third quarter of 2022, the company noted in its report, and lost about 65% from the fourth quarter of 2021.&nbsp;



Galaxy still plans to list in the US after reorganizing and becoming a Delaware-incorporated company and completing the necessary SEC review. Galaxy’s most recent amended registration was submitted to the SEC in February 2023 and is currently under consideration, the filing noted. 



Shares of Galaxy are currently up about 1% year-to-date, but have lost 86% over the past 12 months. 



“I feel for you, our stock price has been ugly,” Novogratz said. “Last earnings call I cared a lot about the stock price, and, you know it&#8217;s lower, not higher.”&nbsp;



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/13225386/embed#?secret=ZSIzhy021Y" data-secret="ZSIzhy021Y" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Galaxy stock and Coinbase diverged at the start of the year</figcaption></figure>



Galaxy is committed to cost-saving efforts, Novogratz said. The company announced layoffs in late 2022 and its bonus pool is now “way down,” the CEO said.&nbsp;



“Our stock is just at the wrong price,” Novogratz said.&nbsp;



In terms of the future of crypto as a whole, Novogratz said we are at a crucial inflection point.&nbsp;



The industry seems to be thriving overseas, he said said, but regulatory headwinds in the US makes expansion in America challenging.&nbsp;&nbsp;



“I go to bed and I say a Hail Mary hoping that the stewards of our country and our economy can land the plane, can actually maneuver our economy into something that&#8217;s sustainable without a real disaster, but that challenge is real and a challenge gets worse and worse,” Novogratz said. 



“And so things like this banking crisis are a great reminder, and it gives bitcoin and bitcoin’s community unbelievable resilience.”



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