SwissBorg

Jack Kubinec

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When Marc Andreessen went on The Joe Rogan Experience and said 30 of a16z’s portfolio founders had been debanked, or had their bank accounts closed arbitrarily, a chorus of crypto figures joined in to cry foul on the US banking system.



While discontent with the banking system is obviously nothing new in crypto, the debanking narrative — the extent of which we still know relatively little about —&nbsp;has given fresh ammunition to teams building bank replacements. On Solana, projects from onchain banks to subscription services are making their case for the debanked and unbanked to sign up. What’s unclear is whether today’s banking alternatives can succeed where past iterations have failed.



After the Joe Rogan podcast went live, Squads Labs director of research Shimon Newman began working on a report on the contours of a federal conspiracy to debank crypto entrepreneurs and startups — known in crypto as Operation Chokepoint 2.0. An early version of the report shared with Lightspeed highlights how US regulators’ perceive that there is a lot of risk associated with crypto — a perception that extends to fintech and payment service providers. As a result, there has been a large number of debankings, though detailed data on the exact number of crypto-related debankings remains scarce.



Newman’s report cites data <a href="https://www.gisreportsonline.com/r/why-anti-money-laundering-policies-are-failing/">saying</a> an estimated 0.1% of laundered money is intercepted by current anti-money laundering efforts, and <a href="https://www.trmlabs.com/the-illicit-crypto-economy-report#:~:text=The%20share%20of%20illicit%20funds,2023%20from%200.70%25%20in%202022">less</a> than 1% of crypto volume is illicit. But whether or not the crypto crackdown is worthwhile, Squads is capitalizing on it: The startup’s smart wallet app has begun offering a “virtual US bank account” that can accept bank transfers and convert dollars into stablecoins for low fees. It does not offer credit-related services like taking out a loan, Newman said.



Iron is also building an “onchain bank” on Solana, though its founder’s public messaging has focused on the benefits of stablecoins rather than the scourge of debanking in recent days.



CFX Labs founder Nick Cavet shilled me today on his startup’s idea for “rebanking,” where USD deposits can be tokenized and essentially run on rails alongside the traditional banking system.



Serj Korj, co-founder of Solana incremental subscription app DePlan, started another initiative called Subdoor that lets people pay for subscriptions in crypto. He has <a href="https://x.com/SerjKorj/status/1863253106324341021">leaned</a> into the debanking narrative as well, though he pointed out in text messages that there are far more people who are unbanked — or never had bank access to begin with — in the world.



The narrative that banks are too opaque and free from accountability for wrongdoing has caught a second wind from debanking, but it’s not a new story. History suggests any crypto-ification of banking would require regulators to get on board too. And for some, the debanking narrative has already passed.



“Debanking is a year old story. And fintech eye rolls cuz it’s a 10 year old story,” Cavet said in a text.



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Solana teams pick up on debanking narrative

Casey Wagner

This is a segment from the Forward Guidance newsletter. To read full editions, <a href="https://blockworks.co/newsletter/forwardguidance">subscribe</a>.



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It’s that time of the year: Republicans are finalizing their picks for House committee and subcommittee chairs.&nbsp;



For eagle-eyed crypto fans, you probably saw Rep. French Hill was nominated to chair the House Financial Services Committee. Also of note, Glenn Thompson is slated to hold on to his position as Agriculture Committee chair.



Let’s run through what these representatives have said about crypto and what could be in store for policy next session:&nbsp;



<h2 class="wp-block-heading">French Hill </h2>



Hill was the first-ever chair of the House Subcommittee on Digital Assets, Financial Technology and Inclusion, serving for the past two years.&nbsp;



Chair Maxine Waters created the subcommittee during the 116th Congress. It was expanded to also include crypto matters this session under Chair Patrick McHenry, who did not run for re-election. Since broadening its scope, subcommittee hearings have been held on <a href="https://blockworks.co/news/defi-hearing-lawmakers-clash">DeFi</a>, crypto <a href="https://blockworks.co/news/lawmakers-frustrated-with-sec-crypto-approach">market structure</a> and the role of federal agencies.&nbsp;



Hill received bipartisan support Thursday following his nomination announcement. Democrat Ritchie Torres, a fellow crypto-friendly rep, <a href="https://x.com/RitchieTorres/status/1867304053291823505">said</a> he looks forward to continued bipartisan cooperation next session.&nbsp;



<h2 class="wp-block-heading">Glenn Thompson&nbsp;</h2>



You may be wondering what the Agriculture Committee has to do with finance. But this group actually tackles a lot of pressing issues, specifically with commodities and derivatives markets. As many crypto advocates <a href="https://blockworks.co/news/crypto-must-work-closely-with-regulators">push</a> for more regulation from the CFTC and less from the SEC, the Ag Committee could prove crucial.&nbsp;



Thompson introduced the Digital Commodity Exchange Act last session — a bill that went on to influence <a href="https://blockworks.co/news/house-passes-act-fit21-with-bipartisan-support">FIT21</a>, which passed through the Ag Committee and later the full House with backing from both parties. A major part of the legislation is granting the CFTC authority to oversee crypto spot markets, a distinction <a href="https://blockworks.co/news/cftc-chair-asks-congress-for-greater-oversight-on-crypto-market">agency leadership</a> and industry actors have supported.&nbsp;



Thompson, a co-sponsor of FIT21, <a href="https://blockworks.co/news/republicans-crypto-market-structure-bill">said</a> last year the legislation had been drafted based on “extensive feedback from stakeholder and market participants.”&nbsp;



The bill “aims to close existing authority gaps, ensuring US leadership in financial and technological innovation,” he added.&nbsp;



Committee nominees must be ratified by the House Republican Conference, which is expected to meet next week.&nbsp;



Meanwhile, over in the Senate, there’s <a href="https://blockworks.co/news/sec-commissioner-crenshaw-vote-delayed">still no word</a> on if (or when) senators will vote to confirm SEC Commissioner Caroline Crenshaw before Congress recesses next week.&nbsp;



Senate Banking Committee Chair Sherrod Brown on Wednesday attributed the delay to Republican senators heeding &#8220;corporate special interests and standing in the way of [Crenshaw’s] nomination.”&nbsp;



Next week should be interesting.



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Republicans nominate pro-crypto reps to lead key House committees 

Ben Strack

This is a segment from the Forward Guidance newsletter. To read full editions, <a href="https://blockworks.co/newsletter/forwardguidance">subscribe</a>.



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MicroStrategy could later this month join the Nasdaq 100, which includes many of the largest non-financial, Nasdaq-listed companies.



A Nasdaq spokesperson told me changes to the index would be announced tonight at 8 pm ET. Adjustments would go into effect on Dec. 23.&nbsp;



MicroStrategy’s market capitalization stands around $95 billion and appears to meet the <a href="https://indexes.nasdaq.com/docs/Methodology_NDX.pdf">requirements</a> for inclusion, analysts say.&nbsp;&nbsp;



But the Nasdaq committee’s decision could depend on MSTR’s ICB classification, Bloomberg Intelligence analyst James Seyffart mentioned in a recent research note. Much of the company’s share performance is linked to financial engineering derived from its bitcoin buys, he explained; whether this could make it a “financial” stock (and ineligible) remains to be seen.



While TD Cowen analyst Lance Vitanza puts odds of MSTR’s Nasdaq 100 inclusion in the 60-80% range (noting its operating software business sets it apart from traditional financial companies), he told me he wouldn’t be surprised if it was kept out.



Benchmark’s Mark Palmer said the stock — already up 480% this year — could see another boost as Nasdaq 100 inclusion would enable MSTR to benefit from giant passive funds (like Invesco’s QQQ) buying blocks of shares.&nbsp;



Vitanza said he isn’t so sure inclusion in the index would cause any sort of price spike. Still, it would certainly broaden the universe of investors, he added, which would augment the company’s long-term access to capital.



TD Cowen analysts raised their price target for the stock from $525 to $550 on Monday. MSTR shares were trading at ~$397 at 2 pm ET.



“If they were to be kept out of the index,” he told me, “that would not change our view of the stock one iota.”



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MSTR to enter Nasdaq 100? We’ll know soon.

Macauley Peterson

The Cosmos ecosystem is entering a new chapter with the Interchain Foundation’s (ICF) acquisition of Skip and the establishment of Interchain Inc. The move represents a pivot from the ICF’s historical funding of disparate teams toward a more centralized and cohesive approach.



The new subsidiary, led by Skip co-founders Barry Plunkett and Maghnus Mareneck, will take charge of product development, ecosystem strategy and execution, the ICF <a href="https://blockworks-research.beehiiv.com/p/cosmos-comeback">announced</a> earlier this week. On Thursday, a “community town hall” <a href="https://x.com/cosmos/status/1867226763883172007">X space</a> shed additional light on what to expect in 2025.



<h2 class="wp-block-heading">A unified stack</h2>



<a href="https://blockworks.co/tag/cosmos">Cosmos</a> has long been heralded for its modular technology stack, including Cosmos SDK, IBC, CometBFT, and CosmWasm. However, Plunkett described a lack of coordination in the ecosystem’s growth.



“There wasn’t any cohesive overarching connection,” Plunkett told Blockworks. “Each of them was going off in their own direction.”



Read more: <a href="https://blockworks.co/news/cosmos-ethan-buchman-blockchain-convergence">Uniting the blockchain ecosystems: Q&amp;A with Cosmos founder Ethan Buchman</a>



Interchain Inc. aims to bridge these silos, including major “version 2” upgrades to both IBC — known as Eureka — and the Cosmos SDK. The SDK upgrade promises a 10–25x performance boost, while IBC Eureka simplifies the Interchain interop protocol to enable faster integration with non-Cosmos chains like Ethereum, EVM rollups and Solana.



“It’s a massive simplification of the IBC protocol that’s really going to allow the ecosystem to connect to other chains beyond [Cosmos]&#8230;in days or weeks,” Plunkett said during the X space.



In other words, Eureka “is like if ‘IBC Classic’ and Hyperlane had a baby,” as Cosmos-veteran builder Zaki Manian put it on the latest edition of the <a href="https://blockworks.co/podcast/bellcurve">Bell Curve podcast</a>.



Another cornerstone of the new strategy is expanding virtual machine (VM) support. An open-source EVM is in the works, with the team in discussions with projects like Injective and Cronos to consider adapting their <a href="https://blockworks.co/tag/evm">EVM</a> implementations.



“Most Cosmos chains want a simple, reliable and free path to add EVM functionality,” Plunkett said, emphasizing that Solidity contracts will be able to interact seamlessly with Cosmos SDK modules and vice versa.



Cosmos chains will also gain the flexibility to run any VM. “Users shouldn’t have to say, ‘If I’m going to build a Cosmos chain, then I can’t use whatever VM I want,’” Plunkett added.



<h2 class="wp-block-heading">The role of the Cosmos Hub</h2>



Addressing liquidity fragmentation across chains is a major priority for the Interchain Inc. team. Cosmos’ architecture, which empowers individual chains to operate independently, has inadvertently led to isolated liquidity pools. This hurts the overall ecosystem and discourages developers.



Read more: <a href="https://blockworks.co/news/devcon-panelists-talk-fragmentation">Unified Ethereum? Devcon panelists take on fragmentation challenges</a>



Liquidity gets stuck on one chain and isn’t accessible from other chains, Mareneck said on X, adding, “One of the things we want to do is really unite that liquidity so that it’s more accessible from more applications, so we can use the full weight of Cosmos liquidity.”



The Cosmos Hub is central to this strategy. By providing liquidity services and reducing friction for developers, the Hub could position itself as the ecosystem’s growth engine.



Permissionless Interchain Security (ICS) will make it easier for projects to onboard to the Hub. Whereas initially chains had to apply to Hub governance to make use of ICS, that’s no longer the case.



Interchain Inc. is also focused on simplifying the developer experience, ensuring the Cosmos Hub provides essential services.



“We need to make it easier for builders and ensure the Hub provides services to grow and scale chains,” Plunkett said.



Read more: <a href="https://blockworks.co/news/electric-capital-report-solana-developers">Solana gained highest share of new devs in 2024: Electric Capital</a>



The Skip team’s reputation for collaboration is going to be key for realizing this new Hub vision.



“We have relationships at Skip with a lot of different projects…we want to continue to do that, working from the platform of the Cosmos Hub,” Mareneck said.



Skip has focused on providing services for builders and useful products for users, such as Skip Go, which now powers over half of all IBC volume, Plunkett said on Bell Curve.



Rather than enforcing participation, the team will offer “carrots, not sticks,” to align incentives and foster growth.



By consolidating development and focusing on liquidity and accessibility, the ICF hopes to create a more unified and dynamic ecosystem, reigniting the vision of Cosmos as the “Internet of Blockchains.”



Outgoing ICF board member Ethan Buchman, a co-founder of Cosmos, sees this move as a chance to reinvigorate the ecosystem and bring fragmented pieces together.



“We’ve been struggling with the organizational challenges and fragmentation,” Buchman told Blockworks. This is really the first time I think we’ve taken a kind of revolutionary step to address that.”



“It’s like I’ve been trying to put together the pieces of Humpty Dumpty for so many years and finally, we just went and recruited Batman,” he said.



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What changes for Cosmos after Skip acquisition?

Donovan Choy

Ethereum loves rollups. As of late, “based” rollups are in vogue.



What makes based rollups special? Its sequencer.



Layer-2s today use a trusted centralized sequencer to order users’ transactions before they are posted down to the layer-1 for settlement, but based rollups defer those execution duties to Ethereum layer-1 validators. This is otherwise known as “based sequencing.”



There are two primary reasons this is preferable: censorship resistance and interoperability.&nbsp;



Using the layer-1 as a sequencer ensures the same liveness guarantees as Ethereum layer-1 blocks, and avoids the major complaints of potential censorship surrounding trusted centralized sequencers.



Read more: <a href="https://blockworks.co/news/solana-gaming-startup-open-sources-validator">MagicBlock open sources a16z-backed ‘ephemeral rollup’ tech</a>



The second advantage of based <a href="https://blockworks.co/tag/rollups">rollups</a> is better interoperability. Based rollup proponents such as Justin Drake have in recent months touted this benefit as “<a href="https://www.youtube.com/watch?v=Gd7phVLbIug&amp;list=PLbig0e-vh2_NJFaz52OvMI2sVAH-Ys3cg&amp;index=13">synchronous composability</a>,” where transactions in Ethereum are sequenced (or bridged) across different layer-2s at the same time.&nbsp;



Simply put, smart contracts on based rollups will be able to call any other contract on the layer-1 in near-instant finality within the same block — as if they were all on the same chain.&nbsp;



This composability and “money legos” is not exactly new; it was always one of the core properties sold with the original vision of Ethereum.&nbsp;



Read more: <a href="https://blockworks.co/news/ethereum-consensus-beam-chain">Rethinking Ethereum consensus with Beam Chain</a>



But the fragmented state of rollups today means an Arbitrum transaction is asynchronous with an Optimism transaction, which creates problems of fee uncertainty. Fee uncertainty arises because gas fees are calculated in different slot times, as opposed to within the same 12-second slot time of one Ethereum block.



In addition to making <a href="https://blockworks.co/tag/ethereum">Ethereum</a> seamlessly interoperable again, there are also different kinds of significant cost savings, Ahmad Mazen Bitar, technical product lead at Nethermind and Ethereum ACD developer, explains.



“A user may want to swap his token on the [layer-1] but wants to take advantage of a deep liquidity pool on a [layer-2]. With synchronous composability, they would be able to push a singular transaction from the [layer-1] to the [layer-2], execute it, then bring it back to the [layer-1].”



The first and largest existing based rollup in live production today is Taiko, which recently saw a burst in TVL and <a href="https://www.growthepie.xyz/fundamentals/transaction-count">daily transactions</a> this month.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcSshW_LxuAsTAPdJPBsmFSYCeOK4mvz6jUIPZsiH9BzggfKmL6hFhNyXliEB_vybOQKMrfiRlG4_Pw2ilUqt1tdOBDrJvzxN0L53KzcmihfFc9hZvjNqdYHGZDXhVvZ3aRaAQmDg?key=Rl9_47v-Y4PsPBhkDrDbDXP6" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://defillama.com/chain/Taiko">DefiLlama</a></figcaption></figure>



Other early based rollups are also in early production, such as <a href="https://x.com/NethermindEth/status/1854150431448109155">Surge</a> by the Nethermind team, and <a href="https://docs.puffer.fi/">UniFi</a> by the Puffer Finance team. Both are forks of Taiko.



Based rollups don&#8217;t come without its own drawbacks, however. Since execution (i.e. sequencing duties) is now being relegated back to layer-1 block validators, that means based rollups are constrained by the layer-1’s 12-second block time.



Hence, the purported benefits of based rollups, like synchronous composability, may be easier said than done. Based rollups would require real-time proving within the latency of one 12-second slot, without which based rollups cannot execute composable transactions speedily.



To have that kind of fast proof generation in turn brings another technological dependency into the mix, but Brecht Devos, co-founder and chief technology officer of Taiko, remains confident the tech is catching up.



It’s why Taiko recently <a href="https://x.com/taikoxyz/status/1855990091946295477">enabled</a> two zk proofs on its rollup by Risc Zero and Succinct Labs, on top of Intel’s SGX trusted execution environment (TEE). This made it the first multi-proof based rollup in production without reliance on one trusted party.



“Provers are improving quickly with more TEEs, faster and cheaper zkVMs and AVSs that can be used. We think the zk development is going very well and the sub-slot latency for proving is not far off,” Devos told Blockworks.



One other believed disadvantage of based rollups is a loss of MEV as a key “revenue” stream, due to the lack of a centralized sequencer. Yet there are nifty workarounds available, Devos said.



On Taiko, “MEV can also be captured by auctioning “execution tickets” to layer-1 block proposers,” Devos told Blockworks.



As such, while based rollups by default give up sequencing rights to layer-1 validators, it doesn’t necessarily have to be the case.



Matthew Edelen, co-founder of Spire Labs, a based rollup infrastructure provider, shares a similar view. As he explained on a recent <a href="https://www.youtube.com/watch?v=uI2KSEXhtZc">Bell Curve</a> podcast: “Auctions don’t have to be the only way to distribute sequencing rights. You could distribute 99% of sequencing rights through an auction and give the last 1% to friends or solo stakers to look good on L2Beat.”



Finally, MEV may not even be such a big deal in the long run. This idea centres on a simple cost benefit analysis: Today, the bulk of blockchain revenues are coming from congestion fees, dwarfing a far smaller share of MEV revenues that is diminishing over time due to better MEV solutions.



As such, the smarter rollup revenue model for rollups is one that banks on the greater network effects of congestion fees coming from synchronous composability, rather than MEV fees.



As Justin Drake explained on the <a href="https://youtu.be/yvP39-EOADU">The Rollup</a> podcast:



“Congestion fees against contention fees is roughly at an 80:20 ratio today. 80% of the income on the [layer-1] comes from congestion fees — about 3200 eth per day since EIP-1559. MEV is about 800 ETH daily since the Merge. My thesis is that this ratio is becoming more extreme, going from 80:20 to something like 99:1.”



In conclusion, the benefits of based rollups bring the user experience of Ethereum back full circle.&nbsp;



There’s a sense of irony here, considering that these benefits were what blockchains already had from day one. Synchronous composability and layer-1 sequencing transactions have been the norm for all blockchains since the Bitcoin network’s genesis. 



This deviation of execution layer duties only happened due to the <a href="https://blockworks.co/podcast/bellcurve/461e3780-bbf1-11ee-8474-47deee511578">rollup-centric roadmap</a> (or the multichain path in Polkadot, Cosmos and Avalanche) as of the last few years. Based rollups are ready to run it back.



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Understanding the debate around based rollups

Katherine Ross

This is a segment from the Empire newsletter. To read full editions, <a href="https://blockworks.co/newsletter/empire">subscribe</a>.



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The crypto predictions are pouring in for next year, and — if I’m being honest with you — it’s hard to contain the excitement. Or maybe it’s just Friday.



Anyway, this morning I’m specifically looking at Bitwise’s predictions, which were released earlier this week. The <a href="https://bitwiseinvestments.com/crypto-market-insights/the-year-ahead-10-crypto-predictions-for-2025">whole report </a>is worth a read, but for now I’m focused on their forecast that says 2025 will be the year of the crypto IPO.



It’s definitely hard to argue with that particular call. On paper, all of the pieces are falling into place.



Here are the three things I think support a big year for crypto IPOs:



<ul class="wp-block-list">
<li>A regulator actually engaging with firms and moving their paperwork forward. </li>



<li>Institutional interest and support. </li>



<li>Investor appetite. </li>
</ul>



Three simple bullet points, right? Well, not really. For crypto, actually securing green lights to go public demands the perfect storm post-FTX. If you don’t believe me, let’s take a look at Circle.&nbsp;



The stablecoin issuer filed a confidential draft of its registration statement with the SEC back in January of this year and yet we’ve seen no movement on its IPO.



After years of covering IPOs in my past life, companies who’ve filed their drafts generally publicly file their S-1 in six to eight months, or at least have some sort of movement on that front. Obviously, however, this isn’t always the case.



We don’t know what’s happened behind closed doors but I’m still eagerly awaiting Circle’s next filing. And I fully agree with Bitwise that Circle looks like a crypto firm with the most potential to hit the public stage.&nbsp;



Outside of Circle, Bitwise rounded out its list with Figure, Kraken, Anchorage and Chainalysis.&nbsp;



Adding to that, we already have two companies seeking uplisting on US exchanges (Sol Strategies is <a href="https://www.nasdaq.com/press-release/sol-strategies-applies-listing-nasdaq-exchange-2024-12-05">looking to uplist</a> on Nasdaq while Exodus is <a href="https://www.globenewswire.com/news-release/2024/12/13/2996721/0/en/Exodus-Movement-Inc-Announces-Uplist-to-NYSE-American-Exchange.html">uplisting to NYSE American</a>) and one company going public <a href="https://www.monexgroup.jp/en/news_release/irnews/auto_20241210536638/main/0/link/press2024_12_11_E_CNCK_v4.1%20-%20clean.pdf">through a de-SPAC</a> and, bam, it looks like this prediction should’ve been a Polymarket market.&nbsp;



If more of crypto starts going public, it could be a positive for the return of retail. A larger roster of public crypto companies not only lets folks engage with the space without fully diving in — a bonus for a more general audience — but it also builds back much-needed trust.&nbsp;



Not to mention, investors would finally be able to look at certain metrics that hadn’t previously been disclosed through documents filed with the SEC.&nbsp;



And don’t even get me started on the capital they could unlock.



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How crypto IPOs could bring back retail

This is a segment from the Lightspeed newsletter. To read full editions, <a href="https://blockworks.co/newsletter/lightspeed">subscribe</a>.



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The Solana gaming infrastructure startup MagicBlock is making its ephemeral validator — which creates momentary Solana rollups that can process transactions quicker — open source, the team told Lightspeed exclusively.&nbsp;



When MagicBlock <a href="https://blockworks.co/news/lightspeed-newsletter-a16z-solana-gaming">went through a16z’s crypto startup accelerator</a> and began advertising its tech earlier this year, it conceived of itself as infrastructure for building onchain games. But when I spoke with MagicBlock co-founder and CEO Andrea Fortugno recently, he pitched me on a broader vision — that MagicBlock’s ephemeral rollups could let all developers move away from traditional web servers and make apps “unstoppable.”



To be clear, games are still being built with MagicBlock’s architecture. Supersize, which won the Solana-centric Radar hackathon’s gaming track last month, is built on MagicBlock. So is Windfall, Radar’s third-place gaming project. For both games, MagicBlock offers a way to run onchain without sacrificing speed.&nbsp;



MagicBlock does this by running a non-voting Solana validator that runs in parallel with Solana and can momentarily make computing resources “elastic” before a security committee verifies the state and settles it to the layer-1. In other words, Solana’s data is temporarily moved to a rollup (like Optimism on Ethereum) for some time- or resource-sensitive functions that would ordinarily be performed offchain on centralized servers.



This newly open-source tech is initially under a license that will prevent other projects from launching commercial products with the ephemeral validator unless they strike a deal with MagicBlock, Fortugno said. MagicBlock currently charges a protocol-level fee as well.



Despite the new gaming clients, the pivot to other crypto sectors is also clear in MagicBlock’s messaging. I asked Fortugno if this was because crypto gaming outside of a few rare standouts like Off the Grid has so far failed to live up to the hype.



Fortugno disagreed with the assessment that crypto gaming is struggling, and he said other use cases could make use of ephemeral rollups with “zero effort.”



“The tech is already there, and so it would be stupid not to try to tackle the other use cases,” Fortugno said. He also said SocialFi apps and perpetual futures DEXs are looking at building on MagicBlock. DeFi makes sense as a use case here: Solana-based perps DEX Zeta Markets is building a Solana layer-2 of its own to compete with centralized exchange speeds.&nbsp;



Fortugno used the term “unstoppable” frequently in our interview, which is really what’s cool about ephemeral rollups. Many Solana apps have parts run by centralized entities partly because doing everything on a blockchain is not financially viable. If MagicBlock lives up to its billing, it could make these apps a lot more trustless.



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MagicBlock open sources a16z-backed ‘ephemeral rollup’ tech

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Grayscale-related headlines have been aplenty this year, from GBTC’s <a href="https://blockworks.co/news/grayscale-fee-higher-bitcoin-etf">conversion</a> to an ETF, its <a href="https://blockworks.co/news/gbtc-outflows-curb-asset-advantage">outflows</a>, the product’s <a href="https://blockworks.co/news/grayscales-spin-off-etf-launches-crypto-outlook">spin-off</a>, more <a href="https://blockworks.co/news/grayscale-sol-etf-filing">filings</a> and <a href="https://x.com/Grayscale/status/1867214822066332108">trust launches</a>, yada yada.&nbsp;&nbsp;



A tangential update (also surfacing today) is that <a href="https://blockworks.co/news/grayscale-michael-sonnenshein-stepping-down">Grayscale’s former CEO</a>, Michael Sonnenshein, joined Securitize as its chief operating officer.&nbsp;



So the ex-leader of one of the largest crypto asset managers shifts his focus to bringing real-world assets (RWA) onchain — “which candidly I think is one of the most exciting frontiers in the broader blockchain and digital assets space,” Sonnenshein told me this morning.  



While at Grayscale, Sonnenshein worked on bringing digital assets into more traditional wrappers. At Securitize, he acknowledged, it’ll pretty much be the other way around.&nbsp;&nbsp;&nbsp;



The tokenized RWA market has lots of room to run before some <a href="https://www.sc.com/en/press-release/trade-finance-to-play-substantial-role-in-usd-30-1-trillion-tokenised-real-world-assets-market-by-2034/">lofty projections</a> are met. One point of agreement at <a href="https://blockworks.co/news/tokenization-updates-rwa-summit">Brooklyn’s RWA Summit</a> I attended in October was that the specific <a href="https://blockworks.co/news/tokenization-depends-on-use-cases-benefits">utility and benefits</a> (and the economics behind that) will be what drives tokenization forward.&nbsp;



Tokenized fiat currencies (aka stablecoins, a roughly $200 billion market) are well-established. Securitize helped BlackRock tokenize its USD Institutional Digital Liquidity Fund (BUIDL) in March, which has helped spotlight <a href="https://blockworks.co/news/securitize-ceo-on-tokenized-treasurys-growth">another use case</a>.&nbsp;&nbsp;&nbsp;



After all, US Treasurys (which BUIDL is backed by) are the collateral serving as the “substrate” for many capital markets transactions, Sonnenshein said.&nbsp;



He added: “Continuing to build products that can address some of the inefficiencies and … move into offerings where the underlying assets are not dollars, but instead yield-bearing assets, I think is a very, very attractive value proposition.”



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Ex-Grayscale CEO shifts focus to tokenization

Next year, the Securities and Exchange Commission could become entirely Republican-controlled. At least for a little while.



The Senate Banking Committee on Wednesday delayed its vote to confirm SEC Caroline Crenshaw, whose term ended in June. After the vote — which was scheduled to take place Wednesday morning — was pushed to later in the afternoon, Senate Republicans were able to block it as late-in-the-day votes require unanimous approval. The vote has not yet been rescheduled. 



Should Crenshaw not be confirmed before the Senate adjourns for the session next week, President-elect Donald Trump will have the opportunity to nominate a replacement, although no more than three commissioners may be of the same political party. Trump appointed Crenshaw in 2020 and President Biden renominated her earlier this year.&nbsp;



Read more: <a href="https://blockworks.co/news/industry-opinions-on-sec-commissioner-crenshaw">Crypto industry sounds off on SEC’s Crenshaw ahead of vote</a>



Crenshaw is permitted to serve on the commission through January 2026 if no successor is confirmed.



Chair Gary Gensler and Commissioner Jaime Lizárraga, both Democrats, last month announced they would be <a href="https://blockworks.co/news/gary-gensler-resigning">resigning from the agency</a> in January.&nbsp;



Trump earlier this month announced he would be <a href="https://blockworks.co/news/trump-nominates-new-sec-chair">nominating Republican Paul Atkins</a> to chair the agency. Upon Gensler’s departure, Trump is expected to name either Hester Peirce or Mark Uyeda, both sitting Republican commissioners, as acting chair while the Senate completes Atkins’s confirmation process.&nbsp;



Wednesday’s vote delay comes as pro-crypto lobbying efforts heat up in Washington DC.&nbsp;



Stand With Crypto, a non-profit launched by crypto exchange Coinbase, said Thursday that it opposes Crenshaw’s nomination.&nbsp;



“Anti-crypto regulators must not be confirmed,” the non-profit added.&nbsp;



Read more: <a href="https://blockworks.co/news/sec-chair-nominee-crypto-past">What SEC chair nominee Paul Atkins has previously said about crypto</a>



Democratic Rep. Shri Thanedar, who will not participate in a vote to confirm Crenshaw, said Thursday he’s “glad to see the Senate delay the vote.”



“Voters just delivered Congress a crypto mandate this November,” Thanedar added in a <a href="https://x.com/ShriThanedar/status/1867223111138955509">post</a> on X. “We should make sure the leaders we nominate support crypto as well.”



Other advocacy groups are pushing Senators to finalize Crenshaw’s second term. 



“At stake is the reality of a bipartisan SEC,” Public Citizen and 39 other organizations wrote in a Thursday <a href="https://www.citizen.org/article/support-comm-crenshaw/">letter</a> to Senators. “The incoming Trump Administration has signaled they are considering breaking from the tradition that provides for the opposition party to select candidates for the two minority seats.”



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Delayed Crenshaw vote increases odds of all-Republican SEC early next year 

Felix Jauvin

This is a segment from the Forward Guidance newsletter. To read full editions, <a href="https://blockworks.co/newsletter/forwardguidance">subscribe</a>.



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For those who don’t know, I’m Canadian. However, I spent nearly every hour of the day thinking about macro from a US perspective. In the world of markets, the US is at the center and everything else is secondary.&nbsp;



Reflecting on the two worlds I live in poses an interesting vignette as to why it feels like the Fed keeps stopping and starting on its approach to monetary policy with respect to the economy.&nbsp;



The Canadian unemployment rate just hit a cycle high of 6.8% and looks to be climbing even higher, whereas the US’s unemployment rate seems to be flatlining. Yes, both economies were affected by an increase in labor supply caused by immigration, but the Canadian labor market is worse across the board.&nbsp;



Canada has managed to get its inflation rate back to 2% on a year-over-year basis, while the US remains stubbornly above target:



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1600" height="1000" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=1024&amp;h=1024" alt="" class="wp-image-95314" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=1600 1600w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=411 411w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=418 418w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=350 350w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1.png?w=80 80w" sizes="(max-width: 1600px) 100vw, 1600px" /></figure>



The Bank of Canada just surprised markets this week by going for another 50-basis point rate cut vs. the recent 25bps cuts they’ve been doing. The US is expected to squeeze in one more rate cut next week before pausing for a while as the economy continues to surprise to the upside.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeqFP1tqE1VxaXixeRKPJA2ECZJSaT3gP6DLsjd1A9TnjqdWwCJf91Ntw8EBI6FomHskcfWCx8brM0tz6c2BdewrQ9gAuBB_Jikpil5clnwClYhqKfgJQoCqVZ4aLnILkAfM9TG?key=jjGgS32kIzyDfOnvZtUTULS5" alt=""/></figure>



So what gives? What’s driving the discrepancy between two similar economies that trade quite closely?



Simply put, the US financial system is much less sensitive to changes in short-term interest rates than Canada’s. Here are two examples:



<h2 class="wp-block-heading">Corporations </h2>



US companies have access to the largest debt markets in the world and can issue fixed-rate bonds at tight spreads, whereas Canadian companies (as is normal in non-US countries) are more inclined to issue floating-rate debt, which changes instantly with changes in central bank policy rate.&nbsp;



<h2 class="wp-block-heading">Households</h2>



In the US, homeowners can sit on a 30-year fixed-rate mortgage and as long as they don’t move, the Fed could hike rates to 50% and it still wouldn’t affect them. The rate they’ve locked in is the one for the entire mortgage. Considering how many households refinanced their mortgages at the Covid lows (sub-3%), as long as they don’t move, they’re unabated by increasing interest rates. This is very different in Canada and most other countries, where even on a 25-year fixed-rate mortgage, the rate gets reset every five years. Therefore, even if homeowners stay put, they will eventually be affected by the increase in rates.&nbsp;



These two examples showcase why the Fed is having so much trouble getting into a consistent policy path — its main tool cannot impact large swaths of the economy like it can in other countries. And so here we are instead, with increasing dispersion in economies between the US and everybody else. Oh, sweet US exceptionalism.



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Why rate changes impact the US, Canadian economies differently

If developer mindshare is any indication of innovation, then knowing something about developer activity matters.



It’s why the industry pays attention when Electric Capital <a href="https://x.com/MariaShen/status/1851702779946901968">releases</a> its annual developer report.



As of November 2024, crypto had about 23,613 monthly active developers, a sliver (0.0875%) of the 27 million population of global software devs. It’s an impressive 2000% increase over the last decade, but numbers are still down from the industry’s highs of about 31,000 in 2022.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXepqXKXBd2TObTm-o2vAXHI3D8Yvr5SZPqa6Ax0JSYUym5P0NaHiM3Jl6lO_1cvXvmJUCAiT8ol5J8ug-qPqSlhoy2v_u7wgKpGuLmmij-oKcfccrnHp2pKYpgR1kfFQeZDuSJKPw?key=g3vvBQHso2Us0NAx22CIrq--" alt=""/></figure>



One notable trend among crypto developers is the increasingly global distribution of talent today compared to years past. In 2015, 80% of devs worked out of North America and Europe. Today, both continents have seen their share of developers decline to 24% and 31%, respectively, while Asia now leads with 32% of developer mindshare.



Read more: <a href="https://blockworks.co/news/solana-ecosystem-2024-milestones">The Solana ecosystem has a lot to be thankful for this year</a>



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXd_X5FSjxGySogfQIJ6S71JiveDGhlhXzyidfaKbZ9wCC6uhZrOA7l08KPtg_qxmtS7hkAcaFTkU7_ZzOKCrayv3lLJXGYu3w6_jJez6_ZVB4eTa_NY6WY6WhpW0l7BAVzeqNo6?key=g3vvBQHso2Us0NAx22CIrq--" alt=""/></figure>



The Ethereum Virtual Machine (<a href="https://blockworks.co/tag/evm">EVM</a>) remains the leading tech stack, boasting a robust network effect with 8,925 developers — roughly 3.6 times the size of the Solana Virtual Machine (SVM) stack, which has 2,499 developers.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXflOQyGqicQ7AHpp75jeLVQ9b7K7FreOndLX54kKxyPQrueQ4JJhCeaxCoGoY4nt93R5LFeZIpV60h_Kycy3aSApvKbQfee6OVK8CNXObC6c65tNcMnZpFreiuVtLOe8gq4oMqs3g?key=g3vvBQHso2Us0NAx22CIrq--" alt=""/></figure>



What stands out however, is Solana coming in as the number one ecosystem for new developers over the past year. This is an impressive lead, especially considering that Ethereum — which is a close second in attracting new developers — is bolstered by an ecosystem that includes dozens of layer-2 rollups.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfdr2eMD3t6sIhGc8G4Ku_4wY19GqHt3SO00PNuTLESsFQ_hUG9-RmYhR26oGYUnGqYEehJs71l8qfF66Y0660zF1ahJ55PkeSP_z_M7wsXinLQDepEAWgRpTz4jdNVPu8M9oBhgA?key=g3vvBQHso2Us0NAx22CIrq--" alt=""/></figure>



Solana developers dominate in India, accounting for approximately 27%. Notably, it is the only country where new developers are joining the Solana ecosystem at a higher rate than they are any other blockchain. India also ranks second in developer share, trailing only the US.



Read more: <a href="https://blockworks.co/news/web3-developers-on-the-rise">Electric Capital finds veteran Web3 devs are on the rise</a>



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdRAfrA-HtaaWJluNDOFlDiU1u0L1CGhI04JU5lzchNvwp38pP6Dj7UceGL29d1xBFLrUrUvGcfDBBPwzERES__nUVmQ-s2fhWO58PAvzegLJMqC-AsrWDFgTvnepSk04USXxS-?key=g3vvBQHso2Us0NAx22CIrq--" alt=""/></figure>



The highest developer activity doesn’t always directly translate to code innovation. For this reason, the Electric Capital developer report also considered which chains have the most new code written.



Ethereum maintains its lead with about 65% of new code written across its layer-1 and layer-2 ecosystems.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcEmT7LKwqCQDDLvA8oEHKCpWprVY8WEW30UzwyByj5Bf3hwBNnG5p7nPR5ywH6yuP-ovp7b6NF0w3MSeXA1TkdcjHar6epW2REHTfZ0s7a9ynLJJ7QcCHqCUm20bvThILz4cXV?key=g3vvBQHso2Us0NAx22CIrq--" alt=""/></figure>



According to the report, liquidity isn’t the only thing <a href="https://blockworks.co/news/devcon-panelists-talk-fragmentation">fragmenting in Ethereum</a> — scarce developer talent is too. Since Ethereum adopted its rollup-centric roadmap, the share of developers working on layer-2s has grown from 25% to 56%.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeL8cTKJgbuYs57xfdjKXWdjgzojn8GXznDfg4N8YddBsAh-u5rnxbqK6BSrhI9wNErpFXUHdX5k1vc4qY9jlLeHqDcAmMBNT6n7PTBGpklqvR7ilq1MTBLfZq25esQwBkB2lDhmg?key=g3vvBQHso2Us0NAx22CIrq--" alt=""/></figure>



Out of all active layer-2s, Base has the largest active developer base of 4,287, followed by Arbitrum (3,450), Starknet (2,548), Optimism (2,416), Scroll (1,517) and zkSync (1,115).&nbsp;



If developer activity is any indication of increased chain activity, Starknet’s developer lead is perhaps somewhat surprising, especially in contrast to an older chain like Optimism. Based on transaction count, Starknet’s activity has languished in comparison over the past year.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXd9hNT_1rRQNTNcUbWNkhskfN9WUcTSfowWC7oPiOxNkjYlD0cji538EAcBplG5VT1EPhHtH5BsT5O8LmjaIdVNO1KSDyWHvK0JRuLXC2Ey1rWneTRg1FVUXxvAzvI39r1QovgvuQ?key=g3vvBQHso2Us0NAx22CIrq--" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://www.growthepie.xyz/fundamentals/transaction-count">Growthepie</a></figcaption></figure>



What about Bitcoin?



The Bitcoin network has about 1,200 monthly active developers; a number that has stayed fairly constant over the last 12 months.



Yet with the rise of Bitcoin layer-2s, NFTs and various scaling solutions, at least 42% of bitcoin developers are now dedicating their efforts to those areas.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXe0zZJofdwdUKgRsNCs8PiR31HmRWRXkAkxUAu3WySXkJti5pyLac1tHX_e-kSyrSZZ3ueWtXblMis2jwshlEkZbMg95_0mlaBShUJuS7h5aFgAmvuv756wTruLRF7WwL3Nm_9j5w?key=g3vvBQHso2Us0NAx22CIrq--" alt=""/></figure>



Finally, zero-knowledge developers saw a slight reduction. Today, there are 2,054 monthly active developers working in zk. About 823 of them hold full-time positions.



Yet, zk contract deployments grew from a mere 40 in 2020 to 639 in 2024, with the largest share coming from Ethereum, Base and Optimism.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1156" height="674" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed.png?w=1024&amp;h=1024" alt="" class="wp-image-95305" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed.png?w=1156 1156w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed.png?w=448 448w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed.png?w=376 376w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed.png?w=80 80w" sizes="(max-width: 1156px) 100vw, 1156px" /></figure>



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Solana gained highest share of new devs in 2024: Electric Capital

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Bitcoin enthusiasts often hear terms like “zk rollups” thrown around, but the reality is more nuanced. While Ethereum’s zk rollups rely on zero-knowledge proofs for trustless verification, Bitcoin’s architectural constraints make implementing true zk rollups a distant goal.



Misleading claims around Bitcoin’s layer-2 capabilities and trust assumptions threaten to confuse users, and the Bitcoin builder community is working to clarify these issues.



Ethereum zk rollups leverage the Ethereum mainnet (layer-1) to verify cryptographic proofs directly onchain. Bitcoin, with its 4MB block size and limited scripting capabilities, can’t accommodate these computationally intensive verifiers. As Alexei Zamyatin, a core contributor to BitVM, explains, a zk rollup verifier “simply won’t fit into a block.&#8221;



Projects like BitVM take a <a href="https://blockworks.co/news/bitcoin-rollups-closer-than-expected">different approach</a>, combining SNARK-based compression with optimistic verification. Rather than verifying proofs onchain, BitVM splits a program into smaller chunks, each verifiable sequentially. This method mirrors optimistic rollups like Arbitrum rather than Ethereum’s zk rollups.



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="2560" height="1440" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg" alt="" class="wp-image-95336" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/2024-12-13-Bitcoin-zk-1-scaled.jpg?w=80 80w" sizes="(max-width: 2560px) 100vw, 2560px" /><figcaption class="wp-element-caption">Screenshot</figcaption></figure>



“The zk part stops at the compression stage,” Alexei notes. “Everything else is an optimistic fraud-proof system.”



The broader discussion about Bitcoin L2s goes beyond just rollups. In a recent thread, Janusz Grzegorz, founder of Bitcoin Layers, reflected on the evolving definition of Bitcoin L2s. Initially, Bitcoin layers evaluated projects based on their claim of being a “Bitcoin L2,” but this approach excluded meaningful activity like BTC-backed tokens on Ethereum L2s.



Janusz advocates for a shift in focus to trust assumptions instead of semantics. He proposes evaluating the bridges that underpin these systems regardless of whether they market themselves as an L2. These include protocols like Rootstock, tBTC on Arbitrum and others.



Grzegorz, known online simply as “Janusz,” also has flagged projects like Merlin and BitcoinOS as having contributed to the confusion. Such projects often market themselves as zk rollups on Bitcoin, despite lacking the infrastructure to deliver security guarantees on par with how the term “rollups” is typically used. He cautions users to scrutinize projects for real progress, such as distributed or optimistic bridges, rather than relying on buzzwords.



For Zamyatin, education and transparency are key. By focusing on trust assumptions, clear definitions and robust analyses, the Bitcoin community can better understand what’s feasible — and what’s not. For now, zk rollups on Bitcoin remain a misnomer, but innovations like BitVM demonstrate how Bitcoin can scale within its unique constraints.



To achieve <a href="https://blockworks.co/news/starkware-bitcoin-layer-2-zk-proof">true zk rollups</a>, Bitcoin will require a soft fork to enable building a native zk verifier. Several <a href="https://blockworks.co/news/op-cat-bitcoin-taproot-wizards">new opcodes</a> are currently under consideration amid a recent <a href="https://x.com/post_polar_/status/1865266144304607517">push</a> to clarify Bitcoin’s future roadmap.



An open <a href="https://en.bitcoin.it/wiki/Covenants_support">Wiki-style forum</a> lets interested stakeholders express their preferences and justify their views. Zamyatin’s team at <a href="https://www.gobob.xyz/">Build on Bitcoin</a> (BOB) has yet to weigh in, but expects to soon.



“What’s great about this effort is that it collects rationales in one place — instead of fighting on Twitter or scattered threads, you can see the reasoning for each individual’s stance,” Zamyatin said. “It makes it easier to evaluate proposals, summarize pros and cons, and have meaningful discussions.”



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The ZK rollup debate: Why Bitcoin isn’t there yet

David Canellis

This is a segment from the Empire newsletter. To read full editions, <a href="https://blockworks.co/newsletter/empire">subscribe</a>.



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When Cobie was <a href="https://x.com/kaspotz/status/1673747128215302144/photo/1">tweeting</a> about his pyramid-shaped philosophy on building the perfect crypto portfolio — you listened.



Maybe you even saw the benefit of spreading your capital across bitcoin, ether and solana in a <a href="https://blockworks.co/news/coinbase-asset-management-allocations">50/35/15 split</a>. Depending on the execution, those strategies would’ve easily paid off during the bull market to date.&nbsp;



It still probably hurts to know that they&#8217;ve been blown out of the water by Milady and Pudgy NFTs.



USD-denominated floor prices for both NFT collections have now gone more than 20x since December 2022.



The cheapest Miladys went for the ETH equivalent of $890 back then — today they go for $22,570.&nbsp;



At the same time, Pudgys have exploded from $5,070 to $106,900. Floor Pudgys are now technically more expensive than bitcoin, although with far less supply.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdz6erw2t8b5oynreDcW3S5D0Ws9dPn_0BH0xhtlNogwJjOixN1Ynm4H0YoihRurq7qnyM_--kvVUudlMyz-UrsrgzAYoPaUZZZ7-JFkGTXHE8fxMCZnw_W1fm8qMQFqax5g14ljA?key=0dY8Vwgs6Q5PYpW1fuk_Wp9R" alt=""/></figure>



BTC has meanwhile managed around 6x and ETH 3x, while SOL is currently at 18.5x.&nbsp;



Then again, you can’t buy <a href="https://www.walmart.com/browse/toys/pudgy-penguin-toys/4171_3438149_1343175">stuffed collectible</a> bitcoins at Walmart.



Of course, NFT markets are far smaller and less liquid than major coins. They tend to undergo outsized pumps when volume suddenly picks up.&nbsp;



Most of the gains have come in the past month or so: There were only about 1,000 Pudgy <a href="https://nftpricefloor.com/pudgy-penguins">trades</a> in the past week and 1,900 in the past month. 400 and 1,240 for <a href="https://nftpricefloor.com/milady">Miladys</a>.



In any case, there’s no denying that floor Miladys and Pudgys are now two of the best-performing crypto assets in this bull market.&nbsp;



Only one top-25 coin has outperformed them: PEPE.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcodBIdBPX424WAcjvqVJyEEBR1QlCP92WvlWzBpPxDFi8o_QRiNIEYm7FonmuMhDT0sVICgR7a8r0HmgL66B6eFa51jAlOnir3xsyJcN0bW-jS4lRGzHnX_kFBXkYwijz0zekrww?key=0dY8Vwgs6Q5PYpW1fuk_Wp9R" alt=""/><figcaption class="wp-element-caption">As you can see, Miladys and Pudgys are outliers</figcaption></figure>



Floor prices for Azuki, Doodles and CryptoPunks have still more than doubled, but that’s less than most major coins excluding LTC and DOT.&nbsp;



Bored Apes and Nouns have even lost value against the US dollar.



Still, if you were searching for indicators of how silly the next bull market phase could get, look no further.



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Pudgys and Miladys pump even as overall liquidity drops

This is a segment from the Empire newsletter. To read full editions, <a href="https://blockworks.co/newsletter/empire">subscribe</a>.



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We’ve been on a bit of a <a href="https://blockworks.co/news/hope-for-altcoin-santa-rally">markets spree this week</a>, and it’s not over yet. At the very least, we should be glad that nothing’s ever truly boring in crypto land, right?&nbsp;



Anyway, I caught up with Kraken’s head of strategy Thomas Perfumo to pick his brain on the markets given the volatility we’ve seen.



For Perfumo, the pullback has been in line with what he calls the “new normal” after bitcoin topped $100k.&nbsp;



“We’ve seen a couple of pullbacks corresponding with large liquidations of leveraged positions. This is typical consolidation behavior,” he told me.&nbsp;



“From observations during the past two cycles, a rally in altcoins takes hold after a run-up in bitcoin. This sparks a rotation into altcoins as investors seek to outperform in the next phase of the bull market. In the prior two bitcoin-led cycles, the market cycle peak corresponded with bitcoin market cap dominance, which is currently in the mid-50s, falling closer to 40%,” Perfumo added, backing up what we’ve been <a href="https://blockworks.co/news/altcoin-season-when-bitcoin-dominance-hits-60">discussing here on Empire</a>.&nbsp;



If we continue to see altcoins outperform, Perfumo thinks there’ll be a “pick-up in interest”



“People are on the lookout for signs that crypto services are experiencing mainstream adoption. Stablecoins have already broken prior records in terms of circulating supply and DeFi total value locked (TVL) is inching closer to peak 2021 levels. We think the combination of significant improvements to scalability this past cycle and a line of sight towards a more favorable, pro-growth agenda for crypto innovation will lead to an environment that’s ripe for crypto services to catalyze a new wave of adoption.”



But, as I wrote yesterday, it might be time to start prepping your bags for lower liquidity in the next few weeks, which is typical for this holiday period. Perfumo suggested that some of the selling might be put off till the new year as folks in the US specifically base their moves on the potential tax consequences.&nbsp;



“It’s certainly possible that shortfalls in liquidity could lead to higher price volatility, both to the upside or to the downside,” he said.&nbsp;



Speaking of next year, Perfumo’s in agreement with Canary Capital’s Steven McClurg that the <a href="https://blockworks.co/news/bitcoin-120k-by-christmas">cycle still has plenty of legs</a>.&nbsp;



It’s not just bitcoin posting wins, he noted that DEXs and some infrastructure plays — which have received <a href="https://blockworks.co/news/crypto-fundraising-capital-allocation">plenty of support from venture capital</a> — are ready to post wins on the year.&nbsp;



However, some of the other sectors, like web3, gaming and the metaverse aren’t quite there yet. Or, if we’re being honest, are nowhere near being ready for mainstream attention outside of some exceptions (looking at you <a href="https://blockworks.co/podcast/empire/6558f55c-a09f-11ef-aae9-2b3740fcea67">Off the Grid</a>).&nbsp;



That’s not to say that there can’t be dark horses among projects yet to find mainstream attention, Perfumo said.&nbsp;



Either way, he’s bullish on the environment, telling me that this is the perfect recipe for innovation within the space.



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Crypto market could see ‘pullbacks’ ahead of the holidays: Analyst

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It seems like conversations about sandwich attacks on Solana — where advanced traders front-run and back-run trades to extract value at the expense of unsophisticated traders — come and go every few weeks with little resolution. Most people agree sandwiching is bad, but there’s not yet consensus on how the problem can be solved.



The discourse flared up again this week after the Solana researcher Ben Coverston <a href="https://x.com/HypoNyms/status/1866584138054242683">posted</a> on social media that the network’s top sandwich bot, dubbed arsc, was pocketing millions of dollars-worth of tokens per day from sandwich attacks. Coverston predicted that if current trends hold, arsc would become Solana’s largest staker within 1-2 years. Interestingly, one of the researcher’s proposed fixes included the reintroduction of a “mempool” staging area for transactions — which Jito got rid of earlier this year in hopes of preventing sandwiching.



Sandwich attackers exploit slippage — the gap between a trade&#8217;s expected and executed price. They front-run the target transaction by placing their own trade first, which shifts the price in their favor. Then, they back-run the same transaction by placing another trade immediately after, locking in a financial win off of the manipulated price movement. As a result, the original trader often ends up with a worse execution price, effectively subsidizing the attacker&#8217;s profit.



This is a form of maximal extractible value (MEV) where sandwichers extract value from Solana blocks at the expense of less sophisticated users. Solana has taken a number of actions meant to prevent sandwiching in recent months. In March, Solana infrastructure company Jito Labs <a href="https://blockworks.co/news/jito-labs-suspends-mempool-functionality">got rid of its public mempool</a>, which was a staging area where transactions could be arranged to create MEV revenue for validators.



Sandwiching validators then set up their own private mempools, and the attacks continued. Two months later, the Solana Foundation <a href="https://blockworks.co/news/lightspeed-newsletter-sandwich-attacks">stopped offering financial help</a> to validators who were participating in private mempools. In September, Jito blacklisted a group of private mempool validators from participating in its stake pool, which is a large pile of staked SOL Jito’s software delegates.



The criticism of the Solana Foundation and Jito’s blacklist-the-bad-guys strategy is that it’s essentially playing whack-a-mole: Blacklisted validators can always spin up a new validator and resume sandwiching.&nbsp;



That’s what’s interesting about Coverston’s proposal, which he expanded upon in a blog <a href="https://tempxyz.substack.com/p/solanas-largest-existential-risk">post</a>. The privatization of mempools has reduced the number of validators executing sandwich attacks, but the few who remain, like arsc, are staking their substantial profits back into their own operations. This has led to a concerning centralization of staked Solana within a handful of nefarious validators.



To counter this, Coverston suggests re-enabling a public mempool. While this move might make sandwiching more widespread, it could also foster competition among validators executing these strategies. The increased competition would help distribute MEV profits more evenly, preventing a single group of validators from disproportionately accumulating stake — and power — on the network.



This would essentially be a reversal from Solana’s anti-sandwiching strategy over the past nine months.



To put this all in perspective though, sandwiching may not really matter in the long run. High-frequency trading strategies that are ascendent in the US equities market are basically meant to sandwich attack other traders, Blockworks Research’s Ryan Connor <a href="https://x.com/_ryanrconnor/status/1860319636883181873">pointed out</a>. That hasn’t stopped equities trading volumes from climbing to all-time highs.



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Solana should reintroduce a public mempool, researcher says

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The Chinese yuan fell against the US dollar Wednesday morning after Reuters <a href="https://www.reuters.com/markets/currencies/chinese-authorities-are-considering-weaker-yuan-trump-trade-risks-loom-sources-2024-12-11/">reported</a> Chinese officials may opt to move away from their “stable currency” policy in response to <a href="https://blockworks.co/news/unpacking-trump-potential-tariff-policies">tariffs</a> under President-elect Donald Trump.&nbsp;



The key words here are “stable currency policy.” That’s not to be confused with “stablecoin policy,” which China also has (but that’s a topic for another newsletter). China’s central bank is notorious for its commitments to keep the yuan <a href="https://blockworks.co/news/on-the-margin-newsletter-china-stimulus-stagnation">stable</a>, but a strategic currency devaluation does have some historical precedent.&nbsp;



It’s a tool China used back in 2018 and 2019 during Trump’s first term. Allowing the yuan to lose value against the dollar makes exports less expensive, potentially offsetting the 10% tariff Trump has said he’d impose during his second stint in Washington; but devaluation also poses risks to the local economy. Hypothetically, foreign buyers may be paying less for Chinese goods, but Chinese consumers would be paying more.&nbsp;



The Chinese yuan slid around 0.2% Wednesday, dropping to 7.26 per dollar. Year to date, the yuan has lost 2.4% against the dollar.&nbsp;



The move comes as President Joe Biden plans to increase Section 301 tariffs designed to <a href="https://blockworks.co/news/key-inflation-data-week">target</a> China’s cleantech industry during his final weeks in office.&nbsp;



“Many countries, when they&#8217;re faced with unilateral actions of that sort, look for ways to retaliate,” US Treasury Secretary Janet Yellen told Bloomberg today when asked about Trump’s broad tariff plans for China. “My guess would be that [China] would do that.”&nbsp;



We’re 40 days out from the inauguration, so this story is just getting started. Keep an eye on your inbox.



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