Champignons of Arborethia

Casey Wagner

Ben Strack

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Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner.Here’s what you’ll find in today’s edition:



<ul class="wp-block-list">
<li>A look at where we stand headed into next week’s Federal Reserve interest rate decision. </li>



<li>Bitcoin ETFs have been on the US market for 8 months. Let’s look at the numbers to see how they’re doing. </li>



<li>Happy Friday! We break down some economic data from this week. </li>
</ul>



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<h2 class="wp-block-heading">Anyone have a Magic 8 Ball?&nbsp;</h2>



The countdown to the Fed’s next interest rate decision is on. Markets, meanwhile, are showing some new uncertainty.&nbsp;



On Friday morning, federal funds futures showed a 45% chance of a 50-basis point cut next week — up from around 18% on Thursday morning.&nbsp;



What changed?&nbsp;



Well, for starters, Chair Timiraos (Nick from the WSJ) published a <a href="https://www.wsj.com/economy/central-banking/fed-interest-rate-cut-size-861c9600">report</a> yesterday afternoon claiming that FOMC members are still debating whether to cut rates by 25bps or 50bps.&nbsp;



Initial jobless claims on Thursday also showed that the labor market may be tightening. First-time unemployment filers increased by 2,000 to 230,000 in the week ended Aug. 31 and continuing claims also saw a bump, coming in at 1.85 million.&nbsp;



Hiring in June and July was also weaker than we initially thought, thanks to revisions made in August’s jobs report.&nbsp;&nbsp;



Fed Chair Powell has made it clear that he hopes to time rate cuts to avoid additional job market deterioration, but he still hasn’t given any hints about the size of the upcoming cut, or just how bad the labor market would have to get to warrant a more aggressive cut (50bps)



“​​We do not seek or welcome further cooling in labor market conditions,” <a href="https://blockworks.co/news/on-the-margin-newsletter-powell-pivot-dovish">Powell said last month </a>in Jackson Hole.&nbsp;



It’s generally accepted that should the Fed go for a 50bps cut next week, it means the central bank is worried about the economy, and in turn, markets will slump.&nbsp;



As Nicholas Colas, founder of DataTrek Research, wrote this week, the Fed has made an initial 50bps cut twice since 1990: once in January 2001 and again in September 2007. Both of these preceded a recession (the 2001 dot com bubble-fueled downturn kicked off in March 2001 and the Great Recession started in December 2007).&nbsp;



Two data points may not be a ton to go off of, but I found Nick’s case pretty compelling. Afterall, Powell and the FOMC are certainly hyper-aware of the history here.&nbsp;



We will also get central bankers’ quarterly economic projections next week, which will reveal how many rate cuts committee members anticipate before the end of the year. We only have three meetings left: next week, November and December. Even if the committee opts for 25bps in September, this doesn’t mean a larger move is off the table down the line, especially if economic data continues to come in lackluster.&nbsp;



Either way, next week is likely going to be volatile leading up to Wednesday afternoon (and probably after, too). Get some rest this weekend and unplug, we will see you on Monday.&nbsp;



— Casey Wagner



<h3 class="wp-block-heading">$0.58&nbsp;</h3>



The price XRP hit on Thursday following Grayscale’s announcement that <a href="https://blockworks.co/news/on-the-margin-newsletter-bear-market-vibes">it would add an XRP Trust</a> to its product suite.&nbsp;



Ripple’s native token gained as much as 9% yesterday, and while $0.58 may not seem like much, it’s the first positive movement the coin has seen in weeks.&nbsp;



As Ben covered yesterday, you shouldn’t hold your breath for an XRP ETF any time soon. Although based on these market moves, that’s what the XRP army appears to be doing.&nbsp;



<h2 class="wp-block-heading">A look at bitcoin ETF flows by month</h2>



Wednesday marked eight months since the ETFs holding BTC directly launched in the US.&nbsp;



We know the roughly $17 billion of capital that has poured into these new products is unprecedented. We also realize the ETFs have recently gone through a rough patch of outflows (totaling about $1.2 billion from Aug. 27 to Sept. 6).



Perhaps it’s a good time to tally up the segment’s net flows by month using Farside Investors <a href="https://farside.co.uk/bitcoin-etf-flow-all-data/">data</a> (shown in $ millions). January and September are not full months, so consider that as you digest this data.&nbsp;



<figure class="wp-block-table"><table class="has-fixed-layout"><tbody><tr><td>Month</td><td>ETF Category Net Flows (millions $)</td></tr><tr><td>January</td><td>+1,460 </td></tr><tr><td>February</td><td>+6,063</td></tr><tr><td>March</td><td>+4,637</td></tr><tr><td>April</td><td>-345</td></tr><tr><td>May</td><td>+2,073</td></tr><tr><td>June</td><td>+667</td></tr><tr><td>July</td><td>+3,169</td></tr><tr><td>August</td><td>-92</td></tr><tr><td>September (so far)</td><td>-604</td></tr></tbody></table></figure>



Though April and August have been the only full negative net flow months thus far, the funds have so far endured more outflows in September than those periods.



We’ve heard September is historically a <a href="https://x.com/intangiblecoins/status/1830969167757091002">bad month for bitcoin</a> (and for <a href="https://www.finsyn.com/why-is-september-the-worst-month-for-the-stock-market/">the stock market</a>, which BTC is increasingly linked to).



Franklin Templeton’s Christopher Jensen <a href="https://blockworks.co/news/franklin-templeton-institutional-bitcoin-etf-allocation">told Blockworks in the midst of April outflows</a> that the spot bitcoin ETF flows weren’t done. He was right of course, as the next three months saw net money pour in.



Platforms and institutions interested in the asset class continue to educate themselves, he noted — adding: “You’re in the whale-hunting business rather than just opening it up and letting lots of small fish come in.”



To that point, Bitwise research director Ryan Rasmussen said in a Thursday X <a href="https://x.com/RasterlyRock/status/1834248148409352247">post</a> that a registered investment adviser (RIA) confirmed they’re adding a 6% allocation to crypto ETFs to their model portfolios (4% BTC and 2% ETH).



Rasmussen declined to name the RIA, but told me they are based in the US and manage more than $250 million in assets.&nbsp;&nbsp;



“Oh, and they sold the Nasdaq 100 (tech stocks) to buy Ethereum,” he added on X.



More money managers are likely to do the same over time <a href="https://blockworks.co/news/education-required-to-spur-eth-etf-outflows">as they learn more about BTC</a> and ETH. That’s why those bullish on the long-term growth of such investment products — or simply familiar with ETF flow patterns — don’t sweat short-term outflows.&nbsp;&nbsp;



— Ben Strack&nbsp;



<h2 class="wp-block-heading">Did You Notice</h2>



Happy Friday! We’ve made it to the end of the last week ahead of the Fed’s next FOMC meeting. Unfortunately, we are headed into next week as uncertain as ever.&nbsp;



Given Powell’s general goal to never surprise the market, it’s possible we may get some signaling from the central bank head on Monday ahead of the two-day policy meeting. So keep your eyes and ears open.&nbsp;



For now though, here’s a recap of this week’s data:&nbsp;



<ul class="wp-block-list">
<li>The headline figure this week was, of course, <a href="https://blockworks.co/news/on-the-margin-newsletter-cpi-outlook-rate-cut">the CPI print</a>. As we covered on Wednesday, the reading came in mostly in line with expectations, not hot enough to guarantee a 50bps rate cut and certainly not cool enough to change any expectations that we’ll be getting at minimum a 25bps cut. Markets have since recovered from their mild dip on Wednesday and even pared losses. The S&amp;P 500 and Nasdaq Composite are poised to end the week 4% and 5% higher, respectively. </li>



<li>Initial jobless claims inched higher for the first time in three weeks on Thursday. 230,000 people filed for unemployment for the first time in the week ended Aug. 31, up 2,000 from the week prior. Continuing claims also increased to 1.85 million. A weakening labor market is a tick in the “the Fed will cut rates by 50bps” column, but there’s one caveat to remember: Claims data is historically volatile around holidays, and this latest batch of data included the Labor Day long weekend. </li>
</ul>



<h2 class="wp-block-heading">Bulletin Board&nbsp;</h2>



<ul class="wp-block-list">
<li>Coinbase’s <a href="https://blockworks.co/news/coinbase-wrapped-bitcoin-competitor-cbbtc">new wrapped bitcoin token, cbBTC</a> has reached a <a href="https://dune.com/seoul/cbbtc">market cap</a> of more than $100 million in its first day of trading. The current circulating supply is around 1,700, with 42% on Coinbase’s own Base and 58% on Ethereum. </li>



<li>Caroline Ellison, <a href="https://blockworks.co/news/iconic-crypto-couples-valentines-day">SBF’s former girlfriend</a> and CEO of Alameda Research, has been spending her time volunteering and writing (both academic works and pieces of fiction), her lawyers told the <a href="https://www.courtlistener.com/docket/66631291/497/united-states-v-bankman-fried/">court</a> this week. Ellison will be sentenced <a href="https://blockworks.co/news/former-ftx-execs-sentenced-this-fall">for her role in FTX’s collapse</a> on Sept. 24. She’s asking for no prison time. </li>



<li>It’s Friday, so you know what that means! Another weekly roundup episode of On the Margin is coming to your podcast <a href="https://www.youtube.com/playlist?list=PLvER9nHSRN3xVs_p-dl7L7K_ZgL6lSudu">channels</a> soon. Tune in tomorrow morning to start your weekend off right. </li>
</ul>



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The interest rate decision countdown is on

Jack Kubinec

Today, enjoy the Lightspeed newsletter on Blockworks.co. Tomorrow, get the news delivered directly to your inbox. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to the Lightspeed newsletter</a>. 



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Regolith Labs, the software company that spun out of the viral ORE project, has raised $3 million in seed funding, it told Lightspeed exclusively.



Foundation Capital led the round, which also drew participation from Colosseum, Solana Ventures, B+J Studios, Third Kind Ventures and Dead King Ventures. With the fresh funds, the three-person startup will aim to expand its experimental proof-of-work currency while also building a PoW token distribution platform.



Interestingly, Regolith investors did not receive any ORE tokens due to the project’s fair launch, anti-pre mine ethos. Tokens — which crypto venture investors tend to favor for their shorter lockup periods and guarantee of a return regardless of whether a company pulls off an IPO — were not entirely absent from the round however: Investors received equity and warrants for a theoretical future token Regolith Labs could launch, perhaps in connection with its token distribution platform. This platform could use proof-of-work to help token airdrops fend off sybil attacks and spam, something that’s <a href="https://blog.torproject.org/introducing-proof-of-work-defense-for-onion-services/">done</a> for Tor’s Onion browser, for instance.



For now though, Regolith is turning its attention to ORE, which is a Solana-based currency that users can “mine” through proof-of-work (though it doesn’t have the security properties of Bitcoin, I should note). The project began as part of a Colosseum hackathon earlier this year, and speculation-driven mining <a href="https://blockworks.co/news/solana-price-falls-ore-mining">caused congestion on Solana</a> until ORE eventually paused operations for months.&nbsp;



As a side note, ORE’s origin story has come somewhat full circle: After being crowned grand champion of Colosseum’s first hackathon, Hardhat Chad has become a judge of the second one, and ORE has a “<a href="https://x.com/OREsupply/status/1830617592647860244?t=2LhaX3aIDdR0eOjitnJJ-A&amp;s=09&amp;ref=blog.colosseum.org">sidetrack</a>” for developers building in its ecosystem.&nbsp;



The much-hyped ORE v2 <a href="https://blockworks.co/news/lightspeed-newsletter-solana-ore-v2-review">went live in early August</a>, but a lack of compelling reasons to hold the token caused some pretty brutal price action: ORE’s price peaked at roughly $1,200 on July 29. Today, it’s trading at around $63. Regolith Labs is looking to reverse those fortunes.&nbsp;



ORE’s founder Hardhat Chad (anonymous, in a subtle homage to Bitcoin’s Satoshi Nakamoto) called the price slide “unfortunate” though “maybe somewhat expected” and said the project is seeking to expand its distribution in the short term by building out a mobile wallet with ORE mining baked directly inside. Today, users who want to mine ORE on their phones, for example, have to do so through the mobile browser on the Backpack wallet app, which leads to a somewhat clunky UX. ORE is hoping to hire more developers, one of whom would be a mobile dev, Hardhat Chad told me.



With ORE’s price sliding so dramatically, more-sophisticated miners are also winding down operations, Hardhat Chad said. At the same time, community-built mining pools have sprung up recently. The pools combine computing power from laptops and phones to mine ORE and pay out reward shares to participants. Hardhat Chad thinks that pools are more sustainable long-term, since fees are divided up, and there’s a lower opportunity cost mining ORE on a laptop than with an ASIC that could be mining other assets.&nbsp;



I asked Hardhat Chad about ORE’s ability to maintain mindshare when it’s not actively bludgeoning the Solana network. The developer said ORE is shifting its focus to “long-term value” instead of “marketing stunts.”



Part of this looks like deepening ORE’s liquidity in things like stablecoins, tokenized commodities, and DePIN tokens.



“This is how we make ORE ‘money,’ it needs to be readily exchangeable for real world things,” Hardhat Chad said.



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ORE’s developer hopes their seed round will reverse the currency’s fortunes

David Canellis

Political memecoins — PolitiFi — had a real moment during the first half of the year. That’s since been put on hold.



The five most prominent tokens, MAGA (TRUMP), MAGA Hat (MAGA), Doland Tremp (TREMP), Jeo Boden (BODEN) and Kamala Horris (KAMA), altogether peaked at over $1.25 billion market cap at the start of June.



Now they’re worth under $170 million, a near-90% collapse.&nbsp;



The remnants of ConstitutionDAO, which <a href="https://blockworks.co/news/constitutiondao-shutting-down-after-raising-49m">lost an auction of a rare first-print</a> of the US constitution to Citadel CEO Ken Griffin in late 2021, now make up almost two-thirds of the entire PolitiFi market, per CoinGecko. Although, it’s arguable whether it should be really <a href="https://www.coingecko.com/en/categories/politifi">ranked</a> alongside political parody memecoins and such.



PolitiFi didn’t even exist this time last year. This election season has been its big moment, with the largest <a href="https://blockworks.co/tag/donald-trump">Trump</a> memecoin launching only in August 2023 — just as bitcoin was warming up for its major rally.



Read more: <a href="https://blockworks.co/news/empire-newsletter-donald-trump-nft-royalties-memecoin-taxes">Memecoin taxes and NFT royalties are paying off for Trump</a>



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcQz3pHNOJUKn0EZb9F_UN0aJMaD-noZdy7Tx5ows83UG1GWQ3dMal7wvvm27BIrLG2k4yDFwqKljLWvQKbmj4gh4vIj_G4dYCEBf7Zmt_Q1c-Q_Ju3e37rsYSTTWDP4tJtdDHORcWn37v5EwzudNECRXs?key=tTebLXZXXyAzxlxGULObPw" alt=""/><figcaption class="wp-element-caption">ETH has now underperformed the S&amp;P 500 over the past 14 months</figcaption></figure>



Bitcoin’s bull run between October and March really gave cover for PolitiFi. The chart above plots the market caps of the big-five political <a href="https://blockworks.co/tag/meme-coins">memecoins</a> (faded areas in the back) against the performance of bitcoin (orange line), ether (purple line) and the S&amp;P 500 (blue line).&nbsp;



You can see that PolitiFi has mostly mirrored ETH price action over that period — the purple line follows the shape of PolitiFi’s market cap — while bitcoin is holding up better, for now at least.



Is PolitiFi over? Probably not. But considering the <a href="https://blockworks.co/tag/kamala-harris">Kamala Harris</a>-themed memecoins aren’t doing any better than the Trump ones is somewhat telling.



A simple reason this particular flavor of memecoin is down could be that there’s no new fresh wave of interested holders entering their markets, whose liquidity might’ve outweighed sellers’ and boost prices.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcHCj_EyuXnfu0jOFvMNdRsHurGAVQFX--LZzNFzItC-GKgs98Jd4RmHOT_U2FNUXvuU7bYCC_ULFMPObF95yyLbrvbEt4x2DE53v5tPTN15nkSiFQIhZQeY6-i828lNB3r1lrBHoSEFtWDa3EJGVFroDdS?key=tTebLXZXXyAzxlxGULObPw" alt=""/><figcaption class="wp-element-caption">MAGA’s holders are split between four different blockchains, with about three-quarters on Ethereum and Solana</figcaption></figure>



This chart zooms into the market cap of the largest Trump memecoin — as shown by the orange line — and maps it against changes in the number of new holders.



Notice that major points in Trump’s narrative directly coincide with huge influxes of new holders.&nbsp;



Thousands of addresses added MAGA (TRUMP) to their bags around the Supreme Court’s election ballot ruling, Trump’s “hush money” guilty verdict and his assassination attempt in July.&nbsp;



No such luck since, with only 424 new holders following the debate against Harris on Tuesday, as of Friday morning. Polymarket <a href="https://polymarket.com/event/presidential-election-winner-2024?tid=1726238033223">odds</a> for a Trump win in November has meanwhile fallen from 52% to 49%.



All told, out of the 80,190 addresses holding MAGA (TRUMP), about 30% of them (24,300) bought in after the token set an all-time high of $17.51 in early June. It’s currently trading at $2.25 after losing nine-tenths of its value.&nbsp;



And sure, 80% drawdowns are one of the <a href="https://blockworks.co/news/cryptocurrency-tradition-drawdowns">oldest traditions in crypto</a>. But if there was a time for a huge Trump headline to revive PolitiFi, then now would be it.&nbsp;



A modified version of this article first appeared in the daily Empire newsletter. Subscribe <a href="https://blockworks.co/newsletter/empire">here</a> so you don’t miss tomorrow’s edition.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



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The road to the US election is paved with political memecoins — now down 90%

Andrew Redden

After more than a decade of running crypto startups, I’m ready to call a paradigm shift:



Airdrops are dead, and the same fate awaits developer grant programs. It’s time for blockchain projects to pivot from short-term incentives and instead focus on building long-term, value-driven models that ensure both user and developer loyalty. Failure to do so will lead to developmental stagnation and decline across the industry.



Airdrops first went mainstream in 2020, when the Uniswap DEX distributed 400 UNI tokens to every wallet that had interacted with its platform. This strategy was designed to drive adoption by giving users a financial stake in the project, and it worked — other projects quickly adopted the model, and airdrops rapidly became an expectation within the DeFi community.



Read more: <a href="https://blockworks.co/news/airdrop-branding-layerzero-zro-token-launch">Are crypto airdrops falling out of fashion?</a>



However, unintended consequences have emerged, such as “airdrop farming,” where users create multiple accounts or perform minimal activities solely to qualify for token distributions. These opportunistic users often abandon the project shortly after claiming their rewards, leading to rapid declines in user activity and token value. Instead of fostering long-term loyalty, airdrops have become synonymous with fleeting, speculative gains.



Consider the layer-2 scaling solution <a href="https://blockworks.co/tag/blast">Blast</a>. In June, Blast distributed 17 billion newly-issued BLAST tokens to early adopters, hoping to attract users and capital. The results were less than ideal: <a href="https://blockworks.co/news/blast-optimistic-rollup-launch">Many recipients were frustrated</a> by the small size of their rewards, and onchain data showed that a significant number left the platform shortly after claiming their tokens. The price of BLAST <a href="https://coinmarketcap.com/currencies/blast/">dropped by 20%</a> within hours as recipients sold off. Even more striking, the protocol’s total value locked — the capital the airdrop was intended to attract — had already declined by more than 33% in the month leading up to the airdrop. Depositors had qualified for the windfall then quickly moved on.



Read more: <a href="https://blockworks.co/news/empire-newsletter-ethereum-l2-blast-airdrop">What the airdrop meta says about crypto</a>



Rather than retaining users after getting them in the door, airdrops have largely become targets for “hot money” that collects rewards before quickly exiting in search of the next opportunity. According to <a href="https://coinmetrics.substack.com/p/state-of-the-network-issue-264">recent research by CoinMetrics</a>, two-thirds of all airdropped tokens have lost value since their release. The median return on airdropped tokens held to the present day is -61%.



This isn’t just a problem for developers — it’s systemic. Networks relying heavily on short-term incentives often attract transient users and developers who leave as quickly as they arrive. This constant churn undermines the stability of these networks and erodes trust within the entire DeFi ecosystem.



Blockchain grant programs face similar challenges. Initially successful in bootstrapping new platforms, these grants are proving as ephemeral as <a href="https://blockworks.co/tag/airdrop">airdrops</a>. Developers often hop from one chain to the next, replicating their services across multiple environments in search of funding,&nbsp; but being unable to establish long-term projects on any single platform. This “builder’s dilemma” affects not just developers, but also networks, which struggle to maintain stable, loyal communities.



The instability of these incentive models creates a boom-bust cycle, making it difficult for developers to predict future activity and revenue. Developers frequently pour significant resources into projects, only to be left with a fraction of what they were promised due to an unpredictable and often politicized grant process. This strikes me as the opposite of the intended goal of grants and out of line with crypto’s technical and ethical goals of open access and composability.



In its recent report, <a href="https://coinmetrics.substack.com/p/state-of-the-network-issue-264">CoinMetrics concluded</a> that “airdrops may provide a small-term bump in the protocol’s usage, but it remains to be seen if [they] can create real, sustainable long-term growth.” Based on how most airdrops and grant programs work, there’s no reason to believe that short-term incentives will suddenly start creating long-term adoption, liquidity or positive token price movements.



Airdrops and grant incentives were amazing bootstrapping tools for a particular moment — but that moment lasted from roughly 2020 to 2022. They will continue to have some role in our broader ecosystem, but if they were ever enough on their own to actually foster adoption and growth, that moment has passed.&nbsp;



Read more: <a href="https://blockworks.co/news/blast-ethereum-rollup-hacked">Blast incentives aim to attract strong devs, as value leaks</a>



In the post-Blast era, airdrops will be viewed far more skeptically by would-be farmers. In turn, that means weaker projects will boom and bust that much faster, further turning “airdrop” from an enticing tease into a dirty word. So, what’s the solution? Blockchain projects must move beyond these fleeting incentives and focus on creating long-term, value-driven models that align the interests of all participants. This means developing systems where both users and developers are rewarded not just for showing up, but for staying and contributing to an ecosystem’s growth over time.



Whether you’re a depositor or a coder, you’ll soon be able to choose. You can get paid once, in an unpredictable amount, in a token that’s probably losing 30% of its value by next week. Or you can get paid consistently, for as long as you want, based on the actual performance of the network and the positive contributions you make to it.



Nearly five years after Uniswap’s debut, airdrops and grants are no longer enough. It’s time to build protocols that actually last.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the On the Margin newsletter</a>.



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We need to stop pretending that airdrops work

Katherine Ross

Today, enjoy the Empire newsletter on Blockworks.co. Tomorrow, get the news delivered directly to your inbox. Subscribe to the Empire newsletter.



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Happy Friday.



A friendly reminder to not believe Big Fall propagandists. The super lame “meteorological summer” might have technically ended on August 31, but we still have about nine days left until the much cooler “astrological summer” is actually over, marked by the September equinox.



So, forget what your boss said about no more Summer Fridays. They’re still very much alive. Go on, take the afternoon off. Empire said it’s okay.&nbsp;



In the meantime, enjoy these takes on political memecoins, FTX and prediction markets. Viva La Summer!



— David Canellis



<h2 class="wp-block-heading">Keeping with tradition</h2>



If you’re suffering from severe political burnout, you’re not alone.



Political memecoins — or PolitiFi — are just as down in the dumps about the whole affair as anyone.



The five most prominent tokens, MAGA (TRUMP), MAGA Hat (MAGA), Doland Tremp (TREMP), Jeo Boden (BODEN) and Kamala Horris (KAMA), altogether peaked at over $1.25 billion market cap at the start of June.



Now they’re worth under $170 million, a near-90% collapse.&nbsp;



The remnants of ConstitutionDAO, which <a href="https://blockworks.co/news/constitutiondao-shutting-down-after-raising-49m">lost an auction</a> of a rare first-print of the US constitution to Citadel CEO Ken Griffin in late 2021, now make up almost two-thirds of the entire PolitiFi market. Although, it’s arguable whether it should be really <a href="https://www.coingecko.com/en/categories/politifi">ranked</a> alongside political parody memecoins and such.



PolitiFi didn’t even exist this time last year. This election season has been its big moment, with the largest Trump memecoin launching only in August 2023 — just as bitcoin was warming up for its major rally.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfDr0YLOIXI424Vyd7Slz2JwYgbp4ZNL9vRjobAMnjOYxAoGKvE2HnNjI-jeqGvysJ2psMBLuWqOEvpeBqsbmt3me2fYWUXbk8bjlMbXprWBxUCW09DjRWkylQ7_HjQl2EgQ6FzRixGr_IpjARIpGNrOq4?key=uvthZcmkTGW8HVGcHFQLAQ" alt=""/><figcaption class="wp-element-caption">ETH has now underperformed the S&amp;P 500 over the past 14 months</figcaption></figure>



Bitcoin’s bull run between October and March really gave cover for PolitiFi. The chart above plots the market caps of the big-five political memecoins (faded areas in the back) against the performance of bitcoin (orange line), ether (purple line) and the S&amp;P 500 (blue line).&nbsp;



You can see that PolitiFi has mostly mirrored ETH price action over that period — the purple line follows the shape of PolitiFi’s market cap — while bitcoin is holding up better, for now, at least.



Is PolitiFi over? Probably not. But considering the Kamala Harris-themed memecoins aren’t doing any better than the Trump ones is somewhat telling.



A simple reason this particular flavor of memecoin is down could be that there’s no new fresh wave of interested holders entering their markets, whose liquidity might’ve outweighed sellers’ and boost prices.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfIYubdQ3t_RBz-qS0wOOMX-c4Y4wiWSN5MNcgHJGoUJphY33dR0NoviRhdCTIQOAOpcwBY1UuH-NcXgvbkIqQx1wmN05E4YGzwHDR3tvXyvZHklRgBzBEI41wynsYuLaC3lJ4q0zOeAE1o-oLBCf81tWwP?key=uvthZcmkTGW8HVGcHFQLAQ" alt=""/><figcaption class="wp-element-caption">MAGA’s holders are split between four different blockchains, with about three-quarters on Ethereum and Solana</figcaption></figure>



This chart zooms into the market cap of the largest Trump memecoin — as shown by the orange line — and maps it against changes in the number of new holders.



Notice that major points in Trump’s narrative directly coincide with huge influxes of new holders.&nbsp;



Thousands of addresses added MAGA (TRUMP) to their bags around the Supreme Court’s election ballot ruling, Trump’s ‘hush money’ guilty verdict, and his assassination attempt in July.&nbsp;



No such luck since, with only 424 new holders following the debate against Harris on Tuesday.



All told, out of the 80,190 addresses holding MAGA (TRUMP), about 30% of them (24,300) bought in after the token set an all-time high of $17.51 in early June. It’s currently trading at $2.25 after losing nine-tenths of its value.&nbsp;



And sure, 80% drawdowns are one of the <a href="https://blockworks.co/news/cryptocurrency-tradition-drawdowns">oldest traditions in crypto</a>. But if there was a time for a huge Trump headline to revive PolitiFi, then now would be it.&nbsp;



— David Canellis



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



Empire host Jason Yanowitz spoke to Allen Ng of Everest Ventures Group in <a href="https://blockworks.co/podcast/empire/3238604c-718b-11ef-9408-a7ce2b7b6579">today’s Empire podcast</a>. Which, you may have guessed by the name, is a venture-building group focused on Web3.&nbsp;



Ng gave Empire listeners a rundown on a variety of topics: from the regulatory fallout following the Terra and FTX implosions, to a glimpse of how folks across Asia interact with crypto.&nbsp;



Focusing in on the FTX and Terra of it all, Ng offered insight into how both of those now-defining moments in crypto impacted the way that various Asian countries handled the regulatory environment in the aftermath. Oh, isn’t it fun to recount that time in crypto?



Anyway, Ng very interestingly highlighted the negative impact FTX had in some Asian countries, given that FTX actually started in Hong Kong.&nbsp;



“I think it only [had] a bigger impact in the US because, in the later part, after [they used] Asia for the success [of the] business, they raised a lot of capital from the US and then” they infamously involved a lot of famous people, Ng said.



And now you know.&nbsp;



While we could rehash more of what happened with FTX and the fallout there — and trust me, we’ll be talking about FTX again soon enough with a court hearing coming up — I wanted to turn our attention over to the Commodities Futures Trading Commission’s legal battle with regulated prediction market Kalshi.&nbsp;



Unlike Polymarket, which dropped US users as part of a CFTC settlement in 2022, Kalshi is able to offer US prediction markets. And, as of Thursday afternoon, is now the only firm to offer election markets to US users. (Unlike Polymarket, Kalshi doesn’t run on smart contracts, blockchain or crypto, although it does offer markets for <a href="https://kalshi.com/markets/btcath/btc-ath">crypto-related topics</a>.)



Now, the <a href="https://blockworks.co/news/kalshi-election-markets-cftc">fight between the CFTC and Kalshi isn’t over</a>. CFTC lawyers are pushing really hard for an extension of the emergency stay in court yesterday (which Judge Jia Cobb denied), and the CFTC had a notice of appeal filed before the dust had even settled after the hearing.&nbsp;



The plan, at least from the hearing yesterday, is for the CFTC to seek a two-week emergency stay with the Appellate court.&nbsp;



Kalshi wasted no time getting its election markets up, before having to halt them earlier today as the CFTC moves forward with an appeal. And with the popularity of Polymarket so widespread (not only making prediction markets relevant again, but also quietly pushing a hot use case for crypto), this is going to be a case to watch.



— Katherine Ross



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Election burnout has come for political memecoins

After a court battle with the Commodity Futures Trading Commission — which isn’t quite over yet — Kalshi launched prediction markets for the upcoming US election.



The launch comes after the CFTC was denied another emergency stay by Judge Jia Cobb, who oversaw the case.



In a hearing early Thursday, Judge Cobb sided with Kalshi again. She told the CFTC she wouldn’t grant a stay, citing arguments made by Kalshi’s attorneys.&nbsp;



CFTC attorneys, during the hearing, argued the contracts could pose a “public interest risk.” With the election just a few months out, Kalshi attorneys made a case that waiting any further to launch the markets could cause the company potential economic harm.



Read more: <a href="https://blockworks.co/news/lightspeed-newsletter-prediction-markets-post-election">How prediction markets are bracing for post-election user drop-offs</a>



The <a href="https://blockworks.co/tag/cftc">CFTC</a> was previously granted a stay last week as it asked the judge to reconsider her order.&nbsp;



In an opinion on Thursday, Cobb <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.261465/gov.uscourts.dcd.261465.51.0_1.pdf">wrote</a>, “Court finds that Kalshi’s congressional control contracts do not involve activity that is unlawful under any federal or state law, nor do they involve gaming.”



“Kalshi’s event contracts ask buyers to take a yes/no position on whether a chamber of Congress will be controlled by a specific party in a given term. That question involves (relates to, entails, has as its essential feature or any other iteration of the word) elections, politics, Congress and party control; but nothing that any party to this litigation has identified as illegal or unlawful activity,” she noted.



Tarek Mansour, Kalshi’s founder, said that Thursday marked the “the first trade on regulated election markets in nearly a century.”



<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 first election market is live on <a href="https://twitter.com/Kalshi?ref_src=twsrc%5Etfw">@Kalshi</a>. Today marks the first trade on regulated election markets in nearly a century. This one is for you, the prediction markets community. <a href="https://t.co/USzzVMffQn">pic.twitter.com/USzzVMffQn</a>&mdash; Tarek Mansour (@mansourtarek_) <a href="https://twitter.com/mansourtarek_/status/1834306255348765033?ref_src=twsrc%5Etfw">September 12, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Kalshi’s currently the only legal prediction market in the US. Polymarket, which has quickly become a good gauge for overall sentiment, doesn’t operate in the US.&nbsp;



<a href="https://blockworks.co/tag/polymarket">Polymarket</a> settled with the CFTC back in 2022, which saw the prediction market pay out $1.4 million for allegedly operating an unregistered platform for trading options contracts. As part of the settlement, Polymarket agreed to ban US users without admitting or denying wrongdoing.&nbsp;



Read more: <a href="https://blockworks.co/news/unpacking-potential-polymarket-ban">Unpacking a potential Polymarket ‘ban’</a>



The popular prediction market also came up a few times in Thursday’s hearing, with Kalshi’s lawyers noting that Kalshi being blocked from allowing election markets would just push people to an “unregulated” market such as Polymarket.&nbsp;



The CFTC wants the appeals court to grant an emergency stay for two weeks to prevent the markets from being active as lawyers draw up an appeal. At the Thursday hearing, attorneys for the CFTC warned about potential risks to election integrity.&nbsp;



Updated September 12, 2024 at 5:24 pm ET: Tightened headline for clarity.



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Kalshi launches election markets as CFTC turns to appellate court

Felix Jauvin

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<h2 class="wp-block-heading">What are we really doing here?</h2>



“Uli doesn&#8217;t care about anything. He&#8217;s a Nihilist. Ah, that must be exhausting.”&nbsp;



— Bunny Lebowski, The Big Lebowski



I’ve been thinking a lot about use cases, adoption in crypto and what we’re really doing here.



Bitcoin is up 30% year to date, and yet the vibes have felt like we’re in a bear market. Every altcoin has sunk under the weight of inflated high-fdv, low-float launch strategies and governance tokens that cannot pass on any value accrual to holders due to the regulatory gray zone we live in under the Biden administration.&nbsp;



As our industry sits in limbo with 1) no regulatory clarity, 2) TradFi and crypto constantly talking over each other with no one stopping to think about what the product-market fit opportunities are, 3) the only narrative to speak of this year being ETF adoption (which furthers disassociates buyers from onchain self-sovereign ownership) and 4) quite literally no borrowing markets since the implosion of FTX/Silvergate/3AC…it feels like we’re all lost at sea.



I joined the crypto world through the lens of a macro investor. It felt like bitcoin, along with permissionless DeFi protocols, were the solutions to many of the issues I discovered in my investing journey. Simply put, markets have transformed from efficient capital allocation vehicles into debt refinancing vehicles at the cost of financial equality — e.g. the Fed buying MBS during QE to stabilize markets at the cost of inflating housing prices into unachievable levels for many.



Like many, I believed in this premise during the last cycle and was vehemently excited about the idea that we were on the precipice of a revolution that would realign societal incentives and solve many issues plaguing our modern financial world.&nbsp;



Instead, all we have this cycle are nihilistic memecoins that get pumped and dumped endlessly, inflated VC-backed governance coins with no attachment to any claim of equity and ETFs — a Wall Street-approved speculation vehicle that disintermediate holders from the actual protocol innovations that got us excited in the first place.



Excuse my French, but what the fuck are we really doing here?



I’ve decided I need to do some soul-searching to reconnect with what brought me to this industry in the first place.



First, I went to read up on what Travis Kling has been discussing:



<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">🚨🚨 On the heels of pretty atrocious vibes this summer for crypto, I&#39;m publishing part 3 in a series that included: &quot;A Lack of Pretense That Any of This Shit Does Anything or Will Ever Do Anything&quot; and &quot;Financial Nihilism: The Zeitgeist of Young America&quot;. It&#39;s a ~10 min read.…&mdash; Travis Kling (@Travis_Kling) <a href="https://twitter.com/Travis_Kling/status/1830981118566244633?ref_src=twsrc%5Etfw">September 3, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



He has been expressing a lot of these nihilistic feelings I and many others currently have, which he coins as a general feeling of quiet quitting on the mission that got us here.



One thing that he brings up is how part of this nihilism isn’t fully our fault; it&#8217;s the lack of regulatory clarity.&nbsp;



The lines around what is allowed and isn’t are being obfuscated by a politicized SEC that is going for a scorched-earth approach to regulation that is leading to no one wanting to create or experiment on anything that is actually valuable. The hope is that this coming election brings forth a new wave of regulatory clarity that will allow our industry to actually innovate again.&nbsp;



Second, I sought out and interviewed Austin Campbell to discuss all things stablecoins&nbsp; — a segment in which I realized there has been substantial positive progress. 



<iframe loading="lazy" width="560" height="315" src="https://www.youtube.com/embed/xLW2CZ9q6iA?si=vBMEYZkgRYezOleW" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen></iframe>







The thing is, there hasn’t been much of a way for traders to take advantage of the adoption of an asset that is meant to not ever move, so less people are emotionally excited about it without the associated PnL.&nbsp;



That said, our talk brought forth a wave of optimism and made me realize things are moving in the right direction. There’s hope.&nbsp;



These two thought experiments are giving me something to hold onto. I do think we are on the verge of the next big leg of adoption and innovation; there are just some hurdles right now leading to a despondent market that isn’t going anywhere.&nbsp;



My hope is that this coming election will resolve this. And so, in the meantime, I’m going to continue believing in something, because without that we have nothing.



— Felix Jauvin



<h3 class="wp-block-heading">47%</h3>



The percentage of stablecoin users in Nigeria, India, Turkey, Indonesia and Brazil who said they primarily use the asset class to “save money in dollars,” according to a new <a href="https://castleisland.vc/wp-content/uploads/2024/09/stablecoins_the_emerging_market_story_091224.pdf">report</a>.&nbsp;



Holding savings in a dollar-backed, (in theory) stable currency <a href="https://blockworks.co/news/stablecoin-report-market-capitalization">is becoming an increasingly common</a> alternative to traditional bank accounts, particularly in regions where banking is difficult to access, researchers noted.&nbsp;



The survey, which sampled roughly 2,500 individuals, was conducted by Castle Island Ventures, Artemis and Brevan Howard Digital.&nbsp;



<h2 class="wp-block-heading">SEC again indicates ETH is not a security&nbsp;</h2>



News dropped this morning that the SEC had <a href="https://blockworks.co/news/etoro-sec-settlement">reached a settlement with eToro</a> after the trading platform allegedly violated securities laws by acting as an unregistered broker and clearing agency.&nbsp;



Per the agreement, eToro will pay $1.5 million and cease a chunk of its crypto trading (after giving customers 180 days to sell their assets). US users will still be able to trade bitcoin, bitcoin cash, and most notably, ether.&nbsp;



eToro, without admitting or denying guilt, will be removing all other crypto assets from its platform — each of which, the SEC said, constitute “investment contracts.”&nbsp;



Reading between the lines here: The SEC is signaling that ether is not a security.&nbsp;



eToro’s settlement news comes a day after Prometheum, which is licensed only to custody crypto securities, launched its institutional platform. Prometheum <a href="https://blockworks.co/news/tzero-spbd-license-custody">provides custody services</a> for optimism (OP), the graph (GRT), uniswap (UNI), arbitrum (ARB) and ETH.&nbsp;



I asked the Prometheum Capital team what they think of the eToro settlement and the apparent statement the SEC is making about ether not being a security. This is what CEO Benjamin Kaplan shared:&nbsp;



“The eToro settlement is another clear example of the transition underway in the US to streamline digital asset trading under the purview of the federal securities laws. We are confident the federal securities laws extend to oversee the custody and trading of ETH.”



We’ll have to wait and see if Prometheum makes any changes to its current list of acceptable crypto securities, but you shouldn’t hold your breath.&nbsp;



— Casey Wagner&nbsp;



<h2 class="wp-block-heading">XRP ETF? Don’t get ahead of yourself.</h2>



Grayscale Investments has been busy building out its crypto trust offerings this year while also converting two of them to ETFs.



The investment firm added an XRP Trust on Thursday, giving investors access to a protocol with “an important real-world use case,” Rayhaneh Sharif-Askary, Grayscale’s head of product and research, said in a statement.&nbsp;



&#8220;By facilitating cross-border payments that take just seconds to complete, XRP has the potential to transform the legacy financial infrastructure,&#8221; she added.&nbsp;



Media reports and X posts note this trust is paving the way for a possible XRP ETF. While those statements aren’t wrong per se, I think it’s important to note that could be said for all of Grayscale’s 20+ trusts.



“Each product is intended to follow a four-stage life cycle — with the ultimate goal of uplisting the product to an ETF,” Grayscale notes on its website. “As a product progresses through this intended lifecycle, there is a correlated increase in investor access and transparency.” <img loading="lazy" decoding="async" width="624" height="237" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeA9CIcniUpqprzjLyCGUfU1bgieOsGAP50Ewfxoc-_erfW5-HuQI_D9ER1hKlHGeW2zoILvYaJzIU6gJoAHANlu3iqrXF_zA2EHaf5uVJ33WsQ8g3ieEQjvGVNKc5S1E-rVeRL1vIb9ynoBnKLcM8M1oCJ?key=9PcKYLA2dW24-8GbgV6-ow">



So <a href="https://blockworks.co/news/how-us-canada-solana-fund-filings-differ">issuers can file for solana ETFs</a> and Grayscale can launch this XRP Trust, which starts a process that could lead to a conversion down the line. But ultimately the SEC will have to approve them (as part of Phase 4), which has <a href="https://blockworks.co/news/future-crypto-etf-filings-in-limbo">historically been the big hurdle</a>.



Nate Geraci, president of The ETF Store, <a href="https://blockworks.co/news/us-spot-crypto-etf-approvals-outlook">told Blockworks he still believes</a> it will take one of two things for more spot crypto ETFs (beyond BTC and ETH) to launch: futures for the asset to be listed on a CFTC-regulated venue, or Congress implementing a framework clearly defining which crypto assets are securities and commodities.&nbsp;



“Obviously, neither of those are going to happen overnight,” he said. “In the case of listed futures, history indicates that additional boxes would still need to be checked, including having those contracts develop a trading track record and then having issuers launch futures-based ETFs.”



The upcoming election, and a potentially friendlier administration (if Trump wins, perhaps), remains “the biggest wild card” for accelerating the approval timeline for more spot crypto ETFs, Geraci and others have noted.



So feel free to be optimistic. But it’s important to know the context.&nbsp;



— Ben Strack



<h2 class="wp-block-heading">Bulletin Board&nbsp;</h2>



<ul class="wp-block-list">
<li>House Republicans have launched a probe into SEC Chair Gary Gensler’s hiring practices, which the lawmakers allege is unlawfully influenced by political affiliation. Reps. Jim Jordan, James Comer and Patrick McHenry (who is not running for re-election after his term ends this year) claim that under Gensler’s leadership, the SEC has hired “individuals from left-leaning organizations to fill senior roles.”&nbsp;</li>



<li>Nearly two-thirds of the 3,600 consumers in the US, UK and Europe surveyed by Deutsche Bank earlier this year said they could see cryptocurrencies replacing cash.&nbsp;</li>



<li>Want to hear some hot takes about the disconnect between TradFi and crypto? Tune into the latest episode of the On the Margin podcast <a href="https://blockworks.co/podcast/onthemargin/97375e9e-7091-11ef-8ad9-2b7fdc7a5e32">here</a>, or wherever you get your podcasts.&nbsp;</li>
</ul>



Updated September 13, 2024 at 3:23 pm ET: Adjusted to emphasize that DCG remains fully operational.



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Our industry is in limbo. What’s going on?

Today, enjoy the Lightspeed newsletter on Blockworks.co. Tomorrow, get the news delivered directly to your inbox. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to the Lightspeed newsletter</a>. 



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Toronto-based holding company Cypherpunk Holdings has rebranded to Sol Strategies in a pivot to a Solana-first investment approach, the firm disclosed today.



Following the rebrand, Sol Strategies will begin focusing on staking Solana and investing in the Solana ecosystem’s projects and infrastructure, the company said in a press release. The strategy shift was unanimously approved by the company’s board of directors at its July 30 shareholder meeting, Sol Strategies said in a press release.



Cypherpunk Holdings has been scaling up its Solana exposure for months now — particularly since ex-Valkyrie CEO Leah Wald took over the top job in early <a href="https://x.com/LeahWald/status/1810685437687525423">July</a>. When it disclosed its holdings on March 31, Cypherpunk held zero SOL. By July 16 — a week after Wald took over — Cypherpunk had 63,000 SOL. On Aug. 1 — two days after Cypherpunk internally finalized its strategy shift — that figure had swelled to 86,300 SOL, worth some $11.6 million at current prices.&nbsp;



Still, rebranding the company around just one blockchain ecosystem is pretty eye-catching. The revamped <a href="https://solstrategies.io/">website</a> reads that Sol Strategies’ “edge” is investing “in the Solana ecosystem.” Sol Strategies will also operate a Solana validator node through a third party service provider, the company said in a press release.



The company, which began dealing in crypto in 2018, trades on the Canadian Securities Exchange and OTC market.



In comments shared with me today, Wald said the strategy shift wasn’t “predetermined” when she took over as CEO, adding that Solana is a “high-growth” investment opportunity that seemed to be the “next logical step” for Cypherpunk Holdings.



At first blush, the mental model for this rebrand could be that Sol Strategies is offering an upgraded version of a spot SOL ETF. Investors in the company’s stock get compliant, regulated exposure to not only the price of SOL with staking and validator revenue included, but to the success of Solana ecosystem projects as well.&nbsp;



Wald told me a version of this today: ETFs are just passive spot funds, she said, adding: “Our approach goes beyond passive exposure as we are actively engaged in staking and exploring strategic investments.”&nbsp;



Plus, something that Ethereum ETF issuers are <a href="https://blockworks.co/news/education-required-to-spur-eth-etf-outflows">learning the hard way</a> is that demand for regulated crypto investment products only runs so deep. In March 2024, Cypherpunk Holdings <a href="https://solstrategies.io/wp-content/uploads/2024/09/cypherpunk_q2fs_05292024.pdf">reported</a> roughly $23 million in assets. In the institutional investment world, that isn’t very much money.&nbsp;



Perhaps Wald — who had been a Cypherpunk Holdings board member since 2021 before stepping in as CEO — is making the bet that Sol Strategies can differentiate itself from its larger competitors by being the best possible regulated investment in a certain niche.



“As the only publicly traded company in North America focused on the Solana ecosystem, we are providing exposure to Solana’s growth and innovation prior to Solana-specific ETFs [being] approved in either the US or Canada,” Wald said.



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A publicly-traded holding company is all-in on Solana

Donovan Choy

Coinbase is moving forward with the launch of cbBTC, an ERC-20 tokenized bitcoin that will go live on Base and other Ethereum ecosystems.



The new bitcoin token will be backed 1:1 by bitcoin reserves and presumably held in centralized custody by Coinbase.



Coinbase first teased the impending cbBTC on Aug. 14 amid a swirl of controversy surrounding BitGo. Today, it was formally <a href="https://x.com/coinbase/status/1834208544247144949">announced</a>.



This marks the first significant competitive threat to BitGo’s wrapped bitcoin (WBTC), which controls a dominant 96.6% market share across the Ethereum ecosystem today, according to<a href="https://dune.com/hashed_official/btc-on-ethereum"> Dune</a>.



Read more:<a href="https://blockworks.co/news/bitgo-wbtc-custodial-changes"> BitGo moves to allay fears over WBTC custodial changes</a>



Coinbase’s tweet claims cbBTC will be <a href="https://x.com/coinbase/status/1834208546235334972">available</a> on several protocols including Aerodrome, Curve, Aave, Morpho, Compound, Moonwell, Spark and more.



“<a href="https://blockworks.co/tag/coinbase">Coinbase</a> is helping users do more with their bitcoin,” Coinbase vice president of engineering Will Robinson told Blockworks. He added that “cbBTC is a big step forward for DeFi, giving bitcoin a much more active role.”



BitGo’s <a href="https://www.bitgo.com/resources/blog/bitgo-to-move-to-jurisdictional-custody-to-accelerate-global-expansio/?utm_source=blockworks-research.beehiiv.com&amp;utm_medium=newsletter&amp;utm_campaign=bridging-btc-from-multisigs-to-bitvm&amp;_bhlid=9219a8da5ae77319203ba8c8702c4aaf4709a4ce">announcement</a> of a “strategic partnership” that involved TRON founder Justin Sun sparked concerns, leading to Sky (<a href="https://blockworks.co/news/maker-rebrands-as-sky-dai-will-be-changed-to-usds">previously Maker</a>) <a href="https://forum.makerdao.com/t/wbtc-changes-and-risk-mitigation-10-august-2024/24844?utm_source=blockworks-research.beehiiv.com&amp;utm_medium=referral&amp;utm_campaign=short-term-risk-elevated">delisting</a> WBTC as collateral from its DAI stablecoin.



BitGo declined to provide a comment on cbBTC’s launch.



Following Coinbase’s announcement, Spark Protocol immediately <a href="https://forum.makerdao.com/t/sep-12-2024-proposed-changes-to-spark-for-upcoming-spell/25076">launched</a> a proposal to onboard cbBTC, citing “a strategic need to have a replacement BTC on SparkLend as collateral.”



In anticipation of cbBTC, Aave DAO also <a href="https://governance.aave.com/t/arfc-onboard-cbbtc-to-aave-v3-on-base-and-mainnet/18988?utm_source=blockworks-research.beehiiv.com&amp;utm_medium=newsletter&amp;utm_campaign=bridging-btc-from-multisigs-to-bitvm&amp;_bhlid=5c24f6de3a6c55d34ea765bbd0fca1ea2074fb99">floated</a> on Tuesday a governance proposal to onboard the collateral to Base and Ethereum mainnet, with about $150,000 of incentives to bootstrap its growth.



Early comments to the proposal cited the security considerations and regulatory risks surrounding cbBTC.



“If Coinbase were ever to have their accounts frozen for investigation or face further regulatory action, it would put all Aave users at severe risk,” user @DeFiWhale said.



Another user, @midapple, cited the proposal as “premature” without knowledge of the minting and redemption mechanisms of cbBTC being publicly known yet.



Other than WBTC, only BTCB, a wrapped bitcoin on BNB Chain, and the multichain Borderless Bitcoin (BTC.b) have a market share over 1%.



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Coinbase introduces wrapped bitcoin competitor ‘cbBTC’

Tether has made a habit of sharing truly massive quarterly profit numbers alongside its attestations reports — and they’re bigger than BlackRock’s.



The firm has reported $12.72 billion in net profit since Q4 2022, compared to BlackRock’s $9.83 billion.



What isn’t usually discussed is that Tether is lumping in the profit from US Treasurys with the mark-to-market gains of its bitcoin and gold holdings — potential profit or unrealized gains — as outlined in one of its blog <a href="https://tether.io/news/tether-releases-q1-2024-attestation-reports-record-breaking-4-52-billion-profit-highest-treasury-bill-ownership-percentage-ever-total-group-equity-of-11-37-billion/">posts</a>. And it’s inflating Tether’s numbers.



<a href="https://blockworks.co/tag/tether">Tether</a>’s quarterly attestations describe assets in the pool of reserves that give tethers their value. As of its most recent <a href="https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYgICGy/d7462f312aa15b872f8474322ba90363/ISAE_3000R_-_Opinion_on_Consolidated_Financials_Figures_30.06.2024_RC134792024BD0209.pdf">report</a>, for the end of Q2, there was almost $118.44 billion backing the tethers in circulation — conveniently over $5 billion more.



Read more: <a href="https://blockworks.co/news/tether-q2-2024-earnings-report">Tether reports net profit of $5.2B in H1 2024</a>



Which means all tether is all properly backed by an equivalent value of assets in reserve, and then some. (It’s worth noting that attestations are not audits and Tether has never been “audited,” for <a href="https://www.dlnews.com/articles/markets/tether-ceo-just-told-us-why-the-big-4-wont-audit-its-books">reasons</a>.)



Short-dated US Treasurys made up around 68% of Tether reserves, with reverse repurchase agreements, money market funds, secured loans and bitcoin as the next largest categories.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcCUThTZDM_ogxfwEsV1iotjgRMHVBx5uz1bo6_smlze2WkTWdovBSpRMeOu2Rc2bHlX69bPvopjVph673kOm3iwj8EoMxZu_7EPQuGwc3ipqbPNJ-lC4taovM4exhgnTer32rEqgKNgpCBfW23w1gTi3Y5?key=bacHLEf431I5gVwzvzunVQ" alt=""/><figcaption class="wp-element-caption">Tether has been adding bitcoin to its reserves, rising from 2% of the total to 4% over the past year</figcaption></figure>



<h2 class="wp-block-heading">Bitcoin is cash — no need to sell it</h2>



Tether reported $1.3 billion in quarterly profit alongside that Q2 disclosure. A staggering amount considering how few people it employs, believed to be under 100.



Much of that profit comes from the US Treasurys it buys. Three-month Treasury bills currently carry a rate of 4.85%, and considering Tether owned almost $81 billion worth, the 10-figure profit sounds about right.



But take this year’s first quarter. Tether reported $4.52 billion in profit. At the same time, the price of bitcoin went up almost 70%, which Tether apparently considers free profit.&nbsp;



Read more: <a href="https://blockworks.co/news/stablecoin-report-market-capitalization">Nigeria is undergoing a ‘real crypto dollarization event’: Nic Carter</a>



When bitcoin hasn’t been so volatile, Tether has usually reported profits of between 1.01% and 1.81% of the value of its treasury. In Q1 2024, when bitcoin <a href="https://blockworks.co/news/bitcoin-all-time-high">hit an all-time high</a>, that figure was 4.1%.



The firm also reported that its bitcoin holdings increased in value by $2.56 billion throughout that period — from $2.82 billion to $5.37 billion. Tether appears to have bought 8,888.88 BTC ($513.6 million at current prices) during the quarter, going by the attestations and its onchain history, but it’s unknown at what price it bought those coins.&nbsp;



If we take the average price of bitcoin over the quarter, Tether would’ve spent $481.5 million on that BTC.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcIUrCqjKuhS9ZKi0pM1VAaYPeqUG6usoN8DYnqjUMOawypXSJgMXtG6dgviLG1VTPunr4pgyLE75-WcVdcr9lejGgUVLKtZ9tokjLUBBgWwuwwvNaOCWPWQXBoHyZslckmFb6pqjb07LO_qOzcRego2K-C?key=bacHLEf431I5gVwzvzunVQ" alt=""/><figcaption class="wp-element-caption">Estimated bitcoin profits are in orange, US Treasurys in blue and gold in yellow. The price of bitcoin is shown by the orange line</figcaption></figure>



Subtracting its estimated spend from the increase in value of its entire bitcoin stash shows what Tether’s quarterly “bitcoin profit” would be: $2.08 billion, or 46% of the total that Tether reported. US Treasurys would’ve otherwise contributed 51%, while gold’s price appreciation perhaps offered around 3%.



To be clear, these are just estimates based on average prices during a volatile time for bitcoin’s price. Tether deposits BTC into a reserve address directly from its sister exchange Bitfinex, so it’s unknown exactly how it acquires the bitcoin that it deposits into its treasury.&nbsp;



Still, the estimates suggest that for the first quarter of this year, bitcoin made up less than 5% of Tether’s reserve portfolio, while it contributed nearly half of its reported quarterly profits.&nbsp;



For what it’s worth, Tether <a href="https://tether.io/news/tether-releases-q1-2024-attestation-reports-record-breaking-4-52-billion-profit-highest-treasury-bill-ownership-percentage-ever-total-group-equity-of-11-37-billion/">says</a> it made $1 billion out of Q1’s $4.52 billion from US Treasurys, while the rest came from unrealized bitcoin and gold gains. That would mean BTC was responsible for much more of Tether’s total reported profits, even as much as 75%.



Tether wrote at the time: “The main contributing [Tether Holdings Limited] entities are those in charge of issuing stablecoins [Tether] and managing the respective reserves where approximately $1 billion of this profit stemmed from net operating profits, primarily derived from US Treasury holdings. The remainder of reported profits were comprised of mark-to-market gains in bitcoin and gold positions.”



<h2 class="wp-block-heading">Tether could technically turn ‘unprofitable’ if BTC dives</h2>



This, of course, means that Tether’s profits are reduced when the prices of bitcoin and gold go down.&nbsp;



Tether reported only $1.3 billion in profit in last quarter, nearly 70% below Q1, even though it held almost $6 billion more in US Treasurys.



The difference is largely because the price of bitcoin fell 12% between quarters, so the value of Tether’s bitcoin went down by $648 million. Tether also didn’t add any BTC between periods, so there wasn’t any opportunity for a big boost of unrealized profit from freshly acquired coins, as was the case in the previous two quarters.&nbsp;



Had bitcoin retained its value, Tether would’ve reported almost $2 billion in quarterly profit. It appears only Tether’s Q1 2024 disclosure delineated bitcoin and gold profits from US Treasurys, as was the case with Q2.



So, does Tether earn more profit than <a href="https://blockworks.co/tag/blackrock">BlackRock</a>?&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdoOKgMZzs7WzZt3x8mMdgldBIrFakCFGgFGfUQnZ25e9oNXqNqMirYxi2-kO7FcyAZJaZ8kL0Fk9YYQ-kOk5V4pPjbJhkwADCr8esQeWsfbYyajRF-H5re52_4Ghel2iDqtq9cy4cHPgUuiohqGciFdL7N?key=bacHLEf431I5gVwzvzunVQ" alt=""/><figcaption class="wp-element-caption">Watch for Tether to really blow BlackRock out of the water if it keeps buying loads of bitcoin. Tether previously <a href="https://blockworks.co/news/tether-buying-bitcoin">pledged</a> to direct 15% of profits to buying BTC.</figcaption></figure>



Lumping in bitcoin and gold appreciation with US Treasurys profits, sure, Tether is more profitable than BlackRock. Tether must actively continue buying US Treasurys to earn money from them, but it doesn’t have to do anything to report its bitcoin and gold profits, only hold.



By that system, Tether has indeed reported higher profits than BlackRock.



If you only count Tether’s disclosed profits without bitcoin and gold, Tether would’ve made under $7.7 billion from its US Treasurys, going by the ballpark estimates outlined above.&nbsp;



That’s a difference of about $5 billion. Still monstrous profit, but it would fall just shy of outpacing the world’s largest asset manager.



Tether is likely in any case the most profitable company in crypto, and one of the most profitable outside of it as well.



Depending on your definitions of profit, it might still need a few more years to eclipse BlackRock — but it seems inevitable.



A modified version of this article first appeared in the daily Empire newsletter. Subscribe <a href="https://blockworks.co/newsletter/empire">here</a> so you don’t miss tomorrow’s edition.



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Is Tether really more profitable than BlackRock?

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Stablecoins are having a moment, that much is clear.



As the rest of crypto trades sideways, the market capitalization of stablecoins has steadily increased. It sits now at $170 million, per rwa.xzy, though there has been a slight dip over the past few days.



Castle Island Ventures, alongside Artemis, Visa and Brevan Howard Digital made a new survey that looks into the prevalence of stablecoins in certain emerging markets. The survey looked into roughly 2,500 crypto users in Nigeria, India, Turkey, Indonesia and Brazil.&nbsp;



“Our survey results contradict the common belief that stablecoins are exclusively used as a tool for the speculative trading of crypto assets. Forty-seven percent of crypto users surveyed list saving in dollars as their stablecoin objective, 43% cited efficient currency conversion and 39% said yield generation. Gaining access to crypto exchanges remains the top use case for those surveyed, but a long tail or ordinary (non-crypto) economic activities is evident as well,” the report said.



Read more: <a href="https://blockworks.co/news/stablecoin-empire-emerging-economies-user-interface">Stablecoins are ‘a better product’ than local currencies in emerging economies, Carrica says</a>



“The findings are clear: non-crypto uses account for a meaningful share of stablecoin usage modes in the countries surveyed.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcyvbKQJGsZpUMo-FWEnTl2CZcGRl3gGWc-HK4M83_rWf78IfI-Nfp4kr_QEeXKJrwz6VJiRnc5vzSHUPW5VJ3pc6G0xJH93JpbqnubTZUWK4-7hlBQFTg4rvlodwgyk0N7FAg3WnphcTadWS_p-b7le7H-?key=vFvNC1NDWEBw6TGiMs3aEQ" alt=""/><figcaption class="wp-element-caption">Source: Castle Island Ventures, Artemis</figcaption></figure>



Nic Carter of Castle Island Ventures told Blockworks he’s been curious about tracking the data because he wanted to better understand how folks are using stablecoins.&nbsp;



From here, Carter will take the findings to Washington DC. Lawmakers on Capitol Hill, and various US officials, have been <a href="https://blockworks.co/news/federal-reserve-cbdc-tokenization-stablecoins">pretty vocal about their stablecoin opinions</a>. There is also a push from Senators Kirsten Gillibrand and Cynthia Lummis to <a href="https://blockworks.co/news/stablecoin-bill-bipartisan-support">introduce regulations around stablecoins</a>.



“If you&#8217;re <a href="https://blockworks.co/newsletter/daily/issue/post_6e8e2c0b-f694-4fee-8e50-1d45832b905e">looking at emerging markets</a>, this is a case of currency substitution where savings would be held in the naira or the Turkish lira or the Indian rupee, and it&#8217;s actually being converted into the dollar,” Carter explained.



“So this is a positive buying pressure for the dollar and all the dollar assets that the stablecoin issuers hold (which are Treasurys). So my point is: This is a flow into the dollar. It&#8217;s a new source of demand. It&#8217;s very meaningful, and obviously it&#8217;s supportive of US interests.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdTk84nqV7WNG0eiysle-8aRgNsb-pk_UFf52DDdzNtCrxR7UZkSv03n67lES8jIiveZe9thRvyDG2r3NTfE7dBm22X-tvF1M5iqirGCSUorAE67kQa0gU-oHztjMb4G_yR8dnYojWKtKpB8v8UtvlZNwg?key=vFvNC1NDWEBw6TGiMs3aEQ" alt=""/><figcaption class="wp-element-caption">Source: Castle Island Ventures, Artemis</figcaption></figure>



But while it may impress US lawmakers, those in, say, Nigeria might not be as thrilled with some of the results. As we’ve <a href="https://blockworks.co/news/binance-ends-support-nigeria-naira">previously reported</a>, Nigeria became more hostile toward crypto earlier this year, <a href="https://blockworks.co/news/binance-employees-detained-nigeria">detaining two Binance executives</a> (American <a href="https://blockworks.co/news/continued-detainment-binance-executive-outrageous">Tigran Gambaryan</a> is still being held in the country), and charging Binance with tax evasion and money laundering.&nbsp;



Nigeria’s attempts to regulate the industry have perhaps not been as successful as the country hoped, based on the data snapshot from the report. The survey took place from May to June earlier this year, with some onchain data being gathered through July. Nigeria arrested Gambaryan at the end of February.



“Nigerians love <a href="https://blockworks.co/tag/stablecoins">stablecoins</a>,” Carter noted. Perhaps the country even has a right to be “paranoid,” given that the full survey results show that Nigeria came out on top in every category.&nbsp;



Users in the country “transact most frequently, stablecoins compose the largest share of respondent portfolios, they report the highest share of non-crypto-trading uses for stablecoins, and they maintain the highest self-reported knowledge of stablecoins,” the report stated. Other countries such as Turkey had different uses for stablecoins (the report found that Turkish users tend to use them to earn yield, with trading closely following).&nbsp;



“I think there actually is a crypto dollarization event happening in <a href="https://blockworks.co/tag/nigeria">Nigeria</a>, as far as I can tell, where people are actively deserting the naira and going to dollars via stablecoins. I think this is ongoing. It&#8217;s the first real crypto dollarization event,” Carter told me.



He did warn that he’s not sure if you can “quantify that 15% of [naira’s] devaluation is due to crypto,” especially given that the survey targeted crypto users. But the results show that perhaps Nigeria has a right to show concern.&nbsp;



Nigeria aside, the study was able to show that stablecoins, when used by some in emerging markets, allow access US dollar exposure, which could be interpreted as a boon for the US.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeBVX-KJ6Ukps7WbWWuc4U04DX75cRJXSAr3IzmtpiUhuu9Q2zV6rqoO9G7bmXmf2ks2fnhVNQTNxflJz1ELQVZIGk05a0jqXgDpUsYBgGRZIfD_GRBBssr6AKJCfgLLZm5IcMq6PToGZSXAbPM1daBYX7k?key=vFvNC1NDWEBw6TGiMs3aEQ" alt=""/></figure>



But, as stated above, there isn’t currently a regulatory framework for stablecoin issuers, even as Circle — the firm behind USDC — seeks to go public. But Carter also thinks that the issuers are “stymied” because none of them can issue interest-bearing stablecoins.&nbsp;



“All of the interest bearing stablecoins, they&#8217;re issued overseas,” he said. Carter pointed to Paxos, which has an interest-bearing stablecoin in Dubai despite being a US-based company. Offerings from Mountain Protocol and Ethena are also offshore.&nbsp;



“…I do think that the interest-bearing stablecoins will out-compete the ordinary ones at the margin with time. So they can&#8217;t do that in the US, because the [Securities and Exchange Commission] is so adamant that it makes it a security, right? So that&#8217;s one of the issues that&#8217;s…hobbled us for now,” Carter explained.&nbsp;



The report points out there’s not one single answer to address why stablecoins are so heavily dollarized.&nbsp;



“The US dollar is the global reserve currency but in no other category of usage does it dominate to the same extent it does with stablecoins,” it pointed out.&nbsp;



But there’s no denying that it seems to have hit its mark with stablecoins. Now time will tell if the US will take advantage of that.



A modified version of this article first appeared in the daily Empire newsletter. <a href="https://blockworks.co/newsletter/empire" target="_blank" rel="noreferrer noopener">Subscribe here</a> so you don’t miss tomorrow’s edition.



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Nigeria is undergoing a ‘real crypto dollarization event’: Nic Carter

Macauley Peterson

Cross-chain swaps are getting a boost with the latest version of Squid, launched today.



Squid 2.0 introduces a new architecture that abstracts away chains to simplify even complex transaction flows with multiple hops.



The update includes performance and cost improvements, and expands Squid 2.0’s functionality into new areas such as 1:1 stablecoin transfers, <a href="https://blockworks.co/tag/real-world-assets">real-world asset</a> (RWA) transactions and advanced routing.



This new approach goes far beyond finding the most efficient bridge routes, according to Fig, Squid’s co-founder.



“We are a bridging tool in a certain way, but we think that we can change the way that swaps are also done,” Fig told Blockworks.



Read more: <a href="https://blockworks.co/news/squid-one-click-cross-chain-swaps-cosmos">Squid enables one-click cross-chain swaps on Cosmos</a>



A key innovation in Squid 2.0 is its graph-based architecture, which enables intelligent routing through over 110 liquidity sources across 77 chains. This ensures that swaps are executed using the most efficient paths, reducing costs and increasing execution speed.



“In Squid v1, it was a very simple routing algorithm — we would just always swap via wETH into USDC, and then we bridge and swap out on the other side. But with Squid v2, we&#8217;ve upped the infrastructure a lot.”



Squid’s new algorithm compares liquidity across multiple dexes and liquidity pools, automatically choosing the most cost-effective route. This focus on speed builds on the previous version&#8217;s <a href="https://blockworks.co/news/cross-chain-transactions-squid">Squid Boost feature</a>, which allows for sub-20 second swaps across chains, adding real-time quotes delivered in under half a second, the team says.



“There&#8217;s so much variation happening in cross-chain that we had to build a system which was able to adapt to all of the change in liquidity, of new technology, instantly and without us having to do anything manually on our side,” Fig explained.



Competition is heating up in the cross-chain space. Just this week, Osmosis debuted its latest product. Polaris, a cross-chain token portal, aggregates DEXs and leverages the Inter-Blockchain Communication (<a href="https://blockworks.co/tag/ibc">IBC</a>) protocol.



Osmosis co-founder Sunny Aggarwal pitched Polaris as a bid to tackle what he calls, “the Great Chain Divide.”



“Liquidity is fragmented and sticky on its native chain, driven by both inertia and incentives (everyone&#8217;s trying to build their own internal DeFi ecosystems!),” Aggarwal <a href="https://x.com/sunnya97/status/1833854378807087292">wrote</a> on X.



Squid similarly integrates liquidity from Osmosis, Astroport and other dex, not only in Cosmos but across multiple Ethereum layer-2s, Bitcoin (via the Chainflip cross-chain dex) and soon Solana as well.



ZeroDev also demoed a Magic Account, showcasing wallet abstraction with a user-centric design, including social login with passkeys and gasless transactions.



Read more: <a href="https://blockworks.co/news/vitalik-buterin-eip-account-abstraction">Vitalik rallies support for temporary smart wallets on Ethereum</a>



Squid is also advocating for a “token-first” approach that lets users interact seamlessly with their digital assets, regardless of which chain they reside on. For example, a user can see an aggregated USDC balance across chains, and have Squid automatically choose the most cost-efficient way to complete a transaction — say, swapping into a memecoin.



The interface will also address the problem of multiple wrapped versions of stablecoins that proliferate as a result of cross-chain bridging, Fig said. This solves a major UX pain point.



“We work with stablecoin providers directly, and then they will use <a href="https://blockworks.co/news/axelar-multichain-tokens">Axelar [Interchain Token Service</a>], or even if they don&#8217;t use it, we can swap the stablecoin on the other side,” he said.



This level of chain abstraction is a major milestone in creating a fully noncustodial, multichain environment.



“We can start to move to the world where you don&#8217;t see the chain ever,” Fig said. “We can move this ‘Coinbase experience’ — which is really what 99% of crypto in the world use — into a fully self-custodial environment with decentralized liquidity as well.”



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Squid sinks its tentacles into cross-chain abstraction

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<h2 class="wp-block-heading">Stable relationships</h2>



Maybe, just maybe there’s an argument to be made that <a href="https://blockworks.co/newsletter/daily/issue/post_6e8e2c0b-f694-4fee-8e50-1d45832b905e">stablecoins</a> are the most successful part of crypto at this moment.&nbsp;



Sorry, not sorry.&nbsp;



But really, we’ve talked about the incredible rise they’ve seen, and now Castle Island Ventures, alongside Artemis and Brevan Howard Digital have a new survey that looks into the prevalence of stablecoins in certain emerging markets.&nbsp;



The survey looked into roughly 2,500 crypto users in Nigeria, India, Turkey, Indonesia and Brazil.&nbsp;



“While the most popular goal for stablecoin users in the sample was trading crypto or NFTs, other non-crypto uses were not far behind. Overall, 47% of respondents indicated that one of their major goals was saving money in dollars, 43% mentioned better currency conversion rates, and 39 percent said earning a yield,” the report said.



“The findings are clear: non-crypto uses account for a meaningful share of stablecoin usage modes in the countries surveyed.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfUdSnUCNhrZhhBb6Q3WnkiBAh3zfRrj4wcM0y0pOa26EqN_L-c1xqYKRxKyONYb8d6zwPowg-4tF_YqNEoEEuq-VyU0ZggVtq1byaV0JOmJLT8u1WTMe-Ce0QD3mLToTLbjGiF1H4gqRH2APBDxSsJ-nyU?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Source: Castle Island Ventures, Artemis</figcaption></figure>



Nic Carter of Castle Island Ventures told me that he’s been curious about tracking the data because he wanted to better understand how folks are using stablecoins.&nbsp;



And part of the desire to run this study was to take it to politicians on Capitol Hill, which is Carter’s next step. Washington, and various US officials, have been <a href="https://blockworks.co/news/federal-reserve-cbdc-tokenization-stablecoins">pretty vocal</a> about their stablecoin opinions. Though some, like Senators Kirsten Gillibrand and Cynthia Lummis, are also <a href="https://blockworks.co/news/stablecoin-bill-bipartisan-support">looking to introduce</a> regulations around stablecoins.



“If you&#8217;re looking at emerging markets, this is a case of currency substitution where savings would be held in the naira or the Turkish lira or the Indian rupee, and it&#8217;s actually being converted into the dollar,” Carter explained.



“So this is a positive buying pressure for the dollar and all the dollar assets that the stablecoin issuers hold which are treasuries. So my point is, this is a flow into the dollar. It&#8217;s a new source of demand. It&#8217;s very meaningful, and obviously it&#8217;s supportive of US interests.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfmeM1uL0NrzXatUuVTwPG0yg_Vxgw1_bKEL5QPgxyn8Os8Mpz6uQmIMerWByso7kCqbOUgfx6L793OFQyyqb8IWXVv_pcfvfmP3YYVzayPyB5Jwp8WzZNhFIAT3PfUW-9vm07DntuK0nd4tgwzAVNCTjm_?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Source: Castle Island Ventures, Artemis</figcaption></figure>



But while it may impress US lawmakers, those in, say, Nigeria might not be as thrilled with some of the results. As we’ve <a href="https://blockworks.co/news/binance-ends-support-nigeria-naira">previously reported</a>, Nigeria became more hostile toward crypto earlier this year, detaining two Binance executives (one of which, <a href="https://blockworks.co/news/continued-detainment-binance-executive-outrageous">Tigran Gambaryan</a> is still being held in the country), and charging Binance with tax evasion and money laundering.&nbsp;



Nigeria’s attempts to regulate the industry have perhaps not been as successful as the country hoped, based on the data snapshot from the report. The survey took place from May to June earlier this year, with some onchain data being gathered through July. Nigeria arrested Gambaryan at the end of February.



“Nigerians love stablecoins,” Carter noted. Perhaps the country even has a right to be “paranoid,” given that the full survey results show that Nigeria came out on top in every category.&nbsp;



“I think there actually is a crypto dollarization event happening in Nigeria, as far as I can tell, where people are actively deserting the naira and going to dollars via stablecoins. I think this is ongoing. It&#8217;s the first real crypto dollarization event,” Carter told me.



He did warn that he’s not sure if you can “quantify that 15% of [naira’s] devaluation is due to crypto,” especially given that the survey targeted crypto users, but the results show that perhaps Nigeria has a right to show concern.&nbsp;



Putting Nigeria aside, the study was able to show that stablecoins, when used by some in emerging markets, allow access to exposure to the US dollar.&nbsp;



They aren’t just a trading tool, and the result is something far more powerful than we’ve perhaps ever realized.&nbsp;



— Katherine Ross



<h2 class="wp-block-heading">Data Center</h2>



<ul class="wp-block-list">
<li>Following Wednesday’s CPI print, BTC is up 2.2% while ETH is up less than a percent (BTC: $58,102; ETH: $2,347)</li>



<li>Stablecoins have a global market cap of $171 billion, down slightly over the past 30 days per <a href="https://app.rwa.xyz/stablecoins">rwa.xyz</a>.</li>



<li>Polygon has shed <a href="https://defillama.com/stablecoins/chains">almost</a> 5% of its stablecoin supply in the past week, now at $1.944 billion.</li>



<li>Ethereum <a href="https://defillama.com/bridges/chains">bridges</a> have seen $315.8 million in net inflows in the past week. Over $432 million net has meanwhile flowed out from Arbitrum bridges.</li>



<li>USDT contributed over 76% of the global stablecoin trade volume over the past day, per <a href="https://www.coingecko.com/en/categories/stablecoins">CoinGecko</a>.</li>
</ul>



<h2 class="wp-block-heading">Backed by bitcoin</h2>



Word is going around that Tether earns more profit than BlackRock.



Kinda, but also not.&nbsp;



Tether has made it a habit of reporting quarterly profit numbers alongside its attestation reports. Those reports describe the assets in the pool of reserves that give tethers their value.



As of its most recent <a href="https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYgICGy/d7462f312aa15b872f8474322ba90363/ISAE_3000R_-_Opinion_on_Consolidated_Financials_Figures_30.06.2024_RC134792024BD0209.pdf">attestation</a>, for the end of Q2, there was almost $118.44 billion backing the tethers in circulation — conveniently over $5 billion more.



Which means all tethers were all properly backed by an equivalent value of assets in reserve, and then some. (It’s worth noting that attestations are not audits and Tether has never actually been “audited,” for <a href="https://www.dlnews.com/articles/markets/tether-ceo-just-told-us-why-the-big-4-wont-audit-its-books">reasons</a>.)



Short-dated US Treasurys made up around 68% of Tether reserves, with reverse repurchase agreements, money market funds, secured loans and bitcoin the next largest categories.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfMNPqqmpn1f4Gh8gDEJ8HTdU__gN-Z1XKxnsAbQBz7bTzd9gWnuDbSzXyqXI-kxmRPnxkV9xZTyRJsXFPi3XcovzJvuwzCWsGtGU8UtUFt5qM22zYtfF4P0AgytpjT6Vo4gCSR_QC_GtWLI3OI81rCMEU?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Tether has been adding bitcoin to its reserves, rising from 2% of the total to 4% over the past year</figcaption></figure>



Tether reported $1.3 billion in quarterly profit alongside that Q2 disclosure. A staggering amount considering how few people it employs — believed to be under 100.



Most of that profit comes from the US Treasurys it buys. Three-month Treasury bills currently carry a rate of 4.85%, and considering Tether owned almost $81 billion worth, the 10-figure profit sounds about right.



What isn’t usually discussed is that Tether is lumping in the profit from US Treasurys with the mark-to-market gains of its bitcoin and gold holdings, as outlined in one of its blog <a href="https://tether.io/news/tether-releases-q1-2024-attestation-reports-record-breaking-4-52-billion-profit-highest-treasury-bill-ownership-percentage-ever-total-group-equity-of-11-37-billion/">posts</a>. And it’s inflating Tether’s profit numbers.



Take this year’s first quarter. Tether reported a throat-tightening $4.52 billion in profit. At the same time, the price of bitcoin went up almost 70%, which Tether apparently considers free profit.



Tether reported that its bitcoin holdings increased in value by $2.56 billion throughout that period — from $2.82 billion to $5.37 billion. The firm appears to have bought 8888.88 BTC throughout the quarter, going by the attestations and its onchain history, but we don’t know at what price Tether bought those coins.&nbsp;



If we take the average price of bitcoin over the quarter, Tether would’ve spent $481.5 million on that BTC.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdbys3ygg4l4TOrWLE8L7h4fP0PAwyTyqDtLz_hS2VhsTvI8WSH2QfFtnZQ5LM94C1eu3L7J9Ja2yaV6t3hOVlqy5BgUguHFbTyeaqgRgeYhQT23l691lmqITYg86KPr4m4X0D4-7a70nwI2Zv4y3r0j02m?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Estimated bitcoin profits are in orange, US Treasurys in blue and gold in yellow. The price of bitcoin is shown by the orange line</figcaption></figure>



Subtract that from the increase in value and you get Tether’s quarterly “bitcoin profit”: $2.08 billion, or 46% of the total that Tether reported. US Treasurys would’ve otherwise contributed 51% while gold’s price appreciation perhaps gave around 3%.



While bitcoin made up less than 5% of Tether’s reserve portfolio, it contributed nearly half of its reported quarterly profits.



This, of course, means that Tether’s profits are reduced when the prices of bitcoin and gold go down.&nbsp;



Tether reported only $1.3 billion in profit in Q2, down nearly 70% from the prior quarter, even though it held almost $6 billion more in US Treasurys.



The difference is largely because the price of bitcoin fell 12% between quarters, so the value of Tether’s bitcoin went down by $648 million. Had bitcoin retained its value, Tether would’ve reported almost $2 billion in quarterly profit.



So, does Tether earn more profit than BlackRock?&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcmtf21cdR7JMfN9avD8eKa-PAwEqMwIIQg89SfLStvLnCjuJ8EvxjaHRBdFZmdXRBOQU59tJ8FuqvjPF6hw12sj30fFtoeaf75hWT5DnsynpPV35Euzjmrv4c_K3MzlJ-Aduc5LFpaa_dU2XS85StVvvQ?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Watch for Tether to really blow BlackRock out of the water if it keeps buying loads of bitcoin</figcaption></figure>



Lumping in bitcoin and gold appreciation in with US Treasurys profits, sure. Tether has to actually continue buying US Treasurys to earn money from them, but it doesn’t have to do anything to report its bitcoin and gold profits, only hold.



But by that system, Tether has reported earning $12.72 billion in net profit since Q4 2022, compared to BlackRock’s $9.829 billion.



If you only count Tether’s disclosed profits without bitcoin and gold, Tether would’ve made under $7.7 billion. Still monstrous, sure, but falls just shy of outpacing the world’s largest asset manager.



Tether is likely, in any case, the most profitable crypto company in the world, and one of the most profitable outside of it as well.



Depending on your definitions of profit, it might still need a few more years to eclipse BlackRock — but it seems inevitable.



— David Canellis



<h2 class="wp-block-heading">The Works</h2>



<ul class="wp-block-list">
<li>Some consumers think that the popularity of stablecoins is going to fade, according to a Deutsche Bank <a href="https://www.coindesk.com/markets/2024/09/12/us-consumers-say-crypto-is-here-to-stay-stablecoins-maybe-not-deutsche-bank/?utm_medium=referral&amp;utm_source=rss&amp;utm_campaign=headlines">survey</a>.</li>



<li>The Swift network is <a href="https://www.swift.com/news-events/news/streamlining-global-movement-digital-assets-and-currencies?utm_campaign=Innovation&amp;utm_content=Oktopost-twitter&amp;utm_medium=organic_social&amp;utm_source=twitter">experimenting</a> with digital asset transactions. </li>



<li>Former WeWork CEO Adam Neumann’s startup Flowcarbon is returning investor funds, Forbes <a href="https://www.forbes.com/sites/sarahemerson/2024/09/11/adam-neumanns-climate-company-is-issuing-refunds-after-failing-to-launch-crypto-token/">reported</a>. </li>



<li>Standard Chartered analysts <a href="https://www.theblock.co/post/316075/bitcoin-price-record-high-us-election?utm_source=rss&amp;utm_medium=rss">wrote</a> that bitcoin could top $125,000 with a Trump presidency and $75,000 with Harris.</li>



<li>The CFTC announced a <a href="https://www.cftc.gov/PressRoom/PressReleases/8963-24?utm_source=govdelivery">partnership</a> to educate people on pig butchering scams. </li>
</ul>



<h2 class="wp-block-heading">The Riff</h2>



Q: Do crypto crackdowns work?



Doubtful. When the technology is applied correctly, it’s generally resilient to most kinds of crackdowns.



In January 2022 — four months after China effectively banned bitcoin mining in multiple regions — the mainland still <a href="https://www.cnbc.com/2021/12/18/chinas-underground-bitcoin-miners-.html">contributed</a> an estimated 20% of bitcoin’s hash rate, according to the Cambridge Bitcoin Electricity Consumption Index, which unfortunately is no longer updated.



Granted, it’s difficult to know for sure where bitcoin miners are coming from. Cambridge was using IP addresses to derive locations, which can be muddied with VPNs and the like.&nbsp;



There are otherwise <a href="https://cryptoslate.com/bitcoin-minings-silent-comeback-in-china-according-to-industry-insider/">anecdotes</a> that suggest bitcoin mining is indeed still happening in China.



Similarly, ransomware is still prevalent <a href="https://www.wired.com/story/state-of-ransomware-2024/">despite</a> the US government crackdown that started in 2021. And Tether is still the number-one stablecoin by far, even after all of its battles with authorities.



Might things have been much worse if there were no crackdowns at all? Perhaps. So, whether that means they’ve “worked” is probably more political than empirical.



— David Canellis



If we’re talking about a government or regulator trying to step in after crypto has found some niche use cases in the population, then I don’t think so.&nbsp;



This, I think, is especially true when it comes to economies or countries where there are either gaps in the financial system, or the population’s financial needs are not fully being met. That is one of the core designs of crypto, after all.&nbsp;



Take Nigeria. The country took action earlier this year, hoping to swiftly curtail the amount of crypto activity going on. But the data from the survey shows that many are still finding ways to access and utilize crypto.&nbsp;



The US, though far different in its financial set up, is similar. It may be an uncomfortable sector to work in until proper regulation is in place, but that’s not killing or stifling innovation.&nbsp;



— Katherine Ross



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Are stablecoins crypto’s big success?

The Securities and Exchange Commission has reached a settlement with eToro.



eToro was charged with operating as an unregistered broker in connection with its crypto trading platform. As part of the settlement, eToro will end most of its crypto trading activity on the platform, according to the Thursday announcement from the SEC.



Earlier this week, eToro announced that it would alter its crypto offerings “due to the regulatory environment.”



US users can only trade bitcoin, bitcoin cash and ether. Other positions will be liquidated in mid-March of next year.



“Proceeds from these liquidations will be transferred to users’ available cash balance in their investment accounts,” the company <a href="https://www.etoro.com/en-us/news-and-analysis/etoro-updates/changes-to-our-crypto-offerings-for-us-users/">added</a>.&nbsp;



Additionally, eToro will pay the SEC $1.5 million to settle the charges, and the company walks away without admitting or denying the findings from the SEC.&nbsp;



“The SEC’s order finds that, since at least 2020, eToro operated as a broker and clearing agency by providing U.S. customers the ability, through eToro’s online trading platform, to trade crypto assets being offered and sold as securities, but eToro did not comply with the registration provisions of the federal securities laws,” the SEC <a href="https://www.sec.gov/newsroom/press-releases/2024-125">said</a>.&nbsp;



“By removing tokens offered as investment contracts from its platform, eToro has chosen to come into compliance and operate within our established regulatory framework. This resolution not only enhances investor protection, but also offers a pathway for other crypto intermediaries,” SEC’s Gurbir Grewal said.



This is not the first time that the SEC’s targeted a financial services company. The SEC previously <a href="https://blockworks.co/news/robinhood-wells-notice-sec">issued Robinhood a Wells notice</a>, though it has yet to announce any formal legal action following the notice.



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eToro to cease most crypto offerings after SEC settlement

21Shares is adding two partners to safeguard assets for its US bitcoin and ether ETFs.



The crypto ETP issuer has tapped federally chartered Anchorage Digital Bank and digital asset security-focused BitGo to be custodians for the Ark 21Shares Bitcoin ETF (ARKB) and the 21Shares Core Ethereum ETF (CETH).



These two companies will join Coinbase, a crypto exchange that acts as a custodian for a majority of the US-listed spot BTC and ETH funds.&nbsp;



“We consider our custody partners to be crucial to the risk management and operational excellence of our product lineup, and diversification adds to the safety and security of our offering,” <a href="https://blockworks.co/tag/21shares">21Shares</a> investment management head Andres Valencia said in a statement.&nbsp;



Read more: <a href="https://blockworks.co/news/21shares-us-crypto-etf-adoption-outlook">21Shares exec talks US crypto ETF adoption, where we go from here</a>



As the only digital asset bank with a charter from the Office of the Comptroller of the Currency, Anchorage offers “federally regulated and bankruptcy-remote custody” for crypto-native and traditional asset managers, Anchorage Digital CEO Nathan McCauley told Blockworks.&nbsp;



<a href="https://blockworks.co/tag/anchorage-digital">Anchorage</a> meets the Securities and Exchange Commission’s definition of a “qualified custodian,” McCauley has said — a term included in the regulator’s February 2023 <a href="https://www.sec.gov/news/press-release/2023-30">proposal</a> that would “entrust safekeeping of client assets” to such entities.&nbsp;



“Our technical differentiators — including offline key storage, low-latency architecture and efficient share creation and redemption — are a major unlock for ETF providers,” he added.&nbsp;



<a href="https://blockworks.co/tag/bitgo">BitGo</a> CEO Mike Belshe lauded 21Shares’ multi-custodial approach in a statement, adding that his company offers “100% cold storage.”



ARKB, which launched in January, has about $2.5 billion assets under management. Hitting the market more recently in July, CETH manages $9 million in assets.&nbsp;&nbsp;



The decision to add more custodians for the funds comes after the FBI said in a <a href="https://www.ic3.gov/Media/Y2024/PSA240903">statement </a>last week that “malicious cyber actors” from North Korea conducted research on targets connected to cryptocurrency ETFs in recent months.



Such actors pose “a persistent threat to organizations with access to large quantities of cryptocurrency-related assets or products,” the agency added.



While most issuers of the spot bitcoin and ether ETFs use Coinbase as a custodian, Fidelity self-custodies and VanEck uses Gemini.



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Crypto ETF issuer 21Shares diversifies its custodian roster

While some were hopeful we could hear a crypto question at last night’s debate, that clearly didn’t happen.&nbsp;



Questions focused mainly on inflation, immigration, abortion and foreign policy — all hot-button issues deserving attention.



While Chamber of Progress financial policy director Kyle Bligen wrote a <a href="https://progresschamber.org/wp-content/uploads/2024/09/Letter-to-ABC-Debate-Mods_-Crypto-Question-1.pdf">letter</a> last week urging ABC News’ David Muir and Linsey Davis to “illuminate the candidates’ stances on crypto” during the Tuesday night event, such a question didn’t make the cut.&nbsp;



Read more: <a href="https://blockworks.co/news/harris-trump-crypto-mentions-presidential-debate">Will Trump and Harris field a crypto question during tonight’s debate?</a>



Tim Kravchunovsky, founder of decentralized telecommunications network Chirp, said the lack of crypto discussion during the debate was disappointing, but not surprising.&nbsp;



“It was simply proof that crypto is nowhere near as important to either presidential candidate as it is to us in the Web3 world,” Kravchunovsky said in a statement.



In terms of crypto market reaction to the debate, bitcoin dipped by about 2% during and immediately after the debate before paring losses Wednesday. BTC’s price was about $57,700 at 4 pm ET — roughly flat from 24 hours ago.



To date, <a href="https://blockworks.co/tag/donald-trump">Trump</a> has vocalized <a href="https://blockworks.co/news/on-the-margin-newsletter-trump-bitcoin-mining-meeting">support</a> for US bitcoin mining, <a href="https://blockworks.co/news/donald-trump-speaks-bitcoin-2024">vowed</a> to fire Securities and Exchange Commission Chair Gary Gensler, said he would stop government sales of seized bitcoin and promised to make the US the “<a href="https://blockworks.co/news/donald-trump-economic-new-york-club-comments">world capital</a> for crypto and bitcoin.”&nbsp;



While Harris has been quiet on the subject, a policy adviser for her campaign said last month the vice president would “support policies that ensure that emerging technologies and that sort of industry can continue to grow.”



BDE Ventures CEO Brian Evans had told Blockworks that because Harris hadn’t made the type of <a href="https://blockworks.co/news/donald-trump-touts-new-family-defi-project">crypto comments Trump has</a>, any pro-crypto debate remarks from her in particular “might cause a bit of a market bounce.”



She did not make such comments.&nbsp;



<a href="https://blockworks.co/tag/kamala-harris">Harris</a> did note that “a policy about China should be in making sure the United States of America wins the competition for the 21st century,” mentioning the importance of winning the race on AI and quantum computing.&nbsp;



The conversation, though, quickly turned away from technology.



Some industry executives had predicted positive movement for BTC if Trump performed especially well. Many viewers didn’t view that the case, with data from Polymarket showing the odds of a Harris debate victory (according to polls) quickly rising above 90% during the event (and <a href="https://polymarket.com/event/who-will-win-the-debate-according-to-polls?tid=1726035558946">landing</a> at 99% on Wednesday morning).



The odds of Trump and Harris winning the election stood at 49% each after the debate, Polymarket showed, as Harris closed Trump’s pre-debate lead. Trump had <a href="https://polymarket.com/event/presidential-election-winner-2024?tid=1726023650646">regained</a> the slight edge by 4 pm ET, at 50% to 49%.



While more crypto policy details from both candidates could come over the next two months, “we shouldn&#8217;t pin all our hopes on politics,” Kravchunovsky noted in the statement.



He added: “The outcome of the US election will for sure have an impact on crypto, but it may not be as profound as many seem to think.”&nbsp;



As for an upcoming likely market-moving event, industry eyes will be on the Federal Reserve’s interest rate decision next week.



Read more: <a href="https://blockworks.co/news/september-events-that-could-move-markets">The September events that could move markets</a>



CME Group’s FedWatch <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">tool</a> shows an 85% probability of the central bank cutting rates by 25 basis points at its Sept. 18 meeting, and a 15% chance the Fed executes a 50 bps cut.  



A modified version of this article first appeared in the daily On the Margin newsletter. Subscribe <a href="https://blockworks.co/newsletter/onthemargin">here</a> so you don’t miss tomorrow’s edition.



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