Drop Staked ATOM

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>We know what the Fed did this week. But what’s up with central banks around the world? </li>



<li>There’s a new crypto exchange on the block, and it seeks to be different from competitor giants.</li>



<li>We unpack the week’s most interesting economic data points (besides the FOMC decision). </li>
</ul>



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<h2 class="wp-block-heading">A look at the international picture </h2>



After the Federal Reserve opted to go big this week and lower interest rates for the first time in more than four years, central banks around the world have chosen to hold steady.&nbsp;



The Bank of England yesterday kept rates unchanged at 5%. UK central bankers said they expect to cut rates again this year as inflation continues to tick lower to its 2% target, but wage increases led them to hold off this month.&nbsp;



The BoE has reiterated that it has no intention of following in the <a href="https://blockworks.co/news/fed-interest-rate-cut-50-bps">Fed’s more aggressive footsteps</a>, saying yesterday it is going to take “a gradual approach” to lowering rates.&nbsp;



“The committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting,” the BoE’s Thursday <a href="https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2024/september-2024">statement</a> read.&nbsp;



Fed projection materials released Wednesday show that the majority of Federal Open Market Committee (FOMC) members see interest rates ending the year between 4% and 4.5%. The current level after Wednesday’s 50-basis point cut is 4.75%-5%. Translation: Most expect at least one more cut — either in November, December or both.&nbsp;



As of today, federal funds futures show a 51% chance of another 50bps cut in November. I’ll hold off on revealing my personal expectations until we get some more economic data under our belts (looking at you, August PCE and September jobs report).&nbsp;



Meanwhile, the Bank of Japan on Thursday (in our time zone, at least) said it has no plans to rush any more increases, holding interest rates at around 0.25%.&nbsp;



The BoJ has been in its ultra-easy-money monetary policy for an ultra-long time (since 2008), but now it wants out. BoJ Governor Kazuo Ueda said in August that central bankers will continue to cautiously increase rates, as long as the economy doesn’t show signs of seriously slowing and inflation doesn’t get out of hand.&nbsp;



The BoJ said this week it expects core inflation (excluding fresh food costs) will continue to rise through fiscal year 2025. (Japan’s fiscal year is April 1 to March 31, so the end of fiscal year 2025 = March 2026).&nbsp;



The yen declined slightly following the BoJ’s announcement, and was down around 0.8% Friday afternoon.&nbsp;



Some analysts say the yen carry trade, which was largely blamed for the <a href="https://blockworks.co/news/on-the-margin-newsletter-stocks-make-full-circle">sharp, albeit brief decline in US equities</a> in August, is not quite unwound, so further tightening of Japanese monetary policy could spook markets again.&nbsp;



“The yen is still undervalued to the US dollar,” Francis Tan, chief strategist for Asia at CA Indosuez Wealth Management, told <a href="https://www.cnbc.com/video/2024/09/18/unlikely-to-see-repatriation-of-assets-back-into-japan-after-fed-cut.html">CNBC</a> this week. The unwinding “is not done,” he added.&nbsp;



Of course, had the BoJ raised rates this week, the market turmoil would have probably been severe. And the cautious tone we got from Gov. Ueda has helped strengthen the dollar against the yen. It’s a situation to keep an eye on, though.&nbsp;



— Casey Wagner



<h3 class="wp-block-heading">7,420</h3>



That’s how much bitcoin MicroStrategy bought in the last week, the company said Friday. This came as it announced the completion of a convertible senior notes offering with an aggregate principal amount totaling $1 billion.



The Michael Saylor-founded business intelligence firm paid $458 million for the latest BTC pile (an average price of $61,750 per bitcoin). MicroStrategy now holds 252,220 BTC, acquired for $9.9 billion ($39,266 per bitcoin).&nbsp;



Though the firm’s stock price was about flat Friday, as of 2 pm ET, MSTR shares were up more than 5% from five days ago.



<h2 class="wp-block-heading">A new crypto exchange tries a different model</h2>



We know the crypto exchange giants: Coinbase, Binance, Bybit, etc.



Another, called TrueX, now hopes to be an agile, “strong alternative” to these incumbents.



The newcomer <a href="https://blockworks.co/news/non-custodial-stablecoin-native-exchange">seeks to differentiate</a> in a couple ways, dubbing itself as non-custodial and stablecoin-native.



It’s no accident that TrueX’s emergence out of stealth earlier this week came nearly two years after one of the industry’s largest players crashed.



“The collapse of FTX highlighted the need for a safer and more trustworthy market model,” TrueX co-founder Vishal Gupta told Blockworks. “This presented an opportunity to build a next-generation exchange from the ground up, one that fully separates trading from custody and integrates stablecoins for settlement.”



Gupta, previously the head of exchange at Coinbase and the USDC lead at Circle, created the company with ex-Coinbase engineer Patrick McCreary.



Though TrueX helps facilitate settlement, client assets remain in their control at the exchange’s “qualified custodial partner,” Paxos.



“Whether driven by regulation or client demand, separating execution from custody is now essential for trust and security,” Gupta noted.



This take on custody comes as the institutional digital asset custody market is projected to grow at a compound annual growth rate of 23% through 2028, according to an OKX research report published last month.



There’s also a big opportunity for TrueX to capitalize on stablecoin strengths, Gupta argued — in this case to offer faster and more efficient trading. PayPal USD is the exchange’s default settlement currency.



The market capitalization for stablecoins stands at roughly $170 billion, <a href="https://blockworks.co/news/tether-profits-versus-blackrock">with tether (USDT) accounting for</a> roughly 70% of that total. Bernstein analysts wrote in a <a href="https://www.cnbc.com/2024/09/20/stablecoins-becoming-systemically-important-as-market-cap-returns-to-record-highs-analysts-say.html">report</a> this week that stablecoins are becoming “systemically important.”



“Starting fresh allowed us to design a more secure and flexible platform, ensuring we can be nimble in adapting to the evolving needs of the crypto market,” Gupta said.&nbsp;



Craig Burel, general partner at Reciprocal Ventures, said in a statement TrueX is “poised to become a force in crypto markets and trading.”



Whether the exchange one day becomes a household name (or at least changes the way exchanges think about their models) remains to be seen. But Gupta’s background suggests he knows what he’s doing.



— Ben Strack&nbsp;



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



Happy Friday! It’s finally the end of another eventful FOMC week. There were some other notable economic events, though, so here’s a quick recap to get you up to speed before you (hopefully!) unplug for the weekend:&nbsp;



<ul class="wp-block-list">
<li>The August US retail sales report on Tuesday showed an upward surprise: a 0.1% month-over-month increase and a 2.1% increase year-over-year. There was also an upward revision for July’s figure — which is now 1.1% higher from June — helping to substantiate hopes that US consumers are feeling strong. </li>



<li>In what was probably a massive relief to central bankers, initial jobless claims came in on Thursday below expectations. After Fed Chair Jerome Powell consistently stressed that he really hopes to see no additional pressures on the labor market, it was a welcome report. First-time unemployment filers for the week ended Sept. 14 came in at 219,000, a 12,000 decrease from the week prior and significantly lower than the expected figure of 230,000. Phew!</li>
</ul>



— Casey Wagner



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



<ul class="wp-block-list">
<li>Bitcoin was trading rather flat on Friday, down less than 0.5% in the past 24 hours (as of 2 pm ET), following its <a href="https://blockworks.co/news/btc-up-since-fed-rate-cut">post-Fed rate cut boost</a>. Despite being about 15% off its March all-time high, BTC is up 130% from a year ago.</li>



<li>Digging into a couple other stats, bitcoin dominance — a measure of BTC’s market capitalization vs. crypto’s total market cap — hovered around 58% Friday. It’s up more than 15% from a year ago, TradingView <a href="https://www.tradingview.com/symbols/BTC.D/">data</a> shows — recently hitting a multi-year <a href="https://x.com/rektcapital/status/1835670311687029087?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1835670311687029087%7Ctwgr%5Eb62acea1fa9e815a6781a3f9a5144d32024aaeb0%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fcryptopotato.com%2Fbitcoin-dominance-hits-multi-year-high-what-does-it-mean-for-altcoins%2F">high</a>. </li>



<li>At the closing rally of the so-called “America Loves Crypto Tour” in DC on Thursday, Coinbase CEO Brian Armstrong highlighted the crypto-focused voting bloc during an <a href="https://www.cnbc.com/video/2024/09/19/coinbase-ceo-brian-armstrong-on-the-rise-of-the-crypto-voting-bloc.html">interview</a> with CNBC. “They want to elect candidates to represent their values, who want this technology to be built here in America, and frankly people who stand up for their right to use crypto,” he said. “They felt like they’ve [been] treated like criminals in many cases in the last few years, and that’s just not acceptable in a free country like America.”</li>
</ul>



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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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A look at central bank rate decisions around the world

A crypto exchange’s emergence out of stealth earlier this week came nearly two years after one of the industry’s largest players crashed.



Called TrueX, the new company — dubbed as non-custodial and stablecoin-native — seeks to be a “strong alternative” to the segment’s traditional exchange incumbents.



“The collapse of FTX highlighted the need for a safer and more trustworthy market model,” TrueX co-founder Vishal Gupta told Blockworks. “This presented an opportunity to build a next-generation exchange from the ground up, one that fully separates trading from custody and integrates stablecoins for settlement.”



Gupta, the former head of exchange at Coinbase, created the company with ex-Coinbase engineer Patrick McCreary.



Read more from our opinion section: <a href="https://blockworks.co/news/crypto-custodians-tradfi-learning">Crypto custodians should learn from TradFi&nbsp;</a>



One of the ways TrueX seeks to differentiate itself is its <a href="https://blockworks.co/tag/custody">custody</a> model. While the exchange helps facilitate settlement, Gupta noted that client assets are held by its “qualified custodial partner,” Paxos, Gupta noted.



“Whether driven by regulation or client demand, separating execution from custody is now essential for trust and security,” the executive added.



The <a href="https://blockworks.co/news/on-the-margin-newsletter-inevitable-institutional-digital-assets-involvement">ongoing institutional adoption of crypto assets</a> means such market participants “need a trusted venue that prioritizes transparency, execution quality and asset protection,” Reciprocal Ventures general partner Craig Burel said in a statement. He added the “critical improvement” TrueX provides lies in its non-custodial platform and ultra low-latency matching engine.



This launch comes as the institutional digital asset custody market is projected to grow at a compound annual growth rate of 23% through 2028, according to an OKX research <a href="https://www.okx.com/learn/okx-economist-impact-report">report</a> published last month. Such findings highlight the increasing demand for segregation of duties related to trade execution and asset custody, the report added.



Third-party custodians are particularly preferred by institutions, with 80% of crypto and traditional hedge funds reporting those as their first choice, according to OKX.&nbsp;&nbsp;



There’s also a big opportunity to capitalize on the strengths of stablecoins, Gupta argued — in this case to offer faster and more efficient trading. PayPal USD is the exchange’s default settlement currency.



Read more: <a href="https://blockworks.co/news/circle-paypal-stablecoins-keep-notching-gains">Circle and Paypal’s stablecoins keep notching gains</a>



<a href="https://blockworks.co/tag/stablecoins">Stablecoins</a> are crypto assets designed to maintain a stable price by being pegged to a commodity or currency, such as the US dollar.  



Bernstein analysts <a href="https://www.cnbc.com/2024/09/20/stablecoins-becoming-systemically-important-as-market-cap-returns-to-record-highs-analysts-say.html">wrote in a report</a> this week that stablecoins are becoming “systemically important.” The market capitalization for stablecoins stands at roughly $170 billion, <a href="https://blockworks.co/news/tether-profits-versus-blackrock">with tether (USDT) accounting</a> for roughly 70% of that total.



Gupta said of TrueX: “Starting fresh allowed us to design a more secure and flexible platform, ensuring we can be nimble in adapting to the evolving needs of the crypto market.”



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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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Post-FTX world needs ‘next-generation’ exchange, ex-Coinbase exec says

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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At long last, the much-hyped Solana Firedancer client appears to be boogieing its way into the light.&nbsp;



Jump Trading chief scientist Kevin Bowers <a href="https://www.youtube.com/watch?v=8sl3RcN2Rdk">announced</a> it in about the nerdiest way possible at Solana Breakpoint, pointing out to a crowd of onlookers that a string of numbers indicating a software version on Solana mainnet looked suspiciously unlike Solana’s current clients. This led to some applause.&nbsp;



Firedancer is an independent validator client, or software that validators can run to build the blockchain, being developed by Jump. The client is being written independently of the original Solana Labs validator client, now called Agave (in the programming language C) as opposed to Agave, written in Rust.&nbsp;



There are two versions of the client out there right now: Frankendancer, which is a slightly more performant version of the Agave client, and Firedancer, which is the whole hog. Frankendancer is coming out first and is <a href="https://x.com/laine_sa_/status/1837021869477920901">built</a> through replacing the Agave client piece by piece, like Frankenstein’s monster.



The high-level updates to the Firedancer project are that Frankendancer is live on mainnet, and Firedancer is live on testnet. Someone related to the project told me that another Firedancer update is coming tomorrow, but they wouldn’t say anything further.&nbsp;



Solana co-founder Anatoly Yakovenko has said that once Firedancer goes to mainnet, he would favor removing the “beta” qualifier from Solana’s “mainnet-beta” status.&nbsp;



Having multiple validator clients is important for a blockchain’s decentralization (Jito technically runs a separate validator client, but it’s very similar to the Agave client). With just one client, a bug in the code could threaten Solana’s live-ness. With multiple clients, the second client can step in and keep the blockchain running if the first is having issues. <a href="https://blockworks.co/news/lightspeed-newsletter-solana-core-governance">I’ve also heard it argued</a> that with just one client, validators don’t have much of an option to opt out of Agave design choices unless they fork the blockchain, which would be a pretty extreme move. Helius CEO Mert Mumtaz and I spoke about this at greater length on the Lightspeed podcast <a href="https://www.youtube.com/watch?v=hCcBNmexWYg">here</a>.&nbsp;



Besides decentralization, Firedancer is widely said to be much more performant than the Agave client. The client’s developers have spoken about hitting 1 million transactions per second (TPS) in a test environment. Solana usually handles around 3,000 TPS, and fewer if you only count non-vote transactions that involve users transacting, <a href="https://solanacompass.com/">according</a> to Solana Compass.&nbsp;



Solana Foundation executive director Dan Albert <a href="https://x.com/DanPaul000/status/1836341556741312583">said</a> there were “audible gasps” when a room of validators were shown Firedancer’s validator monitor GUI. If I was a betting man, I’d put a few bucks down that tomorrow’s update will have to do with Firedancer’s performance.&nbsp;



The client still has some time to go before reaching mainnet, and even then, users may not actually notice a difference in the blockchain, Lulo co-founder Jesse Brauner told me in a text.



Transactions “always happen fast and [users] won’t notice a millisecond level improvement,” Brauner wrote.&nbsp;



But either way, Firedancer is moving from idea to reality, and that’s always fun to see.



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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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Solana Firedancer client now live on testnet

Kilian Peter Krings

Decentralized exchanges (DEXs) have the potential to revolutionize finance — but without solving their capital inefficiency issues, they will always struggle to keep up with their centralized counterparts.



Let’s be honest: Capital efficiency is the name of the game. It’s about making every dollar — or token, or coin — work as hard as possible. Unlike CEXs, which have a more predictable liquidity structure, DEXs rely on independent liquidity providers (LPs) to contribute their assets to liquidity pools. These pools act as shared reserves that facilitate trades on decentralized exchanges without the need for intermediaries.



When traders execute a trade, they draw from these pools, paying a small fee to the <a href="https://blockworks.co/tag/liquidity-provider">LPs</a> in return. If that capital isn’t being put to work efficiently, liquidity dries up, trading slows down and fees begin to spike — all of which undermines the competitiveness of the decentralized ecosystem.



Read more from our opinion section: <a href="https://blockworks.co/news/web3-flashy-functional-infrastructure">Web3 doesn’t need flashy — it needs functional</a>



To address these challenges, it’s important to understand that profitability often relates to factors that are permanently outside an LP’s control. Market conditions, asset demand and price fluctuations all affect the fees they earn. During high trading volumes, LPs can see decent returns. But when the market cools down, they’re stuck with lower activity and fewer fees.&nbsp;



LPs also face the risk of impermanent loss, which occurs when the value of assets in a liquidity pool fluctuates due to price discrepancies. In volatile markets, these fluctuations can lead to losses, even after accounting for fees earned. This was a major pain point with earlier models like Uniswap v2’s Automated Market Maker (AMM), which spread <a href="https://blockworks.co/tag/liquidity">liquidity</a> too broadly across price ranges. As a result, LP capital often sat idle in price bands with little trading activity, leading to an inefficient use of assets.



Read more: <a href="https://blockworks.co/news/uniswap-token-pumps-fee-switch-proposal">Uniswap token pumps following governance fee switch proposal</a>



Let’s break this down with an example. Imagine a liquidity pool for trading Jupiter (JUP) and USDT. Suppose that an LP spreads its assets from $0 to infinity, allocating a huge portion of capital to price ranges that’ll never see any action — say, between $0 and $1 or $100,000 and $1 million. That means a big chunk of their liquidity ends up just sitting there, unproductive, and the LP earns nothing on that capital.



One solution to this problem is called concentrated liquidity. Rather than spreading their assets across a wide and inefficient range, LPs can concentrate liquidity near Jupiter’s current price, within a narrower band where trading is more likely to occur. This method optimizes capital allocation, leading to greater efficiency and better returns through fees.



By allowing LPs to focus their capital in areas of active trading, they can ensure that their assets are continuously productive. This kind of targeted strategy helps LPs mitigate risks like impermanent loss and also improves overall exposure over time, increasing the likelihood of ongoing returns.



It’s important to note that not every LP has the same appetite for risk — some are willing to take on more risk for potentially higher returns, while others prefer safer and more predictable investments. Offering a range of risk-return options is essential for DEXs looking to attract a broad spectrum of participants. Flexibility is key: The more choices LPs have in terms of managing their capital, the more likely they are to remain engaged with a given decentralized platform.



Read more: <a href="https://blockworks.co/news/paradigm-dex-liquidity-value-leaks">Grow the DEX pie by patching ‘value leaks,’ says Paradigm’s Robinson</a>



A relatively new concept known as virtual-margin liquidity may soon help LPs strike the right balance between risk and reward. This strategy allows LPs to adjust capital exposure based on their personal goals, making it easier to manage investments. With LPs empowered to manage their liquidity more effectively, <a href="https://blockworks.co/tag/dexs">DEXs</a> would benefit from deeper, more stable liquidity pools and fewer instances of capital inefficiency. Personally, I believe that this kind of flexibility is exactly what DEXs need to reach mass adoption and compete more effectively with centralized exchanges.



The bottom line is if DEXs don&#8217;t step up their capital efficiency game, they’re going to fall further behind centralized exchanges. CEXs already offer more stable trading experiences, deeper liquidity and lower fees for large trades. DEXs can’t afford to ignore these advantages if they want to grow. On the flip side, if DEXs embrace strategies like concentrated liquidity and virtual-margin liquidity, they can turn the tide. Addressing these issues head-on will help decentralized exchanges build trust, attract more liquidity providers and position themselves as a viable alternative to centralized platforms.



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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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Capital inefficiency is crippling DEXs

David Canellis

Katherine Ross

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



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We’re here. We’ve made it to Friday. For those of you still traveling back from Token2049, I hope your flight was much more peaceful <a href="https://x.com/jade_defi/status/1836440938014511320">than the last one.</a>



Fall is just around the corner, so have a nice, restful weekend and we’ll see you here bright and early next week.&nbsp;



— Katherine Ross



<h2 class="wp-block-heading">So far, so good</h2>



Remember how everyone was so worried about September at the end of last month?&nbsp;



Well, maybe that was a tad overhyped.&nbsp;



GSR’s Toe Bautista thinks that “crypto could display outperformance and buck its recent seasonality woes” depending on how equities perform.&nbsp;



Obviously, the macro environment has benefitted bitcoin so far this month, and <a href="https://blockworks.co/news/btc-up-since-fed-rate-cut">it’s up 6%</a> since the Fed announced a 50 basis point cut. Though, funnily enough, solana outperformed bitcoin, jumping nearly 12% in the same time span.&nbsp;



But let’s zoom out: 24 hours is nothing when we’re looking at the bigger picture.



In the last 30 days, bitcoin and dogecoin are the only two on <a href="https://www.gsr.io/market-commentary/daily-market-update-september-19-2024/">GSR’s crypto leaderboard</a> to stay in the green. On the other hand, solana is flat.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdotdHF6xUMIrZ9WHSXhj5HY5EyMDb4RC4GGP1HiU64tnhEnqLoAuOuKQ82GQ0g3Er1f7m51HTqTjXZAEkNx8z_eQWVJqdbNEl9F5OYI3IZfd8_ARG04Pt9zojQBqmENLfTJ6G0hkG5Zdx6snVX-feq6zV1?key=Srv4a44tNC5g64zZ3IJ8tg" alt=""/><figcaption class="wp-element-caption">Source: GSR</figcaption></figure>



“Throughout 2024, altcoins have generally lagged behind bitcoin’s price, and unless there is an unexpected catalyst, this pattern is expected to continue. However, sustained strength in equity markets should provide continued upside for all crypto assets,” Bautista noted.&nbsp;



Over the past 30 days, memecoins have proven to be resilient even as folks wonder if we’ll ever see another altcoin season. In comparison to other categories, memes are up 26%. Meanwhile, gaming and entertainment is only up 9%.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXebZ_61q779ugTQcjXGkHc5-3-51zf2zVXYoaLmDqSMUpeQoc9iROECwgkA8N9xtyqYKt-uqJ2cehrNhR5J5ytgvv5biIHKlxRcBj1Z0vxAPlx7YVunKt63-lAZse4yKiAjhzr3_bGoSYGN7ixPqDqwB-8?key=Srv4a44tNC5g64zZ3IJ8tg" alt=""/><figcaption class="wp-element-caption">Source: GSR</figcaption></figure>



“Memecoin strength may continue due to the recent surge in speculative appetite,” he continued. “On the other hand, DeFi sits in an awkward middle ground. A Trump election win likely leads to regulatory easing, offering potential DeFi outperformance, while a Harris win could bring continued hostility. Idiosyncratic memecoins may outperform in the short term due to speculative fervor, but sustained outperformance remains in question with an uncertain political backdrop.”



But it might be a tad too early to celebrate these 30-day numbers (and not just because it’s nearly October). Glassnode’s <a href="https://insights.glassnode.com/the-week-onchain-week-38-2024/?utm_campaign=WoC_38_24&amp;utm_medium=email&amp;utm_source=newsletter">weekly onchain report</a> found that investors are feeling stagnant right now.&nbsp;



“HODLing remains the primary investor dynamic, with all measures of actively tradable supply declining and large volumes of coins maturing into Long-Term Holder status,” Glassnode wrote.



Okay, I also have to point out stablecoins, even though I know we’ve talked a lot about them recently. As Glassnode noted, the current capital could be a readthrough to investor demand (or lack thereof).&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXe8kPeGnW0D2Czrj2lIQOUFIOakmNS3Tk7qWc2zdhmJNgUV-SrlC2Cq8Uo96DtHLRyGjo74CcsXx2rAyBDwru9_ypGfZdHgBA6xwtGRv4ZzD-vyRLR5BVgbE0MItMp1Lw3EO4q9pJSWfeQAoxhZCT62lB9s?key=Srv4a44tNC5g64zZ3IJ8tg" alt=""/><figcaption class="wp-element-caption">The above chart shows the aggregate supplies of stablecoins</figcaption></figure>



“The divergence between a range-bound bitcoin market cap and a growing stablecoin supply has pushed the SSR Oscillator to a historic low. This suggests that investor stablecoin-based buying power is increasing, with a recursive effect where higher purchasing power can lead to an improving demand side in the future,” Glassnode wrote.&nbsp;



All eyes still remain on the November election, though crypto’s macro ties continue to prevail.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">all i want for xmas this year is for crypto to not be reliant on macro please&mdash; salience (@saliencexbt) <a href="https://twitter.com/saliencexbt/status/1836629393340551248?ref_src=twsrc%5Etfw">September 19, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Let’s hope that, by Christmas, we have a better idea of where this market’s going.&nbsp;



— Katherine Ross



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



Empire hosts Jason Yanowitz and Santiago Santos were both in Singapore for Token2049 this week, which led to a <a href="https://blockworks.co/podcast/empire/e40bcfa6-76f0-11ef-9d1e-4790a6c9aa76">very cozy episode of Empire.</a>&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I bump into <a href="https://twitter.com/JasonYanowitz?ref_src=twsrc%5Etfw">@JasonYanowitz</a> at the hotel where the conference is. He looks at me in the eyes and says “want to come up to my room” There is an awkward silence as the two other people with us have no idea we’re going to the room to record an <a href="https://twitter.com/theempirepod?ref_src=twsrc%5Etfw">@theempirepod</a> pod Banger podcast No…&mdash; Santiago R Santos | #9159 (@santiagoroel) <a href="https://twitter.com/santiagoroel/status/1836724689441566723?ref_src=twsrc%5Etfw">September 19, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The trip, if anything, seems to have boosted Yanowitz’s bullishness on Asia’s crypto scene.&nbsp;



The “sheer number” of people using crypto in Asia is “hands down bigger than the United States,” Yanowitz said.&nbsp;



We wrote about the newest stablecoin, a yield-bearing stablecoin from BitGo, in Thursday’s edition, and it’s something that Yanowitz has his eye on too.&nbsp;



“So I think actually we&#8217;re gonna see some really fun stablecoin competition for the first time in years,” Yanowitz noted, specifically citing the entrance of yield-bearing stablecoins.&nbsp;



And Asian crypto exchanges are really benefiting, the two noted. The US has Coinbase and Kraken, but Asian exchanges like Bybit outshine them. Yanowitz noted that Bybit is set to rake in $3 billion in profit this year.&nbsp;



To put that number in perspective: Coinbase <a href="https://investor.coinbase.com/news/news-details/2024/Coinbase-Releases-Fourth-Quarter-and-Full-Year-2023-Shareholder-Letter/default.aspx">reported</a> a whopping $3.1 billion in revenue last year with only $95 million of profit.&nbsp;



And now you know.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdh8Ll0rDqogShOtv23PoQV7rtlpeyKAbueJl00iTl2Dg_w0Mz8VTK9OGg-ue10LWZ-eeDFl6tSw1qzpSdWJ2JH42vxxgLSUg1WCZ_HUSo9nF3lthlqbtxpYbd3E76T1o58fpNMMvdZxKpIB65PivRDcVOg?key=Srv4a44tNC5g64zZ3IJ8tg" alt=""/><figcaption class="wp-element-caption">70% of USDT transfers on Tron are worth $1,000 or less, and 93% are $10,000 and under</figcaption></figure>



As was pointed out in today’s Empire, Tron is considered to be super-popular in Asia.&nbsp;



So much so that Tron is second only to Ethereum for user fees <a href="https://tokenterminal.com/terminal/metrics/fees?v=YjZlY2M0OTMxZmU1MDhjY2ZhYzU3ZTYw">spent</a>, having raked in $1.29 billion this year compared to $1.86 billion. Solana users have, meanwhile, paid less than $330 million.



Tether is Tron’s secret to success. On Ethereum, most fees <a href="https://ultrasound.money/">come</a> from apps: DEXs, aggregators and swap protocols like Uniswap, MetaMask and 1inch, as well as Telegram trading bots like BananaGun and Maestro.&nbsp;



Over the past 30 days, USDT and USDC together contributed only 7.5% of the total fees burned on Ethereum mainnet, half that of Uniswap.



Tron onchain activity, meanwhile, is overwhelmingly USDT transfers. 94% of all smart contract calls on the network right now are to Tether — a number that’s been steady in the past few years — with the bulk of the rest going to token launchpads.



All those calls have translated to over 2 million USDT transfers per day, equaling anywhere from around $5 billion volume to almost $18 billion.



It’s hard to say whether all that activity is truly coming out of Asia specifically. I have a theory: that users in countries experiencing rampant inflation, <a href="https://blockworks.co/news/stablecoin-report-market-capitalization">particularly Nigeria</a>, could be contributing just as much.&nbsp;



The chart above plots the number of USDT transfers on Tron by the hour over the past week. Notice that USDT activity is at its highest at midday UTC — 1 pm in Nigeria, prime foot-traffic hours for stores and sellers — and at its lowest at midnight UTC, or 1 am local time.



You can find the same chart, but also mapping Singapore and New York local times, <a href="https://public.flourish.studio/visualisation/19484908/">here</a>. Just click the swatches at the top to toggle the time zones to see they don’t align so neatly.



— David Canellis and Katherine Ross



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A ‘speculative appetite’ may push memecoins higher: GSR

The lawsuit launched by Consensys against the Securities and Exchange Commission and SEC Chair Gary Gensler was dismissed in a Texas court on Thursday night.&nbsp;



The Consensys suit was originally filed in April and contained some bombshells including the allegation that the SEC had opened an investigation into Ethereum and that the regulator had issued the company behind MetaMask a Wells notice.&nbsp;



“On April 10, 2024, the SEC staff sent <a href="https://blockworks.co/tag/consensys">Consensys</a> a ‘Wells Notice’ stating its intent to imminently recommend that the Commission bring an enforcement action against Consensys for violating the federal securities laws through its MetaMask Swaps and MetaMask Staking products,” the April filing said.



The notice gave the company a heads-up that the SEC had concluded an investigation and was mulling a lawsuit, but it didn’t necessarily mean that the regulator would file a suit.&nbsp;



Though the SEC has, since the April filing, <a href="https://blockworks.co/news/sec-lawsuit-against-consensys-securities">filed its own lawsuit against Consensys</a>. The regulator targeted MetaMask Swaps, and claimed that Lido and Rocket Pool are unregistered securities.&nbsp;



Read more: <a href="https://blockworks.co/news/sec-has-it-in-for-consensys">The SEC still has it in for Consensys</a>



Judge Reed O’Connor noted that in his decision on Thursday as he dismissed the claims about <a href="https://blockworks.co/tag/metamask">MetaMask</a>’s offerings.



“Similarly, the enforcement actions do not constitute final agency actions,” he wrote. “The Notice neither marks the consummation of the agency’s—i.e., <a href="https://blockworks.co/tag/securities">SEC</a>’s— decision making process nor establishes Plaintiff’s legal rights or obligations.”



The claims <a href="https://blockworks.co/news/consensys-files-lawsuit-against-sec">around ETH brought by Consensys</a> were dismissed as moot — unsurprising given that the SEC announced it was <a href="https://blockworks.co/news/sec-drops-ethereum-consensys-investigation">dropping its investigation into ETH</a> earlier this summer right as it gave the ether ETFs the green light.&nbsp;



“Unfortunately, the Texas court today dismissed our lawsuit on procedural grounds without looking at the merits of our claims against the SEC,” Consensys said in a statement. “The Texas court today recognized that the SEC already gave Consensys the relief it sought on that critical issue for the Ethereum ecosystem.&nbsp;



“Outside of court, we have also seen signs of what could be a momentous step change in Washington’s sentiment towards cryptocurrencies and digital assets during a crucial period for US politics. We are on the right path, but must remain vigilant. Consensys is resolved to keep fighting for the rights of blockchain developers in the US as we contest the SEC&#8217;s action in Brooklyn.”



The SEC didn’t immediately return a request for comment.



Updated September 19, 2024 at 5:56 pm ET: Added statement from Consensys.



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Texas court dismisses Consensys lawsuit against SEC

Bitcoin has risen roughly 6% since the Federal Reserve revealed its first interest rate reduction in more than four years.



Industry watchers say that while the rate cut has so far proved to be a short-term catalyst for crypto, the longer-term economic outlook remains uncertain.



Bitcoin stood at roughly $63,600 at 2 pm ET Thursday — up from $60,000 24 hours prior.



Read more: <a href="https://blockworks.co/news/on-the-margin-newsletter-interest-rate-cut">Powell pitches 50 bps rate cut to support ‘strength of the economy and the labor market’</a>



Lower interest rates generally drive more investment into riskier assets like crypto, due in part to the diminished returns from traditional investment vehicles, noted Bybit institutional head Chris Aruliah.



“However, the broader global economic slowdown stipulated by softer economic indicators and geopolitical complexities is tempering investor sentiment,” he said in a statement.&nbsp;



While the rate cut offered a “short-term boost” to crypto markets, Aruliah added, “it is crucial to remain vigilant regarding the potential challenges posed by economic uncertainty and market fluctuations.”



Ruslan Lienkha, chief of markets at YouHodler, offered a similar warning.



The cut is favorable for equity markets and offers a “risk-on signal” for traders in the short term, he explained. It could even push BTC closer to its all-time high (above $73,000, <a href="https://blockworks.co/news/bitcoin-all-time-high">reached in March</a>).



But the move, as some indicated prior, could be seen as an “emergency measure” that suggests the <a href="https://blockworks.co/tag/federal-reserve">Fed</a> “misjudged the optimal timing for easing,” Lienkha added.&nbsp;



“Over the next three months, it will become clearer whether the Fed can guide the economy toward a soft landing and avoid a recession in this cycle.”



Wednesday’s cut was likely just the first of several expected rate reductions in the coming months.&nbsp;&nbsp;



Fed Chair <a href="https://blockworks.co/tag/jerome-powell">Jerome Powell</a> said at yesterday’s press conference that the Fed is “not on any pre-set course,” adding that rate decisions would be made meeting by meeting based on evolving economic data.



The US central bank “has a lot going for it” in terms of averting a deep recession, said FalconX research head David Lawant.&nbsp;



“This cooldown commences from a comparatively elevated interest rate baseline, household balance sheets appear relatively robust, and inflation generally seems to be trending in the right direction,” Lawant added. “Nevertheless, unforeseen shocks should never be ruled out.”



<a href="https://blockworks.co/news/market-expectations-ahead-of-rate-decision">Observers had debated</a> whether the Fed’s cut would be sized at 25bps or 50bps. CME Group’s FedWatch tool had pegged the probability of the latter at 55% in the hours leading up to the decision.&nbsp;



&#8220;The Fed has given the market what it was looking for with the bigger 50-basis point rate cut,” LMAX group market strategist Joel Kruger said in an email. “Our concern from here will be the market’s ability to continue to feel good about buying risk assets on future accommodative Fed gestures now that the accommodation has been priced to this extent.”



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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Bitcoin is up 6% since the Fed rate cut. What’s next?

Felix Jauvin

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



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



<ul class="wp-block-list">
<li>Felix shares his takeaways from yesterday’s Fed cut, and the FOMC’s future economic/rate projections.</li>



<li>A former president walks into a bar and buys burgers…with bitcoin. Big deal, or no?</li>



<li>What analysts and execs are saying about the latest 50bps rate cut, and a look at what to watch for next.</li>
</ul>



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



<h2 class="wp-block-heading">Digging deeper into yesterday’s FOMC meeting</h2>



And so concludes the most uncertain Federal Open Market Committee (FOMC) meeting of the past decade. Going into the meeting, implied probabilities were evenly split between the Fed going for a cut of 25 basis points and 50bps.&nbsp;



As it turned out, the Fed went for a 50bps reduction with a 10-1 vote. The one dissenting vote, from Governor Michelle Bowman, was the first governor dissent since 2011. Considering Fed president speeches right before the blackout period, I would have expected more dissent, as <a href="https://blockworks.co/news/btc-fluctuates-ahead-of-fed-rate-decision">many were talking up going for 25bps</a>.&nbsp;



The one thing we do know, however, is that Powell gets what he wants and he is a pro at consensus building. So 50bps it is, for the first rate cut since March 2020.&nbsp;



Setting aside the rate decision, we also received the quarterly update on the FOMC’s Summary of Economic Projections (SEP) that includes its economist forecasts and projection of the federal funds rate.



Let’s dig into the economic forecast first:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdUN1VZIAUiigh7AzjObaZaoLEWCspwBAPSAm5s-zeAUIjepqBbPLF342n9j33B4L-Uz9znyXVHZjTdt1Gr3gVcscAmImEbcrmQVerf6-8fpKNUhPsOayd6V9mtVotav1hcte083_7-P5i-b8br6yMT4r8B?key=te8l-ycZANhbPLbcMR32_Q" alt=""/></figure>



<ul class="wp-block-list">
<li>The FOMC revised its end-of-year forecast for the unemployment rate (UR) from 4% to 4.4%, expecting it to remain flat in 2025 before decreasing in 2026. Considering we are already at 4.2%, and it was at 4.3% just a month ago, I find this forecast to be a bit complacent and optimistic. The UR tends to trend and has high momentum, so when it starts going it tends to continue higher. To think it will just go up a couple of basis points from here seems unlikely. But similar to the June SEP, during which they forecasted 4%, the FOMC could be setting itself up for further easing given the committee has said they don’t welcome further labor market weakness. This could be viewed as the strike price of the Fed put, in which any surprise uptick in the UR will lead to further ratcheting up of easing. </li>



<li>I find the lack of change on the Fed’s GDP forecast surprising. To think we will just sit at 2% for the next four years is simply ridiculous. I would view this as the FOMC just not having a clear read on economic growth from here.</li>
</ul>



That uncertainty around the path from here on out is also reflected in the FOMC’s dot plot forecast of future interest rates:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXf41idT6YXGyizM2l3YIG5O3n5AoEvpaXSkLTfPyGKc49sQETQ1ALgiNnvHHxua4dZHVsPx0W7c6JuhLRWwIi4keaEC17fNZ-LVzMzSuqrxWrjmFB8PdUMGsHDiD59hc-w63NmnCyMCc9BUaBHIK_G_dys?key=te8l-ycZANhbPLbcMR32_Q" alt=""/></figure>



The dispersion in views of where the federal funds rate will be is huge, and that dispersion gets wider as we get further into the future.&nbsp;



Some FOMC members see the funds rate netting out around 3% in 2025 — what many see as the post-pandemic neutral rate. However, others actually view us to be below that neutral rate, which could imply an accommodative monetary policy.



Into the more distant future, the FOMC expects us to settle somewhere between a range of 2.5% and 3.75%.



Overall, yesterday’s meeting emphasizes a few things:



<ol class="wp-block-list">
<li>The FOMC does not welcome any further weakness in the labor market. Considering where inflation stands, it is ready and willing to go big on easing if need be to ensure this occurs.</li>



<li>The committee is highly uncertain about the medium-term outlook, and there is a large dispersion in economist forecasts with respect to where the economy goes from here. </li>



<li>The FOMC’s trajectory of cuts is less aggressive than what the market has priced in, although not by as much as some had thought. </li>
</ol>



— Felix Jauvin



<h3 class="wp-block-heading">49</h3>



The number of days until the next FOMC meeting, set for Nov. 7.



Yes, the <a href="https://blockworks.co/news/fed-interest-rate-cut-50-bps">50bps reduction happened just 24 hours ago</a>. But it’s always good to keep looking ahead, right? The countdown is especially relevant given the Fed is expected to cut interest rates again this year.&nbsp;



Committee member projections published Wednesday show the median interest rate target by the end of 2024 falling in the 4.25%-4.5% range — 50bps lower than the current level.



<h2 class="wp-block-heading">The BTC transaction heard ’round the world (or at least Crypto Twitter)</h2>



Stopping into an NYC bar on a Thursday night is hardly groundbreaking. But Republican presidential nominee Donald Trump turned it into a historic event when he made a purchase using bitcoin at crypto hotspot PubKey.



PubKey — a so-called “bitcoin-themed bar” in Greenwich Village (they have a live ticker displaying BTC’s price and a sign proclaiming “central bank digital currencies enslave”) — received the first payment made in bitcoin by a former US president (and his aides).&nbsp;



Trump paid roughly $950 in bitcoin for a round of burgers and diet cokes. The transaction was largely hands-off for Trump, as in he didn’t appear to be the one holding his devices. See <a href="https://x.com/LJMoynihan/status/1836525367970193630">here</a> for a video.&nbsp;



There was some confusion as to why the transaction seemed to take longer than normal. The delay was caused by the many camera flashes creating a glare on the screen, plus the invoice having been left open for a while in preparation for Trump’s arrival, <a href="https://x.com/willcole/status/1836613046879289462">according</a> to Will Cole, head of product at bitcoin payments company Zaprite.&nbsp;



Regardless of whether or not Trump actually knew how to pay in bitcoin (or if he even cared about the transaction in the first place) seemed irrelevant to his bitcoin-maxi fans. Last night’s event was largely hailed on Crypto Twitter as a massive success and turning point for an industry that has felt misunderstood and targeted by the government and public.&nbsp;



We are 47 days out from the election, so we will have to see if Trump releases a formal crypto policy plan or shares plans to appoint crypto-focused cabinet members.&nbsp;



— Casey Wagner



<h2 class="wp-block-heading">Analysts, execs digest the Fed rate cut&nbsp;</h2>



We wrote about the Fed rate cut <a href="https://blockworks.co/news/on-the-margin-newsletter-interest-rate-cut">moments after it happened yesterday,</a> and Felix gave valuable additional insight above.&nbsp;



But how are industry analysts and executives digesting the move? The consensus seems to be: We must keep an eye on what has so far been a tailwind for crypto, as the longer term economic outlook remains uncertain.



Bitcoin has jumped about 6% since the FOMC revealed the 50bps cut — going from about $60,000 at 2 pm ET yesterday to roughly $63,600 just 24 hours later.&nbsp;



As Bybit’s Chris Aruliah pointed out: Lower interest rates generally drive more investment into riskier assets like crypto, due in part to the diminished returns from traditional investment vehicles.



“However, the broader global economic slowdown stipulated by softer economic indicators and geopolitical complexities is tempering investor sentiment,” he said in a statement.&nbsp;



While the rate cut offered a “short-term boost” to crypto markets, Aruliah added, “it is crucial to remain vigilant regarding the potential challenges posed by economic uncertainty and market fluctuations.”



Ruslan Lienkha, chief of markets at YouHodler, gave a similar warning.



The cut is favorable for equity markets and offers a “risk-on signal” for traders in the short term, he explained. It could even push BTC closer to its all-time high (above $73,000, reached <a href="https://blockworks.co/news/bitcoin-all-time-high">in March</a>).



But the move, as some indicated prior, could be seen as an “emergency measure” that suggests the Fed “misjudged the optimal timing for easing,” Lienkha added.&nbsp;



“Over the next three months, it will become clearer whether the Fed can guide the economy toward a soft landing and avoid a recession in this cycle.”



To that point, yesterday was likely just the first of several expected cuts.&nbsp;



Fed Chair Jerome Powell said at yesterday’s presser that the Fed is “not on any pre-set course,” adding that rate decisions would be made meeting by meeting based on evolving economic data.



The US central bank “has a lot going for it” in terms of averting a deep recession, said FalconX research head David Lawant.&nbsp;



“This cooldown commences from a comparatively elevated interest rate baseline, household balance sheets appear relatively robust, and inflation generally seems to be trending in the right direction,” Lawant added. “Nevertheless, unforeseen shocks should never be ruled out.”



There’s a presidential election coming up too, of course, slated for the same week as the next FOMC meeting. That should make for a fascinating few days for journalists like us and readers like you.&nbsp;



— Ben Strack&nbsp;



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



<ul class="wp-block-list">
<li>BMO Capital Markets raised its 2024 year-end forecast for the S&amp;P 500 to 6,100 on Thursday. Brian Belski, the firm’s chief investment strategist, famously was one of the few analysts to correctly predict the 2023 stock market rally. </li>



<li>Two important central bank meetings were scheduled for Thursday. The Bank of England met this morning and opted to hold interest rates, which was expected. And later this evening, we will hear from the Bank of Japan. Analysts doubt the BOJ will raise rates today, but are eyeing an increase in December. </li>



<li>In yet another instance of a historic crypto payment, the state of Louisiana accepted its first payment over the Bitcoin Lightning network. It was a fine paid to the Louisiana Department of Wildlife and Fisheries. </li>
</ul>



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The Fed cut upshot and FOMC future projections

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Roughly a year and a half after it debuted the Saga, Solana Mobile has unveiled details about its second Solana phone, the Seeker.&nbsp;



Slated for a 2025 release, the phone boasts a native wallet built in tandem with SolFlare that integrates with Solana Mobile’s secure seed vault and (it looks like) will be secured by a thumbprint. Other new features are typical phone things — a better display, camera, and battery life as well as an updated “dApp Store.”&nbsp;



But what Solana natives are bound to be even more excited about is the prospect of token airdrops.



If you’ll remember, airdrop hype was a key component in Solana’s first phone go-round. Critics <a href="https://www.youtube.com/watch?v=hRSMJGs0YMg">didn’t</a> love the Saga, and Solana Mobile <a href="https://blockworks.co/news/solana-saga-phone-price-cut">cut its price by 40%</a> amid lackluster sales four months after launch.&nbsp;



But late last year, Solana Mobile suddenly <a href="https://blockworks.co/news/solana-phones-sold-out">sold out of the phones</a>, and the Saga started reselling for <a href="https://www.theblock.co/post/267991/solana-saga-phone-sells-for-5000-on-ebay-as-bonk-hype-continues">thousands</a> of dollars. This was caused by the success of the BONK memecoin, which was airdropped to the phones in amounts that became <a href="https://x.com/0xGumshoe/status/1737142716553634140">worth</a> hundreds of dollars during Solana’s bull run.



Solana Mobile seems to be leaning into airdrop hype in its early marketing campaign for the Seeker.



Every Solana Seeker comes with a Genesis Token NFT that can serve as a sort of verification for Solana OGs, Solana Mobile general manager Emmett Hollyer told me. This can help airdrop token liquidity go directly to the hands of authentic users, Hollyer added.



“The excitement we’ve seen already with the Chapter 2 Preorder Token suggests to us it will be a powerful force,” Hollyer concluded when asked whether airdrops will help drive the go-to-market for the Seeker. A <a href="https://blockworks.co/news/lightspeed-newsletter-zk-compression-solana-data-storage">zk-compression</a> partnership announced with Helius will <a href="https://x.com/solanamobile/status/1836614443167551509">make</a> it easier and cheaper to auto-allocate airdrops to Seeker users, and an exclusive app with the memecoin platform Moonshot will <a href="https://x.com/solanamobile/status/1836614433943982537">let</a> memecoins be sent to other Seeker users.&nbsp;



The Seeker had already been pre-ordered over 140,000 times by the time the phone came out of stealth, Solana Mobile says. At $450 a pop, that’s over $63 million in revenue for Solana Mobile.



And despite a dearth of specifics, some Solana fans feel the phone’s price tag is well worth it.&nbsp;



“Just preordered another @solanamobile Seeker. If you&#8217;ve been here long enough, you know this phone will pay for itself,” one user wrote on X, adding in a reply that they had purchased three Seeker phones in total.



Months ago, I briefly messaged with an airdrop farmer who claimed to have purchased 40 of the new Solana phones — before basically anything was known about the Seeker.



Solana Mobile hopes that there will be other use cases for the phone, of course: Hollyer mentioned DePIN, DeFi, NFTs, gaming, and AI as app categories coming to the Seeker. I wouldn’t count on those being too earth-shattering because, as <a href="https://blockworks.co/news/ethcc-2024-attendees-want-web3-apps">many in crypto have lamented</a>, apps that don’t heavily revolve around speculation on token prices are currently few and far between.&nbsp;



On the other hand, it’s notoriously hard to break into the mobile phone space, which is currently dominated by a handful of rich incumbents. By leveraging airdrops to sell phones, Solana Mobile may gin up enough revenue to build future phones that will be ready for, say, three to five years from now when Web3 apps are ready for prime time.&nbsp;



But for now, I’d be curious to know how many users will actually be making phone calls from their airdrop machines.



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Solana’s second phone is nearly here — and so are the airdrops

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<h2 class="wp-block-heading">It’s ‘Gensler Fall’</h2>



Whatever the cost of innovation, Rari Capital has footed at least some of the bill.



Both it and Fei Protocol debuted in the aftermath of <a href="https://blockworks.co/news/will-defi-summer-return">DeFi Summer</a> in 2020 — a precursor to the 2021 bull run. Yield-farming protocols had run wild, paying out hundreds of percent interest and, in many cases, driving token prices sky-high.



With so much token liquidity flowing into all sorts of pools and protocols, a tidal wave of new projects sought to enable new ways of generating yield.



Simultaneously, more centralized lending firms like Celsius, Nexo and BlockFi leveraged those same tools in their own offerings. That <a href="https://www.coindesk.com/markets/2022/07/13/celsius-pays-off-last-defi-loan-reclaims-nearly-200m-of-wrapped-bitcoin-from-compound/">entanglement</a> two years later contributed to a mess of settlements, bankruptcies and liquidations, both on and offchain, including for Celsius and BlockFi.



Rari Capital embodied DeFi Summer’s scrappy spirit. Even to the point that its founders were <a href="https://www.forbes.com/sites/rorymurray/2020/08/03/teen-crypto-entrepreneurs-may-be-the-real-adults-in-the-room/">teenagers</a> when it was built.



Rari’s lending pools were, in essence, tools intended to remove a lot of the grunt work and anxiety around yield-farming for the regular crypto user. The protocol ran algorithms to find corners of DeFi with the highest yields — such as Curve, Compound and Aave — and deployed the pooled capital appropriately, paying out interest.



The SEC claimed the tokens used by the protocol to manage pool positions represented interest in the pools themselves. Rari’s native governance token was also flagged as a security, so the SEC’s position is that the team should’ve registered the tokens and their offerings with the regulator before they were launched — as if it could’ve launched at all under that premise.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeq_Qjanc150zFK8xXqnniZxT1RYNVqDy6sb5Y2bzpFIZf888uCy0dOXfQIDJ5_vDIvZAs5-kaOv5Gs4jtEBIZDp5EyBr65AwJqFt7hE9MU2Avh5yf5Emz_xsMsMzhZcLV9F8QsSNIVngX4wlCtwjAeV2A_?key=eaikkoWSWNWvRNURqKlgdA" alt=""/><figcaption class="wp-element-caption">Rari and Fei altogether had $2.5 billion TVL at their peak in late 2021</figcaption></figure>



Much of the SEC’s <a href="https://www.sec.gov/files/litigation/complaints/2024/comp-pr2024-138.pdf">complaint</a> also hinged on Rari Capital itself dogfooding its own protocol — maintaining Fuse pools and marketing the potential returns users would receive.&nbsp;



Although, the SEC alleged that “Rari Capital and its co-founders falsely told investors that the Earn pools would automatically and autonomously rebalance their crypto assets into the highest yield-generating opportunities available when, in reality, the rebalancing mechanism often required manual input, which Rari Capital sometimes failed to initiate.”



The agency further claimed that one-third of Earn users lost money due to network and protocol fees outweighing the yield. So, perhaps, the platform wasn’t perfect, but it was experimental and, even more critically, fairly early.



In any case, Rari Capital has already been through the wringer.&nbsp;



Two hacks, a class action lawsuit, a debilitating forced pool liquidation and the departure of a co-founder in the space of two years. Not to mention an ongoing <a href="https://unicourt.com/case/ca-la23-justin-yu-vs-rari-capital-infrastructure-llc-a-delaware-limited-liability-company-et-al-893105">lawsuit</a> with a former employee over allegedly unpaid vested tokens, with $2.4 million in damages sought.



We don’t know how much money the Rari team forked out as part of its settlement with the SEC.&nbsp;



But it joins at least a dozen crypto-related companies, individuals and entities who have settled cases with regulators and other parties in the past year including Uniswap Labs, eToro, Abra, Silvergate, FalconX, Genesis, OKX, ShapeShift, KuCoin, Coinlist, which altogether paid over $126 million. Binance also settled with the DOJ this past year for $4.2 billion.



There are additional penalties for Rari, particularly five-year officer and director bars for its co-founders.&nbsp;



Is all that just the cost of innovation? It sure looks like it. At a minimum, it’s become the cost of doing business in crypto — at least until the more landmark cases play out in court over the next year or two.&nbsp;



— David Canellis



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



<ul class="wp-block-list">
<li>BTC and ETH have rallied around 6% apiece on the daily following the Fed rate cut and Trump’s bitcoin burger purchase. (BTC: $63,100; ETH: $2,450.)</li>



<li>Memecoin POPCAT leads the front <a href="https://www.coingecko.com/">page</a> with 35% gains, followed by SEI (26%), TAO (22%), TIA (20%) and SUI (17.5%).</li>



<li>Aave’s total ETH <a href="https://defillama.com/protocol/aave?denomination=ETH">locked</a> is at its highest point August 2022: 7.96 million ETH, up from 4.4 million ETH at the start of the year.</li>



<li>Ethena USDe has shed <a href="https://defillama.com/stablecoin/ethena-usde">almost</a> $1 billion supply since it peaked at over $3.6 billion in July.</li>



<li>Standard BTC transactions make up 97% of Bitcoin <a href="https://dune.com/cryptokoryo/runes">activity</a> right now.</li>
</ul>



<h2 class="wp-block-heading">Off to the races</h2>



Watch out, we have some new entrants to the stablecoin market.&nbsp;



BitGo announced Wednesday that it planned to launch USDS, a yield-bearing stablecoin backed by Treasury bills, in January of next year. There was also a <a href="https://www.coindesk.com/business/2024/09/18/fintech-giant-revolut-said-to-be-planning-stablecoin/">report</a> that Revolut is plotting its own stablecoin venture, though they declined to comment.&nbsp;



The timing of the launches is interesting, given that we just talked about how successful stablecoins are right now. They’re sitting at a total market cap of $171 billion, slightly down over the past 30 days.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcAapG6FIqFgS2KDPUMLO5ukP0QN9vbnWKdiS4KY6FJZtVPopwWyo_07AVOyss4Bt-RM5nwrFWlmut0x56brgWKRocBe-50cUbgECRM_qTY5VrLcxMpPpJb0biw6wDRWpH7Bu9g6aTVnkcmoyt_QZ76-5NU?key=eaikkoWSWNWvRNURqKlgdA" alt=""/><figcaption class="wp-element-caption">Source: rwa.xyz</figcaption></figure>



So let’s talk about BitGo.&nbsp;



The press release shows some spice, with BitGo saying they plan to “challenge the existing stablecoin market dynamics, specifically targeting the dominance of single-issuers like Circle and Tether.”



“&#8230;USDS introduces a novel reward system that deploys up to 98% of earnings to participants who support the ecosystem. This approach ensures that all eligible institutions, exchanges, liquidity providers, and users are incentivized to support and grow the USDS network, fostering a more inclusive and balanced ecosystem,” the release continued.&nbsp;



To be clear, though, institutions would be the beneficiaries of the yield. But this hits on something Nic Carter of Castle Island Ventures said <a href="https://blockworks.co/news/stablecoin-report-market-capitalization">last week</a>: “…I do think that the interest-bearing stablecoins will out-compete the ordinary ones at the margin with time.”



Tether and Circle are obviously the two heavyweights in the category — shown by the green and blue areas on the chart above — but the BitGo offering would change things slightly. Though, in such a crowded space, there’s no way to tell at this point just how much consumer appetite there is for another stablecoin.&nbsp;



And, if we’re continuing to compare, Tether isn’t US-based, though Circle just announced that it was moving its headquarters to New York as the firm eyes a public offering.&nbsp;



The BitGo New York Trust Company, which is registered under a state trust charter, would issue USDS. Circle’s able to issue USDC through money transmitting licenses while Tether is not regulated here.&nbsp;



There’s also PayPal’s stablecoin, which sits far below both USDT and USDC on the list, but is issued by New York firm Paxos.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">5/ USDS will publish its proof-of-reserves in real-time to <a href="https://t.co/QqUudhFRXn">https://t.co/QqUudhFRXn</a> where users can see the daily balances held on behalf of USDS token holders. In addition, USDS will conduct monthly audits and publish those results.&mdash; Matt Ballensweig (@mtballensweig) <a href="https://twitter.com/mtballensweig/status/1836433825435357519?ref_src=twsrc%5Etfw">September 18, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Carter also noted last week that he wanted to take his stablecoin study to US lawmakers and push for them to issue stablecoin regulation. Partially due to the fact that, as we noted above, he said that most stablecoin issuers are wary of the SEC to offer interest-bearing stablecoins in the US.



“We have no control or insight into how [stablecoins issuers] operate. And so if you want them to be more legible and accountable, it&#8217;d be better if we have a favorable regulatory environment,” he said. “If you want us to really benefit from them, ask some rules so that stablecoin issuers can actually issue here with confidence.”



Bring it on, USDS. Let’s see how this race plays out.



— Katherine Ross



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



<ul class="wp-block-list">
<li>Germany’s Commerzbank will begin <a href="https://www.coindesk.com/business/2024/09/19/commerzbank-to-offer-bitcoin-ether-trading-through-crypto-finance/">offering</a> bitcoin and ether trading through Crypto Finance.</li>



<li>The founder of Inception Capital disappeared before reappearing right as investors voted to wind down the fund, Fortune <a href="https://fortune.com/crypto/2024/09/19/inception-op-crypto-disappear-founder-china-vc-ackman/">reported</a>.</li>



<li>Binance CEO Richard Teng said that the exchange <a href="https://www.cnbc.com/2024/09/19/binance-ceo-40percent-growth-in-institutional-corporate-investors.html">saw growth</a> in institutional and corporate investors this year.</li>



<li>Bernstein says <a href="https://www.coindesk.com/markets/2024/09/19/stablecoins-are-becoming-systemically-important-bernstein-says/?utm_medium=referral&amp;utm_source=rss&amp;utm_campaign=headlines">stablecoins</a> are becoming “systematically important.”</li>



<li>Former president Donald Trump treated folks to <a href="https://www.bloomberg.com/news/articles/2024-09-18/donald-trump-buys-fans-burgers-and-pays-with-bitcoin-at-new-york-bar">burgers</a> at New York’s Bitcoin bar, Pubkey last night.&nbsp;</li>
</ul>



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



Q: How historic was Donald Trump’s bitcoin burger purchase?



If we’re just looking at it from the angle of ‘has this been done before,’ then it’s pretty historic.&nbsp;



But I’m ready to die on one hill: We still haven’t seen any actual policy plans. A strategic bitcoin reserve sounds great, but there’s a bit of <a href="https://www.fastcompany.com/91175437/bitcoin-reserve-cynthia-lumis">doubt being shed</a> on the idea and it’s not wholly clear how it would be executed.&nbsp;



Burgers (unfortunately) don’t change a candidate’s thoughts on an issue like crypto. If we want something truly historic, then I’d rather have a presidential candidate lay out their plans to regulate crypto and ensure that the regulation-by-enforcement we’ve seen would come to an end.&nbsp;



In all fairness to the last point, Trump has said that he’d fire SEC Chair Gary Gensler, which is something he could <a href="https://blockworks.co/news/trump-gary-gensler-sec-post-election-outlook">potentially do</a>. We’re hearing crickets from the Harris camp, even as her donors <a href="https://www.google.com/search?q=dems+unseat+lisa+kan+gary+gensler&amp;rlz=1C5CHFA_enUS1087US1087&amp;oq=dems+unseat+lisa+kan+gary+gensler&amp;gs_lcrp=EgZjaHJvbWUyCQgAEEUYORigATIHCAEQIRigATIHCAIQIRigATIHCAMQIRigATIHCAQQIRigAdIBCDgwMjlqMGo0qAIAsAIA&amp;sourceid=chrome&amp;ie=UTF-8">allegedly call for the unseating</a> of both Gensler and FTC Chair Lina Khan.&nbsp;



Maybe I’m jaded, but one bitcoin burger doesn’t a crypto candidate make.&nbsp;



— Katherine Ross



Would’ve been much cooler if Trump actually signed the transaction himself. But he just stood there, watching QR codes being scanned. At least he watched.



Trump didn’t really have to understand what was happening. Had this been an early credit card transaction — via one of those clunky old <a href="https://en.wikipedia.org/wiki/Credit_card_imprinter">machines</a> from the sixties — he probably would’ve had the same look of faint bewilderment.



That’s the cool part about technology. Most of the world will only ever have abstract understandings of how it all works. Bitcoin included.&nbsp;



Was it a cheap, pandering photo op? You could look at it like that.&nbsp;



But that anyone at all is still excited about BTC being used as money, over 14 years after the ill-fated Bitcoin Pizza purchase, is a win for crypto.



— David Canellis



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SEC settlements are becoming the cost of doing crypto business

The Securities and Exchange Commission announced a settlement Wednesday with crypto lending startup Rari Capital and its co-founders Jai Bhavnani, Jack Lipstone and David Lucid.&nbsp;



The settlements are subject to court approval but don’t disclose a financial sum.&nbsp;



The SEC claims that the co-founders “falsely told investors that the Earn pools would automatically and autonomously rebalance their crypto assets into the highest yield-generating opportunities available when, in reality, the rebalancing mechanism often required manual input, which Rari Capital sometimes failed to initiate.”



Read more: <a href="https://blockworks.co/news/etoro-sec-settlement">eToro to cease most crypto offerings after SEC settlement</a>



Additionally, the project “misleadingly” claimed that investors would receive a higher annual percentage yield without disclosing fees that would eat into the initial yield.&nbsp;



“The SEC alleges that Rari Capital and its co-founders engaged in unregistered broker activity through their operation of the Fuse platform,” the <a href="https://blockworks.co/tag/sec">SEC</a> said Wednesday.



The founders and Rari Capital, without admitting or denying the investigation’s findings, settled with the SEC.&nbsp;



Read more: <a href="https://blockworks.co/news/a-match-made-in-defi-rari-capital-and-fei-protocol-merge-to-feirari">A match made in DeFi: Rari Capital and Fei Protocol merge to ‘FeiRari’</a>



They “consented to the entry of final judgments ordering various forms of relief, including permanent injunctions, conduct-based injunctions, civil penalties, disgorgement with prejudgment interest and equitable officer-and-director bars against the co-founders for a period of five years.” The court has not yet signed off on the settlements.&nbsp;



Rari also agreed to a cease-and-desist from the SEC regarding the broker registration, with the caveat that the team neither admitted to nor denied the findings.



The protocol, alongside Fei Capital (the two merged back in 2021), was <a href="https://blockworks.co/news/hacked-crypto-platform-offers-no-questions-asked-10m-bounty-for-stolen-funds">exploited for $80 million two years ago</a>. Fei offered a $10 million bounty to retrieve the assets taken by the hackers.&nbsp;&nbsp;



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DeFi startup Rari Capital settles with the SEC 

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



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>The Federal Reserve’s anticipated rate cut just arrived. Ben shares an initial breakdown.</li>



<li>Two US Congressmen say regulators have “misapplied” securities laws to airdrops. Casey points out legal precedent on the topic.</li>



<li>House members discussed the SEC’s “politicization” of crypto regulation. The hearing was more or less what you’d expect. </li>
</ul>



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



<h2 class="wp-block-heading">The rate cut is in</h2>



After weeks (if not months) of anticipation, the Federal Reserve <a href="https://blockworks.co/news/fed-interest-rate-cut-50-bps">reduced interest rates</a> by 50 basis points Wednesday.



Bitcoin’s price rose on the news.&nbsp;&nbsp;&nbsp;



Fed Chair Jerome Powell <a href="https://blockworks.co/news/powell-confirms-september-rate-cut">had made it clear</a> the central bank intended to reduce rates, noting last month: “The time has come for policy to adjust.”



In a statement this afternoon, the Federal Open Market Committee (FOMC) said the 50bps cut came “in light of the progress on inflation and the balance of risks.”



Powell called the economy “strong overall” just moments ago, noting that the labor market has “cooled from its formerly overheated state.” Inflation, meanwhile, has “eased substantially,” he added — dropping from its 7% peak to about 2.2%, as of August. “This recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation as we begin the process of moving toward a more neutral stance,” the Fed Chair said during a post-release presser.&nbsp;



Ahead of the expected rate reduction from its previous 5.25%-5.50% range, many debated whether the cut <a href="https://blockworks.co/news/btc-fluctuates-ahead-of-fed-rate-decision">would amount to 25bps or 50bps</a>.



CME Group’s FedWatch tool indicated a 55% probability of a 50bps cut a few hours before the FOMC’s statement.&nbsp;



Some industry analysts and executives had said that while investors could view a 25bps cut as a normal measure, a 50bps cut could spur fears of a recession and bring on volatility.&nbsp;



“The Fed has only cut 50bps in a non-emergency situation once in the past 40 years,” Astoria Portfolio Advisors founder John Davi wrote in a blog <a href="https://www.astoriaadvisors.com/single-post/cio-thoughts-be-careful-what-you-wish-for-a-50bps-cut-would-imply-a-recession-and-potentially-a-s">post</a> earlier this week. “In our view, the Fed would be making a mistake as it would imply the economy is much weaker than currently suggested.”



The Fed opted for the 50bps cut anyway.



Feel free to interpret the Fed’s decision how you will. The broader market will do the same.



Bitcoin’s price — at about $60,000 just before 2 pm ET — saw a bump above $60,700 in the minutes following the rate cut announcement. BTC rose to above $61,100 after Powell started speaking at 2:30 before retreating below $61,000 as we were about ready to publish this newsletter.



Jake Ostrovskis, OTC Trader at Wintermute, said earlier today that “some degree of market re-pricing is inevitable, regardless of the decision” given the differing cut expectations.



The FOMC meeting countdown clock now restarts, as segment observers expect the Fed to ultimately cut rates further during sessions slated for Nov. 7 and Dec. 18.&nbsp;&nbsp;



A number of analysts had said the market was pricing in a total of 100bps of rate reductions (including Wednesday’s cut) by the end of the year. New projections released Wednesday show committee members have a median expectation of rates falling in the 4.25%-4.5% range (down from the current 4.75%-5.0% range) by the end of the year.



“We are not on any pre-set course,” Powell said today. “We will continue to make our decisions meeting by meeting.”&nbsp;



The long-term effects of this rate cut (and potential others to come) are multifaceted.&nbsp;



Erald Ghoos, general manager of Europe at crypto exchange OKX, noted before the rate decision that an increase in USD liquidity could lead to more capital flowing into various asset classes, including crypto.



“However, it&#8217;s crucial to consider that crypto markets are influenced by a complex interplay of factors beyond just monetary policy, including whether or not we’re headed into a recession, which would be bearish for digital assets overall,” Ghoos added.



Along with the FOMC meetings, investors best keep an eye on geopolitical tensions and the US election as other potential crypto (and traditional) market movers.&nbsp;



In other words, the relatively quiet summer is over.&nbsp;



— Ben Strack



<h3 class="wp-block-heading">$1.95 million&nbsp;</h3>



The amount of money accounting firm Prager Metis agreed to pay the SEC to resolve two separate actions alleging misconduct.&nbsp;



In one action, the SEC claims Prager Metis “misrepresented its compliance with auditing standards regarding FTX” when the firm issued two audits for the now-defunct crypto exchange. Prager has neither confirmed nor denied the allegations.&nbsp;



“Because Prager’s audits of FTX were conducted without due care, for example, FTX investors lacked crucial protections when making their investment decisions,” Gurbir Grewal, director of the SEC&#8217;s Division of Enforcement, said in a statement.&nbsp;



Curiously, these allegedly faulty audits did not come up during former CEO Sam Bankman-Fried’s criminal trial last year.&nbsp;



<h2 class="wp-block-heading">Gensler’s two-week countdown begins</h2>



The deadline to pass a federal budget is looming. But Congressional leaders — at least in the House — are still making time to prioritize digital asset regulation.&nbsp;



Reps. Tom Emmer and Patrick McHenry have penned a <a href="https://emmer.house.gov/_cache/files/5/0/50176829-99c6-40ec-87dd-96421f659fd0/58E2521AD98881EC6DB7696DEC1C2A6C.congressionalletter.sec.9.17.24.pdf">letter</a> to SEC Chair Gary Gensler, expressing concern that regulators have <a href="https://blockworks.co/news/reps-ask-sec-for-clarity-securities-airdrops">“misapplied” securities laws to airdrops</a>, a technology, they say, that plays a “crucial role in the development of a decentralized blockchain system.”&nbsp;



Airdrops, which Emmer and McHenry define as digital assets distributed to early users of certain protocols, have, like many parts of the crypto industry, occupied a regulatory gray area in recent years.&nbsp;



There’s not a lot of legal precedent to rely on, but here are two cases which have dealt with the question of airdrops and their status as securities:



<ol class="wp-block-list">
<li>In 2018, the SEC sued Tomahawk Exploration over its initial coin offering. Even though the ICO tokens were distributed for “free,” like airdrops, regulators said these assets were still securities since they created a public trading market. Airdrops are normally given to early community members or others who perform menial tasks (such as downloading an app or promoting a project), the SEC added. But even so, there does not need to be a transfer of money to constitute a “sale.”  </li>



<li>In an ongoing case brought earlier this year, crypto advocacy group the DeFi Education Fund and Texas-based clothing company Beba Collective sued the SEC. It was a preemptive measure of sorts; the plaintiffs are trying to get a court to rule that Beba’s airdropped tokens are not securities even though there hasn’t yet been an enforcement action. The next deadline in the case is coming up next month when DEF and Beba will have to file their opposition to the SEC’s motion to dismiss the case. </li>
</ol>



Emmer and McHenry say airdrops are no different from airline miles or credit card points, which are often gifted to consumers. They asked the SEC to respond to their inquiry by the end of the month.



— Casey Wagner



<h2 class="wp-block-heading">SEC in the hot seat (again)</h2>



In yet another crypto-related move by the House, members of the Financial Services Digital Asset Subcommittee gathered today to discuss the SEC’s “politicization” of digital asset regulation.&nbsp;



The hearing was more or less what you’d expect.&nbsp;



To wit: Most Republicans expressed frustration with how the SEC handles digital assets and most Democrats said the industry is simply uncooperative. There were some deviations from party lines, though. New York Dem Ritchie Torres, for example, emerged as a crypto advocate on the left.&nbsp;



“Did the SEC <a href="https://blockworks.co/news/lawmakers-frustrated-with-sec-crypto-approach">invent the term out of thin air</a>?” Torres asked during the hearing, referring to the asset class of “digital asset securities,” which the SEC seems to have recently created.&nbsp;



Subcommittee Chair French Hill, R-Ark., said the SEC’s refusal to adjust current policies to better fit the digital asset ecosystem is unacceptable.&nbsp;



Robinhood Market’s CLO Dan Gallagher, a witness on Wednesday, agreed.&nbsp;



Gallagher testified that Robinhood attempted to “come in and register” for the SEC’s coveted special purpose broker-dealer license, but found the requirements to be at odds with how crypto works.&nbsp;



“We recommended modifications that would make it work, and we were submitting to full regulation by the commission,” Gallagher testified on Wednesday. “It was a fruitful process. It was very cordial with the SEC staff until about early 2023, when we got a very perfunctory note from the chairman&#8217;s office telling us that there&#8217;s no reason to talk anymore.”&nbsp;



Gallagher did not specify what changes Robinhood recommended.&nbsp;



Consider today’s mostly uneventful hearing a warm-up for the big event next week, when all five SEC Commissioners will face the House Financial Services Committee on Tuesday. Buckle up!



— Casey Wagner



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



<ul class="wp-block-list">
<li>Another $187 million entered US-listed spot bitcoin funds on Tuesday, Farside Investors <a href="https://farside.co.uk/bitcoin-etf-flow-all-data/">data</a> shows — marking four straight days of net inflows. Total net money moving into the ETF segment totals $17.5 billion a little over eight months since the launches. </li>



<li>BlackRock published a <a href="https://www.blackrock.com/us/financial-professionals/literature/whitepaper/bitcoin-a-unique-diversifier.pdf">report</a> called “Bitcoin: A Unique Diversifier.” Likely drivers of long-term bitcoin adoption are “the intensity of concerns over global monetary stability, geopolitical stability, US fiscal sustainability and US political stability,” according to company executives. Rather than classifying bitcoin as a risk-on or risk-off asset, BTC’s long-term return drivers are “fundamentally uncorrelated with other sources of portfolio returns,” they wrote.  </li>



<li>Non-custodial exchange TrueX — set to use stablecoin PayPal USD as the default settlement currency — exited from stealth Wednesday. Vishal Gupta, Coinbase’s former head of exchange, and Patrick McCreary, an ex-senior staff engineer at the crypto exchange, founded the new firm.</li>



<li>WisdomTree unveiled the “direct-to-business counterpart” to the <a href="https://blockworks.co/news/blockchain-wisdomtree-app">“blockchain-enabled” consumer app it launched</a> last year. The new platform is designed to unlock tokenized real-world asset access to more users, enabling them over time to interact with any WisdomTree-issued token across wallets and supported blockchains.</li>
</ul>



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Powell pitches 50 bps rate cut to support ‘strength of the economy and the labor market’

The Federal Reserve reduced interest rates by 50 basis points Wednesday — a divergence from some industry watchers who expected a more conservative initial cut.&nbsp;&nbsp;



Fed Chair Jerome Powell had <a href="https://blockworks.co/news/powell-confirms-september-rate-cut">made it clear the central bank intended to reduce rates</a>, noting last month: “The time has come for policy to adjust.”



In a statement this afternoon, the Federal Open Market Committee (FOMC) said the decision came “in light of the progress on inflation and the balance of risks.”



“The committee has gained greater confidence that inflation is moving sustainably toward [2%], and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the committee noted. “The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate.”



Ahead of the expected rate reduction from its previous 5.25%-5.50% range, the question remained whether the cut would amount to 25bps or 50bps.



CME Group’s FedWatch tool indicated a 55% probability of a 50bps cut a couple hours before the FOMC’s statement.&nbsp;



Some industry watchers and executives had said that while investors could view a 25bps cut as a normal measure, a 50bps cut could spur fears of a recession and bring on volatility.&nbsp;



“The Fed has only cut 50bps in a non-emergency situation once in the past 40 years,” Astoria Portfolio Advisors founder John Davi wrote in a blog <a href="https://www.astoriaadvisors.com/single-post/cio-thoughts-be-careful-what-you-wish-for-a-50bps-cut-would-imply-a-recession-and-potentially-a-s">post</a> earlier this week. “In our view, the Fed would be making a mistake as it would imply the economy is much weaker than currently suggested.”



Still, the Fed opted for the cut of 50bps.



Jake Ostrovskis, OTC Trader at Wintermute, said in a statement earlier today that “some degree of market re-pricing is inevitable, regardless of the decision” given the differing cut expectations.



Bitcoin’s price — at about $60,000 just before 2 pm ET — initially saw a bump above $60,700 in the minutes following the rate cut announcement.&nbsp;



Many expect the Fed to cut at the FOMC’s upcoming meetings slated for Nov. 7 and Dec. 18. A number of analysts had said the market was pricing in a total of 100bps — including Wednesday’s cut — in rate reductions by the end of the year.



FOMC members’ median projection in June was 25bps of interest rate cuts by the end of 2024. Latest projections released Wednesday show committee members have a median expectation of rates falling in the 4.25%-4.5% range (down from the current 4.75%-5.0%) by the end of the year. One policy maker anticipates 75bps of additional rate cuts by the year’s end.



Powell was set to give remarks during a press conference at 2:30 pm ET.&nbsp;



“Beyond the initial headline cut … the market will focus on forward guidance and the rate path through 2024-2025,” Ostrovskis said. “Questions surrounding the strength of the labor market and reaction function will likely be asked during the Q&amp;A session.”



Casey Wagner contributed reporting.



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First Fed interest rate cut in 4 years sized at 50 bps

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No matter how crazy things get, Jupiter’s market share seems impenetrable for the time being.&nbsp;



Last week, the swap aggregator and Solana DeFi everything app had two of its programs closed by an unauthorized user who gained access to its private key used for program deployments.&nbsp;



User funds were safe, the engineer in charge of the programs <a href="https://x.com/defiracer/status/1835367370472452167">disclosed</a> on X, implying that he meant to make the program only upgradeable by multiple key signatures but didn’t get around to it in time. The programs have since been changed — they are now governed by a multisig that takes multiple keys to be opened. Having just one private key guarding programs with real users is a serious security mishap, and Jupiter is probably thanking its lucky stars that no funds were stolen.



But despite this, no one seemed to care much. One commenter chastised the Jupiter engineer for leaving the “keys in the ignition,” but otherwise, the oopsies was met with a collective shrug.&nbsp;



On one hand, you could point out how near misses happen all the time in DeFi, and the space moves far too quickly for the crypto world to take stock of seeming minutiae like this. But the non-incident also perhaps points to something that doesn’t get talked about as much: Jupiter’s seemingly-uncrossable moat in Solana DeFi.&nbsp;



Jupiter’s calling card is its swap function which algorithmically routes trades across various liquidity venues to execute swaps with the best possible prices for users. When I set up a test swap of PYUSD for JitoSOL, it first proposed to route the funds through Raydium then to Meteora and onto Orca before returning to my wallet. This product is widely-used in Solana DeFi, and it tends to outperform competitors. While writing this article, I set up a quick few different swaps on Jupiter and Phantom, and Jupiter gave me a better price every time.



Because of this product, Jupiter finds itself somewhat immune to controversy — for now. Around a month ago, Jupiter founder meow penned a mea culpa <a href="https://discord.com/channels/897540204506775583/903114583126974494/1271507281586159778">apologizing</a> for poor user experience with things like gas fee estimation, adding that the Jupiter felt “quite hurt” that their products weren’t performing as intended.



But despite it all, there seems to be little negative impact on Jupiter. Its native token has traded essentially in tandem with SOL over the past few months. The platform has risen to become the third-largest in Solana DeFi by TVL, and it’s seen the most inflows over the past week of any Solana protocol with over $50 million — despite two of its programs being compromised.



Unless a better competitor emerges, Jupiter just seems to have a pretty good thing going on at the moment (though for what it’s worth, I <a href="https://blockworks.co/news/lightspeed-newsletter-pump-dot-fun-memecoin">made a similar case for pump.fun</a>, which may finally be running out of steam). 



In the meantime, Jupiter is building out a host of other features as part of its utopian “<a href="https://blockworks.co/news/lightspeed-newsletter-jupiter-unified-markets-plan">grand unified marketplace</a>” vision. There’s a lot of benefit to having one killer product prop up other lines of business. Amazon famously used its web services to bankroll its online marketplace for many years.



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Solana’s top swap venue seems immune to criticism

Lawmakers from both sides of the aisle on Wednesday expressed frustration with the US Securities and Exchange Commission’s current approach to digital assets.&nbsp;



The House Financial Services Committee Digital Assets Subcommittee on Financial Technology and Inclusion convened Wednesday to discuss how crypto market participants are navigating the current regulatory landscape —&nbsp;and what additional clarity is needed.&nbsp;



The <a href="https://www.youtube.com/live/bXxufU9EYX4">hearing</a>, entitled “Dazed and Confused: Breaking Down the SEC’s Politicized Approach to Digital Assets,” featured legal experts and market participants as witnesses, including Robinhood Markets Chief Legal Officer Dan Gallagher and Teddy Fusaro, the president of Bitwise Asset Management.&nbsp;&nbsp;



Committee members were largely interested in discussing how the SEC defines “crypto asset securities,” a term that the agency made up, one Democratic representative claims.



“Did the SEC invent the term out of thin air?” Rep. Ritchie Torres, D-N.Y., asked, somewhat rhetorically, when questioning Gallagher.&nbsp;



Read more: <a href="https://blockworks.co/news/rep-torres-sec-reconsider-regulation-by-enforcement">Rep. Torres asks SEC to reconsider ‘crusade against crypto’ in wake of Ripple</a>



Robinhood, Gallagher said, attempted to follow SEC Chair Gary Gensler’s instructions to “come in and register,” but found that the current structure for the special purpose broker dealer license the exchange sought was incompatible with digital assets.&nbsp;



“We recommended modifications that would make it work, and we were submitting to full regulation by the Commission,” <a href="https://www.youtube.com/live/bXxufU9EYX4">Gallagher</a> testified on Wednesday. “It was a fruitful process. It was very cordial with the SEC staff until about early 2023, when we got a very perfunctory note from the Chairman&#8217;s office telling us that there&#8217;s no reason to talk anymore.”&nbsp;



The SEC’s refusal to adjust its framework is not consistent with securities laws, Subcommittee Chair French Hill, R-Ark., asserted. In federal court, the SEC continues to have “legal face plants,” when trying to defend their stance that virtually all cryptocurrencies are securities, he added.&nbsp;



Not all Committee members feel the same, though, and despite some bipartisan cooperation, Wednesday’s hearing also highlighted <a href="https://blockworks.co/news/maxine-waters-cbdc-bill-anti-innovation-republicans">party disputes</a> that have existed around digital assets for years.&nbsp;



Why would the vast majority of companies who have faced enforcement actions from the SEC since 2021 have opted to settle and pay a collective $5.5 billion in penalties if they hadn’t done anything wrong, Rep. Maxine Waters, D-Cali., asked the witnesses.&nbsp;



Read more: <a href="https://blockworks.co/news/fincen-hearing-crypto-illegal-financing">House hearing on FinCEN oversight turns into crypto debate</a>



Lee Reiners, a lecturing fellow at Duke University, responded by saying that he feels the SEC — under both former Chair Jay Clayton and current Chair Gensler — has overwhelmingly been in the right when bringing various enforcement actions against crypto players.&nbsp;



There has been “one notable partial loss,” Reiners said, when <a href="https://blockworks.co/news/judge-rules-ripple-xrp-not-security">Ripple partially won against the SEC</a> in 2023, but even this ruling has since been “repudiated by several other federal judges in that same federal district court.”&nbsp;



Rep. Sean Casten, D-IL, later expressed concern with how current legislative proposals do not sufficiently protect the investing public from fraud, as exemplified, he said, by the recently-announced World Liberty Financial project, which the Trump family has been promoting. 



The World Liberty team said they <a href="https://blockworks.co/news/on-the-margin-newsletter-trump-family-defi-venture">would retain control of 20% of the token supply</a>, which, based on the Financial Innovation and Technology for the 21st Century Act — passed in the House in May — would mean the project is “decentralized and not subject to regulation,” Casten said.



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Rep. Torres: SEC invented ‘crypto asset security’ out of thin air

The vibes are off for Ethereum right now.&nbsp;



And it seems that <a href="https://x.com/moonpay/status/1836282139513602413">Vitalik Buterin singing</a> at Token2049 isn’t the bullish signal everyone’s looking for.



But it’s not Buterin’s fault given that Bitwise’s Matt Hougan <a href="https://experts.bitwiseinvestments.com/cio-memos/a-contrarian-bet-on-ethereum?utm_medium=email&amp;_hsenc=p2ANqtz-8myxcJG_lpfITufcPu7eyKNK2h8zNEh5ABsX2gxZ5zgvBkUrweNJDM_98m_l6kz_DXzlrob25arL9ArwoopVCKLh8AGQ&amp;_hsmi=325026337&amp;utm_content=325026337&amp;utm_source=hs_email">penned</a> a note on ethereum ahead of the network creator taking the stage. Hougan pointed out that the ETH/BTC ratio hit its lowest level in three years. ETH has struggled with upward momentum in the past few quarters, unlike both bitcoin and solana.



“The vibes in the community are tough,” Hougan wrote.&nbsp;



It’s a fair, if somewhat unfortunate statement given that some believed the momentum around ETH could pick up after ETF approval earlier this year. Bitcoin received ETF approval earlier this year and then carved out all-time highs just a few months later, and ETH tracked the momentum like a loyal dog.&nbsp;



But no such move manifested for ETH when its <a href="https://blockworks.co/news/nine-us-spot-eth-etfs-live-post-approval">own ETFs were launched</a>.&nbsp;



“A key factor is the timing of Ethereum ETFs, which launched during the summer — a typically slower period for both the crypto and ETF markets,” Federico Brokate of 21Shares told Blockworks. “This is also partly due to Ethereum having a less straightforward narrative compared to Bitcoin, which is widely regarded as ‘digital gold.’”



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>



Hougan said that there are a few other reasons as well: the election risk, competitors and tokenomics.&nbsp;



“While Bitcoin has largely passed regulatory scrutiny — even [Securities and Exchange Commission] Chair Gary Gensler admits it&#8217;s not a security — Ethereum has not. The SEC appears to think that staked ETH is a security, and the agency has significant worries about the broader DeFi ecosystem that drives much of Ethereum’s value. If Harris wins and continues the Biden administration’s <a href="https://blockworks.co/news/kamala-harris-crypto-policy-reset-outlook">skeptical posture toward crypto</a>, Ethereum could face challenges,” he added.



ETH has, in a legal sense, notched a few wins. The SEC <a href="https://blockworks.co/news/sec-has-it-in-for-consensys">dismissed its investigation</a> into ethereum over the summer. And, more recently, the eToro settlement gave some indication into the SEC’s current thought process.



It seems as if the SEC is dismissing any potential action against ETH by allowing the US-based trading platform to continue offering ether to customers. Keep in mind that the <a href="https://blockworks.co/news/etoro-sec-settlement">settlement cut quite a few of its offerings</a>.



Neither <a href="https://blockworks.co/tag/matt-hougan">Hougan</a> nor Brokate are too concerned about the potential death of Ethereum. They’re both cautiously optimistic that it’ll bounce back and that the “price of ether will ultimately reflect the growing adoption of its various use cases,” Brokate said.



“There are several positive catalysts for <a href="https://blockworks.co/tag/ethereum">Ethereum</a>. Investor education will be key to driving further adoption. As Ethereum’s narrative around real-world assets, tokenization and decentralized finance becomes better understood by both retail and institutional investors, demand is expected to grow. Ethereum’s role as a technological innovator is also gaining traction, particularly among those with a deeper understanding of blockchain technology,” he continued.&nbsp;



Read more: <a href="https://blockworks.co/news/eth-fundamentals-bearish-bullish">ETH’s fundamentals remain ‘strong:’ Analyst</a>



Hougan pointed to Polymarket’s dependence on ETH — even though Polymarket <a href="https://polygon.technology/blog/project-spotlight-polymarket-the-biggest-decentralized-prediction-market-in-blockchain">runs on</a> Polygon, it “ultimately settles on Ethereum.” There’s also the fact that over half of all stablecoins are issued on Ethereum, according to <a href="https://app.rwa.xyz/stablecoins">data</a> from rwa.xyz.



To Hougan, Ethereum is the “Microsoft of blockchains.” It is perhaps an apt comparison given that Microsoft is one of the largest tech giants, and yet isn’t seen as particularly sexy. Remember all of the hype around the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) a few years ago? Microsoft was notably left out. Though that never meant it was not competitive in its industry.&nbsp;



“Ethereum remains a foundational technology platform with immense potential. Although it may lag behind Bitcoin in terms of brand recognition, its role in decentralized finance, tokenization and as a programmable blockchain makes it a crucial part of the future digital economy,” Brokate explained.&nbsp;



“Ethereum represents a bet on blockchain innovation, which will only grow in importance as tokenized assets and decentralized financial applications continue to expand. While short-term bearishness may persist, the long-term outlook for Ethereum remains highly positive.”



Perhaps, like Microsoft, Ethereum just needs some time to fully blossom in the eyes of adopters and investors. With FAANG’s fall from grace, Microsoft finally got a seat at the table in the new grouping of the <a href="https://www.wsj.com/buyside/personal-finance/investing/magnificent-7-stocks">Magnificent 7</a>.



“Despite these short-term headwinds, Ethereum’s fundamentals remain strong. The number of developers joining the Ethereum ecosystem is higher than ever, with more projects launching on the network and an expanding range of use cases. These developments should provide solid support for ETH in the long term,” Brokate said.



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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