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Decentralized Social

Sebastian Sinclair

The International Monetary Fund (IMF) released a working paper last week seeking to tackle the rapidly changing crypto market and highlight significant macro-financial risks they believe have yet to be fully addressed.



The “Assessing Macrofinancial Risks from Crypto Assets” paper points out the crypto industry is becoming an increasingly integral part of the global financial system, essentially operating as a parallel, unregulated financial system.&nbsp;



This brings about considerable systemic risks that the traditional financial sector cannot afford to overlook, the IMF said in its <a href="https://www.imf.org/en/Publications/WP/Issues/2023/09/30/Assessing-Macrofinancial-Risks-from-Crypto-Assets-539473">paper</a> released on Friday.



In a bid to meet that challenge, the IMF is proposing a new tool — the Crypto Risk Assessment Matrix (C-RAM) — aimed at monitoring and assessing those perceived emerging risks both nationally and globally.



One of the most pressing challenges identified is the absence of centralized data and regulatory oversight, which calls for immediate international cooperation.&nbsp;



The IMF also urges that given the fast-paced innovation and the decentralized nature of the crypto market, existing policy frameworks are inadequate for effective risk management.



A need to expand current macroprudential policies to include crypto and decentralized finance considerations is required to shore up concerns surrounding their risk profile, the IMF said.&nbsp;



Read more: <a href="https://blockworks.co/news/g20-imf-fsb-guidelines-crypto">G20 nations endorse IMF and FSB guidelines for crypto regulation</a>



It also suggests that this expansion should be in concert with other macroeconomic policies to build a comprehensive risk management strategy.



Based in Washington DC and consisting of 190 member countries, the IMF positions itself as an entity promoting global economic stability and growth. It achieves this through financial support, policy guidance, surveillance, technical aid, research and capacity building. It often serves as a forum for international financial cooperation.



Its paper last week also took aim at countries that have mandated bitcoin as legal tender to co-exist alongside their national currencies, including El Salvador and the Central African Republic.



“These legal changes could quickly increase the adoption and exposures of highly volatile crypto assets, amplifying the many above mentioned risks,” it said.



El Salvador adopted bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) as legal tender in November 2021, becoming the first nation to do so. Four months later the <a href="https://blockworks.co/news/imf-asks-el-salvador-to-remove-bitcoins-legal-tender-status">IMF urged the Latin American country to ditch those efforts</a>, citing systemic financial risks it poses to the wider community.



The IMF plans to update its conceptual framework as more data and country-specific analyses become available. It will aim for a coordinated international effort to curtail the potential “macro-financial risks” from the crypto sector, it said.



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Follow Sam Bankman-Fried’s trial with the <a href="https://blockworks.co/tag/sbf-trial">latest news from the courtroom</a>.

IMF calls for greater oversight on crypto, proposes new risk assessment matrix

Katherine Ross

As former FTX CEO Sam Bankman-Fried faces trial in New York this week, his lawyers continue to clash with the US government.&nbsp;



In a letter sent to Judge Lewis Kaplan, who will oversee the trial, Bankman-Fried’s attorneys are pushing to toss a motion from the US government.&nbsp;



Bankman-Fried’s<a href="https://blockworks.co/news/sbf-trial-day-1"> trial begins with jury selection on Wednesday</a> and is expected to last roughly six weeks.



Read more: <a href="https://blockworks.co/news/sam-bankman-fried-trial-starting-soon">Sam Bankman-Fried’s trial starts Oct. 3: What you need to know</a>



According to the letter filed by the government, prosecutors are both seeking and seeking to use testimonies from <a href="https://blockworks.co/tag/ftx">FTX</a> customers on how they believed their assets were being used, investor testimonies focused on FTX as a custodian, and “alleged coconspirator witnesses regarding their interpretation of statements made by” SBF.



Lawyers for <a href="https://blockworks.co/tag/sam-bankman-fried">Bankman-Fried</a> argued that the government is seeking the motion prematurely and the testimonies are focused on the opinions and interpretations of the FTX customers.&nbsp;



Bankman-Fried’s team was <a href="https://blockworks.co/news/sam-bankman-fried-witness-reject-judge-lewis-kaplan">dealt a loss ahead of the trial</a> when Judge Kaplan ruled in favor of the government’s motion to block a handful of expert witness testimonies. On the same grounds, Bankman-Fried’s team argues, the government should not be able to use investor testimony.



“The Second Circuit held that excluding defense expert testimony that would counter the government’s arguments as to what a reasonable investor would have found material would leave the defendant “only with the ‘victims’ of his conduct as sources of potential testimony on this issue, an odd limitation where the jury is to evaluate materiality in an objective manner,” lawyers wrote Monday.



Finally, in regards to the alleged co-conspirators, the lawyers claim that the request for testimony is both premature and vague “because none of the requisite evidentiary and factual foundations exist and it is unclear whether they ever will be.”



However, if Kaplan rules in favor of the government then the defense argues that it should, at the very least, be allowed to cross-examine the witnesses.



Blockworks reporters <a href="https://twitter.com/caseywagnerr">Casey Wagner</a> and <a href="https://twitter.com/JamesCirrone">James Cirrone</a> are covering Sam Bankman-Fried&#8217;s trial from the courtroom in New York. Follow for instant trial updates on their X accounts.



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Bankman-Fried’s lawyers want to block potential trial testimonies

Andrew Thurman

One of the great promises of cryptocurrency is the creation of fully open financial rails that can be utilized by anyone, anywhere in the world. But what are the risks to developers if public code is used by criminals?&nbsp;



Taylor Monahan — for my money, one of the two or three best Twitter follows out there if you’re an analytics junkie — published data on Sunday showing that upwards of 65% of decentralized exchange Thorswap’s ETH-to-BTC swap volume over a four-month period came from criminals, including the North Korean-sponsored Lazarus Group.&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">Welp, the hackers and money launderers—both the Russian/CIS region ones and North Korean ones—are loooooving <a href="https://twitter.com/THORChain?ref_src=twsrc%5Etfw">@ThorChain</a> lately. In fact, in the last four months, ***more than 50%*** of the ETH -&gt; to ThorSwap Router -&gt; to BTC have been stolen funds. 😬😬😬😬😬 rip. <a href="https://t.co/V4KscNilRA">pic.twitter.com/V4KscNilRA</a>&mdash; Tay 💖 (@tayvano_) <a href="https://twitter.com/tayvano_/status/1708630905634664862?ref_src=twsrc%5Etfw">October 1, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Publishing code that happens to be utilized by criminals appears to be becoming a dangerous practice, particularly when the user is North Korean. The US government in particular has a history of coming down hard on developers who become entangled with the Hermit Kingdom: In 2022, Ethereum developer Virgil Griffith was sentenced to over five years on charges related to giving an educational speech at a conference in Pyongyang.&nbsp;



More recently, two privacy mixer Tornado Cash developers were arrested by Dutch and American authorities, and the US Treasury sanctioned dozens of Ethereum smart contracts and addresses associated with the protocol.&nbsp;



I worry that Thorchain developers might soon face a similar situation. What are the material differences between how North Koreans are utilizing <a href="https://blockworks.co/news/tornado-cash-privacy-debate" target="_blank" rel="noreferrer noopener">Tornado Cash</a> and Thorchain? To my untrained legal eye, it wouldn’t be difficult to cobble together similar (and similarly bogus) charges for money laundering and operating an unlicensed money transmitter — and the same applies to any protocol that happens to be used by North Korea. In short, potentially on the chopping block is any team whose code has facilitated an exchange by a user the governments of the world find unsavory.&nbsp;



But how does a piece of code even get sanctioned in the first place? One answer is: Incompetently.&nbsp;



The Treasury’s <a href="https://ofac.treasury.gov/recent-actions/20220808">list</a> of “specially designated nationals” (traditionally only persons or companies) included a list of Ethereum addresses, including some head-scratchers such as Tornado Cash’s Gitcoin donation address. It was later found that officials simply sanctioned every address that happened to be labeled as being associated with the Tornado Cash protocol by Etherscan.&nbsp;



Then again, if you wield a large enough cudgel, it’s okay to be clumsy. Two of the three Tornado Cash founders have been arrested and are awaiting trial. One sat in a Dutch jail for three months without charges, and the other was recently released on a $2 million bond in Seattle. Note that this is all being pursued with novel legal theory — according to one law <a href="https://www.jdsupra.com/legalnews/all-roads-lead-to-roman-alleged-tornado-8554740/">blog</a>, “it is conceivable that different courts will issue different rulings which are in tension with one another, or potentially outright contradict each other.”&nbsp;



Ironically, this strong-arming has arguably only been partially successful. If the goal of the sanctions and charges and imprisonment was to shut down Tornado Cash, they’ve failed — according to a Dune Analytics <a href="https://dune.com/poma/tornado-cash_1">dashboard</a>, as of July, the protocol was still facilitating nearly $6 million in deposits and withdrawals per day.&nbsp;



When you’re trying to bludgeon someone, nuances like legal interpretation or even the accomplishment of coherent goals don’t matter. The Dutch and US governments have succeeded in making the developers’ lives miserable.&nbsp;



This open cruelty from governments pose existential questions for the industry writ large. <a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">Embedded in Bitcoin’s genesis block</a> is a shot taken at the British government for their failure to contain a fiscal crisis, and in my view every single Bitcoin transaction since then — from drugs bought on Silk Road to donations to Ukraine to trading on DEXs — have in part been political statements. The goal of financial disintermediation is inherently political.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/cftc-enforcement-defi" target="_blank" rel="noreferrer noopener">C is for crypto, but the CFTC didn’t get the memo</a>



The coalition that peoples the crypto movement is ideologically disparate, from rabid Randian libertarians to “greenpilled” socialists. But regardless of whether a given developer is working on privatizing transactions or on a DAO that grows vegetables, odds are that they’re cooking something that either replicates or undermines nation state power.&nbsp;



Right now, it seems like nation states can only be bothered to care about crypto when some suit in a back office finds some violation or another to be particularly egregious; eventually, governments will get more sophisticated and attempt to push back en masse. And when that point comes, it’s important to remember that political movements can often lead to political prisoners.&nbsp;



The treatment of the Tornado Cash developers by the Dutch and US governments have been capricious and ham-handed displays of blunt carceral force, but in the quest to build permissionless financial rails accessible by anyone — yes, even criminals — I’m growing increasingly worried that such treatment of developers will become the norm, not the exception.&nbsp;



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<div class="wp-block-post-author-biography">Andrew Thurman is a Data Editor based in Washington, DC. He previously wrote for CoinDesk and Cointelegraph, and worked in various roles for Chainlink and Nansen. His analysis has been quoted in The Financial Times, The Washington Post, The Wall Street Journal, Bloomberg, Forbes, Fortune, Reuters, The BBC, CNBC, and elsewhere. Contact Andrew at andrew@blockworks.co.</div>


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Yes, criminals use crypto. No, don’t blame the developers.

Darren Kleine

Anyone who has participated in the crypto market for more than a year or two is well aware of its cyclical nature.&nbsp;



The next time the market changes its mercurial mind, such individuals may find themselves to be designated as the friendly neighborhood crypto expert. “Each cycle, you have new users coming into the space,” Kain Warwick says, adding that those new users often find out about crypto from someone they know.



When the curious onlooker turns to their trusted crypto-native friend to ask how to join in the next wave, they will need guidance onboarding to an accessible and safe platform, the Synthetix founder says.



“You want to tell them to go on-chain and download <a href="https://blockworks.co/tag/metamask">MetaMask</a>,” he says, “but then you&#8217;re kind of like — this person is going to lose all their money.”



On the Lightspeed podcast (<a href="https://open.spotify.com/episode/1kA3OkuduLQU8i60ptumj8">Spotify</a>/<a href="https://podcasts.apple.com/gb/podcast/permissionless-frontends-the-rise-of-cryptos/id1697548240?i=1000630027860">Apple</a>), Warwick explains that during the past crypto boom, the “safe place” for the novice was — at least in theory — a centralized exchange like <a href="https://blockworks.co/tag/binance">Binance</a> or <a href="https://blockworks.co/tag/coinbase">Coinbase</a>. These users wouldn’t have to worry about losing their private keys or getting “rugged” by unknowingly signing a malicious transaction on a non-custodial wallet. 



Of course, any former FTX user will likely express different feelings about <a href="https://blockworks.co/news/sam-bankman-fried-trial-starting-soon">the purported safety</a> of such a solution. “Over a long enough time horizon,” Warwick says, “they will absolutely lose their money on any centralized exchange. It&#8217;ll get hacked or blow up or steal all the money or whatever.”



Warwick recounts giving his own mother some wrapped bitcoin (<a href="https://blockworks.co/price/wbtc">wBTC</a>). But after setting up a MetaMask wallet for her, he decided, “You know what? Honestly, just put it on Binance. It’ll be easier.”



<h2 class="wp-block-heading">Where will new users flow?</h2>



Warwick asks where the next round of new users ought to begin their experience. “Do they flow on-chain? Or do they flow into centralized databases, like Binance?”



The industry has not yet been able to persuade a “meaningful percentage” of new participants to “use crypto tech to engage with crypto,” Warwick observes.



“It&#8217;s kind of insane that we&#8217;re still using Web2 tech,” he says. “We&#8217;re still using databases and closed-source software and proprietary systems to interact with crypto.”



This remains the case, Warwick says, because of problems with usability, safety and onboarding friction. He suggests the solution is to provide an option that uses <a href="https://blockworks.co/tag/defi">DeFi</a> for the application engine, but “abstracts away all the complexity and lets people on-board.” He hopes that instead of turning to centralized exchanges like Binance, users can turn to services like Infinex, a <a href="https://blockworks.co/news/synthetix-new-dex-proposal">front-end application for decentralized trading</a> powered by Synthetix.



“They can&#8217;t rug you,” he says.&nbsp;



“You can onboard easily. You put a username and password in and an email in.” If a user loses their password or email, he explains, the social recovery system will enable them to recover their funds.&nbsp;



“They don&#8217;t need to worry about someone stealing the funds,” he says. “It&#8217;s transparent. The funds are on-chain and they can do all the things they want to do. They can trade all the different assets they want to trade.”



“It&#8217;s a much safer solution to be using,” he says, noting, “this is just something that has not existed.”



If centralized exchanges had integrated NFTs in the past cycle, for example, Warwick suggests a lot fewer people <a href="https://blockworks.co/news/report-50-of-nft-holders-have-lost-access-to-their-nfts">would have lost them</a>. “Right up <a href="https://blockworks.co/news/brady-dale-sam-bankman-fried">until FTX collapsed</a>,” he adds. “Then they would have lost a lot of them.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG7979846276" width="100%"></iframe>







<a href="https://blockworks.co/tag/nfts">NFT</a> collectors were essentially “forced to be on-chain,” Warwick says, and “they just didn&#8217;t have the knowledge.”



On “day zero,” when a new user joins the crypto space, sending them to the “wheat thresher” of <a href="https://blockworks.co/news/what-are-smart-contract-wallets">non-custodial wallets</a> “is just not an okay thing to do,” Warwick insists.&nbsp;



“We need a better, safer place to send them.”



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Follow Sam Bankman-Fried’s trial with the <a href="https://blockworks.co/tag/sbf-trial">latest news from the courtroom</a>.

Here’s a crazy idea: What if we used Web3 tools to engage with Web3 products?

Casey Wagner

James Cirrone

The trial of former FTX CEO <a href="https://blockworks.co/tag/sam-bankman-fried">Sam Bankman-Fried</a> is about to begin in a New York courtroom. The former crypto executive is being tried on multiple fraud charges during a trial expected to last six weeks.



Day one begins with jury selection. Blockworks reporters <a href="https://twitter.com/caseywagnerr">Casey Wagner</a> and <a href="https://twitter.com/JamesCirrone">James Cirrone</a> have decamped to the Manhattan courthouse to provide live updates.&nbsp;&nbsp;



Bankman-Fried’s $250 million <a href="https://blockworks.co/news/sbf-bail-decision">bond was revoked</a> after Judge Lewis Kaplan sided with the government. The <a href="https://blockworks.co/news/doj-sbf-bail">prosecution alleged that SBF leaked diary entries</a> from his ex-colleague — as well as ex-girlfriend’s — diary to a New York Times reporter in an attempt to discredit her testimony ahead of trial.&nbsp;



Even though the <a href="https://blockworks.co/tag/sbf-trial">trial</a> is underway, both the defense and the government continue to squabble over testimonies. Bankman-Fried’s lawyers filed a letter with the judge on Monday arguing to exclude some witness testimonies.



This is a developing story.



Blockworks reporters <a href="https://twitter.com/caseywagnerr">Casey Wagner</a> and <a href="https://twitter.com/JamesCirrone">James Cirrone</a> are covering Sam Bankman-Fried&#8217;s trial from the courtroom in New York. Follow for instant trial updates on their X accounts.



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Sam Bankman-Fried’s trial begins: Live updates

Bitcoin snapped off a run over the weekend, driving its price to a one-month high as speculation about crypto-tied ETFs on Monday remained relatively muted.



The asset rose 3.8% to just under $28,000 in Monday’s trade before succumbing to a slight sell-off just below its 200-day moving average. Bitcoin is trading at $27,580, Blockworks data shows.



Futures data <a href="https://velodata.app/futures">shows</a> more than $12 million short liquidation losses took place across OKX and Binance following a rise in the underlying asset’s jump to $28,000. Implied volatility for bitcoin options contracts is hovering at 36.4% while the historical volatility value is roughly 27%, Bitfinex <a href="https://blog.bitfinex.com/wp-content/uploads/2023/10/Bitfinex-Alpha-74.pdf">noted</a> in its report on Monday.&nbsp;



“Historically, a positive September ushers in a bullish October and the volatility as well as the futures market metrics all point towards increased volatility and some upside, at least on the higher time frames,” Bitfinex analysts said.



The month’s positive end preceded a number of ether (<a href="https://blockworks.co/price/eth">ETH</a>) futures ETFs that went live Monday. Yet despite initial optimism, those vehicles <a href="http://blockworks.co/news/ether-futures-etfs-trading-volume-vaneck-proshares-bitwise">performed modestly out of the gate</a>.



On-chain metrics show miners continue to accrue bitcoin. Glassnode <a href="http://x.com/glassnodealerts/status/1709044484355318254?s=20">data</a> indicates that the seven-day moving average for the flow of bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) from miners to exchanges has hit a one-month low of 4.251 BTC — a level not seen since the beginning of September.



The amount of <a href="http://x.com/glassnodealerts/status/1709014271307215200?s=20">supply</a> last active in the last three to five years has also reached a one-month high of more than 2.1 million BTC.



Conversely, ETH’s seven-day moving <a href="http://x.com/glassnodealerts/status/1709044479095611596?s=20">average</a> for the flow of ETH moving to exchanges cemented its own one-month high above $14.2 million. 



While the debut of ether futures ETFs in the US was fairly uneventful on day one, one analyst predicted the launches could spur further adoption of the digital asset.&nbsp;



“VanEck’s decision to launch a futures ETF while promising to donate 10% of the ETF’s profits to Ethereum developers embodies the firm’s trust in the asset’s rise into mainstream consciousness,” Jesper Johansen, CEO at Northstake said.



“The move also funds and accelerates the protocol’s development, ultimately making ETH more accessible for institutions and individuals looking to participate in the ecosystem,” he said.



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Bitcoin’s climb to $28K nudges ETF speculators amid spot exposure hunt

Shalini Nagarajan

India is reportedly developing a database that will contain information about global crypto exchanges, including those that operate within the dark web.



The planned database is meant to aid law enforcement agencies, including the income tax department and Central Bureau of Investigation, in gathering crucial information about crypto asset transactions, the Economic Times reported on Tuesday.



The goal, according to the report, is to track potential involvement in criminal and money laundering activities. A senior official from the Financial Intelligence Unit (FIU) <a href="https://economictimes.indiatimes.com/news/india/global-database-of-crypto-exchanges-in-the-works/articleshow/104113864.cms?from=mdr">told</a> the outlet that the database is expected to be unveiled by the end of the current fiscal year.



G20 members, including India, urged the Organisation for Economic Cooperation and Development (OECD) in April 2021 to develop a framework for an automated information exchange system to combat tax evasion.



Responding to this call, the OECD <a href="https://blockworks.co/news/oecd-releases-framework-to-unify-global-crypto-tax-reporting">introduced a new global framework</a> in October, known as the Cryptoasset Reporting Framework (CARF).&nbsp;



The CARF’s core principle is to automatically share crypto transaction information on an annual basis among taxpayers&#8217; residing jurisdictions, following standardized procedures.



India&#8217;s recent initiative to establish a global database aligns with this international effort to closely monitor crypto transactions. The FIU official also mentioned that India aims to extract data about other dark web-based exchanges, according to the Economic Times report.&nbsp;



Blockworks has reached out for comment to the FIU.



India, once perceived as less receptive to cryptocurrencies, appears to be undergoing a shift in sentiment.



A recent Chainalysis report <a href="https://blockworks.co/news/chainalysis-global-adoption-index-india-lmi">identified</a> India as a global leader in grassroots crypto adoption and the second-largest crypto market by transaction volume. 



Indian Prime Minister Narendra Modi <a href="https://blockworks.co/news/indian-pm-modi-regulation-crypto">endorsed</a> the need for an international cryptocurrency regulatory framework during the B20 summit in August.



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India aims to strengthen crypto crime detection through new database: report

Bessie Liu

Native USDC on Cosmos is getting an upgrade.



Circle, the issuer of USDC, announced today at the Cosmoverse conference that the company will implement its cross-chain transfer protocol (CCTP) with Noble, a Cosmos-based token protocol.



Circle&#8217;s engineering director Marcus Boorstin demonstrated the use of CCTP for USDC transfers on the Cosmoverse main stage, moving funds in a testnet environment from <a href="https://blockworks.co/tag/Avalanche">Avalanche</a> to Noble using <a href="https://blockworks.co/tag/metamask">Metamask</a>.



This will be the first time CCTP is integrated with a non-Ethereum Virtual Machine (EVM) chain, Boorstin said.



Noble co-founder Jelena Djuric noted that simplicity is a key feature of the design, with USDC transfers possible in &#8220;basically one-click.&#8221;



As Noble itself is integrated with the Cosmos Inter-blockchain communication protocol (IBC), CCTP’s functionality will be extended to all Cosmos chains that are connected to IBC, removing the need for bridges when transacting USD Coin (<a href="https://blockworks.co/price/usdc">USDC</a>).&nbsp;



Additionally, users who currently own USDC on EVM chains can send their tokens to Cosmos chains that are integrated with IBC without using a bridge, Noble co-founder Stefan Coolican told Blockworks.



“What you’ll be able to do with CCTP when it’s live is you’ll be able to send it to a burn address on Ethereum, where Circle&#8217;s API is watching and will issue an attestation of burn that gets relayed to the destination chain,” Coolican said.



“It’s a fast, cost-efficient way of getting native USDC into whatever application you’re building on <a href="https://blockworks.co/tag/cosmos">Cosmos</a>,” Coolican added.



A testnet will be available for ecosystem participants who are eager to test out CCTP’s cross-chain functionality, ahead of the official mainnet later this month.



USDC is currently the second-largest stablecoin by market cap, and it currently has a circulating supply of almost <a href="https://defillama.com/stablecoin/usd-coin">$25 billion</a>, according to DeFiLama. Roughly <a href="https://defillama.com/stablecoin/usd-coin">$20 billion</a> of this amount is on Ethereum. The Cosmos ecosystem itself does not currently have a large stablecoin market. It has been live on Cosmos mainnet since September 12.



“Noble&#8217;s role as an asset issuance hub for Cosmos enables USDC to proliferate seamlessly throughout the ecosystem via IBC,” Rachel Mayer, VP of product at Circle, told Blockworks. “With CCTP coming to Noble, we&#8217;re able to solve interoperability for Cosmos with Ethereum and several other blockchain networks, enabling developers to onboard users with USDC to their appchains from outside the ecosystem.”



Updated Oct. 3, 2023 at 6:27 am with additional context.



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Circle and Noble bring native USDC to Cosmos via CCTP

Binance and its CEO, Changpeng Zhao, have been slapped with a class-action lawsuit, accusing them of unfair competition and violations of Security Exchange Commission (SEC) laws.&nbsp;



The complaint, led by plaintiff Nir Lahav, alleges Binance&#8217;s actions were aimed at monopolizing the crypto market by intentionally harming competing trading platforms operated by FTX entities.



Filed in the US Northern District Court of California, the <a href="https://storage.courtlistener.com/recap/gov.uscourts.cand.418891/gov.uscourts.cand.418891.1.0.pdf">lawsuit</a>, pinpoints a series of actions that began with a social media post from Zhao on Nov. 6, last year.&nbsp;



At the time, Zhao announced the liquidation of Binance&#8217;s remaining holdings of FTX Token (FTT), a utility token used for reducing trading fees across the FTX exchange.



The move came a day after Binance had already allegedly sold approximately $530 million worth of FTT, triggering a 14% decline in the token&#8217;s price over 24 hours.



A spokesperson for Binance did not immediately respond to a request for comment.



Then, days after the liquidation, Zhao <a href="https://x.com/cz_binance/status/1590013613586411520?s=20">revealed via X</a>, formerly Twitter, Binance had signed a non-binding letter of intent to fully acquire FTX.com, only to retract the statement shortly afterward.&nbsp;



According to the complaint, these actions led to the swift collapse and bankruptcy of FTX entities, resulting in financial losses extending into the billions for its customers. Lahav claims to have incurred losses as a result of transactions made on the FTX trading platforms prior to their collapse.&nbsp;



The CEO of FTX, Sam Bankman-Fried, had publicly advocated for regulatory efforts in the crypto sector, an approach the lawsuit suggests Binance found unfavorable.&nbsp;



Both Binance and FTX entities have been under <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">SEC investigation</a> for alleged violations of federal securities laws.&nbsp;



Bankman-Fried is staring down a lifelong sentence for fraud and money laundering charges, with his trial expected to commence on Tuesday. Zhao has <a href="https://www.forbes.com/sites/digital-assets/2023/03/06/binance-claims-innocence-while-not-rebutting-us-senators-concerns/?sh=2dce4af74691">publicly maintained</a> his innocence, claiming regulators in the US are taking a heavy-handed approach in policing the budding sector.



Originally established in Shanghai in 2017, Binance subsequently relocated to Tokyo and later to Malta following a country-wide crackdown in China that made it untenable for the exchange to operate.



Although its holding company is situated in the Cayman Islands, <a href="https://www.reuters.com/technology/binance-worlds-top-crypto-exchange-center-us-investigations-2023-03-27/">Binance maintains</a> that it lacks a formal headquarters and has refrained from disclosing the primary location of its Binance.com exchange.



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Binance hit with class-action lawsuit over alleged market manipulation

Jack Kubinec

LayerZero, the interoperability protocol fresh off a deal with Google Cloud, is eyeing expansion into China.&nbsp;



Conflux and LayerZero announced a collaboration today on the upcoming blockchain-based SIM card (BSIM), co-developed by Conflux and China Telecom. Users of this BSIM will have the capability to transfer assets and messages between chains using LayerZero.



Conflux is a Singapore-registered public blockchain with a rare foothold in China. The layer-1 announced BSIM along with China Telecom in February. They <a href="https://x.com/Conflux_Network/status/1625816812092026880?s=20">said</a> at the time that the project would be piloted in Hong Kong later this year before rolling out in China. The SIM cards are meant to allow users to securely store private keys on their phones.&nbsp;



As BSIM cards await their pilot program launch, Conflux’s usership has been <a href="https://confluxscan.net/pow-charts/tx">languishing</a> — seeing around 20,000 transactions per day since April after staying mostly above 40,000 in the first quarter of 2023, according to data compiled by ConfluxScan.&nbsp;



Read more: <a href="https://blockworks.co/news/layerzero-google-cloud-oracle-operator-messaging">Google Cloud is LayerZero’s new default oracle operator</a>



Through partnering with LayerZero, Conflux hopes to allow eventual BSIM users to move assets stored on the blockchain-enabled SIM cards from Conflux to other chains.



LayerZero is a cross-chain messaging protocol that cuts down on intermediaries needed to move assets or information between chains. Ethereum layer-2 protocols Arbitrum and Optimism are the <a href="https://blockworks.co/news/stick-to-core-competencies-layerzero">most-used LayerZero nodes</a>. 



In a written statement shared with Blockworks, LayerZero Labs CEO Bryan Pellegrino affirmed that through the Conflux integration, LayerZero is expanding into the Asia Pacific region, which Pellegrino said “has historically been a first mover in Web3.”



Pellegrino also said BSIM is looking to tap into some of China Telecom’s 390 million users.



China has <a href="https://www.reuters.com/world/china/china-central-bank-vows-crackdown-cryptocurrency-trading-2021-09-24/">cracked down</a> on crypto trading and mining in years past, but Hong Kong’s recent move to <a href="https://blockworks.co/news/hong-kong-to-lift-crypto-ban">allow some crypto retail trading</a> — and China’s silence on the matter — has made some wonder whether China is softening on crypto as well.



“[T]he apparent tacit approval of Hong Kong’s new crypto initiatives could possibly signal that the Chinese government’s stance on cryptocurrency is evolving,” a Chainalysis <a href="https://www.chainalysis.com/blog/eastern-asia-cryptocurrency-adoption/">report</a> released Monday said.



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LayerZero eyes Asia expansion with Conflux partnership

Ben Strack

The first ether futures ETFs went live today —&nbsp;and the overall performance was, unsurprisingly to some, rather muted.



Volumes today were nowhere near the volumes the inaugural bitcoin futures offering saw two years ago. Six ether futures ETFs launched by ProShares, Bitwise and VanEck saw trading volumes of roughly $2 million, according to an analysis of Yahoo Finance data.



The ProShares Ether Strategy ETF (EETH) led the way with nearly $900,000 in daily volume, while VanEck’s Ethereum Strategy ETF (EFUT) eclipsed the $400,000 mark.&nbsp;



Read more: <a href="https://blockworks.co/news/ether-futures-etfs-vaneck-proshares-bitwise-offerings">Fight for assets begins as ETH futures ETFs debut</a>



The Valkyrie Bitcoin Strategy ETF (BTF), which is <a href="https://blockworks.co/news/valkyrie-etf-ether-futures-unwind">set to change its investment strategy to add ether futures exposure</a> to the fund starting Tuesday, saw roughly $4.5 million in volumes Monday, Yahoo Finance data shows.&nbsp;



Bloomberg Intelligence Eric Balchunas called initial Monday volumes of the funds “pretty meh” in an X <a href="https://twitter.com/EricBalchunas/status/1708865693481836849">post</a>, noting that the first bitcoin futures ETF did about $200 million in its first 15 minutes.&nbsp;



That fund, the ProShares Bitcoin Strategy ETF (BITO), launched in October 2021. It<a href="https://blockworks.co/news/first-bitcoin-futures-etf-nears-1b-on-first-day-of-trading"> saw roughly $950 million in trading volume</a> overall on its first day and <a href="https://blockworks.co/news/bito-on-track-to-be-first-fund-in-history-to-hit-1b-in-aum-in-two-days">reached $1 billion in assets under management</a> in two days.&nbsp;&nbsp;



“This is pretty average day one volume for most ETFs, but arguably disappointing considering how much BITO did,” Balchunas told Blockworks. “That said, it is futures and it is ether — very different than a spot bitcoin ETF, which we expect to fare much better out of the gate.”



Simeon Hyman, global investment strategist at ProShares, said it isn’t fair to compare the first ether futures ETFs to BITO.&nbsp;



“The bar can’t be BITO; that is a historic, once-in-a-generation type of thing,” Hyman told Blockworks. “We know that the futures solution in an ETF is an efficacious one, as BITO proved that. We know that ether is an important number two cryptocurrency…and we’re optimistic that the three ETFs will grow nicely over time.”&nbsp;



Bitwise chief investment officer Matt Hougan noted during a Monday webinar that BITO launched at the height of the last bull market. Bitcoin’s price hit its all-time high of roughly $69,000 in the month after the ProShares fund launched.&nbsp;&nbsp;



“During bull market peaks there’s a huge amount of pent-up demand, and I think that was a major factor,” Hougan said.



Bitcoin is a larger asset than ether, the chief investment officer added. Bitcoin’s (<a href="https://blockworks.co/price/btc">BTC</a>) market capitalization stood at $543 billion on Monday afternoon, while ether’s (<a href="https://blockworks.co/price/eth">ETH</a>) was about $200 billion.



“I’m feeling fairly good about the current state of volume in this space,” Hougan said. “I suspect we’ll see these ETH futures ETFs grow substantially over time.”



Neena Mishra, director of ETF research at Zacks Investment Research, is not so sure about the long-term demand for such products.&nbsp;



“Many investors are now just waiting for pure exposure via spot ETFs instead of investing in futures ETFs,” she told Blockworks. “There are now hopes that we could see a spot bitcoin ETF approved much sooner than earlier anticipated. The debut of ether spot ETFs would not be far behind.”



Read more: <a href="https://blockworks.co/news/21shares-ark-filing-for-spot-ether-etf">Race for a spot ether ETF begins with bid from Ark Invest, 21Shares</a>



Ether&#8217;s recent underperformance isn&#8217;t helping either, Mishra added. The asset is up 39% on the year but was down nearly 4% on the day as of 4:45 pm ET.&nbsp;



“What could change this situation?” Mishra said. “A surge in ether followed by performance chasing by some investors, or clear signals by the [US Securities and Exchange Commission] that they will not approve spot ETFs anytime soon.”



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The race begins: How ETH futures ETFs fared on day 1

A recent investigation by the Federal Reserve Board of Governors found that Silvergate Bank collapsed because of its overreliance on crypto clients and nepotism, amongst bank leadership and risky deposits.&nbsp;



The full report wasn’t released because Silvergate is still technically an open institution, which means that “confidential supervisory and trade secret information” are at play.



Commissioned by the Inspector General’s office at the Federal Reserve Board, the summary of the unreleased Sept. 27 <a href="https://oig.federalreserve.gov/reports/board-review-silvergate-summary-sep2023.pdf">report</a> claimed that the underlying problems leading to the bank’s downfall began in 2013.&nbsp;



It all started when the bank’s senior leadership changed strategy to focus on “customers engaged in crypto activities.”&nbsp;



Putting all the risk in one industry was precisely the problem, the Fed said.&nbsp;



Another problem, the <a href="https://blockworks.co/tag/federal-reserve">Fed</a> pointed out, was the bank’s caliber of deposits.



“Silvergate had significant, multilayered concentration risk: The bank’s deposit accounts were largely funded from companies in one industry, and nearly all deposits were uninsured and noninterest bearing,” the Fed wrote in the summary report.



And the problem with Silvergate’s overreliance on crypto and crypto-adjacent clients became evident when companies in that industry faced a massive downturn throughout November and December of last year, which was triggered in part by <a href="https://blockworks.co/news/ftx-bankrupt-hacked-investigated-a-timeline-of-events">FTX going bankrupt</a>. Collectively, <a href="https://blockworks.co/news/sbf-ellison-thought-bitcoin-wouldve-crashed-more-as-ftx-caved">hundreds of billions of dollars were erased from crypto markets</a> in the days following FTX’s downward spiral in early November.&nbsp;



FTX’s demise and <a href="https://blockworks.co/news/silvergate-intends-wind-down-operations">Silvergate’s eventual voluntary liquidation</a> in March 2023 are closely linked, especially since <a href="https://blockworks.co/news/silvergate-stock-surges-20-despite-1b-quarterly-earnings-loss">Silvergate lost $1 billion in the fourth quarter of 2022</a>.



All of this and more were factors in the crypto bank’s added stress levels, according to the Fed.&nbsp;



The Fed added that given the growing size of the bank and its evolving strategy in regards to risk, those in charge were simply “ineffective.”



The bank increased its assets from less than $1 billion in 2017 to more than $16 billion at the end of 2021.&nbsp;



“Silvergate’s board of directors and senior management were ineffective, and the bank’s corporate governance and risk management capabilities did not keep pace with the bank’s rapid growth, increasing complexity and evolving risk profile,” the Fed wrote.&nbsp;



Nepotism allegations among the senior leadership team also flew in the summary report, which the Fed said had a role in undermining “the effectiveness of the bank’s risk management function.”



Investigators’ ire was also directed at the Federal Reserve Board and the San Francisco Fed, the regional central bank responsible for regulating <a href="https://blockworks.co/tag/silvergate">Silvergate</a>.



If a bank wants to change the general character of its business, it needs to obtain approval from the Federal Reserve Board under Regulation H. Apparently, neither the Fed Board, nor the San Francisco Fed considered Silvergate’s pivot to crypto to have met that standard because neither of them required the bank to file an application under Regulation H.



“The Board’s and FRB San Francisco’s narrow interpretation allowed Silvergate to enter a new business activity and gradually shift from commercial and mortgage banking activities to operating as a monoline entity serving the crypto industry without obtaining approval or implementing any conditions to address that transition,” the summary report stated.



Investigators also recommended that the San Francisco Fed should have assigned a team to facilitate Silvergate’s transition into a regional bank much sooner. Regional banks are much larger than community banks, the type of financial institution Silvergate was prior to January 2022.



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Fed report blames Silvergate collapse on crypto coziness, nepotism

With a rocky September behind us and federal funding ensured until mid-November, stock and crypto investors are hoping for a successful October, but Monday’s rally has proved short-lived.&nbsp;



“October is typically a strong month for bitcoin, earning it the term ‘Uptober,’” author of Crypto is Macro Now and former head of market insights at Genesis, said. “And while we know that patterns don’t necessarily repeat (after all, this past September turned out to be positive, breaking a six-year trend), they are comforting.”&nbsp;



More than $70 million in cryptocurrency short positions were liquidated on Oct. 1, pushing bitcoin and ether more than 3% and 4% higher, respectively. An eleventh hour deal on Capitol Hill to prevent a government shutdown, at least for the next 45 days, could have spooked short traders.&nbsp;



Short positions are still ahead, with about 50.5% of the futures market in shorts as of Monday. A short squeeze could propel prices higher. Cryptos had lost their momentum by Monday afternoon though, with bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) losing around 0.6% and ether (<a href="https://blockworks.co/price/eth">ETH</a>) in the red more than 4%.&nbsp;



“Over the past few months, we’ve seen a few of these sharp spikes up. Usually they are followed by a correction, sometimes sharp and sometimes gradual, but almost always reverting to where the market was before the upward move,” Acheson said.&nbsp;



Stocks posted a disappointing month at the end of the third quarter. The S&amp;P 500 and Nasdaq Composite indexes lost 4.9% and 5.8%, respectively, in September, marking it the worst month for returns in 2023.&nbsp;



Read more: <a href="https://blockworks.co/news/nasdaq-pulls-plug-crypto-custody">Nasdaq says it’s not the ‘right time’ to launch crypto custody business</a>



“Market breadth deteriorated last week but the percentage of S&amp;P 500 constituents trading above their 200 day moving averages stabilized near the 2023 lows, another potential sign of a relief rally forming,” Tom Essaye, founder of Sevens Report Research, said. “Investor sentiment indicators dropped to the lows of the year last week but ended off the worst levels Friday. If the lows in the Fear-and-Greed index hold, that further supports an emerging relief rally.”&nbsp;



Cryptocurrencies, on the other hand, were able to stay in the green. Bitcoin and ether gained about 4% and 1.5% in September 2023, respectively. These mild returns came after a bad August, where both cryptos lost more than 11%.&nbsp;



Stocks look poised to end the first trading day of October relatively flat. The S&amp;P 500 is down by approximately half a percentage point, while the Nasdaq Composite is marginally positive at the time of writing.



Traders are still betting on the <a href="https://blockworks.co/tag/fed">Fed</a> extending its interest rate pause at its next policy meeting in a month, according to CME <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html">data</a>, which currently shows about a 74% likelihood the central bank opts to hold rates.



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Uptober? May be too early to tell, analysts warn 

Ross Ulbricht has officially been behind bars for ten years, a grim milestone for the Silk Road founder who is serving a double life sentence — plus 40 years — without parole.



His X account, updated with his fiancée’s help, reminded the world of his conviction with a Sunday evening <a href="https://twitter.com/RealRossU/status/1708605103044010424?s=20">post</a>.&nbsp;



“I sometimes fear I&#8217;ll spend the rest of my life behind concrete walls and locked doors. But I have no one else to blame. It&#8217;s my poor choices that led me here,” the post read. “All I can do now is pray for mercy.”



Ulbricht, now 39, created the Silk Road online marketplace, named for the ancient Eurasian trade route, back in 2011. Modeling itself after eBay, Silk Road offered users the ability to transact anonymously with one another using bitcoin.&nbsp;



The site, which was accessible through Tor, facilitated sales totaling 9.5 million bitcoin (valued at $1.2 billion at the time of transaction) from February 2011 to July 2013, according to a 2013 FBI <a href="https://web.archive.org/web/20140220003018/https://www.cs.columbia.edu/~smb/UlbrichtCriminalComplaint.pdf">criminal complaint</a> against Ulbricht.&nbsp;



Ulbricht thought of himself as an “idealistic libertarian” and a passionate advocate for free markets. He alleges that ideology inspired him to create an online marketplace based on the non-aggression principle. It would allow users to buy and sell anything they desired, even if the items would be harmful to the buyer, so long as no third party was harmed in the process. Ulbricht claims that the site <a href="https://freeross.org/what-was-silk-road/#ProhibitedItems">worked to prohibit</a> numerous items falling outside of this criteria, including child pornography, acts of violence-for-hire, stolen property, and anything used to “harm or defraud” others.



Read more: <a href="https://blockworks.co/news/doj-bitcoin-silk-road-mempool">DOJ gets Silk Road coins worth $305M stuck in Bitcoin mempool</a>



But rather than becoming a hub for the free and anonymous sale of books, art, clothing and electronics — the kinds of items Ulbricht <a href="https://freeross.org/case-overview/">claims</a> he intended the site to be for — Silk Road became synonymous with the illegal drug trade.



US authorities shut down Silk Road in October 2013, and the FBI arrested Ulbricht on Oct. 1, 2013. The government also <a href="https://www.cbsnews.com/news/silk-road-founder-wants-30-million-bitcoin-us-govt/">seized</a> 144,336 BTC, worth about $30 million at the time.



Ulbricht was later <a href="https://www.fbi.gov/history/artifacts/ross-william-ulbrichts-laptop#:~:text=A%20judge%20sentenced%20Ulbricht%20to,digital%20currency%20from%20this%20case.">convicted</a> of drug trafficking, computer hacking and money laundering in February 2015. He was sentenced to life in prison on May 29, 2015.



“Ross has expressed heartfelt remorse for creating Silk Road and accepts responsibility for the mistake he made. Although he never intended harm, he has learned how even well-meaning and idealistic actions can have unintended consequences,” a blog post on freeross.org <a href="https://freeross.org/case-overview/">stated</a>.&nbsp;



The remorseful tone that Ulbricht has struck has, at times, been shared by Sam Bankman-Fried — <a href="https://blockworks.co/news/sam-bankman-fried-trial-starting-soon">whose trial is set to begin Tuesday</a>, days after Ulbricht’s tenth year of incarceration. The two share additional commonalities.



Read more: <a href="https://blockworks.co/news/us-government-dumps-bitcoin-silk-road">US government dumps bitcoin stolen from Silk Road, $1.2B to go</a>



Both were major figures in the crypto space, though Ulbricht was involved at a time when bitcoin was much more under the radar. While they were in the public eye, both Bankman-Fried and Ulbricht were young, idealistic and were ultimately accused of some similar crimes, including money laundering.&nbsp;



Notably, there is no equivalent movement behind the former leader of FTX to free him from jail or to drop the charges against him like there is with Ulbricht. A Change.org petition requesting clemency for the Silk Road founder has garnered over half a million signatures.



While Ulbricht was initially accused by the US government of involvement in several sensational and violent crimes, including a murder-for-hire plot, he was never formally charged with any violent crimes in court.



Ulbricht claims these allegations are false and that he never planned a hit against anyone. Prosecutors went <a href="https://web.archive.org/web/20160305020239/http://www.theguardian.com/technology/2013/nov/21/silk-road-founder-held-without-bail">on the record</a> in 2013 saying they believed none of the alleged killings transpired.



There have also been complaints that Ulbricht’s sentence is disproportionate when compared to others involved with Silk Road and subsequent “darknet” marketplaces.



For example, Cornelis Jan “SuperTrips” Slomp, who made a name for himself as the most prolific drug dealer on Silk Road, was convicted and sentenced to 10 years in prison in May 2015. In 2021, he was granted a compassionate release due to Covid-19 nearly six years into his sentence, according to <a href="https://www.vice.com/en/article/4adjaw/i-made-millions-selling-drugs-online-then-it-all-came-crashing-down">Vice</a>.



The two men who tried to resurrect Silk Road — Blake Benthall and Thomas White — also received much lighter scrutiny than Ulbricht. White was <a href="https://www.theguardian.com/technology/2019/apr/12/uk-man-jailed-guiding-mind-behind-silk-road-drugs-site-dark-web">sentenced</a> to over five years in prison by UK authorities in 2019 for his role in operating Silk Road 2.0. Benthall was charged in November 2014 but is <a href="https://www.vice.com/en/article/nea4kw/silk-road-2-admin-defcon-blake-benthall-tax-crimes-cooperate">believed</a> to have avoided prison time over Silk Road 2.0 due to a guilty plea that requires him to cooperate with law enforcement.



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Silk Road founder notes 10 years in prison on eve of Bankman-Fried trial

Christopher Perkins

The Commodity Futures Trading Commission is going down the wrong path.



Throughout its history, the CFTC has prided itself as a pro-innovation regulator that constructively engages with industry, academia and the public to deliver principles-based regulatory outcomes.&nbsp;



Sadly, some of the agency’s recent enforcement cases — or what they call their “continued enforcement focus in the digital asset decentralized finance [DeFi] space” — are a material departure from this precedent.&nbsp;



In an era when DeFi offers opportunities to foster more inclusive markets, deliver enhanced risk management and improve price discovery, the CFTC’s self-proclaimed enforcement campaign against DeFi is a step in the wrong direction. Its stance on DeFi threatens to force innovation offshore, undermining US competitiveness and leadership across the global financial system.&nbsp;



The recent CFTC cases against Opyn, ZeroEx (0x) and Deridex are emblematic of the issues with this new enforcement-first approach.



Ironically, just days after a federal judge dismissed a <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.577791/gov.uscourts.nysd.577791.90.0.pdf">civil claim</a> against DeFi software developer Uniswap Labs for the actions of a third party, the CFTC announced <a href="https://www.cftc.gov/PressRoom/PressReleases/8774-23">enforcement actions</a> against these three DeFi protocol operators.&nbsp;



The <a href="https://blockworks.co/news/defi-cftc-crypto-derivatives" target="_blank" rel="noreferrer noopener">enforcement actions</a> come even after a <a href="https://blockworks.co/news/uniswap-class-action-dismissed">federal judge reasoned in the Uniswap case</a> that it wasn’t possible to hold a DeFi platform at fault for the actions of its users, reasoning that it was akin to “attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate the fund transfer.”



But in the CFTC’s new cases, the agency held 0x responsible for tokens issued by a third party that represented levered positions. The CFTC’s orders also conflated the activities of software development and protocol operational control. Additionally, Opyn had also already blocked US IP addresses, but the CFTC alleged that those steps were insufficient. 



Importantly, a <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement090723">dissent</a> by the CFTC’s own Commissioner Summer Mersinger notes that an &#8220;enforcement first&#8221; approach does not provide guidance for how a DeFi protocol could comply with legacy regulatory requirements, which are designed for centralized, intermediated entities.&nbsp;



In sum, the CFTC’s new, current reasoning could arguably <a href="https://twitter.com/RSSH273/status/1700038308313903449">sweep</a> DeFi and other developer activity into the CFTC&#8217;s jurisdiction. And as software clearly cannot comply with outdated legacy rules, this move could effectively end DeFi in the US.



Today, legacy market structure and regulation is simply not keeping up with innovation. Intermediaries, required by current CFTC regulation, are <a href="https://x.com/perkinscr97/status/1691783702316044352?s=20">withering</a>. Like it or not, the risk management realities of markets that function 24 hours a day, seven days a week have arrived, but aging technology and regulation have failed to keep up. <a href="https://www.census.gov/library/stories/2022/09/income-inequality-increased.html#:~:text=The%20ratio%20of%20the%2090th,a%204.9%25%20increase%20from%202020.">Income inequality</a> plagues our financial system, and failure to adapt to recent technological realities is leaving US market participants behind, unable to hedge risk.&nbsp;



Some of our best and brightest entrepreneurs have sought to solve these problems by developing new decentralized, open source DeFi protocols that can actually promote global financial stability and enable equitable access to safe and affordable financial services: two core bipartisan principles highlighted in the Biden Administration’s “<a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets/#:~:text=The%20United%20States%20must%20ensure,and%20preserve%20or%20enhance%20the">Executive Order on Ensuring Responsible Development of Digital Assets</a>.” The lifeblood of our economic future — our innovators — should be welcomed, encouraged and defended, not banished or scared away to foreign jurisdictions.



Questions continue to swirl over whether regulatory agencies currently have the authority to regulate cryptocurrency markets, based on recent case law and the <a href="https://crsreports.congress.gov/product/pdf/IF/IF12077">Major Questions Doctrine</a>. However, it’s already clear that the ideal solution would be for Congress to pass proactive, nuanced legislation that actually empowers and enables the CFTC to engage in what it does best — principles-based rulemaking — that could help cutting edge technologies, like DeFi, achieve their promise.&nbsp;&nbsp;



However, in the absence of this hypothetical legislation, the CFTC should immediately end its self-proclaimed campaign against DeFi and take the following steps:



<ol>
<li>Engage its five advisory committees and seek guidance and insight from members and the general public on effective and principles-based DeFi regulatory design.</li>



<li>Cease enforcement actions against protocol developers for writing code and engaging in other core software development activities, while providing fair and reasonable guidelines on the demarcation between software development versus protocol control.&nbsp;</li>



<li>Dedicate its precious resources to rooting out perpetrators who engage in fraud, manipulation and abuse, consistent with its current legislative mandate.</li>



<li>To the extent the CFTC has clear legislative authority to ban certain activities, it should provide transparent and reasonable geofencing guidelines.&nbsp;</li>



<li>Through <a href="https://www.cftc.gov/LabCFTC/News-Events/index.htm">LabCFTC</a>, or via new regulatory <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/opapham9">sandboxes</a> as proposed by Commissioner Caroline Pham, the CFTC should bring together top DeFi and industry professionals,&nbsp; offer safe harbor and encourage innovation and experimentation — without fear of reprisal.</li>



<li>The CFTC should work with other government agencies to better protect and defend US crypto entrepreneurs from hostile state sponsored attacks and hacking activity.</li>
</ol>



The CFTC should be promoting leadership in technology and encouraging economic competitiveness. A new and uncharacteristic approach of “regulation by enforcement” will have catastrophic consequences and cause irreparable harm to the US economy for generations to come. There is a better way.



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<div class="wp-block-post-author-biography">Christopher Perkins is President of CoinFund, a web3 focused Registered Investment Advisor. He is also a member of the CFTC’s Global Markets Advisory Committee and its Digital Asset Markets Subcommittee.</div>


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C is for crypto, but the CFTC didn’t get the memo

The first ETFs to hold ether futures contracts launched Monday, with fund groups like VanEck, ProShares, and Bitwise Asset Management competing for assets.



Volatility Shares, the firm that kickstarted the latest wave of filings for such products in July, no longer intends to launch an ether futures product, a person familiar with the firm’s plans told Blockworks.&nbsp;



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



VanEck on Monday launched its Ethereum Strategy ETF (EFUT), which invests in standardized, cash-settled ETH futures contracts traded on exchanges registered with the Commodity Futures Trading Commission. The fund joins a bitcoin futures ETF the firm launched in 2021.&nbsp;



“While investors still do not have the means to gain exposure to digital assets here in the US via a spot ETF product, we’re very pleased to be launching EFUT as a means to access the robust futures market that has developed around ETH itself,” Kyle DaCruz, VanEck’s director of digital asset product, said in a statement.&nbsp;



Meanwhile, ProShares and Bitwise Asset Management launched multiple ether-related ETFs Monday.&nbsp;



Read more: <a href="https://blockworks.co/news/sec-consider-ether-futures-etfs">SEC now ready to consider ETH futures ETFs, sources say — but what’s changed?</a>



The ProShares Ether Strategy ETF (EETH) began trading on the New York Stock Exchange. The firm also brought to market the ProShares Bitcoin &amp; Ether Equal Weight Strategy ETF (BETE) and its Bitcoin &amp; Ether Market Cap Weight Strategy ETF (BETH).



The three funds join ProShares’ Bitcoin Strategy ETF (BITO) — the first bitcoin futures ETF to market in the US, which now has about $860 million assets under management.&nbsp;



Like ProShares, Bitwise is offering investors choice in how they want to access exposure to ether futures. The company launched its Ethereum Strategy ETF (AETH) and Bitcoin and Ether Equal Weight Strategy ETF (BTOP) on Monday. 



Competing crypto ETF issuer Valkyrie <a href="https://blockworks.co/news/ether-futures-etfs-launch-soon">began adding ether futures contracts</a> to its bitcoin futures ETF on Thursday as part of an investment strategy change set to go into effect on Oct. 3, a spokesperson told Blockworks Thursday. But the firm said in a Friday filing that it would <a href="https://blockworks.co/news/valkyrie-etf-ether-futures-unwind">“unwind” its positions in ether futures contracts</a> until the investment strategy is officially amended.&nbsp;



Meanwhile, a source familiar with Volatility Shares’ plans said the company chose to ditch its ether futures ETF plan due to losing its potential “first-mover advantage.” Such an advantage is critical for smaller issuers going up against rivals with bigger marketing budgets, the person added.



Read more: <a href="https://blockworks.co/news/volatility-shares-eth-futures-etf">Volatility Shares not giving up on ETH futures ETF effort</a>



Volatility Shares was in position to potentially launch the first fund with pure exposure on Oct. 12. But ether futures ETFs were able to come to market ahead of schedule as the US Securities and Exchange Commission appeared to accelerate such launches to prepare for a potential government shutdown.&nbsp;



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



VolatilityShares is not the only firm to abandon its ether futures ETF plans.



Roundhill Investments requested to withdraw its application for such a fund in a Sept. 29 filing to the SEC.&nbsp;



Kelly ETFs founder Kevin Kelly told Blockworks in an email Monday the firm is not launching its proposed ether futures ETF.&nbsp;&nbsp;



<h2 class="wp-block-heading">Products look to stand out</h2>



Nate Geraci, president of The ETF Store, said in August he expects the demand for ether futures ETFs to be “fairly limited overall.”&nbsp;&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 expect demand for ETH futures ETFs to be fairly limited overall… BTC futures ETFs have &lt; $1.5bil AUM &amp; much of that came in first few days post-launch. Combined BTC + ETH futures ETFs prob best path to succeed for now IMO. Ultimately, investors want real deal (spot ETFs). <a href="https://t.co/hNx61wmYbz">https://t.co/hNx61wmYbz</a>&mdash; Nate Geraci (@NateGeraci) <a href="https://twitter.com/NateGeraci/status/1687229563212824576?ref_src=twsrc%5Etfw">August 3, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Bloomberg Intelligence’s Eric Balchunas said in a Friday X <a href="https://twitter.com/EricBalchunas/status/1707872247791185998">post</a> he estimates all ether futures ETFs to have about $200 million in assets under management by the end of the first week of trading.&nbsp;



BITO quickly amassed $1 billion in assets when it launched ahead of competitors in October 2021. But with a more crowded field of ether futures ETF issuers launching at or around the same time, industry watchers have said marketing and fees will be key.



VanEck’s product carries an expense ratio of 66 basis points. The Bitwise funds charge 85 basis points, while the ProShares offerings cost 95 basis points.&nbsp;



As for marketing, VanEck had been teasing the upcoming launch of EFUT last week, posting a <a href="https://twitter.com/vaneck_us/status/1707419473337033075?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1707419473337033075%7Ctwgr%5E2944f8bab5605f486fa8429b85307f1b9a9ee0c9%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fblockworks.co%2Fnews%2Fether-futures-etfs-launch-soon">video</a> on its X page Thursday inviting investors to “enter the ether.”



“As we&#8217;ve been saying both with ETH futures, but especially with spot bitcoin, it will be a marketing war like we&#8217;ve never seen since they all do [the] same thing and launch on [the] same day,” Balchunas said in an X <a href="https://twitter.com/EricBalchunas/status/1707421312518386086">post</a> in response to the VanEck video. “Unprecedented.”



VanEck added in a Friday X <a href="https://twitter.com/vaneck_us/status/1707888396171977036">post</a> that it plans to donate 10% of its profits from EFUT to Protocol Guild — a collective of 152 Ethereum core protocol contributors.&nbsp;



“Marketing war has definitely begun,” Bloomberg Intelligence analyst James Seyffart said in response to the announcement on X.&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">Friday night fun. 10% of Vaneck’s profits on their Ethereum ETF <a href="https://twitter.com/search?q=%24EFUT&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$EFUT</a> are gonna go to <a href="https://twitter.com/ProtocolGuild?ref_src=twsrc%5Etfw">@ProtocolGuild</a> which is an org made up of ETH core developers. So basically going back into the ETH ecosystem in a way. Marketing war has definitely begun <a href="https://t.co/mCruFnOdap">https://t.co/mCruFnOdap</a>&mdash; James Seyffart (@JSeyff) <a href="https://twitter.com/JSeyff/status/1707889507775762524?ref_src=twsrc%5Etfw">September 29, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



ProShares highlighted in a Friday news release that it is the issuer of BITO, the largest crypto-linked ETF. It has also touted the greater optionality it is offering compared to VanEck and Bitwise with its three ether-related funds.



“We believe that BETE and BETH are groundbreaking in that they offer investors the opportunity to target the performance of the two leading cryptocurrencies in their brokerage accounts through one transaction with a single ticker,” CEO Michael Sapir said in a statement. “We are offering two weightings depending on an investor’s desired exposure.”



Bitwise CIO Matthew Hougan said the difference between his firm and the other initial issuers of ether futures ETFs is the level of crypto expertise.



“We&#8217;re excited to see big traditional equity assets managers come into the market; it&#8217;s a great validation of the space,” Hougan told Blockworks in an email. “For investors, the difference with Bitwise is that crypto is all that we do.”



Read more: <a href="https://blockworks.co/news/bitwise-matt-hougan-spot-bitcoin-etf-price-discovery">New Bitwise research seeks to fill gaps in rival bitcoin ETF proposals</a>



VanEck and ProShares have 67 and 137 ETFs trading in the US, respectively, according to ETF.com — funds across an array of asset classes.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



“Every day at Bitwise, 64 investment professionals show up to work and all we do is study crypto,” Hougan added. “We have the builders, regulators, technologists, venture capitalists and entrepreneurs on speed dial.”



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