Dfyn Network

Jack Kubinec

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



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Marginfi co-founder Edgar Pavlovsky <a href="https://www.coindesk.com/tech/2024/04/11/marginfi-leader-resigns-on-fiery-day-for-major-solana-lender">departed</a> suddenly from the Solana DeFi project in April.&nbsp;



The split wasn’t exactly amicable. “I don&#8217;t agree with the way things have been done internally or externally,” Pavlovsky <a href="https://x.com/edgarpavlovsky/status/1778175476118302775">wrote</a> on X at the time.&nbsp;



Now, eight months later, Pavlovsky is a core contributor to Paladin, a Solana client meant to protect validators from so-called sandwich attacks while helping them “earn more in block rewards.”&nbsp;



Around the same time, Temporal, a crypto research shop with multiple marginfi-linked members, began advertising “Nozomi,” a proprietary quic client partially meant to prevent sandwich attacks.&nbsp;



Temporal is legally distinct from mrgn and marginfi. Temporal said most of its staff never worked at marginfi.



A Temporal researcher I spoke to was critical of the project being worked on by his former colleague. The two products aren’t the same, by both parties’ accounts, but they are both focused on the same niche. There’s one notable difference though — Pavlovsky’s Paladin has a token, while marginfi, controversially, has yet to debut a native coin.&nbsp;



Temporal’s Nozomi infrastructure is built to land transactions as fast as possible. It also prevents sandwich attacks by only sending transactions to “whitelisted” Solana validators who are known not to attack users. The project pitches this as a way to democratize trading.&nbsp;



“We have a ton of experience from our trading arm getting the best execution for what we want to do,” Jakob Povsic, a developer at Temporal, said. Temporal is “getting this level of sophistication for basically anyone.”



Paladin, on the other hand, is a fork of the Jito-Solana client that identifies and drops sandwich attacks from transaction bundles and helps Solana validators prioritize transactions with high priority fees attached, Pavlovsky told me. Access to Paladin validators will eventually be gated with the yet-to-launch PAL <a href="https://x.com/paladin_solana/status/1870167984540626968">token</a>.&nbsp;



I asked Pavlovsky if building a product with similar anti-sandwiching aims to his ex-colleagues at Temporal makes him want to compete more aggressively.



“No, man, they’re like my children,” Pavlovsky said with a chuckle. “I’m stoked for them to win, stoked for them to build.” He said blockchain infrastructure creators tend to have too much of a winner-take-all mentality when, in fact, multiple businesses can succeed at the same time.



Povsic showed less bonhomie. “I applaud them for going after sandwiching since [it’s] a big problem, but their approach is naive and very [self-serving] from what we are seeing,” he said of Paladin. Povsic added Paladin “arbitrarily” blocks some transactions based on a wide net of criteria, and sophisticated players will still be able to pull off sandwiches. And “forcing” its own token into the equation made matters worse for Povsic.



Pavlovsky responded to the criticism by saying that its anti-sandwich whitelist is “obviously systematic, not arbitrary.”



“[P]aladin is designed with sophisticated players in mind (and being tested comprehensively against sandwichers on the whole network). [W]e&#8217;re always happy to discuss tradeoffs,” Pavlovsky said in a text.



“[We] think [Paladin] is extractive and would rather focus on open-source initiatives rather than sending a % of priority fees to [Bloxroute], who own 20% of the token supply. Nozomi is quite different in that it&#8217;s simply a product to help land transactions fast,&#8221; Temporal partner and mrgn research co-founder Ben Coverston said.&nbsp;



The PAL token is an interesting part of the equation. Marginfi frequently draws criticism for its so-called points program that tracks user contribution to the platform. Points are frequently used to allocate token airdrops, but marginfi is one of the last major Solana DeFi protocols not to release a token. Pavlovsky never mentioned the lack of a marginfi token in his departure post in April 2024.&nbsp;



I asked him if frustration at the platform not launching a token contributed to his leaving. “[I] am pro token and think the right time to ship one was [Q4] 2023,” Pavlovsky said in response.



Updated Dec. 23, 2024: Modified headline. 



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Mrgn’s co-founder built a new product. Some ex-colleagues aren’t fans.

Ben Strack

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



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President-elect Donald Trump appears to be working down his <a href="https://blockworks.co/news/revisiting-trumps-crypto-promises-after-his-election-win">crypto promises</a> list via another personnel decision.&nbsp;



Trump said Sunday that Bo Hines will serve as executive director of the Presidential Council of Advisers for Digital Assets. David Sacks, the PayPal co-founder who <a href="https://blockworks.co/news/trump-picks-crypto-czar">Trump tapped</a> to be the US government’s AI and crypto czar earlier this month, will chair this group.



Hines will work with Sacks “to foster innovation and growth in the digital assets space, while ensuring industry leaders have the resources they need to succeed,” Trump <a href="https://truthsocial.com/@realDonaldTrump/posts/113698639577293090?utm_source=substack&amp;utm_medium=email">wrote</a> on Truth Social.



“Together, they will create an environment where this industry can flourish, and remain a cornerstone of our nation&#8217;s technological advancement,” he added.



A former NC State (and Yale) football player, Hines sought to represent North Carolina’s 13th Congressional district in 2022, but lost that election to Democrat Wiley Nickel. He launched a campaign in December 2023 to represent the state’s 6th Congressional district — endorsing Trump that same month before posting this to X in January:



<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">Cryptocurrency is the epitome of individual empowerment in finance. We don’t need the government stepping in and slapping burdensome regulations on financial innovation. This new sector needs the freedom to grow organically. Decentralized finance is the way of the future if…&mdash; Bo Hines (@BoHines) <a href="https://twitter.com/BoHines/status/1747379326465474698?ref_src=twsrc%5Etfw">January 16, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Trump had referenced a US crypto council in July during <a href="https://www.youtube.com/watch?v=uRQZAOK24IQ">his address</a> at the Bitcoin 2024 <a href="https://blockworks.co/news/bitcoin-2024-nashville-recap">conference</a> in Nashville. He said it was something he would assemble “immediately” before asking for a show of hands who wanted to be on it. The crowd roared.



The then-presidential candidate said the council’s task of designing crypto regulatory guidance would get done in 100 days. We’ll have to monitor that.&nbsp;



Reuters <a href="https://www.reuters.com/technology/crypto-industry-jockeys-seats-trumps-promised-council-2024-11-21/">reported</a> last month that people at crypto companies Ripple, Kraken, Circle, Paradigm and a16z were among those wanting a seat at that table.



Trump’s ongoing engagement with the industry seems to show his pro-crypto rhetoric was not just lip service. A few days before that Reuters story ran, Trump <a href="https://blockworks.co/news/trump-nominates-commerce-dept-leader">nominated</a> crypto-friendly Cantor Fitzgerald CEO Howard Lutnick to lead the Department of Commerce.



The soon-to-be president also just met with Crypto.com CEO Kris Marszalek last week about <a href="https://blockworks.co/news/trump-crypto-ceo-btc-reserve-meeting">crypto-related appointments</a> and a bitcoin reserve.



Those congratulating Hines on X yesterday included crypto bigwigs <a href="https://blockworks.co/news/bitcoin-salesmen-michael-saylor-larry-fink">Michael Saylor</a> and Fred Thiel — leaders of two companies (MicroStrategy and Marathon Digital) which own roughly 490,000 BTC combined.



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Trump crypto appointment spurs optimism 

Casey Wagner

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President Biden over the weekend signed Congress’s bipartisan <a href="https://blockworks.co/news/congress-continuing-resolution">spending</a> package, narrowly avoiding a government shutdown and keeping federal operations funded through mid-March.&nbsp;



The bill, cut from 1,500 pages to around 100, does not raise the debt ceiling, a provision President-elect Trump requested. Also out: a 3.8% raise for members of Congress, a bipartisan provision included in the original bill.&nbsp;



The eleventh-hour deal did little to calm markets, which have <a href="https://blockworks.co/news/market-reaction-to-fed-rate-cut">struggled to maintain</a> their post-election momentum this month. The S&amp;P 500 is down 1.7% since the start of December. The tech-heavy Nasdaq has fared better, gaining 1.4% month to date, but the index lost almost 3% last week alone.&nbsp;



The dip, which Sevens Report Research founder Tom Essaye attributes to hawkish commentary from the Fed, political turmoil and <a href="https://blockworks.co/news/jobs-initial-claims-report-december">disappointing</a> initial jobless claims data last week, could be a “potential preview” for the <a href="https://blockworks.co/news/analyst-market-commentary-2025">new year</a>.&nbsp;



“Now, to be clear, while I say that, I’m also not saying I expect the market to decline next year,” Essaye added.&nbsp;



“Instead, I think last week was a preview of 2025 because it was a realization of what I have been warning about: Namely that uncertainty around the key drivers of this <a href="https://blockworks.co/news/standard-bitcoin-bull-market-cycle">bull market</a> is going to rise and we saw that last week with two of the drivers of rally, expectations for Fed rate cuts and pro-growth policies.”&nbsp;



The S&amp;P 500 and Nasdaq Composite were trading fairly flat midway through Monday’s session, up 0.6% and 1%, respectively, as of 2:15 pm ET. Market moves are expected to be relatively soft this week with a limited number of trading days.&nbsp;



Meanwhile, bitcoin has also stalled. The largest digital currency is down around 13% from its all-time high of more than $108,000.&nbsp;



Historically, cryptos deliver mixed returns in the final days of the year. When trying to predict what might happen this week, analysts say keeping an eye on macro conditions will be key. 



&#8220;While reduced liquidity can heighten volatility, the <a href="https://blockworks.co/news/institutions-need-altcoin-major-pair">absence</a> of major institutional activity may actually stabilize prices,” James Toledano, chief operating officer at Unity Wallet, said. “This year, much depends on investor sentiment following 2024’s <a href="https://blockworks.co/news/sec-approves-bitcoin-etf">ETF</a><a href="https://blockworks.co/news/ether-etfs-approved-for-us-exchange-july-23"> approval</a> and the <a href="https://blockworks.co/news/trump-lenient-crypto-regulation">Trump-factor</a> as well as other macro trends.”



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Stocks trade sideways after Congress passes stopgap spending bill

Donovan Choy

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“You either die a hero, or you live long enough to see yourself become the villain.” — Harvey Dent



For Hyperliquid, it took all of 25 days since its <a href="https://blockworks.co/news/hyperliquid-most-valuable-airdrop">highly acclaimed airdrop</a> to run into a bout of controversy.



It started when Taylor Monahan (<a href="https://x.com/tayvano_/status/1870960207842701358">@tayvano</a>), a security researcher at MetaMask, <a href="https://blockworks.co/news/north-korea-defi-hacks">sounded the alarm</a> on a series of Hyperliquid transactions made from North Korea-tagged wallets. Based on Monahan’s data, the wallets have accrued a $701k loss from ETH perps positions.



It’s a <a href="https://blockworks.co/news/stolen-crypto-north-korea">meager amount</a> for a state-sponsored hacker group. But what got people in an uproar was the revelation that North Korea hackers were actively familiarizing themselves with the Hyperliquid platform, presumably to launch an impending hack.



Hyperliquid chain’s highly centralized validator set of <a href="https://hypurrscan.io/staking">four</a> made it extra vulnerable to a potential hack, Monahan claims.



<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">There are no more than 4 validators and all run the same code, possibly collocated as well. Centralized infra, build systems, etc. maintained and accessed by unknown number of founders, c-levels, and engjneers who use the same devices to access said systems as they do to talk to…&mdash; Tay 💖 (@tayvano_) <a href="https://twitter.com/tayvano_/status/1871097647144280504?ref_src=twsrc%5Etfw">December 23, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Hyperliquid’s liquidity is locked in a lock-and-mint style bridge from Arbitrum, where Hyperliquid <a href="https://blockworks.co/news/hyperliquid-hype-airdrop">used to exist </a>as a perps DEX application.



When Hyperliquid migrated to its own <a href="https://app.blockworksresearch.com/glossary/#tendermint">Tendermint</a>-consensus PoS L1 chain in March 2024, the team retained the lock-and-mint style bridge from Arbitrum, which remains the only way to onboard onto Hyperliquid today.



Based on Dune, the deposit bridge has seen a record high net outflow of $114.7m in USDC liquidity in the past day, though that is still a fraction of the remaining $2.22b in TVL.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcVBrVkHTPGMAe-4NhLZHaSToRdCLLgVzM5d8COiAtDcyRi9MAyKxKoOUYXBzYJL1HdANEtxv00R9MbDVWOymXAOo19GBrVwl5Gr9VUkraFa6_2yFja15Bfd2wBKicKKZVKx4IaDQ?key=n-XfG3ey8f5M1RCMdheTC7vX" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://dune.com/entropy_advisors/hyperliquid-bridge-tvl">Dune</a></figcaption></figure>



Talks of a Hyperliquid hack are merely speculative at this time, but if one happened, here’s a rough sketch of how it would play out.



<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">Everyone wanted Hyperliquid to respond to the allegations of an impending hack, so here it is. TDLR: there is no exploit, all funds are safu. If a vulnerability is found, the team is always willing to listen as they have a bug bounty program. <a href="https://t.co/VHYeUogvxs">pic.twitter.com/VHYeUogvxs</a>&mdash; steven.hl (@stevenyuntcap) <a href="https://twitter.com/stevenyuntcap/status/1871225238543053137?ref_src=twsrc%5Etfw">December 23, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



To successfully attack Hyperliquid’s bridge contract would require three out of its four validators to be compromised, as per a two-thirds quorum.



Should that happen, the natively minted USDC on Arbitrum could theoretically be frozen by Circle before the hackers were able to swap the stolen funds into an uncensorable asset like ETH.



That, however, requires Circle to act on issued court orders, a tedious and slow legal process that may offer the time sophisticated hackers need to execute an exit.



The hacker may instead choose to try and swap to USDC.e (Ethereum-native USDC tokens that were bridged to Arbitrum) onto the Ethereum L1.



“The only plausible path that would enable the Arbitrum security council as a line of defense would be if the hackers attempted to withdraw the funds through the canonical bridge, likely after swapping to ETH,” Matt Fiebach at Entropy Advisors told Blockworks.



“In this scenario, the elected Arbitrum Security would need to make the decision of whether effectively blocking this transfer was within their scope of ‘addressing critical risks associated with the Arbitrum protocol and its ecosystem’.”



Finally, it’s also worth noting that a hacker would have trouble finding the necessary liquidity venues to swap out of the stolen funds. $2 billion of liquidity would have to be spread across a variety of third-party bridges, which would cause massive slippages.



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Hyperliquid under scrutiny amid signs of North Korean hacker activity

Katherine Ross

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



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That seems to have been Robinhood’s approach to crypto this past year, from its Bitstamp acquisition (still expected to close in the first half of next year) to its response to the Wells notice it received from the SEC. The firm has shown an interest and, dare I say, commitment to crypto.



Johann Kerbrat told me that’s not changing anytime soon and, if anything, the “enthusiasm in crypto,” is serving to help the firm as it plots out the upcoming year.



But even before the bullishness really took off after Donald Trump won the presidential election, the firm reported $38 billion in crypto assets under custody as of November 2024. And while Kerbrat wasn’t able to provide a more updated number, he did note that the company’s seen an increase in engagement if you’re looking at customer behavior, <a href="https://blockworks.co/news/robinhood-retail-user-engagement">echoing what he told Empire</a> back in October.



“In November alone, we did more than $3 billion in volume, which is, I think, almost twice as much as Q3,” he added. “If you look at the activity onchain … we see people buying on Robinhood, transferring to their self-custody wallet or transferring to other places,” he noted.&nbsp;



To put these figures in perspective, this is just a year after <a href="https://blockworks.co/news/robinhood-earnings-q3-2023">Robinhood’s trading revenues</a> tanked in the same quarter back in 2023.



Kerbrat’s also noticed a tick up in NFT activity. While activity is still way down from 2022 (to no one’s surprise), it’s looking like sales will either match or fall just under last year’s total figure, according to data from CryptoSlam.&nbsp;



As of right now, with a little over a week left in the year, NFT global sales volume sits at $8.69 billion. Last year, that figure totaled $8.71 billion. If we’re just looking at the average sale in US dollars, though, then this year outperformed last year at $122 on average in comparison to 2023’s $95.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXe-jfjalLvAG8aFuu--JcvdEODYbMy6InV92sDc4QGqOgs5_JYWxyulYncGjT17m4yOgcZh_j0IG2zEF35gYGD5n6BQuJxLxLInewQR9AQHL0LyvwK-y5RMg_dFzwp31l_qH7UGXg?key=RztHTa0yKO7h41LHD4nydxv7" alt=""/><figcaption class="wp-element-caption">Source: CryptoSlam!</figcaption></figure>



Europe has also been a <a href="https://blockworks.co/news/robinhood-solana-staking-europe">big focus</a> for Robinhood this year, arguably one of their bigger years in terms of expanding their EU footprint. However, that looks poised to change once the aforementioned <a href="https://blockworks.co/news/robinhood-bitstamp-institutional-clients">Bitget acquisition closes</a>.&nbsp;



But it’s not just Bitget that has Kerbrat’s attention next year. He and his team are eager to “do more in tokenization,” he said.&nbsp;



The firm, alongside Kraken, Paxos and others, announced the Global Dollar Network based on a new stablecoin offering, <a href="https://paxos.com/blog/introducing-global-dollar-network-an-open-network-to-accelerate-and-reward-global-stablecoin-adoption-driven-by-anchorage-digital-bullish-galaxy-digital-kraken-nuvei-paxos-and-robinhood/">USDG</a>, earlier this year.&nbsp;



“We want to be a pioneer” in tokenization, he told me, given that the publicly-traded company feels like it can “bring a lot to the table.”



He’s also starting to loosely look into artificial intelligence, but he’s wary due to how narratives tend to play out (story gets big, then bad actors come in to prey on the weak). Specifically, his concern is focused on AI being used for deep fake videos that could be used to scam people. But that’s not to say he doesn’t think AI and crypto can find common ground.



“I think the intersection between crypto and AI is something that I&#8217;m following pretty closely. When I hear a lot of the issues around AI right now on like micro payments or fair remuneration of the data that is training the models you handle, like personal information, all this kind of thing, makes me feel like … we can actually combine [crypto and AI] and get somewhere that is pretty exciting,” he explained.



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Robinhood wants to be a tokenization ‘pioneer’

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Sanctum, the Solana startup focused on growing the network’s liquid staking ecosystem, launched a new primitive today called creator coins.&nbsp;



Creator coins are essentially Solana liquid staking tokens that Sanctum issues while giving the yield to creators. Fans can earn loyalty points for holding creator coins, and creators can use those points to dole out perks. It’s a new spin on an old concept in crypto, but Sanctum thinks launching with more crypto-native creators can help it pick up adoption where others have failed.



Sanctum is a newer startup that came up through the Solana Foundation’s startup incubator this spring and promised to create an “infinite LST future” on Solana. Its initial flagship product was called INF — a token that helps provide liquidity to a pool of Solana LSTs.



It then carried out a much-hyped airdrop focused on “earnestness” that ignited some controversy <a href="https://blockworks.co/news/lightspeed-newsletter-sanctum-airdrop-backlash">over the summer</a>. Since then, Sanctum has been a bit quieter, most notably <a href="https://blockworks.co/news/sanctum-adding-binance-bitget-bybit-as-partners">launching LSTs</a> with Asia-based crypto exchanges including Binance in the early fall.&nbsp;



Creator coins are a concept Sanctum has seemingly toyed with for a while as well — co-founder FP Lee <a href="https://x.com/soleconomist/status/1787580806497554619">created</a> the fpSOL liquid staking token as a “personal LST” experiment in May.&nbsp;



Creator coin holders forgo their SOL staking yield to support creators. Sanctum takes a small cut of this as well, Sanctum’s anonymous co-founder J told me. Sanctum’s Solana staking APY is around 10% on average, J added.



In exchange, users earn “seeds,” which are loyalty points that can track fans’ investment and let creators offer loyalty perks.&nbsp;



When I asked why creator coins couldn’t just pass along some staking yield to users while charging a commission for the creators, J said giving creators all the rewards “makes economic sense for now,” but this could be changed in the future.



One obvious target audience for creator coins is celebrities who — <a href="https://blockworks.co/news/hawk-memecoin-draws-lawsuit">like the “Hawk Tuah” girl</a> — seem to keep launching volatile memecoins that end in lawsuits or reputational damage. Creator coins may come with less immediate upside, but they also come with less risk.&nbsp;



Still, Sanctum isn’t the first to try luring creators with crypto-based loyalty programs. Jack Harlow joined a loyalty <a href="https://blockworks.co/news/jack-harlow-mith-fan-engagement">platform named MITH</a> last year, for instance, but other creators appear to be somewhat slow to adopt the platform, which hasn’t <a href="https://x.com/OnlywithMITH">posted</a> on X since May. As a response to this, Sanctum is limiting creator coins to just crypto creators for now.



“A lot of previous attempts often failed because there&#8217;s a certain disconnect between the creator and their supporters,” J said. “This is why we didn&#8217;t necessarily want to get the biggest creators for the beta launch. We wanted Solana folks who were really dialed in and connected to their fanbase.”



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Solana liquid staking startup Sanctum trials ‘creator coins’

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



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When examining crypto stocks, chatting with a co-portfolio manager of the long-running blockchain-focused Amplify Transformational Data Sharing ETF (BLOK) makes for a good convo.&nbsp;&nbsp;



Dan Weiskopf told me he’s more optimistic about 2025 now than he was about this year at the end of 2023.



A main reason? The “crazy opportunity” for BLOK investors that’s set to come as more pure-play crypto companies go public.&nbsp;



Some expect <a href="https://blockworks.co/news/circle-files-ipo">stablecoin issuer Circle</a> could be among the next to do so. Weiskopf also has his eye on <a href="https://blockworks.co/news/figure-raises-60m-launches-dex">Figure Technologies</a>.



While a few more bitcoin miners could also go public, that’s a crowded field, Weiskopf noted. But BLOK would consider holding cloud-computing firm CoreWeave — one of mining giant <a href="https://blockworks.co/news/core-scientific-rejects-coreweave-buyout-bid-after-big-hpc-deal">Core Scientific’s largest clients</a>.



Speaking of Core Scientific, that stock — up ~320% year to date — is BLOK’s No. 1 holding (4.67%). Another interesting miner to Weiskopf is Hut 8 — the ETF’s sixth-largest holding, at 4.16%.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdjjIQ3TRWCtkQk6ivHw2GW5TAVq3y-ciKKxCDTkQ34l1Au-3Vb87-WLZxNdkomVa3Mg9jnJknYCM35rB36hVDDvSyAdi39J25MtZMqjDz9ks0GK0BlOVnW6-kKTlW5bCQIK1uyrg?key=faEA7u4tWkwGB1Ia4pTgPfjp" alt=""/></figure>



“I think we did a really good job repositioning and recalibrating amongst the miners in capturing the diversification <a href="https://blockworks.co/news/btc-miners-evolving-revenue-post-halving">into the AI side</a> of things,” the PM said.



Hut 8 is weighted slightly above MicroStrategy — a stock set to enter the Nasdaq 100 index next week (I’ll write more about that on Monday). BLOK started buying MSTR in August 2020 (when it was $14), Weiskopf and co-PM Mike Venuto <a href="https://blog.amplifyetfs.com/blok/blok-chain-monthly-commentary-december-2024?utm_campaign=BLOK&amp;utm_content=318841101&amp;utm_medium=social&amp;utm_source=twitter&amp;hss_channel=tw-4756273994">noted</a>.&nbsp;



MSTR shares were trading around $350 this afternoon (up more than 400% YTD). Benchmark analysts on Monday upped their price target for the stock to $650 after MicroStrategy increased its bitcoin holdings to 439,000 BTC.



That said, Weiskopf and Venuto recently reduced BLOK’s exposure to MSTR and CORZ as the stocks “rallied past our weighting limits,” they added. In other words, they’re trimming the winners in hopes of moving into other successes.



On that diversification point: As the BLOK money managers await more IPOs in 2025, they started buying Japan-based Metaplanet last month.



While more companies are <a href="https://blockworks.co/news/company-treasuries-btc-reserve-asset">adding BTC to their treasuries</a> (~60 by Weiskopf’s count), many are small. So-called “zombie companies” aren’t likely to bounce back just because they’ve bought the crypto asset, he said.



“They make a headline, but do they have a real strategy?” Weiskopf added about evaluating these BTC purchasers.&nbsp;



He argued that Metaplanet, which in April <a href="https://x.com/Metaplanet_JP/status/1777243921867014574">unveiled its intent</a> to emulate MicroStrategy’s efforts, is one committed to these BTC buys. The company said this week it would issue 5 billion yen in ordinary bonds to accelerate bitcoin purchases.



So, for those monitoring crypto stocks, BLOK holdings appear worth peeking at. And then there’re the yet-to-arise opportunities during what could be a transformative year for the segment.



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Crypto stocks to watch in 2025

Macauley Peterson

This is a segment from the 0xResearch newsletter. To read full editions, <a href="https://blockworks.co/newsletter/research">subscribe</a>.



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Ethereum All-Core Devs (ACD) held their final call of 2024 yesterday, which offered key updates on plans to raise the gas limit and progress toward the Pectra upgrade. Discussions revealed the community’s ongoing efforts to balance execution-layer changes, consensus-layer coordination and EIP implementation, reflecting Ethereum’s commitment to “build-in-public” iterative improvement.



In a bold but measured move, Ethereum developers are preparing for a gas limit increase, <a href="https://www.coindesk.com/tech/2021/04/22/ethereum-gas-limit-hits-15m-as-eth-price-soars">mirroring</a> a 20% rise seen over three years ago. This time, the proposed increase aims for 36 million gas, though significant technical constraints temper enthusiasm for higher thresholds. The primary limitation is the consensus layer’s &#8220;GOSSIP_MAX_SIZE,&#8221; which restricts validator block transmission to 10 MiB, equivalent to roughly 10.48 MB.&nbsp;



On the <a href="https://blockworks.co/news/ethereum-devs-milestone-call">Mekong testnet</a> — used for Pectra fork testing — the gas limit has already increased to 36 million, offering a stable testing ground for network performance under higher limits.



While the Mekong testnet runs stably with these changes, developers cautioned against increasing the mainnet gas limit beyond 40 million without addressing the gossip-layer constraints. Validator clients, such as Prysm, face challenges in dynamically adjusting gas limits, which underlines the need for further development.



An increase to the gas limit does not need to wait for a hard fork but can be signaled by validators in support of such a change. To date, only 16.8% <a href="https://gaslimit.pics/">have done so</a>, but the trend is up. Campaigns like PumpTheGas.org aim to build more momentum.



The <a href="https://blockworks.co/newsletter/research/issue/post_a2d3d0b2-7573-4379-a2d8-db9d7c7dc488">Pectra upgrade</a> remains a centerpiece of Ethereum’s 2025 roadmap. It’s on track for a Q1 release, with developers targeting a Devnet-5 launch by year-end. Changes discussed on the call include replacing EIP-7742 with EIP-7840 to offer more flexibility in managing &#8220;blob counts&#8221; — a key element for scaling Ethereum and supporting layer-2 rollups.&nbsp;



By allowing developers to set maximum and target blob counts independently, the network can balance scalability (by allowing more data blobs) with stability (by maintaining operational safety limits). This separation makes it easier to optimize block capacity without overloading the network.



Additionally, EIP-2537 focuses on gas repricing for <a href="https://en.wikipedia.org/wiki/BLS_digital_signature">BLS</a> (Boneh-Lynn-Shacham) precompile operations, which are essential for cryptographic computations in Ethereum. The proposal adjusts gas costs for specific mathematical operations, ensuring that resource-intensive tasks are priced fairly while removing inefficiencies like redundant operations. These updates enhance network efficiency, optimize resource usage and improve cost fairness for developers.



An EVM resource pricing working group will launch in January. This group will work on harmonizing gas cost calculations across various operations, aiming to improve efficiency and fairness in Ethereum&#8217;s fee structure.



EIP-4444, which schedules the rollout of pre-Merge history expiry for May 1, 2025, requires additional testing to finalize.&nbsp;



The call also underscored the need for clearer validator node requirements, with developers seeking community feedback. A further proposal to redefine “Meta” EIPs as solely process-related could simplify hardfork management.&nbsp;



Ethereum’s deliberate and collaborative approach to development was evident throughout the discussions. The Pectra upgrade and proposed gas limit increase reflect the network’s ambition to expand its technical capabilities while prioritizing stability.



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Ethereum to ramp up gas limit as Pectra progresses

<a href="https://overlord.bot/">Overlord.bot</a> is the first autonomous Trader AI Agent built on Arbitrum and living on X (previously Twitter) as <a href="https://x.com/OverlordBot_">@OverlordBot_</a>. Users can interact with Overlord on X to convince him to pump any token living under its reign.



Overlord reinvents how users and AI Agents can launch, trade and interact with the community created tokens on the Arbitrum network. Recently, Overlord has picked up some serious traction on X. Why? Because users have been trying hard to convince Overlord to pump their bags (or be their exit liquidity). The reward? The most convincing user will have Overlord support and pump their token. Who doesn’t want that?



The origins of Overlord stems from being the very first AI Agent launched out of <a href="https://aisweat.shop/">AiSweat.Shop</a>, also known as A.S.S. AiSweatShop is the first AI Agent Launchpad on Arbitrum and backed by Arbitrum Foundation. It was built with the OpenAgent AI Framework (the very first Web3 AI Agent Framework published on Github in March 2024) by <a href="https://open.network/">Open</a> (collective includes <a href="https://rss3.io/">RSS3</a>).&nbsp;



<h3 class="wp-block-heading">Building a New Standard for Sustainable Growth</h3>



With Overlord, the lines between creator, developer, trader, community, and protocol blur. Conviction on-chain can be tokenized and exit liquidity can be democratized through DeAI-Fi. Discussion, persuasion, mindshare, and creativity play as large a role as liquidity and code. It’s a system designed to remove all entry barriers and encourage anyone to collaborate with AI Agents.



Designed to filter out short-lived cash grabs and encourage tokens with real narratives, unique propositions, and staying power, before a token gains full recognition by Overlord, it must achieve a 100K market cap before it graduates. Until then, a 2% platform fee applies with parts going back to Overlord’s own treasury, which will in turn be used to support other new tokens’ liquidity that is collectively decided by Overlord and the community on X (through convincing Overlord). This will motivate issuers to think longer-term and deliver sustainable value to their token. Holders of $OVER (the native token of Overlord), early adopters and compelling projects may enjoy ongoing perks from Overlord, setting the stage for a future where token teams are incentivized from forging meaningful relationships with the Overlord AI.



<h3 class="wp-block-heading">Launch your token with Overlord</h3>



With Overlord, there are no backdoors, zero barriers to entry and it’s so seamless even the image of your token can be automatically generated for you.



How you can get started:&nbsp;



<ul class="wp-block-list">
<li>Launch a token on Arbitrum by posting and mentioning @Overlordbot_ on X.</li>



<li>Engage and convince Overlord that your token deserves to be pumped.</li>



<li>Work your magic and grow your token’s value, aim for that 100K market cap milestone, and watch the Overlord ecosystem respond in real time.</li>
</ul>



If you can convince Overlord of your token’s potential, then Overlord might use its autonomous wallet &#8211; currently holding 50 ETH &#8211; to buy your token within the next 24 hours. Think of it as a real-time, merit-based, AI generated investment decision that rewards authenticity, compelling visions, and community support, rather than empty hype.



<h3 class="wp-block-heading">About AiSweatShop</h3>



AiSweatShop (A.S.S.) is the first DeFi AI Agent OS, an open source DeFi Agentic Infrastructure – allowing for the easy deployment of autonomous AI Agents with various decentralized financial abilities (DeFi) subsequently tokenized to form what is called DeAI-Fi. Powered by <a href="https://open.network/">Open</a> (collective include <a href="https://rss3.io/">RSS3</a>), A.S.S. is designed to challenge the norms of decentralized finance and beyond.



At its core, A.S.S. is set to revolutionize the existing complex UI/UX of DeFi to an autonomous AI agent companion user interface termed AgentUI. The unique positioning of being on Arbitrum, the top Layer-2 (L2) of the Ethereum blockchain with the most DeFi activities is anticipated to help kick off the DeAI-Fi revolution.



<h3 class="wp-block-heading">Find Out More</h3>



With Overlord being the very first AI Agent launched from A.S.S., we’re setting the stage for a more interactive, AI-driven, and community-centric era in token launches—an era where authenticity and vision eclipse empty speculation.



For more information, visit <a href="https://aisweat.shop/">https://AiSweat.Shop</a> or follow <a href="https://x.com/OverlordBot_">@OverlordBot_</a> on X to launch your token.



This content is sponsored and does not serve as an endorsement by Blockworks. The veracity of this content has not been verified and should not serve as financial advice. We encourage readers to conduct their own research before making financial decisions.



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Convince Overlord to pump your bags

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



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If we’re trying to celebrate Christmas, then we need to bring out some green to even out the red this morning.&nbsp;



Kraken’s Thomas Perfumo already <a href="https://blockworks.co/news/crypto-market-holiday-pullbacks">warned us last week</a> that we could see some pullbacks ahead of the holidays, and that seems to be ringing true right now. Whether or not we see the selling countered is another story.&nbsp;



But I’m not actually here to talk about markets. Or, I should say, I’m not talking about what the markets are doing today.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXd6dwvu5R48RdU6YZzbtei5ghv_4Kfq37E3l6c83bOW-18vweS7Y3W5W7Ec3m3bpNEkWi9mqT1-hXaye1iBk4G3_VKO0-LS0VZ1DIGE9wT1iPW8zbGIlrIyOeGYB-b7R7rsowq40A?key=t1FBQ15ZXSF89ih_1dIaFidS" alt=""/><figcaption class="wp-element-caption">Keep this chart in mind if you’re obsessively watching bitcoin’s price right now. Source: Coinbase Institutional</figcaption></figure>



Earlier this week, Coinbase Institutional released its market outlook for next year.&nbsp;



David Duong, head of research, pointed out in the note that the 2024 uptrend has shown some “stark” differences to previous cycles, but the overall landscape looks “promising” still.



VanEck, in its predictions, otherwise said it believes that the bull market’s going to carry on next year, peaking at around $180,000. After that, they expect a 30% retracement from bitcoin and altcoins could see double that.&nbsp;



“A recovery is likely in the fall, with major tokens regaining momentum and reclaiming previous all-time highs by the end of the year,” VanEck wrote.&nbsp;



But even if we see a decline, Coinbase Institutional came off pretty bullish in their note.&nbsp;



“As the regulatory and technological landscapes evolve, we expect to see substantial growth in the crypto ecosystem as wider adoption drives the industry closer to achieving its full potential. This will be a pivotal year. The breakthroughs and advancements of 2025 may very well help shape the long-term trajectory of the crypto industry for decades to come,” Duong wrote.&nbsp;



Let’s zoom in on a question I’ve asked a number of people now: Can <a href="https://blockworks.co/news/when-will-eth-break-all-time-high">ETH make a comeback next year</a>? 



ETH’s just been lagging behind, watching from the sidelines as both bitcoin and solana carve out new all-time highs.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXelOEjo8tLgBB6SzB2TyqaLUOhyqPVdOtfrVQNKQ7vela_9QHpwnBdM7liCmZFwyLvnbrtQA4lutkU5fHRRXQY3hpMXMdZDRtmOpjbmkRx1tBsALAH6jYoSJ4GSz1bokyhJ5WQI_w?key=t1FBQ15ZXSF89ih_1dIaFidS" alt=""/></figure>



In the long-term, Duong and his team think that the growth of the Ethereum L2 ecosystem is a “boon,” but it’s not clear right now if that’s going to be enough to aid ETH in the short to medium term.



21Shares, in their predictions report, thinks that Solana is going to continue to eat Ethereum’s lunch.



“While we don’t anticipate a full ‘flippening,’ Solana is primed to outperform and capture more market share from Ethereum through improved UX and infrastructure,” 21Shares analysts wrote.&nbsp;



They also think that Ethereum is primed for a “revenue renaissance” beginning next year.&nbsp;



“Web2 firms like Robinhood and PayPal, along with traditional finance entities like Visa, are likely to launch their own L2s, leveraging cost-efficiency and scalability to unlock new revenue streams and serve a growing demand for decentralized applications,” they said.&nbsp;



So maybe things aren’t looking so bad after all.



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What analysts say about the market next year

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



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A group of 12 plaintiffs filed a lawsuit against two of the creators of HAWK, a memecoin promoted by the so-called Hawk Tuah girl Haliey Welch, in the Eastern District Court of New York this morning.&nbsp;



Welch is notably not party to the suit, which lists only her business partners, a launchpad and a Cayman Islands foundation as defendants. Welch became the latest celebrity to launch a Solana memecoin this year — and far from the first to have it blow up on her.&nbsp;



Haliey Welch became the face of the “Hawk Tuah” meme after appearing in a man on the street social media post in Nashville this summer. Improbably, Welch turned her brief clip into a promising influencer career: her Talk Tuah podcast <a href="https://x.com/ComplexPop/status/1838315768569532419">rose</a> to #4 on the charts.



Welch also made some crypto ties, <a href="https://x.com/HalieyWelchX/status/1816934298890432814/video/1">attending</a> Bitcoin Nashville and appearing <a href="https://x.com/MostCrucified/status/1831450281261007034">virtually</a> at Korea Blockchain Week. Her X profile picture is a reference to the Mog memecoin.



In late November, a little-known company called overHere announced it had partnered with Welch to launch HAWK, a memecoin that would “redefine the crypto space.” The HAWK token is the <a href="https://overhere.gg/">only</a> product listed on overHere’s website. It was founded by Clinton So, a Hong Kong resident who is one of the lawsuit’s defendants.



“We have been extremely transparent about the limited scope and extent of our involvement in the Hawk Tuah token project. We are confident that we have done nothing wrong. As for any litigation, we will let the process play out in court,” said So’s PR firm, which is called Rekt Partners, when reached for comment.



The crypto twitter personality Alex Larson Schultz, a Los Angeles resident known online as Doc Hollywood, also helped promote the launch. Some of the HAWK tokens were pre-sold and used to fund the project, the lawsuit says.



The token debuted Dec. 4 and saw its market capitalization shoot up before falling 90% all within a few hours, the suit adds. Welch, So, and Schultz initially defended the failed launch in an X space before largely disappearing from social media for the past two weeks. Welch has not posted or uploaded anywhere online since the incident.



So has already thrown Schultz under the bus for the incident: the overHere X account posted that Schultz/Doc Hollywood had full control of the token and “<a href="https://x.com/overHere_gg/status/1868799748305756667">vanished</a> when things got hard.” OverHere cast Welch and her team as wanting to tap “Web3’s potential” but not having the experience to do so in a savvy way.



Celebrities being taken for a ride by business partners urging them to debut hopeless projects is a time-honored tradition in crypto — just <a href="https://x.com/Caitlyn_Jenner/status/1795269306693075404?lang=en">ask</a> Caitlin Jenner. Reading between the lines, that seems to be the case here as well. Welch not being a defendant in the suit is telling in that regard. That story becomes sadder when the celebrity involved is a 22 year-old girl who just became famous overnight.



Max Burwick, whose Burwick Law firm filed the suit alongside Wolf Popper, told me the firm is “engaged in discussions” with Welch’s counsel.&nbsp;



He added that the case “underscores a troubling pattern in the crypto space: the targeted exploitation of celebrity and public figures’ names to generate profit, often at the expense of everyday people.”



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HAWK memecoin draws lawsuit, but ‘Hawk Tuah’ girl not sued

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



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Bitcoin keeps hitting new highs. Good for bitcoin, ether says (if the asset could talk).&nbsp;



ETH’s price of $3,470 (as of 1:30 pm ET Thursday) is about 30% off of its nearly $4,900 all-time high (set in November 2021).



LMAX Group market strategist Joel Kruger said a weekly close above $4,000 could help accelerate the rally toward a retest of its price peak. That “could easily play out between now and year end,” he told me earlier this week.



<a href="https://www.reuters.com/markets/us/futures-inch-higher-markets-await-fed-decision-2024-12-18/">Stocks</a>, BTC and ETH then dipped following Wednesday’s FOMC meeting. Still, Kruger said he doesn’t expect the latest crypto asset selling to materially impact longer-term price outlooks.



CoinShares research associate Luke Nolan told me he’s eyeing February or March for ETH to hit a new high — that is, if market momentum continues and ether ETF flows remain strong.



He sees several factors working in ETH’s favor: a multi-year low in the ETH/BTC ratio; a flip in retail and institutional sentiment; and being an attractive relative value trade (given ETH is one of the few notable coins <a href="https://blockworks.co/news/eth-sol-playing-catch-up-btc">yet to hit</a> an ATH this cycle).



On the investor sentiment piece, US <a href="https://farside.co.uk/ethereum-etf-flow-all-data/#google_vignette">spot ETH products</a> have brought in $3 billion of net inflows since Nov. 6 (<a href="https://blockworks.co/news/revisiting-trumps-crypto-promises-after-his-election-win">after the election</a>). That number is $13.5 billion for <a href="https://farside.co.uk/bitcoin-etf-flow-all-data/">spot BTC funds</a> over that span.



BTC remains an “easier sell” for many investors given its digital gold narrative, Nolan argued. More difficult to grasp is an analogy of Ethereum as a kind of global <a href="https://blockworks.co/news/empire-newsletter-ethereum-blockchain-innovation">decentralized AWS</a>.



“It&#8217;s a slower process to get people to understand [ETH’s] value proposition,” he added. “But it seems to be happening more so now than it was when the products initially launched.”



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An ATH for ETH?

Felix Jauvin

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



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So the Fed cut rates by 25bps yesterday and markets threw a fit. Hell, we even ran <a href="https://blockworks.co/news/rate-decision-fuels-santa-rally-odds">a headline</a> talking about a Santa rally that was about to ensue. Whoops. It happens.&nbsp;



But what gives? What actually happened? Let’s break it down.



Going into an FOMC meeting, a constellation of factors come together to create the tension that leads to the price outcome of the event. This combination of the market’s expectations is based on the FOMC’s forward guidance (the name of this newsletter!) and the positioning of market players going into the event with respect to those expectations. Let’s break the two down.&nbsp;



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



Going into the meeting, the SOFR curve, which can be considered the market implied forecast of the fed funds rate path toward its terminal rate, had departed significantly from the Fed’s previous summary of economic projections forecast from September.



<figure class="wp-block-image size-large is-resized"><img loading="lazy" decoding="async" width="1144" height="1018" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2-1.png?w=1024&amp;h=1024" alt="" class="wp-image-95554" style="width:691px;height:auto" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2-1.png?w=1144 1144w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2-1.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2-1.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2-1.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2-1.png?w=289 289w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2-1.png?w=293 293w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2-1.png?w=246 246w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2-1.png?w=80 80w" sizes="(max-width: 1144px) 100vw, 1144px" /></figure>



This largely reflected a major phase shift upward in economic strength and resilience of the labor market, requiring less rate cuts than what everyone expected in September.&nbsp;



In 2025, the market was only anticipating three-ish rate cuts. Therefore, to surprise the market to the hawkish side of things, the hurdle was very high to achieve this.&nbsp;



To my surprise, the FOMC managed to do it while also cutting rates yesterday. A hawkish cut? What a time to be alive.&nbsp;



By moving up the expected fed funds rate to 3.9% (from 3.4%), the FOMC forecasted only two cuts in 2025 vs. the already hawkishly positioned market that expected three.



<figure class="wp-block-image is-resized"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXf-h-2pih4yt0aCmS3d1qxbBgHcixd0fah1XMPRvmkZPRuSSL7Nq28nuXK9_8zI8W2lyj1VVezl8zTcUktM5VFGu1EYzO7nSHtYLOm4o2Pyz6oSYE0kFfX5Jx5B29uVpUBuTt1d?key=lY_46wJq03kW9UoYsGQARtzY" alt="" style="width:726px;height:auto"/></figure>



This decrease in the amount of cuts was largely driven by increased uncertainty on the path of inflation in the next 12 months, as seen here:



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1600" height="598" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=1024&amp;h=1024" alt="" class="wp-image-95553" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=1600 1600w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-1-1.png?w=80 80w" sizes="(max-width: 1600px) 100vw, 1600px" /></figure>



All of that information got distilled into this simple move — the second dot here moving above the market’s expectation in 2025: 



<figure class="wp-block-image size-full is-resized"><img loading="lazy" decoding="async" width="1006" height="968" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2.png" alt="" class="wp-image-95552" style="width:687px;height:auto" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2.png?w=1006 1006w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2.png?w=267 267w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2.png?w=271 271w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2.png?w=228 228w, https://blockworks-co.imgix.net/wp-content/uploads/2024/12/unnamed-2.png?w=80 80w" sizes="(max-width: 1006px) 100vw, 1006px" /></figure>



Now what made this move so brutal yesterday? The second part: positioning.&nbsp;



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



There’s a trifecta of positioning dynamics that came together to lead to the perfect kindling, sparking the fire that was yesterday. As Tyler Neville (co-host of the roundup) discusses here, with the VIX being so low into the event, the systematic crowd was aggressively long: <img loading="lazy" decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfM8xlPBc3OErRsLaVb8fSyH0rPlOiC_PkPzh1GF-So2IJMb9cRLA68oxj9GTxvZUkH7IdAw7EAkeQiWFKghh7X7vYawEiLBcAOPB-zjI0l0u36ARh5lxCqpjrzjpd-QoDHUGNd?key=lY_46wJq03kW9UoYsGQARtzY" width="466" height="585">



Further, there were widespread expectations of seasonality dynamics in markets (i.e. the Santa rally we alluded to yesterday) to take us to the promised land. This led to everyone piling in on the same trade of longing high beta risk assets under an assumption of continued dovishness from Powell.



Finally, we have the largest options expiry in history happening this week. With such large open interest, dealers who have to hedge their delta exposure end up chasing gamma in a reflexive manner that amplifies moves in markets. This further led to yesterday’s acceleration.



As always, there’s no single cause for market moves on any day. More so, it’s the constellation of a variety of factors that come together to cause the outcome. And some days those end up being quite aggressive moves, like we saw yesterday.



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Unpacking the Santa rally that never was

Bull markets are the time of exciting mainnet launches, airdrops and announcements.



After the world’s shortest testnet, Kraken brought forward yesterday the <a href="https://blockworks.co/news/kraken-ethereum-layer-2-superchain">mainnet launch</a> of its Ink L2 rollup — months ahead of schedule. Then, Sophon, a consumer-focused validium L2 on the Avail data availability layer, also <a href="https://x.com/sophon/status/1869427009278914935">launched</a> its mainnet.



But the announcement that&#8217;s getting ETH bulls excited today? Banking giant Deutsche Bank is planning an L2 deployment on ZKsync’s Elastic Chain stack, <a href="https://www.bloomberg.com/news/articles/2024-12-18/deutsche-bank-tries-to-tackle-compliance-hurdles-for-public-blockchains?utm_source=telegram&amp;utm_content=crypto&amp;utm_medium=social">Bloomberg</a> reported.



&#8220;Institutions looking to build onchain are coming to ZKsync for the ability to build in Web3 without compromise. ZKsync offers institutions with a customizable architecture to build tailored solutions that enable privacy, scalability and interoperability with other private and public blockchains,” Alex Gluchowski, co-inventor of ZKsync, told Blockworks.



Codenamed <a href="https://www.axelar.network/blog/deutsche-bank-dama-2-announcement">Project DAMA 2</a>, Deutsche Bank’s initiative was first announced in early November as part of the Singapore central bank’s <a href="https://blockworks.co/news/singapore-central-bank-ready-to-try-defi-after-crypto-giants-leave-for-dubai">Project Guardian</a>. Project Guardian is a global consortium of 27 financial institutions and eight key policymaker groups, focused on nudging financial institutions towards experimentation with <a href="https://blockworks.co/news/jpmorgan-tokenized-blockchain-portfolio-avalanche">asset tokenization</a> and <a href="https://blockworks.co/news/ubs-switzerland-tokenized-fund-ethereum">blockchain ledgers</a>.



Deutsche’s L2 is a TradFi development, so all the trappings of a TradFi L2 is to be expected.



That is to say, it’s a permissioned L2 network that needs to prioritize regulatory compliance over the kinds of financial degeneracy replete elsewhere on public blockchains.



Regulators are increasingly coming around to recognizing the merits of blockchain technology, but even the most forward-thinking policymakers aren’t giving up their power in a pinch.



Put simply, financial regulators are saying: Go forth and innovate with blockchains, but not to the point where it undermines our political bottom lines, please.



As AdrianoFeria.eth <a href="https://x.com/AdrianoFeria/status/1869455036880658650">put it</a>: “The only pragmatic choices for institutions that require stringent oversight and interoperability are to either run their own private, permissioned layer-1 chains, or to harness Ethereum’s L2 ecosystems.”



So Deutsche, like other centralized institutions that have launched L2s, has turned to the premier destination for that customizable solution: Ethereum.



Ethereum’s pivot from sharding to a rollup-centric roadmap in 2020 was largely pitched as a technological bet on <a href="https://blockworks.co/news/ethereum-blobs-balancing-act">horizontal scaling</a> rather than the vertical scaling route that Solana has taken. I.e., the global state can’t fit on one blockchain, we need to split it up.



That modular freedom to launch a chain however you want is also what motivates many TradFi institutions to choose Ethereum.



This strategy is, of course, not exclusive to Ethereum. Avalanche too, has pursued this aggressively with its <a href="https://blockworks.co/news/block-explorer-ava-labs-etherscan">subnet model</a>.



Avalanche’s traction, however, has been subpar relative to Ethereum rollup adoption, for the reason that it has been one step behind Ethereum in technology.



“Firstly, Ethereum rollups came out before Avalanche’s subnets. And when subnets were ready, it carried a far higher upfront cost compared to launching an OP Stack rollup. All the while, costs of rollups were trending down with EIP-4844 and new data availability solutions <a href="https://blockworks.co/news/data-availability-transaction-costs-blockchain">like Celestia</a>,” Blockworks Research analyst Nikhil Chaturvedi explained.



But that too is changing for Avalanche.&nbsp;



Avalanche&#8217;s <a href="https://x.com/BlockworksAdv/status/1868710879694635129">Etna</a> upgrade this week is drastically cutting the costs of launching an Avalanche subnet (now rebranded to Avalanche L1s). Previously, P-Chain validators had to stake 2000 AVAX, whereas costs today would be more than 10x smaller.



“The costs are now reduced to be cheaper or comparable to the cost of a rollup on Celestia,” Chaturvedi said.



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Deutsche Bank puts ZKsync in the zeitgeist

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Let’s look ahead and forget about bitcoin (briefly) sliding under $100k, shall we?



For Amberdata’s Greg Magadini, any altcoin szn is currently set to give retail a potentially profitable run. Though, clearly, this is crypto, and everyone should maintain caution.&nbsp;



Anyway, he pointed out that altcoins offer regular investors a “more even playing field” than the stock market does.&nbsp;



“If you think about a company that goes public, typically there are VCs that are early stage investors, there&#8217;s a Series A, B, C, so on, so forth. Then there&#8217;s an IPO, and then retail buys at the very, very tail end. In crypto, it&#8217;s actually the opposite. Its retail is in Discords — small teams essentially talk to their Discord communities to launch a token, and often retail is the first one to be in the market, so they essentially have an information advantage,” Magadini explained.&nbsp;



“And so that&#8217;s what makes this market very interesting: as a small player, you can invest and be at the forefront of value creation. But obviously the volatility can be crazy, and there&#8217;s a lot more scams. There&#8217;s no regulation along the way. Basically, you are kind of on your own.”



Magadini said that bitcoin — though volatile — is the lowest volatility asset for crypto right now, and also has the benefit of being the biggest market in which most people, and institutions, with crypto exposure are in.&nbsp;



This opens the door for a potential altcoin rotation to have a “higher beta performance,” where bitcoin can go 2x, and altcoins go 10x, Magadini said.&nbsp;



The good news for retail this cycle is that, despite seeing institutional action in bitcoin and ether, Magadini said he thinks institutions are still “locked out” until we see an altcoin become a major pair.



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Institutions are ‘locked out’ until an altcoin become a major pair: Analyst

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A couple months after rumors started <a href="https://x.com/0xMert_/status/1849414495170388302">trickling</a> out, the Solana developer shop Anza — which was spun out of Solana Labs earlier this year — put out a pair of proposals to consider implementing slashing in the network.



Solana has notably never enabled slashing, which is a popular method to keep validators honest in proof-of-stake blockchains. By putting slashing live, Solana would have a way to punish validators who slow down the network — but it would also introduce a vector of risk for SOL stakers.



Solana validators run software and propose and vote on blocks containing Solana transactions. Every 400 millisecond slot, a validator becomes the leader who proposes a block for all the other validators to vote on and verify. If the block looks good, it’s confirmed. If there are problems, a slot can be skipped and revisited later so that Solana can still run fast. Currently, there is no way to punish leaders who mess up proposing blocks, or validators who vote late or incorrectly, slowing down Solana’s consensus.



For now, the proposed slashing program would only slash validators for so-called duplicate blocks, where the same block is created twice. Anza is yet to decide what the slashing economics would look like at a granular level, but the SIMD author recommended burning, or functionally destroying, the slashed stake. Anza’s Ashwin Sekar also proposed a parabolic slashing curve where if 5% of a validator’s stake commits a violation, 1% of their stake is burned, while if 33% of the stake commits a violation, 100% is slashed. Ethereum’s slashing curve is linear, Sekar <a href="https://www.youtube.com/watch?v=7Hmkaj-5QUU">explained</a> on a validator discussion call.



Sekar also said the slashing proposal is still in its early stages, and such an update would be rolled out in late summer 2025 at the earliest.



Anza’s proposal seemed to be met with general early approval from Solana’s technical community.



“I can think of many scenarios in Solana where slashing is critical,” Temporal researcher Ben Coverston said on X. “Slashing is necessary to make malicious behavior -EV.”



We don’t know how slashing might look on Solana, but on Ethereum, slashing incidents tend to be quite rare. Less than 0.04% of active Ethereum validators have ever been slashed, according to Ethereum research shop Consensys. Simply put, most validators tend to do what they’re supposed to do nearly all of the time in blockchain settings with slashing enabled.



Still, turning slashing on would add a risk vector for Solana stakers, who would see their rewards suddenly dip if their delegated validator had their stake suddenly burned. This risk extends to restaking protocols as well, as some have warned of <a href="https://blockworks.co/news/eigenlayer-at-risk-of-centralization">“slashing cascade” risks</a> for Ethereum restaking outfit EigenLayer. 



“[I] hope [you&#8217;re] staking with validators you actually trust,” Mert Mumtaz, CEO of Solana’s largest validator Helius, <a href="https://x.com/0xMert_/status/1849414495170388302">said</a> on X.



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