Galeon

Ben Strack

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Welcome to the On the Margin Newsletter, brought to you today exclusively by Ben Strack.&nbsp;



Here’s what you’ll find in today’s edition:



<ul>
<li>A look at the plan for a US strategic bitcoin reserve: Its impact (whether implemented or not), and is it even a good idea?</li>



<li>Where things stand in the crypto markets after BTC’s dip last week.</li>



<li>What we’re monitoring — CPI, PPI, a historic presidential debate.</li>
</ul>



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<h2 class="wp-block-heading">Debating the ‘strategy’ of BTC reserves</h2>



We’ve talked about the possible near-term catalysts for bitcoin. Included further down in this newsletter include the data drops (and debate) we’re keeping an eye on this week.&nbsp;



We know the markets react to such events and BTC’s price fluctuates. But the type of price prediction <a href="https://www.vaneck.com/us/en/blogs/digital-assets/matthew-sigel-bitcoin-2050-valuation-scenarios-global-medium-of-exchange-and-reserve-asset/#bitcoin-scaling-and-l2s">made</a> by VanEck analysts of bitcoin reaching nearly $3 million per coin by 2050 hinges on something more.



It’s been about a month and a half since Sen. Cynthia Lummis, R-Wyo., <a href="https://blockworks.co/news/senator-lummis-bitcoin-reserve-bill-crypto-policy">floated a plan</a> for a US government-managed <a href="https://blockworks.co/news/empire-newsletter-strategic-bitcoin-reserve">strategic bitcoin reserve</a> — the type of “something more” that would bring broad awareness to the investment case for digital assets.



“Regardless of whether this idea is ever implemented, it has now moved from fringe conversations to mainstream public policy debates, and is likely forcing many governments to better understand bitcoin,” Hashdex CIO Samir Kerbage told Blockworks.&nbsp;&nbsp;&nbsp;



Indeed, <a href="https://blockworks.co/news/donald-trump-speaks-bitcoin-2024">presidential hopeful Donald Trump pledged</a> at the same time Lummis proposed this reserve (during a July speech at the <a href="https://blockworks.co/news/bitcoin-2024-nashville-recap">Bitcoin 2024</a> conference in Nashville) to “keep 100% of all bitcoin the US government currently holds or acquires.” VP Kamala Harris, the Democratic nominee, has yet to share details about her crypto stance.



To be clear, growing education around bitcoin is not an accident, Kerbage noted.



You had the highly successful launch of US spot bitcoin ETFs in January, spurring asset management titans like BlackRock and Fidelity to start marketing their own products (and the broader use case of BTC in a portfolio).&nbsp;



Then there are the <a href="https://blockworks.co/news/wisconsin-discloses-blackrock-ibit-shares">pension plans allocating to</a> (or considering holding) these products — a fact Kerbage notes has a clear effect.&nbsp;&nbsp;&nbsp;



“This type of continued adoption will force policymakers to better understand bitcoin, and could certainly help accelerate the timeframe for the consideration of BTC as a strategic reserve asset,” he noted.



That said, educational efforts are in the early stages.



“The knowledge gap among lawmakers, along with the unanswered implementation questions and the fact that the legislative process takes time, is why it could be years before the idea becomes a reality,” Kerbage added.&nbsp;&nbsp;



Then there’s the truth that not all think this is necessarily a good idea.&nbsp;



Ananya Kumar, deputy director for future of money at the Atlantic Council’s GeoEconomics Center, noted in a blog <a href="https://www.atlanticcouncil.org/blogs/econographics/what-exactly-is-a-strategic-bitcoin-reserve/">post</a> last month that crypto markets lost about half a trillion in market cap (with BTC dropping below $50,000) not long after the Lummis/Trump statements.



“Creation of a strategic bitcoin reserve rests on the premise that bitcoin can be a successful bulwark against inflation and market volatility,” she argued. “But recent days have put this argument to the test.”



While gold stayed relatively stable amid last month’s weak jobs report and a rate hike in Japan, crypto volatility <a href="https://blockworks.co/news/empire-newsletter-crypto-trends">has proved persistent</a>, Kumar said. BTC sometimes “recovers slower” than traditional markets, she added.



“This proposal is at best, premature, and at worst, out of touch with the reality of markets and US national security objectives,” Kumar wrote. “Bringing bitcoin into mainstream use is not reason enough to create a strategic bitcoin reserve.”



It’s unclear how other countries might react if the US chooses to move forward with this idea.



“But if the government of the world’s largest economy decides that BTC should be held on its balance sheet, the impact to the global credibility of bitcoin cannot be overstated,” Kerbage said.&nbsp;



More crypto-related remarks from Trump and Harris ahead of Nov. 5 could help us gauge the actual likelihood of such a plan. Or we could be left waiting much longer.



<h3 class="wp-block-heading">$1.2 billion</h3>



The amount of investor capital that exited US spot bitcoin ETFs over the past eight trading days, according to Farside Investors <a href="https://farside.co.uk/bitcoin-etf-flow-all-data/">data</a>.&nbsp;&nbsp;



That eight-day net outflow run — coming amid a bitcoin price dip — is the longest such streak since the funds launched in January (breaking the two seven-day net outflow streaks in April and June).&nbsp;



The cumulative net inflows for the ETFs, in their nearly eight months on the market, have dipped back to just below $17 billion.&nbsp;



Bloomberg Intelligence downplayed the recent outflows in an X <a href="https://x.com/EricBalchunas/status/1833114120637329507">post</a>, noting that “close to 99% of the investors have hung tough, yet again.”&nbsp;&nbsp;



<h2 class="wp-block-heading">A look at where we stand</h2>



There’s that saying: You don’t know where you’re going until you know where you’ve been.&nbsp;



Or something like that.&nbsp;



Even if knowing where you’ve been (and are) doesn’t precisely tell the future, it’s worth understanding how things stand regardless.



Crypto and equity markets pulled back last week after “a softer-than-expected jobs report and comments from Fed officials downplaying the likelihood of a 50-basis point rate cut this month,” Grayscale research head Zach Pandl said in a Monday statement.&nbsp;



Pandl told Blockworks last Friday that the August jobs report hit the “sweet spot” for BTC given a slowing labor market (allowing the Fed to cut rates) combined with a lack of recession signs.



CME Group <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">data</a> shows the market putting the probability of an interest rate cut of 25 bps at 71% (with a 50 bps cut probability at 29%).&nbsp;



Bitcoin dropped to the $52,500 “support level” late last week, analysts noted, before bouncing back toward $55,000. BTC was trading at about $56,500 at 2:30 pm ET Monday — up 3% from 24 hours prior.



It’s not just about the simple BTC price figure.&nbsp;



Last week’s crypto investment product outflows totaled $726 million, CoinShares data showed — matching a high set in March. YouHodler risk manager Sergei Gorev cited that outflow figure before noting: “The extremely pessimistic sentiment of the crowd prevails in the markets.”



There’s also bitcoin’s relative strength index — designed to measure the speed and magnitude of directional BTC price movements — <a href="https://charts.bitbo.io/monthly-rsi/">dropping</a> to its lowest level since September 2023. The correlation, too, between BTC price and TradFi markets persist.



“Such a pessimistic sentiment in the markets provides an opportunity for local growth — so far, in the form of a corrective movement,” Gorev said. “There are many negatively-minded traders on the market pushing the price lower now; a significant rebound in price may follow next.”



<h2 class="wp-block-heading">On Our Radar</h2>



When crypto prices are down, industry watchers are curious about the potential upcoming catalysts.&nbsp;



A few stand out this week:



<ul>
<li>The Bureau of Labor Statistics will publish the Consumer Price Index (CPI) report for August on Wednesday — data expected to shed light on inflation trends. <a href="https://blockworks.co/news/us-equities-trim-losses-cooler-cpi-report">Last month’s report</a> showed US prices rose slightly less than anticipated the month prior (2.9% in the 12 months ending in July). BTC and ETH initially dropped by about 4% and 5%, respectively, in the two hours or so after the print — showing the effect such reports can have, even if just in the short-term.  </li>



<li>In addition to CPI, an update on the Producer Price Index (PPI), set to be released Thursday, will be “crucial,” BRN analyst Valentin Fournier said in a statement. “These indicators will heavily influence the Federal Reserve’s upcoming interest rate decisions,” he added, noting that a 50 bps rate cut might induce a short-term market selloff. A reminder that we won’t know the Fed’s rate cut decision until next week.  </li>



<li>Beyond economic data, Tuesday night marks the first debate between presidential hopefuls Kamala Harris and Donald Trump. Kyle Bligen, director of financial policy at tech industry coalition Chamber of Progress, last week wrote a <a href="https://progresschamber.org/wp-content/uploads/2024/09/Letter-to-ABC-Debate-Mods_-Crypto-Question-1.pdf">letter</a> to ABC News’ Linsey Davis and David Muir, calling on them to ask a crypto question. “Both candidates should <a href="https://blockworks.co/news/more-crypto-remarks-likely-coming-from-trump-harris">shed more light on their positions</a> and explain how we can nurture digital assets while also providing greater consumer protection,” Bligen wrote.</li>
</ul>



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



<ul>
<li>We talked about the outflows from US spot bitcoin ETFs. As for the ether funds, they saw roughly $91 million leave their coffers during last week’s four trading days. The ETH ETFs have collectively seen $569 million of negative net flows since their July 23 launches. </li>



<li>PitchBook’s Robert Le told Blockworks editor Katherine Ross he thinks “we’re in a new cycle.” <a href="https://blockworks.co/news/crypto-funding-recovery-signs">Check out</a> what he means.</li>



<li>Head over to <a href="http://blockworks.co">Blockworks.co</a> tomorrow for a presidential debate preview. Then check back in (on the site and in the newsletter) on Wednesday and Thursday for a breakdown of that economic data.</li>
</ul>



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Why the US BTC reserve plan could be years from becoming reality

Jack Kubinec

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



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Last week, the co-founder of a shuttering NFT business told me that running an NFT platform felt like “<a href="https://blockworks.co/news/lightspeed-newsletter-hyperspace-nft-shutter">fighting the market</a>.” It got me thinking about the path forward for NFTs, as the hype around expensive JPEGs has yet to recover from the 2022 market slide.



There is one group of investors that seem to have an inkling about the future of NFTs, however. Drip Labs, the company behind Solana-based creator platform DRiP, announced it raised $8 million in seed funding today. The round was led by NFX and drew participation from Coinbase Ventures and Progression.



DRiP lets art and music creators list and sell their work as well as receive tips from fans in the form of its in-app currency, Droplets. DRiP <a href="https://blockworks.co/news/drip-haus-mass-adoption-strategy">makes use of Solana’s compressed NFTs</a> (cNFTs), a standard that was initially developed for Instagram during its brief foray into digital collectibles. CNFTs are cheaper to create and store than regular NFTs, and a big part of the DRiP ethos is free or low-cost collectible airdrops from creators to users.



Users can also tip creators with just a few cents-worth of Droplets. These microtransactions are enabled by Solana’s cheap fees and presumably wouldn’t be feasible on pricier traditional payment rails — one of the commonly-cited reasons that Solana rails could make for a better internet experience.



In an email, I asked DRiP CEO and founder Vibhu Norby about this use case for <a href="https://blockworks.co/tag/nfts">NFTs</a>.



“We were never going to make it with $100,000 ape JPEGs,” Norby wrote, adding that a go-to-market that focuses on low-cost, accessible collectibles is more likely to succeed. The feeling is that DRiP NFTs could sell for tens of thousands of dollars or for a few cents, but only offering the former kneecaps your platform.



Norby said most of DRiP’s revenue comes from a take-rate on Droplet sales, which can be purchased for fiat in the app. DRiP also makes money from sponsored campaigns on behalf of <a href="https://blockworks.co/news/lightspeed-newsletter-waka-flocka-drip-creator">creators</a> and a royalty on collectibles issued on the platform. 



In an ideal world, DRiP’s model could separate the helpful traits of NFTs from the unsustainable ones — verifiable ownership, but less wild speculation on highly-priced profile pictures. The <a href="https://blockworks.co/tag/solana">Solana</a> platform 3.land is built with a similar ethos, as is Ethereum-native Zora. Base tried something similar with its recently-wrapped Onchain Summer promotion.



Also, DRiP is acquiring users without the promise of a future native token airdrop — a mechanism that has been perhaps the most successful user and deposits magnet this cycle, at least for the short term.



“The history of consumer apps launching tokens has been extremely poor so far,” Norby said. “I’ve seen so many crypto apps drink their own Kool-Aid thinking they found product-market fit when they were under attack by sophisticated sybil farms and arbitrageurs.”&nbsp;



Norby added that DRiP has faced 2.5 million sybil attacks over the past 18 months as it is. “Imagine an app that’s actually promised a token,” he wrote.



With the fresh funding, DRiP plans to bring a mobile app to market. The app will likely begin to launch in October, a spokesperson told me. Opining on what else the future might bring, Norby said he thinks music has the most potential for growth, since musicians are the most “economically challenged creative class” who can also make good use of DRiP’s direct-to-consumer model.



“Check back with me in [three] years to see if I was right,” Norby said.



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DRiP’s $8M seed round highlights a path forward for NFTs

Donovan Choy

Governance voting platform Snapshot has announced the <a href="https://snapshot.mirror.xyz/F0wSmh8LROHhLYGQ7VG6VEG1_L8_IQk8eC9U7gFwep0">launch</a> of Snapshot X, a new onchain voting protocol.



The new protocol will be launched on the layer-2 network Starknet and leverage the technology of “storage proofs” from <a href="https://herodotus.dev/">Herodotus</a>, a middleware blockchain infrastructure company.



Snapshot said in the announcement that <a href="https://snapshot.mirror.xyz/F0wSmh8LROHhLYGQ7VG6VEG1_L8_IQk8eC9U7gFwep0">96%</a> of DAOs use its platform for preliminary offchain voting, sometimes referred to as a “temperature check.”



By voting off-chain, token holders can skirt the high gas fees of the Ethereum layer-1 while signaling their early positions on key governance issues. However, votes are typically considered finalized only after an onchain vote is concluded with a separate voting platform like Tally.



In an effort to bring DAO voting onchain cheaply, the new Snapshot protocol will leverage storage proofs to verify token holdership on Ethereum layer-1 before enabling votes onchain from Starknet.



Read more: <a href="https://blockworks.co/news/mango-markets-dao-sec-settlement">DAO behind Mango Markets votes for SEC settlement</a>



Thanks to Starknet’s support of native Ethereum cryptographic signatures, Snapshot X abstracts the use of the zk-powered layer-2 on the backend. This enables the use of popular EVM wallets like MetaMask on Snapshot X without requiring users to separately onboard to Starknet.



Like the original Snapshot protocol, Snapshot X will also be programmable and allow for different <a href="https://blockworks.co/tag/dao-governance">governance</a> coordination mechanisms.



These include the various features that DAOs have historically used in governance like NFT voting, gasless signature voting, permissioned/whitelisted proposal creation and time-locked execution.



“Essentially, the point of Snapshot X is unstoppable onchain governance,” Snapshot Labs Chief Operating Officer Jeremy Musighi told Blockworks.&nbsp;



Snapshot Labs first raised $4 million in November 2021 in a round led by 1kx venture fund.



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Snapshot to launch onchain voting on Starknet

Katherine Ross

Are more token launches coming this fall?



“I think we’re in a new cycle,” PitchBook’s Robert Le told Blockworks.



“In the last six months to maybe even a year, we&#8217;ve been in the same cycle in terms of sentiment, increasing capital going into the space and more developers coming and building. So last quarter, I think, maybe there was a little bit of a lull,” he added.



Le’s feeling pretty positive about the fall, and he thinks it’s just a matter of time until projects start announcing more token launches.&nbsp;



He’s already seen plans for the third and fourth quarters of this year, but there’s currently a “prisoner’s dilemma” where people are trying to figure out “how the market is going to move” so as to time their launches.



Read more: <a href="https://blockworks.co/news/venture-capital-data-not-close-to-2022-levels">Don’t expect venture capital data to hit 2022 levels for several years: Analyst</a>



“Everyone’s playing the waiting game to see,” he added. Projects would prefer if the market was moving up, but also want to be the first to launch their tokens. But there could be a “tipping point” where the launches happen regardless of an ideal market environment, or we enter a “full force” bull market.



The fourth quarter of last year into the first quarter of this year saw a decent chunk of token launches, but it’s since dried up. Even token unlocks aren’t bountiful, according to data from the Tie Terminal.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXe9zoeg9HyG-Ubrz2obQqUMk8DBtECvzyh4moGfubxpZNOsed3n9X3_ygeSi9plPJIq1nW8HWaIh7tT5osA2Bhy7VLgqxyFblskQ5ZFjOCjq93mA8zZD30ZOMzyf4nI234arzyBI937fxSb1uNnLsZDsPId?key=jJVyUwhp0HJi9Ozff7d2sA" alt=""/><figcaption class="wp-element-caption">Source: Tie Terminal</figcaption></figure>



The unlocking of $350 million worth of SUI is the biggest unlock over the last month into September, as shown above.&nbsp;



Read more: <a href="https://blockworks.co/news/lightspeed-newsletter-anatomy-of-a-token-launch">Anatomy of a token launch</a>



While Le thinks that we could be gearing up to see a bull market “sometime next year,” which he believes will happen regardless of <a href="https://blockworks.co/news/september-events-that-could-move-markets">who takes the White House</a>, he believes the election won’t impact crypto.



Le analogized crypto to an “abused child” in search of love, and notes a candidate like Trump is the first one to give the industry <a href="https://blockworks.co/news/donald-trump-accepts-crypto-donations-2024-election">such attention</a>.&nbsp;



In the end though, “governments don’t like crypto because it’s trying to supplant the traditional financial ecosystem or financial system. It won’t necessarily matter if one party over another supports crypto,” Le said.&nbsp;



“I think the pragmatic way to interact with regulators and lawmakers is to work with both sides,” Le told Blockworks. “And I think the crypto industry needs to learn to do that.”



Had Trump been in office post-FTX, his administration would have had to crack down on the industry just as hard as the Biden administration and Securities and Exchange Commission’s Gary Gensler have, he added.



<h2 class="wp-block-heading">Venture capital activity</h2>



Speaking of 2022, we’re not anywhere near the venture capital activity that we saw back then, though things are looking up in comparison to last year.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcAI87i1dNPN4mrzOj3i7G2Rn5QBpOVvCjM6E9JRh9NRH3J4lMLDzDXlm8ptmEg-PGbBzSnDxFNq9wlrAr26vzOn6K4_j7PkMeaWx-VuMhhVtBqQcSmNFj8o9BFYAk3F_Y4fZH1sl9rmLZ5Vi1pE6HecRv-?key=jJVyUwhp0HJi9Ozff7d2sA" alt=""/><figcaption class="wp-element-caption">Source: Crypto VC Funds Report</figcaption></figure>



“As of July 30, 2024, $2.2 billion has already been raised across 24 funds — a sum on track to surpass 2023’s total capital raised. The rebound can be attributed to the overall recovery of the crypto market, in which the total crypto market cap reached 93% of the previous cycle’s watermark in March 2024,” Le wrote in a report.



Per Tie Terminal data, August saw 167 raises totaling $981 million. DeFi projects led the charge, raising $210 million. And the data shows that <a href="https://blockworks.co/tag/gaming">gaming</a> and <a href="https://blockworks.co/tag/metaverse">metaverse</a> segments are showing an uptick in activity, with $65 million raised last month.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfUkrlVvcnZaOvO1npB5z7uEYG95FClCRMs3vK9qn35SMsF4jdFvQ6s6qOpz0UGOvavUMWZH6F5lPxY3B4xntE-14qiXYE_QpXXvuR7pM1oii0vyudAPYM7ItYniIWa1k7fljCMTcNOtP-hISNwKM-cqBg?key=jJVyUwhp0HJi9Ozff7d2sA" alt=""/><figcaption class="wp-element-caption">Source: Tie Terminal</figcaption></figure>



In a report released Friday, Le noted that the median fund size has jumped 76% to $41 million from $25 million last year, with a lot of those being midsized funds (we’re talking $100 million to $500 million).&nbsp;



This shows that “these funds may represent a sweet spot for crypto investors — big enough to support a growing industry but not so large as to struggle with finding viable opportunities. In an industry still in its relative infancy, $1 billion funds face the challenge of needing to write checks worth $25 million to $50 million, which forces them into high valuations and larger bets in a market where startups of that scale are still scarce,” Le wrote.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeM1YEimKqcej9kOp0oiG_hFyvxZ-JQri19UOY5kUM0RiEek0cFFjLuiWsjDa_H8ToGBm6O905xgHXOXC6E6gTyi5BTTYOjc8SEVYxFmVHawSIccZdu28i-AJuNgsv0pfboqDgiOkB0-KBsAaLAj6hlvf_5?key=jJVyUwhp0HJi9Ozff7d2sA" alt=""/><figcaption class="wp-element-caption">Source: Crypto VC Funds Report</figcaption></figure>



Staying below 2022 levels may actually be a good thing, given that hype isn’t necessarily always a long-lasting thing.&nbsp;



But while we’re seeing a rebound, “the crypto fundraising environment will stay tough as the market recovers,” Le wrote.



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



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



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Crypto fundraising is seeing ‘signs of recovery:’ PitchBook

David Canellis

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



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



<h2 class="wp-block-heading">Ready, set, go!</h2>



“I think we’re in a new cycle,” PitchBook’s Robert Le told me.



“In the last six months to maybe even a year we&#8217;ve been in the same cycle in terms of sentiment, increasing capital going into the space, and more developers coming and building. So last quarter, I think, maybe there was a little bit of a lull,” he added.



Le’s feeling pretty positive about the fall, and he thinks it’s just a matter of time until projects start announcing more token launches. He’s already seen plans for the third and fourth quarters of this year, but there’s currently a “prisoner’s dilemma” where folks are trying to suss “how the market is going to move,” to time it just right.&nbsp;



The fourth quarter of last year into the first quarter of this year saw a decent chunk of token launches. but it’s since dried up. Even token unlocks aren’t bountiful, according to data from the Tie Terminal.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXftDU7_0ORDtcVQTzGSqWQyhDUUlnt-kwtdyocJ2jmkV8rgxcKBN8GZGy7_-ikHx1CgzHNl7ODCrTu-hGVyKXlLQ4wKs415lf5rbrwuw4g-K4wU0fCATmj_e6Y5Uijc6WivsWMmz-Ng64NX5wNF3R9MOd2L?key=re1OyQ0ifCJe71b-C2K5aw" alt=""/><figcaption class="wp-element-caption">Source: Tie Terminal</figcaption></figure>



The unlocking of $350 million worth of SUI is the biggest unlock over the last month into September, as shown above.&nbsp;



Le’s not the only one feeling more positive. Ledn’s John Glover <a href="https://blockworks.co/news/btc-levels-to-watch-after-selloff">previously said</a> that he also thinks sentiment will sort itself out now that the summer’s coming to an end.&nbsp;



The election, Le believes, won’t impact crypto.&nbsp;



He likened crypto to being an “abused child” in search of love, and a candidate like Trump is the first one to give the industry such attention.&nbsp;



In the end though, “governments don’t like crypto because it’s trying to supplant the traditional financial ecosystem or financial system. It won’t necessarily matter if one party over another supports crypto, Le said. In the end, he believes the industry is better off working with “both sides” — whoever is in the White House — and the regulators.&nbsp;



Had Trump been in office post-FTX, his administration would have had to crack down on the industry just as hard as the Biden administration and SEC’s Gary Gensler have, he added.



Speaking of 2022, we’re not anywhere near the venture capital activity that we saw back then, though things are looking up in comparison to last year.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcWC-wG_rCbVfTm7IEmgwdSrPMJ-3wIyATVYg2o20sbxtIiP7K-CckpC4FCUwcVQt2ILzE_sHesXtuJFKop9mjU7Me_I5b1vw6oUeDZKOOFyyZizlvACA3rZp1T3Yon4am9OdNpWbNJZ-mNaiwkiK20AqU?key=re1OyQ0ifCJe71b-C2K5aw" alt=""/><figcaption class="wp-element-caption">Source: Crypto VC Funds Report</figcaption></figure>



Per Tie Terminal data, last month saw 167 raises totaling $981 million. DeFi projects led the charge, raising $210 million. And the data shows that gaming and metaverse segments are showing an uptick in activity, with $65 million raised last month.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXc04Afc1xJ0YcJ9gqDCe-tG3WP7cP8GfBpb7uOJMaTfJFpJdgnio5mrzGOT1E7ZfR2sY-Cirw59ZN7Ze7ZjcrHYWUoByK9z46wHMmI4RWe1OBzHWJ2pRORaM4AaRxYuFrY1lvcCe6xXiLG7DI8Xb7iUHCbi?key=re1OyQ0ifCJe71b-C2K5aw" alt=""/><figcaption class="wp-element-caption">Source: Tie Terminal</figcaption></figure>



In a report released Friday, Le noted that the median fund size has jumped 76% to $41 million from $25 million last year, with a lot of those being midsized funds (we’re talking $100 million to $500 million).&nbsp;



This shows that “these funds may represent a sweet spot for crypto investors — big enough to support a growing industry but not so large as to struggle with finding viable opportunities. In an industry still in its relative infancy, $1 billion funds face the challenge of needing to write checks worth $25 million to $50 million, which forces them into high valuations and larger bets in a market where startups of that scale are still scarce,” Le wrote.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfPLzXYm57DSaKwVNSd1630qPdif2TqjCfF1uMNL0w_Y-4V9t9Wu1lKT403WbYUNqbWVqRkXXjBafxF0u2UkmwpN7EdB37usxa1ln9U_gWiZ4pXnE7dD2QIkuR98o616_dPTJ-D0Cx3sTynrGj4h2KEvhv_?key=re1OyQ0ifCJe71b-C2K5aw" alt=""/><figcaption class="wp-element-caption">Source: Crypto VC Funds Report</figcaption></figure>



Staying below 2022 levels may actually be a good thing, given that hype isn’t necessarily always a long-lasting thing.&nbsp;



Le said he feels “pretty good” about a full-swing bull market “sometime next year,” now that we’re starting to see more signals and can drown out some of the noise.



— Katherine Ross



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



<ul>
<li>BTC and ETH are working on recoveries after bottoming on Friday. BTC is up 3.6% since hitting a monthly low of $53,300, ETH is up 5.7% after reaching $2,190.</li>



<li>SUI leads the <a href="https://www.coingecko.com/">front page</a> over the week with 19%, having risen from $0.78 to almost $0.93. SUI’s still down 57% from its all-time high in March.</li>



<li>Hyperliquid has pulled <a href="https://defillama.com/derivatives/chains">ahead</a> of Arbitrum, Solana and Ethereum for weekly DEX perps volume, now $6.57 billion and over 22% of the total.</li>



<li>Fewer than 700 memecoins were launched <a href="https://dune.com/maditim/sunpump">yesterday</a> on Tron launchpad SunPump, down from over 7,500 at its peak at the end of August. </li>



<li>Almost 4,600 memecoins were launched on Solana’s pump.fun yesterday, <a href="https://dune.com/hashed_official/pumpdotfun">down</a> from more than 20,000 in one day last month.</li>
</ul>



<h2 class="wp-block-heading">Friend technology</h2>



So much of crypto relies on capturing lightning in a bottle — and monetizing it.



Friend.tech did manage to pull off the former. The platform had riffed on what BitClout had tried during the height of the 2021 bull market: letting content creators and other personalities tokenize shares of their social media profiles so that their followers can gain exposure to their trajectories.&nbsp;



Where BitClout had launched its own blockchain alongside a token sale, Friend.tech opted to deploy on Base without a native token.&nbsp;



At the time it was considered a key advantage, considering how sharply BitClout’s CLOUT token had dropped after its exchange listings.



And for a few months in 2023 leading up to the start of the bitcoin bull run, Friend.tech seemed to find traction — generating hundreds of thousands of dollars in <a href="https://dune.com/cryptokoryo/friendtech">protocol</a> revenue every day.



But a botched airdrop came months after activity peaked. Friend.tech users had trouble claiming their tokens, while <a href="https://thedefiant.io/news/markets/friend-tech-token-tanks-after-shambled-debut">reports</a> indicated that some of the biggest airdrop farmers were dumping quickly after receiving their allocations.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdQQS_iTxWvcaNPlqeAuQtyd6YuJct5AjFpi7JkFK4bVi1BkEiZr3hWvq6P0sJDeaIwS1dpLfz9TWVtgJOYJjIOZcVQ_nrdJGuKk_FS9zYONWtm_99UACyLsWBgfaYlHEuuoFii3XO_ymUGgXBPwB4nQc6g?key=re1OyQ0ifCJe71b-C2K5aw" alt=""/><figcaption class="wp-element-caption">The green and red areas show the buying and selling volumes of Friend.tech profile shares. ETH/USD is shown by the faded purple line for scale</figcaption></figure>



In total, Friend.tech generated 17,280 ETH in protocol fees, valued at $22.3 million at the time of earning those coins, or $40 million today. But as you can see on the chart above, most of the revenue was made long before the airdrop, which happened at the start of the blue line.



The FRIEND airdrop also came only this May, around six weeks after bitcoin hit its all-time high. Crypto markets have been generally sliding ever since, giving little cover for a sudden resurgence in interest in Friend.tech and its token.



Friend.tech isn’t completely dead per se. Its developers have only renounced the keys to the smart contract, meaning there’s no longer any access to the backend, so no more updates. The front end is still alive and Friend.tech’s X account has <a href="https://x.com/friendtech/status/1832581118165709140">said</a> it will continue operating.



All told, the protocol quickly made millions, but that didn’t convert to staying power. Although, that’s so far been tough for social coins and Web3 social apps, particularly ones that revolve around the hyper-financialization of our online personas.



Something tells me more platforms will take runs at it — hopefully with better timing and a smoother airdrop.



— David Canellis



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



<ul>
<li>$1.2 billion was pulled from bitcoin ETFs over a span of eight days through Sept. 6, Bloomberg <a href="https://www.bloomberg.com/news/articles/2024-09-09/us-bitcoin-btc-etfs-bleed-1-2-billion-in-longest-run-of-outflows">reported</a>. </li>



<li>Bernstein analysts think bitcoin could top $90,000 if Trump is elected, though they <a href="https://www.coindesk.com/markets/2024/09/09/bitcoin-could-hit-90k-by-year-end-if-trump-becomes-president-again-bernstein/?utm_medium=referral&amp;utm_source=rss&amp;utm_campaign=headlines">think</a> it could fall if Harris is elected. </li>



<li>Coinbase’s Paul Grewal <a href="https://x.com/iampaulgrewal/status/1831811779531289080">said</a> a judge ordered the SEC to turn over some documents in the agency’s case against the exchange.</li>



<li>Prosecutors in Ryan Salame’s case <a href="https://www.coindesk.com/policy/2024/09/06/prosecutors-tell-ny-court-they-didnt-renege-on-ftx-exec-ryan-salames-plea-deal/?utm_medium=referral&amp;utm_source=rss&amp;utm_campaign=headlines">reaffirmed</a> to the judge that they never went back on the original deal struck with Salame when they continued to investigate his partner, Michelle Bond.</li>



<li>Last week, the CFTC <a href="https://www.theblock.co/post/315161/cftc-files-emergency-motion-seeking-to-stop-kalshi-listing-election-prediction-contracts?utm_source=rss&amp;utm_medium=rss">sought</a> an emergency stay of a judge’s decision to strike down an order prohibiting prediction marketplace Kalshi from opening US election betting for US users. </li>
</ul>



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



Q: Can there be more to crypto than bull and bear markets?



Let’s flip the question: Is there more to Amazon than its share price?



Most people would likely say yes. They probably order stuff from Amazon regularly or read ebooks on a Kindle.



It would be more difficult to believe that most would say the same about bitcoin, ether or even solana. I&#8217;ve even <a href="https://blockworks.co/news/crypto-tech-price-important">made the case previously</a> that the sole reason that any of us are here is because of prices — as even the most technologically focused use cases are only viable if prices aren’t too low.



To be clear, I am a huge proponent of decentralized blockchain protocols and peer-to-peer sound money.



And obviously, higher prices would amplify their power. Or at the very minimum, they would allow many of the current applications in the space to turn profitable, particularly after factoring in the dilution of token holders through incentive payouts.



The viability of much of the crypto space is unfortunately tied to bull and bear markets. But once protocols and other projects have mastered the art of sustainability, prices will matter much less than they do right now.



— David Canellis



I touched very briefly on signal vs. noise, but this is kind of what I’m trying to get at in conversations with folks at the moment.&nbsp;



Obviously, sentiment is really important. But at a certain point, we do have to step back and look at the data, to figure out whether there’s a true reason for negative sentiment and therefore poor price action — or if folks are just tired.&nbsp;



Remember when we <a href="https://blockworks.co/news/empire-newsletter-crypto-weekend-selloff">riffed on checking prices</a>? People burn out when they focus too much on one thing.&nbsp;



We’re all here because we believe in what crypto can do. Not what the price of bitcoin, ether, or a token can do. Separate signal from noise, and start tuning that noise out.&nbsp;



Don’t get me wrong, bull markets and bear markets will always be there — and will either drive or hinder innovation — but we can still buckle down and focus on building.



— Katherine Ross



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A new cycle could boost sentiment and price action

EigenLayer plans to <a href="https://blog.eigenfoundation.org/season-2-stakedrop/">distribute</a> 86 million EIGEN tokens, around 5.1% of its total supply, as part of its Season 2 “stakedrop” campaign. The distribution will be split across three groups:



<ul>
<li>Stakers and Operators: 70 million tokens are allocated to participants who staked and operated on the protocol.</li>



<li>Ecosystem Partners: AVSs, liquid staking protocols, and other key contributors will receive 10 million tokens.</li>



<li>Community Members: Early advocates and contributors will share 6 million tokens.</li>
</ul>



The airdrop is based on a snapshot taken on Aug. 15, 2024, with claims opening on Sept. 17, 2024.



<h2 class="wp-block-heading">Euler launches V2</h2>



The DeFi lending protocol Euler launched its V2 deployment on Wednesday.



Unlike V1, Euler V2 is being reimagined with a fundamentally modular design that “isolates risk, is easier to test, analyze, and audit, and reduces single points of failure,” according to an official <a href="https://www.euler.finance/blog/securing-euler">blog post</a>.



With the aid of the protocol’s “Euler Vault Kit”, builders can create ERC4626 vaults that are customizable in terms of risk management, governance settings, and asset collateral types.



These vaults can be interconnected using the &#8220;Ethereum Vault Connector&#8221; module, allowing deposits to be recognized across different vaults seamlessly.



Euler V2’s modular design allows vaults to interact, enabling diverse credit markets tailored to specific needs. This flexibility supports various lending strategies and asset management approaches, leading the team to brand it as a “meta-lending” protocol capable of unifying multiple lending and borrowing markets.



Back in March 2023, Euler was exploited in a $197 million flash loan attack. Following negotiations and pressure from the community and law enforcement, the attacker ultimately <a href="https://blockworks.co/news/euler-exploiter-returns-money">returned</a> the stolen funds.



In response, Euler V2 underwent a rigorous security process, with 29 audits conducted by 12 independent firms. The team has described this as &#8220;one of the most expensive and comprehensive security processes for any DeFi protocol to date,&#8221; according to their official blog.



<h2 class="wp-block-heading">One interesting stat:</h2>



<ul>
<li>Polygon successfully <a href="https://blockworks.co/news/polygons-biggest-little-upgrade-matic-to-pol">upgraded</a> its MATIC token to POL on Wednesday, as part of its move to Polygon 2.0. Three days into the process, it has converted 53.2% of the total supply, according to a dashboard from <a href="https://dune.com/queries/3262981/5461995">Dune Analytics</a>.</li>
</ul>



<h2 class="wp-block-heading">Also of note:</h2>



<ul>
<li>ApeChain, an L2 network affiliated with the Bored Ape Yacht Club, launched its &#8220;BluePrint&#8221; roadmap. The initiative aims to boost user engagement with a new ecosystem website, fiat-to-crypto onramps, and developer tools like the Reboot Protocol. The project seeks to expand ApeCoin&#8217;s utility beyond NFTs​.</li>



<li>Skyscanner has partnered with Travala to enable its 110 million monthly users to book over 2.2 million hotels using more than 100 cryptocurrencies. This integration marks the first time Skyscanner has incorporated crypto payments into its platform.</li>



<li>Celestia, a data availability-focused L1, has <a href="https://blog.celestia.org/roadmap/">announced</a> a plan to scale its block size to 1 gigabyte. The network said that it aims to boost data throughput and support high-performance applications like onchain gaming​.</li>
</ul>



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Web3 Watch: EigenLayer announces 86M token airdrop for Season 2

B2C2 — a company focused on institutional liquidity for digital assets — appointed Cactus Raazi as CEO of its US business this week.&nbsp;



Raazi previously worked as Amber Group’s US chief executive and co-head of the Americas, leading the crypto financial services firm’s revenue growth and regulatory engagement.



More recently, the executive was chief revenue officer at Kraus Motor Company and head of US strategy at Enhanced Digital Group, according to his LinkedIn page. Earlier in his career, Raazi spent stints as a managing director at both Nomura and Goldman Sachs.&nbsp;



“As the digital asset sector continues to mature, we see the convergence of the crypto native and TradFi worlds,” B2C2 CEO Thomas Restout said in a statement. “Cactus’s established commercial and regulatory relationships across both will deliver tremendous benefits to our clients and our firm.”



Stablecoin Standard hired Beth Haddock as its global policy lead. She is leading the drawing-up of standards set to be released at the organization’s event in Singapore later this month.&nbsp;&nbsp;



Haddock has worked as chief legal officer at AdvisorEngine and a managing partner at Warburton Advisers, according to her LinkedIn page.&nbsp;



“I’m excited to lead the industry dialogue on why stablecoins are a crucial innovation for cross-border payments — ranging from [business-to-business] transactions to institutional treasury management and retail remittances — and how they will improve on traditional finance options for consumers, entrepreneurs and others,” she said in a statement.



<h2 class="wp-block-heading">Board member additions</h2>



A former chief executive at a bitcoin mining giant is set to leverage that past expertise in a new board director role.&nbsp;&nbsp;



Synteq Digital appointed ex-Hut 8 Mining CEO Jaime Leverton and Robert Fedrock to its board of directors, the company said Thursday.



The combination of SunnySide Digital and Cryptech Solutions formed the new company. It focuses on offering infrastructure and services to the crypto mining and high-performance computing (HPC) data center sectors.&nbsp;&nbsp;



Fedrock is a managing director and partner at investment bank Origin Merchant Partners.&nbsp;



Leverton led Hut 8 until the company <a href="https://blockworks.co/news/hut-8-merger-ceo-switch">replaced her with Asher Genoot</a> in February. She is currently chief executive of “a stealth mode company that is creating the next great opportunity in crypto,” Synteq said.&nbsp;&nbsp;



“I’ve seen first-hand the immense change that both digital mining and the data management sector have faced in recent years,” Leverton said. “Synteq Digital sits at the cusp of both of these industries and provides a unique proposition to drive progress for the future of digital assets.”



Read more: <a href="https://blockworks.co/news/btc-miners-evolving-revenue-post-halving">From BTC to HPC: Miners signal evolving focus after the halving</a>



Also on the crypto mining board front, Marathon Digital appointed Janet George and Barbara Humpton to its board of directors. They replace Kevin DeNuccio and Said Ouissal, who have stepped down in a “planned transition.”



Current board member Doug Mellinger is shifting to the company’s lead independent director.



George most recently worked as Intel Corporation’s general manager of data center and AI. Humpton is president and CEO of Siemens USA.&nbsp;



“Given the increasing relevance of [Marathon&#8217;s] digital infrastructure technology and our AI data center co-location strategy to hyperscalers and AI data center operators, we recognized the need to bring AI and AI data center-specific expertise onto our board,” Marathon CEO Fred Thiel said in a statement. “Additionally, as our utility scale mining and energy harvesting business segments continue to expand, we saw the importance of adding global energy and power infrastructure expertise to guide our growth.”



<h2 class="wp-block-heading">Cutting staff</h2>



Not all crypto companies are adding to their ranks.



Matter Labs CEO Alex Gluchowski said in a Tuesday X <a href="https://x.com/gluk64/status/1830968752210375030">post</a> that the company was cutting about 16% of its staff as part of “restructuring the organization.”&nbsp;&nbsp;&nbsp;



Read more: <a href="https://blockworks.co/news/matter-labs-layoffs-incoming">Matter Labs to cut 16% of workforce</a>



The market environment and business needs have changed this year, he wrote — adding that many teams building on ZKsync Era require a different type of technology and support than they had previously.



“The launch of the Elastic Chain and ZK Nation was the right moment to re-evaluate our strategy, goals and team composition,” Gluchowski noted. “We went through a large org planning exercise, and it became clear that the talent and roles we have today do not perfectly match our needs.”



And in case you missed it last week, crypto-friendly Custodia Bank was set to lay off nine employees, Fox Business <a href="https://www.foxbusiness.com/markets/custodia-bank-laying-off-employees-biden-admins-crypto-crackdown-weighs-digital-asset-industry">reported</a> — representing a quarter of its workforce.



The layoffs come amid regulatory hurdles for the Wyoming financial institution. The Federal Reserve Board last year <a href="https://www.federalreserve.gov/newsevents/pressreleases/orders20230127a.htm">denied</a> Custodia’s application to become a member of the Federal Reserve System — noting the bank’s crypto focus “presented significant safety and soundness risks.”



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Crypto hiring: Stablecoin Standard, B2C2 tap new executives

It may have been a quieter week when looking at the amount of venture capital raises or funds announced —&nbsp;but the ones that did issue announcements this week made a bit of a splash.&nbsp;



First up we have Halo Capital, which is a new fund launched by Bhavin Vaid and Daniel Howard, the son of Alan Howard. 



The $25 million fund is focused on investing through a data-driven and research-based approach. The two, both veterans of growth equity fund 10T, said they’ll be taking a generalist approach to the space. 



“The industry is constantly evolving at both the infrastructure and application layer, and we believe the best way to capture value is by investing across a broad range of subsectors,” Howard said in a statement.



“We’ve seen increased demand from investors for funds with a generalist approach to the space. By being research and data-driven, we’re able to identify and invest in exceptional opportunities across the entire digital asset ecosystem.”



Vaid added: “No other allocator has effectively merged traditional research, quantitative data science, and a flexible crypto-native approach to investing in the token economy.”



The fund has already made two investments in a DePIN project called Andrena as well as Bima, a protocol focused on creating a stablecoin collateralized by bitcoin. 



“The token economy has matured, with multiple new launches each year exceeding $1 billion in fully diluted values, and many existing tokens naturally appreciating in price to surpass $1 billion market caps. We believe the invention of the token as a novel liquidity mechanism has created a robust token economy that is now at a stage where the ecosystem can and should be valued based on both traditional and crypto-native metrics,” Vaid said. The firm will act as “hands-on angel investors.”



Speaking of new funds, Halo wasn’t the only one to make a debut this week. Asylum Ventures, a $55 million generalist fund, was also <a href="https://www.asylum.vc/">announced</a>.



Notation Capital founder Nick Chirls — which invested in projects such as Solana and NEAR — is the general partner at the new fund. Jonathan Wu, former head of growth at the Aztec Network, joined as an investment partner.&nbsp;



“I’ve always believed the best early-stage founders are artists — they&#8217;re obsessive about new and unusual things, they feel compelled to bring creation into the world, and they are often misunderstood for long periods of time–even lifetimes. Building businesses is their art,” Chirls wrote.



<h2 class="wp-block-heading">Other notable rounds:</h2>



<ul>
<li>Cybersecurity firm Hypernative <a href="https://x.com/HypernativeLabs/status/1830954670195380261">said</a> it raised $16 million in a Series A. Bloccelerate, Boldstart Ventures and CMT Digital were among the participants.  </li>



<li>Puffpaw, the vape-to-quit smoking crypto project built on Berachain, <a href="https://x.com/puffpaw_xyz/status/1831514068521455679">raised</a> $6 million in a round led by Lemniscap. Volt Capital and Folius Ventures were among the participants.</li>
</ul>



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Funding Roundup: Halo Capital, Asylum Ventures make debuts

Casey Wagner

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



<ul>
<li>Making sense of the jobs report that didn’t necessarily clear up what size rate cut the Fed could opt for.</li>



<li>The formalized call for a crypto question at next week’s presidential debate, and why it’s needed.</li>



<li>Friday means a recap of economic data and developments!</li>
</ul>



<h2 class="wp-block-heading">More Goldilocks data sends markets lower&nbsp;</h2>



The pivotal report that some analysts say will determine the size of the Federal Reserve’s interest rate cut later this month is here, and, shocker, it was disappointing.&nbsp;



US employers added 142,000 jobs in August, Friday’s <a href="https://www.bls.gov/news.release/empsit.nr0.htm">US Jobs report</a> showed. Economists had expected a net gain of 160,000. Still, it’s better than July’s figure, which was revised down on Friday from 114,000 to 89,000. Another (small) bright spot: unemployment fell from 4.3% in July to 4.2% in August, which was expected.&nbsp;



Markets, expectedly, fell. The S&amp;P 500 and Nasdaq Composite indexes lost as much as 2% and 2.8%, respectively, after the open on Friday. Bitcoin and ether slid as much as 5.8% each in the hours after the report was published.&nbsp;



By 2 pm ET, the S&amp;P 500 and Nasdaq Composite were trading 1.6% and 2.4% lower, respectively. Bitcoin was down 5% over 24 hours, hovering around $53,800 at that time while ether was 6% in the red.&nbsp;



Even so, crypto experts say it’s not the time to worry.&nbsp;



“The August jobs report hit the sweet spot for bitcoin: the labor market has slowed, which will allow the Fed to cut rates, but there are no signs of recession,” said Grayscale research head Zach Pandl.



Pandl and his team remain “optimistic about the outlook for the balance of the year, in light of the favorable macro backdrop, the election year focus on large US budget deficits, and growing institutional adoption through the new spot crypto ETPs,” he added.&nbsp;



Investors had speculated that a larger interest rate cut (50 basis points versus 25bps) would be in store should job growth slow or unemployment rise. Today’s report showed neither.&nbsp;



As so-called Chair Timiraos (Nick from the WSJ) <a href="https://x.com/NickTimiraos/status/1832038957594427441">said</a>, the headline figures aren’t bad enough to guarantee a 50bps cut, but they also aren’t good enough to ensure central bankers will opt for 25bps.&nbsp;



Based on the <a href="https://blockworks.co/newsletter/research/issue/post_ef1be887-fd7e-4298-bb39-c65167eb89bc">reaction</a> we saw to the July jobs report in early August (remember the VIX hit 38 and the Dow lost more than 2,000 points?), today’s market carnage isn’t a shocker.&nbsp;



We’ve decidedly left the era where “bad data is good,” but now we are in what I’m calling the “iffy data is good” era. Today’s report was definitely not too hot, but it also wasn’t bad enough to really intensify fears that a soft landing is impossible.&nbsp;



Tom Essaye, founder of Sevens Report Research, says we are in the “just right” zone, where a September rate cut is all but guaranteed, without full-fledged recession fears being sparked.&nbsp;



Here’s to more iffy data next week. Have a good weekend.&nbsp;



— Casey Wagner&nbsp;



<h2 class="wp-block-heading">$51,000</h2>



The bitcoin “support level” that if lost could lead to a steeper drop, according to technical and on-chain analyst Ali Martinez.



Martinez noted in a Wednesday X <a href="https://x.com/ali_charts/status/1831231909898449130">post</a> that BTC falling below $51,000 could lead to a further plummet to $40,600 — citing the <a href="https://tradingcenter.org/index.php/learn/technical-analysis/328-how-to-trade-td-sequential">TD Sequential</a> indicator used to identify trend exhaustion and price reversal. Bitcoin dipped closer to that level Friday, falling below $53,800 by 2 pm ET.&nbsp;



<h2 class="wp-block-heading">Crypto industry looking for stance details at presidential debate&nbsp;</h2>



Yesterday’s <a href="https://blockworks.co/news/on-the-margin-newsletter-crucial-jobs-report">newsletter</a> touched on Donald Trump’s latest crypto mention. It also, separately,&nbsp; discussed a recent <a href="https://blockworks.co/news/blockchain-association-investigation-fed-order">enforcement action</a> against a crypto-friendly bank.&nbsp;



These form a reminder: The ongoing lack of regulatory clarity for industry businesses coincides with a presidential election cycle in which crypto has become a point of discussion.



This brings hope to those wanting to see crypto regulatory change. And while there have been promises from one candidate and mostly silence from the other, people want more details.&nbsp;



A Chamber of Progress executive formalized this wish via a <a href="https://progresschamber.org/wp-content/uploads/2024/09/Letter-to-ABC-Debate-Mods_-Crypto-Question-1.pdf">letter</a> to ABC News’ Linsey Davis and David Muir ahead of the Sept. 10 debate between Trump and Kamala Harris. These moderators “have an opportunity to illuminate the candidates’ stances on crypto,” wrote Kyle Bligen, the tech industry coalition’s director of financial policy.



After all, “passing bipartisan digital asset regulations is front and center this election cycle” for the 18 million Americans (by their count) currently holding or trading crypto.



Another quick reminder: Trump has expressed <a href="https://blockworks.co/news/on-the-margin-newsletter-trump-bitcoin-mining-meeting">support</a> for US bitcoin mining, <a href="https://blockworks.co/news/donald-trump-speaks-bitcoin-2024">vowed</a> to fire SEC Chair Gary Gensler and promised to make the US the “world capital for crypto and bitcoin.” Though Harris hasn’t yet addressed the topic of crypto much, a campaign adviser <a href="https://www.bloomberg.com/news/articles/2024-08-21/harris-supports-policies-to-expand-crypto-industry-aide-says?srnd=phx-crypto&amp;utm_source=on-the-margin.beehiiv.com&amp;utm_medium=newsletter&amp;utm_campaign=first-month-s-a-doozy&amp;_bhlid=791e8f2e2b8483dd7e2d676dc6e16698a3b3fcc1">said</a> she would “support policies that ensure that emerging technologies and that sort of industry can continue to grow.”



Former SEC senior counsel Ashley Ebersole previously told me “talk is cheap.” Big statements on the campaign trail do not always lead to practical actions, <a href="https://blockworks.co/news/kamala-harris-crypto-policy-reset-outlook">added</a> Exodus legal chief Veronica McGregor, alluding to Trump’s Gensler remarks.



Still, any crypto-related pledges uttered by either candidate (or lack thereof) may hold a bit more weight on a debate stage.&nbsp;



“Both candidates should shed more light on their positions and explain how we can nurture digital assets while also providing greater consumer protection,” Bligen added in the letter.&nbsp;



Such a debate question could go to Harris given she has so far not been as clear on her crypto stance, Ebersole said. Any pro-crypto statements from Harris in particular “might cause a bit of a market bounce,” BDE Ventures CEO Brian Evans told Blockworks.



We know Elon Musk and the Winklevoss twins support Trump. We’ve seen SkyBridge Capital founder Anthony Scaramucci (who had a brief stint as White House communications director under Trump) repeatedly share his support for Harris.&nbsp;



More recently, Ripple co-founder Chris Larsen came out — along with 87 other corporate leaders, CNBC <a href="https://www.cnbc.com/2024/09/06/harris-endorsed-trump-murdoch-yelp-snap-ripple.html">reported</a> — to endorse the vice president.&nbsp;



Though some may be willing to <a href="https://blockworks.co/news/single-issue-crypto-voter">vote on the crypto issue alone</a>, some <a href="https://blockworks.co/news/only-a-fool-would-vote-on-crypto-alone">may not</a>. Others may be on the fence. However people are thinking about it, it seems hard to argue that more substantive dialogue around the topic can only be positive for all.&nbsp;



— Ben Strack



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



Happy Friday! It was a short week for our US readers, but there was still plenty of data to unpack. It’s less than two weeks until the next policy-setting Federal Reserve meeting, and markets have a bit more clarity now. Here’s this week’s recap:&nbsp;



<ul>
<li>The latest Fed <a href="https://www.federalreserve.gov/monetarypolicy/files/BeigeBook_20240904.pdf">Beige Book</a>, released Wednesday, shows that economic activity in the US is mostly flat or declining. Employment remained fairly stagnant, the survey indicates, and companies reported few layoffs. The report paints a picture that shows the labor market is tightening, a situation Fed Chair Jerome Powell has said he does not want to aggravate. That bodes well for a rate cut later this month, which we of course already knew was coming. But having supporting economic reports never hurts. </li>



<li>As Felix <a href="https://blockworks.co/news/on-the-margin-newsletter-ism-pmi-goods-disinflation">unpacked</a> on Tuesday, the latest ISM manufacturing report left investors with much to be desired. The Purchasing Managers Index for August came in at 47.2% after analysts expected 47.9%, fueling fears that economic growth is on the decline and leading to the biggest sell-off in stocks since early August. </li>



<li>New York Fed President John Williams and Fed Gov. Christopher Waller made separate appearances on Friday morning. Both reiterated that rate cuts will be starting this month, but, unsurprisingly, gave no indication as to the size of such a cut. We’re 12 days out from the next FOMC decision day, and markets are still mostly betting on a 25-basis point decrease. I’m not one to make wagers, but I’d be shocked if the Fed opts for 50bps on Sep. 18. Powell hates surprising the market, and central bankers have given no indication that anything greater than 25bps is on the table. </li>
</ul>



— Casey Wagner



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



<ul>
<li>New York judge Juan Merchan on Friday <a href="https://www.cbsnews.com/news/trump-sentencing-delay-hush-money-case-new-york/">delayed</a> the date of Donald Trump’s “hush money” case sentencing (from Sept. 18 to Nov. 26), meaning it will come after the presidential election.   </li>



<li>Barclays analysts upgraded their stock rating for Coinbase and Robinhood to “equal weight,” according to a Friday research note. For COIN specifically, the analysts cite an apparently improving regulatory environment “with both presidential candidates becoming increasingly friendly towards crypto.” Coinbase has <a href="https://blockworks.co/news/coinbase-q3-earnings-analysis">diversified</a> its business model in recent quarters, most recently tallying <a href="https://blockworks.co/news/coinbase-reports-1-4b-in-revenue-beating-estimates">$1.4 billion in total revenue</a> during Q2. </li>



<li>Investment firm VanEck said it plans to <a href="https://blockworks.co/news/vaneck-closing-ether-futures-etf">close its ether futures ETF</a> nearly a year after launching it. The plan — made after evaluating its performance, liquidity, assets under management and investor interest, the company said in a statement — comes following VanEck’s launch of a spot ETH fund in July.</li>



<li>Speaking of ETFs, Blockworks’ Empire <a href="https://blockworks.co/news/how-safe-is-the-money-sitting-in-bitcoin-etfs">newsletter</a> team breaks down how safe the $50 billion or so sitting in US spot bitcoin ETFs is given the FBI’s latest warning about North Korean hackers.</li>
</ul>



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More Goldilocks data sends markets lower

Jeff Albus

Howdy!&nbsp;



Death, taxes, and the Kansas City Chiefs getting extremely lucky at the end of football games. When will it end?



It’s day two of the NFL season and I’m already resigned to my Buffalo Bills bowing out to Patrick Mahomes in the playoffs yet again. At least I have all our newsletter subscribers to keep me company:



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



<h2 class="wp-block-heading">Kamino is Solana’s home for liquidity incentives</h2>



PayPal’s PYUSD stablecoin has recently seen rapid growth on Solana. Much of the growth has been driven by Kamino, a newer DeFi platform where the majority of this activity is happening.



Kamino, a borrow-lend protocol on Solana that began gaining real traction in late 2023, onboarded PYUSD with generous liquidity incentives in early July. Today, some $344 million PYUSD is held on Kamino, according to onchain <a href="https://solscan.io/token/2b1kV6DkPAnxd5ixfnxCpjxmKwqjjaYmCZfHsFu24GXo#analysis">data</a>. This equates to 62% of the total supply on Solana.



It’s easy to see why PYUSD grew so quickly on Kamino — it was <a href="https://x.com/y2kappa/status/1825979796930834635">offering</a> 18% APY on the stablecoin for a time. This boosted yield wasn’t cheap. $500,000 is being spent weekly on PYUSD incentives, and this figure was hundreds of thousands of dollars higher a couple weeks ago.&nbsp;



A source with knowledge of the matter told me that these incentives are doled out by Trident Digital, a little-known firm that the stablecoin’s issuer Paxos <a href="https://blockworks.co/news/paypal-stablecoin-aave-deployment">taps for liquidity boosting services</a>. I could not determine for certain whether the funds incentivizing PYUSD adoption were ultimately being paid for by PayPal or by the Solana Foundation.&nbsp;



But taking a broader look, PYUSD is not alone in spending for adoption on Kamino. In fact, eight of Kamino’s 10 highest-volume liquidity vaults have “incentives farms,” which appear to let projects front their tokens and let Kamino disburse them to depositors. Tons of Solana projects have done this: Jito, Marinade, Blaze, and Sanctum all appear to have active liquidity farms. <a href="https://x.com/KaminoFinance/status/1821194296181297334">Ethena</a> and <a href="https://x.com/KaminoFinance/status/1775497542295343587">Wormhole</a> appear to have spent on liquidity incentives, too.



While all this was going on, Kamino has grown significantly. On Dec. 6, 2023, Kamino had $42 million in total value locked (TVL), according to DeFiLlama. Nine months later, that number is at $1.4 billion, and Kamino looks like it could make a serious run at Jito to become Solana’s largest protocol by TVL.&nbsp;



Some have drawn comparisons between Kamino and the Ethereum borrow-lend protocol Aave, a blue-chip DeFi protocol that’s ranked third in TVL among all protocols with over $11 billion locked. Kamino isn’t the only borrow-lend protocol on Solana — MarginFi and Save (formerly Solend) also come to mind — but its liquidity management vaults tab appears to be setting it apart. There’s also the fact that <a href="https://www.coindesk.com/tech/2024/04/11/marginfi-leader-resigns-on-fiery-day-for-major-solana-lender/">both</a> other <a href="https://decrypt.co/103489/solend-whale-108m-loan-nearly-crashed-solana">incumbents</a> have had their warts in the past.&nbsp;



Still, it’s an open question as to how sticky Kamino’s TVL can be. Of the $1.4 billion currently held on Kamino, $380 million is in PYUSD, and the weekly yield boost appears to be slowly scaling down. Kamino’s $148 million in liquidity vaults, many of which receive incentives, are significant, too.&nbsp;



“Kamino lenders are happy lenders,” Kamino’s co-founder <a href="https://x.com/y2kappa/status/1831652258246705299">wrote</a> on X this week. I’ll be interested to see if liquidity incentives are table stakes for keeping them happy.



— Jack Kubinec



<h2 class="wp-block-heading">Zero In</h2>



India really showed out for Colosseum’s Radar hackathon:



<figure class="wp-block-image"><img loading="lazy" decoding="async" width="786" height="397" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-1.png" alt="" class="wp-image-91463" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-1.png?w=786 786w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-1.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-1.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-1.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-1.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-1.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-1.png?w=80 80w" sizes="(max-width: 786px) 100vw, 786px" /></figure>



The hackathon, which is going on from now until Oct. 8, has drawn a fair amount of interest from Solana’s community, and as you can see, more than a third of the registrants come from India. Hackathon winners have a chance to join Colosseum’s startup accelerator, which also comes with a <a href="https://blockworks.co/news/lightspeed-newsletter-solana-startup-accelerator">seed investment check</a>.



Colosseum’s first hackathon in the spring produced the viral Solana experiment Ore, which we’ve written <a href="https://blockworks.co/news/lightspeed-newsletter-solana-ore-v2-review">a fair bit about</a>, so I’ll be rooting for some similarly-interesting new projects to emerge from this hackathon.&nbsp;



— Jack Kubinec



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



ICYMI — Stories you may have missed this week:



<ul>
<li>0xDeep <a href="https://x.com/0xDeep/status/1829952043123163447">created</a> the Solana Programs Verified Directory, a public dashboard for trusted and verified Solana programs. It is intended to help users ensure the integrity of their interactions.</li>



<li>PRISM Explorer <a href="https://x.com/prism_tec/status/1830743118867501420">launched</a> the first AI-driven data intelligence platform for Solana, allowing users to query the entire Solana ledger back to Epoch 0 with SQL and AI agents.</li>



<li>Volmex Finance <a href="https://blog.volmex.finance/sviv-index/">introduced</a> the SVIV Index, Solana&#8217;s first implied volatility index, tracking 14-day expected volatility with future updates planned for derivatives trading.</li>



<li>Jupiter Exchange <a href="https://x.com/JupiterExchange/status/1831698316557701612">announced</a> its new ‘Protect your swaps’ feature, intended to safeguard transactions from sandwich attacks by routing swaps directly to Jito Labs validators.</li>



<li>The GRASS airdrop <a href="https://x.com/SolanaFloor/status/1831674074243772926">caused</a> disappointment among some users due to smaller-than-expected token allocations, despite its minimal participation requirements​.</li>



<li>Mercuryo is set to <a href="https://mercuryo.io/explore/article/mercuryo-launches-spend-crypto-debit-card">launch</a> its Spend virtual debit card, which promises to let Solana wallet users spend their crypto at over 90M Mastercard merchants.</li>



<li>Scammers <a href="https://x.com/SlorgoftheSlugs/status/1830769369049375204">discovered</a> a new method to burn tokens directly from Solana wallets via the Token 2022 standard, adding a new layer of risk for unsuspecting users.</li>



<li>AggLayer, <a href="https://x.com/SuperVikkings/status/1832078473873015077">introduced</a> by Polygon Labs&#8217; CEO, is a cross-chain interoperability layer connecting Solana, Ethereum, and other blockchains to bring “infinite scalability” to Web3.</li>



<li>Bybit has begun to <a href="https://announcements.bybit.com/en/article/introducing-bbsol-unleash-the-power-of-liquid-staking-on-solana-bltbe8b566922960d76/?category=new_crypto">issue</a> bbSOL, a liquid staking token on Solana that allows users to earn staking rewards while maintaining liquidity and maximizing returns.</li>
</ul>



— Jeffrey Albus



<h2 class="wp-block-heading">One Good DM</h2>



A message from braunguy, co-founder of Lulo



<figure class="wp-block-image"><img loading="lazy" decoding="async" width="572" height="628" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-2.png" alt="" class="wp-image-91464" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-2.png?w=572 572w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-2.png?w=273 273w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-2.png?w=234 234w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-2.png?w=238 238w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-2.png?w=199 199w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image-2.png?w=73 73w" sizes="(max-width: 572px) 100vw, 572px" /></figure>



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Kamino seeing benefits from liquidity incentives on PYUSD

Investment firm VanEck intends to close its ether futures ETF nearly a year after launching it, the company said Friday.



The VanEck Ethereum Strategy ETF (EFUT) hit the market in October 2023. The fund, like others brought to market at the same time, <a href="https://blockworks.co/news/sec-consider-ether-futures-etfs">held ether futures contracts</a> rather than ETH directly.



The ETH futures offerings <a href="https://blockworks.co/news/ether-futures-etfs-opening-week-underwhelming">failed to gain significant assets</a>, as some speculated investors might be waiting for spot ether ETFs — funds that <a href="https://blockworks.co/news/nine-us-spot-eth-etfs-live-post-approval">gained the SEC’s final green light in July</a>.&nbsp;



VanEck was among those to launch a spot ether ETF. While the VanEck Ethereum ETF (ETHV) has so far notched $63 million of net inflows, according to Farside Investors <a href="https://farside.co.uk/ethereum-etf-flow-all-data/">data</a>, EFUT manages just $21 million in assets.&nbsp;



Read more: <a href="https://blockworks.co/news/education-required-to-spur-eth-etf-outflows">To spur ETH ETF inflows, ‘the first catalyst is education’</a>&nbsp;



Shareholders of VanEck’s ether futures fund can sell their shares on the Cboe exchange until markets close on Sept. 16. After that, the shares will no longer trade on the exchange and will be subsequently de-listed.



“VanEck continuously monitors and evaluates its ETF offerings across a number of factors, including performance, liquidity, assets under management, and investor interest, among others,” the company said in a Friday news release. “The decision was made to liquidate the fund based on an analysis of these factors and other operational considerations.”



Grayscale Investments withdrew its application to launch an ether futures ETF in May. Then-CEO Michael Sonnenshein <a href="https://www.dlnews.com/articles/regulation/grayscale-to-focus-on-spot-ethereum-products-says-ceo/">reportedly</a> said during a Financial Times event



earlier that month that the firm wanted to focus on its spot products.&nbsp;



VanEck <a href="https://www.vaneck.com/us/en/press-releases/vaneck-announces-changes-to-etf-product-line-bitcoin-strategy-etf.pdf">revealed</a> its plan to shutter its bitcoin futures ETF just days after launching a spot BTC fund in January.



Industry professionals have previously pointed to the downsides of futures ETFs, including roll costs and contango — a situation when the futures price is above the expected future spot price.&nbsp;



“We believe investor appetite would switch from products offering ether futures exposure to direct ether exposure, such as ETHV,” a VanEck spokesperson told Blockworks in an email. “Spot products should more closely track the price of ether, as they don’t incur the costs associated with rolling futures contracts.”



Updated September 6, 2024 at 1:35 pm ET: Added comment from VanEck spokesperson.



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VanEck to close ether futures ETF after July spot ETH fund launch

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



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Happy Fri-yay!



No, but really, we made it through the (short) week. Congrats.



Today we’re diving right into custodian safety, and David’s cooked up a few Easter Eggs for you all. Have a great weekend!



— Katherine Ross



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



<h2 class="wp-block-heading">Staying afloat</h2>



The FBI has a warning for crypto: North Korean hackers are on the prowl.



“North Korean malicious cyber actors conducted research on a variety of targets connected to cryptocurrency exchange-traded funds (ETFs) over the last several months. This research included pre-operational preparations suggesting North Korean actors may attempt malicious cyber activities against companies associated with cryptocurrency ETFs or other cryptocurrency-related financial products,” the FBI <a href="https://www.ic3.gov/Media/Y2024/PSA240903">said</a> earlier this week in a bulletin.



On social media, it led to a discussion started by Eleanor Terrett of Fox News on whether or not Coinbase — the custodian of 8 of the 11 bitcoin ETFs (including BlackRock’s) — could be a “single point of failure.”&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">It doesn’t bode well that nearly all crypto ETF issuers have the same custodian for all their <a href="https://twitter.com/search?q=%24BTC&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$BTC</a> and <a href="https://twitter.com/search?q=%24ETH&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$ETH</a>. This makes <a href="https://twitter.com/coinbase?ref_src=twsrc%5Etfw">@coinbase</a> a potential single point of failure and that’s scary. <a href="https://t.co/47RNMQ5dQN">https://t.co/47RNMQ5dQN</a>&mdash; Eleanor Terrett (@EleanorTerrett) <a href="https://twitter.com/EleanorTerrett/status/1831352537670131890?ref_src=twsrc%5Etfw">September 4, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



As it stands, all 11 ETFs have over $51 billion worth of bitcoin according to <a href="https://bitcointreasuries.net/">Bitcoin Treasuries</a>, so it’s a fair concern to wonder what could happen if something — or someone — attacks custodians or the issuers themselves.



&#8220;The world’s largest financial institutions rely on Coinbase for a reason — we have a proven track record, state-of-the-art technology, and deep expertise in crypto custody. Crypto is a unique technology with unique needs,” a Coinbase spokesperson told me.



“Coinbase has built its reputation as the most trusted and secure platform for safeguarding digital assets, and operates under the same regulatory frameworks as other major institutions like the DTCC, ensuring that we meet the highest standards of security and oversight. Our commitment to security remains unwavering, and we’re proud to serve as the trusted custodian for the majority of crypto ETFs, ensuring the safety and integrity of these assets.&#8221;&nbsp;



The company’s Chief Legal Officer Paul Grewal reiterated that point on social media, saying that it’s the “opposite of scary.”



<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 think it&#39;s whatever the opposite of scary is. A wide range of the world’s largest and pickiest institutions trust us as the most effective way to keep their clients’ digital assets safe. <a href="https://t.co/lL1tEjPv1G">https://t.co/lL1tEjPv1G</a> <a href="https://t.co/jw0Tqgi7td">https://t.co/jw0Tqgi7td</a>&mdash; paulgrewal.eth (@iampaulgrewal) <a href="https://twitter.com/iampaulgrewal/status/1831363302410293724?ref_src=twsrc%5Etfw">September 4, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



If you remember, there were <a href="https://www.reddit.com/r/Bitcoin/comments/1aboqwr/does_the_fact_that_coinbase_holds_custody_of_8/">snippets</a> of discussions at the end of last year through the beginning of this year when all of the ETF filings revealed that most of the issuers had picked Coinbase.&nbsp;



In March, the company itself <a href="https://www.coinbase.com/blog/how-we-keep-digital-assets-safe">addressed</a> the safety of custodying the assets.&nbsp;



And yesterday, MetaMask’s lead security researcher Taylor Monahan entered the chat.



<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">Coinbase is NOT different bc they’ve *eliminated* the risk though. Bc they haven’t. Bc they can’t. NO ONE CAN. This shit is wild. The incentives are too much. The hackers have too many resources. They will literally burn 0 days to get at Coinbase. They *have* burned 0 days.&mdash; Tay 💖 (@tayvano_) <a href="https://twitter.com/tayvano_/status/1831545355370164470?ref_src=twsrc%5Etfw">September 5, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Monahan pointed out, in a thread on X, that Coinbase owns the “reality” of the situation: There are bad actors out there, and they will try to attack prominent crypto firms (or crypto people, as Nick Drakon formerly of Revelo <a href="https://x.com/NickDrakon/status/1831719184041906286">revealed</a> in his own thread Thursday.)



According to Monahan, Coinbase adheres to a “get hacked but don’t get rekt” mindset.&nbsp;



“No matter what Coinbase does internally for their systems, they cannot wholesale prevent one of their customers from willfully initiating a transfer given they provide the required authentication,” she warned, saying that the risk could come from the issuers themselves.



She compared the security to a ship, which is to say you don’t want water getting in. But sometimes it does.&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">More good stuff: My friend Luke (who actually built systems at Coinbase and AWS and others) gave this analogy: secure systems are built like ships. Even if the hull is breached, the water should only flood a few compartments. The ship shouldn&#39;t sink.<a href="https://t.co/CqmP6Vd6S3">https://t.co/CqmP6Vd6S3</a>&mdash; Tay 💖 (@tayvano_) <a href="https://twitter.com/tayvano_/status/1831730099936489766?ref_src=twsrc%5Etfw">September 5, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“Water is CONSTANTLY seeping into the hull of the ship. Like&#8230;always,” Monahan said.”The ship expects this though. You just have float switch sump pumps in the basins that are auto triggered when the water reaches a certain level.”



Monahan’s analogy is a good one, reminding folks that it’s all about awareness and staying on top of the situation. So perhaps instead of “keep calm and carry on,” crypto folks should adopt “keep calm and stay aware.”



— Katherine Ross



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



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



On this week’s Weekly Round Up <a href="https://blockworks.co/podcast/empire">episode of Empire</a>, Jason Yanowitz and Santiago Santos broke down a myriad of topics — most of which you, dear reader, will be familiar with if you open this newsletter each morning.&nbsp;



But I want to focus on just one: The <a href="https://blockworks.co/news/empire-newsletter-crypto-trends">quiet quitting theory from Ikiagi’s Travis Kling.</a> Yanowitz speculated that this is something that happens in every industry, while Santos said he thinks this happens every cycle.&nbsp;



“It’s the hallmark of a trough,” Santos said. “The question is, is this time any different? And is this a sign of something that’s more enduring?”



Those questions are a bit broad to answer right here, right now, but I think Santos might have been answering them himself when he noted that BlackRock’s Larry Fink isn’t quiet quitting by any means. But it’s natural for some investors to burn out.&nbsp;



There’s an opportunity if you look closely, investors perhaps just need to be “disciplined” and “patient,” Santos said.&nbsp;



“I’ve seen this movie many, many times,” he added. Grab some popcorn then, I guess.



And now you know.&nbsp;



<figure class="wp-block-image"><img loading="lazy" decoding="async" width="1600" height="1275" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png" alt="" class="wp-image-91441" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png?w=1600 1600w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png?w=323 323w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png?w=328 328w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png?w=275 275w, https://blockworks-co.imgix.net/wp-content/uploads/2024/09/image.png?w=80 80w" sizes="(max-width: 1600px) 100vw, 1600px" /><figcaption class="wp-element-caption">Images credit: Financial Times &amp; World Economic Forum (<a href="https://creativecommons.org/licenses/by/2.0/#ref-appropriate-credit">C.C. BY 2.0</a>), modified by Blockworks</figcaption></figure>



BlackRock chief Larry Fink’s evolution into crypto evangelist didn’t happen overnight.



It also happened much longer ago than it seems. Fink has since October 2017 made public comments about crypto 14 times, and only three of those could be considered negative.&nbsp;



The latest of those comments was in late 2021, when he <a href="https://x.com/squawkcnbc/status/1448252591385755648">said</a> he was probably more in the “Jamie Dimon camp” when it comes to bitcoin. The JPMorgan boss has called bitcoin a fraud, a Ponzi scheme on top of other classic critiques over the years.



Moments where Fink and BlackRock have either commented on or interacted with the crypto space are plotted on the chart above.&nbsp;



Fink’s happy faces — which have indeed been consistent over the past year — represent positive headlines, and the stern faces were either negative or neutral. I don’t expect we’ll see many of the latter moving forward.



— Katherine Ross &amp; David Canellis



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Just how safe is the $51 billion sitting in bitcoin ETFs?

Telegram CEO Pavel Durov spoke out publicly for the first time since his arrest.



The CEO, who was arrested in Paris last week, claimed in a Telegram message to his channel that he was interviewed for four days after arriving in France.&nbsp;



“I was told I may be personally responsible for other people’s illegal use of Telegram, because the French authorities didn’t receive responses from Telegram,” Durov said.&nbsp;



He said that prior to the interrogation, he hadn’t received prior warning from the authorities about the inquiries, and neither had Telegram’s official point of contact in the European Union for such requests.&nbsp;



Read more: <a href="https://blockworks.co/news/telegram-founder-pavel-durov-indicted">Telegram CEO indicted in France</a>



“As a French citizen, I was a frequent guest at the French consulate in Dubai. A while ago, when asked, I personally helped them establish a hotline with Telegram to deal with the threat of terrorism in France,” Durov claimed.



Durov was later indicted in France. He’s since been ordered to stay in France, though he was released from police custody. In the Thursday message, Durov didn’t specify whether he was still in France.



The charges against Durov include complicity in selling and offering narcotic substances and distributing child pornography. The French authorities previously claimed that Durov didn’t aid investigations.&nbsp;



Read more: <a href="https://blockworks.co/news/empire-newsletter-crypto-telegram-centralization">Unpacking crypto’s Telegram situationship</a>



Per last week’s press release from French authorities,&nbsp; an official investigation was opened in early July. An earlier Politico report also claimed that the authorities have sought an arrest warrant for Durov’s brother, Nikolai Durov, as well.&nbsp;



“Sometimes we can’t agree with a country’s regulator on the right balance between privacy and security. In those cases, we are ready to leave that country. We&#8217;ve done it many times. When Russia demanded we hand over “encryption keys” to enable surveillance, we refused — and Telegram got banned in Russia,” he further explained.&nbsp;



“When Iran demanded we block channels of peaceful protesters, we refused — and Telegram got banned in Iran. We are prepared to leave markets that aren’t compatible with our principles, because we are not doing this for money. We are driven by the intention to bring good and defend the basic rights of people, particularly in places where these rights are violated,” Durov said.



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Pavel Durov says French investigation was ‘surprising’

The Blockchain Association is seeking more information about the Federal Reserve’s latest cease-and-desist order against United Texas Bank as part of a broader investigation into the US government’s so-called Operation Choke Point 2.0.&nbsp;&nbsp;



An examination by the central bank identified “significant deficiencies” around risk management and compliance with anti-money laundering laws, including the Bank Secrecy Act, according to a Wednesday <a href="https://www.federalreserve.gov/newsevents/pressreleases/files/enf20240904a2.pdf">filing</a>.&nbsp;



These alleged shortcomings were related to “foreign correspondent banking and virtual currency customers,” the Federal Reserve noted.&nbsp;



United Texas Bank did not immediately return a request for comment.&nbsp;



Read more: <a href="https://blockworks.co/news/operation-choke-point-2-0">Operation Choke Point 2.0: Is the US coming for crypto?</a>



“It’s no secret there is a coordinated attempt to choke off the digital asset industry’s access to the traditional banking system,” Blockchain Association policy counsel Laura Sanders told Blockworks. “We are investigating yesterday’s troubling news, which unfortunately may be more of the same: deliberate targeting of banks that serve digital asset customers.”



The <a href="https://blockworks.co/tag/federal-reserve">Federal Reserve</a>’s order against United Texas Bank gained the attention of Custodia Bank founder Caitlin Long, who wrote in an X <a href="https://x.com/CaitlinLong_/status/1831369498643108202">post</a>: “Another crypto bank, another enforcement action.”



The Federal Reserve Board last year <a href="https://www.federalreserve.gov/newsevents/pressreleases/orders20230127a.htm">denied</a> Custodia’s application to become a member of the Federal Reserve System — noting the bank’s crypto focus “presented significant safety and soundness risks.”



“Regulators have such broad mandates on monitoring and compliance that they can basically selectively enforce against anyone they want,” former VanEck crypto strategy lead Gabor Gurbacs said in response to Long’s post. “It seems wrong.”



The Federal Reserve Bank of Philadelphia claimed the same type of <a href="https://blockworks.co/news/federal-reserve-charges-customers-bank-aml">AML-related “significant deficiencies” at Customers Bank</a> and its parent company last month. It noted Customers’ services to “digital asset” clients in the action, including enabling them to make tokenized payments over a distributed ledger technology system to other clients at the bank.



In response, Customers Bank named Allen Love as its new chief compliance and AML officer to work on “strengthening Bank Secrecy Act and Anti-Money Laundering protocols for the company’s digital asset business.”



The order against United Texas Bank came the same day the Commodity Futures Trading Commission alleged that Uniswap “illegally offered leveraged or margined retail commodity transactions in digital assets via a decentralized digital asset trading protocol.”



Uniswap is set to <a href="https://blockworks.co/news/cftc-settlement-uniswap-labs">pay $175,000 to settle the allegations</a>. <a href="https://blockworks.co/tag/cftc">CFTC</a> Commissioner Summer Mersinger said in a dissenting <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement090424?utm_source=govdelivery">opinion</a> that the Uniswap case “has all the hallmarks of what we have come to know as regulation through enforcement.”&nbsp;



Read more: <a href="https://blockworks.co/news/cftc-uniswap-settlement-dissenting-opinion">CFTC Commissioners dissent on Uniswap settlement</a>



“Wielding the hammer of enforcement against these DeFi protocols may result in some short-term ‘wins,’” Mersinger added. “But in the long-term…it will only create problems.”&nbsp;



Looking elsewhere: <a href="https://blockworks.co/news/sec-charges-galois-capital-custody-failures">The SEC charged the defunct crypto hedge fund Galois Capital</a> with failing to properly safeguard client assets. Galois agreed to pay a settlement amount of $225,000 — to be distributed to the fund’s “harmed investors.”&nbsp;



Blockchain Association executive director Kristin Smith took to X to call the Galois charges more of the same from the agency: “Taxpayer-funded ‘gotcha’ lawfare aimed at driving the US crypto industry away for good.”



<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">1/ Another day, another attempt by the SEC to drive the crypto ecosystem offshore. The SEC claims Galois Capital failed to comply with the Custody Rule. Galois settled, but it’s worth digging into the Custody Rule and how the SEC uses it to discourage investments in crypto.…&mdash; Kristin Smith (@KMSmithDC) <a href="https://twitter.com/KMSmithDC/status/1831339085689983273?ref_src=twsrc%5Etfw">September 4, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Industry watchers are waiting to see whether <a href="https://blockworks.co/news/more-crypto-remarks-likely-coming-from-trump-harris">a new presidential administration</a> might offer regulatory clarity to crypto businesses.&nbsp;



While Donald Trump has made <a href="https://blockworks.co/news/donald-trump-speaks-bitcoin-2024">several promises as part of a bid to be a pro-crypto president</a>, Democratic nominee Kamala Harris has so far been less vocal about the topic.&nbsp;



Read more: <a href="https://blockworks.co/news/more-crypto-remarks-likely-coming-from-trump-harris">Ex-SEC counsel: More crypto remarks likely coming from Trump, Harris</a>



“The digital asset industry has created tens of thousands of American jobs, and these lawful businesses need bank accounts to pay their employees, vendors and taxes,” Sanders said. “Blockchain Association will continue its investigation into Operation Choke Point 2.0 and bring all findings to light.”&nbsp;



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



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Blockchain Association ‘investigating’ Fed order against United Texas Bank

Felix Jauvin

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



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



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



<ul>
<li>What to watch for when perhaps the most important jobs report of the year drops tomorrow. </li>



<li>Trump’s mention of crypto (and a task force proposal) during a speech at the Economic Club of New York. </li>



<li>A look at the Fed’s cease-and-desist order that a crypto advocacy group is “investigating.” </li>
</ul>



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



<h2 class="wp-block-heading">What to expect before the most important jobs report of the year</h2>



Tomorrow will bring the most important jobs report we’ve had in years, and the reason is twofold:



<ol>
<li>Last month, the unemployment rate came in at 4.3%, significantly above the consensus estimate of 4.1%. Although part of it was due to a surge in temporary layoffs that should revert quickly, it shocked the market into being concerned about a recession looming closer than most anticipated. </li>
</ol>



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcBzyMgDqpVijsal2CdwYXC5a8P1BcgKYR1MeRoG0PhbcU6FU49qayXuRRDR-mfz0WTGBGrGHN2BN24vWyVARjQuKNoBGC6uiyzS2-OaskVWbazsY6Xim8lzVLLvfQP7B9AcGE8h1EdbgsuIubelLasTh1N?key=YnnSNCu8pVmUl21H7m7vCw" alt=""/></figure>



<ol start="2">
<li>After Fed Chair Jerome Powell’s <a href="https://blockworks.co/news/cryptos-equities-slide-as-traders-unpack-powells-jackson-hole-remarks">Jackson Hole speech</a> (during which he explicitly said the Fed does not welcome any further cooling in the labor market) he has tied the Fed reaction function directly to movements in the labor market. The Fed reaction function is no longer tied to CPI prints. What this boils down to is that any further increase in the U3 unemployment rate (the key input into Fed models such as the Taylor Rule) will be matched by similar easing in Fed policy. </li>
</ol>



Heading into tomorrow, here is where expectations lie:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcGbsXaxaCdUD9u5_Tw6jcZOfT4pTL014rj9y-xjJfbUa3CY-te2Ak6_EkmpAq9t_XlYefd0M0VN6Y08Jz6HDnAqidyqImMOPGbC9vx4t0tiLI88lJI30eKVDfE01Z9FyWmCW30ttD4VWMR0WSW40IjsoN6?key=YnnSNCu8pVmUl21H7m7vCw" alt=""/></figure>



Of these data points, the unemployment rate will likely be the key driver of how much the Fed is going to cut rates in the upcoming September meeting. My simple framework for outcomes is below:



<ul>
<li>Below 4.2% print: Likely a cut of 25 basis points and potentially more hawkish signaling in terms of the pace of rate cuts moving forward.</li>



<li>4.2% print: Likely a 25 bps cut, but with more dovish signaling to a continuation of cuts.</li>



<li>4.3% and above print: Likely a 50 bps cut and heightened dovishness. </li>
</ul>



Of course, basing policy on a single datapoint goes against the dozens of times Powell has repeated his mantra of being data-driven and looking at the data in aggregate. That said, it is clear we are walking a fine line at the moment where it feels like the unemployment rate could accelerate higher, or slow down at this current level. The Fed reaction functions would be very different between those two scenarios.



As for the outcome in the job gains/losses number itself, the possibilities are more mixed and noisy. As seen in the chart below, the initial prints (dotted-green) have been coming in higher than the future revised number (solid green). This has led to a much noisier signal in terms of what is truly occurring in the labor market, given there’s been such large revisions after the fact. That said, the median estimate of 150,000 is a significant upside reverse compared to the previous month, which is a positive sign for the state of the labor market.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcpUnzRwszZWqLs4ECkkC33olLt3X3zB0kqoAF7CrLN0p1p12guldpyYAEKN7yWRv1UALuNINQUotPtsp3wRgdp8Rbl94Z6V-9DloOn-7JCAFJXt1mazTYf3g0hFSk0rrSppoFjLdIn0CgVq25emtkNQ615?key=YnnSNCu8pVmUl21H7m7vCw" alt=""/></figure>



Finally, one data point we can look at today as a hint for tomorrow’s number is the ADP employment report.



 <img loading="lazy" decoding="async" width="624" height="293" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXc12pRRG3OKzBDZFwftYJSO6bIUZup4eRGNt5A1pDabPQgwsSE2zeSh5kVI7M_65cSX8KmeuQrj-fkosIgbyWlyGva4U-jBlJBaQgiYlHbqQ3ZlczQpxjMobyMULqdKssDDDArJqRqDCNZtM7c_ECNWcys?key=YnnSNCu8pVmUl21H7m7vCw">



Although the signal is mixed, such a downside surprise in the outcome does spell some concern for a miss on the NFP print as we head into it tomorrow. The one thing we do know? Tomorrow’s print will likely set the trend for markets for the rest of the fall.



— Felix Jauvin



<h3 class="wp-block-heading">$472 million&nbsp;</h3>



The trading volume amount that prediction market platform Polymarket recorded in August. It’s an $85.8 million increase <a href="https://blockworks.co/news/polymarket-july-all-time-high-trading-volumes">from July</a>, Polymarket said, and marks the platform’s highest-volume month ever.&nbsp;



Despite not being accessible by those in the US, the biggest bets on Polymarket remain linked to the US <a href="https://blockworks.co/news/polymarket-web3-predictions-us-presidential-elections">presidential election</a>. Users have wagered $800.7 million on who will win in November. Donald Trump currently leads in Polymarket polls, 53% to 46%.&nbsp;



<h2 class="wp-block-heading">The Twitter/task force overlap&nbsp;</h2>



Donald Trump addressed members at the Economic Club of New York Thursday, where he once again promised to make the US the “world capital for crypto and bitcoin.”&nbsp;



That one line was the extent of Trump’s crypto-related comments this afternoon. He spoke for an hour, discussing plans to decrease dependence on foreign energy and lower the national debt, among other things.&nbsp;



Most notably though, the Republican presidential nominee said that — at the direction of Tesla CEO Elon Musk — he will create a new federal task force.&nbsp;



“I will create a government efficiency commission tasked with conducting a complete financial and performance audit of the entire federal government and making recommendations for drastic reforms,” Trump said. “Elon [Musk], because he&#8217;s not very busy, has agreed to head that task force.”



I’m not sure how this would impact Tesla (or Musk’s responsibilities running his various other businesses), but TSLA shares rose about 1% while Trump was speaking.



With regards to World Liberty Financial, we don’t know for sure if there will be a token, although there are <a href="https://www.coindesk.com/business/2024/09/04/in-trump-backed-crypto-project-insiders-are-poised-for-unusually-big-paydays/?_gl=1*1mdpbht*_up*MQ..*_ga*MTU2MTc4ODE3OC4xNzI1NTU2MzAx*_ga_VM3STRYVN8*MTcyNTU1NjMwMC4xLjEuMTcyNTU1NjMwMy4wLjAuNDAwOTM1MTI1">reports</a> that a token is in the works. To be clear, we don’t really know what the project is at all.&nbsp;



According to its latest <a href="https://x.com/worldlibertyfi">posts</a> on X, World Liberty will be built on Aave, and the platform’s goal is to maintain US dollar dominance. There seems to be some connection with stablecoins, although exactly what this is remains up in the air.&nbsp;



Should there be a World Liberty Financial token, or even a stablecoin, the SEC is going to be interested. They probably already are. Trump has said he would remove SEC Chair Gary Gensler “on day one” should he be re-elected. But even if Gensler is replaced with another commissioner, that isn’t protection against an enforcement action.&nbsp;



— Casey Wagner



<h2 class="wp-block-heading">‘Another crypto bank, another enforcement action’&nbsp;</h2>



As the so-called “regulation by enforcement” trend against the crypto industry appears to continue, an advocacy group is investigating one of the latest actions.



The Fed on Wednesday disclosed a cease-and-desist order against crypto-friendly bank United Texas Bank.&nbsp;&nbsp;



An examination by the central bank identified “significant deficiencies” around risk management and compliance with anti-money laundering (AML) laws, including the Bank Secrecy Act, according to a Wednesday <a href="https://www.federalreserve.gov/newsevents/pressreleases/files/enf20240904a2.pdf">filing</a>.&nbsp;



These alleged shortcomings were related to “foreign correspondent banking and virtual currency customers,” the Fed noted.&nbsp;



United Texas Bank did not immediately return a request for comment.&nbsp;



“It’s no secret there is a coordinated attempt to choke off the digital asset industry’s access to the traditional banking system,” Blockchain Association policy counsel Laura Sanders told Blockworks. “We are investigating yesterday’s troubling news, which unfortunately may be more of the same: deliberate targeting of banks that serve digital asset customers.”&nbsp;



Custodia Bank founder Caitlin Long put it a bit more succinctly in an all-caps X <a href="https://x.com/CaitlinLong_/status/1831369498643108202">post</a>: “ANOTHER CRYPTO BANK, ANOTHER ENFORCEMENT ACTION.”



(An aside: The Federal Reserve Board last year <a href="https://www.federalreserve.gov/newsevents/pressreleases/orders20230127a.htm">denied</a> Custodia’s application to become a member of the Federal Reserve System — noting the bank’s crypto focus “presented significant safety and soundness risks.”)



“Regulators have such broad mandates on monitoring and compliance that they can basically selectively enforce against anyone they want,” former VanEck crypto strategy lead Gabor Gurbacs said on X in response to Long’s post. “It seems wrong.”



Having déjà vu? Us too. The Federal Reserve Bank of Philadelphia identified the same type of AML-related “<a href="https://blockworks.co/news/federal-reserve-charges-customers-bank-aml">significant deficiencies</a>” at Customers Bank and its parent company last month.



It mentioned Customers Bank’s services to “digital asset” clients in the action, including their capacity to make tokenized payments over a distributed ledger technology system.



A few days after the Aug. 5 “agreement,” Customers named a chief compliance and AML officer to work on “strengthening Bank Secrecy Act and Anti-Money Laundering protocols for the company’s digital asset business.”



Wednesday’s cease-and-desist order came the same day Uniswap agreed to pay $175,000 to <a href="https://blockworks.co/news/cftc-settlement-uniswap-labs">settle claims</a> made by the CFTC.&nbsp;



In a <a href="https://blockworks.co/news/cftc-uniswap-settlement-dissenting-opinion">dissenting opinion</a>, CFTC Commissioner Summer Mersinger said the Uniswap case “has all the hallmarks of what we have come to know as regulation through enforcement.”&nbsp;



Industry players are waiting to see if a <a href="https://blockworks.co/news/more-crypto-remarks-likely-coming-from-trump-harris">new presidential administration</a> might offer regulatory clarity to crypto businesses. Until then, their options appear limited.



— Ben Strack&nbsp;



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



<ul>
<li>A new <a href="https://news.northeastern.edu/2024/09/03/crypto-voters-2024-election/">report</a> and poll from Northeastern University shows that political experts have differing opinions on how important the so-called “crypto voter” will be come November. While some say crypto-focused individuals are more likely to donate than vote, others say the bloc is a diverse group that candidates cannot afford to ignore this election. </li>



<li>Mastercard has launched a new euro-dominated, non-custodial crypto debit card through a partnership with infrastructure provider Mercuryo. The announcement comes after Mastercard tested a similar product with MetaMask last month. </li>



<li>The entire On the Margin team will be at Permissionless in Salt Lake City next month! Get your <a href="https://blockworks.co/event/permissionless-iii">tickets</a> now. Prices are only going up, and we want to meet you.</li>
</ul>



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Howdy!



Happy first day of the NFL season. It’s a little embarrassing how much I’ve looked forward to the world’s best sports league returning.&nbsp;



My Super Bowl pick for this season is the Detroit Lions, who are giving Michiganders a reason to hope again after decades of disappointment. Anyways:



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<h2 class="wp-block-heading">Small Solana validators grapple with declining revenue</h2>



Solana is churning up less in revenue and fees as the network cools off from a hot summer. One group in particular is feeling the pinch — small network validators.



These smaller validators who help run the Solana network’s consensus mechanism are often propped up by the Solana Foundation’s delegation program, which covers some costs and <a href="https://blockworks.co/news/lightspeed-newsletter-solana-sandwich-attacks">stakes SOL with smaller validators</a> to increase the number of validators who can exist. 72% of Solana validators participate in the delegation program, according to a <a href="https://www.helius.dev/blog/solana-foundation-delegation-program-sfdp">report</a> from Solana infrastructure outfit Helius.&nbsp;



It’s not an easy living for small validators. As Helius noted, many validator costs are fixed, while their revenues scale with the amount of stake they control as well as the price of SOL.&nbsp;



Now, these thin margins have grown even thinner. 95% of Solana validator revenue currently comes from SOL issuance, according to a Dune <a href="https://dune.com/21co/solana-key-metrics">dashboard</a>, and SOL’s price is down 9% over the past month. Fees and MEV make up the rest of validators’ revenue, and the total amount of fees and MEV running through Solana has fallen from levels seen in recent months, according to Blockworks Research’s “total economic value” <a href="https://app.blockworksresearch.com/analytics/sol?dashboard=sol-financial&amp;interval=weekly">metric</a>.



Making matters worse, the Solana Foundation delegation program recently lowered the maximum commission participants can charge from 7% to 5% — and also set a 10% commission cap on Jito MEV. Before, validators could collect 100% of Jito MEV if they so desired.



In simple terms, this means that in order to use the foundation’s delegation program — a must for smaller validators looking to break even — validators cannot charge stakers as much for their services.&nbsp;



One smaller Solana validator <a href="https://discord.com/channels/428295358100013066/849749936916267029/1275831166582395017">estimated</a> that after these changes, validators who aren’t having their voting costs covered by the Foundation would need to control roughly 65,000 SOL to break even (up from around 40,000 before). That’s a climb from $5.2 million to $8.45 million at current prices. For validators having their voting fees covered, which are the costs validators pay to vote on transactions and agree to add them to the blockchain, the break even price climbed from 4,000 SOL to 6,000 SOL, by the validator’s estimate.&nbsp;



With Solana’s economic value slackening and the delegation program being less lucrative than it once was, small validators need to attract staked SOL from other sources — like marketing themselves while passing along better yield or participating in large stake pools.&nbsp;



Marinade is one of these big stake pools, but it now makes validators bid for allocations from its supply via its “stake auction marketplace.” This has raised Marinade’s yield <a href="https://blockworks.co/news/lightspeed-newsletter-stake-auction-marketplace">as part of its “v2” rebrand</a>, but it also doesn’t do small validators any favors. Some have <a href="https://hanabi.so/marinade-stake-selling">accused</a> Marinade’s new marketplace of rewarding malicious validators who are <a href="https://blockworks.co/news/lightspeed-newsletter-sandwich-attacks">disqualified from the foundation’s delegation program</a>. Marinade core contributor Michael Repetny did not immediately return my request for comment



All good things must come to an end, and it appears that a relatively profitable few months for small Solana validators may not be sustained. The Solana Foundation delegation program clearly does help decentralize Solana’s set of validators, but a system that relies so heavily on grants can’t last forever.&nbsp;



By lowering the commissions small validators can charge, the Solana Foundation is arguably doing the equivalent of kicking an unlaunched adult child out of the family basement. The real world is scary — it’s hard attracting your own stake, and Marinade’s stake pool is difficult to join — but you can’t live off mom and dad’s cooking forever.



— Jack Kubinec



<h2 class="wp-block-heading">Zero In&nbsp;</h2>



This Blockworks Research chart contextualizes the decline of transaction fees and Jito tips:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXd3yVbR4kvHlIdMDJnj0NYb4KTW4HCz9eo95ilvNuVIj82d07uYonN7Ex0qshqOj2WKiqOswitYZGQYbbGsfNcY7JE_HMe_RiVsU3cPQ68PRsGaSfQQ-Or75Nk7k0l24jabkH3_dfc2tFiTwLuhT10XV0gE?key=CJ_umHRpSv-QqgGq4BKnzQ" alt=""/></figure>



The price of SOL is falling, and as you can see, so are the tips and fees validators can collect. The past two weeks have seen SOL’s total economic value fall to a level we haven’t seen since February.



If you see a Solana validator, buy them a beer. It’s tough out there.&nbsp;



— Jack Kubinec



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



Binance has <a href="https://x.com/whosknave/status/1830982033579077922">announced</a> its latest Solana offering: the BNSOL token. The move is part of a broader liquid staking token (LST) trend, with Bybit, Bitget and others also rolling out their own versions of the concept. BNSOL is reportedly <a href="https://x.com/DefiSolar/status/1829135164326174932">powered</a> by Sanctum, which is known for supporting Solana’s LST infrastructure​.



Staking on Solana (and other proof-of-stake blockchains) usually requires users to lock up their tokens for an agreed-period, limiting their ability to use them elsewhere. Not so with <a href="https://blockworks.co/podcast/lightspeed/e69e9286-0cb9-11ef-a943-d3c8b7693082">LSTs</a>. These assets are more flexible, allowing users to trade, lend and utilize their staked tokens in DeFi applications while still earning staking rewards​.



On X, some appeared bullish on the potential for growth, while others remain skeptical of Binance’s role in the decentralized space. @DefiSolar was <a href="https://x.com/DefiSolar/status/1829135164326174932">optimistic</a>, pointing out the scale of Binance’s SOL holdings: “Sanctum TVL is about to skyrocket knowing Binance holds around $3b worth of SOL. $CLOUD seems to be the play…”



@dudify_xyz <a href="https://x.com/dudify_xyz/status/1829167863409803438">noted</a>, “bnSOL restaking and delegation on @solayer_labs will increase TVL. It’s nice to see a win-win situation for two SOL ecosystem projects.”



@DLFinCrypto1 took a swipe at Binance’s centralized control, <a href="https://x.com/DLFinCrypto1/status/1829167700016542028">warning</a>: “Ah, Binance: where ‘partnership’ often means ‘we control it all.’ $CLOUD might be the play, but don&#8217;t forget the house always wins. Decentralization, anyone?”



— Jeffrey Albus



<h2 class="wp-block-heading">One Good DM</h2>



A message from Nate, who anonymously operates the Aurora validator:


<div class="wp-block-image">
<figure class="aligncenter"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeCFZ6JhInY_dVsASm5sx9UroT09o8vhSoJyoRUdDbuQwhmaxsAaww0wpXgFAvWE36CCEDbrC3aq7ElBzl6DW-NWHNzx7v-gIrL8L7hKJQRP6adWumcJoaqBkSpljbQewpjIPei67wjVd-RUYa41tXE3eyW?key=CJ_umHRpSv-QqgGq4BKnzQ" alt=""/></figure></div>


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



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



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

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