Popsicle Finance

Ben Strack

South Carolina Sen. Tim Scott has his eye on a bipartisan regulatory framework for crypto following the crash of FTX and other industry players in 2022.&nbsp;



To serve as ranking member of the US Senate Committee on Banking, Housing and Urban Affairs, Scott is set to work with US Sen. Sherrod Brown, D-Ohio, a crypto critic who chairs the unit. 



Scott, a Republican elected to the Senate in 2013, acknowledged “expansive growth” of the digital assets industry in <a href="https://www.politico.com/f/?id=00000186-0fe2-df27-abcf-8fefd8610000" target="_blank" rel="noreferrer noopener">a Thursday memo</a>, first <a href="https://www.politico.com/newsletters/morning-money/2023/02/02/the-debt-ceiling-is-not-powells-problem-00080804" target="_blank" rel="noreferrer noopener">reported</a> by Politico, adding that an increasing number of consumers are interacting with crypto.



“Several high-profile failures resulted in lost consumer assets, exposed regulatory gaps, and highlighted concerns with illicit finance,” the memo states. “Moving forward, the committee should work to facilitate a bipartisan regulatory framework.”



The senator could not immediately be reached.



Brown, who became chair of the Senate Banking, Housing, and Urban Affairs Committee in February 2021, has historically compared crypto to risky mortgage bonds and over-the-counter derivatives during the lead up to the financial crisis.&nbsp;



After the bankruptcy of crypto exchange FTX in December, Brown <a href="https://www.brown.senate.gov/newsroom/press/release/sherrod-brown-on-ftx-crypto-puts-consumers-and-our-national-security-at-risk" target="_blank" rel="noreferrer noopener">called for</a> a framework “that looks at crypto products for what they are, not what crypto executives want them to be.”



“The things that look and behave like securities, commodities, or banking products need to be regulated and supervised by the responsible agencies who serve consumers,” he added at the time. “Crypto doesn’t get a free pass because it’s bright and shiny. Or because venture capitalists think it might change the world.”



Brown also urged US Treasury Secretary Janet Yellen in <a href="https://www.brown.senate.gov/newsroom/press/release/sherrod-brown-to-treasury-we-need-to-work-together-on-crypto-legislation" target="_blank" rel="noreferrer noopener">a November letter</a> to work on legislation that would create authorities for regulators to supervise crypto players. He noted that single agencies “currently generally do not have a comprehensive view of crypto asset entities’ activities.”



Crypto firms are seemingly anticipating intensified regulatory scrutiny this year, as companies including Binance, Tether, and a16z have <a href="https://blockworks.co/news/mike-pence-nephew-binance-newest-lobbyist">added lobbyists in recent months</a> to boost their presences in Washington, DC.



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Crypto Framework a Priority for Republican Senator Scott

Bessie Liu

A cryptocurrency linked to a cost of living index is now available to select users on Ethereum scaling solution Arbitrum.



DeFi protocol Nuon announced in a blog post that it would be gradually rolling out its <a href="https://blockworks.co/news/what-are-flatcoins-and-are-they-a-better-inflation-hedge">NUON flatcoin</a> over the course of a month-long trial.&nbsp;



Once operations are confirmed to run smoothly, the cryptocurrency will be available to all users for permissionless minting via added collateral.



The protocol has chosen this “guarded launch” approach to minimize financial risks and repercussions.



“The guarded launch means that the WebApp will be alternating between Open and Closed states so as to better manage and control the launch and protest user’s funds,” the company said in a <a href="https://nuon.fi/blog/launch-release-note-and-faqs/" target="_blank" rel="noreferrer noopener">blog post</a>.



<h2>What is a flatcoin?</h2>



Flatcoins operate similarly to stablecoins, but rather than being pegged to the value of an asset — such as the US dollar or gold — it is pegged to an independent measure of the cost of living and its purchasing power remains “flat.”&nbsp;



The concept of this type of cryptocurrency is not entirely new. It has been discussed by the likes of Brian Armstrong and Vitalik Buterin, who <a href="https://www.youtube.com/watch?v=GUhDXUA4mfQ&amp;ab_channel=Coinbase" target="_blank" rel="noreferrer noopener">noted</a> in a podcast in August last year that “there is value in having some kind of cryptoasset that is intentionally designed to be as stable as possible.”



In the case of Nuon, its flatcoin is designed to hedge against inflation by recalibrating its daily value to account for the rising cost of living, <a href="https://truflation.com/methodology" target="_blank" rel="noreferrer noopener">using</a> the Truflation Index as an <a href="https://www.blockworksresearch.com/glossary#oracles" target="_blank" rel="noreferrer noopener">oracle</a>.



<h2>Stability and design&nbsp;</h2>



Nuon maintained its peg through what the team calls a “triple redundancy mechanism” where the protocol incentivizes users to “mint or burn NUON.”



If the price goes above the peg, the liquidation ratio drops, creating an incentive for users to mint more and sell the token. On the other hand, when the price of the token dips, the liquidation ratio increases, urging users to increase collateral or burn NUON to maintain safe collateral.



That means minters will have to have a reason to risk their collateral and watch the liquidation ratio closely.



Nuon CEO Stefan Rust acknowledges the risk but remains optimistic.



“Our vision for Nuon — inflation-proof money — is ambitious to say the least,” Rust said.



The mechanics differ from the failed <a href="https://blockworks.co/tag/terra">Terra USD</a> design in that NUON is only minted from collateral. In theory, that should put a buffer for the arbitrage mechanism to keep the peg.



Just as decentralized protocols are the answer to risks posed by centralized currencies, and over-collateralization is the answer to maintaining value in the face of market instability, inflation-proof flatcoins are the solution to preserving value over time.”



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‘Flatcoin’ Targets Inflation With Collateral-backed Arbitrum Stablecoin

Michael Bodley

What’s an institutional allocator to do in a crypto winter like this?&nbsp;



Pay attention to the online footprints of the traders vying for the players with abundant dry powder still in the wings. Keep dialing up references. Call them again. And then call them again.



In sum: due diligence checks that run the gamut from crypto natives to Wall Street types with a vested interest, according to Joe Marenda, a partner at Cambridge Associates.&nbsp;



Marenda, for going on a year now, has held the title of global head of crypto investing for the Boston-based Cambridge, which specializes in devising customizable portfolio blends for the likes of pensions and endowments. He’s been drawing on his deep experience in vetting traditional asset management strategies to do due diligence on digital asset portfolio managers. And he has a suggestion or two along those lines.



Marenda spoke to Blockworks <a href="https://blockworks.co/news/regulators-speeding-up-crypto-timeline">at the iConnections Global Alts conference</a> in Miami this week, dishing out his thoughts on where we are in the cycle, how we got here and where we are going.



<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">&quot;Managers that are trying to raise now, wait until third quarter.&quot; &#8211; Joe Marenda<a href="https://twitter.com/michael_bodley?ref_src=twsrc%5Etfw">@Michael_Bodley</a> moderated the &#39;Fundraising Outlook for 2023&#39; panel today, joined by Zoe Cruz, <a href="https://twitter.com/SteveKurz?ref_src=twsrc%5Etfw">@SteveKurz</a>, Joe Marenda and Katherine Molnar.<a href="https://twitter.com/Blockworks_?ref_src=twsrc%5Etfw">@Blockworks_</a> <a href="https://twitter.com/galaxyhq?ref_src=twsrc%5Etfw">@galaxyhq</a> <a href="https://t.co/Fdw2I6jIwk">pic.twitter.com/Fdw2I6jIwk</a>&mdash; iConnections (@iconnections_io) <a href="https://twitter.com/iconnections_io/status/1620496398327382016?ref_src=twsrc%5Etfw">January 31, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The gist: The bottom may well be in. “Crypto is still very much emerging, with very few exceptions,” valuations are returning to something approaching normal, and volatility at the moment should <a href="https://www.institutionalinvestor.com/article/b1yhfhknybjnrg/Crypto-Hedge-Funds-Deliver-Bitcoin-Like-Returns-Without-the-Volatility" target="_blank" rel="noreferrer noopener">surprise</a> no one.



Picking up the phone and knocking on doors and doing the (due diligence) work is perhaps now <a href="https://blockworks.co/news/what-do-crypto-traders-tell-their-lps">more important in the industry than ever</a>, the San Francisco-based Marenda said. Managers may want to err on the side of patience for the foreseeable as those rigorous processes play out.&nbsp;



Read More: <a href="https://blockworks.co/news/what-do-crypto-traders-tell-their-lps">How “radio silence” from crypto traders drove LPs “all but mad” in Q4</a>



Here’s how he’s going about it. Marenda declined to comment on specific funds or clients, and expressed his personal opinion throughout.&nbsp;



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



Blockworks: Cambridge has been around for decades. Crypto has not. You all have due diligence on traditional strategies down, right? What’s different?



Marenda: There’s a lot more reference checks, to start…What the entrepreneurs in the space think of [venture capitalists] is crucial. And it’s their reputation that gets them deal flow — one of the fascinating things about crypto entrepreneurs is they have no filters. So, when you actually interview them, they’re very blunt and honest about <a href="https://blockworks.co/news/crypto-due-diligence-startup-vying-to-bring-transparency-to-opaque-industry">how they evaluate what they think</a> of this VC versus that VC.



They’ll just tell you if somebody promised something to get on the cap table, and they didn’t deliver, they will throw them under the bus.



Blockworks: Which you would almost never see in TradFi.



Marenda: Exactly…that has been wonderful. That tells you more about a fund than anything else. And the fact that they will talk about other funds when you’re like, “I’ll call them about Fund X. And then they start talking about Fund Y, Z, ABC.”&nbsp;



It’s incredibly useful, because the reputation of the fund ultimately is what drives the deal flow. That’s very different from traditional finance.



Blockworks: What else is different?



Marenda: The other aspect I think that’s really different is the fact that this is such a [broadly] social-dominated industry. There’s a lot more information out there that you have, that you can call on — and it’s not just crypto Twitter. It’s Reddit…It’s Substack and everything.&nbsp;



Because there, you can build an entire history of their thought processes on investing. And if they tell a different story now [compared to earlier in Cambridge’s due diligence process]…I see there’s a difference between what you say now and what you said before, so that’s a big deal.&nbsp;



The other one is something that I’ve been asking about recently, looking at their true social posts to see what kind of lifestyle they’re living.



Blockworks: The lambo lifestyle? A little less buttoned-up lifestyle?&nbsp;



Marenda: I’ve been thinking about whether they’re actually more interested in investing or in the lifestyle than investing, you know. [Crypto] allows them to do that, and I want people that just love investing, and, if they walk everywhere, that’s probably something that’s pretty exciting.&nbsp;



As long as they’re looking both ways when they cross the street.&nbsp;



This interview was edited for brevity and clarity.



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Inside Crypto LP Big Leagues: ‘A Lot More Reference Checks’

Casey Wagner

David Canellis

The biggest Bitcoin block ever has just been mined, 14 years after the blockchain went live.



It contained an Ordinal, the controversial <a href="https://blockworks.co/news/cant-ignore-bitcoin-nfts">new genre of NFT which recently debuted on Bitcoin</a>.



In an apparent tease for a forthcoming bitcoin NFT collection, Luxor Mining and popular Bitcoin figure Udi Wertheimer mined the largest-ever bitcoin block, the company announced Tuesday.&nbsp;



Block <a href="https://mempool.space/block/0000000000000000000515e202c8ae73c8155fc472422d7593af87aa74f2cf3d" target="_blank" rel="noreferrer noopener">774628</a> housed the “Taproot Wizard,” a play on the legendary “magic internet money” meme featuring a bitcoin wizard. It was 3.96MB large, close to Bitcoin’s 4MB block size limit (which can technically be <a href="https://blog.bitmex.com/the-segwit-transaction-capacity-increase-part-1/" target="_blank" rel="noreferrer noopener">stretched</a> with SegWit).&nbsp;



The <a href="https://mempool.space/tx/0301e0480b374b32851a9462db29dc19fe830a7f7d7a88b81612b9d42099c0ae" target="_blank" rel="noreferrer noopener">transaction</a> containing the Ordinal made up 3.94MB, about 99.5%. There were 63 transactions in total, including the 6.25 <a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a> ($149,000) coinbase reward, which also went to Luxor.



&#8220;The image is higher resolution so it contains more pixels (and thus more bytes),&#8221; Colin Harper, head of research and content at Luxor Mining, told Blockworks.



Luxor announced the block via <a href="https://twitter.com/LuxorTechTeam/status/1620921129287430144?s=20&amp;t=vje_Chh6vf4U_Q9UbW0bzQ" target="_blank" rel="noreferrer noopener">Twitter</a> Tuesday evening, teasing followers that other wizards may be available soon. The firm earned an additional 0.009 BTC ($209) in fees for successfully mining the block.



<a href="https://blockworks.co/news/cant-ignore-bitcoin-nfts">Ordinals</a> — the new platform taking the industry by storm — store texts, images, SCG or HTML on-chain, attached to individual satoshis, bitcoin’s smallest unit currently worth $0.000231.&nbsp;



Read More: <a href="https://blockworks.co/news/cant-ignore-bitcoin-nfts">Bitcoin NFTs: Love ‘Em or Hate ‘Em, You Can’t Ignore ‘Em</a>



Similar to the NFT concept, inscribed satoshis can then be transferred freely via the Bitcoin blockchain.



<figure class="wp-block-embed aligncenter 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">Behold, the Taproot Wizard, untethered and freed from his bondage! In his ubiquity, he&#39;s present in the hearts, minds, and hard drive space of Bitcoin node operators the world over. He refuses to be censored, he refuses to be silenced.<a href="https://t.co/WCjQpTRMLg">https://t.co/WCjQpTRMLg</a> <a href="https://t.co/gkxeAS4rOm">pic.twitter.com/gkxeAS4rOm</a>&mdash; Luxor Mining (@LuxorTechTeam) <a href="https://twitter.com/LuxorTechTeam/status/1620922782845669378?ref_src=twsrc%5Etfw">February 1, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">This image is&nbsp;<a href="https://ordinals.com/sat/1308063627208201" target="_blank" rel="noreferrer noopener">inscribed</a>&nbsp;forever to satoshi 1308063627208201</figcaption></figure>



The features are made possible using a loophole from the Taproot upgrade in 2021, which enabled “practically unlimited (capped by block size) storage using Opcodes, an executable script in a txn that can store arbitrary data,” <a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analyst <a href="https://twitter.com/MattFiebach" target="_blank" rel="noreferrer noopener">Matt Fiebach</a> said.



Ordinals creator Casey Rodarmor boasts the NFT protocol holds digital artifacts to a “higher standard,” he wrote in a <a href="https://rodarmor.com/blog/" target="_blank" rel="noreferrer noopener">blog post</a>. Ordinals cannot be stored off-chain or on centralized servers, he said.&nbsp;



Industry members continue to take a mixed view on Bitcoin NFTs, but Ordinals appear to be here to stay.



Updated Feb. 2, 2023 at 12:05 pm ET: Added comment from Luxor Mining&#8217;s Colin Harper.



Updated Feb. 2, 2023 at 1:39 pm ET: Adjusted excerpt.



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What Was Inside Bitcoin’s Biggest Block?

The world’s largest custodian bank has named a leader for its digital assets division as it seeks to accelerate initiatives in the segment despite the ongoing crypto winter.&nbsp;



BNY Mellon named Caroline Butler as its CEO of digital assets Thursday. The post is a newly created role for the bank. 


<div class="wp-block-image">
<figure class="alignright size-medium"><img decoding="async" loading="lazy" width="241" height="300" src="https://cms.blockworks.co/wp-content/uploads/2023/02/caroline-butler-ceo-digital-assets-241x300.jpeg" alt="BNY Mellon's CEO of Digital Assets Caroline Butler" class="wp-image-46260" srcset="https://cms.blockworks.co/wp-content/uploads/2023/02/caroline-butler-ceo-digital-assets-241x300.jpeg 241w, https://cms.blockworks.co/wp-content/uploads/2023/02/caroline-butler-ceo-digital-assets-206x257.jpeg 206w, https://cms.blockworks.co/wp-content/uploads/2023/02/caroline-butler-ceo-digital-assets-210x261.jpeg 210w, https://cms.blockworks.co/wp-content/uploads/2023/02/caroline-butler-ceo-digital-assets-176x219.jpeg 176w, https://cms.blockworks.co/wp-content/uploads/2023/02/caroline-butler-ceo-digital-assets-64x80.jpeg 64w, https://cms.blockworks.co/wp-content/uploads/2023/02/caroline-butler-ceo-digital-assets.jpeg 628w" sizes="(max-width: 241px) 100vw, 241px" /><figcaption class="wp-element-caption">BNY Mellon&#8217;s CEO of Digital Assets Caroline Butler | BNY Mellon</figcaption></figure></div>


Roman Regelman, CEO of BNY Mellon’s securities services and digital, said in a statement that Butler would lead their enterprise-wide initiatives as the company accelerates its efforts around digital assets and other emerging technologies.



“As institutional adoption of digital assets continues to evolve, we are committed to being a trusted provider of services to the broader financial ecosystem,” Regelman added.



A spokesperson declined to comment further.



Butler, who joined the company in 2020, was previously CEO of the bank’s custody services. In that role, she led development of BNY Mellon’s digital custody and administration platform for traditional and digital assets.



That platform went live in the US for select institutional clients in October.



BNY Mellon had $44.3 trillion in assets under custody or administration, as well as $1.8 trillion in assets under management, as of Dec. 31.&nbsp;



<a href="https://www.linkedin.com/in/caroline-butler-b489821/" target="_blank" rel="noreferrer noopener">Butler</a> said in an October statement that as the world’s largest custodian, BNY Mellon is the “natural provider” to create a safe custody platform in the space for institutional clients.



A research <a href="https://www.bnymellon.com/content/dam/bnymellon/documents/pdf/insights/migration-digital-assets-survey.pdf?mkt_tok=MzUzLUhSQi03OTIAAAGHvmLXAzH2AAbtr4WhHPMQ9VVq5uJ1KZRfRulJLv16X1_ZoOjbzOvT6K_QZLbyEh56IoS06me2xKP5MVsRYWOmWjfHUvagHGV1EWrMvzGY" target="_blank" rel="noreferrer noopener">report</a> by the bank published that month found 70% of surveyed institutional investors would increase digital asset activity “if services like custody and execution are available from recognized, trusted institutions.” 



Ed Groshans, a senior research and policy analyst at Compass Point Research &amp; Trading, told Blockworks last month, <a href="https://blockworks.co/news/banks-crypto-efforts-undeterred">BNY Mellon could be well-positioned to be a leader in the space</a> after events such as the crash of FTX shook the industry.&nbsp;



“They can really flesh out their business model over the next several months to several years to put themselves as a linchpin of trust in the crypto space from a custody perspective,” he said.



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BNY Mellon Names Digital Assets CEO

Shalini Nagarajan

New decentralized social network protocol Nostr officially went live via mobile app stores on Wednesday.



Nostr, which stands for Notes and Other Stuff Transmitted by Relays, aims to create a censorship-resistant global social network where users are identified by a public key rather than a name or user handle like on most social platforms.



“It doesn&#8217;t rely on any trusted central server, hence it is resilient; it is based on cryptographic keys and signatures, so it is tamperproof; it does not rely on P2P techniques, therefore it works,” its GitHub page says.



The protocol gained popularity after an endorsement from former Twitter CEO Jack Dorsey, which enabled its mobile app Damus to hit its beta testing limit before its open launch in <a href="https://apps.apple.com/in/app/damus/id1628663131" target="_blank" rel="noreferrer noopener">Apple’s App Store</a> and the <a href="https://play.google.com/store/apps/details?id=com.vitorpamplona.amethyst&amp;hl=en" target="_blank" rel="noreferrer noopener">Google Play Store</a>.



Nostr is similar to Twitter, meaning that users can publish posts, ‘like’ them, follow people they want and report content posted by others. And just like posts on Twitter are called Tweets, Nostr calls them a ‘note’ or just ‘post.’



Dorsey, currently chief executive at Block, <a href="https://twitter.com/jack/status/1603535971114487816" target="_blank" rel="noreferrer noopener">donated</a> 14 bitcoin (worth $245,000 at the time) to Nostr last year to fund its development after pointing out <a href="https://twitter.com/jack/status/1602800292424212480" target="_blank" rel="noreferrer noopener">flaws</a> in traditional social media. He also specifically mentioned the 280-character limitation on Twitter, which is not a feature on Nostr. He <a href="https://twitter.com/jack/status/1620552041600000000" target="_blank" rel="noreferrer noopener">hailed</a> its launch on Apple’s App Store as a “milestone for open protocols.”



The network itself points out what it thinks the problems with Twitter are: that it has ads, uses “bizarre techniques” to keep users addicted, doesn’t display a historical feed from people you actually followed, bans and shadow bans users, and that it’s full of spam.



Nostr is supported by bitcoin maximalists, and although it isn’t built on the Bitcoin blockchain, it supports payments over Bitcoin’s Lightning Network.



National Security Agency whistleblower Edward Snowden has also <a href="https://mobile.twitter.com/Snowden/status/1617626864016822274" target="_blank" rel="noreferrer noopener">touted</a> Nostr for its ability to replace Twitter and Instagram, while Ethereum creator <a href="https://twitter.com/VitalikButerin/status/1607372009356361729" target="_blank" rel="noreferrer noopener">Vitalik Buterin</a> and US Sen. <a href="https://twitter.com/CynthiaMLummis/status/1607216133933006849" target="_blank" rel="noreferrer noopener">Cynthia Lummis</a> are other supporters of the platform.



The tech world is increasingly seeing a desire for a next-generation, decentralized form of social media that prioritizes its users rather than a controlling corporate entity.



Last year, Aave <a href="https://blockworks.co/news/aave-launches-alternative-to-traditional-social-media">launched the Lens social platform</a> powered by NFTs to allow developers to build social media apps and recommender systems in marketplaces. Industry observers expect <a href="https://venturebeat.com/datadecisionmakers/web3-holds-the-promise-of-decentralized-community-powered-social-networks/" target="_blank" rel="noreferrer noopener">Web3 to disrupt</a> many of the existing Web2-based business models.



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Jack Dorsey-backed Web3 App Aims To Disrupt Twitter

Sebastian Sinclair

The European Investment Bank (EIB) is once again leveraging Ethereum in its quest to tokenize capital markets, this time while issuing the first-ever digital pound sterling (GBP) bond on a seperate private blockchain.



EIB, the primary lender of the European Union, deployed the £50 million ($86.6 million) bond to a permissioned network underpinned by HSBC’s tokenization platform, Orion. The EIB is a public institution owned by the EU&#8217;s 27 member states.



The bank opted for a private network for privacy and efficiency, according to a <a href="https://www.eib.org/en/press/all/2023-030-eib-issues-its-first-ever-digital-bond-in-british-pounds" target="_blank" rel="noreferrer noopener">statement</a>. In an effort to increase transparency, the bond was also recorded on Ethereum, a spokesperson told Blockworks. 



This was done to provide evidence the issuance took place while still maintaining the anonymity of bondholders (Blockworks reached out for some transaction IDs but they weren&#8217;t readily available. We&#8217;ll update this piece should EIB provide them).



HSBC debuted Orion last November, when it first flagged intent to launch the tokenized GBP bond. BNP Paribas, HSBC, and RBC Capital Markets were named as joint lead managers of the bond, with those firms serving as custodians. Client assets will be stored in digital securities accounts kept on Orion, the bank said.



The EIB&#8217;s new vehicle is expected to bring a range of benefits to market participants, including reduced costs, improved efficiency and real-time data synchronization in an otherwise cumbersome process.



Digital bonds have garnered interest from financial institutions in various countries, including Australia, Germany, France and Sweden since at least 2017.



A Luxembourg legal framework that enables firms to issue dematerialized securities using distributed ledger technology was enacted into law in January 2021, paving the way for further exploration.



Dematerialized securities refer to digital representations of financial assets that exist only in electronic form, rather than as physical certificates or paper documents.



&#8220;The time has come for further innovation in the financial sector,&#8221; said EIB Vice-President Ricardo Mourinho Felix. &#8220;This new financial tool will provide additional capital flow that the EIB will invest in projects with global impact.&#8221;



This isn’t the first digital bond issued by the EIB. That <a href="https://www.eib.org/en/press/all/2021-141-european-investment-bank-eib-issues-its-first-ever-digital-bond-on-a-public-blockchain" target="_blank" rel="noreferrer noopener">happened</a> back in Apr. 2021, when the European Union&#8217;s investment bank deployed a two-year, 100 million euro ($110 million) bond entirely on Ethereum.



David Canellis contributed reporting.



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European Union Bank Again Uses Ethereum to Explore Tokenized Bonds

MakerDAO governance has approved a new multi-million fund aimed at reimbursing certain individuals&#8217; legal expenses.



The Defense Fund, consisting of 5 million dai (<a href="https://blockworks.co/price/dai">DAI</a>) — Maker’s US dollar-pegged stablecoin — is intended to fund costs incurred from legal and regulatory bouts, the DAO said in a <a href="https://twitter.com/MakerDAO/status/1620795631668285443" target="_blank" rel="noreferrer noopener">tweet</a> on Wednesday.



Direct funding will only be provided for select Maker participants including recognized delegates, core unit facilitators, core unit permanent contributors and active MKR holders.&nbsp;



A <a href="https://vote.makerdao.com/polling/QmUbqKMy#vote-breakdown" target="_blank" rel="noreferrer noopener">ratification poll</a>, initially proposed early last month, approved the fund following a governance vote on Wednesday, with 72% of participants in favor of the move.



On paper, the budget appears to offer significant financial assistance to those locked in legal disputes. Though, according to <a href="https://www.contractscounsel.com/b/how-much-do-lawyers-cost#:~:text=Throughout%20the%20United%20States%2C%20typical,hour%20to%20%24400%20an%20hour." target="_blank" rel="noreferrer noopener">data</a> provided by legal services marketplace ContractsCounsel, typical attorney fees across 50 US states range from between $100 an hour to $400 an hour.



Based on the median cost for an attorney, around $350 an hour, legal fees could chew up significant portions of the fund in short order in the event multiple legal cases arise.



It is unclear whether the contingency budget of 5 million DAI is expected to grow over time. Maker did not immediately respond to a request for comment.



For now, Maker is concerned with laying the foundation for the fund, including how lump sum payments are expected to be delivered.



The organization has tapped insurance and risk management firms Gallagher and Artex to develop a claims procedure manual following a feasibility study on the average legal defense costs.



All claims and payouts will be handled by an “external technical committee” composed of insurance and risk management experts, Maker said. The committee will then issue a recommendation to approve or reject a payout based on a claim.



Self-insurance is a well-known risk management technique comprising setting funds aside to cover a possible future cost, Maker said in an <a href="https://forum.makerdao.com/t/mip55c3-sp14-defense-fund/19076" target="_blank" rel="noreferrer noopener">original proposal</a> laid out late last year.



Unlike Wyoming, <a href="https://blockworks.co/news/these-5-crypto-friendly-us-states-show-initiative-on-tax-laws">which recognizes decentralized autonomous organizations (DAOs)</a> in the same capacity as LLCs, most other US states and the wider world do not. That presents legal headaches for participants operating within the freshly conceived organizational construct.



&#8220;DAOs are novel organizational structures and, as such, may expose their participants to novel legal risks,&#8221; the organization said. &#8220;MakerDAO is not a legal subject, hence is unable to limit liability risks for its participants.&#8221;



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MakerDAO Earmarks $5M For Legal Defense

Artificial intelligence continues to grip the imagination of traditional market participants over its potential to disrupt entire sectors of the economy, though crypto is still miles ahead this year.



Several crypto-related exchange-traded funds (ETFs) are up between 9% and 64% in year-to-date terms, beating out the more mildly performing AI ETFs, up between 4% and 32%.



Global X Robotics &amp; Artificial Intelligence’s ETF (BOTZ) for instance, is up 16% YTD while Cathie Wood’s ARK Autonomous Technology &amp; Robotics ETF (ARKQ) has risen 18%.



Taking a look at crypto funds — the picture of whose ahead becomes clearer. Of the 39 AI/robotics ETFs Blockworks analyzed, performance across the board averaged around 12.4%. Crypto’s ETF performance for the year is averaging around 38.3% — a difference of roughly 26%.



VanEck’s Digital Transformation ETF (DAPP), the sector’s best-performing fund, is up a whopping 67% since the new year began. DAPP’s top 15 holdings include the likes of Coinbase, Block Inc, Bitfarms and Riot Platforms — all listed on major US exchanges.



That’s followed closely by Global X’s Blockchain ETF (BKCH) at 64% YTD and Bitwise’s Crypto Industry Innovators ETF (BITQ) — up 61% over the same period.&nbsp;



Like DAPP, both funds track roughly the same publicly-traded crypto and blockchain firms, as the choice remains relative to its more developed and long-standing AI cousins.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12625850/embed#?secret=QiOEisD1Zt" data-secret="QiOEisD1Zt" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">DAPP is outperforming year to date, but BOTZ is a clear winner over the past year | Chart by David Canellis </figcaption></figure>



For the AI and robotics sector, performance is more muted, at least as the second month of the year gets underway.



Direxion Daily Robotics, Artificial Intelligence &amp; Automation Index (UBOT) is topping the list among best-performing AI-related ETFs this year, up 32%. But, it should be noted, UBOT features one of the lowest make-up of assets in its fund, when compared to its peers — totaling just $18 million.



Crypto funds total assets are also modest, averaging around $95 million, with one outlier — the $431 million Amplify Transformational Data Sharing ETF (BLOK) — up 25%.



By comparison, the average total funds in AI ETFs stand at roughly $5.89 billion, likely due to greater enthusiasm around the tech over crypto and blockchain, which is currently experiencing a lull.



Recently renewed interest in AI, courtesy of OpenAI’s ChatGPT 3 language model, Tesla’s self-driving cars and Jasper.ai’s ability to create art has led to an explosion of new business ideas.



An <a href="https://www.pwc.com/gx/en/issues/analytics/assets/pwc-ai-analysis-sizing-the-prize-report.pdf">analysis</a> by global “big-4” accounting firm PricewaterhouseCoopers (PwC) predicts the AI sector to contribute $15.7 trillion to the world’s gross domestic product by 2030.&nbsp;



Of that figure, roughly 6.6 trillion is likely to come from increased productivity while $9.1 trillion will derive from “consumption-side effects,” PwC said.



Cathie Wood’s Ark Invest expects blockchain and crypto to match that. The firm claims over the next 10 years, cryptocurrencies and smart contracts could command <a href="https://blockworks.co/news/ark-blockchains-are-future-of-money">$20 trillion</a> and $5 trillion in market value, respectively.



What does ChatGPT have to say about that?



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/9WbaEpjf3I9rDmQKgT5Yvar9JIqML-lRVfct_pUGrwJHwN7lN9wHQxyux46xEYaY2lnVaW5EUENCCzfmt3Ky0pHIsxlK2dxPa6UCzJB9eua-Qk1fseKIxft8etusL-lopkXa2Z0jnv0j5Tw7dO_4qko" alt=""/></figure>



Fair enough.

Crypto ETFs Outperforming AI by 26% YTD

India announced its annual budget for the year 2023-24 on Wednesday, introducing a penalty for individuals that avoid paying taxes on cryptoassets.



The budget, which details the government’s fiscal roadmap for the upcoming year, set out several priorities covering infrastructure and investment, green growth, youth power and the financial sector.



“The Union Budget 2023 has unveiled several new policies and initiatives designed to foster growth through digital transformation. It&#8217;s great to see the financial sector as one of the seven priority sectors in the budget,” Ashish Singhal, CEO at CoinSwitch, said in a statement.&nbsp;



Anticipating the upcoming budget, several Indian-origin CEOs and investors had hoped the budget would bring in a deduction in crypto-related tax, but policymakers <a href="https://www.indiabudget.gov.in/doc/Finance_Bill.pdf" target="_blank" rel="noreferrer noopener">didn’t oblige</a>. India had established a <a href="https://blockworks.co/news/indian-crypto-trading-volumes-plunge-as-new-tax-rules-kick-in">crypto tax slab</a> effective July 2022, requiring investors to pay a 1% tax deducted at source (TDS), on top of a flat 30% tax on crypto profits, on the transfer of virtual digital assets. 



“A reduction in 1% TDS to 0.01% would have helped the millions of traders in India,” WazirX CEO Nischal Shetty <a href="https://twitter.com/NischalShetty/status/1620747247087656960" target="_blank" rel="noreferrer noopener">said</a> on Twitter, and indicated that he expects the country to wait until global regulations are clearer. 



Meanwhile, Singhal noted that although the TDS of 1% for crypto transactions remains as it was, a clarification should be made.



“The onus of deducting TDS has been on crypto exchanges or on the user (if using P2P or other means), but until now there was no penalty for non-deduction,” he said.



“This is to say, don’t try to avoid TDS by using offshore or non-compliant platforms. You may be penalized as per Section 271C of the Income Tax Act. If you are investing in crypto, use a tax-compliant platform.”



The government doesn’t mention cryptocurrencies specifically in its Income Tax Act, but refers to them as “virtual digital assets.”&nbsp;



Notably, the budget has introduced a penalty for offenders or platforms that don’t pay up TDS on VDAs through an amendment to <a href="https://incometaxindia.gov.in/_layouts/15/dit/pages/viewer.aspx?grp=act&amp;cname=cmsid&amp;cval=102120000000073646&amp;searchfilter=%5B%7B%22crawledpropertykey%22:1,%22value%22:%22act%22,%22searchoperand%22:2%7D,%7B%22crawledpropertykey%22:0,%22value%22:%22income-tax+act,+1961%22,%22searchoperand%22:2%7D,%7B%22crawledpropertykey%22:29,%22value%22:%222019%22,%22searchoperand%22:2%7D%5D&amp;k=&amp;isdlg=0" target="_blank" rel="noreferrer noopener">Section 271C</a> of the Income Tax Act.



From April 1, people failing to pay up TDS could be fined in the amount of the liability or get jail terms of between 3 months to 7 years.



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India Keeps Crypto Tax Provisions in New Budget

The net losses endured by Meta’s division responsible for producing metaverse-related technology continue to grow quarter over quarter — as the damage amounted to nearly $4.3 billion in the final three months of 2022.



Despite the hit to the unit known as Reality Labs, the tech giant’s net income for the quarter stood at $4.65 billion, as its family of apps unit posted a gain of $10.7 billion. The segment includes Facebook, Instagram, Messenger and WhatsApp.



Meta’s stock price was $153.12 at the end of the trading day, down more than 50% over the past year but up about 23% in the last month. The price was up about 19% in after-hours trading, as of 6 p.m. ET.



The results came after Meta revealed on its November earnings call that Reality Labs <a href="https://blockworks.co/news/metas-metaverse-division-loses-nearly-3-7b-in-q3" target="_blank" rel="noreferrer noopener">lost nearly $3.7 billion</a> during the third quarter — up from the division’s <a href="https://s21.q4cdn.com/399680738/files/doc_news/Meta-Reports-Second-Quarter-2022-Results-2022.pdf" target="_blank" rel="noreferrer noopener">second-quarter loss</a> of $2.8 billion and a $2.9 billion loss in the first quarter. &nbsp;



Reality Labs’ net loss totaled $13.7 billion last year, the company revealed Wednesday.



The division includes augmented reality, virtual reality and the company’s metaverse software platform.



Then-Meta Chief Financial Officer David Wehner said in a November statement that the company was expecting Reality Labs’ operating losses to grow year over year in 2023.



Susan Li, who has since taken over as Meta’s chief financial officer, reiterated that projection during Meta’s earnings call Wednesday.&nbsp;



“We’re going to continue to invest meaningfully in this area given the significant long-term opportunities that we see,” she said.



Meta CEO Mark Zuckerberg added the company is “constantly tuning the roadmap” for Reality Labs. 



“Even though none of the signals I’ve seen so far suggest that we should shift the Reality Labs strategy long-term, we are constantly adjusting the specifics of how we execute this,” Zuckerberg said.&nbsp;



The continued losses in this business segment come after Facebook <a href="https://blockworks.co/zuckerberg-says-facebooks-new-name-will-be-meta" target="_blank" rel="noreferrer noopener">changed</a> its name to Meta in October 2021 to capitalize on the anticipated metaverse trend.&nbsp;



Zuckerberg said on the company’s November call its future initiatives include a social metaverse platform with avatars, augmented reality and neural interfaces.



“I get that a lot of people might disagree with this investment,” the CEO added at the time. “But from what I can tell, I think this is going to be a very important thing, and I think it would be a mistake to not focus on any of these areas, which I think will be fundamentally important to the future.”



About a week later, Zuckerberg said in <a href="https://about.fb.com/news/2022/11/mark-zuckerberg-layoff-message-to-employees/" target="_blank" rel="noreferrer noopener">a letter</a> the company decided to layoff about 11,000 employees — roughly 13% of Meta’s workforce.



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Meta Metaverse Division Posts $4.3B Net Loss in Q4 2022

In the latest “Big Ideas” report by ARK Invest, the popular US asset manager claims blockchain will be one of the most significant technologies to shape an already technological era.



The report highlights 14 different technologies pegged to impact multiple sectors and serve as essential platforms for further innovation — including smart contracts and cryptocurrencies.



With global adoption, smart contracts and public blockchains will play a pivotal role in verifying digital scarcity and proof of ownership, Ark said.



“The financial ecosystem is likely to reconfigure to accommodate the rise of cryptocurrencies and smart contracts,” the report states.



“These technologies increase transparency, reduce the influence of capital and regulatory controls, and collapse contract execution costs.”



Ark has been a long-time supporter of crypto and blockchain. Its CEO Cathie Wood previously predicted that the price of bitcoin would reach $1 million by 2030.&nbsp;



The firm also boasts a <a href="https://blockworks.co/news/ark-invest-ftx-opportunity-for-coinbase">significant amount of shares</a> in top US exchange Coinbase, owning <a href="https://ark-funds.com/funds/arkk/">4.53%</a> of the company’s stock, representing roughly $347 million dollars.



<h2>An on-chain future driven by blockchain technology</h2>



The cryptocurrency industry has been continuously growing despite the collapse of prominent players in the market, which recently saw around $1.5 trillion wiped from the industry, the report said.



As the market slowly goes into recovery mode, Ark believes there will be a long-term opportunity for Bitcoin, DeFi and Web3. The firm claimed that over the next 10 years, “cryptocurrencies and smart contracts could command $20 trillion and $5 trillion in market value, respectively.”



The total value of all cryptocurrencies is currently just shy of $1.1 trillion; that figure would need to grow by 1,700% for Ark’s prediction to realize.



ARK pegged three revolutions of industry to get us there: upheavals across money, finance and the internet.



<h2>Money</h2>



The money revolution will see a movement away from fiat currencies and central banking systems into a global, more decentralized system. In particular, the report notes the long-term opportunity for Bitcoin is strengthening.



“Bitcoin’s volatility has obscured its long-term returns. Despite five drawdowns greater than 75% since its inception in 2009, bitcoin has delivered positive annualized returns over 3-, 4-, and 5-year time horizons,” Ark said.



Adding that, “the price of one bitcoin could exceed $1 million in the next decade,” more-or-less reiterating Wood’s bullish call.



<h2>Finance</h2>



On the finance side, there’s opportunity for decentralized financial (DeFi) to bring financial services to unbanked communities. Ark reasoned there are over 2 billion people who currently lack access to essential banking services.



“Financial services deployed on open protocols enable anyone with an internet connection access to custody, trading, and lending facilities,” the report said, “As insolvencies mounted across crypto lending businesses like Celsius and Voyager, decentralized lending markets like Aave continued to operate as designed.”



The report notes that if DeFi builders were to charge just a third of legacy finance rates — and financial services were to move to blockchain infrastructure at the same internet adoption rate in the early 2000s — the DeFi industry alone could be valued at $5.3 trillion by 2030.&nbsp;



<h2>Internet</h2>



ARK remains bullish on a potential internet revolution. Web2 thrives under tech monopolies that monetizes via user data — but this could change with the adoption of Web3 technologies which “introduces digital property rights for the first time.”



“Decentralized protocols enable the governance of — and open access to — distributed data, limiting central aggregator control,” the report said.&nbsp;



“Web3 embeds economics into software, enabling users to monetize and participate in network development.”



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The Future of Money and Contracts Is Public Blockchains: ARK

In a widely anticipated move, the Federal Reserve moved to bump interest rates by a quarter of a percentage point Wednesday, marking the start of what markets hope will be a prolonged period of smaller hikes.&nbsp;



The US central bank cited <a href="https://blockworks.co/news/crypto-hedge-during-ukraine-war">Russia’s ongoing war in Ukraine</a>, continued heightened inflation and a need to reach maximum employment as reasons for the slower-paced hike.&nbsp;



The move marks the Fed’s eighth <a href="https://blockworks.co/news/cryptos-stocks-rally-on-fourth-straight-0-75-interest-rate-increase">consecutive</a> rate increase, a strategy it hopes will curb the highest inflation the country has seen in more than four decades, but analysts remain worried a soft landing may be a tall order.&nbsp;



“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” Federal Open Market Committee (FOMC) members wrote in a <a href="https://www.federalreserve.gov/monetarypolicy/files/monetary20230201a1.pdf" target="_blank" rel="noreferrer noopener">statement</a> at the end of their two-day policy meeting Wednesday.&nbsp;



Bitcoin and ether fell slightly on the news, declining 0.2% and 0.3%, respectively.&nbsp;



The S&amp;P 500 and Nasdaq Composite indexes also faltered, losing about 0.7% and 0.5%, respectively, immediately after the Fed released its decision.



Even with some relatively promising economic data, the major market moves are far from behind us, Craig Erlam, senior market analyst at Oanda, said, noting that Powell’s 2:30 pm ET remarks will give markets a better idea of whether peak hawkishness has really been achieved.&nbsp;



“There is growing evidence that rate hikes have worked in cooling the economy, inflation, and the labor market, but the question is whether the Fed believes it has done so enough, particularly on the core measure where inflation could prove more stubborn,” Erlam added. 



At the December meeting, committee members stated they believed that interest rates will ultimately hit between&nbsp; 5% and 5.25%, at a median level. These estimates are scheduled to be recalculated in March. When asked his expectations for what the final rate level may be, Powell said there is still uncertainty, but markets should be prepared for a higher level.&nbsp;



“I don&#8217;t feel a lot of certainty about where that will be,” Powell said during Wednesday’s press conference. “It could certainly be higher than we&#8217;re writing down right now.”



Traders should be certain that the Fed will continue to watch macroeconomic conditions, analysts say. While progress has been made, betting on a complete Fed pivot at this stage of the game would be ill advised.&nbsp;



“Clearly, inflation is declining (we are seeing that pretty much everywhere) but we should not expect it to be a linear process (there will be gains and some setbacks), but broadly, disinflation remains a positive for the market, and certainly much better than where we were last year, and that’s encouraging,” Tom Essaye, founder of sevens report research, wrote in a note Wednesday.&nbsp;



This is a developing story.



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Fed Opts for Lower Rate Increase, Crypto, Equities Shimmy

The Ethereum Shanghai hard fork is <a href="https://blockworks.co/news/ethereum-devs-opt-for-withdrawals-in-march-and-nothing-else">less than two months away</a>, and liquid staking derivatives (LSD) are gaining momentum in the cryptocurrency market.



Following Shanghai, users can withdraw ether locked up on the Beacon chain — opening up an exit for long-time Ethereum stakers.



<a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analysts note in a <a href="https://www.blockworksresearch.com/research/eth-liquid-staking-derivatives" target="_blank" rel="noreferrer noopener">report</a> that this upgrade is likely to encourage more ETH holders to lock up their assets over the long term, increasing pressure on stake rate — but it is possible that there could also be a dip in staking demands as withdrawals become available.



Alluvial co-founder and Chief Operating Officer Mike Taormina told Blockworks that the rise in popularity of liquid staking derivatives on Ethereum should come as no surprise, as it’s about more than the debut of withdrawals.



“Liquid staking also solves a real problem: When you lock tokens to participate in the security of the network, those tokens are illiquid,” he said.



Not so, with ether receipt tokens.



<h2>Liquid staking in proof-of-stake ecosystems</h2>



The ordinary staking process involves locking up cryptocurrency in a proof-of-stake network to support blockchain operations and enable transactions, while simultaneously allowing users to accrue staking rewards.



In the case of Ethereum, an individual user must deposit 32 ETH ($50,900) to the blockchain and activate the validator software to participate in staking.



As ETH holders often do not have enough funds or technical expertise to run their own validator node — now <a href="https://blockworks.co/news/ethereum-to-reach-500000-validators">exceeding 510,000 worldwide</a> — liquid staking protocols, including Lido, Rocket Pool and Frax, remove the barrier to entry by allowing ether holders to participate in staking without having to lock in any tokens.



This is often referred to as pooled staking, and users who participate are given ERC-20-compliant liquidity tokens that represent their staked ether, which they can hold in their wallets and use in other DeFi applications. But using decentralized exchanges, they can also sell back into normal unstaked ether at any time.



Of course, liquid staking is not only limited to the Ethereum blockchain. The Solana network has been actively looking at ways to grow its total value locked (TVL) — particularly following events related to FTX, <a href="https://blockworks.co/news/top-solana-nft-projects-are-jumping-ship-to-ethereum-polygon">which hit Solana hard</a> — and liquid staking derivatives may address some of these challenges.



Marinade Finance, a non-custodial liquid staking protocol built on the Solana blockchain, is hoping to increase DeFi activity on its network by launching a program that will distribute its governance token MNDE to individuals and protocols in hopes of growing mSOL TVL.&nbsp;



“There’s so much locked SOL that’s staking. It&#8217;s helping decentralization and validation, but it’s not helping liquidity, so what we want to see is some of that stake turn into liquidity — and help DeFi protocols — and liquid staking tokens is really the mechanism for that,” Brandon Tucker, a growth lead at the DAO, told Blockworks.&nbsp;



<h2>Setting a new liquid staking standard</h2>



Following the Shanghai upgrade, Taormina believes that liquid staking tokens may become even more popular — driving increased confidence in the Ethereum blockchain and welcoming a new cohort of mainstream adopters.&nbsp;



Ethereum has a much lower percentage of its token staked — <a href="https://dune.com/blockworks_research/eth" target="_blank" rel="noreferrer noopener">less than 14%</a> per Blockworks Research — compared to other blockchains, Taormina said.&nbsp;



<figure class="wp-block-image size-large"><a href="https://www.blockworksresearch.com/research/eth-liquid-staking-derivatives" target="_blank" rel="noreferrer noopener"><img decoding="async" loading="lazy" width="1024" height="213" src="https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-1024x213.jpg" alt="" class="wp-image-45241" srcset="https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-1024x213.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-300x63.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-768x160.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-428x89.jpg 428w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-470x98.jpg 470w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-389x81.jpg 389w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner-80x17.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2023/02/researchbanner.jpg 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></figure>



“There’s something holding Ethereum holders back from participating in staking, this is why the upgrade is so important,” he said. “The Shanghai upgrade will finally enable withdrawals and remove uncertainty…we think that more people will end up participating [in staking].”



In anticipation of a growth in staking participants, Taormina and his team at Alluvial are partnering with a handful of Web3 teams to design a new liquid staking standard.&nbsp;&nbsp;



This new standard, dubbed ‘Liquid Collective,’ will be an enterprise-grade liquid standard built to attract enterprise-grade users to Web3.



“This is important because it helps onboard a cohort of users that are on the sidelines that would be interested in staking but need experience to meet some minimum thresholds that aren’t currently met today,” Taormina said.



If you want to read more about the current state of liquid staking derivatives on Ethereum and their yield market share, you can subscribe to <a href="https://www.blockworksresearch.com" target="_blank" rel="noreferrer noopener">Blockworks Research</a> and read <a href="https://www.blockworksresearch.com/research/eth-liquid-staking-derivatives" target="_blank" rel="noreferrer noopener">their latest report</a> at no charge for the next 24 hours.



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All Eyes on Liquid Staking Derivatives as Shanghai Upgrade Nears

Crypto firms are adding lobbyists as regulatory scrutiny is expected to intensify following a whirlwind year for the segment that featured the crashes of large industry players.



Binance has registered three new lobbyists from legal counsel firm Ice Miller, according to a <a href="https://lda.senate.gov/filings/public/filing/6a74c35b-89fc-45bf-bebf-8535e2be9fdd/print/" target="_blank" rel="noreferrer noopener">filing</a>, in a move spurred in part by the fall of one of the crypto exchange’s biggest rivals.



&#8220;Following <a href="https://blockworks.co/news/sam-bankman-fried-arrested-in-bahamas">the arrest of FTX&#8217;s former CEO</a>, Binance.com received several inquiries from congressional offices seeking our perspective,” a spokesperson told Blockworks in an email. “As Binance.com had never previously engaged in Washington DC, we sought government affairs consultants that understood both crypto and our CEO&#8217;s role in the industry.”



Ice Miller, which had previously supported Binance.US, was “a natural option,” the representative added. The exchange’s US arm first hired lobbyists from the firm in 2021, Politico <a href="https://www.politico.com/newsletters/politico-influence/2021/10/04/binanceus-rover-add-first-lobbyists-798018" target="_blank" rel="noreferrer noopener">reported</a>.



The latest lobbyist additions, which went into effect Tuesday, include the nephew of former US Vice President Mike Pence.



John Pence, now Ice Miller’s director of public affairs, was a senior adviser for the Trump-Pence presidential campaign from 2016 to 2020.



He “helps with issue monitoring and engagement at the federal level for clients,” according to the Ice Miller’s website. Pence is not licensed to practice law in any state and does not provide legal services.



Jarrod Loadholt and Meagan Bolton are also set to lobby for the crypto exchange, the filing shows.&nbsp;



Loadholt, a partner in Ice Miller’s public affairs group, formerly acted as a senior counsel to the US House of Representatives’ Subcommittee on Financial Institutions and Consumer Credit. He also worked as senior oversight counsel to the Oversight and Investigations Subcommittee.



More recently, Loadholt was head of Credit Karma’s first director of legislative and regulatory affairs, a role in which he managed the company’s government relations function.



Before joining Ice Miller, Bolton was technology, telecommunications and judiciary counsel for US Sen. Gary Peters, chair of the Homeland Security and Governmental Affairs Committee.&nbsp;



She was also previously the tech and telecom counsel for the US House Committee on Small Business.



A Binance spokesperson did not comment on what Pence, Loadholt and Bolton will be doing for the company specifically. The lobbyists’ assistant did not immediately return a request for comment.&nbsp;



<h2>Others looking to engage more with DC, too</h2>



Tether, Bakkt, a16z and Riot Platforms are also looking to lobby in DC, Politico first <a href="https://www.politico.com/newsletters/politico-influence/2023/01/31/k-streets-crypto-gold-rush-continues-00080529" target="_blank" rel="noreferrer noopener">reported</a>. 



Venture capital firm a16z has registered Collin McCune as its first lobbyist, a spokesperson confirmed. McCune <a href="https://a16zcrypto.com/collin-mccune/" target="_blank" rel="noreferrer noopener">joined</a> the company as its head of government affairs in November. 



For nearly four years before that, he was deputy staff director of the House Financial Services Committee.&nbsp;



“With crypto legislation now at the forefront of the policymakers’ minds, we felt it was essential to take this step,” an a16z representative told Blockworks.



<blockquote class="wp-block-quote">
“We look forward to working with policymakers to ensure that crypto legislation strikes the balance of providing consumer protections while not stifling the future of Web3’s promise,” they said.
</blockquote>



Crypto marketplace Bakkt added Steptoe &amp; Johnson as a lobbyist in December, while Tether registered Continental Strategy to lobby on its behalf last month, separate filings show.&nbsp;



“We expect the legislative and regulatory conversation to accelerate this year and we plan to meaningfully contribute to it on important topics such as consumer protection, risk and controls, and sound governance,” a Bakkt spokesperson said.



The market capitalization of stablecoin <a href="https://blockworks.co/price/usdt" target="_blank" rel="noreferrer noopener">tether</a> is roughly $68 billion, behind only bitcoin and ether. Stablecoin regulation will be a major priority for Congress this year, Bitwise’s general counsel <a href="https://blockworks.co/news/stablecoin-regulation-congress-priority">told Blockworks</a> last month. 



&#8220;As the creator of the stablecoin, we feel it is critical for our voices to be heard so that we can help ensure lawmakers, regulators and anyone engaging in digital commerce have a complete and accurate understanding of the utility of these assets,” a Tether representative told Blockworks.



Riot Platforms also registered Brian Morgenstern as a lobbyist last month, according to a <a href="https://lda.senate.gov/filings/public/filing/13b31a1d-5633-4b36-b788-e7371412ee4a/print/" target="_blank" rel="noreferrer noopener">filing</a>, after hiring him as its head of public policy. 



Morgenstern was a deputy assistant secretary at the US Department of the Treasury and was a deputy communications director and special assistant to then-President Donald Trump.&nbsp;



A spokesperson did not immediately return a request for comment.



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Mike Pence’s Nephew Among Binance’s Newest Lobbyists

In bull cycles past, bitcoin proponents have pushed crypto as an inflation hedge — specifically BTC.



It’s a rosy and simplified view of bitcoin’s role in our world. But it’s somewhat true if one zooms out far enough — the price of bitcoin has jumped about 170% over the past five years, while the cumulative rate of inflation is just 16.5% across the same period.



On a more granular level, bitcoin doesn’t always work as an inflation hedge. Bitcoin is down nearly 40% over the past year, while the annual rate of inflation hit 6.5% in December — using bitcoin as an inflation hedge would’ve only made things worse.



But where cryptocurrency really shines is in places where local currency is rapidly devaluing. Crypto usage <a href="https://www.dw.com/en/venezuelans-try-to-beat-hyperinflation-with-cryptocurrency-revolution/a-57219083" target="_blank" rel="noreferrer noopener">exploded</a> in Venezuela, for example, as hyperinflation wrecked its local currency.



More recently, dollar-pegged stablecoins tether (USDT) and binance USD (BUSD) served as a hedge against the devaluation of the Ukrainian hryvnia (UAH) and Russian ruble (RUB), as the long-running conflict <a href="https://blockworks.co/news/market-wrap-cryptos-crumble-after-russia-bombs-major-ukraine-nuclear-power-plant">spiraled into all-out war last February</a>.



The Ukrainian hryvnia has lost 32% of its value against the US dollar since 2020. The Russian ruble, on the other hand, shed 10% over the same time frame, but fell as low as almost 40% as strict Western sanctions struck the local economy last March.



Blockworks analyzed trade volumes in UAH and RUB crypto pairs across exchanges including Binance and Huobi alongside European venues Whitebit and CEXIO over the past three years.&nbsp;



The goal: Determine which real-world events triggered the most activity for crypto traders with UAH and RUB fiat balances, while mapping general trends of crypto usage to the devaluation of those fiat currencies.



It must be noted that only UAH and RUB pairs were studied, not all crypto markets available to traders based in Russia and Ukraine.&nbsp;



This is intended to capture specific activity: swapping fiat directly for cryptoassets to hedge against potential devaluation. It’s likely this data also includes speculative investments not directly related to such endeavors.



<h2>Ukrainian hryvnia volumes spiked for stablecoins amid sudden devaluation</h2>



<ul>
<li>UAH pairs on those platforms altogether saw almost $7.3 billion in trade volumes since Jan. 29, 2020.</li>



<li>Nearly half of that volume occurred after Russia invaded Ukraine on Feb. 24, 2022.</li>



<li>Bitcoin made up more than 85% of trade volumes before stablecoin pairs were first listed in July 2020, now dollar-pegged tokens make up the overwhelming majority.</li>
</ul>



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12613668/embed#?secret=bKdr4vEuwr" data-secret="bKdr4vEuwr" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Click the BTC/USD swatch to directly compare UAH with trade volumes (hint: toggle the stablecoin outliers to see how the trend has shifted) | Chart by David Canellis</figcaption></figure>



Crypto trade volumes for hryvnia pairs — particularly bitcoin — understandably picked up in October 2020, as did volumes across the rest of the world. <a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a> was worth $10,000 at the time and just starting its first run to $60,000.



Much of the UAH trade activity around that time can be attributed to the general crypto bullishness that gripped markets the following year.&nbsp;



In fact, UAH-stablecoin pairs briefly made up more than 90% of such fiat markets in mid-October before swinging to under 9% the following March.&nbsp;



The trend hints at waves of Ukrainian fiat holders swapping UAH for dollar-pegged stablecoins at the beginning of the bull run, presumably to trade for other cryptocurrencies due to the small number of UAH pairs available.&nbsp;



Subsequent fiat volumes were instead directed at bitcoin and ether as BTC peaked in March, showing many bought (and sold) the top.



But stablecoin volumes rose significantly leading up to Sept. 2021, alongside <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/01/joint-statement-on-the-u-s-ukraine-strategic-partnership/" target="_blank" rel="noreferrer noopener">wartime posturing</a>, after months of <a href="https://www.csis.org/analysis/russian-and-ukrainian-spring-2021-war-scare" target="_blank" rel="noreferrer noopener">reports</a> indicating Russian troops were massing along the Ukrainian border.



Throughout the year, average UAH-stablecoin volumes had hovered at $16.4 million — that figure jumped to nearly $42 million through September until the end of December.



UAH was worth $0.037 at the time; it’s now worth 30% less.



After a three-month lull, stablecoin volumes gathered steam as Russia invaded Ukraine on Feb. 24, 2022. The National Bank of Ukraine quickly <a href="https://bank.gov.ua/en/news/all/pro-robotu-bankivskoyi-sistemi-ta-valyutnogo-rinku-z-24-lyutogo-2022-roku-za-umovi-voyennogo-stanu-po-vsiy-teritoriyi-ukrayini" target="_blank" rel="noreferrer noopener">implemented</a> strict foreign exchange controls to stop the hryvnia from spiraling further.&nbsp;



Average weekly UAH-stablecoin volumes reached $100 million between Russia’s invasion and late July — more than doubling since the US and Ukraine formed a strategic alliance in response to Russia’s aggressive stance.



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12594379/embed#?secret=05Xio2WSxp" data-secret="05Xio2WSxp" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Bitcoin was once the most popular asset to purchase with UAH on these exchanges. Not anymore. | Chart by David Canellis</figcaption></figure>



But some of the biggest spikes in UAH-stablecoin activity came just before the country’s central bank <a href="https://www.reuters.com/markets/rates-bonds/ukraines-central-bank-devalues-hryvnia-by-25-against-us-dollar-2022-07-21/" target="_blank" rel="noreferrer noopener">devalued</a> its local currency by 25% against the dollar on Jul. 21, 2022. The move was made to help the local economy deal with a strengthening US dollar against the grim backdrop of war at home.



Nearly $566 million in UAH-stablecoin volume was recorded in July, equating to $135 million in average weekly volume, a 35% jump.



Any fiat holder who’d stayed in US dollar stablecoins would’ve found protection against the UAH’s sudden devaluation — although a giant spike in trade volumes just after indicates some were a little too late. Trade volumes across UAH pairs have since fallen significantly.



<h2>Russian ruble pairs saw major surge following temporary crash</h2>



<ul>
<li>RUB pairs across these platforms have seen $10.2 billion in trade volumes since Jan. 29, 2020.</li>



<li>Weekly trade volumes more than doubled as the ruble briefly collapsed 45% under strict Western sanctions at the start of the invasion.</li>



<li>US-dollar stablecoins today make up nearly half of all RUB pair activity.</li>
</ul>



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12614070/embed#?secret=BSAC1KBdRE" data-secret="BSAC1KBdRE" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Notice the major spikes as the ruble crashed in Feb. 2022 | Chart by David Canellis</figcaption></figure>



Ruble-based trade has trended somewhat differently to the hryvnia, with stablecoins and bitcoin both maintaining steady volume dominance amid the 2021 bull run.



Still, relatively high volumes during that year can be similarly attributed to increased interest around cryptocurrencies during bull markets.&nbsp;



A major spike in May 2021 directly coincided with bitcoin’s retracement from $58,000 to under $34,000, suggesting RUB traders both bought the dip and tried to take profits.



But volumes indicate many traders saw opportunities to escape the effects of Western sanctions on the ruble in the week of Russia’s invasion some 10 months later — and not just via dollar-pegged stablecoins.



In the three months preceding, RUB pairs saw on average $98.6 million in weekly volume. As the ruble rapidly descended 45% in late Feb. 2022, those markets saw more than double on average — mostly as it collapsed, but significant amounts were recorded as it bounced back to 2017 levels.



RUB-stablecoin volumes were sporadically high as 2022 rolled on, but eventually dwindled as the ruble regained momentum.



The lion’s share (99%) of RUB trade occurred on Binance, which boasts 15 pairs, nearly triple the number of Ukrainian hryvnia pairs.&nbsp;



Cutting Russia-based users off from crypto trading platforms was a touchy subject for the ecosystem in the early days of the war, as parts of the global financial <a href="https://www.bbc.com/news/business-60521822" target="_blank" rel="noreferrer noopener">system</a> moved to disconnect itself from the Russian economy along with major <a href="https://som.yale.edu/story/2022/over-1000-companies-have-curtailed-operations-russia-some-remain" target="_blank" rel="noreferrer noopener">corporations</a>.



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12594544/embed#?secret=U1mx5UQToK" data-secret="U1mx5UQToK" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Ruble traders have more choices but still gravitate toward stablecoins | Chart by David Canellis</figcaption></figure>



Binance CEO Changpeng Zhao, while pledging to adhere to all international sanctions, at the time commented that <a href="https://blockworks.co/news/crypto-exchanges-weigh-blocking-russian-accounts-as-sanctions-intensify">outright banning local users would be unethical</a>.&nbsp;



Major platforms Coinbase and Kraken telegraphed similar stances, only intending to block users directly sanctioned by international authorities. Binance <a href="https://blockworks.co/news/binance-to-limit-services-to-russians-following-latest-round-of-eu-sanctions">throttled certain services to Russia-based users</a> in Apr. 2022, placing accounts with more than 10,000 euros ($10,860) into withdrawal-only mode.&nbsp;



Binance has reported processing nearly $1.9 billion in ruble-to-crypto trades since then, 45% USDT-based per TradingView data, although how much of that volume is directly tied to Russian users is unclear.



A question remains: While it’s obvious that cryptocurrencies offered a way to preserve value amidst the onset of war, could bad actors have benefitted from the availability of these fiat pairs, tangentially skirting the impact of global sanctions?



<h2>USDT was more valuable than fiat cash by 30% as war broke out</h2>



Nick Smart, director of blockchain intelligence at analytics firm Crystal Blockchain, told Blockworks that filtering bad actors “has to be an integrated, risk-based approach.” But Smart warned that there’s no way for crypto exchanges to eliminate risk entirely unless they don’t accept any clients.



In October, the European Union moved to restrict Russia-based users’ access to crypto markets in their eighth <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_22_5989" target="_blank" rel="noreferrer noopener">package</a> of sanctions against Russia.&nbsp;



As part of that package, the EU outright banned the provision of services related to cryptocurrencies, particularly for citizens and companies of the Russian Federation.



“So, if the exchange continues to serve citizens and companies of the Russian Federation, this will be a direct violation of the sanctions,” Lex Fisun, co-founder at Global Ledger Protocol, told Blockworks.



The sanctions aren’t aimed at the ruble itself, Fisun explained, but only at citizens and Russian companies. Russians can still circumvent those sanctions through crypto exchanges under certain conditions, especially those who aren’t specifically registered with the EU.



“Cryptocurrency-related sanctions will not apply to Russians who have citizenship, residence permit or permanent residence of the EU countries, as well as Switzerland,” Fisun said.



<figure class="wp-block-embed aligncenter is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12608750/embed#?secret=nI7YLmdDpG" data-secret="nI7YLmdDpG" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">On a long enough time horizon, bitcoin was a great hedge against currency devaluation | Chart by David Canellis</figcaption></figure>



Still, Fisun noted that anticipation of war, alongside panic and anxiety, definitely drove some to crypto and stablecoins. Also, many people in Ukraine and Russia use over-the-counter exchanges or platforms based on Telegram — like <a href="https://blockworks.co/news/bitzlato-law-enforcement-significance">Bitzlato</a> — so the true volumes will be much bigger than published by the exchanges analyzed for this report, he said.



To that end, Michael Chobanian, long-serving Ukrainian crypto entrepreneur and founder of the nation’s first exchange, Kuna, told Blockworks that most of the trade surrounding the breakout of total war was done in cash — not crypto or even stablecoins. “This is how Ukraine mostly operates,” he said.&nbsp;



“The obvious non-scientific answer is: ‘Yes, a lot of people escaped to USDT.’ In the first days of [the] war — even weeks — USDT was more valuable than physical US dollars by a factor of 30%. Cash was risk.”



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