Iron Fish

Ben Strack

It’s spot ether ETF decision week — a pre-Memorial Day celebration of sorts for a certain segment of the crypto and financial communities.



Or a letdown.&nbsp;



The lead-up to the ruling didn’t seem to carry the same buzz as the Securities and Exchange Commission’s verdict on BTC funds in January.&nbsp;



That perhaps changed a bit Monday.



After weeks of industry watchers expressing doubts that the SEC was ready to approve such funds, Bloomberg analysts changed their SEC approval odds from 25% to 75%.



<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">Update: <a href="https://twitter.com/JSeyff?ref_src=twsrc%5Etfw">@JSeyff</a> and I are increasing our odds of spot Ether ETF approval to 75% (up from 25%), hearing chatter this afternoon that SEC could be doing a 180 on this (increasingly political issue), so now everyone scrambling (like us everyone else assumed they&#39;d be denied). See… <a href="https://t.co/gcxgYHz3om">https://t.co/gcxgYHz3om</a>&mdash; Eric Balchunas (@EricBalchunas) <a href="https://twitter.com/EricBalchunas/status/1792636523050906102?ref_src=twsrc%5Etfw">May 20, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Ether rose above $3,500 just before 5 pm ET Monday — up about 14% on the day.



A person familiar with the spot ether ETF applications told Blockworks that “conversations are progressing.” They were granted anonymity given the sensitivity of the discussions.&nbsp;



An SEC spokesperson declined to comment.



The Bloomberg analysts alluded to a potential regulatory change of stance given how crypto has appeared to become more of a political issue in recent days and weeks.&nbsp;&nbsp;



Donald Trump has essentially promised to be a pro-crypto president if returned to the White House in the upcoming election. Then, <a href="https://blockworks.co/news/senate-passes-resolution-to-overturn-sab121">12 Democratic senators joined Republicans last week to pass a resolution</a> to overturn the SEC’s Staff Accounting Bulletin (SAB) 121. The move could signal that more Democrats look to gain favor with pro-crypto voters the way Republicans historically have.&nbsp;&nbsp;



Still, industry watchers have named several reasons they think the SEC might not be ready to allow spot ether ETFs to start trading.&nbsp;



“Concerns over the liquidity of ETH&#8217;s spot and futures markets, along with its previous classification as a security by the SEC, contribute to skepticism about swift approval,” Fineqia International analyst Matteo Greco said in a Monday research note. 



Read more: <a href="https://blockworks.co/news/sec-decision-ether-etf-possibilities">Why the SEC could choose to deny ether ETFs, and what could happen next</a>



Others have pointed out the lack of SEC engagement with prospective issuers over the last weeks and months — a divergence from the many meetings the regulator had with fund firms ahead of the bitcoin ETF approvals.&nbsp;&nbsp;



21Shares President Ophelia Snyder had <a href="https://blockworks.co/news/21shares-ark-invest-ether-etf-approval">previously countered that point</a>, noting there was “less to look at” this time around given “how fresh most of the documentation is” following the bitcoin ETF approvals.



As the agency did with spot bitcoin ETFs, the SEC would have to approve the 19b-4 documents submitted by the stock exchanges on which these products would trade, as well as S-1 registration statements from the issuers.



The SEC is asking exchanges to update their 19b-4 documents “on an accelerated basis,” CoinDesk <a href="https://www.coindesk.com/policy/2024/05/20/ether-etfs-filing-process-sees-abrupt-progress-though-approval-not-guaranteed-sources/">reported</a> Monday, citing unnamed sources.



Nate Geraci, president of the ETF Store, <a href="https://x.com/NateGeraci/status/1792330334169903568">said</a> in an X post that the SEC could theoretically approve the 19b-4s and wait on greenlighting the S-1s as more engagement with issuers takes place.&nbsp;



“This decision could be favorable for issuers, as traditional finance investors seem [to remain] strongly focused on BTC, potentially reducing market activity around ETH spot ETFs if launched next week,” Greco said in his research note.



Should the SEC reject the spot ether funds, issuers would need to re-submit their filings, restarting a 240-day clock. This could potentially lead to approval in this year’s fourth quarter, or in early 2025, Greco noted.&nbsp;&nbsp;



Some lawyers have said <a href="https://blockworks.co/news/ether-etf-sec-question">issuers might look to sue the SEC</a> if they reject the planned ether products given a court decision was what ultimately helped get US spot bitcoin ETFs to start trading.



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Spot ether ETF decision week just got a bit more interesting

Daniel Cawrey

Anyone else think Ethereum is difficult to use these days?



Yeah, there’s a bunch of cool stuff on Ethereum — meme tokens, NFTs, DeFi, degens — it’s all there. But over the years as the blockchain evolved, it has become more expensive and more complicated — as in, an already complex technology for users has become even moreso.&nbsp;



Not only do users need to understand crypto basics like wallets, irreversible transactions and addresses, they also now have to contend with getting to know different chains. You can’t just send Ethereum chain ETH to Optimism chain ETH, or Optimism chain ETH to Polygon chain ETH, unless of course you use a bridge which means that this system might be getting a little complex for many users.&nbsp;



Ethereum is becoming a multilayered lasagna-like system whereby complexity and fees are pushing people to the margins, causing <a href="https://twitter.com/tonyolendo/status/1783537754179068198">interoperability</a> and security concerns.&nbsp;



<h2 class="wp-block-heading">How did we get here?</h2>



I wouldn’t say there’s anyone in particular to blame for this; it’s an ecosystem problem as a whole. When Ethereum launched almost 10 years ago, nobody was using it. At that time, any usage at all was welcomed.&nbsp;



Now, it’s 2024 and there is usage. But there’s also expensive layer-1 fees. Average transaction fees on the layer-1 Ethereum blockchain are at <a href="https://l2fees.info/">$0.94</a>. If a user wants to interact with a smart contract, like a DEX, fees are averaging <a href="https://l2fees.info/">$4.70</a>.



Some might say, “Well, maybe it’s time to examine fees themselves.” Problem is, fees are what secure the network. If validators were not being incentivized by staking and reaping fees, what would be the point?



Okay, yeah, but there’s the layer-2 options, right? There are. And Arbitrum and Optimism have both transaction and smart contract fees at less than $0.02. We’re securing the bottom layer, enabling lower fees on the second.&nbsp;



But as a <a href="https://www.coinbase.com/institutional/research-insights/research/market-intelligence/blockchain-bridges-navigating-a-fragmented-universe">Coinbase report</a> from late last year noted, there are so many of these layer-2s that fragmentation now exists between all of these different chains. And mainstream users, aka those who could enable mass adoption, want financial apps that don’t make things complicated.&nbsp;



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



The point is clearly that Ethereum is just one big-ass financial experiment. I actually wrote about this way back in 2016, <a href="https://www.coindesk.com/markets/2016/05/06/ethereum-a-valuable-fintech-sandbox/">about Ethereum being a fintech sandbox</a>.&nbsp;



And it has been one. When I wrote that piece, ICOs were only slowly gaining traction, DEXs were in their infancy and there wasn’t even an NFT token standard yet — just Plain Jane ERC-20s.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/blackrock-ethereum-memecoins-tornado-cash-dusting">BlackRock clearly wants to take crypto seriously. Too bad it’s forever silly.</a>



Times have certainly changed. Ethereum’s “world computer” concept, the idea that people could build programmable monetary systems on a verifiable blockchain, has been a success. The Ethereum Virtual Machine, or EVM, is a standard for smart contract development — even outside the Ethereum ecosystem.&nbsp;



Then, there’s the 2022 move to the proof-of-stake model, which to Ethereum’s credit, was pulled off with remarkable execution.&nbsp;



Yet I’ve heard of people working on <a href="https://www.kucoin.com/learn/crypto/layer-2-vs-layer-3-blockchains">Ethereum layer-3 projects</a> now. That’s an abstraction of two layers — can anyone come up with something comparable for so many layers in technology? Maybe <a href="https://www.cloudflare.com/learning/ddos/glossary/open-systems-interconnection-model-osi/">the OSI model</a>? It has seven layers. But it’s used for data in networking, all running at the same speed. And there’s no fees. It’s just categorizing data.&nbsp;



Okay, well, blockchains are just data. So then we arrive back at the fee conundrum. But blockchains are decentralized, so there has to be some incentive to support the network, right?&nbsp;



<h2 class="wp-block-heading">A fee quagmire</h2>



Fees secure the Ethereum network, rent the computing power to do things and also limit spam. With that in mind, I suppose there have to be fees in the system — I’m not proposing some grand, new fee-less Ethereum design, that’s for the Vitalik Buterins of the world.&nbsp;



There are rollups, and that’s promising because they can batch process transactions off of Ethereum while lowering fees with the same level of security. Or maybe some smart startup can somehow increase interoperability — instead of reducing it by having users dig through layers like a Stouffer’s Italiano.&nbsp;



I just am not convinced of the feasibility and long-term viability of so many bridges, some of which have been compromised. It feels like too many vulnerabilities in the margins. Perhaps a standardization of bridges is needed, and many wallets do warn users about interacting with bad smart contracts, so some safeguarding is happening.&nbsp;



But I’m still trying to coincide my recent experiences with Ethereum as something&#8230;&nbsp;



Very.



Lasagna-like.&nbsp;



Tasty for the taste buds as a food, yes.&nbsp;



But isn’t it a bit complex for people to use as a blockchain? People want apps that offer free flow of money, not restrictive layers. Hopefully, Ethereum can evolve past this lasagna stage.



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


<div class="wp-block-post-author-biography">Daniel Cawrey has been involved full-time in the crypto space since 2013, including as an editor at CoinDesk. He is author of 2020’s “Mastering Blockchain” and 2023’s “Understanding Crypto” books, both available on Amazon.</div>


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Ethereum is too hard to use

Industry watchers seem to agree that if US regulators approve spot ether ETFs, it would be a bullish development for the asset. What&#8217;s more, they believe that even if these ETFs are not approved, the impact on the market will not be significantly negative.



That is in part due to market participants’ low expectations that the Securities and Exchange Commission will approve such funds this time around.&nbsp;



The SEC has until May 23 to rule on a proposed ETH fund by VanEck. Its deadline for a similar planned offering from Ark Invest and 21Shares is the next day.



Segment observers expect, like with bitcoin ETFs, that the securities regulator will rule on all the ETH fund applications at once.&nbsp;&nbsp;&nbsp;



Ether’s price was about $3,140 at 2:30 pm ET Monday — up about 7% from a week ago but a far cry from its year-to-date high above $4,000 in mid-March.



A spot ether ETF approval decision would spur immediate price appreciation and a medium-term new all-time high above $4,800, according to Jeff Embry, managing partner of crypto hedge fund Globe 3 Capital.



“The difference between the bitcoin [ETF] approval and ETH’s possible approval, is that the market had fully expected the bitcoin approval and had pre-priced it, thus causing an initial sell off on the news,” Embry told Blockworks.



Contrarily, various industry watchers have said they <a href="https://blockworks.co/news/ether-etf-approval-unlikely-soon">expect the SEC to deny ether ETFs this month</a>.&nbsp;



Reasons include the SEC’s hesitation to clearly label ether as a security or a commodity, the regulator’s lack of engagement with prospective issuers in recent weeks and the slightly weaker correlation between the ether spot and futures markets compared to bitcoin.



It also took Grayscale Investments’ legal victory against the SEC to help get US spot bitcoin ETFs approved — something some lawyers said <a href="https://blockworks.co/news/ether-etf-sec-question">might be needed before ether funds get the green light</a>.&nbsp;



Read more: <a href="https://blockworks.co/news/sec-decision-ether-etf-possibilities">Why the SEC could choose to deny ether ETFs, and what could happen next</a>



The expected SEC rejection of spot ether ETFs is reflected in ETH’s roughly 20% price dip since mid-March, Embry noted.



“If the SEC denies the ETH ETF, we would expect to see an initial sell off of 5% to 12%, but short lived, as the bull market is a much more powerful driver of pricing and will ultimately move pricing up,” the executive added.



Indeed, the approval of an Ethereum ETF next week is viewed as a low probability event, and ether is priced as such, said LMAX Group market strategist Joel Kruger.



There might be room for ETH to drop lower in the case of a denial — though such a downtrend should not exceed 10%, he added.&nbsp;&nbsp;



“If on the other hand the market is surprised with an approval, we could see the price of ETH surge by some 30% in the immediate aftermath,” Kruger said, “with such a move setting the stage for a run to retest the 2021 record high in the weeks that follow.”



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Is the SEC’s expected spot ether ETF denial priced in?

Casey Wagner

The House of Representatives is scheduled to vote on a landmark cryptocurrency market structure bill this week.&nbsp;



The Financial Innovation and Technology for the 21st Century <a href="https://www.congress.gov/bill/118th-congress/house-bill/4763?q=%7B%22search%22%3A%5B%22Financial+Innovation+and+Technology+for+the+21st+Century+Act.%22%5D%7D&amp;s=1&amp;r=1">Act</a>, known as the FIT21 Act, is expected to head to the floor for a vote in the House on May 22, according to a person familiar with the matter.&nbsp;



FIT21 advanced through the House Agriculture and Financial Services Committees last summer before getting the greenlight from the Rules Committee to advance to a vote earlier this month. The bipartisan legislation has 11 co-sponsors, including Democrats Henry Cuellar of Texas, Wiley Nickel of North Carolina and Ritchie Torres of New York.&nbsp;



The proposed market structure law establishes joint rulemaking powers between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Notably, the bill grants the latter control over digital commodities markets, including exchanges and broker-dealers.&nbsp;



The legislation also clarifies how digital assets are classified, stating that the existence of an investment contract alone does not make a token a security, a distinction that could impact several pending legal disputes between token issuers and crypto exchanges and the SEC.&nbsp;



About 70% of all crypto tokens should be classified as commodities rather than securities, the co-sponsors wrote in a <a href="https://agriculture.house.gov/uploadedfiles/market_structure_myth_v_fact.pdf">fact sheet</a> published alongside the bill.&nbsp;



While FIT21 managed to survive markup, there has been pushback from some House Democrats, who argue the legislation goes too far to limit SEC power.&nbsp;



Rep. Jonathan Jackson, D-Ill., last summer proposed an amendment — which never passed — to strike a section of the bill that allows firms who have filed a “notice of intent to register” to be exempt from certain enforcement actions from the SEC.&nbsp;



“Allowing for ‘intent to register’ before those regulations are completed would be an absolute injustice to our constituents and retail investors,” Jackson said. “This industry needs to be under full-force regulation and oversight.”&nbsp;



Agriculture Committee Chair Glenn Thompson, R-Penn., countered that the “notice of intent” allows firms who meet requirements for treatment of customer funds, disclosures and records to operate limitedly while the potentially years-long registration approval process plays out. The bill also allows the Commodity and Futures Trading Commission to issue enforcement actions against firms who have completed the “notice of intent” process.&nbsp;



The Republican majority in the House however, coupled with the expected support of at least some Democrats, mean the bill is likely to pass and make it to the Senate, where its fate is less clear.&nbsp;



The expected House vote comes days after the <a href="https://blockworks.co/news/senate-passes-resolution-to-overturn-sab121">US Senate passed another crypto-focused</a> piece of legislation Thursday: Joint Resolution 109, which seeks to invalidate the SEC’s Staff Accounting Bulletin (SAB) 121. 



The resolution now heads to the President’s desk. The Biden Administration <a href="https://www.whitehouse.gov/wp-content/uploads/2024/05/SAP-HJRes109.pdf">said</a> earlier this month the President will veto the legislation.



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House expected to vote on bipartisan crypto market structure bill Wednesday

Katherine Ross

New York Attorney General Letitia James said Genesis and the attorney general’s office will create a “Victims Fund” for creditors of Genesis.&nbsp;



The fund will receive “up to $2 billion” from the remaining assets of Genesis.



“If those creditors are not made whole based on today’s digital asset values, the Victims’ Fund will receive up to $2 billion from Genesis’ remaining assets,” the press release <a href="https://ag.ny.gov/press-release/2024/attorney-general-james-secures-settlement-worth-2-billion-crypto-firm-genesis">said</a>.&nbsp;



The settlement was approved by a bankruptcy judge late Friday after being challenged by parent company Digital Currency Group earlier this year.&nbsp;



Genesis and the NYAG originally <a href="https://blockworks.co/news/genesis-settles-new-york-attorney-general">announced the settlement </a>back in February.&nbsp;



Read more: <a href="https://blockworks.co/news/bankruptcy-court-dcg-out-of-money">Bankruptcy court says DCG is ‘out of the money’</a>



As part of the settlement, Genesis agreed to cease current business offerings in New York and is prohibited from future business in the state.



According to a press release, the settlement is the “largest against a cryptocurrency company in state history.”



“This historic settlement is a major step toward ensuring the victims who invested in Genesis have a semblance of justice. Once again, we see the real-world consequences and detrimental losses that can happen because of a lack of oversight and regulation within the cryptocurrency industry. New York investors deserve the peace of mind that comes from a properly regulated marketplace, and that is something my office will always act to achieve,” James said in a press release.&nbsp;



The NYAG <a href="https://blockworks.co/news/genesis-gemini-nyag-lawsuit">sued DCG, Gemini and Genesis</a> in October of last year, alleging that Gemini and Genesis coordinated on two “fraudulent schemes” with the Gemini Earn product.&nbsp;



DCG allegedly “coordinated” with the two companies, per the lawsuit.&nbsp;



The settlement announcement puts Genesis a step closer to finalizing its bankruptcy proceedings after a judge approved its liquidation plan at the same time as the settlement on Friday.



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NYAG says Genesis settlement to pay back creditors up to $2B

Spot bitcoin ETFs saw their best inflow week in two months as a consumer price index report last week seemed to ease concerns weighing the asset down.



The US fund category collectively notched $948 million in positive net flows from May 13 to May 17, according to Farside Investors <a href="https://farside.co.uk/?p=997">data</a>.&nbsp;&nbsp;



This was the highest total during a single week since the fund segment welcomed more than $2.5 billion to its coffers between March 11 and March 15.



Analysts attributed the subsequent drying up of demand in April to profit-taking and the Federal Reserve’s anticipated higher-rates-for-longer approach.&nbsp;&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-etf-performance-first-four-months">Strong start, slowing demand: The first 4 months of US spot bitcoin ETFs&nbsp; </a>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



But April’s consumer price index (CPI) print, published Wednesday, came in cooler than expected at 0.3% month-on-month, according to Ryze Labs analysts — compared to the market expectation of 0.4%.



“This has quelled rumors of a potential rate hike and paves the way for [Fed Chair Jerome] Powell to consider a rate cut in the coming months,” the analysts wrote.&nbsp;



Rate expectations had been one factor seeming to weigh down bitcoin’s price in recent weeks. The cost of one <a href="https://blockworks.co/price/btc">BTC</a> dropped to as low as about $57,000 on May 1 following its new all-time high of more than $73,000 reached in mid-March.  



<a href="https://blockworks.co/news/crypto-rallies-on-interest-rate-speculation">Bitcoin’s price rose to around $67,000 on Friday</a> and remained around that level on Monday morning.&nbsp;



James Butterfill, head of research at CoinShares, noted the vast majority of the inflows (more than 80%) came in the week’s final three days after the CPI print. This highlights the company’s view that BTC prices “have recoupled to interest rate expectations,” he wrote in a Monday <a href="https://blog.coinshares.com/volume-183-digital-asset-fund-flows-weekly-report-21f5ffa273a5">report</a>.



The $948 million of net inflows into spot bitcoin ETFs nearly equaled the net money exiting the funds over the previous last five weeks. From April 8 to May 10, the category endured net outflows of $931 million, Farside Investors data shows.



Notably, it was the first week of net inflows — albeit just barely — <a href="https://blockworks.co/news/gbtc-posts-first-net-inflows">for the Grayscale Bitcoin Trust ETF</a> (GBTC).&nbsp;



That fund’s $17.6 billion of net outflows over the last four-plus months have weighed down the segment, which has now hit about $12.6 billion of combined positive net flows.



The inflows came during a week in which more institutional investors revealed their holdings in such funds. The Securities and Exchange Commission requires institutional investment managers to disclose their holdings quarterly in what are known as 13F filings.&nbsp;



Segment observers have recently found out, via the disclosures, that Wisconsin’s Investment Board <a href="https://blockworks.co/news/wisconsin-discloses-blackrock-ibit-shares">bought 2.4 million shares</a> of BlackRock’s iShares Bitcoin Trust (IBIT) and over a million shares of GBTC. Hedge fund <a href="https://blockworks.co/news/empire-newsletter-bitcoin-etf-shareholders">Millennium Management revealed owning about 20 million IBIT shares</a> worth more than $844 million.



Read more: <a href="https://blockworks.co/news/advisers-bitcoin-etfs-client-portfolios">How are advisers using bitcoin ETFs in client portfolios? It depends.</a>



In all, the 13Fs <a href="https://x.com/EricBalchunas/status/1791079436953022885">showed</a> that more than 400 institutional investors hold IBIT.&nbsp;



The disclosures reflect the institutional participation that bitcoin ETFs had expected to unlock, noted Anchorage Digital CEO Nathan McCauley.&nbsp;



“From hedge funds and endowments, to governments and pension funds, traditional players are driving hundreds of millions of dollars in ETF inflows,” McCauley added in a statement. “As bitcoin liquidity increases, expect more institutions to participate in crypto through safe and secure infrastructure.”



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Bitcoin ETF snapshot: Week’s inflows hit highest mark since March

Michael Sonnenshein has stepped down as CEO of Grayscale Investments.&nbsp;



The Wall Street Journal first <a href="https://www.wsj.com/finance/grayscale-ceo-michael-sonnenshein-steps-down-bc0680dc?mod=latest_headlines">reported</a> the news Monday, saying that Grayscale will bring in a Goldman Sachs alum as the new CEO in August. A Grayscale spokesperson confirmed the news when reached.&nbsp;



“Peter is an exceptional strategic leader with global expertise across the most prominent asset managers, which are critical ingredients as we position Grayscale for its next phase of growth,” Digital Currency Group CEO Barry Silbert said in a <a href="https://www.globenewswire.com/news-release/2024/05/20/2884901/0/en/Grayscale-Investments-Announces-CEO-Transition.html">statement</a>.



Peter Mintzberg served as the head of strategy for the asset management division at Goldman and also worked at BlackRock and Invesco.&nbsp;



In a post on X, Sonnenshein said that he leaves Grayscale with “a deep gratitude” and said he’s “excited for what’s next.” Though it’s unclear what’s in store for the former executive at this stage.



<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 leave <a href="https://twitter.com/Grayscale?ref_src=twsrc%5Etfw">@Grayscale</a> with deep gratitude for everyone who has been on this incredible rocket ship journey. <a href="https://twitter.com/BarrySilbert?ref_src=twsrc%5Etfw">@BarrySilbert</a>, thank you for taking a bet on me and for your partnership these last 10 years. To the Grayscale Leadership Team &#8211; thank you for your dedication, loyalty, and…&mdash; Sonnenshein (@Sonnenshein) <a href="https://twitter.com/Sonnenshein/status/1792547074707181610?ref_src=twsrc%5Etfw">May 20, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The change comes the same week as an expected decision on the ether ETF application. Grayscale filed to convert its ether trust into an ETF last year.



Analysts <a href="https://blockworks.co/news/sec-decision-ether-etf-possibilities">expect the SEC to deny the ether ETFs</a> later this week. Grayscale withdrew its ether futures ET application earlier this month.&nbsp;



During a Financial Times event earlier this month, Sonnenshein <a href="https://www.dlnews.com/articles/regulation/grayscale-to-focus-on-spot-ethereum-products-says-ceo/">reportedly</a> said that the firm wants to focus on its spot products.



Read more: <a href="https://blockworks.co/news/grayscale-takes-page-from-blackrock-playbook">Grayscale’s planned GBTC sibling is a page from BlackRock’s playbook</a>



The exit also comes as Grayscale’s bitcoin ETF continues to see outflows. GBTC has the highest fee of the slate of spot bitcoin ETFs approved in January, at 1.5%.  BlackRock has seen significant success in the same period of time.



However, the firm <a href="https://blog.coinshares.com/volume-183-digital-asset-fund-flows-weekly-report-21f5ffa273a5">notched</a> inflows of $18 million last week, according to a CoinShares report from Monday morning.



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Grayscale CEO Michael Sonnenshein departs company

Michael McSweeney

<h2 class="wp-block-heading">Is a battle brewing?</h2>



I hope y’all had a better weekend than Digital Currency Group and CEO Barry Silbert.



Late Friday, Judge Sean Lane ruled against DCG’s objection to a settlement between the New York Attorney General’s office and bankrupt lender Genesis.&nbsp;



“Given the size of the creditor claims, DCG is out of the money as an equity holder by billions of dollars, even if the Court valued creditor claims using the method DCG proposes,” the judge wrote Friday.



The judge also ruled to confirm the liquidation plan proposed by Genesis.



For those of you who haven’t been following along with this bankruptcy (and there are many moving pieces with this one), DCG wasn’t super happy with the bankruptcy plan or settlement proposed by the Genesis estate.&nbsp;



The crypto company called the settlement agreement “subversive,” and said that the settlement was a “back-door attempt to circumvent US bankruptcy law.” Though, clearly, the judge overseeing the case doesn’t agree.



The settlement plans to return assets to customers of Gemini’s Earn program and other creditors instead of government authorities.



The bankruptcy plan, DCG said, favored a “small controlling group of creditors” and stripped the company of “valuable economic and corporate governance rights.”



The plan would return roughly $3 billion in cash and assets to customers.



Lane, in the Friday ruling, essentially said “too bad” to these claims. Perhaps more importantly, DCG is just out of the money in this case.



“In overruling DCG’s objection, the Court ultimately concludes that its objection is a result oriented one based on DCG’s lack of recovery as an equity holder under the Plan,” he wrote. “There are nowhere near enough assets to provide any recovery to DCG in these cases.”



Despite its arguments to the contrary, DCG was unable to convince the court that the NYAG settlement wasn’t “reasonable and appropriate.”



As for the claim that the plan “favors” a small group of creditors? “DCG cannot complain that unsecured creditors are being paid before equity, as such creditors are entitled to be paid before equity may receive any recovery,” Lane wrote.



DCG and Genesis have exchanged objections throughout the first half of this year. The Friday filing also marked yet another defeat for DCG, which had also sought to consult on the offloading of over $1.6 billion worth of Grayscale’s bitcoin ETF earlier this year.&nbsp;



During a hearing in February, Lane said that the firm was “not in an ideal position” to offer “advice tainted by its own interest,” though he added that he couldn’t blame the company for said interest.



Now, putting the drama aside and focusing back on the bankruptcy plan: The boom in crypto prices will benefit creditors with claims in US dollars because they’re anticipated to receive “100% of their loan balance,” according to the filing.



But creditors can also be paid out in crypto as well, unlike other bankruptcies such as FTX.



The rise in crypto prices increased the estate asset value by $1 billion, Lane wrote. A February testimony confirmed that there was an “an additional $900.5 million available for in-kind distribution.”



But the Friday filing doesn’t mean that everything can proceed. DCG can still appeal the decision from Lane. Based on the back and forth we’ve seen, it wouldn’t be a surprise if they did.



— Katherine Ross



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



<ul>
<li>Bitcoin’s price is hovering around $67,000, up nearly 7% over the past week.</li>



<li>Ether is trailing slightly behind, only up 4% in the past week to $3,000.</li>



<li>CoinShares <a href="https://blog.coinshares.com/volume-183-digital-asset-fund-flows-weekly-report-21f5ffa273a5">says</a> that bitcoin drew $942 million worth of inflows with little to no flows into short bitcoin last week.</li>



<li>The same report says crypto investment products received inflows of $932 million following last week’s CPI report. </li>



<li>Grayscale saw “minor inflows” of $18 million for the first time, the report added.</li>
</ul>



<h2 class="wp-block-heading">More votes to come</h2>



The US Congress drew headlines last week as it moved crypto-friendly regulation to completion —&nbsp;and the chamber may do it again in the coming days.



As Blockworks’ Casey Wagner reports, <a href="https://blockworks.co/news/crypto-bills-in-house-and-senate">a number of pieces</a> of crypto-related law remain in flux. But one measure, the Financial Innovation and Technology for the 21st Century (FIT) Act, is set for a floor vote this week.



After clearing the Rules Committee, which sets the stage for final consideration, the measure is likely on the track to success. The real outstanding question here is whether the measure will attract the kind of bipartisan support that might smooth the landing in the Senate, Congress’s upper chamber.&nbsp;



Remember: 21 Democrats crossed the aisle to pass Congress’ repudiation of SAB 121. This arguably set the stage for the dozen Democrats who passed the Senate version despite opposition from President Joe Biden —&nbsp;who threatened a veto —&nbsp;and Massachusetts Senator Elizabeth Warren, a leading anti-crypto voice in the chamber.&nbsp;



As expected, the industry came out in force in favor of the FIT Act. <a href="https://media.cryptoforinnovation.org/2024/05/Coalition-Support-Letter_May-16.pdf">A letter</a> issued Friday represented a who’s-who of industry groups and companies active in Washington, DC.&nbsp;



The groups have an obvious incentive to throw their weight behind the measure. The bill mandates a crypto regulatory framework under the shared auspices of the CFTC and the SEC and one that calls for regulators, among other things, to <a href="https://thehill.com/opinion/finance/4279809-congress-may-modernize-the-secs-mission-will-it-work/">consider innovation</a> as they oversee a burgeoning tech sector.&nbsp;



It’s arguably the best shot at passing industry-shaping legislation before the election season heats up, even if the bill isn’t perfect in the eyes of some.



“We recognize that FIT 21 will introduce new compliance challenges for digital assets companies, but regulatory clarity is indisputably more responsible, safer for consumers, and preferable to the status quo,” the signatories noted.&nbsp;



A new Congress takes over in January, resetting the legislative calendar, meaning that in-progress bills would need to be refiled —&nbsp;and all that momentum regained.



It’s not certain that the Senate would take up an approved House bill —&nbsp;with or without demanded changes —&nbsp;or that Biden would sign it. But last week’s rapid approval of the SAB 121 overturn was, in many ways, a remarkable one, and a sign that crypto issues are being taken seriously. Stay tuned.



— Michael McSweeney



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



<ul>
<li>The Pump.fun exploiter was arrested over the weekend in London, as reported by <a href="https://blockworks.co/news/pump-dot-fun-exploiter-arrest-london">Blockworks’ Macauley Peterson</a>. </li>



<li>Ethereum Foundation researcher Justin Drake is serving <a href="https://x.com/drakefjustin/status/1792143477163106787">as an adviser</a> to the Eigen Foundation, according to a disclosure Drake posted this weekend. </li>



<li>Speaking of Ethereum: Co-founder Vitalik Buterin dug into decentralization issues on the network in <a href="https://vitalik.eth.limo/general/2024/05/17/decentralization.html">a new blog post</a>. </li>



<li>Reuters reports that crypto VC activity <a href="https://www.reuters.com/business/venture-capital-investment-crypto-picks-up-after-long-decline-2024-05-20/">picked up</a> during the first few months of 2024. </li>



<li>Longtime crypto trader Cobie <a href="https://cobie.substack.com/p/new-launches-part-1-private-capture">published a piece</a> on new token launches and valuations over the weekend. </li>
</ul>



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



Based on the eras in which they reached popularity, you’d think that Seinfeld and crypto would have nothing in common (though I truly believe that Kramer would be super into crypto).



Boy, am I glad to tell you that’s not the case.



On Friday, the New York office of the DOJ put out a press release announcing that a “cryptocurrency personality” pleaded guilty to wire fraud.&nbsp;



As it turns out, Thomas Sfraga — aka TJ Stone — swindled folks out of roughly $1.3 million. The Seinfeld connection? He claimed to be the owner of Vandelay Contracting. For those of you who haven’t watched Seinfeld, one of the main characters, George Costanza, claimed to interview at Vandelay Industries and elsewhere <a href="https://www.youtube.com/watch?v=Ugx06TlVyw4">used Art Vandelay</a> as a fake name.&nbsp;



Obviously, the crimes are no joke and Sfraga’s guilty plea proves it. It also shows that crypto always has some wiggle room for humor.&nbsp;



But maybe next time, go for a reference that isn’t from a storyline where the character is attempting fraud? Just a thought. (And, for the record: not advice of any kind!)



— Katherine Ross



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Empire Newsletter: Bankruptcy court says DCG is ‘out of the money’

This week’s funding was led by the betting platform Polymarket, which disclosed a whopping $70 million raised from two separate rounds.&nbsp;



The announcement was slightly unusual in that it revealed its Series B raise while also revealing a previously undisclosed Series A round.



The Series A — which raised $25 million — was led by General Catalyst, with Airbnb’s Joe Gebbia and Polychain also participating.



The Series B raised $45 million, and saw participation from <a href="https://blockworks.co/tag/vitalik-buterin">Vitalik Buterin</a>, the co-founder of Ethereum (like he needs an introduction at this point though), with Founders Fund leading the round.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/polymarket-titanic-betting-prediction">Gambling on the Titanic sub sucks, but leave moral outrage in Web2</a>



In the announcement, which took place earlier this week, Founders Fund partner Joey Krug offered an inside scoop on his company’s interest in the prediction market platform.



“Internally at Founders Fund, we developed a habit of checking Polymarket at times of breaking news. The tangible benefits of using Polymarket as a complement to consuming news on social and mainstream media was obvious. It became clear to us that Polymarket was the winner in this market,” he <a href="https://www.businesswire.com/news/home/20240513090515/en/Polymarket-Raises-70m-From-Thiel%E2%80%99s-Founders-Fund-General-Catalyst-Vitalik-Buterin-to-Scale-Global-Prediction-Market">said</a>.



Trading on Polymarket is prohibited in the US, though anyone can view the forecasts. But the funding announcement does come as the Commodities and Futures Trading Commission <a href="https://www.reuters.com/markets/us/us-cftc-seeks-ban-derivatives-bets-elections-calamities-2024-05-10/">proposed</a> a new rule to ban derivatives on election bets (and potentially other events).&nbsp;



Polymarket does currently allow people to place bets on potential winners of the presidential election. Currently, former President Donald Trump has the <a href="https://polymarket.com/event/presidential-election-winner-2024?tid=1715974683376">lead</a> with 51%. President Joe Biden is a close second at 42%. Roughly $127 million has been placed on potential election winners.



Read more: <a href="https://blockworks.co/news/cftc-fines-crypto-betting-service-polymarket-1-4-million-orders-shutdown">CFTC fines crypto betting service Polymarket $1.4M, orders shutdown of three markets</a>



<h2 class="wp-block-heading">In the distance, a unicorn earns its horn</h2>



Decentralized identity project Humanity Protocol announced a $30 million seed round led by Kingsway Capital. The <a href="https://blockworks.co/tag/worldcoin">Worldcoin</a> competitor, which uses palm recognition technology instead of iris-scanning software, <a href="https://medium.com/@humanityprot/humanity-protocol-emerges-from-stealth-human-institute-in-collaboration-with-animoca-brands-and-d74b8757e44e">emerged</a> from stealth back in February.&nbsp;



The round, <a href="https://medium.com/@humanityprot/humanity-protocol-raises-30m-at-a-1-billion-valuation-to-build-zero-knowledge-worldcoin-fdf79ad2192e">announced</a> Wednesday, saw participation from Animoca Brands, Blockchain.com, Hashed and Shima Capital, among others.&nbsp;



Humanity Protocol previously <a href="https://medium.com/@humanityprot/humanity-protocol-announces-strategic-funding-to-build-the-human-layer-for-web3-492f111c1be2">announced</a> a fundraising round, saying that it received funds from 20 crypto native venture capitalists.&nbsp;



The raise puts the protocol’s valuation at $1 billion, officially making it a crypto unicorn.&nbsp;



“As an advocate for true digital property rights, I’m very passionate about ensuring that users’ digital identities remain secure and protected. Traditional proof-of-personhood methods often <a href="https://blockworks.co/news/families-like-mine-need-safe-secure-digital-identities">come with drawbacks</a>, whether they’re too invasive, complicated or cumbersome,” Animoca Brands co-founder Yat Siu said in a statement.



<h2 class="wp-block-heading">Other notable funding news</h2>



<ul>
<li>Subquid raised $17.5 million in “recent rounds” that included investments from Hypersphere, Zee Prime, CFG, Lattice and Blockchange.</li>



<li>Param Labs, a gaming platform, raised $7 million round in a round led by Animoca Brands. Delphi Ventures and Cypher Labs participated in the round. </li>



<li>Zeta Market <a href="https://x.com/ZetaMarkets/status/1790352191741378949">announced</a> a $5 million round led by Electric Capital.</li>
</ul>



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Funding Wrap: Polymarket gets backing from Vitalik Buterin, Founders Fund in $70M raise

Two crypto companies named new CEOs this week. What some would consider an anti-crypto firm did too.



Vijay Chetty replaced Neel Somani as Eclipse Labs’ chief executive, the company <a href="https://x.com/EclipseFND/status/1790939437695996019">said</a> in a Wednesday X post.



Chetty had been the blockchain startup’s chief growth officer for the last year or so. He previously held leadership roles at Uniswap Labs, dYdX Trading and Ripple Labs.



His promotion came after sexual misconduct allegations surfaced against Somani — claims the now-former CEO <a href="https://x.com/neelsalami/status/1788658998411133067">called</a> “false.”



Hack VC, which co-led a $50 million Series A funding round for Eclipse Labs in March, said Somani’s alleged behavior was “unacceptable.”



Read more: <a href="https://blockworks.co/news/eclipse-series-a-funding-mainnet-launch">Eclipse secures $50M ahead of mainnet launch</a>



“Since learning about the allegations, we [have] worked hard with other investors and the team to correct the situation, including urging Neel to resign, and we are pleased to see that happen,” Hack VC added.



<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">We were deeply troubled to learn about the serious allegations made recently against <a href="https://twitter.com/EclipseFND?ref_src=twsrc%5Etfw">@EclipseFND</a> founder Neel Somani. We do not tolerate sexual harassment or misconduct in any form at Hack VC, and we hold our founders and portfolio companies to the same high standards. To be… <a href="https://t.co/2g5P7Bjqq3">https://t.co/2g5P7Bjqq3</a>&mdash; Hack VC (@hack_vc) <a href="https://twitter.com/hack_vc/status/1790942270977675733?ref_src=twsrc%5Etfw">May 16, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



A second CEO development this week is a temporary appointment.&nbsp;



Bitcoin miner Bitfarms on Monday named co-founder Nicolas Bonta the company’s interim president and CEO while an executive search continues. The switch happened the same day that Bitfarms ousted Geoffrey Morphy from the CEO post.



The <a href="https://blockworks.co/tag/mining">mining</a> company had said in March that Morphy would be leaving the role only after his replacement was found. That transition was accelerated after Morphy last week filed a statement of claim against Bitfarms in the Superior Court of Ontario.



Morphy is claiming $27 million worth of damages for alleged breach of contract and wrongful dismissal. Bitfarms said the claims are “without merit,” noting the company “intends to defend itself vigorously.”&nbsp;



A third CEO update came from a company nobody would call crypto-focused.&nbsp;



<a href="https://blockworks.co/tag/vanguard">Vanguard</a>, a fund giant with more than $8 trillion assets under management, named the former head of BlackRock’s ETF business as its incoming CEO. Salim Ramji will fill the role in July, replacing the retiring Tim Buckley.&nbsp;&nbsp;



Why might this be notable from a crypto standpoint?



Well, Ramji helped the world’s largest asset manager launch the iShares Bitcoin Trust (IBIT) — a fund that, in four months on the market, has grown to roughly $18 billion in assets.&nbsp;



BlackRock’s spot bitcoin fund launch reflected an effort to “help investors gain access to parts of the market that otherwise have been more difficult or really expensive or opaque for them to access otherwise,” Ramji said in a July 2023 interview on Bloomberg TV.&nbsp;



Read more: <a href="https://blockworks.co/news/vanguard-ceo-blackrock-bitcoin-etf">Yes, Vanguard’s new CEO supported BlackRock’s bitcoin ETF launch</a>



He now leads a company that has called crypto’s investment case “weak.” <a href="https://blockworks.co/news/vanguard-disallows-bitcoin-etf-trading">Vanguard also does not allow users</a> of its brokerage platform to buy and trade <a href="https://blockworks.co/tag/bitcoin-etf">bitcoin ETFs</a>.&nbsp;&nbsp;



Some expect the hire could spark a change in Vanguard’s attitude toward the space, even if gradual.



Ramji <a href="https://www.barrons.com/articles/vanguard-salim-ramji-strategy-7283a283?mod=bol-social-tw">signaled</a> in an interview with Barron’s this week that he may not push a change, noting “it’s important for firms to have consistency in terms of what they stand for and the products and services they offer.”



But never say never, as the adage goes.



“Eventually…Vanguard will indeed offer bitcoin ETFs,” Ric Edelman, founder of the Digital Assets Council of Financial Professionals, told Blockworks. “From a purely business perspective, it’s foolish not to. And Salim is not foolish.”



<h2 class="wp-block-heading">Other notable hiring news</h2>



<ul>
<li>Jack Melnick, who left Polygon Labs last week, <a href="https://x.com/jackmelnick_/status/1790003409531093413">joined</a> layer-1 Berachain. His title — head of DeFi — remained the same.    </li>



<li>Luc Froehlich, who formerly led the digital assets unit at Fidelity International, is now chief commercial officer of decentralized credit intelligence platform Synnax.</li>



<li>Ava Labs marketing executive Jay Kurahashi-Sofue <a href="https://x.com/jayks/status/1791483711566880986">said</a> Friday he would be leaving the company after four years there. His next role was not immediately clear.  </li>



<li>Noah Levine is set to help lead Visa’s on-chain analytics efforts as a crypto analyst. He was previously a data and analytics lead at RTFKT.</li>



<li>Crypto-focused lawyers Lewis Rinaudo Cohen, Gregory Strong and Sarah Chen joined Cahill Gordon &amp; Reindel as partners of its digital assets and emerging technology practice.</li>
</ul>



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Crypto Hiring: Eclipse Labs names new leader in week of CEO updates

Macauley Peterson

The alleged exploiter of Solana memecoin protocol Pump dot Fun has been arrested in London.



British police apprehended Jarett Dunn, a former contractor for the protocol, who is known online as @STACCoverflow, in the early morning hours of Saturday, according to a source familiar with the operation.



A third-party stakeholder contracted with a private intelligence firm to locate Dunn, the source told Blockworks.



A <a href="https://x.com/therollupco/status/1791882191229591666">screenshot</a> of Dunn’s Binance account linked to his pseudonym and circulating online is authentic, the source confirmed.



Read more: <a href="https://blockworks.co/news/pump-fun-flash-loan-attack">Pump.fun pauses trading after apparent flash loan attack</a>



The 26-hour intelligence operation, which the source described as “a slow burn,” used Instagram posts and other “open source intelligence” to identify Dunn’s approximate whereabouts in London.



“A massive manhunt” using local operatives, known as “auxiliaries,” contracted by the firm, then ensued.



After canvasing the area, Dunn was ultimately located in a room at the Middle Eight Hotel, in London’s Covent Garden neighborhood, where he was arrested 7 hours later.



The timing aligns with the last X post of <a href="https://x.com/STACCoverflow">@STACCverflow</a>, made Friday evening London-time. The profile name references “j&#8217;arrête” — meaning “I’m done” in French — but appears to carry a hidden double meaning to his real first name, Jarett.



Read more: <a href="https://blockworks.co/news/lightspeed-newsletter-pump-fun-exploit-resolved">Lightspeed Newsletter: The Pump.fun exploit draws yawns and jeers</a>



Dunn was subsequently released on bail according to @JarettDunn on X, and confirmed by the intelligence firm source.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I am once again without any of my 2fa for a lil while. I spent overnight in custody as the pump team alleges I stole 2m of their Ill gotten gains with conspiracy to steal another 80m. /x <a href="https://t.co/D8CBjdB9nG">https://t.co/D8CBjdB9nG</a>&mdash; free stacc (@jarettdunn) <a href="https://twitter.com/jarettdunn/status/1791968019322638835?ref_src=twsrc%5Etfw">May 18, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



He is expected to remain in the UK pending a further court-mandated appearance in August.



Dunn is alleged to have exploited admin keys to the protocol and was able to siphon roughly $2 million in funds from newly launched memecoins over a period of approximately 100 minutes last week, then randomly <a href="https://x.com/Vybe_Network/status/1791567178140922005">airdropping</a> the proceeds to Solana users.



The team then redeployed the smart contracts under new admin privileges to restore safe access, <a href="https://x.com/pumpdotfun/status/1791235050643636303">according</a> to the site’s official X account, and has pledged to compensate adversely affected users, while pursuing the perpetrator.



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Pump dot Fun exploiter identified and arrested in London

Jack Kubinec

A new crypto-related lawsuit has landed in the Southern District of New York courthouse.&nbsp;



A California resident named Luke Brown is leading a class action lawsuit against luxury fashion house Dolce &amp; Gabbana over NFTs the company released in 2022.&nbsp;



Brown’s suit alleges Dolce &amp; Gabbana failed to deliver on benefits it promised for NFT buyers, and manipulated the initial and resale markets for the assets. Brown ultimately lost $5,800 on his $6,000 investment, the suit claims. 



The suit goes on to describe how the DGFamily project, released in collaboration with “digital luxury and culture” marketplace UNXD, failed to deliver on eight promised benefits meant to include digital wearables, physical clothing and access to events.&nbsp;



Read more: <a href="https://blockworks.co/news/reebok-digital-wearables-partnership">Web3 Watch: Reebok jumps into digital wearable game&nbsp;</a>



The first digital wearables were delivered roughly a month late, the suit alleges, adding that the collectibles “could be used only in a <a href="https://blockworks.co/tag/metaverse">metaverse</a> platform with barely any users, called DecentraLand.”



The new lawsuit comes shortly after former NFL star Rob Gronkowski paid a $1.9 million <a href="https://storage.courtlistener.com/recap/gov.uscourts.flsd.618110/gov.uscourts.flsd.618110.279.0.pdf">settlement</a> over his endorsement of bankrupt crypto lender Voyager Digital.



It also comes as a slew of legacy corporations that unveiled Web3 initiatives during the crypto hype cycle of 2021 and 2022 have continued quietly closing down operations. Starbucks, <a href="https://blockworks.co/news/gamestop-shuttering-nft-marketplace">GameStop</a>, and X are a few recent examples.&nbsp;



Read more: <a href="https://blockworks.co/news/starbucks-terminates-nft-program">Web3 Watch: Starbucks shutters its ‘Odyssey’ NFT program</a>



Dolce &amp; Gabbana hasn’t posted about DGFamily on X <a href="https://x.com/search?q=dgfamily%20(from%3Adolcegabbana)&amp;src=typed_query&amp;f=live">since</a> April 2023. Its <a href="https://blockworks.co/tag/nfts">NFTs</a> currently <a href="https://opensea.io/collection/dolce-gabbana-dgfamily">trade</a> hands for a fraction of an ether on OpenSea. The company did not immediately return a request for comment.



<h2 class="wp-block-heading">Pump.fun suffers exploit but immediately resumes trading</h2>



Today’s <a href="https://blockworks.co/tag/meme-coins">memecoin</a> trading platform of choice, Pump.fun, was exploited for nearly $2 million on Thursday. The Joker-like figure behind the exploit was a rogue employee of the company, Pump.fun said in a Thursday postmortem.



Read more: <a href="https://blockworks.co/news/pump-fun-flash-loan-attack">Pump.fun pauses trading after apparent flash loan attack</a>



Time will tell whether Pump.fun’s buzzy business will suffer from the exploit, but the effects <a href="https://blockworks.co/news/lightspeed-newsletter-pump-fun-exploit-resolved">appeared pretty minimal initially</a>.&nbsp;



The protocol reactivated trading hours after the exploit, and the day of the exploit was actually Pump.fun’s second-highest revenue day since launching, <a href="https://defillama.com/protocol/pump?revenue=true">according</a> to DeFiLlama.&nbsp;&nbsp;



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



<ul>
<li>25 Bitcoin Runes were created Friday, down from the thousands created each day in late April, according to a Dune <a href="https://dune.com/runes_is/runes">dashboard</a>.</li>
</ul>



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



<ul>
<li>The Roaring Kitty X account posted for the <a href="https://blockworks.co/news/empire-newsletter-memecoin-launches">first time since 2021</a> this week, spurring a raft of meme stock and memecoin speculation.</li>



<li>The Farcaster-influenced Degen chain layer-3 experienced a <a href="https://blockworks.co/news/degen-layer-3-chain-outage">lengthy chain outage</a> this week.</li>
</ul>



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Web3 Watch: Naked in the metaverse

Kevin Ho

As the blockchain ecosystem grows, so does the demand for flexible, customizable tech.



Scalability is about making technology more accessible to Web3 builders and consumers. If developers can build scalable applications, they can reach more users without increasing their costs significantly or needing to multiply their resources. For those wishing to bootstrap a chain with limited resources, layer-3s could serve as a promising opportunity.



By cutting down on overhead operational and onboarding costs, layer-3s are quickly becoming an important piece of the blockchain ecosystem to give developers greater flexibility and growth opportunities.&nbsp;



When layer-3s started trending, they were met with initial skepticism. Building on top of a layer-2 could add complexity and unnecessary fragmentation, and adding more layers could make the ecosystem of apps more challenging to navigate, leading to a lack of interoperability.&nbsp;



But as more use cases emerge, the clearer it becomes: Layer-3s can lower barriers to entry for new chains and lower onboarding costs for users with minimal security tradeoffs.&nbsp;



<h2 class="wp-block-heading">The accessibility of layer-3s&nbsp;</h2>



Data availability costs continue to drop with increases in blob size and alternative data availability layers. The cost to operate a chain then increasingly becomes the cost to submit data commitments and state roots for withdrawals.&nbsp;



The fixed overhead cost to operate a layer-3 is thus significantly less than the fixed overhead cost to operate a layer-2. Submitting data commitments and output roots to a layer-2 is significantly less expensive than the cost to submit those same transactions to Ethereum Mainnet.&nbsp;



Additionally, when a layer-2 chain is newly launched, depositing tokens into that chain as a new user can be expensive. It requires both acquiring tokens on the layer-1 and then depositing those tokens from layer-1 to layer-2 — a total of two layer-1 transactions. During Ethereum Mainnet fee spikes, we’ve seen these transactions get prohibitively expensive for new users. With a layer-3, onboarding for a new user will only be two layer-2 transactions, which is a small fraction of the cost.



Read more from our opinion section: <a href="https://blockworks.co/news/important-trend-in-crypto-memecoins">The most important trend in crypto? It’s always been memecoins</a>



This presents application developers and chain operators with new, more cost-effective options to bootstrap usage and onboard new users.



We’re already seeing this trend with Base as an example; the chain has driven outsized demand and has expanded support for layer-3s building on top of it.



The entire blockchain ecosystem can benefit from layer-2’s commitment to the burgeoning layer-3 ecosystem, with even more developers able to leverage the power of layer-2 tech stacks.&nbsp;



<h2 class="wp-block-heading">Key features fueling the rise of layer-3s&nbsp;</h2>



From my vantage point, demand for layer-3s is surging and two features have quickly become the most highly requested.&nbsp;



The first is custom gas tokens, which allow developers to use a layer-2 token as the native gas token for a layer-3. Custom gas tokens are great for community development — if there’s an existing community rallied around a layer-2 token, using it as the native token to pay for gas is a concrete next step towards building an ecosystem. Custom gas tokens can enable new use cases like in-game currencies for gaming ecosystem chains and token grants which directly subsidize developer and user fees



The second sought-after feature is alternative data availability, or alt-DA. This gives developers the option to select the DA layer of their choosing, greatly reducing transaction costs with the goal of minimizing security tradeoffs.&nbsp;



Combining a layer-3 with alt-DA can give developers low overhead costs to post to the layer-2. This is in addition to sustainably low data availability costs, all adding up to the cheapest possible deployment of a layer-2 tech stack.&nbsp;&nbsp;



As layer-3s gain momentum, I expect many of these chains to launch with both custom gas tokens and alt-DA.&nbsp;



<h2 class="wp-block-heading">Powering the layer-3 future&nbsp;</h2>



Developers have more options than ever before, and it’s “choose your own adventure” when it comes to deploying a layer-2 or layer-3. All have their pros and cons, and there’s room for all to succeed.&nbsp;



While deploying a standard configuration, layer-2s will always be the most battle-tested, forward compatible way to launch a chain. However, layer-3s increase the accessibility of launching a new chain with ultra low cost. I see key features like custom gas tokens and alt-DA as important to the growth and adoption of layer-3s, which are in turn important for driving innovation forward with a shared vision for scaling Web3.&nbsp;



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


<div class="wp-block-post-author-biography">Kevin Ho is a co-founder of Optimism and a member of the product team at OP Labs, where he oversees protocol development and contributes to the Optimism Collective. OP Labs’ mission is to accelerate adoption of Ethereum with the most secure, decentralized open source tech stack, the OP Stack. OP Labs also provides resources and support to the developer community building and deploying on the Superchain. </div>


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Layer-3s are the future of scalability

Jeff Albus

Howdy!



Happy Friday, folks. New York seems to be holding its collective breath today as the Knicks are about to play the Pacers for a trip to the conference finals.&nbsp;



Solana seems less nervous today, since the memecoins are already back online after yesterday’s shenanigans.



Let’s get into it, shall we?



— Jack Kubinec



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<h2 class="wp-block-heading">The Pump.fun exploit makes no sense&nbsp;</h2>



Solana’s highest-grossing protocol by revenue was exploited for millions of dollars-worth yesterday, but no one seems particularly upset.



Pump.fun, the Solana memecoin app, lost nearly $2 million after a rogue employee with admin privileges used their access to the project’s withdrawal authority and a number of flash loans to buy up tokens. The employee then <a href="https://blockworks.co/news/pump-fun-flash-loan-attack">siphoned out the liquidity</a> held in its bonding curve contracts, Pump.fun <a href="https://x.com/pumpdotfun/status/1791235050643636303">detailed</a> in a postmortem Thursday evening.&nbsp;



Usually, platforms being exploited creates pretty bad PR — both for the project, and in some cases, its underlying blockchain.&nbsp;



That doesn’t seem to have been the case so far. Pump.fun redeployed its contracts and resumed trading the same day it was exploited, and DeFiLlama <a href="https://defillama.com/protocol/pump?revenue=true">data</a> shows the platform’s revenue was higher Thursday — the day of the exploit — than the day before.&nbsp;



Pump.fun has been a big driver of <a href="https://blockworks.co/tag/solana">Solana</a> activity overall. The platform has been the highest-revenue protocol not named Ethereum over the past 30 days, hauling in $3 million more than DeFi heavyweight Uniswap Labs, <a href="https://defillama.com/">according</a> to DeFiLlama.



The app said on X that it was “working with some of the most esteemed security folks in the space,” but it didn’t say which esteemed security folks, and a representative for Pump.fun&nbsp; declined to comment. The project’s code is still closed-source.



Solana investors also responded with a collective shrug to the exploit of Pump.fun. Solana traded mostly sideways throughout the day Thursday before climbing to a monthly high near $170 after Pump.fun released its postmortem, <a href="https://www.coingecko.com/en/coins/solana">according</a> to CoinGecko. Solana was trading at around $167 at press time, a level it hadn’t seen since April 12.&nbsp;



Even the apparent exploiter, who took credit for the hack in a colorful <a href="https://x.com/STACCoverflow/status/1791134470071865576">series</a> of X posts criticizing the Pump.fun team for mistreating them and custodying user funds, didn’t seem to garner much ill will from Solana’s community. They went on a series of X spaces Thursday afternoon where speakers broadly praised the exploiter’s actions. They’ve variously been compared to crypto’s <a href="https://x.com/retiredroadman/status/1791161269422047624">Robin Hood</a> or Edward <a href="https://x.com/Mayosapien420/status/1791211659693896134">Snowden</a>.&nbsp;



Sometimes markets aren’t all that rational, I guess, but also, as <a href="https://blockworks.co/news/having-fun-pump-fun">we have previously written</a> regarding Pump.fun: “Sometimes, the grift is itself entertainment.”



If <a href="https://blockworks.co/tag/meme-coins">memecoins</a> exist mainly for fun rather than for profit, then perhaps a memecoin platform being exploited isn’t so catastrophic — so long as the exploit was entertaining. And in this case, boy was it.&nbsp;



–&nbsp;Jack Kubinec



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



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/v0v8kERAgv8laZ_tB5BkN9AHU9YDI9rTP2fnfm-9qcMxo0TxGJKT8ctLHO1_sayuKGfsf4we94E7j4nyEKaxP93QGLx7lyRnpzmsay1OI_HuYxK0haHiETXtsoT9Fiy1-R4zS5ne-c-Xf7iOBShbxm0" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://analytics.step.finance/performance">https://analytics.step.finance/performance</a></figcaption></figure>



Another big week for Solana, with unique active programs increasing by 1,611 and total on-network instructions surging to nearly 4.6 billion. In other words, more developers are deploying and maintaining applications within the ecosystem, leading to higher computational demand.&nbsp;



Concurrently, Solana surpassed <a href="https://blockworks.co/tag/ethereum">Ethereum</a> in daily transaction revenue on May 12, driven by a significant spike in fees. This surge provides further evidence of Solana’s ability to attract high-value transactions <a href="https://blockworks.co/news/empire-newsletter-no-12">despite congestion</a>.&nbsp;



Although the increase in fees has raised concerns about potential deterrence in the past, we continue to see heightened demand for Solana-based services.



–&nbsp;Jeff Albus



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



Island DAO kicks off today in Chania, Crete. But don’t be fooled by the name — it seems to be more of a coworking meetup than a decentralized autonomous organization.&nbsp;



The event — aimed at apparently transforming a beachfront villa into a Solana coworking paradise — has <a href="https://x.com/_Dean_Machine/status/1791441329588678658">sparked</a> <a href="https://x.com/IslandDAOx/status/1791430717206823166">interest</a> on social media as <a href="https://x.com/rexstjohn/status/1790042910429184113">attendees</a> <a href="https://x.com/Milimalism/status/1791360344188653921">arrive</a> on the island.&nbsp;



It might be good that the gathering seems to be mostly isolated to this one location, given that digital nomads are known to have a significant impact on the places they congregate.&nbsp;



But for visitors who are true students of history, Crete will add a rich cultural backdrop to the gathering. The island is deeply connected to the ancient Minoan civilization, believed by some to have inspired Plato’s tales of Atlantis. In fact, locals claim the Atlantis story may recount a volcanic disaster that occurred on the nearby island of Thira, known today as Santorini (a theory that this editor wholeheartedly believes.)



This gathering is sure to be exciting for the Solana tribe, but it’s vital to tread lightly, preserving the island’s beauty and heritage. If DAO members are mindful of their impact, the island can remain a welcoming destination long into the future. Γεια μας!



–&nbsp;Jeff Albus



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



A text from Justin Vlahos, portfolio manager at Coral DeFi:



<img loading="lazy" decoding="async" width="512" height="686" src="https://lh7-us.googleusercontent.com/fMW7usDPWU2t6TD98A8KepOEQMQ82uSHQfcdu0CxiOCXyyeus09WYVbH7PZXXdSzX1un7zwWQ9PEWRV696jqj0GToQ-GtvaXYgGPfi3Z4Fptv3D5-PlrfQRGG2TpDBLr6xFXoQLpY6wtHzJ_JtRlJdQ">



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Lightspeed Newsletter: The Pump.fun exploit draws yawns and jeers

Bitcoin and ether extended their rallies Friday, a sign pointing to sustained higher prices ahead, according to some analysts.&nbsp;



Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) was up around 2% over the past 24 hours at time of publication to trade around $67,000, according to data from Coinbase. The largest cryptocurrency is now up more than 10% over the past seven days to hit the highest price since late April. Researchers from Matrixport attribute the run to favorable macroeconomic conditions.&nbsp;



US inflation eased slightly in April, according to the latest consumer price index report released Wednesday, which showed prices were up 0.3% last month, slightly below expectations of a 0.4% increase.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/crypto-voting-political-strategy">Don’t dismiss the misunderstood techno-optimist voter</a>



“The trigger for the post-CPI pump this week was a marginally lower-than-expected inflation number that catapulted [b]itcoin +7% higher,” Matrixport analysts wrote in a note Friday. “However, the buying occurred relatively [gradually], indicating a persistent buyer in the market instead of a fast re-pricing, as we usually see when economic data causes a huge surprise.”&nbsp;



Ether (<a href="https://blockworks.co/price/eth">ETH</a>) also posted a rally this week, gaining close to 7%, per Coinbase. The cryptocurrency is now trading back above the $3,000 level after hovering around $2,900 last week.&nbsp;



US equities on Friday were relatively flat after a week of returns. The S&amp;P 500 is up 1.2% over the past five trading days while the Nasdaq Composite has gained 1.8%.&nbsp;



Wednesday’s inflation print was enough to assure markets that the Federal Reserve will refrain from raising interest rates in June. Traders still widely anticipate that central bankers will opt to hold rates steady, according to Fed fund futures data from CME Group. Now that an increase is off the table, markets can breathe a sigh of relief, Matrixport analysts said.&nbsp;



Even after three Fed officials — Cleveland Fed President Loretta Mester, New York Fed President John Williams and Richmond Fed President Thomas Barkin — on Thursday in separate speeches insisted that rate cuts are a long way off, traders were undeterred.&nbsp;



“Interestingly, the total number of expected cuts has not moved — CME futures are still pricing in two before December,” Noelle Acheson, author of the Crypto is Macro Now newsletter, said. “Rather, it’s the timing that is in question, with a slight increase in hopes the first comes in July and 70% odds it comes in or before September.”



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Cryptocurrencies rally, stocks trade sideways as traders speculate interest rate decision 

Kristin Smith

American citizens, and perhaps citizens of the broader Western world, are nervous about the future.&nbsp;



Voters continually express wariness and pessimism about new and emerging technologies, from fears about <a href="https://www.mitre.org/news-insights/news-release/mitre-harris-poll-finds-lack-trust-among-americans-ai-technology">self-driving cars</a> to apprehension about the impact of <a href="https://today.yougov.com/topics/technology/survey-results/daily/2023/04/03/ad825/2">AI</a>. This pessimism naturally bleeds into the political realm, leaving more than four in five voters with <a href="https://www.pewresearch.org/politics/wp-content/uploads/sites/4/2019/06/PP_2019.06.19_Political-Discourse_FINAL.pdf">the impression that</a> “the tone and nature of political debate in the United States has become more negative in recent years.”&nbsp;



The chance for a change in political perspective — one that both supports technological development while also assuaging fears about said development —&nbsp;looks bleak. On the other hand, it may take just that — a simple change in perspective — to unlock a new era of openness and excitement focused on the benefits of new technology, rather than dwelling on its potential pitfalls.&nbsp;



A good place to start is with another often maligned sector: digital assets and blockchain technology.



The steelman case for digital assets goes something like this: Sovereign global citizens should have more power over their financial lives and digital identities, bolstered by privacy-supportive tools that uncouple those individuals from the power of Big Banks and Big Tech.&nbsp;



If you don’t believe that these two entities should have as much power as they do over our lives, then you should at least be curious about decentralized networks and protocols that purport to provide an antidote to that power. While there are undoubtedly many who trade and invest in digital assets only for the money, this too is simply a choice, and adding choice to people’s lives should be uncontroversial.



Unfortunately, it is often the strawman version of digital assets technology that filters into our political and cultural mainstream.&nbsp;



Given the overblown assertions about the <a href="https://subscriber.politicopro.com/article/2024/02/treasury-official-says-hamas-crypto-financing-was-likely-less-than-reported-00141452?source=email">role that digital assets play in facilitating illicit finance</a> and supporting extremist groups, the impression a casual observer might take away is that this technology has no redeeming features.&nbsp;



But embracing digital asset technology does not mean a free-for-all with zero regulation and rules that leave consumers fending for themselves. Instead, it means a more open-minded acknowledgement of the technology as a starting position, rather than a definition assessed solely by digital assets’ risks and shortcomings.



The anti-technology, pessimistic perspective is evident at many critical junctures of our economy, including green technology, power production and housing construction.&nbsp;



Take nuclear power as one example. The Sierra Club, one of America’s most important environmental advocacy groups, is <a href="https://www.sierraclub.org/nuclear-free">staunchly against the technology</a>, foreclosing on a tech-driven, ready-to-go partial solution to rising emissions. But opposition to nuclear power is driven by a misunderstanding of the risks. Indeed, the view is often backwards considering that nuclear power <a href="https://archive.is/o/kbfuz/https://ourworldindata.org/safest-sources-of-energy">causes fewer deaths</a> than even wind energy installations per unit of electricity produced, and also <a href="https://archive.is/uwsfS">produces fewer carbon emissions</a> than solar power projects. So while many politicians, (on the left at least) would be proud to have the endorsement of the Sierra Club, we’d wager that far fewer would line up for one from the Nuclear Energy Institute.&nbsp;



There are signs that this knee-jerk, “all new technology is potentially harmful” perspective may be changing. In California, for example, <a href="https://www.gov.ca.gov/2023/09/18/charging-ahead-california-achieves-yet-another-ev-goal-ahead-of-schedule-as-more-dollars-go-to-communities-to-support-transition/">recently passed legislation</a> both encourages the purchase and easy use of electrical vehicles and <a href="https://www.latimes.com/environment/story/2023-12-14/california-energy-officials-vote-to-extend-diablo-canyon-operations">supports</a> the ongoing operation of nuclear power plants in the state. Similarly, Texas is <a href="https://www.eia.gov/state/analysis.php?sid=TX">one of the leading producers</a> of renewable energy in the country and also <a href="https://www.cnbc.com/2023/09/26/where-are-bitcoin-miners-in-2023-texas.html#:~:text=Texas%20dominates%20the%20U.S.%20bitcoin,largest%20mining%20pool%2C%20Foundry%20USA.">houses</a> the most digital asset mining operations of any state.&nbsp;



Both policies put forward by these respective state legislators are pro-environment and pro-technology, and show what is possible when a politician assesses the objective benefits of the latter in service of the former. This position is also an example of what we might redefine as the “techno-optimist’s” view of society.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/crypto-congress-gensler-legislation-sec">It’s time for Congress to protect the crypto henhouse</a>



As the blogger Noah Smith <a href="https://www.noahpinion.blog/p/techno-optimism-for-2024">described it</a>: A techno-optimist “voter may be more attuned to the idea that society is a technology itself [and that] society is the user experience (UX) of other technologies; it determines how individual humans experience the power that technology yields.” This view says: We have the tools, how can we best use them?



That brings us back to how digital assets fit into this “techno-optimist” view, and how politicians might view both the technology and those voters who believe in it. Polling <a href="https://theharrispoll.com/briefs/millennials-lead-american-optimism-for-the-future/">points to the rough outline</a> of a constituency that is attuned to the potential benefits of new technology, including the development of the digital assets ecosystem in the United States.&nbsp;



A <a href="https://www.axios.com/2022/04/05/axios-momentive-poll-young-people-are-the-biggest-techno-optimists">recent survey</a> found that nearly one in four Americans under 25 are interested in digital assets; the same age cohort that is most interested in self-driving cars, smart home devices, drone delivery and electric transport. While this might not surprise many (young people are interested in cool new technology), it is in the best interest of our elected officials to cultivate that interest and incorporate those voters into a long term political strategy.



Too often we’re influenced by techno-doomers, those individuals <a href="https://www.noahpinion.blog/p/degrowth-we-cant-let-it-happen-here">who are convinced</a> that new advancements will destroy our world. Or, techno libertarians who don’t want society to exert any control over those same technologies.&nbsp;



We must tread the middle path, re-orienting the current consensus view of worry about technology’s ability to improve our lives, and cultivate the techno-optimists amongst us.&nbsp;



If we fail to do that now, we risk two things: our ability to make the best use of the technology we have now and will invent in the future, and more ordinarily, a durable pro-future voting bloc in coming elections.



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


<div class="wp-block-post-author-biography">Kristin is CEO of Blockchain Association, the Washington DC-based trade association representing nearly 100 of the digital asset industry’s leading companies.
</div>


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