Pepe

Donovan Choy

Founded in 2018, THORChain is an OG DeFi L1 chain that rose to fame with its innovative cross-chain swaps (THORSwap). Since then, the chain has expanded to offer lending and savings interest accounts.



As of earlier today, THORChain withdrawals from its Lending and Savers products have been officially halted. THORSwap and the underlying chain are fine.



The halted withdrawals come off the back of the <a href="https://blockworks.co/news/thorchain-executive-decision-restructuring">painful decision</a> by THORChain co-founder JP Thor two weeks ago to pause deposits into the Savers and Lending program for a six-to-twelve month period — a decision which was <a href="https://blockworks-research.beehiiv.com/p/this-is-unusual">overturned</a> by Thorchain validators.



The chain is sitting on about $200 million of BTC and ETH-denominated liabilities that it cannot afford to pay out, at least not without further crashing the price of its native token, RUNE.



Wait, why does RUNE enter the picture?



THORChain lending works differently to other DeFi money markets like Aave. On THORChain, lent collateral is instantly sold for its native RUNE token, which is then burned after swapping to a borrower’s desired debt asset.&nbsp;



When borrowers repay their loan, new RUNE is minted again to repurchase the borrower’s pledged collateral from the market and repay it to borrowers.



This effectively places RUNE token holders as the counterparty for each loan.



This somewhat roundabout mechanism is nice if you’re bullish RUNE. The mechanism design places RUNE at the center of the value accrual flywheel and increases its demand.&nbsp;



The key risk here, however, is that this depends on RUNE outperforming assets like BTC and ETH that it is borrowed against. Simply put, THORChain’s protocol design is long RUNE against BTC and ETH.&nbsp;



When RUNE depreciates relative to BTC and ETH, more RUNE needs to be minted at the closure of the loan than the amount of RUNE that was burned initially.



This leads us to the unwanted outcome that is happening today: inflationary (and selling) pressure on RUNE rather than the intended effect of deflationary (and buying) pressure.



RUNE’s tokenomics is also intertwined with its yield-bearing Savers product.



THORChain’s Savers uses a kind of wrapped synthetic asset (called <a href="https://docs.thorchain.org/thorchain-finance/savings">synths</a>) to allow single-sided asset exposure. Roughly, it works like this:



<ol class="wp-block-list">
<li>A user deposits one BTC.</li>



<li>THORChain sells half the BTC for RUNE, and adds the BTC-RUNE pair to a liquidity pool.</li>



<li>The user receives synthetic BTC, which can be staked for yield (accruing from swap fees and liquidity rewards) without the risk of impermanent loss.</li>



<li>When the user chooses to withdraw, THORChain sells the previously bought RUNE to form one BTC, which is then returned to the user.</li>
</ol>



Note the similar “long RUNE, short BTC and ETH” dynamic at play here. This design protects against impermanent losses for LPs, but it also means LPs are taking a leveraged long on RUNE.&nbsp;



Thus, RUNE’s underperformance creates the same kind of downward spiral consequences for Savers, just as it did for its lending product.



The chart below shows the rate of RUNE mints far exceeding the rate of RUNE burn:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfiSVy5SBcqZOeE1vMqrXbbG1FjJcgsKCA0BupvvyTm4FhS3lIv1Qf1YookVVhveDaBqKStl1yBlBcgpVPQXyTRG8Ql7Kxu0Qsk6B_BOKxyosozcryL393shJFdiYkfsJhPs304?key=KJE5_E3vkgQFdC7wkJ4LUElg" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://thorcharts.org/thorchain_lending_rune_burned">Thorcharts</a></figcaption></figure>



It’s worth reiterating that THORSwap, the original use case of THORChain, is fine. It’s still swapping about $50-60 billion in weekly trading volumes, and generated about $700k in fees over the past week.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdYVf386ptKZsftpqg5BzGSR8QYXK_XhDgIjbdz0l55Oe50_z4ThDzMdSMI6WyFg1yqH6oSDBQd8CtZqdmVcwrPXkhKpSs8_Lfm2rZXAdYo86jIIXIn76BQLoAam0tbbp_XToT2xA?key=KJE5_E3vkgQFdC7wkJ4LUElg" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://thorcharts.org/thorchain_swap_fees_by_chain">Thorcharts</a></figcaption></figure>



The RUNE token, however, is down 44% on the week, which is not fine. It’s the asset that needs to be sold to repay borrowers wanting to close their loans, or savers wanting to withdraw, but doing so would accelerate the crash of RUNE’s price, which in turn leads to deeper insolvency.



Osmosis co-founder Sunny Aggarwal said of the THORChain debacle: “The situation unfolding with THORChain is eerily similar to what happened with Terra/Luna implosion in 2022, where the protocol&#8217;s solvency was too heavily dependent on the price performance of the native token.”



Next steps? THORChain’s co-founder suggests using protocol revenue and incentives from its sister company Rujira (previously Kujira)&nbsp; to make lenders whole over a 2-3 month timeframe while everything is on pause mode.



<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">If <a href="https://twitter.com/search?q=%24RUNE&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$RUNE</a> hits $2.50 I will be recommending to every node I delegate with to Pause Lending via Node Mimir. 1) Pause lending 2) Tokenise positions on App Layer asap (with maybe even <a href="https://twitter.com/search?q=%24RUJI&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$RUJI</a> incentives) 3) 10% System Income into payback fund to accumulate RUNE to fund payouts 4)…&mdash; JP.THOR | ACEL (@jpthor) <a href="https://twitter.com/jpthor/status/1882573631710200273?ref_src=twsrc%5Etfw">January 23, 2025</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“It&#8217;s uncertain whether lenders can be fully compensated. Some have suggested that the shortfall could be covered by protocol fees collected over time. But this overlooks an important point: the bulk of THORChain&#8217;s liquidity comes from its lending and savers platform, ThorFi. So it doesn&#8217;t make sense to consider THORChain and ThorFi as separate entities,” Aggarwal told Blockworks.



For a deeper dive on the mechanics leading to THORChain’s insolvency, see Blockworks Research’s <a href="https://app.blockworksresearch.com/flashnotes/thor-fi-s-unlimited-liability">report</a> by analyst Luke Leasure from last week.



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THORChain halts withdrawals amid $200M insolvency

Katherine Ross

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



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“We’re just trying to be the onchain Apple.”



Now that’s a banger of a quote.&nbsp;



James Zhang, founder of Jambo, said it to Empire host Santiago Santos in a <a href="https://blockworks.co/podcast/empire/ca6f038c-d367-11ef-b4c0-a740d0562de2">bonus Empire episode last week</a>.&nbsp;



Jambo, for those of you who may not be aware, is an onchain mobile network. We’ll get more into it in a bit, but Zhang’s points about really looking to give folks access to the digital economy stood out to me.&nbsp;



Right now, Jambo’s biggest user base is in Latin America. Zhang originally thought the biggest user base would perhaps be Africa, but that hasn’t been the case…yet.&nbsp;



As Santos noted, “the next JPMorgan doesn’t look like JPMorgan. It looks like an MVNO with fintech services layered on top.”



People should be able to digitally access all the integrations without ever having to go into, say, a bank branch.&nbsp;&nbsp;&nbsp;



For Jambo, that means not only reaching a user base, but ensuring those users are as loyal as I am to Apple. And that’s where crypto comes in.&nbsp;



And now you know.



<iframe loading="lazy" width="560" height="315" src="https://www.youtube.com/embed/TWiyUIQV0Bs?si=DfTuS735i6sAgLoF" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen></iframe>



Check out the bonus Jambo episode of Empire above



I had a chance to chat with Zhang earlier this week, and I was curious how he’d classify Jambo. Is it a DePIN? Is it more? 



What can I say, I’m paid to be nosey.&nbsp;



First let’s start with the basics. Jambo’s been around for a while, having last raised capital from a number of big VCs back in 2022. The round was led by both Pantera and Paradigm, if you want to be specific.&nbsp;



Zhang’s the first one to admit that it was a totally different market when they last raised compared to now, and the team’s been hustling. Even back in 2022, the reception for Jambo was “great,” Zhang noted. There’s an appetite to disrupt the Latin American and African phone markets with a device that is “censorship resistant.”



But after the 2022 raise, Jambo and Zhang had to go into “cockroach mode” to survive the bear. And now, well, we’re here, on the other side.



Zhang wouldn’t turn down the opportunity to raise again, he admitted, especially because he finds this market trickier than a bear market.&nbsp;



“The reason is because in the bear market, we had already raised funding. We had already built our team, and [then] it was just shipping product. And honestly, there weren&#8217;t as many … you could say distractions, and … macro is distractions. But when one memecoin gets launched and sucks 90% of liquidity, it&#8217;s a little tough on the rest of the market or any narrative, so for us, we just honestly want to see more stability going into a token launch,” he told me.



Zhang said that they’ve never specifically branded as a DePIN though Jambo clearly has elements of that, given that it offers both hardware and networks.



“If you take our entire network together, it becomes one of the largest DePIN networks that users can tap into,” he said.&nbsp;



He’d prefer if you think of them as a consumer-facing product, given that it’s their specialty. Outside of the hardware offerings, they also launched a satellite program <a href="https://www.globenewswire.com/news-release/2025/01/22/3013262/0/en/Jambo-launches-satellite-on-Solana-to-connect-global-network-of-JamboPhones.html">earlier this week</a> to “connect all 700,000-plus devices,” he said.



Maybe Zhang’s really not that far off when he says he wants to be the onchain Apple.



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Why Jambo could be ‘the onchain Apple’

David Canellis

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



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At face value, President Trump is well on his way to giving crypto what it wants.&nbsp;



A US government strategic crypto reserve. Or maybe it’s a <a href="https://www.cnbc.com/2025/01/23/trump-signs-executive-order-on-crypto-digital-asset-stockpile.html">stockpile</a>. Is there a difference?



Anyone interested in wading into that debate is well <a href="https://x.com/search?q=stockpile%20crypto&amp;src=typed_query">covered</a> on X and so on.&nbsp;



Same goes for those keen to moralize the implications of US government agencies accumulating coins other than bitcoin — perhaps even ones backed by funds and entities controlled by appointed officials like venture capitalist <a href="https://blockworks.co/news/trump-picks-crypto-czar">David Sacks</a>.



I’m taking a different path. Let’s put aside the US strategic stockpile. It doesn’t exist, yet.



What does verifiably exist onchain is the growing crypto portfolio of <a href="https://blockworks.co/news/world-liberty-financial-kyc-starts">World Liberty Fi</a>, the DeFi project endorsed by the Trump family.&nbsp;



And because this is crypto — and it&#8217;s on Ethereum — we know exactly what it’s doing at all times, and whether it’s underwater or not.



I touched on this <a href="https://blockworks.co/news/trump-strategic-crypto-reserve">earlier this week</a>, but World Liberty Fi has bought more crypto since Trump’s inauguration on Monday.&nbsp;



The chart below treats World Liberty Fi’s stockpile as a fund. Its performance is plotted by the blue line.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdU2hFDWlJ_IL64ZoIYeHIDpjpV6MviJskU6hom-nlRgGkxWvfOIOelF4mTSZcOShafjztA38OAuQuLPugSyGrz02X21vI8GVJLVKsUJvnC340tzO3hnX6ixGDU89MnjkddXOKB?key=r7UJwDSxvmuP7JeyAN-Z78QO" alt=""/><figcaption class="wp-element-caption">The crypto World Liberty Fi used to buy more coins came from its $300-million token <a href="https://dune.com/seoul/wlfi">sale</a>. It currently holds a combined ~$53 million in USDT and USDT.</figcaption></figure>



When the blue line goes into the red, World Liberty Fi’s accumulated portfolio is underwater. It’s otherwise ahead on its purchased crypto to date when it&#8217;s in the green area.&nbsp;



The portfolio is ahead by 4.3%, as of this morning, although there would be additional small gains related to liquid ETH staking which were not included in the analysis.



Most recently, World Liberty Fi spent $22.5 million on Thursday, on a mixture of ETH, TRX and wrapped BTC. That’s on top of the $2.65 million in TRX bought on Tuesday.



Those purchases brought World Liberty Fi total spend to $245.3 million across six different coins since it began at the end of November: the three above as well as LINK, ONDO, AAVE and ENA, a set which should integrate with the platform in some capacity in the future.



As you can see, the portfolio, now worth nearly $259 million, has spent about half the time ahead. That makes sense, considering it’s regularly accumulating crypto (although with no real stated goal for what it will be for as yet, other than for strategic purposes).



Sure, handwringing about how all this could go wrong is probably justified. Especially if World Liberty Fi’s portfolio indeed turns out to be Trump’s strategic crypto reserve.



It’s worth appreciating, however, that the very blockchain rails on which the stockpile exists make those concerns much easier to navigate. We can see what it’s doing. We can see when it buys, sells, stakes or otherwise transfers any of the coins it holds. And they will be forever trackable, at least within the current capabilities of analytics software.



The tools for everything to go right are there. We’ll just need to actually use them to make sure that it does.



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World Liberty Fi’s $259M crypto stockpile is off to a good start

Jack Kubinec

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



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Yesterday, Liam Heeger announced that he had departed Jump Crypto, where he was working on Solana’s Firedancer client, to found a company named Unto Labs that will build a high-performance layer-1 blockchain. Jump wasn’t happy with this news.



The firm filed a lawsuit against Heeger on Tuesday alleging that the former employee had violated a non-compete agreement by founding Unto. According to the lawsuit, Heeger, who was a lead software engineer for Firedancer, broke his non-compete partly by raising venture capital funds for Unto at the Solana Breakpoint conference while he was still employed by Jump.



Unto is building a “next generation layer-1 blockchain,” Heeger wrote on X. The post thread also notes Unto will not be built to run Solana like Firedancer but will be “re-imagining” blockchain architecture. The company is hiring two engineers, according to its job board.&nbsp;



“Liam and Unto strongly deny [Jump’s] allegations and are confident in the integrity of our business practices,” a spokesperson for Unto said in an emailed statement.&nbsp;



The Solana Foundation contracted Jump to write a high-performance Solana client from scratch in 2022. Heeger, who goes by CantalopePeel on GitHub and X, joined Jump to work on Firedancer in early 2023. As part of joining the company, he signed a non-compete agreement and agreed not to use Jump’s proprietary information to benefit anyone other than Jump, the suit says.



In September 2024, Jump sent Heeger — along with its head of R&amp;D Kevin Bowers — to the Solana Breakpoint conference to give an update on Firedancer’s progress. <a href="https://blockworks.co/news/lightspeed-newsletter-solana-firedancer-testnet">Jump announced</a> that Firedancer was live in non-voting mode, and a limited version of the client called Frankendancer was fully live.&nbsp;



Jump now alleges that Heeger wasn’t just at Breakpoint to speak about Firedancer — he was also meeting with VCs to raise funds for a new blockchain. According to the suit, Heeger ultimately raised $3 million at a $50 million valuation for Unto, and his investors included the crypto-native VC firm Framework Ventures. Framework did not return a request for comment.



After Breakpoint, the suit says Heeger’s colleagues noticed he was texting more than normal, he took a private call in a conference room, and he seemed stressed and distracted from work. He then resigned from Jump in November, saying that he was not enjoying his work anymore. Jump says it was concerned about the “cryptic” reasoning for leaving the company, and it performed a wellness check on Heeger.&nbsp;&nbsp;



The suit says that a month later, Heeger told an ex-colleague he was founding Unto. He also allegedly told a former Jump supervisor that because he had moved from Illinois to California after leaving Jump, he no longer had to comply with his non-compete agreement.&nbsp;



In Jump’s view, by launching a high-performance blockchain, Heeger is now competing with Firedancer — and in doing so, he must be using proprietary information he gained while at Jump.



The lawsuit illustrates a tension between the ethos of the open-source crypto world and the reality of doing business with institutions. Solana fans will undoubtedly be disappointed to see a Firedancer-related lawsuit before a full version of the client.



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Jump sues former Firedancer Solana client engineer

Ben Strack

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



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While CME Group doesn’t yet have concrete plans to launch XRP and/or SOL futures contracts, the company is certainly thinking about it.



The derivatives exchange launched bitcoin futures contracts in December 2017. It followed up with ether futures in early 2021. Fast forward to yesterday, when screenshots floated around social media signaling that XRP and SOL futures would come next month.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdg0aGmyyezCGvlIq5hNT9-VTV7yHOYPMd6JkZxVkMlsK9TBmTmeL6f--bq-dk5nK2mG6ELdpiPRGcLVPxPrrx51coW1gtvXSR9FuOPRB99V5PUOtvhWGnJtmPcgeuEiv8uVDGQOw?key=xSQi6_2RlBakj4huYPfszKO3" alt=""/></figure>



“A beta page from our website was released in error earlier today,” a CME spokesperson told me Wednesday. “Many mock-ups are included in that test environment, and no decisions have been made regarding XRP or SOL futures contracts.”&nbsp;



This glimpse the company inadvertently gave into possible product plans comes as crypto ETF filings have accelerated in recent weeks. Among them are proposed spot XRP and SOL funds.&nbsp;



A number of observers <a href="https://blockworks.co/news/us-spot-crypto-etf-approvals-outlook">have said</a> spot crypto ETF approvals by the SEC — outside of BTC and ETH — could take a while given the precedent of the regulator wanting to first see a regulated futures market. There’s also the fact that the SEC has <a href="https://blockworks.co/news/lightspeed-newsletter-mango-markets-sol">named SOL a security</a> and is moving forward <a href="https://blockworks.co/news/sec-advances-ripple-appeal">with an appeal</a> in its case against Ripple.&nbsp;



Remember, too, that it was years after bitcoin and ether futures existed that ETFs holding those futures contracts came to market. Those notably preceded spot funds investing in those assets directly.



To that point, VolatilityShares <a href="https://www.sec.gov/Archives/edgar/data/1884021/000121390024113152/ea0225648-01_485apos.htm">filed</a> for a <a href="https://blockworks.co/news/solana-etf-filing-futures">solana futures ETF</a> in December and ProShares followed that up with a similar <a href="https://www.sec.gov/Archives/edgar/data/1174610/000168386325000201/f40466d1.htm">filing</a> last week.



<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">NEW: ProShares just filed for a Solana Futures ETF. VolatilityShares also filed for one of these back in December. Interesting because there arent CME futures yet and i&#39;m not sure if the Coinbase SOL futures are large and liquid enough? <a href="https://t.co/7dUPIQw37z">pic.twitter.com/7dUPIQw37z</a>&mdash; James Seyffart (@JSeyff) <a href="https://twitter.com/JSeyff/status/1880383979238662449?ref_src=twsrc%5Etfw">January 17, 2025</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Then there are Teucrium <a href="https://www.sec.gov/Archives/edgar/data/1683471/000089418925000233/teucriumxrpetfs.htm">planned products</a> that would invest in XRP futures. These filings all appear to be bets that <a href="https://blockworks.co/news/new-sec-crypto-task-force">a revamped SEC</a> could be more open-minded to such ETFs. We can only <a href="https://blockworks.co/news/us-crypto-etfs-approval-outlook">wait to see about that</a>.



As we speak of altcoin-focused funds, perhaps it’s worth a quick mention that the Delaware state website shows Bitwise registered a dogecoin trust.



While a Bitwise spokesperson acknowledged the filing, the rep declined to comment further. This isn’t yet a formal product proposal to the SEC, mind you. But it’s yet another indication that we best, as <a href="https://x.com/NateGeraci/status/1882231521093787691">some would say</a>, “strap in.”



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SOL, XRP futures coming? And what about a DOGE ETF?

Casey Wagner

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



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The US senator pushing for a national strategic bitcoin reserve just got a promotion.&nbsp;



Cynthia Lummis, a Wyoming Republican who has <a href="https://blockworks.co/news/senators-oppose-sec-accounting-standards">long championed</a> the crypto industry, will lead the new digital asset subcommittee under the Senate Banking Committee.&nbsp;



Lummis <a href="https://blockworks.co/news/senator-lummis-bitcoin-reserve-bill-crypto-policy">debuted the text</a> for the Bitcoin Reserve Bill last summer at the Bitcoin 2024 Conference in <a href="https://blockworks.co/news/bitcoin-2024-nashville-recap">Nashville</a>. She introduced the bill late last Congress but has not yet unveiled an updated text this session.&nbsp;



The original bill sought to have the US government acquire a total of <a href="https://blockworks.co/news/bitcoin-as-a-potential-us-reserve-asset">1 million BTC</a> — around 5% of the total supply. The bill permits sales of the asset for only one purpose: paying off the national deficit.&nbsp;



“We will be debt free because of bitcoin,” Lummis said in Nashville.&nbsp;



Now, with her own subcommittee and Senate Banking Chair Tim Scott’s ear, movement on the reserve could come a lot faster. Speculation that President Trump may <a href="https://blockworks.co/news/trump-campaign-promises-bitcoin-reserve">create the stockpile</a> via an executive order seems to have dissipated in recent weeks.&nbsp;



But, it’s very possible we see some sort of presidential action from Trump directing the DOJ to refrain from auctioning seized bitcoin.&nbsp;



In any case, Lummis seems committed to getting the reserve off the ground in Congress, <a href="https://x.com/SenLummis/status/1882454483852255605">saying</a> on Thursday that lawmakers “need to urgently pass bipartisan legislation.”&nbsp;



We’ll be curious to see what the subcommittee selects as its first hearing topic.



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US Senate creates first-ever digital asset subcommittee 

Felix Jauvin

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



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A major thesis I have for 2025 is that FX will be one of the key macro assets to focus on.&nbsp;



The big reason is that FX currencies are the exhaust valve for interest rate differentials between other countries, and therefore tariff implementation since that gets directly imputed into global capital flows that are key drivers of global currencies.&nbsp;



With this belief in FX volatility being the key exhaust valve of Trump’s tariff and trade policy this year, I went ahead and interviewed one of the best macro FX traders I know: Brent Donnelly of Spectra Markets.



<iframe loading="lazy" width="560" height="315" src="https://www.youtube.com/embed/Bz196-fJ0IU?si=ndpDg2aOvPKgXGjk" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen></iframe>







Of course, nothing beats watching the full episode, but here are a few of my favorite takeaways:&nbsp;



<h2 class="wp-block-heading">On how much capital flows drive FX currency: </h2>



“The hard thing is that the capital flow stuff kind of happens around the edges. So if you have a good capital flow story, that could be marginally biased in one direction. But if the bigger drivers like rate differentials are pointing in the other direction, it&#8217;s not going to work. So capital flows tend to be more of like an accelerant, not a directional driver.”



<h2 class="wp-block-heading">On how emerging market currencies are mostly driven by carry trades:</h2>



“For an EM it&#8217;s usually all about the carry. So if you can sell USD and buy Brazil and it goes nowhere for a year, let&#8217;s just say you make 10% on that carry. That&#8217;s a really good carry trade. So dollar Brazil is going to go up and down. But if you have the view that dollar Brazil is going to go down, it&#8217;s kind of a free lunch. So like for two years in Mexico, it was basically a free lunch to own Mexican pesos because reshoring was good and that led to a steady and stable carry trade.”



<h2 class="wp-block-heading">On the impact of this week’s Bank of Japan rate hike:</h2>



“They did a hike recently of 15 basis points and they did one of 20 and now the market&#8217;s expecting 25 and 22bps is priced in.



So then the question becomes this: If this hike is priced in, which it is, what are the signals from the central bank at the meeting? They could hike 15 and just say, you know, they are a little bit scared about market stability because they felt like they blew up the world in August. And because of that guidance paired with so much of the hike already being priced into markets, it could end up being a dovish outcome for the meeting.”



There are many more interesting tidbits in the interview, including a deep dive into how Trump’s tariff threats are impacting FX currencies, so I highly recommend checking it out!



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FX lessons from Brent Donnelly 

Macauley Peterson

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Rumors of a “second foundation” — a more commercially-oriented alternative to the Ethereum Foundation — turned out to be a ruse…sort of. Lido and P2P.org founder Konstantin Lomashuk <a href="https://x.com/2nd_foundation_/status/1882058366023025039">teased</a> the idea on X Wednesday, but quickly walked it back.



“If a second foundation ever does form, it must have a clear purpose that complements the enormous work of current contributors,” he <a href="https://x.com/Lomashuk/status/1882150153781702962">wrote</a>. “I appreciate everyone’s support and believe we need more organizations contributing to Ethereum.”



Before Lomashuk revealed he wasn’t serious, the notion was endorsed by a number of prominent Ethereum voices, including Uniswap founder Hayden Adams. “Moving technical development to a 2nd foundation is not crazy…[With] the right leader I bet it could raise big $ and have a huge impact,” Adams <a href="https://x.com/haydenzadams/status/1881749898003136640">mused</a>.



As if on cue, hours later a new group funded by the EF — going by the name Etherealize — <a href="https://x.com/Etherealize_io/status/1882213980858642599">emerged</a> from stealth.



The new organization, which calls itself an “institutional marketing and product arm for the Ethereum ecosystem,” will be a resource for TradFi. The team of eight is led by <a href="https://x.com/VivekVentures/status/1882214791198175537">Vivek Raman</a>, who previously headed AI and crypto investment banking at BitOoda. Raman also had trading experience at Nomura, Deutsche Bank, UBS, and Morgan Stanley.



Grant Hummer, James Fickel and Philipp Muens are also signed on.



In its kick-off, Etherealize <a href="https://x.com/Etherealize_io/status/1882213986965565918">sounded</a> “a note of gratitude for the [EF], who has ushered the growth of a new global economy.” It added: “The EF cannot — and should not — do it all. We’re here to help.”



Now, many of the same folks who’ve been calling for <a href="https://blockworks.co/news/ethereum-scaling-progress-and-leadership">a leadership change</a> at the EF are <a href="https://x.com/iamDCinvestor/status/1882231601867944133">rallying</a> behind the new group. Some, who just this week were removing .eth from their X names, have <a href="https://x.com/antiprosynth/status/1882426645388337538">done</a> an about-face.



As a content hub, the new website features half a dozen <a href="https://dashboard.etherealize.io/">interactive graphs</a> and four blog posts credited to Ramen. The content positions Ethereum as the leading blockchain platform for institutional adoption due to its security, decentralization and regulatory clarity as a commodity with <a href="https://blockworks.co/news/ether-etfs-approved-for-us-exchange-july-23">approved ETFs</a>. It promotes both the store of value role and rollups as scalable and efficient platforms to meet institutional needs.



<a href="https://www.etherealize.io/content/eth-a-store-of-value-with-cash-flow">ETH’s staking yields</a> and active asset tokenization platform rounds out the <a href="https://www.etherealize.io/content/why-are-institutions-tokenizing-assets-on-ethereum">pitch</a> to TradFi players.&nbsp;



Aave founder Stani Kulechov <a href="https://x.com/StaniKulechov/status/1882404776815755536">said</a>, “it makes sense to double down on institutions, especially as most of the DeFi is on Ethereum.”



While the Etherealize debut is likely to placate the EF’s more <a href="https://blockworks-research.beehiiv.com/p/steering-the-ship">strident critics</a> in the short term, the real test will be if the org can make a dent in the current narrative of Ethereum leadership being out of touch and uncompetitive. The mood is no doubt partly a function of ETH’s underperformance, which has touched a four-year low against bitcoin in recent days.



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Ethereum’s ‘second foundation’ was a ruse — then Etherealize launched

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North Korean hackers. Accidentally throwing out your seed phrase. The IRS, DOJ and SEC. Being forced to interact with customer service departments at exchanges.



As far as scary monsters in crypto go, those would be far up the list. Still, none scarier than the notion that the bull market has peaked without securing generational wealth.



All that has everyone searching for top signals. Hints that the fun is over for another four years.



Trump’s <a href="https://blockworks.co/news/trump-more-than-a-memecoin">stupidly successful memecoin</a> launch is a decent candidate. Especially so paired with bitcoin’s new all-time high around his inauguration. Was that the top?



It would be easy to agree if crypto was like it was in 2021. Back then, in the midst of the monster bull run, there were really only two memecoins — dogecoin and shiba inu — and both hit enormous peaks along with bitcoin.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcTSrvzkn1EEuXOVzc9-25Jbzfz5RuE8-xjcvZ-g0cr1-dHmeCdQOtNdVNAEDVxDOdfWg-wGnGTLuP_mOatPvze7SgmIrebuf-0pLFIlDpfdSOKJtPJnLx5I7bBAnRdDO1YYTW0XA?key=LL51OpIMf0VXbNX6ryp2kgF3" alt=""/></figure>



Except, DOGE and SHIB didn’t peak at the same time. Looking back, the rotation between them is totally obvious.



DOGE, in blue, exploded from about $1 billion market cap to over $80 billion between January and May 2021, alongside bitcoin’s own rally from $20,000 to over $64,000.



It then drained as bitcoin corrected but never really came back at size. SHIB (in purple) shined instead, rallying from $3 billion market cap to almost $40 billion between September and the end of October — matching bitcoin’s rally almost exactly.



So, in retrospect, the Great Dog Coin Rotation was probably the most obvious top signal for the last cycle.



This time around, it’s much harder to tell.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1183" height="853" src="https://blockworks-co.imgix.net/wp-content/uploads/2025/01/unnamed-4.png?w=1024&amp;h=1024" alt="" class="wp-image-96553" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2025/01/unnamed-4.png?w=1183 1183w, https://blockworks-co.imgix.net/wp-content/uploads/2025/01/unnamed-4.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2025/01/unnamed-4.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2025/01/unnamed-4.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2025/01/unnamed-4.png?w=356 356w, https://blockworks-co.imgix.net/wp-content/uploads/2025/01/unnamed-4.png?w=362 362w, https://blockworks-co.imgix.net/wp-content/uploads/2025/01/unnamed-4.png?w=304 304w, https://blockworks-co.imgix.net/wp-content/uploads/2025/01/unnamed-4.png?w=80 80w" sizes="auto, (max-width: 1183px) 100vw, 1183px" /></figure>



The most simple read is that memecoins in 2021 topped out alongside bitcoin. So maybe a major rally in memecoins might mark the end in 2025. 



Except, there are just so many new launches — FARTCOIN, GOAT, AI16Z, PENGU, SPX and now TRUMP — making it difficult to spot an actual top for memecoins overall.&nbsp;



One peak and correction feeds into another and into another. The DOGE-SHIB rotation on steroids.&nbsp;



To bears, that might sound like a risky game of musical chairs. But to the bulls, it probably sounds just right.



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Why top signals could be less obvious this cycle

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Looking for a new narrative? Marc Boiron, CEO of Polygon Labs, has one for ya: yield-bearing stablecoins.&nbsp;



Once these stablecoins are better understood, they’re set for takeoff, Boiron said. In fact, he wouldn’t be surprised if it ends up driving “a decent amount of activity in 2025.”



So far, stablecoins (not just yield-bearing ones) are up to a $207 billion market cap, per rwa.xyz <a href="https://app.rwa.xyz/stablecoins">data</a>.



It’s not just the yield that’ll draw stablecoin activity, it’s also the regulatory clarity that we’re seeing over in Europe courtesy of MiCA. It’s even looking more and more likely that the US is on the regulatory path as well.



For companies — like fintechs — watching the stablecoin market from the sidelines, it’s hard to not feel the FOMO when looking at Tether’s attestations. And that’s clear from Boiron’s conversations with non-crypto native folks.&nbsp;



This, shall we call them, new set of players are telling Boiron, “hey, we want our own stablecoin, because we can see how much money we can make off of it, and we&#8217;ve got a boatload of users, it&#8217;s really easy to push them into that stablecoin and get a lot of volume, and obviously revenue from that as well.”&nbsp;



“The second part of it is just having better rails for their users, knowing that there&#8217;s a set of users who are [going to want to] send payments, especially remittances, as of right now, and they actually want to make that available rather than incurring” fees, he continued.



I mean, let’s take a look at Tether’s <a href="https://tether.io/news/tether-hits-7-7-billion-2024-nine-month-profits-102-5-billion-in-u-s-treasury-holdings-almost-120-billion-usd%E2%82%AE-circulation-and-an-over-6-billion-reserve-buffer-in-q3-2024-attestation/">third-quarter attestation from last year</a>. The firm reported a whopping $2.5 billion net profit in that quarter alone, even if it does <a href="https://blockworks.co/news/tether-profits-versus-blackrock">bundle unrealized gains</a> on bitcoin with other revenue in its disclosures.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXd8k0BBzptOBUllXhhLC5wyxdCka9MpojgonjhcaNhWZDCPYSeVXiXIq9kDtAVmxM0d46H7ui4GDPYSY7QIk4Wz88F3ZZlF2nVrCcDpaJWCRjBBK5LbHtKD4STkW7N3srtrcYOA8Q?key=LL51OpIMf0VXbNX6ryp2kgF3" alt=""/><figcaption class="wp-element-caption">No surprise that Tether’s topping the list</figcaption></figure>



“Everybody sees how profitable Tether is, and they&#8217;re like, ‘Okay, I can do that with less risk now,’ especially fintechs, right?” He said. Boiron believes we’ll see new entrants that are looking to enter the space because there may be the opportunity to improve the user experience through yield-bearing stablecoins.



This doesn’t mean we’re going to see companies simply launch their own stablecoins. They’ll also adopt other stablecoins as well, Boiron added.&nbsp;



“They understand that there&#8217;s a significant distribution of USDC, and a lot of people hold it. They&#8217;ll, for example, want to make that still available through their application, while also launching their own stablecoin,” he noted.



More than that, Boiron thinks that Polygon Labs&#8217; ability to scale and push “massive” amounts of stablecoin volumes onchain means that now is the time for stablecoins to really shine. 



I told Boiron that I thought 2024 was the year of the stablecoin, but I’m beginning to think this is just the start.



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Stablecoins will drive a ‘decent amount’ of activity in 2025: Polygon Labs CEO

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On Friday, the SEC filed suit against Nova Labs, the developer behind the Helium Mobile crypto-enabled cell network. The agency charged Nova Labs with fraud and registration violations.



The litigation wound up being the last of Gary Gensler’s four-year tenure as SEC chair, and it was a seemingly poetic way for Wall Street’s <a href="https://blockworks.co/news/gary-gensler-resigning">top cop to go out</a>. The regulator frequently locked horns with the crypto industry, which bristled against his “<a href="https://blockworks.co/news/sec-crypto-anti-innovation-crusade">regulation by enforcement</a>” approach. His staff departs with a lawsuit against a company it had been investigating for years — and which many in crypto think could give the asset class <a href="https://blockworks.co/news/helium-tech-for-disaster-relief">real-world utility</a>.



The SEC <a href="https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26229">argued</a> that <a href="https://blockworks.co/news/lightspeed-newsletter-helium-cell-coverage">Helium hotspots</a> — which provide wireless connectivity and dole out token rewards — along with discovery mapping — where Helium Mobile users share their data with the company in exchange for tokens — both equate to unregistered securities sales. The agency also accused Nova Labs of fraudulently telling potential investors that Lime, Nestlé and Salesforce had used its wireless network.



A Nova Labs executive told me the Gensler-led SEC inquiry had been going on for two years prior to the suit and called the last-day lawsuit “as irresponsible as it is wrong-headed.”



The debate on whether most crypto tokens are securities has been a long-running one in crypto, although it may come to not matter as much: Fox Business <a href="https://www.foxbusiness.com/markets/trump-admin-eyes-cftc-lead-digital-asset-regulation">reported</a> President Trump aims to give the CFTC the regulatory lead on crypto, meaning the SEC won’t have as much say over <a href="https://blockworks.co/news/sec-wrong-about-crypto-asset-securities">alleged crypto securities</a>.



As for the fraud part of things, Mashable <a href="https://mashable.com/article/helium-lime-web3-crypto">reported</a> in mid-2022 that Helium’s website said it had partnered with the scooter app Lime, and Lime said the partnership didn’t exist. The exposé led to a bit of egg on the face for Helium, which removed mentions of Lime as well as Salesforce from its website shortly thereafter. The SEC also says Helium falsely told investors that Nestlé was involved in the Helium network, whereas actual contact between the two was limited.&nbsp;



Nova Labs CEO Amir Haleem wrote on X that none of the SEC’s claims “hold any water at all.” Elsewhere, Haleem <a href="https://x.com/amirhaleem/status/1881069433688584376">posted</a> a screenshot of a 2020 email from Salesforce, seemingly confirming some sort of partnership between the two.&nbsp;



With the SEC expected to take a more crypto-friendly approach under President Trump, the suit may seem unlikely to go anywhere. There’s a catch however: Reuters <a href="https://www.reuters.com/world/us/trumps-new-sec-leadership-poised-kick-start-crypto-overhaul-sources-say-2025-01-15/">reported</a> Trump’s SEC is expected to freeze crypto litigation that does not involve fraud. Gensler’s SEC may have tried to force a continuation of its suit by charging Nova Labs with fraud.



Now, a potential <a href="https://blockworks.co/news/sec-chair-nominee-crypto-past">Paul Atkins-led</a> SEC might have to choose between continuing a lawsuit it didn’t start or appearing not to care about fraud.



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Gensler wraps tenure as SEC chair with lawsuit against Nova Labs

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Congressional Republicans are working to reverse new IRS guidelines that require so-called “custodial brokers” to report transactions.&nbsp;



Rep. Mike Carey and Sen. Ted Cruz this week introduced corresponding resolutions seeking to “roll back the <a href="https://x.com/RepMikeCarey/status/1882110957700448414">disastrous IRS broker rule</a>.”&nbsp;



The legislation comes weeks after a group of crypto lobbying firms sued the IRS over the rule. They claim the requirement “exceeds the agencies’ statutory authority, violates the Administrative Procedure Act (“APA”) and is unconstitutional.”&nbsp;



As it currently stands, starting in 2025, custodial brokers are required to <a href="https://blockworks.co/news/irs-new-form-crypto-accountants">report gross proceeds</a>. In 2026, they will have to report cost basis for certain transactions.&nbsp;



The final version of the 1099-DA form was published at the end of last year. While earlier drafts had included a section where brokers had to identify their “type” of business, the final form nixed this box. It’s a small change, but by cutting this section the IRS more or less punted the issue of DeFi actors.&nbsp;



Even so, those opposed to the rule claim that the rule still imposes unfair reporting obligations on intermediaries and other actors in the crypto space.&nbsp;



The resolutions have some co-sponsors (Sens. Cynthia Lummis and Tim Sheehy, to name a few), but neither have been scheduled for a markup or vote just yet. This is a hot-button issue in the crypto space though, so we’d expect companies to be directing a significant amount of their lobbying efforts here.



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Republicans seek to overturn IRS crypto broker rule

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As expected, Donald Trump has backed off a bit on the <a href="https://blockworks.co/news/unpacking-trump-potential-tariff-policies">ambitious tariff goals</a> he touted on the campaign trail.&nbsp;



“I think we’ll do it Feb. 1,” Trump said during a Monday press conference, referring to tariff increases on Canada, Mexico and China.&nbsp;



While he did not comment on specific timing or pace of tariffs, based on <a href="https://www.youtube.com/watch?v=65aE9KFMR3Y">conversations</a> with Stephen Miran, head of Trump’s council of economic advisors, we expect to see tariffs increase by around 2% to 5% per month.&nbsp;



The first time Trump proposed 25% tariffs on China was back in 2018. What ended up actually happening was a ~17% effective tariff, which was implemented over the course of a year.&nbsp;



“The after-tariff dollar-import price of goods coming from China was practically unchanged,” <a href="https://blockworks.co/news/trump-gradual-tariff-policy">Miran said</a>.&nbsp;



In <a href="https://blockworks.co/news/trump-day-one-crypto-promises">Trump’s day 1</a> trade policy <a href="https://www.whitehouse.gov/presidential-actions/2025/01/america-first-trade-policy/">memorandum</a>, he gives various federal agencies until April 1 to turn in reports on “unlawful migration and fentanyl flows” from Canada, Mexico and China.&nbsp;



He also instructs the secretaries of the Treasury, Commerce and Homeland Security to evaluate how to create the “External Revenue Service,” a new agency Trump wants to task with collecting tariffs.&nbsp;



“Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens,” Trump said on Monday.



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Tariff tantrum? Not yet. 

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



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If you’ve been reading Forward Guidance, you know the last few days in crypto land have been — to put it mildly — eventful.&nbsp;



Bitcoin surged to a new all-time high the day Donald Trump was sworn in. After a pullback, BTC’s price rebounded yesterday to $107,000. BTC hovered around $104,200 at 1:30 pm ET.



Despite a lack of <a href="https://blockworks.co/news/donald-trump-day-one-actions">crypto-specific</a> executive orders, optimism stemmed from word of a new Hester Peirce-led SEC <a href="https://blockworks.co/news/sec-new-crypto-task-force">crypto task force</a>.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeCLjj5gTvOpyUW38sRP6A2nG52Qr7oyuq0_zlEDRCZkj3z_VmWdH7ycT9EPESCUX35F5Ppw1Kv39psgsJdixHuYShOhNPS-LhEh28c0YjObNYL_5OaiXnLBvRKJW4obqqur2xA?key=NxSk-6sa-ktC3q2APaQhBzFr" alt=""/></figure>



Those watching the space know Peirce’s name; Wormhole Foundation general counsel Cathy Yoon called it “a relief” that she would guide this unit.&nbsp;



“She is proactive, engaged and most importantly, rational when it comes to thoughtful regimes concerning digital assets,” Yoon said of the SEC commissioner in a statement.&nbsp;&nbsp;&nbsp;&nbsp;



Peirce’s crypto-friendly record is clear, and spans years. She first floated a <a href="https://blockworks.co/news/coinfund-president-crypto-regulation">“token safe harbor proposal”</a> in 2020 to spur developer innovation by temporarily exempting builders from securities laws registration provisions. She said US spot bitcoin ETFs should have been <a href="https://blockworks.co/news/commissioner-etf-statements-signals-contention">approved years before</a> they got the green light in January 2024.&nbsp;



And in an era marked in part by <a href="https://blockworks.co/news/hester-peirce-sec-lbry-unsettling">SEC lawsuits</a> against crypto companies, Peirce <a href="https://blockworks.co/news/hester-pierce-dont-regulate-courtroom">said bluntly in 2023</a> that “litigation is not the most effective way to carry out regulations.”&nbsp;&nbsp;&nbsp;



Philip Moustakis, a partner at Seward &amp; Kissel LLP and an ex-senior counsel in the SEC’s enforcement division, noted that while former SEC Chair Jay Clayton paired enforcement actions with informal guidance, that essentially stopped under Gary Gensler.



The task force announcement signals the return of valuable informal guidance and potentially more formal direction in the works, Moustakis added.&nbsp;



“This is not to say the federal securities laws will not apply to crypto offerings or transactions under appropriate facts and circumstances,” he said. “Ideally, however, there will <a href="https://blockworks.co/news/sec-wrong-about-crypto-asset-securities">be more clarity</a> with respect to when and <a href="https://blockworks.co/news/coinbase-howey-question-second-circuit">how they apply</a>, and they will be applied in a way that lets crypto [be] crypto.”



Arthur Jakoby, co-chair of the securities litigation and enforcement practice at Herrick, Feinstein LLP, said he considers the group creation “a sign that the SEC will review all current crypto-related enforcement actions and likely discontinue existing cases which the <a href="https://blockworks.co/news/sec-chair-nominee-crypto-past">new leadership</a>…views as ill-conceived or inconsistent with promoting the growth of the crypto industry in the United States.”



Perhaps some of that will be discussed in this meeting slated for Thursday:



<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">🚨 SEC SCHEDULES CLOSED-DOOR MEETING FOR THURSDAY JAN 23 topics: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; and Other matters relating to examinations and enforcement… <a href="https://t.co/zyuuMW8Hzf">pic.twitter.com/zyuuMW8Hzf</a>&mdash; Alex Thorn (@intangiblecoins) <a href="https://twitter.com/intangiblecoins/status/1881810457943810195?ref_src=twsrc%5Etfw">January 21, 2025</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



We can’t mention the SEC’s move without noting what it could mean for the <a href="https://x.com/JSeyff/status/1881753384405041360">growing number</a> of crypto ETF filings in front of them.



After plans for <a href="https://blockworks.co/news/us-crypto-etfs-approval-outlook">solana, XRP and litecoin ETFs</a>, newer proposals now include funds that would hold DOGE and <a href="https://blockworks.co/news/trump-token-sets-tone-for-crypto">Trump’s memecoin</a>.&nbsp;



The industry shouldn’t expect any approvals overnight, many agree. Still, the SEC unit promoting structured disclosure frameworks, practical registration paths and regulator-industry engagement would go a long way, 21Shares crypto research strategist Matt Mena said.&nbsp;&nbsp;



That, he added, “could create a more transparent approval process, addressing key SEC concerns such as custody, investor protection and market integrity — just as was done for spot bitcoin ETFs.”



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



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What the SEC’s new crypto task force could mean 

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



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The Ethereum Foundation is going through a bit of civil unrest, but work on the world computer continues.&nbsp;



Ethereum researcher Justin Drake published on the <a href="https://ethresear.ch/t/native-rollups-superpowers-from-l1-execution/21517">ethresearch</a> forums yesterday a compilation article on a new rollup design known as “native rollups.”



If you’re non-technical like I am, keeping up with Ethereum’s ever-changing landscape of rollup designs is tedious — let alone keeping up with its entire infrastructural stack.



But the simplest way to think about native rollups is that it relies on Ethereum L1 validators for proving, i.e., state transition function and validation.



This contrasts with optimistic rollups (e.g., Optimism, Arbitrum) or zk-rollups (e.g. Starknet, ZKsync) that push the computational burden of execution to an L2 before relying on a fraud or zk proof system to generate a state root and proof which settles back on mainnet.



These proof systems are code-heavy and subject to bugs and other vulnerabilities, which is why rollup sequencers — the entity that orders transactions on an L2 — have historically been centralized. Complaints about sequencer centralization in turn have spurred “based” rollup designs like Taiko that rely on Ethereum L1 validators to perform sequencing (you can read all about it <a href="https://blockworks.co/news/unpacking-the-based-rollups-debate">here</a>).



But back to native rollups. Drake’s proposal suggests introducing an “execute” precompile — a hardcoded function into the EVM — that will verify EVM state transitions of users’ transactions. This achieves a few breakthroughs:



<ul class="wp-block-list">
<li>Native rollups no longer need to invest in and maintain expensive prover networks of miners with specialized GPU hardware since proving would be handled and enforced by L1 validators.</li>



<li>Native rollups no longer need to maintain complex governance structures involving trusted security councils to approve contract upgrades in order to achieve EVM-equivalency.</li>
</ul>



Both of these unlocks in effect make native rollups “trustless” by inheriting the security of Ethereum L1.



Finally, like based rollups, native rollups would enjoy “synchronous composability,” which refers to the ability of onchain transactions to be composable across different rollup chains, rather than being fragmented. The return to seamless fungibility of assets across L1 and L2 chains would solve the longstanding UX problem of constant bridging across chains.



Unlike based rollups, however, native rollup execution will not be constrained by the 12-second block time. Thanks to the “execute” precompile, L1 validators will only need to verify zk proofs without having to perform computation themselves.



Could native rollups mitigate the problem of ETH value accrual? Perhaps.



As I understand it, validators would enforce execution with the new precompile, which would make ETH necessary for transaction settlement.



Second, the elimination of L2 governance (and its tokens) could redirect value back to ETH as the primary value sink.



Native rollups represent yet another incremental but pivotal step toward reinforcing Ethereum&#8217;s value proposition and ETH’s role as the foundation of the decentralized ecosystem.



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



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



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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Ethereum’s native rollups promise trustless scalability

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



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I’m happy to announce that we can officially retire the term “regulation by enforcement.” It can now join “cautiously optimistic” and “soft landing” on the shelf of terms nobody needs to hear anytime soon.&nbsp;



Yesterday, acting chair Mark Uyeda announced that Hester Peirce — known around here as Crypto Mom for her dissents over the SEC’s approach to the space — would head up a new taskforce: Crypto 2.0.



With Gary Gensler officially out of the building, it’s now abundantly clear that the SEC is serious about crypto companies coming in and registering. Don’t believe me? Just look at what Uyeda said in the press release: Crypto 2.0 “will succeed only if the Task Force has input from a wide range of investors, industry participants, academics and other interested parties.”



If you’re an avid Empire reader, I’m sure you’ve noticed the optimistic tone David and I have carried for a few months now. We&#8217;ve been saying that the winds of change have shifted the vibe. This week just proved it.&nbsp;



The launch of Trump’s coin led to some confusion and criticism (some of it, <a href="https://blockworks.co/news/trump-token-sets-tone-for-crypto">like I talked about yesterday</a>, is justified) but the SEC’s newest task force shows that it’s looking to ensure a framework that actually works for the industry.&nbsp;



Whether this means that the current lawsuits, including the one the SEC filed against Helium’s Nova Labs on Friday, will be dismissed is still up in the air.&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 haven&#39;t been privy to these communications (and we&#39;re in largely unprecedented territory), but the Chair and the Enforcement Director are free to have conversations that could lead the Enforcement Division to pursue certain approaches &amp; bring the results back for a vote.&mdash; Marc Fagel (@Marc_Fagel) <a href="https://twitter.com/Marc_Fagel/status/1881793239419859046?ref_src=twsrc%5Etfw">January 21, 2025</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">Lots of moving parts behind the scenes at the SEC right now</figcaption></figure>



Remember that Haynes Boone partner Matthew Frankle <a href="https://blockworks.co/news/sec-crypto-lawsuits-future">told us earlier this month</a> that we could perhaps see cases dropped as the SEC adopts a friendlier approach.&nbsp;



The vibes are high, Crypto Mom is in charge, and we’re soo back.



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



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



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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

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