PointPay

Ben Strack

Grayscale Investments is taking a page from the playbook of its biggest bitcoin ETF competitor with its “Mini,” cheaper version of GBTC.



While this strategy may not work as well as BlackRock’s past comparable actions in other ETF segments, the new Grayscale fund could gain assets quickly, industry watchers said.



Grayscale’s status in the bitcoin ETF category is a bit nuanced.&nbsp;&nbsp;



The crypto asset manager <a href="https://blockworks.co/news/sec-grayscale-spot-bitcoin-etf">won a court case against the Securities and Exchange Commission</a> last year that helped lead to the regulator’s approval of such funds.&nbsp;



On top of that, the company’s Bitcoin Trust ETF (<a href="https://blockworks.co/tag/gbtc">GBTC</a>) has the most assets under management — at least for now.



BlackRock’s <a href="https://blockworks.co/news/blackrock-extends-bitcoin-etf-inflows">ever-growing iShares Bitcoin Trust (IBIT)</a> had about $18.2 billion in assets as of Tuesday, which was second only to GBTC’s asset base of $20.2 billion. The Fidelity Wise Origin Bitcoin Fund (FBTC) has roughly $10 billion in assets.&nbsp;



That said, investor money continues to leave GBTC, which holds a higher-than-competitors’ fee of 1.5%. The fund has notched net outflows on every trading day since converting to an ETF on Jan. 11 — amounting to $16.8 billion, according to Farside Investors <a href="https://farside.co.uk/?p=997">data</a>.



Read more: <a href="https://blockworks.co/news/bitcoin-etf-outflows-gbtc">Bitcoin ETF snapshot: GBTC drives second straight week of outflows</a>



Now, Grayscale is <a href="https://blockworks.co/news/grayscale-new-mini-fund-btc-ticker">proposing to launch a Bitcoin Mini Trust (BTC)</a> — and yes, that’s the correct proposed ticker.&nbsp;



As part of a “spin off” mechanism unique to commodity ETFs, GBTC would seed BTC, <a href="https://www.grayscale.com/blog/general-updates/what-is-grayscale-bitcoin-mini-trust">according</a> to Grayscale. A percentage of the flagship fund’s bitcoin holdings would be allocated to the new offering, the company added.



Grayscale is also seeking to offer two types of ether ETFs with similar differences, the company <a href="https://www.grayscale.com/blog/general-updates/announcement-filings-submitted-for-grayscale-ethereum-mini-trust?mkt_tok=MDAwLUVVRS0xMjUAAAGSq8rpJx8Fh2aAREJFuYOgJ2CuwKVFEo1s9lLwrxhgKMZasbMpIalW20P1s1tTxHaONhx1YqhbNbGcMD7cdBmiOAOvRwug_PZD6PZZqvjd">said</a> in a Tuesday blog post.



<h2 class="wp-block-heading">Understanding the strategy&nbsp;</h2>



Why launch a totally new fund instead of just lowering GBTC’s 1.5% fee?



A <a href="https://blockworks.co/tag/grayscale">Grayscale</a> spokesperson did not immediately return a request for further comment on the strategy.&nbsp;&nbsp;



But segment observers have noted the wider set of allocators Grayscale can appeal to by adding another fund.&nbsp;



Neena Mishra, director of ETF research at Zacks Investment Research, noted that GBTC could remain popular with traders due to its liquidity, while BTC will be favored by long-term, buy-and-hold investors.



“At some point GBTC&#8217;s bleeding will stop, as a significant portion of its assets is reportedly in taxable accounts,” she told Blockworks. “Grayscale can therefore use GBTC&#8217;s revenues to subsidize BTC.”



Ben Johnson, Morningstar’s head of asset management client solutions, addressed this type of strategy in a December 2017 research <a href="https://www.morningstar.com/etfs/tale-two-emerging-markets-etfs">note</a> about a separate fund segment.&nbsp;&nbsp;



<a href="https://blockworks.co/tag/blackrock">BlackRock</a>’s iShares MSCI Emerging Markets ETF (EEM) launched in 2003. Rival fund group Vanguard came out with a much cheaper fund offering exposure to emerging markets stocks — the Vanguard FTSE Emerging Markets ETF (VWO) — about two years later.



In response to Vanguard undercutting EEM — albeit years later after EEM lost significant ground to VWO — BlackRock in 2012 debuted the iShares Core MSCI Emerging Markets ETF (IEMG). The fund, which tracked a broader index, was priced at 0.18%, compared to EEM’s 0.68%.&nbsp;



The launch of IEMG was “effectively an attempt by BlackRock to have its cake and eat it, too,” Johnson wrote at the time.&nbsp; “Rather than slashing the fee on its existing multibillion-dollar fund and forgoing millions in fee revenue, it was splitting its current and prospective clientele in two,” he added. “Long-term investors tend to have a strong preference for broad diversification and low fees. Short-term traders command greater liquidity.”&nbsp;



Today, the first, more expensive emerging markets ETF, EEM, has $16.6 billion assets under management, according to ETF.com data. IEMG and VWO each have roughly $74 billion in assets.&nbsp;



Similarly, BlackRock launched the iShares MSCI EAFE ETF (EFA) in 2001 before launching the cheaper iShares Core MSCI EAFE ETF (IEFA) in 2012. EFA, which today has an expense ratio of 0.35%, has $50.8 billion in assets. IEFA, which carries a 0.07% fee, manages $110.8 billion.&nbsp;



While not quite as successful as IEMG and IEFA, a “mini” version of the first physically backed gold ETF gained significant assets. State Street Global Advisors, which launched SPDR Gold Shares (GLD) in 2004, brought to market a cheaper SPDR Gold MiniShares Trust (GLDM) in 2018. GLD and GLDM have $63.6 billion and $7.6 billion assets under management.&nbsp;



<h2 class="wp-block-heading">Could Grayscale see similar results?</h2>



Johnson told Blockworks that he doesn’t expect this strategy to be nearly as successful for Grayscale as it was for BlackRock.



The historical success for the world’s largest asset manager was due to “cleanly segmenting its clients” into two categories: benchmark-sensitive, liquidity-demanding owners of a fund like EEM and price-conscious buyers of the cheaper alternative, he explained.



“In the case of GBTC and BTC, there are already abundant low-cost options with significant assets under management and oodles of liquidity — all of which offer exposure to the exact same asset,” Johnson added.&nbsp;



Still, Mishra pointed to GLDM’s ability, for example, to gain billions of dollars in assets. A cheaper version of Invesco’s QQQ has $22 billion — a high mark that she called “very successful” despite representing less than 10% of the assets in QQQ.



Read more: <a href="https://blockworks.co/news/wealth-managers-bitcoin-etfs">‘Primary market’ for bitcoin ETFs largely hasn’t yet adopted such funds</a>



“It is quite likely that BTC will also be able to quickly gather assets,” Mishra added. “Furthermore, it will be seeded with a portion of GBTC&#8217;s assets.”



Grayscale gave BTC a hypothetical sponsor fee of 0.15% based on unaudited pro forma financial statements, according to a recent <a href="https://www.sec.gov/Archives/edgar/data/1588489/000119312524094896/d807233dprer14c.htm">filing</a>. Such a fee would make it the cheapest spot bitcoin ETF available, barring temporary fee waivers.



“While a few [basis points] worth of fee edge versus the incumbents certainly can’t hurt BTC,” Johnson said, “it’ll be playing catchup with the IBITs and FBTCs of the world who have gotten a big head start.”



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Grayscale’s planned GBTC sibling is a page from BlackRock’s playbook

Haden Patrick

As a retired navy veteran, I’ve always been a fan of history.&nbsp;



History has been known to serve up some great quotes that deliver a certain panache to the situation. On Dec. 22, 1944, General McAuliffe, who led the US forces dug in at Bastogne during the Battle of the Bulge, delivered the following reply to a German request for surrender — “Nuts!”&nbsp;&nbsp;



Perhaps more widely known is the message by Jim Lovell aboard the Apollo 13 spacecraft, delivered to mission control on Apr. 14, 1970: “Houston, we have a problem.”



But more recently, I’ve come to love the post of a certain developer for the memecoin Slerf, who on March 18, 2024 captured the X-verse’s attention by tweeting — <a href="https://x.com/Slerfsol/status/1769626097216315881">“oh f***” </a>— after realizing there was a $10 million problem.  



A lone voice piping up in the X-verse, the initial tweet was followed up with an <a href="https://twitter.com/Slerfsol/status/1769637800918605918">announcement</a>: “Guys I f***** up. I burned the LP and the tokens that were set aside for the airdrop. Mint authority is already revoked so I can not mint them. There is nothing I can do to fix this. I am so f****** sorry.”



The statement is so full of remorse, self-awareness and apology, I have developed a sympathetic reaction to this luckless developer. And fortunately for Slerf, what should have been a finishing blow to this team (and I use the term team lightly) has turned into a chance for the crypto community to come together. Because this is a memecoin, the next day $SLERF did what memecoins do: rally and rally hard to a market cap of over $400 million with trading volumes on Solana that exceeded $3 billion in two days.&nbsp;&nbsp;



Amidst all of this memecoin mania, there is a teachable moment.



If you are part of a high performing organization, then chances are you value learning as a team, especially from mistakes. Even better, learn from mistakes that others have made. That’s next level performance for you.&nbsp;&nbsp;



It all comes down to risk management, which is definitely not unique to the crypto universe. Specifically, once identified, a risk can be removed, mitigated or accepted.&nbsp; Let’s see how this plays out.&nbsp;&nbsp;



Our developer at Slerf made a <a href="https://twitter.com/Slerfsol/status/1769637800918605918">few follow-up posts</a> that add insight to what happened — essentially, he thought his initial operation to burn a portion of the LP tokens with a third-party tool failed, and proceeded to then accidentally burn the remainder of the LP tokens on hand.&nbsp;



This didn’t have to happen. There were inherent risks in this operation that could have been successfully mitigated with structured risk planning.&nbsp;



<h2 class="wp-block-heading">Lessons from Slerf for your organization</h2>



First, think of your software and infrastructure as a layer of security protocols.



A high performing organization with a top notch chief information security officer (CISO) will create an environment where critical infrastructure operates internally within a firewall to be able to maximize protection against intrusion.&nbsp;



But this CISO will also be highly concerned about self-inflicted casualties. Examples of policies that could be enforced to preclude own team errors: allowlisting of addresses for asset movements, enforcement of four eyes authentication for critical operations, and controlling the tech stack to ensure third party applications are not downloaded or added as extensions to browsers like wallet vendors or IP access controls.



The first approach is to remove the risk. In the narrative of the Slerf mishap, any one of those above items would have prevented the execution of a mistaken token burn.&nbsp;



Third-party tools for token burns are a provider of convenience, not an essential. And professional asset managers do not take movement of funds lightly. They will ensure that any significant opportunity to interact with funds are appropriately derisked with strong policies that fit into planned-out risk management strategies.&nbsp;&nbsp;



A robust treasury management tool will eliminate single point failures, giving the organization the ability to apply four eyes principles to authentication as needed for all movements.&nbsp;&nbsp;



The second approach is to mitigate the risks. Sometimes, we can’t remove all the risk to critical operations, but our needs dictate moving forward: One example of how to do so is to make tools accessible through a single workstation and a single address loaded into the third party wallet tool, another is to maintain four eyes protection even with third party controlled addresses.



Read more from our opinion section: <a href="https://blockworks.co/news/slerf-investor-lose-money-crypto">Slerf investor or not, no one deserves to lose money in crypto</a>



And finally, create standing operating procedures. For example, require that any burn operation performed with a third-party tool must have another operator present to verify transactions as created before submitting.&nbsp;



The most important element, however, is preparation. Identifying critical operations, assessing the risks involved and planning how to mitigate the risks are steps that should take place before moving forward to execution.



But ultimately, it comes down to Slerf and what appears to be a one-person developer team, eager to deliver a new meme token to a meme crazed fanbase. Whether planned or by default, this developer acknowledged the risks involved and said “I got this,” and moved forward without removing or mitigating the operational risks.&nbsp;



But one should never forget about personal risk management.&nbsp;



I shudder when reading the last of the above tweets/posts: “I&#8217;ve been up for 3 days preparing this and fumbled at the finish line.” Many mishaps in the military often point to sleep deprivation as a root cause.&nbsp; If we take the statement at face value, the developer was in no state to be operating protocols that put $10 million worth of assets at risk, no matter how edgy the dev thought the caffeine-infused energy drink of choice made him/her.&nbsp;



Personal risk management includes managing your routine to afford adequate rest, exercise and nutrition to the best of your ability, so that you are in peak performance mode when entering a critical phase of operations. Contrary to popular belief, teams should not code themselves to exhaustion. Everyone does have a point at which sloppiness, mistakes and decreased efficiency take over.&nbsp;



I would bet you it happens well before three days of working nonstop.&nbsp;&nbsp;



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<div class="wp-block-post-author-biography">Haden Patrick is Director of Business Operations of Cordial Systems, a provider of institutional-grade self custody software using a Zero Trust security model. Haden has executive experience in team leadership, engineering and education originating from his 24 year career as a Naval Officer. After co-founding SoloKeys, the first open-source security key company, he went on to manage projects connecting web3 to traditional finance at a cryptocurrency trading firm before joining Cordial Systems.</div>


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Memecoin mania can teach us something

Hong Kong’s regulator is set to allow spot bitcoin and ether ETFs to start trading by the end of the month, according to fund issuers.&nbsp;



While such funds are not likely to welcome inflows anywhere near those seen by US bitcoin funds, industry watchers said they could spur other countries to greenlight crypto ETFs.



China Asset Management, Harvest Global Investments and Bosera International are set to each launch a BTC and ETH fund in the next week or so. The development comes after reports earlier this month that the Securities and Futures Commission (SFC) had unofficially approved such ETFs.



Read more: <a href="https://blockworks.co/news/crypto-etf-regulation-in-asia">After crypto ETF movement in Hong Kong, other Asia regulators could act</a>&nbsp;



Bloomberg Intelligence analysts said they expect the initial six crypto funds that gained SFC approval to tally roughly $1 billion in flows in their first one or two years on the market.&nbsp;



China Asset Management said in a Wednesday news release it intends to launch its bitcoin and ether funds on the Hong Kong Stock Exchange (HKEX) on April 30.



Thomas Zhu, the firm’s head of digital assets and its family office business, noted the growing adoption of ETFs across different kinds of allocators.



“The spot bitcoin and <a href="https://blockworks.co/tag/ether-etfs">ether ETFs</a> offer retail and institutional investors a safe, efficient and convenient means to invest in virtual assets in a regulated framework,” he added. “The in-kind feature also attracts coin holders by offering the ease of converting coins to fully regulated <a href="https://blockworks.co/tag/etfs">ETFs</a> managed by professional fund managers and regulated custodians.”&nbsp;



Competitor Harvest Global Investments said it also intends to list its spot BTC and ETH ETFs “by the end of April,” according to a Wednesday release.



“This not only meets the demand for high-growth assets but also allows investors direct participation in the rapidly evolving blockchain and digital asset opportunities, providing yet another key to <a href="https://blockworks.co/news/empire-newsletter-miner-wall-street-ai-revenue">entering the future AI-driven tech world</a>,&#8221; Harvest CEO Han Tongli said in a statement.&nbsp;



Bosera International said last week it intended to co-launch bitcoin and ether ETFs with HashKey Capital. A company spokesperson did not immediately return a request for comment.&nbsp;



The six proposed funds by the three fund groups were listed on SFC’s website Wednesday — though a representative for the regulator had not commented at press time.&nbsp;



<h2 class="wp-block-heading">What’s the impact?</h2>



<a href="https://blockworks.co/tag/hong-kong">Hong Kong</a>’s approval of these ETFs comes a little more than three months after the Securities and Exchange Commission allowed <a href="https://blockworks.co/news/sec-approves-bitcoin-etf">the first US spot bitcoin ETFs</a> to start trading.&nbsp;



Those 11 funds have seen $12.4 billion of positive net flows so far.&nbsp;



Bloomberg Intelligence analysts said in a Wednesday webinar that they expect the new Hong Kong crypto products to see about $1 billion of net inflows in the first year or two.&nbsp;



This predicted flow total represents about 2% of Hong Kong’s $50 billion ETF market size, which is dwarfed by the $8.5 trillion or so assets in US ETFs.&nbsp;



Investors in mainland China are unable to purchase these ETFs, Bloomberg analysts noted.&nbsp;



“I think the Asian retail market loves volatility,” Bloomberg Intelligence analyst Rebecca Sin said on the webinar. “They love anything that swings massively … so I think this product fits well in Asia.”&nbsp;



Beyond flows, Bloomberg equity research associate Sebastien Cabral called the approvals “significant” in terms of potentially spurring other Asian regulators to act in the space.&nbsp;&nbsp;&nbsp;



“We do think that we could see some subsequent launches possibly in Singapore, South Korea and Japan coming soon,” Cabral noted.&nbsp;



While the Hong Kong crypto ETF approvals follow bitcoin fund launches in Canada, the US and elsewhere, the <a href="https://blockworks.co/tag/sec">SEC</a> has not yet approved spot ether funds. 



The US regulator is set to rule on proposed ETH ETFs next month, with a number of industry watchers <a href="https://blockworks.co/news/ether-etf-approval-unlikely-soon">giving them a low likelihood of being approved</a> at that time.



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Successful Hong Kong crypto ETF flows would pale in comparison to US funds

Casey Wagner

Prosecutors have asked the court to sentence Binance founder Changpeng “CZ” Zhao to 36 months in prison for violating the Bank Secrecy Act. Zhao’s team argues that probation alone — ideally with conditions that allow him to return to his home in the UAE — is appropriate.&nbsp;



The government says that Zhao “willfully” and strategically defied US laws in order to “line his pockets” and grow his crypto exchange. His negligence threatened the security of the US, and he therefore deserves an “above-Guidelines” sentence of three years behind bars, prosecutors wrote in their memo Tuesday.&nbsp;



“Binance’s decision not to implement an effective AML program as required by US law, despite its reliance on US customers to provide liquidity for the exchange, caused violations of comprehensive US sanctions imposed to protect against the ‘unusual and extraordinary threat to the national security, foreign policy and economy of the United States’ presented by the actions and policies of the Government of Iran,” government lawyers wrote.&nbsp;



Read more: <a href="https://blockworks.co/news/sec-argues-binance-law-subversion">Binance, Zhao ‘deliberately’ violated US law, SEC argues</a>



The defense submitted more than 450 pages to Judge Richard Jones late Tuesday evening hours after the Government filed their recommendations. The defense memo includes a letter from <a href="https://blockworks.co/tag/changpeng-zhao">Zhao</a> himself and 161 supporters.&nbsp;



The defense argues Zhao faces unfairly harsh conditions if he is incarcerated. Given that he is not a US citizen, he’s ineligible for a minimum-security facility, his team wrote.&nbsp;



“The confinement conditions are appreciably more restrictive, there are fewer work and program opportunities, and the inmate population as a whole is more dangerous in low-security facilities than in minimum-security facilities,” Zhao’s lawyers wrote in Tuesday’s memo.&nbsp;



Read more: <a href="https://blockworks.co/news/binance-changpeng-zhao-surrenders-passport">Judge orders former Binance CEO Changpeng Zhao to ‘surrender’ Canadian passport</a>



Zhao’s cooperation with the US government should not go unnoticed, the defense added.&nbsp;



Zhao is scheduled to be sentenced in Washington state on April 30. Zhao <a href="https://blockworks.co/news/binance-changpeng-zhao-deal-unpacked">entered into a guilty plea agreement</a> in November, admitting he failed to maintain an effective anti-money laundering program at Binance.&nbsp;



“There is no excuse for my failure to establish the necessary compliance controls at <a href="https://blockworks.co/tag/binance">Binance</a>. I wish I could change that part of Binance’s story,” Zhao wrote in his letter to Jones.&nbsp;



“I originally became interested in cryptocurrency because of the inclusiveness and equal opportunity it provides to everyone in the world,” he added, highlighting his philanthropic efforts he would like to continue, ideally not from prison.&nbsp;



In November, prosecutors hinted that they may vye for a heavier sentence than the 18 months stipulated by federal guidelines, writing to the court that “the United States is free to argue for any sentence up to the statutory maximum of ten years.”&nbsp;



Zhao has been <a href="https://blockworks.co/news/changpeng-zhao-bond-sentencing">ordered to stay in the US</a> until the sentencing on a $175 million personal recognizance bond.&nbsp;



Binance in November <a href="https://blockworks.co/news/binance-settlement-message-to-crypto-industry">agreed to settle charges</a> with the US government for $4.3 billion, including a $2.5 billion forfeiture and a criminal fine of $1.8 billion.&nbsp;



​​“Almost two years after Binance’s founding, Zhao told senior management that the US market represented 20% to 30% of the company’s potential revenue,” Attorney General Merrick Garland said when the settlement was announced.“ Serving these US customers meant that Binance was a US financial institution. US financial institutions must comply with US law, Zhao and other senior management at Binance understood this.”



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Government says CZ threatened US security, recommends doubling Guideline sentence

David Canellis

Katherine Ross

<h2 class="wp-block-heading">AI comes for bitcoin mining</h2>



AI was Wall Street’s favorite buzzword last year.&nbsp;



And, as with all trends, investors are looking to take advantage of the new technology, eyeing companies that could give them direct exposure. Bitcoin miners may just offer some investors the best of both worlds: access to bitcoin and AI at the same time.



For months we’ve been talking about what the Bitcoin halving really means for miners. But we’re finally post-halving, which means reality has set in. With block rewards cut in half, it’s no surprise that companies are mulling ways to diversify their revenue streams.&nbsp;



With AI specifically, the hype train is pretty intense, but the reality is that it presents a unique opportunity for publicly traded bitcoin miners to tap into the current demand.&nbsp;



Miners like <a href="https://blockworks.co/tag/hut-8">Hut 8</a> and Bit Digital are making money from AI while others, at least, have it on their roadmaps.&nbsp;



Read more: <a href="https://blockworks.co/news/hut-8-mining-post-halving-business-diversity">Hut 8’s business diversity to give it an edge after the halving: Benchmark&nbsp;&nbsp;</a>



Cheaper electricity might fuel more efforts in this area. Benchmark analyst Mark Palmer told me that miners with access to inexpensive power may do so “since the opportunity is so compelling and would provide downside protection during bitcoin bear markets.”



We’re clearly not in such a market right now, with bitcoin hovering roughly $10,000 below its all-time high. But there’s another reality here: Wall Street.&nbsp;



As more investors — including institutional ones — <a href="https://blockworks.co/news/etfs-helped-legitimize-bitcoin-halving-cme">seek exposure to bitcoin</a> through mining stocks, the <a href="https://blockworks.co/tag/artificial-intelligence">AI</a> of it all might be enough to lure them to specific miners that have diversified their revenue.



Palmer said the institutional investors that added bitcoin mining stocks to their portfolios are “relatively more balanced in their criteria as they want both exposure to upside and the downside protection afforded by diversification. That is especially the case with buy-and-hold investors with long investment horizons.”



While diversification wasn’t a make-or-break deal for investors before, the opportunity afforded by AI with access to cheap power — maybe we should add a “for now” here, since that’s a whole other debate — could change that, Palmer added.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/bitcoin-halving-cycle-miners-energy-strategy">This Bitcoin halving cycle, miners need a new energy strategy</a>



Before the AI narrative was a thing, investors focused more on miners <a href="https://blockworks.co/news/marathon-digital-aquisition-bitcoin-halving">boasting the biggest bitcoin holdings</a> on their balance sheet, like Marathon.&nbsp;



Here’s the thing. While bitcoin miners can refocus some of their operations, AI infrastructure is costly, as CoinShares <a href="https://blog.coinshares.com/coinshares-mining-report-update-our-insights-at-the-2024-halving-382089820a07">noted</a> in a report earlier this month.&nbsp;



“AI requires extremely high uptime, typically 99% or higher, along with sophisticated redundancy systems,” CoinShares wrote. Mining hardware doesn’t face the same issue since it can be switched off and on rather easily.&nbsp;



Are we too early on this one? Perhaps. A handful of companies are just now looking at the tech, and those already in the space are banking very little revenue from it — we’re talking like 3%, according to CoinShares Research’s James Butterfill.



Read more: <a href="https://blockworks.co/news/decentralized-artificial-intelligence-innovation">Funding Wrap: Decentralized AI is all the craze</a>



At the same time, these are the scenarios that investors are looking at when analyzing some of these miners, and it doesn’t seem like AI is going away anytime soon.



In fact, Butterfill could see AI actually “competing with mining” and that could cause the sector to shrink as some miners shift their focus.



“We may well eventually see a situation where bitcoin <a href="https://blockworks.co/tag/mining">mining</a> focuses almost solely on stranded energy, where energy is the cheapest,” he said.&nbsp;



— Katherine Ross



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



<ul>
<li>Bitcoin’s <a href="https://www.coinwarz.com/mining/bitcoin/hashrate-chart">hash rate</a> rose by up to 27% after the <a href="https://blockworks.co/tag/bitcoin-halving">halving</a>, from 630 EH/s to a record 801.67 EH/s, before coming back down to 600 EH/s.</li>



<li>Bitcoin fees were close to again <a href="https://tokenterminal.com/terminal/projects/bitcoin">beating</a> block rewards yesterday: $29.14 million to $34.9 million.</li>



<li>Runes make up between 60% and 70% of all Bitcoin <a href="https://dune.com/cryptokoryo/runes">transactions</a> right now. Ordinals and BRC-20s contribute less than half a percent.</li>



<li>Ether continues to be <a href="https://ultrasound.money/">inflationary</a>, now on track to add $1.4 billion in ETH to the supply over the next year (0.39% inflation at current prices, activity and burn rates).</li>



<li>Ethereum layer-2 Mode’s TVL is up 65% over the past <a href="https://defillama.com/chain/Mode">week</a>, the fastest growing of chains with more than $100 million TVL. Daily on-chain volumes hit a record $325 million yesterday.</li>
</ul>



<h2 class="wp-block-heading">Another day, another lawsuit&nbsp;</h2>



Crypto lobbyists are spoiling for yet another legal fight against —&nbsp;you guessed it —&nbsp;the <a href="https://blockworks.co/tag/sec">SEC</a>.&nbsp;



The Blockchain Association and the Crypto Freedom Alliance of Texas’s lawsuit focuses on the securities regulator’s new “dealer rule,” arguing that it violates the Administrative Procedures Act (APA).&nbsp;



The rule, which goes into effect on Monday, was passed in a 3-2 vote among commissioners in February. It redefines what typically would have been considered “traders” into “dealers,” which, the SEC says, is “any person engaged in the business of buying and selling securities. . .for such person&#8217;s own account through a broker or otherwise.”&nbsp;



Read more: <a href="https://blockworks.co/news/us-gao-sec-violation-law">SEC failed to follow the Congressional Review Act, may have broken the law</a>



The Blockchain Association and the Crypto Freedom Alliance of Texas say the SEC overstepped. The agency also failed to address public concerns around the rule, which is mandated by the APA, the lobbyists allege.&nbsp;



The APA tends to come up a lot in crypto cases, albeit often unsuccessfully.&nbsp;



Terraform cited the act in their 2021 effort to get the subpoenas the SEC served them (during a Times Square conference, remember?) tossed.&nbsp;



<a href="https://blockworks.co/tag/terraform-labs">Terraform</a>’s team said the subpoenas and how they were served violated due process under the APA. The court ultimately disagreed.&nbsp;



It’s been argued that the controversial Staff Accounting Bill 121 —&nbsp;the guidance which states that digital asset custodians should report a liability and “corresponding assets” on their balance sheets for all cryptocurrencies held in custody — violated the APA because it is effectively a rule, and rules require public comment period. There have been some <a href="https://blockworks.co/news/house-committee-resolution-against-sab121">efforts in Congress</a> to block SAB 121, but we’ll have to wait and see how it plays out.&nbsp;



It’s the Blockchain Association’s first time ever filing a lawsuit. We’d say “congratulations,” but it sounds like an expensive endeavor. Maybe “good luck” is more appropriate.&nbsp;



The SEC, meanwhile, is ready for a fight.&nbsp;



&#8220;The Commission undertakes rulemaking consistent with its authorities and laws governing the administrative process and will vigorously defend the final dealer rules in court,&#8221; the agency said Tuesday.&nbsp;



— Casey Wagner



<h2 class="wp-block-heading">Waiting for wind</h2>



DePIN is arguably the most obvious use case for crypto, if not the most successful.&nbsp;



Projects use tokens to incentivize the coordination of hardware towards a common goal. Hopefully, a robust and self-sustaining economy around that goal is built along the way.



Bitcoin and Ethereum are, essentially, the very first DePIN success stories. Miners (and now in Ethereum’s case, validators) set up physical hardware that help power a network and are rewarded in a cryptocurrency for doing so. The economy generally works if the value of that cryptocurrency is more than the cost of running the hardware.&nbsp;



In Akash’s case, the network helps users sell computing resources (CPUs and GPUs) to anyone who needs cloud services in return for AKT, with holders encouraged to participate in staking and governance to keep the Cosmos-powered network chugging along.&nbsp;



The value of the AKT earned by selling computing resources and staking would, in a perfect world, be enough to profit after energy spend and hardware upkeep costs are deducted.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/Wf48bDVB8PFkiguevKrn8MHAygctQsw8WFigl4xeRdgOwCNkcl33HI8HKNS7aQ2I-x67Y1Ig1Apny9qhr5kfcsM4zSBkf-sfBbkLW3Yx_z2gOnENnO_S_aNoS2i4Gxq8vBJ-rdM7D4tr-ytDENY9TWA" alt=""/><figcaption class="wp-element-caption">(Akash Network users are paying more and more to use the network, matching its token price growth.)</figcaption></figure>



Outside of the rapid acceleration in token prices and market caps, there has been growth across the DePIN space in terms of users and scale of the networks: Filecoin has <a href="https://dune.com/kalen/filecoin-daily-metrics">more</a> storage capacity, Helium has <a href="https://dune.com/rawrmaan/helium-mobile">more</a> subscribers and Hivemapper has <a href="https://www.hivemapper.com/explorer">more</a> kilometers sketched out. So token incentives do seem to work.



But DePIN economies are still young, making the kinds of number-go-up events Akash just experienced — a 60% pump on the back of a token listing on South Korea’s Upbit — critical to their sustainability.



Since August, cloud computing customers have altogether <a href="https://stats.akash.network/">paid</a> $345,000 in AKT and another $463 in USD on the Akash platform. In the same period, daily AKT token emissions (the amount of supply incentives released each day) were worth almost $51.2 million, putting the user fees-to-supply dilution ratio somewhere in the region of 1:146.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/NcnPwzit09PlZnRxBCngtmJLOiSJLO37ymM46N2Aq7aPR2y6P3JiDVrihJGF5vr7vNqNbJ594PI__kWJHqKUnGDtf8mPAh_nAKMU9skoUclJgXV6WJv4ZuTbssI1dnDFi6RwApXSbZ6o-MIzpx8cR4E" alt=""/><figcaption class="wp-element-caption">(If you zoom in really close, you’ll see there are actually fees in light purple at the top of the chart, below the arrow. It’s just that emissions in light blue are worth far, far more.) </figcaption></figure>



Helium, meanwhile, has collected $60 million in fees since June 2020, per Token Terminal <a href="https://tokenterminal.com/terminal/projects/helium">data</a>. The network has paid $750.6 million in token incentives across the same period, giving it a ratio of 2:25. Closer, but still a long way to go.



The real trick for DePIN projects is in finding a critical mass of users such that fees generated will outstrip token emissions. A powerful gust of wind to really send their token flywheels spinning.



Until then, token holders will continue to be diluted in favor of incentivizing new users and more participation, which itself isn’t a problem — as long as the price goes up and the hype stays high. So far, so good.



— David Canellis



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



<ul>
<li>Prosecutors have sought a three-year prison <a href="https://www.bloomberg.com/news/articles/2024-04-24/us-doj-seeks-three-year-jail-term-for-former-binance-ceo-zhao">sentence</a> for former Binance CEO Changpeng Zhao, Bloomberg reports. </li>



<li>Speaking of Binance: the Philippines&#8217; SEC wants the exchange’s app <a href="https://www.cnbc.com/2024/04/23/philippines-orders-google-apple-to-remove-binance-from-app-stores.html">removed</a> from Apple and Google’s app stores, CBC reports.&nbsp;</li>



<li>Jack Dorsey’s Block revealed the completion of work on a three-nanometer <a href="https://www.mining.build/latest-updates-3nm-system/">bitcoin mining chip</a>.</li>



<li>Microsoft <a href="https://www.reuters.com/technology/microsoft-introduces-smaller-ai-model-2024-04-23/">debuted</a> a “lightweight” AI model this week, according to Reuters.&nbsp;</li>



<li>A “critical vulnerability” was patched in code of the inter-blockchain IBC protocol, Blockworks <a href="https://blockworks.co/news/ibc-close-call-with-critical-vulnerability">reports</a>.&nbsp;</li>
</ul>



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



Breaking news: deadmau5 is <a href="https://musictech.com/news/music/deadmau5-launches-new-line-of-toys/">selling</a> “exclusive collectible keychains” with plush toys at his upcoming shows to celebrate 25 years of music.&nbsp;



I know what you’re thinking: 25 years of deadmau5?&nbsp;



And while it is impressive that we’ve been listening to music DJ’d by a man in a creepy mouse mask for that long, I want to turn your attention to the plush keychains with the <a href="https://musictech.com/news/music/deadmau5-launches-new-line-of-toys/">bugged-out</a> eyes.&nbsp;



The toys supposedly include an Aptos-enabled QR code allowing people to engage with a “VIP digital experience.”



Read more: <a href="https://blockworks.co/news/coachella-nfts-opensea-partnership">Coachella gives NFTs a second try after FTX integration debacle</a>



Now, I know we’re in a bull market, and we’re going to see a lot more of these types of Web3 plays, but I need to get this off my chest: Webkinz walked so that “experiences” like deadmau5 merch and the Pudgy Penguins game could run.&nbsp;



Years ago, <a href="https://blockworks.co/news/nft-floor-price-pudgy-penguins-bored-ape">before Pudgy Penguins were a thing</a>, Webkinz sold plush toys with online counterparts, allowing you to own a cute toy while also engaging with it in their video game.&nbsp;



Webkinz launched the same year (2005) that deadmau5 released his debut album. While Webkinz doesn’t appear to have the lasting effect that deadmau5 apparently has — though you can still download Webkinz Classic in the Google Play store — the little plushies deserve some respect for being here first.



Better yet, re-release them with NFTs. Credit where credit’s due, I say.



— Katherine Ross



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Empire Newsletter: Miners and Wall Street eye new AI revenue

Jack Kubinec

FDUSD became the fourth-largest stablecoin by market capitalization by being used almost exclusively as a trading pair on Binance.



Despite this, the stablecoin has remained relatively obscure due to its lack of other use cases. However, that might change soon. After partnering to issue FDUSD on Sui, the Hong Kong-based issuer has ambitious plans for its stablecoin&#8217;s future applications, its CEO told Blockworks.



FDUSD’s story begins with a different stablecoin. Binance USD, or BUSD, was issued by US-based Paxos and used by Binance as its <a href="https://x.com/cz_binance/status/1625067495760560128">main</a> stablecoin for trading pairs. After the Securities and Exchange Commission served a Wells notice in February 2023 and Paxos stopped minting BUSD, the world’s largest crypto exchange began hunting for a new primary stablecoin.



Read more: <a href="https://blockworks.co/news/sec-triggers-bank-run-on-busd">SEC triggers billion-dollar ‘bank run’ on Binance’s BUSD</a>



<a href="https://blockworks.co/tag/binance">Binance</a> became linked with a little-known stablecoin called TUSD, which saw its <a href="https://blockworks.co/news/tusd-depegs-binance">market capitalization surge</a> after Binance listed a zero-fee bitcoin trading pair with TUSD. It also let users access its “launchpool” for new tokens using TUSD.



But for reasons that remain unclear, Binance <a href="https://twitter.com/bluechip_org/status/1750544410599702778">cut</a> TUSD off from zero-fee trading promotions and stopped including the <a href="https://blockworks.co/tag/stablecoins">stablecoin</a> in its launch pools. A massive <a href="https://blockworks.co/news/tusd-drop-below-dollar">Binance driven sell-off</a> caused TUSD to lose its peg in January.&nbsp;



TUSD’s market capitalization has <a href="https://www.coingecko.com/en/coins/true-usd">tumbled</a> to around $500 million from a high of over $3.8 billion in October, according to CoinGecko.&nbsp;



Enter FDUSD, which was first issued by Hong Kong-based First Digital Labs in mid-2023. By August, Binance started encouraging users to convert their BUSD balances to FDUSD. Since then, FDUSD has taken the mantle formerly held by BUSD and briefly shared between FDUSD and TUSD. Today, Binance <a href="https://www.binance.com/en/support/announcement/binance-launches-zero-fee-trading-for-six-fdusd-spot-and-margin-trading-pairs-d0976bedd0b942efaa9f4f1624abd95d">offers</a> its zero-fee trading promotions and access to its new token launchpools with FDUSD.



First Digital didn’t have a long stablecoin history before the Binance partnership. Roughly a year before it began issuing a stablecoin, First Digital Trust raised $20 million in Series A funding for digital asset custody from Nogle and Kenetic Capital in May 2022, according to an Asia-focused tech <a href="https://www.techinasia.com/exclusive">publication</a>.&nbsp;



First Digital Trust <a href="https://www.prnewswire.com/news-releases/first-digital-group-is-propelling-digital-asset-innovation-with-the-launch-of-its-new-stablecoin-fdusd-bridging-stability-with-innovation-to-revolutionise-the-existing-global-financial-landscape-301839437.html">spun</a> up First Digital Labs in 2023 alongside FDUSD’s debut. The stablecoin issuer’s second-ever X <a href="https://x.com/FDLabsHQ/status/1664189836352266241">post</a> was a response to Binance then-CEO Changpeng Zhao announcing FDUSD’s launch. 



“First Digital signed a strategic commercial partnership with Binance to list FDUSD. Our company operates independently and [shares] no direct board or executive relationships,” a spokesperson for First Digital told Blockworks.



Tech in Asia said First Digital was the digital asset arm of Hong Kong-based Legacy Trust Company. Vincent Chok is CEO of both Legacy Trust Company and First Digital Trust, according to <a href="https://www.linkedin.com/in/vincent-chok-60216719/">LinkedIn</a>.&nbsp;



Read more: <a href="https://blockworks.co/news/binance-fdusd-busd">Binance preps switch to little-used stablecoin, FDUSD</a>



Today, FDUSD’s trading <a href="https://www.coingecko.com/en/coins/first-digital-usd">markets</a> are almost exclusively on Binance, per CoinGecko, with a large majority coming from trading pairs boosted by Binance’s zero maker and taker fee promotion. But First Digital Labs, the Hong Kong-based company behind FDUSD, is now looking to diversify.&nbsp;



Earlier this month, the layer-1 blockchain Sui <a href="https://x.com/SuiNetwork/status/1777964824023953900">announced</a> FDUSD would become the network’s first natively-issued stablecoin. First Digital’s ambitions don’t stop there, CEO Vincent Chok told Blockworks in an interview.



“Everything does have an end, of course,” Chok said of the Binance zero-fee promotion. “I mean, that&#8217;s another reason why I think we need to really create awareness around our stablecoin — so that we can diversify into other exchanges.”



Chok said First Digital is exploring partnerships to use FDUSD for cross-border payments, is in talks with layer-2s, and is targeting the launch of a payroll partnership with its stablecoin by the end of the year.



He added that First Digital is engaging with regulators in Hong Kong as the city nears the implementation of its long-awaited <a href="https://blockworks.co/news/hong-kong-stablecoin-regulation">regime for stablecoin issuers</a>.



Updated April 24, 2024 at 9:21 am ET: Added comment from First Digital regarding the company’s relationship with Binance.



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Binance’s main stablecoin is diversifying to other exchanges

Ripple Labs pushed back against the Securities and Exchange Commission’s request for the court to impose nearly $2 billion in fines.&nbsp;



“In a case that had no allegations (or findings) of recklessness or fraud, and in which Ripple won on significant issues, the SEC’s ask is just more evidence of its ongoing intimidation against all of crypto in the US,” Ripple’s Chief Legal Officer Stuart Alderoty said in a <a href="https://twitter.com/s_alderoty/status/1782579957874749647">post</a> on X.&nbsp;



In the filing, Ripple argued that the SEC didn’t allege “fraud, deceit” or manipulation and the case failed to “show that Ripple recklessly disregarded the law.”



Instead, Ripple argued, the court should impose a penalty of “no more than $10 million.”



<a href="https://blockworks.co/tag/ripple">Ripple</a> argued that while any violation of the Securities Act is a “serious matter,” the company’s violation doesn’t warrant such a high penalty.&nbsp;



“Ripple’s Institutional sales are far less egregious,” the filing said, than other crimes such as commingling funds or fraud.



Read more: <a href="https://blockworks.co/news/ripple-sec-legal-battle-continues">Ripple, SEC argue to the very end of years-long legal battle&nbsp;</a>



Last summer, Judge Analisa Torres found that Ripple’s institutional sales <a href="https://blockworks.co/news/judge-rules-ripple-xrp-not-security">fell under securities sales under Howey</a>. However, the judgment wasn’t a total win for the SEC because Torres also found that the programmatic sales of XRP didn’t constitute the offer of investment contracts under Howey.



In a March filing, the <a href="https://blockworks.co/news/sec-wants-multi-billion-sum-from-ripple">SEC disclosed that it would seek nearly $2 billion</a> in penalties against the company. Alderoty and CEO Brad Garlinghouse took to X to announce the sum before the official release of the <a href="https://blockworks.co/tag/sec">SEC</a>’s filing.&nbsp;



Last month, <a href="https://blockworks.co/news/sec-seeking-2b-ripple-fine-penalties">Garlinghouse said that the SEC</a> had acted “outside the law” and cited the <a href="https://blockworks.co/news/sec-overreach-failure-debt-box">DEBT Box case</a> in which the SEC was recently sanctioned.&nbsp;



The two have been locked in a years-long legal battle that started in 2020. Ripple, alongside Garlinghouse and co-founder Chris Larsen, were accused of raising over $1.3 billion illegally by the SEC.



At the end of last year, the regulator said it <a href="https://blockworks.co/news/sec-drops-dismisses-garlinghouse-case">wouldn’t pursue a trial</a> against Garlinghouse or Larsen.



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Ripple proposes ‘no more than $10M’ in penalties after SEC seeks $1.9B

Bessie Liu

A recent blog <a href="https://www.asymmetric.re/blog/cosmos-ibc-reentrancy-infinite-mint">post</a> by Asymmetric Research revealed there was a critical vulnerability that affected the inter-blockchain communication (IBC) protocol — a standard that enables interaction among individual cosmos chains.



This vulnerability was found specifically in ibc-go, the Golang high-level programming language implementation of the IBC protocol, and affected CosmWasm-based IBC middleware.&nbsp;



IBC middleware was created to enable the integration of ICS20 with other IBC protocols. Similar to many bridging protocols, the middleware enables packets to be sent from one blockchain to another. These packets are stored as commitments before being properly received and deleted. If they are not received, tokens will be refunded through a timeout functionality.&nbsp;



Read more: <a href="https://blockworks.co/news/picasso-connects-ethereum-to-cosmos-ibc">Picasso connects Ethereum to Cosmos IBC</a>



Asymmetric Research found that the flow between the module deleting the commitment control could be replayed, which meant it was possible to replay the bug and exploit an infinite number of <a href="https://blockworks.co/tag/ibc">IBC</a> tokens.&nbsp;



Multiple chains were vulnerable to the issue, with Osmosis, one of the largest cross-chain DEXs in the <a href="https://blockworks.co/tag/cosmos">Cosmos</a> ecosystem, being the largest chain that could have been affected. However, due to rate limiting on the chain, the damage the bug could have potentially caused was limited.&nbsp;



According to Asymmetric Research, the vulnerability has been privately disclosed to the Cosmos HackerOne bug bounty program, and the issue itself has been resolved without any malicious exploitation.&nbsp;



Read more: <a href="https://blockworks.co/news/crypto-hackers-bug-bounties">Helpful hackers net more than $640k in 1 year with crypto bug bounties</a>



“This issue demonstrates how easy it is to break trust assumptions and introduce new vulnerabilities by adding new features and functionality. It is also another example of the importance of defense-in-depth,” Asymmetric Research <a href="https://www.asymmetric.re/blog/cosmos-ibc-reentrancy-infinite-mint">wrote</a> in a blog post.



The research noted specifically that Cosmos teams had strong security measures in place that could have saved them from existential risks. 



“A binary patch was released to fix the underlying IBC timeout reentrancy without breaking consensus. Contributors spent much time and effort assessing the security implications of the mentioned issues,” Asymmetric Research wrote.



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IBC had a close call with a critical vulnerability

An internal research group at PayPal released a report late Monday on how economic incentives could spur bitcoin miners to use cleaner energy.



Bitcoin’s proof-of-work consensus mechanism has drawn criticism from environmental groups and legislators for being computationally intensive. The PayPal report suggests solving this problem by stashing extra bitcoin rewards in certain transactions for miners using low-carbon energy sources.&nbsp;



Bitcoin miners are paid with bitcoin for their computational labor under PoW, and PayPal’s report would shuttle a little extra bitcoin to environmentally conscious miners.



Read more: <a href="https://blockworks.co/news/bitcoin-halving-cycle-miners-energy-strategy">This Bitcoin halving cycle, miners need a new energy strategy</a>



The program starts with identifying so-called green miners who use clean <a href="https://blockworks.co/tag/energy">energy</a> or have a limited impact on energy grids, as <a href="https://gp4btc.org/methodology/">defined</a> by the platform Energy Web. Green miners’ public keys, which are cryptographic hashes that allow miners to receive their bitcoin rewards, are identified as “green keys.”&nbsp;



To reward green <a href="https://blockworks.co/tag/mining">miners</a>, certain bitcoin transactions would have a UTXO with a multisig wallet holding extra bitcoin. This multisig wallet can only be accessed by green keys. These transactions will also have lower-than-average fees, making them more appealing for green miners, who can unlock the wallet with their green keys, to include in a block.



The <a href="https://pyusd.mirror.xyz/P2fyue5RNhdOAV_IREgLPkj70vk-7zLAAw7Rk39s0iw">report</a> likens the program to paying an “indirect grant” to bitcoin miners using cleaner energy.



Read more: <a href="https://blockworks.co/news/cambridge-bitcoin-electricity-consumption">Why did Cambridge revise its bitcoin electricity consumption index?</a>



One potential tradeoff in the scheme is that non-green miners could still pick up earmarked transactions if the low fees aren’t a deterrent. The report also recommends “removing” any malicious green miners who may try to drive up the transaction fees on green transactions for their own gain.



Not everyone in the <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a> community immediately loved PayPal’s idea.&nbsp;



“Bitcoin doesn&#8217;t need wonky schemes, miners are already building renewables &amp; cutting methane &amp; toxic waste,” Magdalena Gronowska, advisor to energy recycling project PRTI, said on X.



Gronowska pointed out that despite the recent <a href="https://blockworks.co/tag/bitcoin-halving">halving</a>, bitcoin fees are still relatively high, and PayPal’s scheme relies on miners picking lower fees in exchange for a subsidy.



Read more: <a href="https://blockworks.co/news/bitcoin-memecoins-fees-vs-block-rewards">Bitcoin memecoins pushed fees higher than block rewards for first time</a>



The report does not give a specific amount for the “subsidy,” only saying the green miner multisig would contain “some bitcoins.”&nbsp;



If <a href="https://blockworks.co/tag/paypal">PayPal</a>’s public mempool solution doesn’t work, smart contracts or the Lightning Network could be used to privately send green miners extra rewards, the report notes, adding that doing so would require a level of trust.



The report was authored by PayPal’s Blockchain Research Group, an internal group that PayPal has <a href="https://newsroom.paypal-corp.com/2020-10-21-PayPal-Launches-New-Service-Enabling-Users-to-Buy-Hold-and-Sell-Cryptocurrency">said</a> began work around 2015. The researchers tested aspects of the incentivization program with blockchain company DMG.



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PayPal research proposes greener bitcoin mining

Nse Barna

It was just a few months after the Twin Towers fell on 9/11, and everyone in my family was headed to visit our relatives in Nigeria for a month. Everyone — except for me.



My mother, holding three American degrees, had been in the United States for years via student and work visas, and my four siblings were all born in New Jersey. I wasn’t an American citizen yet, because I was born in Nigeria. And if I left the United States, I would be placed on a blacklist that would prevent me from returning.&nbsp;



I cried as my mother told me that I would be staying with my cousins in New York City instead — not because I was being left behind, but because neither of us knew what the future held, given the shaky political and religious climate that makes visiting Nigeria risky, even in the best of times.&nbsp;



“If anything happens to us, I need you to know where all your documents are,” my mother said, handing me a box. “This is your identity.”



I was just 13 years old, holding my identity in my hands, entirely made of paper.



I was brought to America before my first birthday, and proving my identity has been a lifelong struggle. It has manifested itself in bureaucratic battles that have been costly — in both time and money — throughout my childhood, like when my parents lost $20,000 to a fraudster who promised he could process my citizenship. We could have avoided this expensive error if we had a way to verify that the man processing my documents was truly who he said he was, that he would not misuse my documents, and that he would give them back as promised. Even as an adult, I have spent countless hours trying to work within established systems to claim land and property that is rightfully mine after my father passed.&nbsp;&nbsp;&nbsp;



My experiences, shared by countless immigrants and displaced peoples around the world, have underscored the vulnerability of physical documents. In times of conflict, particularly in developing countries, possessing your birth certificate, property deeds or proof of citizenship can mean the difference between safety and chaos, existence and erasure. And yet, in a moment, they can be lost — to something as dramatic as a civil war or even something as simple as a broken-in car or a flooded basement.



As I’ve struggled to replace basic documents like my Nigerian birth certificate, it’s only become clearer that identity should not rely on something as fragile as physical documents that can be easily lost, stolen or destroyed. This contributes to my passion for my work in using blockchain to empower people to control their digital identities.&nbsp;



Blockchains are public digital ledgers where every transaction is transparently recorded. Once these transactions are added to the ledger, they cannot be altered or tampered with, which makes them trustworthy and easy to verify. If my or my family’s records had been stored on an immutable blockchain, the loss of a paper certificate wouldn’t have resulted in the loss of our assets or a major part of my history.&nbsp;



In traditional systems, a single government or corporate entity holds all the power concerning your identity. Police can suspend your driver’s license <a href="https://soundlawyering.com/i-havent-even-been-convicted-yet-why-has-my-license-to-drive-been-suspended/">even if you haven’t been proven guilty in court</a>, a company can <a href="https://rentprep.com/blog/tenant-screening-news/employer-refuses-verify-employment-2/">refuse to provide proof of employment</a> if they don’t want you to leave them, and a university could refuse to pass your academic transcript on to employers <a href="https://www.forbes.com/sites/edwardconroy/2023/11/11/new-rules-mean-millions-of-students-can-prove-they-went-to-college/?sh=2a283ba34aa2">if you are late on paying student fees</a>.&nbsp;



Bad actors, like the man who made off with my parents’ savings, can’t run away with your data. Blockchains are different because they are decentralized, and every entry is verified independently by a global network of computers, ensuring authenticity and that only the holder of the private key can access or change their data. Storing identity on the blockchain is a particularly durable option for people in countries where natural disasters, political instability or corruption can compromise physical infrastructure. 



Read more from our opinion section: <a href="https://blockworks.co/news/identity-eu-citizens-privacy-surveillance">Self-sovereign identity is not enough</a>



Of course, while the blockchain can provide a secure and permanent place to store identity-related data, there are reasonable privacy concerns because of the technology’s inherent transparency. That’s where zero-knowledge technology (or ZK) comes in; it shields your data and allows you to choose who has access to what information at a granular level.&nbsp;



ZK technology allows people to protect and use their history of information with confidence that nothing, and nobody, can take it away. That is critical for immigrants and refugees all over the world, who will be able to verify their identity to claim asylum or access services without risking exposure that could put them in harm’s way. The journey from paper-based vulnerabilities to the secure digital realm of blockchain and zero-knowledge proofs is a paradigm shift in protecting and verifying our personal information.&nbsp;



The importance of these technologies cannot be overstated, particularly for vulnerable groups like immigrants and refugees. The need for blockchain and related technologies highlights an urgent call to action for product developers and innovators to dedicate their skills and resources to developing practical, accessible solutions. These solutions should aim to tackle pressing societal challenges faced by billions of people, but often overlooked in the more developed regions of the world. By directing our efforts toward developing products that solve real-world problems, we can transform the theoretical promise of blockchain into concrete tools that safeguard identities, preserve histories and empower individuals globally.



For most of the world, the physical documentation we carry is more than just a piece of paper — it’s a lifeline. With blockchain and ZK technology, we can mitigate the risks and vulnerabilities associated with the fragile nature of these artifacts. We no longer have to be at risk of losing our identity because of natural or national unrest, trusting that our information is stored safely and securely online. We no longer have to confine our identities to a box.



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<div class="wp-block-post-author-biography">Nse Barna is the VP of Operations at Aleo Foundation, where she oversees the company&#8217;s strategic planning and execution. Her role at Aleo follows a distinguished tenure as Chief of Staff, where she coordinated high-level operations. Before Aleo, Nse was involved in operational management at Interconnected Builders, focusing on project completion and quality standards. Her background includes a strong educational foundation with a degree in Political Science, International Relations, and Government from The University of Texas at San Antonio. Beyond her professional pursuits, Nse contributes her time to social advocacy as a volunteer with AARP.</div>


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Families like mine need safe, secure digital identities

Michael McSweeney

<h2 class="wp-block-heading">Time to pay up. Oh, wait…&nbsp;</h2>



Last August, after suing Digital Licensing Inc. or DEBT Box, SEC attorneys were granted a temporary restraining order (TRO) against the crypto company through the use of what Judge Robert Shelby later described as “misleading” statements to the court.&nbsp;



When threatened with sanctions by the court, the SEC conceded “that its attorneys should have been more forthcoming with the Court,” but maintained “sanctions are not appropriate or necessary to address those issues.”&nbsp;



Shelby disagreed, and he sanctioned the agency for abuse of power in March.&nbsp;



Read more: <a href="https://blockworks.co/news/judge-sec-lied-restraining-order">A federal judge says SEC lawyers lied to freeze a crypto company’s assets</a>



Now, it’s time to talk money. A court-appointed receiver and defendants submitted their legal bills to the court last week. The reimbursements they seek add up to around $1.8 million.&nbsp;



The <a href="https://blockworks.co/tag/sec">SEC</a> is expected to contest the amount, and then it will be up to the judge to determine how much is owed.&nbsp;



Getting to the bottom of what fees can be reasonably <a href="https://blockworks.co/news/sec-sanctions-debt-box">tied directly to the SEC’s TRO</a>, for which they were ultimately sanctioned, is the key. DEBT Box says they have spent nearly $750,000 fighting the SEC’s claims.&nbsp;



When the final number is decided — likely later this spring or early summer — the funds will come from the federal government, probably from the Treasury’s Judgment Fund or the SEC’s own budget.&nbsp;



Read more: <a href="https://blockworks.co/news/sec-erred-in-debt-box-case">DEBT Box defendants say SEC’s deception impacted personal, business endeavors</a>



Two SEC lawyers — Michael Welsh and Joseph Watkins — left the agency in the aftermath of the sanctions. <a href="https://news.bloomberglaw.com/securities-law/two-sec-lawyers-pushed-out-after-agency-censured-in-crypto-case">Reports</a> suggest they were pushed out, and we believe it. This was a major mistake. One attorney we spoke to said that if the SEC was a private firm, we’d be seeing a lot more heads rolling.&nbsp;



It looks like the case is going to be tossed. The question is now whether it will be dismissed with or without prejudice (with prejudice means the case has permanently been dismissed and cannot be brought back to court).&nbsp;



As expected, the SEC is vying for dismissal without prejudice while DEBT Box is hoping the <a href="https://blockworks.co/news/sec-overreach-failure-debt-box">case will be tossed with prejudice</a>.&nbsp;



— Casey Wagner



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



<ul>
<li><a href="https://www.kitco.com/charts/gold">Gold</a>’s price is finally coming down. The precious metal hit its lowest level in two weeks as geopolitical tensions began to ease.&nbsp;</li>



<li>It’s a big week for <a href="https://www.bloomberg.com/markets/economic-calendar">economic</a> data. US GDP is scheduled for Thursday and PCE, the Fed’s inflation measure of choice, is coming Friday.&nbsp;</li>



<li>BlackRock’s bitcoin ETF could become one of the most successful ETFs in history if it hits 70 days of inflows, <a href="https://twitter.com/EricBalchunas/status/1782386163698835663">per</a> Bloomberg’s Eric Balchunas.</li>



<li>Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) is holding on to $65K after jumping to $67K overnight.&nbsp;</li>



<li>EigenLayer is up 8% over the past day, with roughly $15B in total value locked, <a href="https://defillama.com/">according</a> to DeFiLlama.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Schrödinger’s stake</h2>



Takes about the risks of staking and restaking protocols are everywhere: Threats to the <a href="https://www.youtube.com/watch?v=LbkxL-xBYYE">moneyness</a> of ether, to <a href="https://blockworks.co/news/eigenlayer-at-risk-of-centralization">capital through slashing</a>, to the very <a href="https://vitalik.eth.limo/general/2023/05/21/dont_overload.html">fabric</a> of Ethereum itself.



The hand-wringing has done little to keep the market away from increasingly experimental staking protocols —&nbsp;it’s all for the points.



About 27% of the ether (<a href="https://blockworks.co/price/eth">ETH</a>) supply is currently staked with mainnet validators (about $101 billion) and more than 42% of that stake is <a href="https://dune.com/21co/fundamentals-liquid-staking-derivatives">kept</a> in liquid <a href="https://blockworks.co/tag/staking">staking</a> protocols like Lido and Rocket Pool.



Read more: <a href="https://blockworks.co/news/ether-commodity-or-not">Ether is the Schrödinger’s cat of crypto</a>



Six months ago, closer to half of the ETH stake was kept with Lido et al. Restaking and liquid restaking platforms like EigenLayer, Karak, Renzo and ether.fi largely didn’t exist.



In the past three months, the total value locked in liquid staking protocols across the market has dropped 25% from a March peak of $61 billion to $46 billion.&nbsp;



<a href="https://blockworks.co/tag/eigenlayer">EigenLayer</a>, meanwhile, has led the TVL of <a href="https://defillama.com/protocols/Liquid%20Restaking">restaking</a> protocols to multiply eight times, from $2 billion to $16 billion.&nbsp;



<img loading="lazy" decoding="async" width="624" height="449" src="https://lh7-us.googleusercontent.com/rwoPrpBvG6T8d-plrubizlFOXfF9yzzWPdbfjST-wu1j-qpVau0hNsMT24N-hTevp6z6hnEkMQUZUJc_8twfj3lRjaSKk29CHEKCJcsLGTHbEXOFqHRanlv0YHC3O2ET3QaJp4rLNhayOfziMBFkwVs">



Liquid restaking protocols like Renzo — which utilize EigenLayer to secure small networks with liquid staking tokens (but <a href="https://www.coindesk.com/tech/2024/04/10/eigenlayer-cryptos-biggest-project-launch-this-year-is-still-missing-crucial-functionality/">not yet</a> in return for yield) — have now attracted $10 billion in their own right. 



The big question is whether all that TVL would exist if there were no promise of a future EigenLayer <a href="https://blockworks.co/tag/airdrop">airdrop</a>.&nbsp;



EigenLayer has kept track of user participation with a points program, but founder Sreeram Kannan has so far <a href="https://open.spotify.com/show/1cJrrfGY1SKBIRn5noKSAf">said</a> there are no plans to distribute a token tied to points, although they could be used for governance somewhere down the line.



But should there really be no airdrop (or lackluster yields from EigenLayer AVS), expect the bulk of the restaking and liquid restaking TVL to go elsewhere —&nbsp;namely, protocols with their own points and airdrops.



— David Canellis



<h2 class="wp-block-heading">Times are a-changin’&nbsp;</h2>



The New York Stock Exchange’s data team sent out a survey about 24/7 trading, and while this is — of course — not indicative of any potential change to the current operating hours of 9:30 am ET to 4 pm ET, it’ll be interesting to see how those surveyed respond.&nbsp;



Crypto, which trades around the clock, modernized the way people look at financial markets. Just last year, <a href="https://blockworks.co/news/robinhood-crypto-24-hours">Robinhood announced 24-hour trading</a> for some assets.&nbsp;



The survey itself isn’t that interesting. It’s not surprising that an exchange like the NYSE would try and gauge interest in such a feature. What is surprising, however, is that the NYSE was the exchange to issue such a survey and not, say, the Nasdaq, which is an electronically-run exchange.&nbsp;



It also wouldn’t be surprising if survey responders were largely against the idea of going 24/7 for a few reasons. The biggest one is liquidity. From weekend missile strikes to exposés, there are a number of ways that the market could take a hit outside of the usual trading hours, and safeguards must be put in place so that the market doesn’t tank at the first mention of volatile headlines.&nbsp;



A former floor trader also told me that any changes will have to be run by the companies listed on the NYSE, which may take some convincing if the exchange were to ever seriously consider switching to 24-hour trading.&nbsp;



But there’s no doubt that crypto markets and new technologies have proven that there’s an appetite for 24-hour trading —&nbsp;and that it can be done safely. Circling back to the point on volatile headlines, bitcoin dropped nearly 5% after Iran launched airstrikes against Israel on April 19, but was able to recover in a few hours.&nbsp;



Don’t get your hopes up for any changes to the current trading hours, though. This kind of change would take years to implement, but maybe crypto’s paved the path forward for the traditional exchanges.&nbsp;



— Katherine Ross



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



<ul>
<li>The infamous “Buy Bitcoin” sign flashed behind Janet Yellen in 2017 is being <a href="https://scarce.city/auctions/buy-bitcoin">auctioned</a> off.</li>



<li>Some <a href="https://www.reddit.com/r/mtgoxinsolvency/comments/1caa0tn/1804_repayment_table_populated_x7/">Redditors</a> on r/MtGoxInsolvency are reporting that the trustee has updated repayment data for their claims.&nbsp;</li>



<li>Outside of running against Elizabeth Warren, pro-crypto lawyer John Deaton <a href="https://www.courtlistener.com/docket/67478179/114/securities-and-exchange-commission-v-coinbase-inc/">filed</a> to appear as counsel for over 4,000 Coinbase customers in the SEC’s case against the exchange.</li>



<li>One professor thinks the passing of the stablecoin bill could be a “disaster,” Bloomberg <a href="https://www.bloomberg.com/news/articles/2024-04-22/stablecoin-bill-spells-huge-disaster-for-consumers-american-s-allen-says">reports</a>.</li>



<li>The current Bitcoin Improvement Proposal editor, Luke Dashjr, could be replaced as Bryan Bishop’s movement gains momentum, Protos <a href="https://protos.com/bitcoiners-seek-to-bypass-luke-dashjr-for-op_cat-soft-fork/">reports</a>.</li>
</ul>



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



If you were waiting for the US presidential election’s galaxy-brained crypto moment, here’s your chance.



Presidential hopeful Robert F. Kennedy, Jr. <a href="https://thehill.com/business/4611426-rfk-jr-im-gonna-put-the-entire-u-s-budget-on-blockchain/">declared</a> at a recent campaign stop that he would “put the entire US budget on blockchain” so that “every American can look at every budget item in the entire budget anytime they want 24 hours a day.”&nbsp;&nbsp;



Kennedy continued: “We’re gonna have 300 million eyeballs on our budget, and if somebody is spending $16,000 for a toilet seat, everybody’s gonna know about it.”



Read more: <a href="https://blockworks.co/news/crypto-super-pacs-election-primaries">Crypto PAC-backed candidates sweep in US election primaries&nbsp;</a>



Okay. Taking the idea at face value —&nbsp;a perilous notion in any election year —&nbsp;I have some questions. Who’d run these blockchain nodes? If they’re all government-run, why should the average taxpayer trust the data they’d see? Aren’t US budgets already public? Where do I sign up for the BudgetCoin airdrop?



Incidentally, blockchains have been explored by US federal agencies for financial management purposes, including a December 2023 project <a href="https://www.fiscal.treasury.gov/fit/blog/treasury-complete-blockchain-collaboration.html">focused</a> on the federal grant process, so Kennedy isn’t exactly firing in the dark.



Who knows, maybe the degens can help the Defense Department <a href="https://www.defensenews.com/pentagon/2023/11/16/pentagon-fails-sixth-audit-with-number-of-passing-grades-stagnant/">actually</a> pass an audit for once.&nbsp;



— Michael McSweeney



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Empire Newsletter: SEC faces big court bill after sanctions

After nine months of deliberation, the developers behind Celo have chosen OP Stack as the infrastructure for the project’s migration to Ethereum.&nbsp;



In a Monday forum post, cLabs, which is the software company behind Celo, said it would be putting the OP Stack migration up for a community vote. If successful, the layer-2 would be set to go to testnet in summer 2024.&nbsp;



CLabs first said it would migrate to a <a href="https://blockworks.co/tag/evm">layer-2</a> in July 2023.



<a href="https://www.coingecko.com/en/coins/celo">Celo</a> and <a href="https://www.coingecko.com/en/coins/optimism">Optimism’s</a> native tokens were both up roughly 5% amid a mostly flat day in crypto markets, according to CoinGecko.



Read more: <a href="https://blockworks.co/news/celo-return-home-ethereum">‘Carbon-negative’ Celo to ‘return home’ to Ethereum as layer-2</a>



Celo’s layer-1 <a href="https://blog.celo.org/its-official-celo-mainnet-is-here-6a3a71763f68">went</a> to mainnet on Earth Day 2020 with a focus on global financial inclusivity and environmental health. CLabs <a href="https://www.crunchbase.com/organization/celo-3846/investor_financials">raised</a> $30 million from a16z and Polychain in 2019 to develop the project. It closed another $20 million round in 2021.



The layer-1 was Ethereum Virtual Machine (<a href="https://blockworks.co/tag/evm">EVM</a>) compatible, meaning Ethereum smart contracts could run on Celo.&nbsp;



Celo implemented EIP-1559 slightly differently than Ethereum implemented the proposal, and the cost of staying compatible with Ethereum ended up being “quite great,” cLabs Chief Technology Officer Marek Olszewski said Monday on an X <a href="https://twitter.com/i/spaces/1YqxoDgOnLjKv">space</a>.&nbsp;



Celo’s GitHub shows users paid a base gas fee and tip for transactions like with Ethereum’s EIP-1559, but small modifications were made. For instance, base fees were paid to Celo’s community fund rather than being <a href="https://ethereum.org/en/developers/docs/gas/">burned</a> like on <a href="https://blockworks.co/tag/ethereum">Ethereum</a>.



“We’ve been really laser-focused on being extremely Ethereum aligned, having learned lessons before,” Olszewski added when discussing why Celo picked the OP Stack.



CLabs hopes that Celo’s layer-2 will aim to preserve certain features of the layer-1 like one-block finality, which <a href="https://blog.celo.org/why-build-on-the-celo-blockchain-9ceab3d11b70">helps</a> transactions settle quickly and prevents chain rollbacks or re-orgs — even if Ethereum itself re-orgs. Some lesser-used features may disappear with the migration, Olszewski said.&nbsp;



Read more: <a href="https://blockworks.co/news/worldcoin-teases-world-chain-layer-2">Worldcoin teases &#8216;World Chain&#8217; layer-2</a>



Besides Optimism, Celo also considered building its layer-2 with tech stacks from Arbitrum, Polygon or zkSync.



Should the migration go through, <a href="https://blockworks.co/tag/optimism">Optimism</a> will add another notable client to its so-called Superchain of layer-2s, which typically pay Optimism 2.5% in revenue sharing. Coinbase used the OP Stack to launch Base, and last week, Sam Altman-backed Worldcoin said its layer-2 would be built with the OP Stack.



The author of cLabs’ proposal <a href="https://forum.celo.org/t/clabs-proposes-migrating-celo-to-an-ethereum-l2-leveraging-the-op-stack/7902">wrote</a> that the OP Stack is “becoming an open standard” for layer-2s, and building in the Superchain could lead to “positive-sum partnerships” with other chains built using the tech stack.



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What’s behind Celo’s pivot to Ethereum?

Adam Efrima

EigenLayer, the biggest proponent and implementer of restaking, is starting to get rid of its training wheels. After briefly <a href="https://www.blog.eigenlayer.xyz/update-on-upcoming-lst-additions-and-restaking-unpause/">removing</a> caps on staking with liquid staking tokens (LST), total value locked soared from $2.1 billion to 11.5 billion in ETH used for “restaking.”



At its core, restaking is about increasing capital efficiency. 



ETH is a tremendously widespread and liquid asset, which makes it ideal for bootstrapping new proof-of-stake (PoS) protocols. The deal is simple: New networks get significant security from day one, while ETH stakers get to earn extra on the same assets they already hold.



Restaking is quickly achieving buzzword status, and it’s largely the cautiousness of the EigenLayer team that is, for now, keeping it relatively tame in terms of total value locked figures. As a relatively new staking mechanism, augmenting existing liquid staking protocols like Lido, Rocket Pool, Frax and others, it promises to unlock billions in additional value in the wider staking industry. But as with any new crypto primitive, there are voices of concern about how restaking might threaten the stability of Ethereum and crypto itself.



Some of these concerns are probably unfounded — for example, concerns about financial stability. Other risks, namely technical, are legitimate but vastly overblown. Critics argue that routing a majority of the ether staked into restaking protocols could lead to an unnecessary and risky stacking of these technical risks. But the truth is, there’s likely more risk in not embracing restaking.



<h2 class="wp-block-heading">How restaking increases the financial stability of Ethereum</h2>



Restaking offers a great way to finally unlock the potential of LSTs, which could increase the security of ETH. It’s important to remember that beyond the convenience, LSTs exist for an important structural reason that directly benefits Ethereum security.&nbsp;



In a nutshell, staking yield on Ethereum competes with DeFi yields. Lending protocols and liquidity pools can offer more significant yield than the approximate 4% of ETH staking. If the average yield for ETH is significantly higher than that figure — which can easily happen in particularly active markets — then only a small amount of ETH supply will be dedicated to staking, making the network that much more fragile.



With LSTs, ETH holders don’t need to choose: They can just earn the baseline ETH staking yield at all times, and beef it up with DeFi yields if they’re adventurous.&nbsp;



Unfortunately, holding LSTs seems to be pretty much the only thing you can do in the current environment. LSTs’ usage in DeFi is mostly limited to enabling easy swaps for regular ETH, while DeFi trading usage is extremely limited — ETH has more than 10x the trading volume of Lido’s wstETH, according to Uniswap <a href="https://info.uniswap.org">analytics</a>.



Restaking comes to the rescue here by giving another potential source of income for ETH holders, which should make staking naturally more competitive with DeFi. The end result is that the network wins, as more ETH is staked.



<h2 class="wp-block-heading">Are there financial risks in restaking?</h2>



It’s important to note that restaking is a strictly technical practice — assets deposited to EigenLayer remain in the system, and are never lent to anyone else. Despite sounding similar to “rehypothecation,” restaking is a completely different mechanism that simply does not offer a financial risk surface. It’s worth noting that, for now, EigenLayer is the only significant player in the Ethereum restaking space and future protocols might offer a different risk profile.



Read more from our opinion section: <a href="https://blockworks.co/news/restaking-ticking-time-bomb-eth">Restaking is a ticking time bomb</a>



EigenLayer is a decentralized protocol, and there is a risk of losing LST value if it were delegated to a faulty EigenLayer operator. The cumulative risks thus also rely on the community of stakeholders doing their own due diligence, similar to the current LST market offering.



There may be confusion coming from Liquid Restaking Tokens (LRT), which are financialized EigenLayer positions — essentially an LST of ETH LSTs deposited to the EigenLayer protocol. The EigenLayer <a href="https://docs.eigenlayer.xyz/eigenlayer/risk/risk-faq">FAQ</a> mentions LRT liquidations, and the explanation might be doing more harm than good in this case.



In practice, it’s important to note that these risks are completely external to the protocol. If a user deposits their LRT into a lending protocol to enter a leveraged position, their liquidation is a fully external event. While there is an incentive for users to deposit their LRT due to the potential of leveraging yields, this risk level is unlikely to reach catastrophic proportions.&nbsp;



Just as nobody worried about Ethereum or Lido security during the <a href="https://blockworks.co/news/signs-of-next-crypto-depegging">stETH de-peg</a> in 2022, nobody should worry about EigenLayer users getting liquidated. In that case, someone else will take control of their assets, and the system will move on. Furthermore, the stETH de-peg occurred before staked ETH was withdrawable, meaning that no significant arbitrage was possible.



<h2 class="wp-block-heading">Are technical risks of restaking significant?</h2>



Technical concerns about restaking are legitimate. After all, a failure in the EigenLayer protocol (or others like it) could result in a significant loss to the community of ETH holders as a whole. Excessive slashing, loss of control over the stake, malicious apps, etc. are all risks that ETH holders are potentially signing up for when restaking.



But it’s important to contextualize the technical risk. New protocol implementations will always have a risk of technical failure, and that is something that the community needs to understand and mitigate. Similar concerns can be voiced about each upgrade to Ethereum — the Merge itself could’ve gone wrong due to subtle bugs in the implementation.



Constant auditing, bug bounties, training wheels and active protocol monitoring are all parts of a defense in-depth security model that works both to prevent losses and minimize them if they were to occur. Plain old redundancy through competitor solutions can also be used to mitigate risks from poor specific implementations of restaking.



Some might argue that restaking is an <a href="https://vitalik.eth.limo/general/2023/05/21/dont_overload.html">unnecessary increase</a> in the complexity of Ethereum’s consensus. That makes sense, but this risk has to be viewed in the context of a general risk of not enough ETH being staked.



Ethereum can be <a href="https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/attack-and-defense/">progressively crippled</a> by controlling certain percentages of active stake. At over 33%, Ethereum is unable to finalize. When attackers control over 50% of the stake, they can cause minor censorship and reorganization, while controlling over 66% of the staking power grants them full control. Again, the percentage is defined in terms of the currently active stake. If there’s only 1% of ETH supply in staking, attackers would need to add just another 1% to control 50% of staking power.



With only 26% of the supply currently in <a href="https://dune.com/hildobby/eth2-staking">staking</a>, it is theoretically possible for an attacker to cripple the network by just acquiring 13% of the ETH total supply to reach 33% of the staked ETH share. That equates to just over $56 billion, which is less than three days’ worth of ETH daily volume. Though there are multiple caveats to this figure — for example, $56 billion of net buying pressure would push ETH price significantly higher — these are surprisingly low numbers for a global and neutral settlement layer.



<h2 class="wp-block-heading">Restaking and DVT could mitigate consensus risks entirely</h2>



The great thing about restaking is that it’s an extremely modular and decentralized architecture. The entirety of the stake is siloed into their respective applications, and part of it is always kept dedicated to only validating Ethereum. It is also quite easy to implement <a href="https://medium.com/@DragonStake/understanding-distributed-validator-technology-dvt-and-its-implications-on-ethereum-staking-2d2afae91595">decentralized validator technology</a> (DVT) for the operator sets involved in each EigenLayer service (which they call AVS).



DVT enables splitting control over a validator across multiple entities in a verifiable and cryptographically-secure mechanism. Since validators are responsible for producing and accepting new blocks, they are the source of “power” in the Ethereum network. An attack requires controlling validators, and while controlling the ETH stake is an important aspect of it, entities that accept other people’s stake have more power over the network than expected.



If the validator sets tied to EigenLayer and the associated stakes are safely distributed and managed through a DVT protocol, then risks of total system failure are significantly reduced. That would also lead to a much lower risk of mass validator downtime resulting in large slashing events.



If restaking adoption results in the majority of ETH supply being staked — while being distributed to an organic and decentralized set of validators — Ethereum could be significantly more secure than now.



Like any new idea, restaking protocols will need a long break-in period to ensure their technical safety, but otherwise they are extremely promising as the next major primitive in Ethereum infrastructure — and perhaps even necessary.



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


<div class="wp-block-post-author-biography">Adam Efrima is the SSV Core team Co-founder. He has been active in the crypto industry since 2013. Over eight years living in China working in the financial industry and fintech space, Adam has worked in CITIC Bank covering outbound investments for Chinese SOEs, he was also in charge of setting up the eToro Shanghai operation. Since then, Adam has been deeply involved in Ethereum staking, co-founding top performing staking project Bloxstaking as well as co-founding SSV Network, a decentralized validator infrastructure for ETH staking.</div>


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The risks of restaking are extremely overrated

Bitcoin layer-2 solution Stacks initiated the rollout of its Nakamoto upgrade shortly after the halving last Friday. This significant development is designed to enhance transaction throughput and unlock Bitcoin finality for layer-2 transactions.&nbsp;



The Nakamoto upgrade aims to enable faster block processing and ensure all settlements are finalized on the layer-1. This will allow Bitcoin to remain secure while being programmable, similar to Ethereum and Solana Virtual Machines.&nbsp;



Muneeb Ali, the co-founder of Stacks, told Blockworks that the Nakamoto upgrade and the general growth of <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a> layer-2 infrastructure may revive interest in the Bitcoin blockchain itself.



Read more: <a href="https://blockworks.co/news/bitcoin-halving-2024-occurs">Bitcoin’s block reward slashed by 50% following 2024 halving</a>



“Users are finally separating BTC the asset from Bitcoin as the rails,” Ali said. “BTC is the only digital asset that has proved itself as a hedge or store of value. This has created nearly $1 [trillion] in capital just sitting there. I believe the significant advancements made by [layer-2s], like Stacks’ Nakamoto upgrade, are a large contributor to this resurgence.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">🧵1/12 <a href="https://twitter.com/Stacks?ref_src=twsrc%5Etfw">@Stacks</a> 2.5 Activation Thread The first step with the most awaited <a href="https://twitter.com/search?q=%24STX&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$STX</a> Nakamoto upgrade is happening on <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> block 840360. Here&#39;s a MEGA thread on what you need to know.☝️ <a href="https://t.co/d0AHD3DaqS">pic.twitter.com/d0AHD3DaqS</a>&mdash; Louise | CEO @Ryder (@louiseivanvp) <a href="https://twitter.com/louiseivanvp/status/1782321362037510264?ref_src=twsrc%5Etfw">April 22, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



According to the <a href="https://blockworks.co/tag/stacks">Stacks</a> team, the Nakamoto upgrade rollout will continue over the next month, improving block times from the current 10-30 minutes to around five seconds. Ali notes that these improvements will enable Bitcoin <a href="https://blockworks.co/tag/layer-2-2">layer-2s</a> to support the growing DeFi applications that are being built.



“I think the market is awakening to the fact that Bitcoin can be the base layer for our industry. Bitcoin is the apex crypto asset, and [layer-2s] are enabling an economic flywheel around BTC through apps and smart contracts,” he said.



Read more: <a href="https://blockworks.co/news/bitcoin-halving-layer-2-impact-stacks">Q&amp;A: What will the Bitcoin halving mean for Bitcoin L2s?</a>



In addition to improved Bitcoin layer-2 infrastructure, Ali notes that other types of innovations are also gaining significant interest in the Bitcoin blockchain. These include ordinals and BRC-20s, which saw a <a href="https://blockworks.co/news/bitcoin-ordinals-trading-frenzy">spike in interest </a>following Bitcoin’s all-time high last month.



“Experimentation is good for Bitcoin and Bitcoin [layer-2s], so we should encourage more R&amp;D around [layer-2s], Ordinals, Runes and other innovations. I predict that post-halving we will see a [layer-2] summer where the Bitcoin developer ecosystem and competition heats up,” Ali said.



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Stacks Nakamoto upgrade unfolds a new era for the Bitcoin L2

After memecoin mania cycles were speed-run on Solana and Base, this weekend was Bitcoin’s turn, and a new network milestone came along with it.



For the first time ever, bitcoin miners in a single 24-hour period earned more in fees than in block rewards. On Saturday — just after the halving and the launch of token minting protocol Runes — miners raked in $80.74 million in fees and $26.28 million in bitcoin.&nbsp;



That has never happened before, according to Token Terminal data. The day after also came close, with fees making up nearly 80% of all miner revenue.



Prior to this weekend, the closest fees that had come to flipping the block reward was during the peak bull market in December 2017: $21.1 million to $27.3 million. It also almost happened on Monday, May 8, 2023, with fees making up 42.6% of the total miner revenue for the day.&nbsp;



Runes, a new protocol for minting <a href="https://blockworks.co/tag/meme-coins">memecoins</a> from <a href="https://blockworks.co/tag/ordinals">Ordinals</a> creator Casey Rodarmor, was released at the same block height <a href="https://blockworks.co/news/bitcoin-halving-2024-occurs">as last Friday’s halving</a>. Not for any technical reason — just it made for a neat countdown.&nbsp;



A slew of Rune mints immediately came online, and average transaction <a href="https://bitinfocharts.com/comparison/bitcoin-transactionfees.html#3y">fees</a> hit an all-time high of nearly $130, per BitInfoCharts, more than double the previous record from the last bull market.



About 53,000 Runes-related transactions were <a href="https://dune.com/cryptokoryo/runes">recorded</a> in the first two hours, roughly one-third more than the overall network’s usual numbers across February and March.



Read more: <a href="https://blockworks.co/news/bitcoin-halving-runes-launch">Bitcoin Runes look to spice up the halving party</a>



Runes made up more than half of all Bitcoin activity on Saturday and Sunday, which explains why fees went berserk. People were willing to splurge to use the chain, as long as it meant minting the first Runes to hit the network.&nbsp;



Now, Runes are down to about 30% of <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a> transactions and fees have fallen to about $11 for high priority.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/D3V3v4vpBvOETl0emtNn3nZD-skI-OO9inURWRhmd8DVskPb12NfdDSmq-UvFpJnMQi1S6HsYKlEBE6OtqO_A8v7Roy2QLwdxlQgOFOs-9fnF_ECcon21Wfoap_lBOjZfBrb5awygZwtxKKoIKGu8WM" alt=""/><figcaption class="wp-element-caption">The pink columns, representing daily fees paid, are practically off the chart (<a href="https://tokenterminal.com/terminal/projects/bitcoin">Source</a>)</figcaption></figure>



<h2 class="wp-block-heading">Did Satoshi want memecoins on Bitcoin? Who cares</h2>



Runes are fungible memecoins that exist entirely on-chain. With <a href="https://blockworks.co/tag/ordinals">Ordinals</a>, special data (images, sounds, videos, text, browser-compilable code and so on) is written to individual satoshis (sats), imbuing them with non-BTC properties to make them unique and non-fungible.&nbsp;



Those sats become Ordinals, which can then be traded on NFT marketplaces alongside other unique digital collectibles on Ethereum, Solana and other blockchains.&nbsp;



Read more: <a href="https://blockworks.co/news/solana-crosses-200-amid-memecoin-airdrop-interest">Solana breaks $200 as memecoin and airdrop interest continue</a>



Pseudonymous developer Domo riffed on Ordinals to create an experimental token standard for fungible assets, BRC-20.



Instead of images or videos, sats are inscribed with a JSON list of variables, including a ticker and max supply, technically making those Ordinals part of a larger, independent BRC-20 supply with its own market. Domo had effectively hacked Ordinals to create lo-fi memecoins — while Bitcoin’s Taproot upgrade had been hacked to create lo-fi NFTs. A cypherpunk tradition.



By contrast, Rodarmor intends Runes to be more lightweight. Instructions for Runes are attached to UTXOs rather than individual sats, which means Runes (memecoins) can be ported to the Lightning Network or other similar projects in the future.



<a href="https://www.satscreener.com/runes#">SatScreener</a>, a portal tracking the implied market caps of Runes ($4.5 billion), has listed more than 7,000 different memecoins, most of them practically worthless, including:&nbsp;



<ul>
<li>ALL-YOUR-TICKERS-SUCK</li>



<li>WADDLE-WADDLE-PENGU</li>



<li>BITCOIN-NETWORK-CONGESTION</li>



<li>IDK-HOW-TO-SELL-THIS</li>
</ul>



<h2 class="wp-block-heading">Fees really can make up for the halving — this time</h2>



Bitcoin’s $130 transaction fees, even fleeting, are still absurd in crypto’s current age of low-cost prioritization before decentralization, trustlessness and even liveness.&nbsp;



Whether high Bitcoin fees are bad, however, depends largely on one’s vantage point. There are likely few complaints among miners, who as a cohort just took a 50% haircut on the block reward at the halving. On standard 10-minute block times, miners now earn 450 BTC ($29.7 million) per day, down from 900 BTC ($59.4 million).



A hypothetical trader who spent $50 to mint some Runes, which they then sold for much much more down the line largely wouldn’t care, either.



For someone using Bitcoin to protect their net worth from inflation, $100 fees would be infuriating. It’s practically impossible to know how many people fit into that scenario, but in any case, memecoins are surely pricing out those who need bitcoin most — particularly those with low balances.&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-halving-inflation-and-issuance-schedule">Why is 2140 the end of bitcoin inflation?</a>



<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">pissing off eth maxis and bitcoin maxis alike <a href="https://t.co/j6exdapXIB">pic.twitter.com/j6exdapXIB</a>&mdash; Eric Wall | OP_😺 (@ercwl) <a href="https://twitter.com/ercwl/status/1782029205770744125?ref_src=twsrc%5Etfw">April 21, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">High fees mean higher mining revenue</figcaption></figure>



And that may always be the reality of Bitcoin. It’s expensive to use. It might have to be to plug lost revenue resulting from the four-year halving schedule unless electricity for whatever reason suddenly becomes much less pricey.



That’s probably okay in a very broad sense; people who want to cheaply move value across borders can send and receive USDT on cheaper networks. And fees might have to rise even higher in future cycles, especially without abundant and low-cost energy.&nbsp;



Ignoring the plight of miners in favor of users, the general consensus is there’s not much anyone can do outside of pushing activity to the Lightning Network, or raising the block size limit, which is still a <a href="https://blog.bitmex.com/the-blocksize-war-chapter-1-first-strike/">touchy</a> <a href="https://blockworks.co/news/roger-ver-right-bitcoin-book">subject</a>.



Bitcoin <a href="https://blockworks.co/tag/layer-2-2">layer-2s</a> could hypothetically help, but it’s largely dependent on the trust profiles of those networks, as well as how users operate in the future. Besides, the current crop of Bitcoin layer-2s are all in preliminary development stages, so any potential benefits are far in the future.



Read more: <a href="https://blockworks.co/news/bitcoin-halving-impact-on-layer-2s">How will the Bitcoin halving impact Bitcoin L2s?</a>



High Bitcoin fees hurt even more with the knowledge that banal stuff like CASEYS-MOM-HAS-GOT-IT-GOING-ON is driving them higher.&nbsp;



But at this point, it just is what it is.



A shortened version of this article was included in today’s <a href="https://blockworks.co/newsletter/empire">Empire newsletter</a>.



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Bitcoin memecoins pushed fees higher than block rewards for first time

Bitcoin miner Hut 8’s diversified revenue streams could give it an edge over competitors in the long term, according to analysts at Benchmark.



The research firm started covering the stock on Monday, three days after <a href="https://blockworks.co/news/bitcoin-halving-2024-occurs">the Bitcoin halving</a> — when per-block rewards dropped from 6.25 BTC to 3.125 BTC.&nbsp;



Mark Palmer, a senior equity research analyst at Benchmark, gave Hut 8 a buy rating and a price target of $12 — roughly 50% higher than the level it trades at today.



The stock was trading up 5% at $8.49 midday Monday — down 36% year to date but up 16% in the last five days.&nbsp;&nbsp;



Read more: <a href="https://blockworks.co/news/depressed-miner-stocks-bitcoin-halving">How the Bitcoin halving could impact ailing mining stocks</a>



<a href="https://blockworks.co/tag/hut-8">Hut 8</a> has a 2025 enterprise value-to-revenue multiple of 2.6 — compared to the average 3.1 multiple of its competitors, according to Benchmark data. The research included the multiples of Marathon Digital, Riot Blockchain, CleanSpark, Bitfarms, Cipher Mining, Iris Energy, Hive Digital Technologies and TeraWulf when assessing the peer average.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



The figures are based on consensus 2025 revenue estimates, and the enterprise values include the companies’ net debt balances.



“We expect Hut 8 to close the valuation gap with listed peers that are further along in boosting their self-mining capacity as it executes on the build-out of its platform,” Palmer told Blockworks.&nbsp;



Investors are particularly focused on self-mining right now given expectations that the price of bitcoin will rally aggressively following the latest <a href="https://blockworks.co/tag/bitcoin-halving">halving</a>, he noted.&nbsp;



Hut 8’s self-mining deployed hash rate stood at 5.4 exahash per second (EH/s), well behind some of the space’s largest players in that category. The leader in that category, <a href="https://blockworks.co/tag/marathon-digital">Marathon Digital</a>, had 27.8 EH/s of installed hash rate at that time. 



“At the same time, we believe the diversity of Hut 8’s platform will benefit it over the long-term, as its revenue streams outside of self-mining position it to weather severe downturns in bitcoin’s price better than most of its listed peers, in our view,” Palmer said.



The coverage — and buy rating — comes several months after Hut 8 and US Bitcoin Corp. underwent a “merger of equals” that closed in November.&nbsp;



The combined company — with 25.5 EH/s of hash rate and 884 megawatts (MW) of energy capacity under management — also has business lines focused on managed services, hosting, high-performance computing and AI.



Hut 8 CEO Asher Genoot has said during his <a href="https://blockworks.co/news/hut-8-merger-ceo-switch">two-plus months in the chief executive role</a> that he was looking at every business line to figure out how to <a href="https://blockworks.co/news/hut-8-mining-ceo-strategy">nix inefficiencies and reduce costs</a>.



Read more: <a href="https://blockworks.co/news/hut-8-growth-bitcoin-halving">Hut 8 eyes growth around the Bitcoin halving — but not at all costs</a>



Hut 8 said last week it had energized a third of its 63 MW Salt Creek site in Culberson County, TX. The company had relocated miners to Salt Creek <a href="https://blockworks.co/news/marathon-digital-terminates-competitor-involvement">from its Kearney, NE and Granbury, TX sites</a>.



“With Salt Creek, we gain critical control over our miner fleet and operating costs as we head into the halving,” Genoot said in a statement. “Our outlook on energy prices at the site suggests that the potential for cost savings relative to our cost of mining at Kearney and Granbury is in line with the 30% reduction initially projected.”



Though Hut 8’s mining fleet needs more efficiency upgrades, Palmer said, its holdings of 9,102 BTC — second in the <a href="https://blockworks.co/tag/mining">mining</a> segment to Marathon Digital — give it a solid liquidity cushion and the ability to capture upside during bitcoin price rallies.



He added: “The company’s diversified model and relative strength in bitcoin’s price should support its operating performance until new equipment is purchased and deployed.”



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