ScarQuest

Katherine Ross

After a court battle with the Commodity Futures Trading Commission — which isn’t quite over yet — Kalshi launched prediction markets for the upcoming US election.



The launch comes after the CFTC was denied another emergency stay by Judge Jia Cobb, who oversaw the case.



In a hearing early Thursday, Judge Cobb sided with Kalshi again. She told the CFTC she wouldn’t grant a stay, citing arguments made by Kalshi’s attorneys.&nbsp;



CFTC attorneys, during the hearing, argued the contracts could pose a “public interest risk.” With the election just a few months out, Kalshi attorneys made a case that waiting any further to launch the markets could cause the company potential economic harm.



Read more: <a href="https://blockworks.co/news/lightspeed-newsletter-prediction-markets-post-election">How prediction markets are bracing for post-election user drop-offs</a>



The <a href="https://blockworks.co/tag/cftc">CFTC</a> was previously granted a stay last week as it asked the judge to reconsider her order.&nbsp;



In an opinion on Thursday, Cobb <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.261465/gov.uscourts.dcd.261465.51.0_1.pdf">wrote</a>, “Court finds that Kalshi’s congressional control contracts do not involve activity that is unlawful under any federal or state law, nor do they involve gaming.”



“Kalshi’s event contracts ask buyers to take a yes/no position on whether a chamber of Congress will be controlled by a specific party in a given term. That question involves (relates to, entails, has as its essential feature or any other iteration of the word) elections, politics, Congress and party control; but nothing that any party to this litigation has identified as illegal or unlawful activity,” she noted.



Tarek Mansour, Kalshi’s founder, said that Thursday marked the “the first trade on regulated election markets in nearly a century.”



<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">The first election market is live on <a href="https://twitter.com/Kalshi?ref_src=twsrc%5Etfw">@Kalshi</a>. Today marks the first trade on regulated election markets in nearly a century. This one is for you, the prediction markets community. <a href="https://t.co/USzzVMffQn">pic.twitter.com/USzzVMffQn</a>&mdash; Tarek Mansour (@mansourtarek_) <a href="https://twitter.com/mansourtarek_/status/1834306255348765033?ref_src=twsrc%5Etfw">September 12, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Kalshi’s currently the only legal prediction market in the US. Polymarket, which has quickly become a good gauge for overall sentiment, doesn’t operate in the US.&nbsp;



<a href="https://blockworks.co/tag/polymarket">Polymarket</a> settled with the CFTC back in 2022, which saw the prediction market pay out $1.4 million for allegedly operating an unregistered platform for trading options contracts. As part of the settlement, Polymarket agreed to ban US users without admitting or denying wrongdoing.&nbsp;



Read more: <a href="https://blockworks.co/news/unpacking-potential-polymarket-ban">Unpacking a potential Polymarket ‘ban’</a>



The popular prediction market also came up a few times in Thursday’s hearing, with Kalshi’s lawyers noting that Kalshi being blocked from allowing election markets would just push people to an “unregulated” market such as Polymarket.&nbsp;



The CFTC wants the appeals court to grant an emergency stay for two weeks to prevent the markets from being active as lawyers draw up an appeal. At the Thursday hearing, attorneys for the CFTC warned about potential risks to election integrity.&nbsp;



Updated September 12, 2024 at 5:24 pm ET: Tightened headline for clarity.



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Kalshi launches election markets as CFTC turns to appellate court

Felix Jauvin

Casey Wagner

Ben Strack

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<h2 class="wp-block-heading">What are we really doing here?</h2>



“Uli doesn&#8217;t care about anything. He&#8217;s a Nihilist. Ah, that must be exhausting.” 



— Bunny Lebowski, The Big Lebowski



I’ve been thinking a lot about use cases, adoption in crypto and what we’re really doing here.



Bitcoin is up 30% year to date, and yet the vibes have felt like we’re in a bear market. Every altcoin has sunk under the weight of inflated high-fdv, low-float launch strategies and governance tokens that cannot pass on any value accrual to holders due to the regulatory gray zone we live in under the Biden administration.&nbsp;



As our industry sits in limbo with 1) no regulatory clarity, 2) TradFi and crypto constantly talking over each other with no one stopping to think about what the product-market fit opportunities are, 3) the only narrative to speak of this year being ETF adoption (which furthers disassociates buyers from onchain self-sovereign ownership) and 4) quite literally no borrowing markets since the implosion of DCG/FTX/Silvergate/3AC…it feels like we’re all lost at sea.



I joined the crypto world through the lens of a macro investor. It felt like bitcoin, along with permissionless DeFi protocols, were the solutions to many of the issues I discovered in my investing journey. Simply put, markets have transformed from efficient capital allocation vehicles into debt refinancing vehicles at the cost of financial equality — e.g. the Fed buying MBS during QE to stabilize markets at the cost of inflating housing prices into unachievable levels for many.



Like many, I believed in this premise during the last cycle and was vehemently excited about the idea that we were on the precipice of a revolution that would realign societal incentives and solve many issues plaguing our modern financial world.&nbsp;



Instead, all we have this cycle are nihilistic memecoins that get pumped and dumped endlessly, inflated VC-backed governance coins with no attachment to any claim of equity and ETFs — a Wall Street-approved speculation vehicle that disintermediate holders from the actual protocol innovations that got us excited in the first place.



Excuse my French, but what the fuck are we really doing here?



I’ve decided I need to do some soul-searching to reconnect with what brought me to this industry in the first place.



First, I went to read up on what Travis Kling has been discussing:



<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">🚨🚨 On the heels of pretty atrocious vibes this summer for crypto, I&#39;m publishing part 3 in a series that included: &quot;A Lack of Pretense That Any of This Shit Does Anything or Will Ever Do Anything&quot; and &quot;Financial Nihilism: The Zeitgeist of Young America&quot;. It&#39;s a ~10 min read.…&mdash; Travis Kling (@Travis_Kling) <a href="https://twitter.com/Travis_Kling/status/1830981118566244633?ref_src=twsrc%5Etfw">September 3, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



He has been expressing a lot of these nihilistic feelings I and many others currently have, which he coins as a general feeling of quiet quitting on the mission that got us here.



One thing that he brings up is how part of this nihilism isn’t fully our fault; it&#8217;s the lack of regulatory clarity.&nbsp;



The lines around what is allowed and isn’t are being obfuscated by a politicized SEC that is going for a scorched-earth approach to regulation that is leading to no one wanting to create or experiment on anything that is actually valuable. The hope is that this coming election brings forth a new wave of regulatory clarity that will allow our industry to actually innovate again.&nbsp;



Second, I sought out and interviewed Austin Campbell to discuss all things stablecoins&nbsp; — a segment in which I realized there has been substantial positive progress. 



<iframe loading="lazy" width="560" height="315" src="https://www.youtube.com/embed/xLW2CZ9q6iA?si=vBMEYZkgRYezOleW" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen></iframe>







The thing is, there hasn’t been much of a way for traders to take advantage of the adoption of an asset that is meant to not ever move, so less people are emotionally excited about it without the associated PnL.&nbsp;



That said, our talk brought forth a wave of optimism and made me realize things are moving in the right direction. There’s hope.&nbsp;



These two thought experiments are giving me something to hold onto. I do think we are on the verge of the next big leg of adoption and innovation; there are just some hurdles right now leading to a despondent market that isn’t going anywhere.&nbsp;



My hope is that this coming election will resolve this. And so, in the meantime, I’m going to continue believing in something, because without that we have nothing.



— Felix Jauvin



<h3 class="wp-block-heading">47%</h3>



The percentage of stablecoin users in Nigeria, India, Turkey, Indonesia and Brazil who said they primarily use the asset class to “save money in dollars,” according to a new <a href="https://castleisland.vc/wp-content/uploads/2024/09/stablecoins_the_emerging_market_story_091224.pdf">report</a>.&nbsp;



Holding savings in a dollar-backed, (in theory) stable currency <a href="https://blockworks.co/news/stablecoin-report-market-capitalization">is becoming an increasingly common</a> alternative to traditional bank accounts, particularly in regions where banking is difficult to access, researchers noted.&nbsp;



The survey, which sampled roughly 2,500 individuals, was conducted by Castle Island Ventures, Artemis and Brevan Howard Digital.&nbsp;



<h2 class="wp-block-heading">SEC again indicates ETH is not a security&nbsp;</h2>



News dropped this morning that the SEC had <a href="https://blockworks.co/news/etoro-sec-settlement">reached a settlement with eToro</a> after the trading platform allegedly violated securities laws by acting as an unregistered broker and clearing agency.&nbsp;



Per the agreement, eToro will pay $1.5 million and cease a chunk of its crypto trading (after giving customers 180 days to sell their assets). US users will still be able to trade bitcoin, bitcoin cash, and most notably, ether.&nbsp;



eToro, without admitting or denying guilt, will be removing all other crypto assets from its platform — each of which, the SEC said, constitute “investment contracts.”&nbsp;



Reading between the lines here: The SEC is signaling that ether is not a security.&nbsp;



eToro’s settlement news comes a day after Prometheum, which is licensed only to custody crypto securities, launched its institutional platform. Prometheum <a href="https://blockworks.co/news/tzero-spbd-license-custody">provides custody services</a> for optimism (OP), the graph (GRT), uniswap (UNI), arbitrum (ARB) and ETH.&nbsp;



I asked the Prometheum Capital team what they think of the eToro settlement and the apparent statement the SEC is making about ether not being a security. This is what CEO Benjamin Kaplan shared:&nbsp;



“The eToro settlement is another clear example of the transition underway in the US to streamline digital asset trading under the purview of the federal securities laws. We are confident the federal securities laws extend to oversee the custody and trading of ETH.”



We’ll have to wait and see if Prometheum makes any changes to its current list of acceptable crypto securities, but you shouldn’t hold your breath.&nbsp;



— Casey Wagner&nbsp;



<h2 class="wp-block-heading">XRP ETF? Don’t get ahead of yourself.</h2>



Grayscale Investments has been busy building out its crypto trust offerings this year while also converting two of them to ETFs.



The investment firm added an XRP Trust on Thursday, giving investors access to a protocol with “an important real-world use case,” Rayhaneh Sharif-Askary, Grayscale’s head of product and research, said in a statement.&nbsp;



&#8220;By facilitating cross-border payments that take just seconds to complete, XRP has the potential to transform the legacy financial infrastructure,&#8221; she added.&nbsp;



Media reports and X posts note this trust is paving the way for a possible XRP ETF. While those statements aren’t wrong per se, I think it’s important to note that could be said for all of Grayscale’s 20+ trusts.



“Each product is intended to follow a four-stage life cycle — with the ultimate goal of uplisting the product to an ETF,” Grayscale notes on its website. “As a product progresses through this intended lifecycle, there is a correlated increase in investor access and transparency.” <img loading="lazy" decoding="async" width="624" height="237" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeA9CIcniUpqprzjLyCGUfU1bgieOsGAP50Ewfxoc-_erfW5-HuQI_D9ER1hKlHGeW2zoILvYaJzIU6gJoAHANlu3iqrXF_zA2EHaf5uVJ33WsQ8g3ieEQjvGVNKc5S1E-rVeRL1vIb9ynoBnKLcM8M1oCJ?key=9PcKYLA2dW24-8GbgV6-ow">



So <a href="https://blockworks.co/news/how-us-canada-solana-fund-filings-differ">issuers can file for solana ETFs</a> and Grayscale can launch this XRP Trust, which starts a process that could lead to a conversion down the line. But ultimately the SEC will have to approve them (as part of Phase 4), which has <a href="https://blockworks.co/news/future-crypto-etf-filings-in-limbo">historically been the big hurdle</a>.



Nate Geraci, president of The ETF Store, <a href="https://blockworks.co/news/us-spot-crypto-etf-approvals-outlook">told Blockworks he still believes</a> it will take one of two things for more spot crypto ETFs (beyond BTC and ETH) to launch: futures for the asset to be listed on a CFTC-regulated venue, or Congress implementing a framework clearly defining which crypto assets are securities and commodities.&nbsp;



“Obviously, neither of those are going to happen overnight,” he said. “In the case of listed futures, history indicates that additional boxes would still need to be checked, including having those contracts develop a trading track record and then having issuers launch futures-based ETFs.”



The upcoming election, and a potentially friendlier administration (if Trump wins, perhaps), remains “the biggest wild card” for accelerating the approval timeline for more spot crypto ETFs, Geraci and others have noted.



So feel free to be optimistic. But it’s important to know the context.&nbsp;



— Ben Strack



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



<ul class="wp-block-list">
<li>House Republicans have launched a probe into SEC Chair Gary Gensler’s hiring practices, which the lawmakers allege is unlawfully influenced by political affiliation. Reps. Jim Jordan, James Comer and Patrick McHenry (who is not running for re-election after his term ends this year) claim that under Gensler’s leadership, the SEC has hired “individuals from left-leaning organizations to fill senior roles.”&nbsp;</li>



<li>Nearly two-thirds of the 3,600 consumers in the US, UK and Europe surveyed by Deutsche Bank earlier this year said they could see cryptocurrencies replacing cash.&nbsp;</li>



<li>Want to hear some hot takes about the disconnect between TradFi and crypto? Tune into the latest episode of the On the Margin podcast <a href="https://blockworks.co/podcast/onthemargin/97375e9e-7091-11ef-8ad9-2b7fdc7a5e32">here</a>, or wherever you get your podcasts.&nbsp;</li>
</ul>



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Our industry is in limbo. What’s going on?

Jack Kubinec

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



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Toronto-based holding company Cypherpunk Holdings has rebranded to Sol Strategies in a pivot to a Solana-first investment approach, the firm disclosed today.



Following the rebrand, Sol Strategies will begin focusing on staking Solana and investing in the Solana ecosystem’s projects and infrastructure, the company said in a press release. The strategy shift was unanimously approved by the company’s board of directors at its July 30 shareholder meeting, Sol Strategies said in a press release.



Cypherpunk Holdings has been scaling up its Solana exposure for months now — particularly since ex-Valkyrie CEO Leah Wald took over the top job in early <a href="https://x.com/LeahWald/status/1810685437687525423">July</a>. When it disclosed its holdings on March 31, Cypherpunk held zero SOL. By July 16 — a week after Wald took over — Cypherpunk had 63,000 SOL. On Aug. 1 — two days after Cypherpunk internally finalized its strategy shift — that figure had swelled to 86,300 SOL, worth some $11.6 million at current prices.&nbsp;



Still, rebranding the company around just one blockchain ecosystem is pretty eye-catching. The revamped <a href="https://solstrategies.io/">website</a> reads that Sol Strategies’ “edge” is investing “in the Solana ecosystem.” Sol Strategies will also operate a Solana validator node through a third party service provider, the company said in a press release.



The company, which began dealing in crypto in 2018, trades on the Canadian Securities Exchange and OTC market.



In comments shared with me today, Wald said the strategy shift wasn’t “predetermined” when she took over as CEO, adding that Solana is a “high-growth” investment opportunity that seemed to be the “next logical step” for Cypherpunk Holdings.



At first blush, the mental model for this rebrand could be that Sol Strategies is offering an upgraded version of a spot SOL ETF. Investors in the company’s stock get compliant, regulated exposure to not only the price of SOL with staking and validator revenue included, but to the success of Solana ecosystem projects as well.&nbsp;



Wald told me a version of this today: ETFs are just passive spot funds, she said, adding: “Our approach goes beyond passive exposure as we are actively engaged in staking and exploring strategic investments.”&nbsp;



Plus, something that Ethereum ETF issuers are <a href="https://blockworks.co/news/education-required-to-spur-eth-etf-outflows">learning the hard way</a> is that demand for regulated crypto investment products only runs so deep. In March 2024, Cypherpunk Holdings <a href="https://solstrategies.io/wp-content/uploads/2024/09/cypherpunk_q2fs_05292024.pdf">reported</a> roughly $23 million in assets. In the institutional investment world, that isn’t very much money.&nbsp;



Perhaps Wald — who had been a Cypherpunk Holdings board member since 2021 before stepping in as CEO — is making the bet that Sol Strategies can differentiate itself from its larger competitors by being the best possible regulated investment in a certain niche.



“As the only publicly traded company in North America focused on the Solana ecosystem, we are providing exposure to Solana’s growth and innovation prior to Solana-specific ETFs [being] approved in either the US or Canada,” Wald said.



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A publicly-traded holding company is all-in on Solana

Donovan Choy

Coinbase is moving forward with the launch of cbBTC, an ERC-20 tokenized bitcoin that will go live on Base and other Ethereum ecosystems.



The new bitcoin token will be backed 1:1 by bitcoin reserves and presumably held in centralized custody by Coinbase.



Coinbase first teased the impending cbBTC on Aug. 14 amid a swirl of controversy surrounding BitGo. Today, it was formally <a href="https://x.com/coinbase/status/1834208544247144949">announced</a>.



This marks the first significant competitive threat to BitGo’s wrapped bitcoin (WBTC), which controls a dominant 96.6% market share across the Ethereum ecosystem today, according to<a href="https://dune.com/hashed_official/btc-on-ethereum"> Dune</a>.



Read more:<a href="https://blockworks.co/news/bitgo-wbtc-custodial-changes"> BitGo moves to allay fears over WBTC custodial changes</a>



Coinbase’s tweet claims cbBTC will be <a href="https://x.com/coinbase/status/1834208546235334972">available</a> on several protocols including Aerodrome, Curve, Aave, Morpho, Compound, Moonwell, Spark and more.



“<a href="https://blockworks.co/tag/coinbase">Coinbase</a> is helping users do more with their bitcoin,” Coinbase vice president of engineering Will Robinson told Blockworks. He added that “cbBTC is a big step forward for DeFi, giving bitcoin a much more active role.”



BitGo’s <a href="https://www.bitgo.com/resources/blog/bitgo-to-move-to-jurisdictional-custody-to-accelerate-global-expansio/?utm_source=blockworks-research.beehiiv.com&amp;utm_medium=newsletter&amp;utm_campaign=bridging-btc-from-multisigs-to-bitvm&amp;_bhlid=9219a8da5ae77319203ba8c8702c4aaf4709a4ce">announcement</a> of a “strategic partnership” that involved TRON founder Justin Sun sparked concerns, leading to Sky (<a href="https://blockworks.co/news/maker-rebrands-as-sky-dai-will-be-changed-to-usds">previously Maker</a>) <a href="https://forum.makerdao.com/t/wbtc-changes-and-risk-mitigation-10-august-2024/24844?utm_source=blockworks-research.beehiiv.com&amp;utm_medium=referral&amp;utm_campaign=short-term-risk-elevated">delisting</a> WBTC as collateral from its DAI stablecoin.



BitGo declined to provide a comment on cbBTC’s launch.



Following Coinbase’s announcement, Spark Protocol immediately <a href="https://forum.makerdao.com/t/sep-12-2024-proposed-changes-to-spark-for-upcoming-spell/25076">launched</a> a proposal to onboard cbBTC, citing “a strategic need to have a replacement BTC on SparkLend as collateral.”



In anticipation of cbBTC, Aave DAO also <a href="https://governance.aave.com/t/arfc-onboard-cbbtc-to-aave-v3-on-base-and-mainnet/18988?utm_source=blockworks-research.beehiiv.com&amp;utm_medium=newsletter&amp;utm_campaign=bridging-btc-from-multisigs-to-bitvm&amp;_bhlid=5c24f6de3a6c55d34ea765bbd0fca1ea2074fb99">floated</a> on Tuesday a governance proposal to onboard the collateral to Base and Ethereum mainnet, with about $150,000 of incentives to bootstrap its growth.



Early comments to the proposal cited the security considerations and regulatory risks surrounding cbBTC.



“If Coinbase were ever to have their accounts frozen for investigation or face further regulatory action, it would put all Aave users at severe risk,” user @DeFiWhale said.



Another user, @midapple, cited the proposal as “premature” without knowledge of the minting and redemption mechanisms of cbBTC being publicly known yet.



Other than WBTC, only BTCB, a wrapped bitcoin on BNB Chain, and the multichain Borderless Bitcoin (BTC.b) have a market share over 1%.



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Coinbase introduces wrapped bitcoin competitor ‘cbBTC’

David Canellis

Tether has made a habit of sharing truly massive quarterly profit numbers alongside its attestations reports — and they’re bigger than BlackRock’s.



The firm has reported $12.72 billion in net profit since Q4 2022, compared to BlackRock’s $9.83 billion.



What isn’t usually discussed is that Tether is lumping in the profit from US Treasurys with the mark-to-market gains of its bitcoin and gold holdings — potential profit or unrealized gains — as outlined in one of its blog <a href="https://tether.io/news/tether-releases-q1-2024-attestation-reports-record-breaking-4-52-billion-profit-highest-treasury-bill-ownership-percentage-ever-total-group-equity-of-11-37-billion/">posts</a>. And it’s inflating Tether’s numbers.



<a href="https://blockworks.co/tag/tether">Tether</a>’s quarterly attestations describe assets in the pool of reserves that give tethers their value. As of its most recent <a href="https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYgICGy/d7462f312aa15b872f8474322ba90363/ISAE_3000R_-_Opinion_on_Consolidated_Financials_Figures_30.06.2024_RC134792024BD0209.pdf">report</a>, for the end of Q2, there was almost $118.44 billion backing the tethers in circulation — conveniently over $5 billion more.



Read more: <a href="https://blockworks.co/news/tether-q2-2024-earnings-report">Tether reports net profit of $5.2B in H1 2024</a>



Which means all tether is all properly backed by an equivalent value of assets in reserve, and then some. (It’s worth noting that attestations are not audits and Tether has never been “audited,” for <a href="https://www.dlnews.com/articles/markets/tether-ceo-just-told-us-why-the-big-4-wont-audit-its-books">reasons</a>.)



Short-dated US Treasurys made up around 68% of Tether reserves, with reverse repurchase agreements, money market funds, secured loans and bitcoin as the next largest categories.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcCUThTZDM_ogxfwEsV1iotjgRMHVBx5uz1bo6_smlze2WkTWdovBSpRMeOu2Rc2bHlX69bPvopjVph673kOm3iwj8EoMxZu_7EPQuGwc3ipqbPNJ-lC4taovM4exhgnTer32rEqgKNgpCBfW23w1gTi3Y5?key=bacHLEf431I5gVwzvzunVQ" alt=""/><figcaption class="wp-element-caption">Tether has been adding bitcoin to its reserves, rising from 2% of the total to 4% over the past year</figcaption></figure>



<h2 class="wp-block-heading">Bitcoin is cash — no need to sell it</h2>



Tether reported $1.3 billion in quarterly profit alongside that Q2 disclosure. A staggering amount considering how few people it employs, believed to be under 100.



Much of that profit comes from the US Treasurys it buys. Three-month Treasury bills currently carry a rate of 4.85%, and considering Tether owned almost $81 billion worth, the 10-figure profit sounds about right.



But take this year’s first quarter. Tether reported $4.52 billion in profit. At the same time, the price of bitcoin went up almost 70%, which Tether apparently considers free profit.&nbsp;



Read more: <a href="https://blockworks.co/news/stablecoin-report-market-capitalization">Nigeria is undergoing a ‘real crypto dollarization event’: Nic Carter</a>



When bitcoin hasn’t been so volatile, Tether has usually reported profits of between 1.01% and 1.81% of the value of its treasury. In Q1 2024, when bitcoin <a href="https://blockworks.co/news/bitcoin-all-time-high">hit an all-time high</a>, that figure was 4.1%.



The firm also reported that its bitcoin holdings increased in value by $2.56 billion throughout that period — from $2.82 billion to $5.37 billion. Tether appears to have bought 8,888.88 BTC ($513.6 million at current prices) during the quarter, going by the attestations and its onchain history, but it’s unknown at what price it bought those coins.&nbsp;



If we take the average price of bitcoin over the quarter, Tether would’ve spent $481.5 million on that BTC.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcIUrCqjKuhS9ZKi0pM1VAaYPeqUG6usoN8DYnqjUMOawypXSJgMXtG6dgviLG1VTPunr4pgyLE75-WcVdcr9lejGgUVLKtZ9tokjLUBBgWwuwwvNaOCWPWQXBoHyZslckmFb6pqjb07LO_qOzcRego2K-C?key=bacHLEf431I5gVwzvzunVQ" alt=""/><figcaption class="wp-element-caption">Estimated bitcoin profits are in orange, US Treasurys in blue and gold in yellow. The price of bitcoin is shown by the orange line</figcaption></figure>



Subtracting its estimated spend from the increase in value of its entire bitcoin stash shows what Tether’s quarterly “bitcoin profit” would be: $2.08 billion, or 46% of the total that Tether reported. US Treasurys would’ve otherwise contributed 51%, while gold’s price appreciation perhaps offered around 3%.



To be clear, these are just estimates based on average prices during a volatile time for bitcoin’s price. Tether deposits BTC into a reserve address directly from its sister exchange Bitfinex, so it’s unknown exactly how it acquires the bitcoin that it deposits into its treasury.&nbsp;



Still, the estimates suggest that for the first quarter of this year, bitcoin made up less than 5% of Tether’s reserve portfolio, while it contributed nearly half of its reported quarterly profits.&nbsp;



For what it’s worth, Tether <a href="https://tether.io/news/tether-releases-q1-2024-attestation-reports-record-breaking-4-52-billion-profit-highest-treasury-bill-ownership-percentage-ever-total-group-equity-of-11-37-billion/">says</a> it made $1 billion out of Q1’s $4.52 billion from US Treasurys, while the rest came from unrealized bitcoin and gold gains. That would mean BTC was responsible for much more of Tether’s total reported profits, even as much as 75%.



Tether wrote at the time: “The main contributing [Tether Holdings Limited] entities are those in charge of issuing stablecoins [Tether] and managing the respective reserves where approximately $1 billion of this profit stemmed from net operating profits, primarily derived from US Treasury holdings. The remainder of reported profits were comprised of mark-to-market gains in bitcoin and gold positions.”



<h2 class="wp-block-heading">Tether could technically turn ‘unprofitable’ if BTC dives</h2>



This, of course, means that Tether’s profits are reduced when the prices of bitcoin and gold go down.&nbsp;



Tether reported only $1.3 billion in profit in last quarter, nearly 70% below Q1, even though it held almost $6 billion more in US Treasurys.



The difference is largely because the price of bitcoin fell 12% between quarters, so the value of Tether’s bitcoin went down by $648 million. Tether also didn’t add any BTC between periods, so there wasn’t any opportunity for a big boost of unrealized profit from freshly acquired coins, as was the case in the previous two quarters.&nbsp;



Had bitcoin retained its value, Tether would’ve reported almost $2 billion in quarterly profit. It appears only Tether’s Q1 2024 disclosure delineated bitcoin and gold profits from US Treasurys, as was the case with Q2.



So, does Tether earn more profit than <a href="https://blockworks.co/tag/blackrock">BlackRock</a>?&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdoOKgMZzs7WzZt3x8mMdgldBIrFakCFGgFGfUQnZ25e9oNXqNqMirYxi2-kO7FcyAZJaZ8kL0Fk9YYQ-kOk5V4pPjbJhkwADCr8esQeWsfbYyajRF-H5re52_4Ghel2iDqtq9cy4cHPgUuiohqGciFdL7N?key=bacHLEf431I5gVwzvzunVQ" alt=""/><figcaption class="wp-element-caption">Watch for Tether to really blow BlackRock out of the water if it keeps buying loads of bitcoin. Tether previously <a href="https://blockworks.co/news/tether-buying-bitcoin">pledged</a> to direct 15% of profits to buying BTC.</figcaption></figure>



Lumping in bitcoin and gold appreciation with US Treasurys profits, sure, Tether is more profitable than BlackRock. Tether must actively continue buying US Treasurys to earn money from them, but it doesn’t have to do anything to report its bitcoin and gold profits, only hold.



By that system, Tether has indeed reported higher profits than BlackRock.



If you only count Tether’s disclosed profits without bitcoin and gold, Tether would’ve made under $7.7 billion from its US Treasurys, going by the ballpark estimates outlined above.&nbsp;



That’s a difference of about $5 billion. Still monstrous profit, but it would fall just shy of outpacing the world’s largest asset manager.



Tether is likely in any case the most profitable crypto company in the world, and one of the most profitable outside of it as well.



Depending on your definitions of profit, it might still need a few more years to eclipse BlackRock — but it seems inevitable.



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



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Is Tether really more profitable than BlackRock?

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Stablecoins are having a moment, that much is clear.



As the rest of crypto trades sideways, the market capitalization of stablecoins has steadily increased. It sits now at $170 million, per rwa.xzy, though there has been a slight dip over the past few days.



Castle Island Ventures, alongside Artemis, Visa and Brevan Howard Digital made a new survey that looks into the prevalence of stablecoins in certain emerging markets. The survey looked into roughly 2,500 crypto users in Nigeria, India, Turkey, Indonesia and Brazil.&nbsp;



“Our survey results contradict the common belief that stablecoins are exclusively used as a tool for the speculative trading of crypto assets. Forty-seven percent of crypto users surveyed list saving in dollars as their stablecoin objective, 43% cited efficient currency conversion and 39% said yield generation. Gaining access to crypto exchanges remains the top use case for those surveyed, but a long tail or ordinary (non-crypto) economic activities is evident as well,” the report said.



Read more: <a href="https://blockworks.co/news/stablecoin-empire-emerging-economies-user-interface">Stablecoins are ‘a better product’ than local currencies in emerging economies, Carrica says</a>



“The findings are clear: non-crypto uses account for a meaningful share of stablecoin usage modes in the countries surveyed.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcyvbKQJGsZpUMo-FWEnTl2CZcGRl3gGWc-HK4M83_rWf78IfI-Nfp4kr_QEeXKJrwz6VJiRnc5vzSHUPW5VJ3pc6G0xJH93JpbqnubTZUWK4-7hlBQFTg4rvlodwgyk0N7FAg3WnphcTadWS_p-b7le7H-?key=vFvNC1NDWEBw6TGiMs3aEQ" alt=""/><figcaption class="wp-element-caption">Source: Castle Island Ventures, Artemis</figcaption></figure>



Nic Carter of Castle Island Ventures told Blockworks he’s been curious about tracking the data because he wanted to better understand how folks are using stablecoins.&nbsp;



From here, Carter will take the findings to Washington DC. Lawmakers on Capitol Hill, and various US officials, have been <a href="https://blockworks.co/news/federal-reserve-cbdc-tokenization-stablecoins">pretty vocal about their stablecoin opinions</a>. There is also a push from Senators Kirsten Gillibrand and Cynthia Lummis to <a href="https://blockworks.co/news/stablecoin-bill-bipartisan-support">introduce regulations around stablecoins</a>.



“If you&#8217;re <a href="https://blockworks.co/newsletter/daily/issue/post_6e8e2c0b-f694-4fee-8e50-1d45832b905e">looking at emerging markets</a>, this is a case of currency substitution where savings would be held in the naira or the Turkish lira or the Indian rupee, and it&#8217;s actually being converted into the dollar,” Carter explained.



“So this is a positive buying pressure for the dollar and all the dollar assets that the stablecoin issuers hold (which are Treasurys). So my point is: This is a flow into the dollar. It&#8217;s a new source of demand. It&#8217;s very meaningful, and obviously it&#8217;s supportive of US interests.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdTk84nqV7WNG0eiysle-8aRgNsb-pk_UFf52DDdzNtCrxR7UZkSv03n67lES8jIiveZe9thRvyDG2r3NTfE7dBm22X-tvF1M5iqirGCSUorAE67kQa0gU-oHztjMb4G_yR8dnYojWKtKpB8v8UtvlZNwg?key=vFvNC1NDWEBw6TGiMs3aEQ" alt=""/><figcaption class="wp-element-caption">Source: Castle Island Ventures, Artemis</figcaption></figure>



But while it may impress US lawmakers, those in, say, Nigeria might not be as thrilled with some of the results. As we’ve <a href="https://blockworks.co/news/binance-ends-support-nigeria-naira">previously reported</a>, Nigeria became more hostile toward crypto earlier this year, <a href="https://blockworks.co/news/binance-employees-detained-nigeria">detaining two Binance executives</a> (American <a href="https://blockworks.co/news/continued-detainment-binance-executive-outrageous">Tigran Gambaryan</a> is still being held in the country), and charging Binance with tax evasion and money laundering.&nbsp;



Nigeria’s attempts to regulate the industry have perhaps not been as successful as the country hoped, based on the data snapshot from the report. The survey took place from May to June earlier this year, with some onchain data being gathered through July. Nigeria arrested Gambaryan at the end of February.



“Nigerians love <a href="https://blockworks.co/tag/stablecoins">stablecoins</a>,” Carter noted. Perhaps the country even has a right to be “paranoid,” given that the full survey results show that Nigeria came out on top in every category.&nbsp;



Users in the country “transact most frequently, stablecoins compose the largest share of respondent portfolios, they report the highest share of non-crypto-trading uses for stablecoins, and they maintain the highest self-reported knowledge of stablecoins,” the report stated. Other countries such as Turkey had different uses for stablecoins (the report found that Turkish users tend to use them to earn yield, with trading closely following).&nbsp;



“I think there actually is a crypto dollarization event happening in <a href="https://blockworks.co/tag/nigeria">Nigeria</a>, as far as I can tell, where people are actively deserting the naira and going to dollars via stablecoins. I think this is ongoing. It&#8217;s the first real crypto dollarization event,” Carter told me.



He did warn that he’s not sure if you can “quantify that 15% of [naira’s] devaluation is due to crypto,” especially given that the survey targeted crypto users. But the results show that perhaps Nigeria has a right to show concern.&nbsp;



Nigeria aside, the study was able to show that stablecoins, when used by some in emerging markets, allow access US dollar exposure, which could be interpreted as a boon for the US.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeBVX-KJ6Ukps7WbWWuc4U04DX75cRJXSAr3IzmtpiUhuu9Q2zV6rqoO9G7bmXmf2ks2fnhVNQTNxflJz1ELQVZIGk05a0jqXgDpUsYBgGRZIfD_GRBBssr6AKJCfgLLZm5IcMq6PToGZSXAbPM1daBYX7k?key=vFvNC1NDWEBw6TGiMs3aEQ" alt=""/></figure>



But, as stated above, there isn’t currently a regulatory framework for stablecoin issuers, even as Circle — the firm behind USDC — seeks to go public. But Carter also thinks that the issuers are “stymied” because none of them can issue interest-bearing stablecoins.&nbsp;



“All of the interest bearing stablecoins, they&#8217;re issued overseas,” he said. Carter pointed to Paxos, which has an interest-bearing stablecoin in Dubai despite being a US-based company. Offerings from Mountain Protocol and Ethena are also offshore.&nbsp;



“…I do think that the interest-bearing stablecoins will out-compete the ordinary ones at the margin with time. So they can&#8217;t do that in the US, because the [Securities and Exchange Commission] is so adamant that it makes it a security, right? So that&#8217;s one of the issues that&#8217;s…hobbled us for now,” Carter explained.&nbsp;



The report points out there’s not one single answer to address why stablecoins are so heavily dollarized.&nbsp;



“The US dollar is the global reserve currency but in no other category of usage does it dominate to the same extent it does with stablecoins,” it pointed out.&nbsp;



But there’s no denying that it seems to have hit its mark with stablecoins. Now time will tell if the US will take advantage of that.



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



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Nigeria is undergoing a ‘real crypto dollarization event’: Nic Carter

Macauley Peterson

Cross-chain swaps are getting a boost with the latest version of Squid, launched today.



Squid 2.0 introduces a new architecture that abstracts away chains to simplify even complex transaction flows with multiple hops.



The update includes performance and cost improvements, and expands Squid 2.0’s functionality into new areas such as 1:1 stablecoin transfers, <a href="https://blockworks.co/tag/real-world-assets">real-world asset</a> (RWA) transactions and advanced routing.



This new approach goes far beyond finding the most efficient bridge routes, according to Fig, Squid’s co-founder.



“We are a bridging tool in a certain way, but we think that we can change the way that swaps are also done,” Fig told Blockworks.



Read more: <a href="https://blockworks.co/news/squid-one-click-cross-chain-swaps-cosmos">Squid enables one-click cross-chain swaps on Cosmos</a>



A key innovation in Squid 2.0 is its graph-based architecture, which enables intelligent routing through over 110 liquidity sources across 77 chains. This ensures that swaps are executed using the most efficient paths, reducing costs and increasing execution speed.



“In Squid v1, it was a very simple routing algorithm — we would just always swap via wETH into USDC, and then we bridge and swap out on the other side. But with Squid v2, we&#8217;ve upped the infrastructure a lot.”



Squid’s new algorithm compares liquidity across multiple dexes and liquidity pools, automatically choosing the most cost-effective route. This focus on speed builds on the previous version&#8217;s <a href="https://blockworks.co/news/cross-chain-transactions-squid">Squid Boost feature</a>, which allows for sub-20 second swaps across chains, adding real-time quotes delivered in under half a second, the team says.



“There&#8217;s so much variation happening in cross-chain that we had to build a system which was able to adapt to all of the change in liquidity, of new technology, instantly and without us having to do anything manually on our side,” Fig explained.



Competition is heating up in the cross-chain space. Just this week, Osmosis debuted its latest product. Polaris, a cross-chain token portal, aggregates DEXs and leverages the Inter-Blockchain Communication (<a href="https://blockworks.co/tag/ibc">IBC</a>) protocol.



Osmosis co-founder Sunny Aggarwal pitched Polaris as a bid to tackle what he calls, “the Great Chain Divide.”



“Liquidity is fragmented and sticky on its native chain, driven by both inertia and incentives (everyone&#8217;s trying to build their own internal DeFi ecosystems!),” Aggarwal <a href="https://x.com/sunnya97/status/1833854378807087292">wrote</a> on X.



Squid similarly integrates liquidity from Osmosis, Astroport and other dex, not only in Cosmos but across multiple Ethereum layer-2s, Bitcoin (via the Chainflip cross-chain dex) and soon Solana as well.



ZeroDev also demoed a Magic Account, showcasing wallet abstraction with a user-centric design, including social login with passkeys and gasless transactions.



Read more: <a href="https://blockworks.co/news/vitalik-buterin-eip-account-abstraction">Vitalik rallies support for temporary smart wallets on Ethereum</a>



Squid is also advocating for a “token-first” approach that lets users interact seamlessly with their digital assets, regardless of which chain they reside on. For example, a user can see an aggregated USDC balance across chains, and have Squid automatically choose the most cost-efficient way to complete a transaction — say, swapping into a memecoin.



The interface will also address the problem of multiple wrapped versions of stablecoins that proliferate as a result of cross-chain bridging, Fig said. This solves a major UX pain point.



“We work with stablecoin providers directly, and then they will use <a href="https://blockworks.co/news/axelar-multichain-tokens">Axelar [Interchain Token Service</a>], or even if they don&#8217;t use it, we can swap the stablecoin on the other side,” he said.



This level of chain abstraction is a major milestone in creating a fully noncustodial, multichain environment.



“We can start to move to the world where you don&#8217;t see the chain ever,” Fig said. “We can move this ‘Coinbase experience’ — which is really what 99% of crypto in the world use — into a fully self-custodial environment with decentralized liquidity as well.”



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Squid sinks its tentacles into cross-chain abstraction

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<h2 class="wp-block-heading">Stable relationships</h2>



Maybe, just maybe there’s an argument to be made that <a href="https://blockworks.co/newsletter/daily/issue/post_6e8e2c0b-f694-4fee-8e50-1d45832b905e">stablecoins</a> are the most successful part of crypto at this moment.&nbsp;



Sorry, not sorry.&nbsp;



But really, we’ve talked about the incredible rise they’ve seen, and now Castle Island Ventures, alongside Artemis and Brevan Howard Digital have a new survey that looks into the prevalence of stablecoins in certain emerging markets.&nbsp;



The survey looked into roughly 2,500 crypto users in Nigeria, India, Turkey, Indonesia and Brazil.&nbsp;



“While the most popular goal for stablecoin users in the sample was trading crypto or NFTs, other non-crypto uses were not far behind. Overall, 47% of respondents indicated that one of their major goals was saving money in dollars, 43% mentioned better currency conversion rates, and 39 percent said earning a yield,” the report said.



“The findings are clear: non-crypto uses account for a meaningful share of stablecoin usage modes in the countries surveyed.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfUdSnUCNhrZhhBb6Q3WnkiBAh3zfRrj4wcM0y0pOa26EqN_L-c1xqYKRxKyONYb8d6zwPowg-4tF_YqNEoEEuq-VyU0ZggVtq1byaV0JOmJLT8u1WTMe-Ce0QD3mLToTLbjGiF1H4gqRH2APBDxSsJ-nyU?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Source: Castle Island Ventures, Artemis</figcaption></figure>



Nic Carter of Castle Island Ventures told me that he’s been curious about tracking the data because he wanted to better understand how folks are using stablecoins.&nbsp;



And part of the desire to run this study was to take it to politicians on Capitol Hill, which is Carter’s next step. Washington, and various US officials, have been <a href="https://blockworks.co/news/federal-reserve-cbdc-tokenization-stablecoins">pretty vocal</a> about their stablecoin opinions. Though some, like Senators Kirsten Gillibrand and Cynthia Lummis, are also <a href="https://blockworks.co/news/stablecoin-bill-bipartisan-support">looking to introduce</a> regulations around stablecoins.



“If you&#8217;re looking at emerging markets, this is a case of currency substitution where savings would be held in the naira or the Turkish lira or the Indian rupee, and it&#8217;s actually being converted into the dollar,” Carter explained.



“So this is a positive buying pressure for the dollar and all the dollar assets that the stablecoin issuers hold which are treasuries. So my point is, this is a flow into the dollar. It&#8217;s a new source of demand. It&#8217;s very meaningful, and obviously it&#8217;s supportive of US interests.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfmeM1uL0NrzXatUuVTwPG0yg_Vxgw1_bKEL5QPgxyn8Os8Mpz6uQmIMerWByso7kCqbOUgfx6L793OFQyyqb8IWXVv_pcfvfmP3YYVzayPyB5Jwp8WzZNhFIAT3PfUW-9vm07DntuK0nd4tgwzAVNCTjm_?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Source: Castle Island Ventures, Artemis</figcaption></figure>



But while it may impress US lawmakers, those in, say, Nigeria might not be as thrilled with some of the results. As we’ve <a href="https://blockworks.co/news/binance-ends-support-nigeria-naira">previously reported</a>, Nigeria became more hostile toward crypto earlier this year, detaining two Binance executives (one of which, <a href="https://blockworks.co/news/continued-detainment-binance-executive-outrageous">Tigran Gambaryan</a> is still being held in the country), and charging Binance with tax evasion and money laundering.&nbsp;



Nigeria’s attempts to regulate the industry have perhaps not been as successful as the country hoped, based on the data snapshot from the report. The survey took place from May to June earlier this year, with some onchain data being gathered through July. Nigeria arrested Gambaryan at the end of February.



“Nigerians love stablecoins,” Carter noted. Perhaps the country even has a right to be “paranoid,” given that the full survey results show that Nigeria came out on top in every category.&nbsp;



“I think there actually is a crypto dollarization event happening in Nigeria, as far as I can tell, where people are actively deserting the naira and going to dollars via stablecoins. I think this is ongoing. It&#8217;s the first real crypto dollarization event,” Carter told me.



He did warn that he’s not sure if you can “quantify that 15% of [naira’s] devaluation is due to crypto,” especially given that the survey targeted crypto users, but the results show that perhaps Nigeria has a right to show concern.&nbsp;



Putting Nigeria aside, the study was able to show that stablecoins, when used by some in emerging markets, allow access to exposure to the US dollar.&nbsp;



They aren’t just a trading tool, and the result is something far more powerful than we’ve perhaps ever realized.&nbsp;



— Katherine Ross



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



<ul class="wp-block-list">
<li>Following Wednesday’s CPI print, BTC is up 2.2% while ETH is up less than a percent (BTC: $58,102; ETH: $2,347)</li>



<li>Stablecoins have a global market cap of $171 billion, down slightly over the past 30 days per <a href="https://app.rwa.xyz/stablecoins">rwa.xyz</a>.</li>



<li>Polygon has shed <a href="https://defillama.com/stablecoins/chains">almost</a> 5% of its stablecoin supply in the past week, now at $1.944 billion.</li>



<li>Ethereum <a href="https://defillama.com/bridges/chains">bridges</a> have seen $315.8 million in net inflows in the past week. Over $432 million net has meanwhile flowed out from Arbitrum bridges.</li>



<li>USDT contributed over 76% of the global stablecoin trade volume over the past day, per <a href="https://www.coingecko.com/en/categories/stablecoins">CoinGecko</a>.</li>
</ul>



<h2 class="wp-block-heading">Backed by bitcoin</h2>



Word is going around that Tether earns more profit than BlackRock.



Kinda, but also not.&nbsp;



Tether has made it a habit of reporting quarterly profit numbers alongside its attestation reports. Those reports describe the assets in the pool of reserves that give tethers their value.



As of its most recent <a href="https://assets.ctfassets.net/vyse88cgwfbl/6h4YWqZOXbwtBaPtYgICGy/d7462f312aa15b872f8474322ba90363/ISAE_3000R_-_Opinion_on_Consolidated_Financials_Figures_30.06.2024_RC134792024BD0209.pdf">attestation</a>, for the end of Q2, there was almost $118.44 billion backing the tethers in circulation — conveniently over $5 billion more.



Which means all tethers were all properly backed by an equivalent value of assets in reserve, and then some. (It’s worth noting that attestations are not audits and Tether has never actually been “audited,” for <a href="https://www.dlnews.com/articles/markets/tether-ceo-just-told-us-why-the-big-4-wont-audit-its-books">reasons</a>.)



Short-dated US Treasurys made up around 68% of Tether reserves, with reverse repurchase agreements, money market funds, secured loans and bitcoin the next largest categories.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfMNPqqmpn1f4Gh8gDEJ8HTdU__gN-Z1XKxnsAbQBz7bTzd9gWnuDbSzXyqXI-kxmRPnxkV9xZTyRJsXFPi3XcovzJvuwzCWsGtGU8UtUFt5qM22zYtfF4P0AgytpjT6Vo4gCSR_QC_GtWLI3OI81rCMEU?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Tether has been adding bitcoin to its reserves, rising from 2% of the total to 4% over the past year</figcaption></figure>



Tether reported $1.3 billion in quarterly profit alongside that Q2 disclosure. A staggering amount considering how few people it employs — believed to be under 100.



Most of that profit comes from the US Treasurys it buys. Three-month Treasury bills currently carry a rate of 4.85%, and considering Tether owned almost $81 billion worth, the 10-figure profit sounds about right.



What isn’t usually discussed is that Tether is lumping in the profit from US Treasurys with the mark-to-market gains of its bitcoin and gold holdings, as outlined in one of its blog <a href="https://tether.io/news/tether-releases-q1-2024-attestation-reports-record-breaking-4-52-billion-profit-highest-treasury-bill-ownership-percentage-ever-total-group-equity-of-11-37-billion/">posts</a>. And it’s inflating Tether’s profit numbers.



Take this year’s first quarter. Tether reported a throat-tightening $4.52 billion in profit. At the same time, the price of bitcoin went up almost 70%, which Tether apparently considers free profit.



Tether reported that its bitcoin holdings increased in value by $2.56 billion throughout that period — from $2.82 billion to $5.37 billion. The firm appears to have bought 8888.88 BTC throughout the quarter, going by the attestations and its onchain history, but we don’t know at what price Tether bought those coins.&nbsp;



If we take the average price of bitcoin over the quarter, Tether would’ve spent $481.5 million on that BTC.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdbys3ygg4l4TOrWLE8L7h4fP0PAwyTyqDtLz_hS2VhsTvI8WSH2QfFtnZQ5LM94C1eu3L7J9Ja2yaV6t3hOVlqy5BgUguHFbTyeaqgRgeYhQT23l691lmqITYg86KPr4m4X0D4-7a70nwI2Zv4y3r0j02m?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Estimated bitcoin profits are in orange, US Treasurys in blue and gold in yellow. The price of bitcoin is shown by the orange line</figcaption></figure>



Subtract that from the increase in value and you get Tether’s quarterly “bitcoin profit”: $2.08 billion, or 46% of the total that Tether reported. US Treasurys would’ve otherwise contributed 51% while gold’s price appreciation perhaps gave around 3%.



While bitcoin made up less than 5% of Tether’s reserve portfolio, it contributed nearly half of its reported quarterly profits.



This, of course, means that Tether’s profits are reduced when the prices of bitcoin and gold go down.&nbsp;



Tether reported only $1.3 billion in profit in Q2, down nearly 70% from the prior quarter, even though it held almost $6 billion more in US Treasurys.



The difference is largely because the price of bitcoin fell 12% between quarters, so the value of Tether’s bitcoin went down by $648 million. Had bitcoin retained its value, Tether would’ve reported almost $2 billion in quarterly profit.



So, does Tether earn more profit than BlackRock?&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcmtf21cdR7JMfN9avD8eKa-PAwEqMwIIQg89SfLStvLnCjuJ8EvxjaHRBdFZmdXRBOQU59tJ8FuqvjPF6hw12sj30fFtoeaf75hWT5DnsynpPV35Euzjmrv4c_K3MzlJ-Aduc5LFpaa_dU2XS85StVvvQ?key=ewaKEoD-_QkSQBF1xuhvMg" alt=""/><figcaption class="wp-element-caption">Watch for Tether to really blow BlackRock out of the water if it keeps buying loads of bitcoin</figcaption></figure>



Lumping in bitcoin and gold appreciation in with US Treasurys profits, sure. Tether has to actually continue buying US Treasurys to earn money from them, but it doesn’t have to do anything to report its bitcoin and gold profits, only hold.



But by that system, Tether has reported earning $12.72 billion in net profit since Q4 2022, compared to BlackRock’s $9.829 billion.



If you only count Tether’s disclosed profits without bitcoin and gold, Tether would’ve made under $7.7 billion. Still monstrous, sure, but falls just shy of outpacing the world’s largest asset manager.



Tether is likely, in any case, the most profitable crypto company in the world, and one of the most profitable outside of it as well.



Depending on your definitions of profit, it might still need a few more years to eclipse BlackRock — but it seems inevitable.



— David Canellis



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



<ul class="wp-block-list">
<li>Some consumers think that the popularity of stablecoins is going to fade, according to a Deutsche Bank <a href="https://www.coindesk.com/markets/2024/09/12/us-consumers-say-crypto-is-here-to-stay-stablecoins-maybe-not-deutsche-bank/?utm_medium=referral&amp;utm_source=rss&amp;utm_campaign=headlines">survey</a>.</li>



<li>The Swift network is <a href="https://www.swift.com/news-events/news/streamlining-global-movement-digital-assets-and-currencies?utm_campaign=Innovation&amp;utm_content=Oktopost-twitter&amp;utm_medium=organic_social&amp;utm_source=twitter">experimenting</a> with digital asset transactions. </li>



<li>Former WeWork CEO Adam Neumann’s startup Flowcarbon is returning investor funds, Forbes <a href="https://www.forbes.com/sites/sarahemerson/2024/09/11/adam-neumanns-climate-company-is-issuing-refunds-after-failing-to-launch-crypto-token/">reported</a>. </li>



<li>Standard Chartered analysts <a href="https://www.theblock.co/post/316075/bitcoin-price-record-high-us-election?utm_source=rss&amp;utm_medium=rss">wrote</a> that bitcoin could top $125,000 with a Trump presidency and $75,000 with Harris.</li>



<li>The CFTC announced a <a href="https://www.cftc.gov/PressRoom/PressReleases/8963-24?utm_source=govdelivery">partnership</a> to educate people on pig butchering scams. </li>
</ul>



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



Q: Do crypto crackdowns work?



Doubtful. When the technology is applied correctly, it’s generally resilient to most kinds of crackdowns.



In January 2022 — four months after China effectively banned bitcoin mining in multiple regions — the mainland still <a href="https://www.cnbc.com/2021/12/18/chinas-underground-bitcoin-miners-.html">contributed</a> an estimated 20% of bitcoin’s hash rate, according to the Cambridge Bitcoin Electricity Consumption Index, which unfortunately is no longer updated.



Granted, it’s difficult to know for sure where bitcoin miners are coming from. Cambridge was using IP addresses to derive locations, which can be muddied with VPNs and the like.&nbsp;



There are otherwise <a href="https://cryptoslate.com/bitcoin-minings-silent-comeback-in-china-according-to-industry-insider/">anecdotes</a> that suggest bitcoin mining is indeed still happening in China.



Similarly, ransomware is still prevalent <a href="https://www.wired.com/story/state-of-ransomware-2024/">despite</a> the US government crackdown that started in 2021. And Tether is still the number-one stablecoin by far, even after all of its battles with authorities.



Might things have been much worse if there were no crackdowns at all? Perhaps. So, whether that means they’ve “worked” is probably more political than empirical.



— David Canellis



If we’re talking about a government or regulator trying to step in after crypto has found some niche use cases in the population, then I don’t think so.&nbsp;



This, I think, is especially true when it comes to economies or countries where there are either gaps in the financial system, or the population’s financial needs are not fully being met. That is one of the core designs of crypto, after all.&nbsp;



Take Nigeria. The country took action earlier this year, hoping to swiftly curtail the amount of crypto activity going on. But the data from the survey shows that many are still finding ways to access and utilize crypto.&nbsp;



The US, though far different in its financial set up, is similar. It may be an uncomfortable sector to work in until proper regulation is in place, but that’s not killing or stifling innovation.&nbsp;



— Katherine Ross



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Are stablecoins crypto’s big success?

The Securities and Exchange Commission has reached a settlement with eToro.



eToro was charged with operating as an unregistered broker in connection with its crypto trading platform. As part of the settlement, eToro will end most of its crypto trading activity on the platform, according to the Thursday announcement from the SEC.



Earlier this week, eToro announced that it would alter its crypto offerings “due to the regulatory environment.”



US users can only trade bitcoin, bitcoin cash and ether. Other positions will be liquidated in mid-March of next year.



“Proceeds from these liquidations will be transferred to users’ available cash balance in their investment accounts,” the company <a href="https://www.etoro.com/en-us/news-and-analysis/etoro-updates/changes-to-our-crypto-offerings-for-us-users/">added</a>.&nbsp;



Additionally, eToro will pay the SEC $1.5 million to settle the charges, and the company walks away without admitting or denying the findings from the SEC.&nbsp;



“The SEC’s order finds that, since at least 2020, eToro operated as a broker and clearing agency by providing U.S. customers the ability, through eToro’s online trading platform, to trade crypto assets being offered and sold as securities, but eToro did not comply with the registration provisions of the federal securities laws,” the SEC <a href="https://www.sec.gov/newsroom/press-releases/2024-125">said</a>.&nbsp;



“By removing tokens offered as investment contracts from its platform, eToro has chosen to come into compliance and operate within our established regulatory framework. This resolution not only enhances investor protection, but also offers a pathway for other crypto intermediaries,” SEC’s Gurbir Grewal said.



This is not the first time that the SEC’s targeted a financial services company. The SEC previously <a href="https://blockworks.co/news/robinhood-wells-notice-sec">issued Robinhood a Wells notice</a>, though it has yet to announce any formal legal action following the notice.



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eToro to cease most crypto offerings after SEC settlement

21Shares is adding two partners to safeguard assets for its US bitcoin and ether ETFs.



The crypto ETP issuer has tapped federally chartered Anchorage Digital Bank and digital asset security-focused BitGo to be custodians for the Ark 21Shares Bitcoin ETF (ARKB) and the 21Shares Core Ethereum ETF (CETH).



These two companies will join Coinbase, a crypto exchange that acts as a custodian for a majority of the US-listed spot BTC and ETH funds.&nbsp;



“We consider our custody partners to be crucial to the risk management and operational excellence of our product lineup, and diversification adds to the safety and security of our offering,” <a href="https://blockworks.co/tag/21shares">21Shares</a> investment management head Andres Valencia said in a statement.&nbsp;



Read more: <a href="https://blockworks.co/news/21shares-us-crypto-etf-adoption-outlook">21Shares exec talks US crypto ETF adoption, where we go from here</a>



As the only digital asset bank with a charter from the Office of the Comptroller of the Currency, Anchorage offers “federally regulated and bankruptcy-remote custody” for crypto-native and traditional asset managers, Anchorage Digital CEO Nathan McCauley told Blockworks.&nbsp;



<a href="https://blockworks.co/tag/anchorage-digital">Anchorage</a> meets the Securities and Exchange Commission’s definition of a “qualified custodian,” McCauley has said — a term included in the regulator’s February 2023 <a href="https://www.sec.gov/news/press-release/2023-30">proposal</a> that would “entrust safekeeping of client assets” to such entities.&nbsp;



“Our technical differentiators — including offline key storage, low-latency architecture and efficient share creation and redemption — are a major unlock for ETF providers,” he added.&nbsp;



<a href="https://blockworks.co/tag/bitgo">BitGo</a> CEO Mike Belshe lauded 21Shares’ multi-custodial approach in a statement, adding that his company offers “100% cold storage.”



ARKB, which launched in January, has about $2.5 billion assets under management. Hitting the market more recently in July, CETH manages $9 million in assets.&nbsp;&nbsp;



The decision to add more custodians for the funds comes after the FBI said in a <a href="https://www.ic3.gov/Media/Y2024/PSA240903">statement </a>last week that “malicious cyber actors” from North Korea conducted research on targets connected to cryptocurrency ETFs in recent months.



Such actors pose “a persistent threat to organizations with access to large quantities of cryptocurrency-related assets or products,” the agency added.



While most issuers of the spot bitcoin and ether ETFs use Coinbase as a custodian, Fidelity self-custodies and VanEck uses Gemini.



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Crypto ETF issuer 21Shares diversifies its custodian roster

While some were hopeful we could hear a crypto question at last night’s debate, that clearly didn’t happen.&nbsp;



Questions focused mainly on inflation, immigration, abortion and foreign policy — all hot-button issues deserving attention.



While Chamber of Progress financial policy director Kyle Bligen wrote a <a href="https://progresschamber.org/wp-content/uploads/2024/09/Letter-to-ABC-Debate-Mods_-Crypto-Question-1.pdf">letter</a> last week urging ABC News’ David Muir and Linsey Davis to “illuminate the candidates’ stances on crypto” during the Tuesday night event, such a question didn’t make the cut.&nbsp;



Read more: <a href="https://blockworks.co/news/harris-trump-crypto-mentions-presidential-debate">Will Trump and Harris field a crypto question during tonight’s debate?</a>



Tim Kravchunovsky, founder of decentralized telecommunications network Chirp, said the lack of crypto discussion during the debate was disappointing, but not surprising.&nbsp;



“It was simply proof that crypto is nowhere near as important to either presidential candidate as it is to us in the Web3 world,” Kravchunovsky said in a statement.



In terms of crypto market reaction to the debate, bitcoin dipped by about 2% during and immediately after the debate before paring losses Wednesday. BTC’s price was about $57,700 at 4 pm ET — roughly flat from 24 hours ago.



To date, <a href="https://blockworks.co/tag/donald-trump">Trump</a> has vocalized <a href="https://blockworks.co/news/on-the-margin-newsletter-trump-bitcoin-mining-meeting">support</a> for US bitcoin mining, <a href="https://blockworks.co/news/donald-trump-speaks-bitcoin-2024">vowed</a> to fire Securities and Exchange Commission Chair Gary Gensler, said he would stop government sales of seized bitcoin and promised to make the US the “<a href="https://blockworks.co/news/donald-trump-economic-new-york-club-comments">world capital</a> for crypto and bitcoin.”&nbsp;



While Harris has been quiet on the subject, a policy adviser for her campaign said last month the vice president would “support policies that ensure that emerging technologies and that sort of industry can continue to grow.”



BDE Ventures CEO Brian Evans had told Blockworks that because Harris hadn’t made the type of <a href="https://blockworks.co/news/donald-trump-touts-new-family-defi-project">crypto comments Trump has</a>, any pro-crypto debate remarks from her in particular “might cause a bit of a market bounce.”



She did not make such comments.&nbsp;



<a href="https://blockworks.co/tag/kamala-harris">Harris</a> did note that “a policy about China should be in making sure the United States of America wins the competition for the 21st century,” mentioning the importance of winning the race on AI and quantum computing.&nbsp;



The conversation, though, quickly turned away from technology.



Some industry executives had predicted positive movement for BTC if Trump performed especially well. Many viewers didn’t view that the case, with data from Polymarket showing the odds of a Harris debate victory (according to polls) quickly rising above 90% during the event (and <a href="https://polymarket.com/event/who-will-win-the-debate-according-to-polls?tid=1726035558946">landing</a> at 99% on Wednesday morning).



The odds of Trump and Harris winning the election stood at 49% each after the debate, Polymarket showed, as Harris closed Trump’s pre-debate lead. Trump had <a href="https://polymarket.com/event/presidential-election-winner-2024?tid=1726023650646">regained</a> the slight edge by 4 pm ET, at 50% to 49%.



While more crypto policy details from both candidates could come over the next two months, “we shouldn&#8217;t pin all our hopes on politics,” Kravchunovsky noted in the statement.



He added: “The outcome of the US election will for sure have an impact on crypto, but it may not be as profound as many seem to think.”&nbsp;



As for an upcoming likely market-moving event, industry eyes will be on the Federal Reserve’s interest rate decision next week.



Read more: <a href="https://blockworks.co/news/september-events-that-could-move-markets">The September events that could move markets</a>



CME Group’s FedWatch <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">tool</a> shows an 85% probability of the central bank cutting rates by 25 basis points at its Sept. 18 meeting, and a 15% chance the Fed executes a 50 bps cut.  



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



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The debate came and went without a crypto mention. What now?

tZero Group Inc. has earned its special purpose broker dealer license in the US, the company announced Tuesday, becoming the second ever to do so.&nbsp;



“This is a unique opportunity for us to develop the infrastructure to support regulated digital assets in the United States,” Alan Konevsky, chief legal officer at tZero, told Blockworks.&nbsp;



The <a href="https://files.brokercheck.finra.org/firm/firm_123421.pdf">license</a> permits tZero to custody digital asset securities, similar to Prometheum Inc., which became the first digital asset firm to obtain this type of license last year. Both companies must treat any custodied tokens as securities, regardless of how issuers themselves identity them.&nbsp;



Read more: <a href="https://blockworks.co/news/empire-newsletter-sec-third-party-crypto-asset-securities">Why SOL, MATIC and others could still be under SEC threat</a>



Konevsky hopes the license — which took tZero three and a half years to earn — will create a path forward for safe, regulated digital asset securities trading in the US.&nbsp;



“It&#8217;s fine to say that a number of these assets should be treated as securities,” Konevsky said.&nbsp;



“What&#8217;s not fine is to take that position and not permit the marketplace to develop the right kind of regulated infrastructure to support digital asset security trading. That&#8217;s not really consistent with the position and objective that these are regulated assets and you need to treat them that way.”&nbsp;



A day after tZero announced its license, Prometheum revealed additional assets that will be supported on its newly-launched institutional custodian platform: Optimism (OP) and The Graph (GRT). Prometheum <a href="https://blockworks.co/news/prometheum-custody-platform-arb-uni">previously said</a> that its platform will include ETH, Uniswap (UNI) and Arbitrum (ARB).&nbsp;



tZero, Konevsky said, “will support custody of any digital asset security that it can lawfully custody, pursuant to guidance from the [Securities and Exchange Commission] and FINRA.” This includes potential assets that were not initially issued as registered securities but ones “the SEC now deems to be securities,” he added, provided regulators create a “pathway” for how these assets can be legally traded by a broker dealer.&nbsp;



“To our knowledge, this guidance has not been provided for the kinds of assets that Prometheum identified in its filings,” Konevsky said.&nbsp;



“We would welcome guidance and clarity from the regulators on how we can lawfully support those types of assets, and then we&#8217;ll execute on that guidance,” he added.&nbsp;



Prometheum CEO Benjamin Kaplan said his firm “is able to offer custody of digital asset securities through its SPBD.”&nbsp;



“As of today we are open for business for financial institutions, corporates or institutional investors seeking a qualified custodian to custody ETH, ARB, UNI, OP and GRT and very much look forward to continuing to expand those offerings across the wide spectrum of digital asset securities,” Kaplan added.&nbsp;



tZero plans to launch its custody service early next year, the company said, with its first asset being the firm’s own preferred stock, TZROP, which has been trading since 2019.&nbsp;



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



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tZero announces SPBD license as Prometheum moves ahead with custody platform 

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



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



<ul class="wp-block-list">
<li>The last big inflation print ahead of the Fed’s interest rate decision is in.</li>



<li>After no crypto chatter during last night’s debate, one exec says “we shouldn&#8217;t pin all our hopes on politics.” </li>



<li>The newest US-licensed SPBD said it will list its own stock as a digital asset security first.  </li>
</ul>



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



<h2 class="wp-block-heading">CPI shows no surprises&nbsp;</h2>



We are one week out from the Fed’s next interest rate decision, and the data is making a strong case for a 25-basis point cut. Those hoping for 50 bps, I wouldn’t hold your breath.&nbsp;



Today’s consumer price index (CPI) report showed inflation is rising right in line with expectations (+0.2% in August). The annual inflation rate came in at 2.5% in the 12 months ending in August, the lowest year-over-year rate since February 2021.&nbsp;



Core CPI, which excludes volatile food and energy prices, rose slightly more than expected over the month — coming in at +0.3% in August compared with the expected +0.2%. Twelve-month core CPI sits at 3.2%, again, in line with expectations.&nbsp;



Even as the data came in more or less as predicted, markets were not thrilled, at least initially.&nbsp;



The S&amp;P 500 lost as much as 1.6% in the hours after the report was published. The index later pared losses and was trading 0.2% higher on the day at 2 pm ET.&nbsp;



The Nasdaq Composite similarly posted an early slip, falling as much as 1.5% this morning. The tech-heavy index bounced back though, and was trading 1% higher at 2 pm ET.&nbsp;



Bitcoin and ether, on the other hand, were mixed. Bitcoin was in the green, posting a gain of 0.2% over 24 hours at 2:10 pm ET, according to Coinbase data. Ether was down 1.3% at the same time.&nbsp;



It’s not enough (for me, at least) to confidently say risk-on is back (BTC is down over the week and month), but it’s an encouraging sign. If the Fed opts for a cut of 50 bps or higher (humor me here), risk-on is going to unwind, and fast.&nbsp;



“Investors would trade cautiously to weather market conditions, which could hurt risk-on assets in the short-term,” 21Shares research analyst Leena ElDeeb said of a more aggressive rate cut. “However, it doesn’t change the long-term prospects of Bitcoin, whether fundamentally or even in relation to macroeconomics.”



In terms of future market moves, Michael Brown, senior research strategist at Pepperstone, said it’s important to remember how low the Fed could go.&nbsp;



“With 500 bps of room to reduce rates, as well as the potential to bring quantitative tightening to an end were conditions to require it, the ‘Fed put’ remains as strong and as forceful as ever,” Brown said. “In turn, this should see equity dips remain relatively shallow in nature, and give investors confidence to continue positioning themselves further out on the risk curve.”



Data from CME today shows an 87% chance of a 25 bps rate cut next week and a 45% chance of another 25 bps decrease in November.&nbsp;



In terms of predicting the rate cut size, we know the labor data is really the more important factor given we can now surmise the Fed is confident inflation is trending toward the coveted 2% level. Remember, the August jobs report showed that job gains missed by almost 20,000, and we got a significant revision for July and June’s figures.&nbsp;



More disappointing data in September could be enough to sway central bankers to act more aggressively. My money (and it seems like most people’s) is on a 25 bps cut next week, but more rapid cuts down the line are very much still on the table.&nbsp;



— Casey Wagner



<h3 class="wp-block-heading">$13 million</h3>



The price Michael Saylor expects bitcoin can hit 21 years from now. In case you missed it, he said this during a Monday <a href="https://x.com/saylor/status/1833106549432094956">interview</a> on CNBC.



The value is more than four times the $2.9 million BTC price <a href="https://www.vaneck.com/us/en/blogs/digital-assets/matthew-sigel-bitcoin-2050-valuation-scenarios-global-medium-of-exchange-and-reserve-asset/#bitcoin-scaling-and-l2s">prediction</a> (by 2050) VanEck analysts made in July, citing “its adoption as a global medium of exchange <a href="https://blockworks.co/news/on-the-margin-newsletter-btc-strategic-reserve-asset">and a reserve asset</a>.”



We know there are a lot of huge bitcoin price predictions out there and that Saylor is about as big <a href="https://blockworks.co/news/microstrategy-mstr-stock-btc-performance">a bitcoin bull as they come</a>. So feel free to take what anyone says with a full shaker of salt.&nbsp;



But I guess the point is that it’s still very early days for an asset that appears on a path to become much <a href="https://blockworks.co/news/on-the-margin-newsletter-tradfi-btc-transacting">more entrenched in the financial system</a>.&nbsp;



<h2 class="wp-block-heading">No crypto mention at debate</h2>



While some were hopeful we would hear a crypto question at last night’s debate, that clearly didn’t happen.&nbsp;



Questions focused mainly on inflation, immigration, abortion and foreign policy — all hot-button issues deserving attention.&nbsp;



Yes, maybe crypto should be more top of mind than alleged pet murders. But perhaps it’s a wake-up call that it may take awhile before the largest political bigwigs get into the crypto policy weeds.



Tim Kravchunovsky, founder of decentralized telecommunications network Chirp, said the lack of crypto discussion during the debate was disappointing, but not surprising.&nbsp;



“It was simply proof that crypto is nowhere near as important to either presidential candidate as it is to us in the Web3 world,” Kravchunovsky said in a statement.



In terms of crypto market reaction to the debate, bitcoin had dipped by about 2% during and immediately after the debate before moving back upward Wednesday.



BDE Ventures CEO Brian Evans had told Blockworks that because Harris hasn’t made the type of <a href="https://blockworks.co/news/donald-trump-touts-new-family-defi-project">crypto comments Trump has</a>, any pro-crypto debate remarks from the VP in particular “might cause a bit of a market bounce.”&nbsp;&nbsp;



We already know that didn’t happen. Though Harris did note “a policy about China should be in making sure the United States of America wins the competition for the 21st century,” mentioning the importance of winning the race on AI and quantum computing. (So in some ways similar to what a Harris campaign adviser <a href="https://www.bloomberg.com/news/articles/2024-08-21/harris-supports-policies-to-expand-crypto-industry-aide-says">told</a> Bloomberg News about Harris looking to grow “emerging technologies” in relation to a prior crypto-related question.)



Some industry execs also had predicted positive movement for BTC if Trump performed especially well. Many viewers didn’t agree that was the case, with data from Polymarket showing the odds of a Harris debate victory (according to polls) quickly rising above 90% during the event (and landing at 99% on Wednesday morning).



The odds of Trump and Harris winning the election <a href="https://x.com/Polymarket/status/1833686029976445248">stood at 49% each</a>, Polymarket showed Wednesday morning, as Harris closed Trump’s pre-debate lead.



While more crypto policy details from both candidates could come over the next two months (on a debate stage or otherwise), “we shouldn&#8217;t pin all our hopes on politics,” Kravchunovsky noted in the statement.



He added: “The outcome of the US election will for sure have an impact on crypto, but it may not be as profound as many seem to think.”&nbsp;



— Ben Strack&nbsp;



<h2 class="wp-block-heading">The new kid on the SPBD block</h2>



tZero Group Inc. has earned its special purpose broker-dealer license in the US, the company said Tuesday, becoming the second ever to do so. Blockworks spoke with CLO Alan Konevsky to hear about what’s next.&nbsp;



“This is a unique opportunity for us to develop the infrastructure to support regulated digital assets in the United States,” Konevsky said.&nbsp;



The <a href="https://files.brokercheck.finra.org/firm/firm_123421.pdf">license</a> permits tZero to custody digital asset securities, similar to Prometheum Inc., which became the first digital asset firm to obtain this type of license last year. Both companies must treat any custodied tokens as securities, regardless of how issuers themselves identity them.&nbsp;



Konevsky hopes the license, which took tZero three-plus years to earn, will create a path forward for safe, regulated digital asset securities trading in the US.&nbsp;



“It&#8217;s fine to say that a number of these assets should be treated as securities,” Konevsky said. “What&#8217;s not fine is to take that position and not permit the marketplace to develop the right kind of regulated infrastructure to support digital asset security trading.”&nbsp;



He added: “That&#8217;s not really consistent with the position and objective that these are regulated assets and you need to treat them that way.”&nbsp;



tZero plans to launch its custody service early next year, the company said. Its first asset is set to be the firm’s own preferred stock, TZROP, which has been trading since 2019.&nbsp;



“We look forward to uplifting it to a full digital asset security and then custodying it onchain with our new special purpose broker-dealer license,” Konevsky said.&nbsp;



tZero, Konevsky noted, “will support custody of any digital asset security that it can lawfully custody, pursuant to guidance from the SEC and FINRA.” This includes potential assets that were not initially issued as registered securities but ones “the SEC now deems to be securities,” he added. That is, provided regulators create a “pathway” for how these assets can be legally traded by a broker-dealer.&nbsp;



— Casey Wagner



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



<ul class="wp-block-list">
<li>The total value of crypto activity reached higher levels between Q4 of 2023 and Q1 of 2024 than those reached during the 2021 bull market, according to the latest Global Crypto Adoption Index published Wednesday by Chainalysis. India <a href="https://www.chainalysis.com/blog/2024-global-crypto-adoption-index/">ranked</a> first, the index showed, with Nigeria, Indonesia, the US and Vietnam rounding out the top five. The January bitcoin ETF launches in the US triggered more bitcoin activity across all regions, with particularly strong year-over-year growth in North America and Western Europe.</li>



<li>US-listed bitcoin ETFs saw net money flow in on Tuesday, amounting to $117 million, according to Farside Investors <a href="https://farside.co.uk/bitcoin-etf-flow-all-data/">data</a> — the highest positive total in about two weeks.  The country’s ETH funds also <a href="https://farside.co.uk/ethereum-etf-flow-all-data/">saw inflows</a> (albeit small) of $11 million, marking the first day of net inflows in September. Tuesday was just the third day that the higher-priced Grayscale Ethereum Trust (ETHE) saw zero flows (rather than net outflows) since converting to an ETF on July 23.   </li>



<li>Bitcoin miner CleanSpark has agreed to acquire seven more facilities in Tennessee for cash payments totaling $27.5 million. Expected to close on these sites later this month, the company expects the facilities to ultimately increase its hash rate by 22%.</li>
</ul>



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Final inflation outlook ahead of FOMC decision

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The Solana validator world is an interesting tangled web right now.&nbsp;



For starters, tips and fees on Solana transactions have declined along with the price of SOL from pretty stellar levels over the summer. <a href="https://blockworks.co/news/lightspeed-newsletter-small-solana-validators-struggle">As we covered last week</a>, smaller validators are particularly hard-hit by this, especially since the Solana Foundation lowered its commission caps for validators receiving stake from its delegation program.&nbsp;



For those smaller validators, and all Solana validators in general, the entire ballgame is drawing more delegated stake. Profits scale with stake for validators — who are responsible for verifying Solana blocks — while costs remain roughly fixed regardless of size. Validators can grow their stake by marketing themselves directly to stakers, or they can try to draw delegation from stake pools, which combine staked SOL and dole it out to multiple validators.&nbsp;



The second-largest stake pool, however, just made this harder to do.&nbsp;



<a href="https://blockworks.co/news/lightspeed-newsletter-stake-auction-marketplace">Marinade recently introduced</a> a “stake auction marketplace” (SAM) that delegates its stake based on which validator bids the most SOL. This has boosted mSOL’s native yield to 8.1%, higher than any stake pool with more than two staked validators, <a href="https://solanacompass.com/stake-pools">according</a> to Solana Compass.



Some validators have said that the only validators able to afford Marinade stake are ones who are participating in unsavory behavior such as sandwich attacks, which are exploitative trades at the expense of unsophisticated users. DeezNode, which is widely <a href="https://discord.com/channels/428295358100013066/673718028323782674/1275328813877694475">thought</a> to participate in sandwiching, draws a <a href="https://solanacompass.com/stake-pools/marinade">significant stake</a> from Marinade, per Solana Compass.



Jito and the Solana Foundation <a href="https://blockworks.co/news/lightspeed-newsletter-sandwich-attacks">have both taken aim at sandwiching</a>, which is a toxic form of what’s called maximal extractible value (MEV), but there doesn’t seem to be a silver bullet for the problem. I spoke to Marinade core contributor Michael Repetny to try understanding a bit more of the ethos behind SAM.



Repetny admitted that validators participating in its marketplace could “quite possibly” be sandwiching users, but added that a majority of Solana stake runs on an MEV client, and it’s impossible to fully prevent sandwiching without turning off MEV altogether. He added that he favors sandwiching being solved at the Solana core level, rather than at the validator level.&nbsp;



Repetny also argued that SAM is good for the Solana network because the rules are clear, and better yield could cause stakers to move away from large exchanges like Coinbase, which runs the third-largest validator.



In the end, Repetny’s view seemed to be one of pragmatism — if you can’t solve the negative externalities of MEV, then you can at least pass the yield back to stakers.&nbsp;



The amount of yield given to stakers is proportionally up by quite a bit this year, actually. Stakers were taking home around 1% of transaction fees and tips this week last year, <a href="https://app.blockworksresearch.com/analytics/sol?dashboard=sol-financial&amp;interval=weekly">according</a> to Blockworks Research. Today, stakers net 29% of fees and tips.



Not everyone agrees with Repetny’s approach, however. Yesterday, the Solana liquid staking project AeroSOL announced a stake pool called Aeropool, with a likely jab at Marinade.



“Modern delegation strategies often prioritize achieving the highest APY, resulting in a concentration of stake among a select few validators across various pools,” which contradicts Aero’s ethos, the project <a href="https://x.com/AeroPool_/status/1833558594241155531">wrote</a> on X.&nbsp;



Instead, Aeropool would delegate its 150,000 SOL to empower positive Solana contributors and attract new validators that could decentralize the validator set. In essence, Aeropool is willing to sacrifice some yield in exchange for rewarding desirable behavior. Repetny would likely argue that this is an impossible task.



It will be interesting to find out what the market thinks.



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Solana stake pools weigh yield against punishing sandwichers

It’s still very much a bull market for Base. But that hasn’t exactly converted to major profits just yet.



The Ethereum layer-2 is setting new records for transaction counts and unique active addresses every other day — recording over four million transactions per day from more than one million unique addresses right now.



Both those metrics can be easily boosted by Sybil bots and whatnot, but in any case, volumes on Base DEXs Aerodrome and Uniswap are holding <a href="https://defillama.com/chain/Base?volume=true&amp;tvl=false&amp;txs=false">steady</a>, while some others across other blockchains have fallen.&nbsp;



The blue line on the chart below shows the weekly transaction count for Base. The orange one plots the combined count for rival networks Arbitrum, Optimism and ZKSync.&nbsp;



Notice that <a href="https://blockworks.co/tag/base">Base</a> really kicked into gear after <a href="https://blockworks.co/news/ethereum-dencun-upgrade-mainnet">Ethereum blobs were introduced</a> with the Dencun hard fork in March.&nbsp;



Blobs gave layer-2s like Base their own specialized fee market, so that they would no longer compete with regular users for blockspace. This change has widely driven down median L2 fees to fractions of a cent and <a href="https://blockworks.co/news/ethereum-longest-inflationary-period-since-merge">turned ETH into an inflationary asset</a> all over again.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdJ_tSuak6N738toCaOTvsDbksQa6UR7DtcV7gTMN0Qep5KlV5SQvxGi9wInkjXkl1yGSf25ddKMld2G5gylL_PEmP32zxoviSCXWft0XmVVmVRq3IK8vXBDuly_QAPB4jrcJcVp8MplbcJTz0uztVdiq-N?key=p0TABPzAAW4W_FetrWCyBg" alt=""/><figcaption class="wp-element-caption">Blue line goes up, orange line goes down</figcaption></figure>



All that hasn’t converted to anymore profit for Base’s operator, <a href="https://blockworks.co/tag/coinbase">Coinbase</a>, despite the record high usage.



According to <a href="https://app.blockworksresearch.com/analytics/base?dashboard=base-onchain-activity">Blockworks Research</a> data, Base generated $5.6 million in average weekly profit in the four weeks after blobs were activated in March.



In the past four weeks, Base has made almost $407,000 in weekly profit on average — a reduction of over 90%.



(Profits for Base, alongside Arbitrum, Optimism and ZKSync are seen on the chart by the columns in the background.)



That calculation done on Base’s weekly transaction counts shows that onchain activity has jumped more than 80% across the same period.&nbsp;



Who knows if all those transactions would have occurred on Base (or anywhere else) had the fees not been slashed so much. It could also be that cheap fees have made running a layer-2 far less lucrative, particularly for companies solely focused on the network itself.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfFsiNnizw0cvMG3UAeRbQVB3K6adL4aZWpwu5qf4nlc9JiqCd3YsCD-cIsTbNQOc3ltcr1dacH3Nsh3wwHZUZf95KYULmmMj1z7y82wegiFdle-Hvp61XG1rsdR7UDVW1OSehvPFZzOR_0t6_MojetCQN6?key=p0TABPzAAW4W_FetrWCyBg" alt=""/></figure>



Still, any profit is, of course, a win. Blobs have made the operating expenses of Base practically insignificant — posting data to Ethereum mainnet cost Base under $11,000 last month, down from $3.8 million in February.



For scale, Coinbase the company made $36.15 million in profit overall in the second quarter of this year.&nbsp;



Base has otherwise raked in a $53.63 million profit since it came online last June, which works out to be $11.5 million per quarter on average. 



Not too shabby at all, even with blobs, and Base&#8217;s profit-sharing <a href="https://base.mirror.xyz/aBwt4flT1WAKJGQTj2AXBpH_8Qd3umQ-ZECLAJoO_nE">agreement</a> with the Optimism Collective.



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



Updated Sept. 12, 2024 at 2:36 am ET: Added reference to profit-sharing agreement.



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Base profits are down 90% despite 80% surge in transactions

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<h2 class="wp-block-heading">Why so sleepy?</h2>



It remains incredibly quiet out there as we continue this sideways action. I know I quoted Green Day the other day, but it really does feel like folks are waiting for the end of September to perk up.&nbsp;



Or perhaps everyone just wants someone else to make the first move that could break us out of this rut we’re in. Either way, it’s fairly quiet. Honestly, it’s been boring at times.



PitchBook’s Robert Le <a href="https://blockworks.co/news/crypto-funding-recovery-signs">said earlier this week</a> that projects are plotting out token launches, but everyone’s biding their time for the right moment. I think that narrative actually applies to the wider sector right now.



For what? Well, that’s the tricky part. What needs to be seen to engage again? There are probably a few different answers, but I think price action is the easiest to dig into.



I’m constantly hearing <a href="https://blockworks.co/news/btc-price-action-technical-analysis">bullish takes for the end of this year</a>, perhaps after the election. Now the data is starting to back that up.&nbsp;



While CME’s future premiums are nearing yearly lows, it would seem that offshore traders are continuing to remain bearish, K33 analysts wrote.&nbsp;



The good news is however buried, counterintuitively, in the bearish perp sentiment.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeWY_IgvTrsvrtjaPYdRANUbfTpdCWuGJVria4rBbtPLcuSr51DsxHLtuAaM_gR1RqjZL1xBAiiTYaVariubiVUcbwWC2HLjys91QtAqqB5dWY6eC_T-Hk66meR_iS_Kf95M9wk_4aX7pxr_i2Sal14ahk?key=-_eUuqD_k_SZiUZuReYjCg" alt=""/><figcaption class="wp-element-caption">Source: K33</figcaption></figure>



“The bearish perp sentiment reigns sticky, leading 30-day average funding rates to push to negative levels for the seventh time since January 2018. Our small sample of similar funding rate environments offers a very compelling case for aggressive exposure in BTC in the months ahead,” analysts Vetle Lunde and David Zimmerman said.



You see, there’s a pattern of monthly funding rates bottoming. And, yes, I know, that doesn’t sound good, but hold on.



After we get that bottom in, “the subsequent average 90-day returns sit at a massive 79%, while median 90-day returns sit at 55%” when looking at data going back to 2018.



Outside of the current market drivers (bitcoin is again heavily correlated with the S&amp;P, at a 23-month high), the other potential event on the horizon to watch are <a href="https://blockworks.co/news/ftx-latest-creditor-payback-proposal">FTX repayments</a>.&nbsp;



Now that we’ve digested Mt. Gox repayments and the impact they had, the market now gets to put another big bankruptcy behind it. Yay.&nbsp;



Those factors, alongside a Fed pivot, the US election, seasonality and delayed halving effects “supports our bullish end-of-the-year thesis,” K33 analysts said.



The potential end to the FTX bankruptcy (and, consequently, the repayments) starts to play out in early October, so we have a little under a month, given that the confirmation hearing is set for Oct. 7. We could see, pending the legal back and forth that needs to happen, repayments begin before the end of the year.&nbsp;



“Among the remaining creditors, we expect funds in the range of 20-40% of the payouts to be redeposited into crypto markets, as FTX’s trader base consisted of crypto-native aggressive risk takers,” K33 wrote.&nbsp;



Perhaps FTX will give us that jolt of energy to revitalize this sleepy market. Or maybe folks really are just waiting for the end of September. Less than three weeks left to go.



— Katherine Ross



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



<ul class="wp-block-list">
<li>BTC and ETH are down 1% each with markets mostly quiet directly following the Trump-Harris debate. (BTC: $56,750; ETH: $2,330.)</li>



<li>Not so for PolitiFi coins, with a string of Trump parody tokens <a href="https://www.coingecko.com/en/categories/politifi">sinking</a> sharply. MAGA fell 6%, MAGA Hat dropped 28.5%, and TREMP slipped 14%.</li>



<li>FTM, ASI and ICP are leading the top-100 in the past week, all gaining over 20%.</li>



<li>Scroll has entered the top-10 chains by <a href="https://defillama.com/chains">TVL</a> after adding 10% in the past month. It now has $694 million, slightly ahead of Hyperliquid and $50 million behind Blast.</li>



<li>Polymarket set consecutive records for daily trading wallets on Monday and Tuesday, coinciding with the debate: 10,672 and 12,128, per <a href="https://app.blockworksresearch.com/analytics/polymarket">Blockworks Research</a> data.</li>
</ul>



<h2 class="wp-block-heading">Burned by blobs</h2>



Crypto hasn’t pumped in so long that you might start to wonder: Are we close to another bear market?



Don’t tell that to Base. It’s setting new records for transaction counts and unique active addresses every other day — recording over four million transactions per day from more than one million unique addresses right now.



Both those metrics can be easily boosted by Sybil bots and whatnot, but in any case, volumes on Base DEXs Aerodrome and Uniswap are holding <a href="https://defillama.com/chain/Base?volume=true&amp;tvl=false&amp;txs=false">steady</a>, while some others across other blockchains have fallen.&nbsp;



The blue line on the chart below shows the weekly transaction count for Base. The orange one plots the combined count for rival networks Arbitrum, Optimism and ZKSync. Notice that Base really kicked into gear after Ethereum blobs were introduced with the Dencun hard fork in March.&nbsp;



Blobs gave layer-2s like Base their own specialized fee market, so that they would no longer compete with regular users for blockspace. This change has widely driven down median L2 fees to fractions of a cent and <a href="https://blockworks.co/news/ethereum-longest-inflationary-period-since-merge">turned ETH into an inflationary asset</a> all over again.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfJTjHquR41f2wivCAJ1RuziDpmLjiNtcM4JSSwzkhF3EJXDKvbu76Ddm2pZexoBihmrxWQoghioICMNUNKA82rrljFnnYsabPbsRbAsh7wljo2nwwYe4U_Caq_qsYaAqAuinU-5zx-me7GR-hYW5KgJbL2?key=-_eUuqD_k_SZiUZuReYjCg" alt=""/><figcaption class="wp-element-caption">Blue line goes up, orange line goes down</figcaption></figure>



All that hasn’t converted to anymore profit for Base’s operator, Coinbase, despite the record high usage.



According to <a href="https://app.blockworksresearch.com/analytics/base?dashboard=base-onchain-activity">Blockworks Research</a> data, Base generated $5.6 million in average weekly profit in the four weeks after blobs were activated in March.



In the past four weeks, Base has made almost $407,000 in weekly profit on average — a reduction of over 90%.



That calculation done on Base’s weekly transaction counts shows that onchain activity has jumped more than 80% across the same period.&nbsp;



(Profits for Base, alongside Arbitrum, Optimism and ZKSync are seen on the chart by the columns in the background.)



Who knows if all those transactions would have occurred on Base (or anywhere else) had the fees not been slashed so much. It could also be that cheap fees have made running a layer-2 far less lucrative, particularly for companies solely focused on the network itself.



Still, any profit is, of course, a win. Blobs have made the operating expenses of Base practically insignificant — posting data to Ethereum mainnet cost Base under $11,000 last month, down from $3.8 million in February.



For scale, Coinbase the company made $36.15 million in profit overall in the second quarter of this year.&nbsp;



Base has otherwise raked in a $53.63 million profit since it came online last June, which works out to be $11.5 million per quarter on average. 



Not too shabby at all, even with blobs, and Base&#8217;s profit-sharing <a href="https://base.mirror.xyz/aBwt4flT1WAKJGQTj2AXBpH_8Qd3umQ-ZECLAJoO_nE">agreement</a> with the Optimism Collective.



— David Canellis



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



<ul class="wp-block-list">
<li>Ex-Alameda CEO Caroline Ellison’s attorneys <a href="https://www.theblock.co/post/315772/caroline-ellisons-attorneys-claim-jail-time-is-unnecessary-ask-for-no-prison-term-citing-cooperation?utm_source=rss&amp;utm_medium=rss">asked</a> a judge to spare her any jail time ahead of her late September hearing, given her previous cooperation.&nbsp;</li>



<li>The SEC has imposed over $7 billion in fines against crypto firms since 2013, with $4.6 billion coming in 2024 alone, per a <a href="https://socialcapitalmarkets.net/crypto-trading/crypto-sec-fines-penalties/">report</a> from Social Capital Markets.</li>



<li>tZero became the second broker dealer to receive <a href="https://fortune.com/crypto/2024/09/10/tzero-special-purpose-broker-dealer-license-finra-sec-gensler-prometheum-crypto/">SEC approval</a>, following in the steps of Prometheum.</li>



<li>PayPal and Venmo <a href="https://x.com/ensdomains/status/1833536140529570039">integrated</a> with ENS Labs, allowing users to use their ENS names when transferring crypto.</li>



<li>Singapore is <a href="https://www.coindesk.com/policy/2024/09/11/singapore-investigating-seven-people-for-providing-worldcoin-services/?_gl=1*qkyyvu*_up*MQ..*_ga*MTg1NjMzMDU3Ni4xNzI2MDU3NDgz*_ga_VM3STRYVN8*MTcyNjA1NzQ4My4xLjAuMTcyNjA1NzQ4My4wLjAuOTU4OTk5OTI4">investigating</a> seven people who offered Worldcoin services and warned the public against selling or giving away their accounts or tokens.</li>
</ul>



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



Q: Was crypto snubbed at the debate?



I’d consider it conveniently forgotten.



It could be that whoever is in the White House come next January has a major impact on the future of crypto space — positive or negative.&nbsp;



Neither side has come out with any real hard policies on crypto, digital assets or blockchain, only soundbites from Trump and rumblings of industry outreach from Harris. Although, Trump has clearly been more openly agreeable.



I’m still naively positive that we’ll see some real crypto policies drip through both political machines in the next seven weeks or so.



It would definitely hurt to be forced into waiting until after the election to really learn what crypto is actually in for. Let’s hope that’s not the case.



— David Canellis



Yes, though neither candidate ever really focused on the economy, outside of the very first question.



There was a point where Harris said that she wants the US to “win the race on AI and quantum computing” and while there isn’t a race per se for crypto, it was a rare moment in the debate where I could have seen crypto come up naturally. Yet neither candidate mentioned it.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Basically every debate now starts with “the economy, the issue that matters most to voters” and then quickly moves on to … (gestures wildly)&mdash; Jim Tankersley (@jimtankersley) <a href="https://twitter.com/jimtankersley/status/1833681129980788982?ref_src=twsrc%5Etfw">September 11, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Don’t get me wrong: I am not surprised. Regardless of political beliefs, this debate was clearly less about policy and more about who could land the best punches.&nbsp;



And, honestly, I’m a little glad it didn’t get brought up. Yes, we need clarity on both candidate&#8217;s approaches to the crypto industry, but at last night’s debate it would have felt more like a hot potato than a serious campaign issue.



— Katherine Ross



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