SushiSwap is a decentralized exchange built on Ethereum that utilizes an automated market making system rather than a traditional order-book. Instead of matching individual buy and sell orders, users can pool together two assets that are then traded against, with the price determined based on the ratio between the two. SushiSwap began as a fork of Uniswap; however, is growing into a more diversified, more grassroots alternative.


Sushi

Michael McSweeney

Casey Wagner

David Canellis

Katherine Ross

<h2 class="wp-block-heading">Take it to the courts&nbsp;</h2>



Headlines about yesterday’s legal salvo by Consensys against the SEC focused on what the tech firm’s complaint said about Ethereum.&nbsp;



But the lawsuit has two major claims:&nbsp;



<ol>
<li>Consensys wants a ruling that ETH is not a security and an injunction that says the SEC has to leave it alone when it comes to any ETH-as-a-security-related claims and charges; and&nbsp;&nbsp;</li>



<li>Consensys wants a ruling that its MetaMask product is not a broker-dealer.&nbsp;</li>
</ol>



The complaint further confirmed a few things the industry has been speculating about for months:



<ol>
<li>The SEC served <a href="https://blockworks.co/tag/consensys">Consensys</a> several subpoenas in 2023 relating to ETH and the company’s involvement in improvement proposals and Ethereum’s shift to proof-of-stake, known as the Merge.&nbsp;&nbsp;</li>



<li>Consensys received a Wells notice stating the <a href="https://blockworks.co/tag/sec">SEC</a> wanted to pursue an enforcement action against them for alleged securities law violations via its MetaMask Swaps and Staking products.&nbsp;</li>
</ol>



The Wells notice, according to the complaint, didn’t seem to mention any charges against Consensys relating to ETH specifically. It begs the question, which I posed to X yesterday: why?&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">q for the legal minds&#8230; we know the SEC likes to name some tokens as securities in separate lawsuits (like SOL in the Binance and Coinbase suits) if they really are targeting ethereum, as Consensys and others say, why not name ETH?&mdash; Casey Wagner (@caseywagnerr) <a href="https://twitter.com/caseywagnerr/status/1783572448014725144?ref_src=twsrc%5Etfw">April 25, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



As some pointed out, the SEC in 2018 said ETH was a commodity. (<a href="https://blockworks.co/news/sec-emails-highlighting-alleged-conflict-of-interest-set-to-take-center-stage-in-ripple-trial">Thanks, Hinman</a>.) In its complaint, Consensys said they planned their entire business strategy based on this “regulatory consensus” (excellent word choice.)&nbsp;



Read more: <a href="https://blockworks.co/news/consensys-files-lawsuit-against-sec">SEC seeks to regulate ETH as a security, Consensys alleges in lawsuit</a>



But since then, Gary Gensler has been coy. He refused to give a “yes” or “no” when asked point-blank if ETH was a security during a 2023 hearing before Congress.&nbsp;



Another person chimed in that the statute of limitations on ICO charges — five years — has long passed for ETH. Plus, the Binance and Coinbase suits were brought in the summer of 2023, before the SEC’s ETH probes began to really pick up steam, at least publicly.



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



It’s a case to watch. The SEC has thus far declined to comment, but keep an eye on PACER — their response will no doubt be coming soon.&nbsp;



— Casey Wagner



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



<ul>
<li>ETH is trading around $3.1K, holding following the Consensys news.</li>



<li>Fidelity’s bitcoin ETF recorded outflows for the first time, with $23 million moved out of the fund Thursday.</li>



<li>CryptoPunk #635 sold for 4,000 ETH or $12 million, <a href="https://www.cryptoslam.io/cryptopunks/mint/635">according</a> to CryptoSlam.</li>



<li>Despite pressure from economic data Thursday, bitcoin’s trading steadily around $64K, up 0.34% Friday morning.</li>



<li>The Core PCE price index — the Fed’s preferred way to track inflation — came in at 2.8% year-over-year in March, slightly higher than expectations of 2.7%.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">A nice thought</h2>



Here’s one for the hopium addicts.



Bitcoin is tracking way ahead of where it was around the previous two <a href="https://blockworks.co/tag/bitcoin-halving">halvings</a>. In fact, it’s more in line with the monumental 2012 halving cycle than 2020’s or 2016’s, even with yesterday’s correction.



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



Tracking prices starting 200 days out from each halving shows bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) jumping up to 165% leading into the most recent event last Friday — from $27,430 in early October to $73,737 last month, a new record.



In 2016, bitcoin had risen 55% in the six and a half months leading up to that year’s halving, and in 2020 had managed just 25%.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/qgI2Sb0MynHhhDuyD7A8X-Ed3-8E5PqoiehJbQTxvo79b40srZiRDfK6hJDUsFr0hDIwdPALzYxIqU7jeRiDzVR73IRFK3cq4G1YWxx5op2JT81R216sOodAeIznRNuo3029GktfjjUZuSIPjQHigcA" alt=""/><figcaption class="wp-element-caption">If you liked these lines, wait ‘til you see what 2012 looks like</figcaption></figure>



Granted, there’s a certain amount of time bias here. It turns out that 200 days before this year’s halving coincided with the local bottom. The timing also lined up with what many considered to be the home stretch for <a href="https://blockworks.co/news/sec-approves-bitcoin-etf">SEC approval of spot ETFs</a> on US markets.



Still, the fact that bitcoin in 2024 — with a $535 billion market cap — outperformed pre-halving ghosts from previous cycles is notable. Bitcoin’s market cap was less than $150 billion in the leadup to its 2020 halving, and under $7 billion prior to 2016.



Read from our opinion section: <a href="https://blockworks.co/news/bitcoin-price-value-nonsense-fiat">Don’t let bitcoin be defined by its price</a>



Shows what nearly a decade of pent up ETF demand will do to a new asset class.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/6XbndRe80IswSDNuQ1z4xLdeFWt75RDkOexJODoSSA73EYxytiuknYUtzyicpia6t5__rTVmAtoA_I1M80K_2EYmnAbNqpBB7wr2x9CZnVyDvI1-y60ba63nIiBeJettYSR1H8S0U_vCSR2cxNoyCYc" alt=""/><figcaption class="wp-element-caption">In the 400 days surrounding the previous two halvings, bitcoin has finished the period having just more than doubled in price.</figcaption></figure>



Comparing bitcoin markets in 2012 to 2024 is largely pointless. Let’s pretend it’s not: Bitcoin was valued at about $150 million and rallied 152% in the months before the November halving, matching what happened this year.



The price of bitcoin went on to multiply 30 more times over the next four months. That’s probably unlikely. But here’s hoping.



— David Canellis



<h2 class="wp-block-heading">Not going anywhere</h2>



The lack of regulatory clarity isn’t just a point of frustration for crypto startups. Big companies like Cboe are also feeling the effects.&nbsp;



Just yesterday, <a href="https://blockworks.co/tag/cboe">Cboe</a> announced changes to its digital assets business. Namely, that it will wind down its Digital Spot Market, a digital asset trading platform, later this year.&nbsp;



Cboe said the changes were made following a “strategic review,” and they took “the lack of regulatory clarity in the digital space” into consideration.&nbsp;



The derivatives and securities exchange network isn’t the first company to raise concerns about the ongoing lack of clarity in the space, either. That’s been one of Coinbase’s top talking points as they battle the SEC in the courts.&nbsp;&nbsp;



And it doesn’t look like regulatory clarity is happening anytime soon, with SEC Chair Gary <a href="https://blockworks.co/news/sec-2023-crypto-enforcement-actions">Gensler’s current regulation-by-enforcement strategy</a> leaving many unknowns up to the courts.&nbsp;



Read more: <a href="https://blockworks.co/news/sec-delays-bitcoin-etf-options-proposals">SEC postpones decisions on bitcoin ETF options proposals</a>



Focusing on the data: Cboe saw average daily notional value of $154 million traded on its digital asset exchange. Compared to other segments, that’s not a huge sum. In fact, Cboe said that the wind-down will have an “immaterial impact” on net revenue this year.&nbsp;



The other changes, like transitioning bitcoin and ether futures contracts to the Futures Exchange from the Digital Exchange, and moving the digital assets derivatives business under its Global Derivatives and Clearing arm is, overall, a net positive.&nbsp;



Cboe global president David Howson <a href="https://www.prnewswire.com/news-releases/cboe-global-markets-realigns-digital-asset-business-leveraging-strength-and-expertise-in-derivatives-and-clearing-302127227.html">noted</a> that the company “expects to see greater demand for exchange-traded derivatives to help manage crypto exposures.”



Read more: <a href="https://blockworks.co/news/cboe-president-etf-comments">CBOE Digital president says a spot bitcoin ETF approval will promote derivatives growth</a>



Even as the company raises concerns about the lack of clarity in the US, the restructuring shows that Cboe is invested in digital assets. Moving products — take, for example, the cash-settled bitcoin and ether futures contracts — under larger business umbrellas will allow for more support on distribution and market structure.&nbsp;



Concerns aside, Cboe’s restructuring shows a specific focus on the strategy, which CEO Fred Tomczyk thinks will “enable greater optimization.”



Fun fact: Cboe was the first large US exchange to <a href="https://www.cnbc.com/2017/12/04/cboe-announces-it-will-launch-bitcoin-futures-on-dec-10.html">offer</a> bitcoin futures in 2017. They’ve been in the space for a while, and it doesn’t look like they’re planning to exit anytime soon.&nbsp;



— Katherine Ross



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



<ul>
<li>Pantera has <a href="https://www.bnnbloomberg.ca/pantera-capital-buys-another-trove-of-solana-tokens-from-ftx-auction-1.2065368">bought</a> more discounted SOL tokens from the FTX estate, according to Bloomberg.&nbsp;</li>



<li>Speaking of Pantera: Bloomberg also reported that the investment firm is <a href="https://news.bloomberglaw.com/crypto/pantera-capital-seeks-to-raise-1-billion-for-a-new-crypto-fund">eyeing</a> a new fund worth $1 billion.&nbsp;</li>



<li>Yao Qian, a key government official on China’s CBDC project, is <a href="https://twitter.com/WuBlockchain/status/1783765731710230693">said</a> to be under investigation.</li>



<li>The government of Quincy, Massachusetts, has <a href="https://twitter.com/EricJamesMason/status/1783548229688148338">sold a digital bond</a> on JPMorgan’s Onyx blockchain, the city’s CFO said on X.</li>



<li>Saudi Arabia is <a href="https://www.nytimes.com/2024/04/25/technology/to-the-future-saudi-arabia-spends-big-to-become-an-ai-superpower.html">investing heavily</a> in AI, according to the New York Times.&nbsp;</li>
</ul>



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



Mother’s Day is right around the corner.&nbsp;



So naturally, the denizens of the crypto world are choosing which NFT to purchase as a gift, right?&nbsp;



Enter former First Lady Melania Trump and a rather unimpressive-looking $245 necklace. The gist is, buy the necklace, and you’ll get an NFT as well —&nbsp;a Solana-based NFT, to be exact, per <a href="https://melaniatrump.com/faq">the terms</a>.&nbsp;



What else is there to say, when NFTs have joined steaks, ties and other Trump memorabilia? I suppose I could say “caveat emptor” but maybe that’s pretty self-evident. One wonders how much of the proceeds from the necklace will be devoted to the black hole of Trump legal defense monies.&nbsp;



Then again, maybe the new Solana NFT is yet another sign that crypto has “made it” —&nbsp;that is, joined the utility belt of those in the real world trying to score an easy buck. Only in America.&nbsp;



— Michael McSweeney



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Empire Newsletter: Unpacking the Consensys legal salvo

Ben Strack

Bitcoin miner Marathon Digital is ahead of schedule on its growth plans after a halving event that is expected to highlight segment winners and losers.&nbsp;



The Florida-based company’s energized hash rate stood at 27.8 exahash per second (EH/s) on March 31.&nbsp;



Executives had said in February that Marathon intended to grow its hash rate by about 35% in 2024 and reach 50 EH/s by the end of 2025.



Read more: <a href="https://blockworks.co/news/marathon-digital-2023-q4-earnings">Marathon Digital ready to deploy ‘dry powder’ in push to double hash rate</a>



But that 50 EH/s target could be attainable by the time 2024 wraps up, Marathon CEO Fred Thiel said in a Thursday statement.



The amended growth projection timeline is a result of its capacity boost via acquisitions, the chief executive noted. The company also has access to hash rate through current machine orders and options.&nbsp;



“With our current liquidity position, this growth target is also fully funded and there is no need for us to raise additional capital to achieve our objective,” Thiel added in a statement.&nbsp;



Marathon had $324 million in cash and 17,381 BTC on its balance sheet at the end of March. The company’s BTC stack was worth about $1.1 billion based on Friday morning’s bitcoin price.



The miner <a href="https://blockworks.co/news/bitcoin-mining-giant-gets-bigger">finalized the purchase of two mining facilities in Texas and Nebraska</a> earlier this year before then buying an additional Texas site owned by Applied Digital for $87 million in cash.&nbsp;



Read more: <a href="https://blockworks.co/news/marathon-digital-outlook-bitcoin-halving">Miner Marathon poised to acquire, expand after Bitcoin halving, exec says</a>



Thiel said that as the company grows to 50 EH/s, it expects to improve its fleet efficiency to 21 joules per terahash (J/PH).&nbsp;



Gaining scale and improving efficiency have been <a href="https://blockworks.co/news/mining-firms-prepare-for-bitcoin-halving">top of mind for miners around the bitcoin halving</a>, which occurred last week. The event resulted in a reduction of per-block mining rewards from 6.25 BTC to 3.125 BTC.



Industry watchers have said they expect less efficient miners with higher power costs and less access to capital to struggle in the weeks and months following the halving, with <a href="https://blockworks.co/news/bitcoin-halving-crypto-miner-consolidation">segment consolidation likely</a>.



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A bitcoin mining giant is ahead of schedule on its post-halving expansion

Macauley Peterson

A choice of programming language is not the be-all and end-all of smart contract development. But it does influence the security, efficiency and accessibility of blockchain applications.



Each language comes with its own set of capabilities and limitations that can impact how contracts are executed, the potential for vulnerabilities, and the ease of finding and fixing errors.&nbsp;



Algorand is becoming the first layer-1 blockchain to adopt Python as its canonical language, in what the Algorand Foundation Chief Technology Officer John Woods calls a “seismic change.”



&#8220;Python is a massive step forward on the roadmap towards removing all barriers to entry for developers,&#8221; said Woods.



With over 10 million developers worldwide, it’s perhaps surprising that the language has been historically overlooked by <a href="https://blockworks.co/tag/smart-contracts">smart contract</a> platforms, given that the total pool of specialized smart contract developers remains relatively tiny.



Read more: <a href="https://blockworks.co/news/web3-developers-on-the-rise">Electric Capital finds veteran Web3 devs are on the rise</a>



Mariano Dominguez, software developer at Vestige.fi, an Algorand-based DeFi dapp, told Blockworks there are a few reasons for this.



For one, “most chains that have a smart contract execution layer operate in a resource constraint scenario that isn&#8217;t typical in modern development environments,” Dominguez said. “Because of this, it&#8217;s oftentimes easier and cheaper to build a Domain Specific Language (so Solidity, PyTEAL/TEAL, or Move for example), than it is to integrate a &#8220;normal&#8221; language since you can exercise these limitations from the get go.”



TEAL was <a href="https://blockworks.co/tag/algorand">Algorand</a>’s earlier smart contract language and PyTEAL was a mechanism to call TEAL instructions from a Python file.



The difference now, the Foundation told Blockworks, is that native Python is compiled to the bytecode of the Algorand Virtual Machine (AVM), making it compatible with Python-native tooling, including testing suites.



That sets it apart from both PyTEAL and languages like Vyper for the <a href="https://blockworks.co/tag/evm">EVM</a>, which are only “Python-like.”



Read more: <a href="https://blockworks.co/newsletter/research/issue/post_e0869453-1d0b-43d4-91ed-67db7ebf37a2">Move Chains are making moves</a>



However, Dominguez added, Python’s “simplistic nature…makes it hard to adapt to a blockchain context.”*



That simplicity is a double-edged sword, agreed Deian Stefan, co-founder and chief scientist at Cubist, a developer of hardware-backed, non-custodial key storage and signing infrastructure.



“I think it&#8217;s fair to say the barrier to entry for the average Python developer is lower,” Stefan told Blockworks. However, he added, “from our experience working with different teams in the ecosystem: It&#8217;s not [yet] clear that the barrier is the language so much as everything around it.”



Stefan finds technical factors related to core platform performance, the ease of end-user onboarding, as well as non-technical factors like liquidity and network effects as being more significant.



While Algorand offers technological advantages like high throughput and low transaction fees, the network has historically struggled to attract a critical mass of compelling use cases and dapps, despite its strong roots in foundational cryptography and theoretical computer science.



Algorand’s latest effort, AlgoKit 2.0, is an attempt to “build tools that meet devs where they are,” Dominguez said, estimating that for a skilled Python dev, time needed to make the jump to writing smart contracts would shrink from “weeks” to “a matter of hours.”



It also helps Vestige’s own business, enabling the dapp to integrate a new dex written in Python for Algorand within days, or even quicker with access to the source code, he said.



“At the end of the day, the faster you can go from idea to product, the more things you can try out and the more innovation can occur,” Dominguez said.



But will it be safe?



Dean Tribble, CEO of smart contract platform focused on Javascript, Agoric, has his doubts.



“It’s a non-starter from a security perspective,” Tribble told Blockworks, citing technical reasons that Python is widely used for data analysis by the likes of Google, but not for applications managing trillions of dollars.



Read more: <a href="https://blockworks.co/news/solving-web3s-developer-problem-web2">Solving Web3’s developer problem: Web2 remains hesitant</a>



“We’ve already paid $10 billion dollars in losses for the current Solidity DeFi contracts that have been battle tested and survived,” Tribble said. “This is not to suggest we should be afraid to use contracts out there — they’ve paid the price (and it’s a steep check!) — but doing new, innovative work is very dangerous.”



For both adoption and security, the ability to use existing libraries and design patterns like battle-tested OpenZeppelin contracts in Solidity is key to the success of any language, Cubist’s Stefan said, noting that nuts and bolts factors like securely managing cryptographic keys, testing infrastructure deployments and executing upgrades are more important in practice.



Read more: <a href="https://blockworks.co/news/stellar-soroban-smart-contract-update">Stellar sparks smart contract upgrade — and it’s not an EVM</a>



AlgoKit 2.0 ships with a new templating system, a comprehensive library of smart contract templates, and all necessary infrastructure to run applications locally, according to the Algorand Foundation.



The hope is to court a range of developers, from students fresh out of computer science classes to advanced AI and machine learning researchers.



For dapp users, the chain, programming language or other technical factors shouldn’t matter, according to Dominguez. What does is “that the app they&#8217;re using solves the need that they have.”



“I think with Algorand the type of products and solutions that can be built are on par, and in some cases even better, than those that employ legacy systems,” Dominguez said, pointing to real estate tokenization platform Lofty as an example, where “people can invest in individual properties that they proceed to own as a legal DAO, without going through a custodian.”



Customers of these dapps will care about security, whether or not they understand the technical underpinnings. There, Tribble was skeptical.



“It is not likely to me that Python will ever be a language that you could run robustly on a blockchain,” the Agoric CEO said.



As for the number of Python developers? It’s a non-issue, he said: “Most Python developers already know JavaScript!”



Updated Friday, Apr. 26, 2024 at 5:20 am — Clarification on the work of Cubist.



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*Such as the lack of <a href="https://www.techopedia.com/definition/22321/statically-typed">static typing</a> and uint math — arithmetic operations using unsigned integers to avoid negative numbers.



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Algorand courts Python devs in ‘seismic change’

Bessie Liu

Decentralized Physical Infrastructure (DePIN) project MapMetrics will leave the Solana ecosystem and migrate to peaq, a layer-1 solution designed specifically for DePIN and Machine real-world assets (RWAs).



MapMetrics is a drive-to-earn project that rewards users with tokens and NFTs for providing anonymous live traffic and map data. Similar to DePIN project <a href="https://blockworks.co/news/solana-depin-projects-with-real-world-utility">Hivemapper</a>, the team hopes to create a decentralized global map using Web3 technology.&nbsp;



Read more: <a href="https://blockworks.co/news/drive-to-earn-app-dynamic-maps-crypto-rewards">‘Drive-to-earn’ app aims to bootstrap ‘dynamic maps’ with crypto rewards</a>



Brent van der Heiden, co-founder at MapMetrics, told Blockworks that the decision was made as peaq offered a variety of modular DePin functionality.



“Peaq ID, a decentralized multi-chain machine identity, enables the network to prioritize real machines in times of high load,” Heiden said. “The Modular Functions, such as the DePIN data verification framework, will also help us further expand our DePIN&#8217;s own features.”



Additionally, Heiden notes there are a handful of potential synergies in the wider peaq ecosystem, including with other DePINs and its enterprise partners, which may enable the team to secure new partnerships to build out demand for the project.&nbsp;



“Peaq&#8217;s community includes thousands of DePIN enthusiasts, which will help us grow, and the Machine Composability that comes with using the same identity standard across the ecosystem will help us tap into the pool of devices already on peaq,” Heiden said.



The transition process will be completed over multiple phases, beginning with smart contract deployments on peaq, followed by moving core business logic over to the layer-1. Afterwards, native token minting will also be available on peaq, and a bridging option will be available to existing holders.&nbsp;



Despite MapMetric’s decision to leave the Solana ecosystem, the blockchain remains a popular home for many DePIN projects today. 



Read more: <a href="https://blockworks.co/news/solana-depin-projects-with-real-world-utility">DePin projects have gained momentum on Solana blockchain</a>



Natix, another DePIN mapping project, <a href="https://twitter.com/NATIXNetwork/status/1783533073000288341">revealed today</a> that it will be launching its native token on the Solana blockchain, while continuing to collaborate with the peaq network.



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MapMetrics ditches Solana blockchain for peaq

Consensys, the company behind MetaMask, filed a lawsuit against the Securities and Exchange Commission in a Texas court on Thursday.



The complaint alleges regulatory overreach by the SEC.



“The US Securities and Exchange Commission seeks to regulate ETH as a security, even though ETH bears none of the attributes of a security — and even though the SEC has previously told the world that ETH is not a security, and not within the SEC’s statutory jurisdiction,” Consensys wrote in the filing.&nbsp;



The SEC, under Chair Gary Gensler, is allegedly attempting to make a power grab, the company argued.&nbsp;



“In August 2021, within months of becoming the SEC’s Chair, <a href="https://blockworks.co/tag/gary-gensler">Gensler</a> vowed to ‘take [the agency’s] authorities as far as they go’ in pursuit of crypto. Soon thereafter, the SEC doubled the size of its crypto enforcement unit and ramped up investigations of participants in the digital asset market,” Consensys said.



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



The SEC, <a href="https://blockworks.co/tag/consensys">Consensys</a> continued, already declared that ETH was not a security in 2018. At the time, then-SEC employee William Hinman gave a speech that clarified ETH didn’t constitute a security under the regulator’s rules.



“Recognizing Ethereum’s lack of any centralized managing authority, the SEC’s director of corporation finance stated that ‘current offers and sales of Ether are not <a href="https://blockworks.co/tag/securities">securities</a> transactions,’” the suit said.&nbsp;



“Hinman’s representations about ETH reflected the considered judgment of the SEC and its leadership,” the suit claimed.



The Texas suit also reveals that Consensys was served with a Wells Notice earlier this month, revealing that the agency could take potential action against the company at a later date.



“On April 10, 2024, the SEC staff sent Consensys a ‘Wells Notice’ stating its intent to imminently recommend that the Commission bring an enforcement action against Consensys for violating the federal securities laws through its MetaMask Swaps and MetaMask Staking products,” the filing said.



The SEC has already taken action against a number of other crypto firms including Binance, Terraform, Ripple and Coinbase, among others.&nbsp;



Read more: <a href="https://blockworks.co/news/ripple-counters-sec-penalties">Ripple proposes ‘no more than $10M’ in penalties after SEC seeks $1.9B</a>



The lawsuit also reveals that the SEC has issued a number of subpoenas to Consensys, including one issued “just last month.”&nbsp;



While parts of the filing are redacted, it reveals the company was also issued three subpoenas in 2023 which sought information on the “role of Consensys, including its software developers, in a host of Ethereum Improvement Proposals related to the Ethereum Merge, the transition from a proof-of-work to a proof-of-stake validation mechanism.”



“Despite requests for clarification, the staff has declined to explain why the SEC believes Consensys’s sales of ETH may violate securities law or why the agency believes it now has jurisdiction over ETH,” the filing alleged.



The filing is the latest in a <a href="https://blockworks.co/news/cftc-ether-security-commodity-conflict">series of developments</a> around the SEC potentially looking into ether. Earlier this year, Prometheum said it planned to launch a custody service with ether as its first asset, kicking off the potential debate.



Consensys founder Joseph Lubin, in a blog <a href="https://consensys.io/blog/consensys-suing-sec-to-defend-ethereum-ecosystem">post</a>, said that the SEC “only has jurisdiction over securities and up until recently has declared that ether is not and should not be treated as a security.”



An SEC spokesperson declined to comment on the suit.



In March, Fortune <a href="https://fortune.com/crypto/2024/03/20/sec-gary-gensler-ethereum-security-commodity-crypto-foundation/">reported</a> that the SEC was probing crypto companies over Ethereum.



At the time, the <a href="https://blockworks.co/tag/cftc">CFTC</a>’s Rostin Behnam, said, “how this plays obviously is very critical…the issue is if we do have any action by the <a href="https://blockworks.co/tag/sec">SEC</a>, essentially validating [Prometheum’s] decision constituting ether as a security it will then put our registrants or exchanges who list either as a futures contract sort of in non-compliance of SEC rules as opposed to CFTC rules.”



Read more:<a href="https://blockworks.co/news/cftc-alleges-eth-as-commodity-kucoin-lawsuit"> CFTC calls ETH a commodity in KuCoin complaint</a>



Consensys, in March, filed a letter to the regulatory agency, urging it to approve to spot ether ETFs.



“We urge the SEC to recognize the advanced safeguards inherent in Ethereum’s design, which not only meet but exceed the exemplary security and resilience safeguards underlying Bitcoin-based ETPs that have previously been approved by the SEC,” the firm wrote.



This is a developing story.



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SEC seeks to regulate ETH as a security, Consensys alleges in lawsuit

Global payments company Stripe announced that it was going to start allowing crypto payments on Thursday at the company’s Global Internet Economy conference.&nbsp;



Speaking at the final keynote, titled the Future of Payments, Stripe’s president John Collison,&nbsp; said, “our history with crypto goes back a long time.” He <a href="https://stripe.com/blog/ending-bitcoin-support#:~:text=Therefore%2C%20starting%20today%2C%20we%20are,transactions%20on%20April%2023%2C%202018.">cited</a> the company’s now-defunct bitcoin support back in 2018 because it wasn’t being used.&nbsp;



“We&#8217;re excited to announce that we&#8217;re bringing back crypto as a way to accept payments, but this time with a much better experience,” he <a href="https://www.youtube.com/watch?v=GnSlQz-14JY">announced</a>.



Due to the fact that crypto has more use cases and, as Collison’s presentation said, “crypto’s back,” Stripe decided to bring back crypto payments.&nbsp;



“Crypto is finding real utility,” Collison said. “With transaction speeds increasing and costs coming down, we’re seeing crypto finally making sense as a means of exchange.”



The feature, he added, will be available later this summer.&nbsp;



The company hasn’t made any crypto-centric announcements since last year.&nbsp;



Read more: <a href="https://blockworks.co/news/payment-company-stripe-enables-crypto-payouts-in-usdc">Payment company Stripe enables crypto payouts in USDC</a>



Collison told <a href="https://www.axios.com/2023/05/11/stripes-crypto-strategy">Axios</a> last spring that the company saw potential in crypto, though it wasn’t going to switch its strategy to focus more on the space.



Collison said at the time that, despite the fact that some of their early crypto products faced a lack of demand, the company was still interested in the role crypto could play in the future.



Just last May, Stripe debuted a fiat-to-crypto onramp.



“The embeddable onramp is helpful for <a href="https://blockworks.co/tag/web3">Web3</a> companies that want to fully customize the branding and customer experience, while the Stripe-hosted option provides an even easier way for users to get started,” the company said in a press release at the time.



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Stripe to bring back crypto payments in the next few months

Cryptocurrencies and US equities slipped Thursday morning as economic data fueled concerns of stagflation.&nbsp;



Gross domestic product (GDP), which broadly measures goods and services produced in the first quarter, increased at 1.6% year-over-year, missing analysts’ expectations of 2.4%, data from the Commerce Department showed. This latest reading is a sharp decline from the fourth quarter of 2023, which showed GDP increased 3.4%.&nbsp;



Consumer spending also trended lower, increasing 2.5% between January and March, a decline from the 3.4% gain posted in the last quarter of 2023.&nbsp;



Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) and ethereum (<a href="https://blockworks.co/price/eth">ETH</a>) dipped on the report, losing as much as 2% each in the hour after the release. Stocks similarly declined, with the S&amp;P 500 and Nasdaq Composite indexes trading 1.3% and 1.7% lower, respectively.&nbsp;



“The GDP miss likely took investors off-guard — particularly with how solid some of this year’s economic reports have been and with strength in the labor market,” Bret Kenwell, US investment and options analyst at eToro, said. “It’s not necessarily a report to panic over, but it’s one to pay attention to.”



Traders are now looking ahead to Friday’s Personal Consumption Expenditure (PCE) index, which is the <a href="https://blockworks.co/tag/federal-reserve">Federal Reserve</a>’s preferred inflation gauge. Expectations are that the headline index will increase 0.3% month-over-month, the same change clocked in February.&nbsp;



Read more: <a href="https://blockworks.co/news/binance-us-board-taps-ny-fed-compliance-chief">Former NY Fed compliance chief joins Binance US board</a>



Year-over-year core PCE inflation is supposed to dip slightly from 2.8% to 2.6%. Another disappointing surprise, though, is not unlikely. The Cleveland Fed’s <a href="https://www.clevelandfed.org/indicators-and-data/inflation-nowcasting?utm_source=substack&amp;utm_medium=email">model</a> is showing real-time inflation is closer to 3%.&nbsp;



Central bankers are not looking terribly optimistic; they opted to increase their economic projections in March to put core PCE annual growth for 2024 at 2.6%, up from their previous prediction of 2.2%.&nbsp;



“Even the Federal Reserve, yes, they of the ‘transitory’ camp, see no change in core PCE inflation for the rest of this year,” Noelle Acheson, author of the ‘Crypto is Macro Now’ newsletter, said. “What’s more, the messaging from officials recently has been largely along the lines of ‘we need more evidence’ before cutting rates.” 



The Federal Open Markets Committee’s next meeting is scheduled for the end of this month. Fed fund futures show around a 6% chance of a rate cut in May, <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html=">according</a> to CME Group.



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Cryptocurrencies, equities slide on slowing economic growth 

A federally chartered bank is now offering settlement of US dollars and crypto assets for buy- and sell-side institutions.&nbsp;



Crypto-focused Anchorage Digital unveiled its new settlement network, called Atlas, in a Thursday announcement. Atlas has already settled hundreds of millions of dollars in crypto since its “early access launch” earlier this year, the company said.



Atlas users can access counterparties that include clients of Anchorage Digital and its Singapore subsidiary. On-chain settlement ensures the assets are not commingled and don’t leave on-chain addresses until settlement occurs, according to the bank.



“Atlas participants are not reliant on settlement providers’ books,” a spokesperson told Blockworks. “Our regulatory status and security profile represent a major unlock for institutions, with Atlas advancing a new era for safe and secure settlement across the industry.”&nbsp;



Initial users of the network include venture capital firm CoinFund and the clearinghouse affiliate of <a href="https://blockworks.co/news/tradfi-launches-crypto-exchange">institution-focused crypto exchange EDX Markets</a>, as well as crypto brokerage firm Nonco.



CoinFund President Chris Perkins said in a statement that the network mitigates counterparty risk while “cultivating deep, liquid and accessible markets.”



“Atlas offers the greatest level of security, paired with the best speed and efficiency,” EDX Clearing CEO Tony Acuña-Rohter added. “These features allow us to minimize delivery risk for time-sensitive transactions.”&nbsp;



<a href="https://blockworks.co/tag/anchorage-digital">Anchorage Digital</a> became a bank chartered by the Office of the Comptroller of the Currency (OCC) in January 2021 — a distinction the company’s executives and users of the bank have highlighted in recent months.



Anchorage meets the Securities and Exchange Commission’s definition of a “qualified custodian,” CEO Nathan 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;



Anchorage launched custody and settlement services for registered investment advisers (RIAs) in November and <a href="https://blockworks.co/news/block-trading-ria-crypto-access">partnered with crypto wealth platform Onramp Invest</a> in January. McCauley noted at the time that the company wants to be a “regulatory solve” for RIAs with mandates to hold crypto assets with a qualified custodian.&nbsp;



Bitcoin miner Marathon Digital, which held 17,381 BTC as of March 31, added Anchorage as one of its custodians in December. The company’s chief financial officer noted Anchorage’s “well regarded” regulatory status in a statement.



The launch comes after BitGo and Copper partnered in November to expand their off-exchange settlement networks.&nbsp;



Read more: <a href="https://blockworks.co/news/bitgo-crypto-cold-storage-custodian">BitGo wants to be ‘exchange agnostic’ as a qualified custodian</a>



The combination of BitGo’s Go Network and Copper’s ClearLoop was done to de-risk trading market infrastructure after the collapse of FTX and others.



BitGo CEO Mike Belshe said at the time the companies’ partnership allowed them to settle assets “safely and securely without direct exposure to exchanges.”



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Crypto-focused federal chartered bank intros settlement network

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



The government continues to wage a battle against crypto mixers.



The DOJ targeted Samourai Wallet’s co-founders for creating a so-called “haven” for criminals because of the privacy-focused nature of its product.



Users of Samourai Wallet could obscure bitcoin transactions, helping to hide the source of funds.&nbsp;



The DOJ <a href="https://blockworks.co/news/doj-arrests-founders-samourai">claimed</a> that CEO Keonne Rodriguez and CTO William Lonergan Hill operated a crypto “mixing service” that executed over $2 billion in unlawful transactions while laundering around $100 million in “criminal proceeds.”



Some of those funds allegedly came from the Hydra Market and Silk Road.



The two execs could each face up to 25 years in prison after both were charged with one count of conspiracy to commit money laundering and one count of conspiracy to operate an unlicensed money transmitting business.



Read more: <a href="https://blockworks.co/news/doj-arrests-founders-samourai">DOJ arrests founders of privacy-focused crypto wallet Samourai</a>



If these allegations sound familiar to you, it’s because the charges are similar to those made <a href="https://blockworks.co/news/roman-semenov-tornado-cash-ofac-list">against the co-founders</a> of Ethereum crypto mixer Tornado Cash last year.&nbsp;



The government conducted a lengthy probe of <a href="https://blockworks.co/tag/tornado-cash">Tornado Cash</a> before opting to <a href="https://blockworks.co/news/roman-semenov-tornado-cash-ofac-list">target</a> Roman Semenov and Roman Storm, though the two were also accused of sanctions violations — a charge notably missing from the Samourai case.



Some of the same law enforcement agencies played a role in arresting the co-founders, namely the criminal divisions of the <a href="https://blockworks.co/tag/irs">IRS</a> and the <a href="https://blockworks.co/tag/fbi">FBI</a>.&nbsp;



But the US wasn’t the only country to take action against both Hill and Rodriguez. Europol, the Icelandic police, and the judiciary police of Portugal took part.



Anyone who tries to visit the Samourai domain is now greeted with a seizure notice, decorated with the badges of the relevant law enforcement agencies. A creepy outline of a person adorns the background.&nbsp;



In the indictment, the <a href="https://blockworks.co/tag/doj">DOJ</a> uses X screenshots in what they say is clearly Hill and Rodriguez operating “accounts that encouraged and openly invited users to launder criminal proceeds through Samourai.”&nbsp;



One such post, from 2022, shows Samourai’s official account welcoming “new Russian oligarch Samourai Wallet users.”



<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">Welcome new Russian oligarch Samourai Wallet users <a href="https://t.co/WBhB6J89SR">https://t.co/WBhB6J89SR</a>&mdash; Samourai Wallet (@SamouraiWallet) <a href="https://twitter.com/SamouraiWallet/status/1542533704635015168?ref_src=twsrc%5Etfw">June 30, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The post was in response to a series of tweets from Ernest Urtasun, a former European Parliament member. Maybe not such a good look for Samourai on paper, though — in the lens of Crypto Twitter — it’s obviously not trying to be serious.&nbsp;



In another tweet, part of a thread focused on the long-running feud between Samourai and Wasabi, an account under the handle Samourai Dev (which the DOJ alleges was run by Hill) said that Europol labeled Samourai an emerging “top threat” and added: “Do you see us shitting in our pants?”



Europol’s label wasn’t the first time that Samourai was noticed — not in a good way — by authorities. The UK’s National Crime Agency noted in 2022 that the service could be utilized by criminals.



Read more: <a href="https://blockworks.co/news/tornado-cash-privacy-debate">Tornado Cash arrests spur privacy debate</a>



The two co-founders, the DOJ alleged, “possessed and transmitted to potential investors marketing materials that discussed how Samourai’s customer base was intended to include criminals seeking privacy or the subversion of safeguards and reporting requirements by financial institutions.”



In January, just a few months before the arrests, Samourai <a href="https://twitter.com/SamouraiWallet/status/1749784171239657472">penned</a> a letter to <a href="https://blockworks.co/tag/fincen">FinCEN</a> in which the wallet service pushed back on the proposed crypto mixing rules, claiming that they “infringe upon the legitimate financial privacy interests of cryptocurrency users.”



The DOJ, it seems, doesn’t feel the same way.



— Katherine Ross



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



<ul>
<li>Restaking protocol EigenLayer has <a href="https://defillama.com/protocol/eigenlayer?denomination=ETH">attracted</a> nearly 5 million ETH ($15.27 billion), up 14% since Monday.</li>



<li>Bitcoin fees have normalized after the Runes halving debut, <a href="https://mempool.space/">now</a> $4.56 for a high-priority transaction and down from record highs above $100.</li>



<li>There are 17,000 validators <a href="https://www.validatorqueue.com/">queuing</a> to join the Ethereum network. Last week, 22,300 were waiting in the queue.</li>



<li>Base has had more daily active <a href="https://app.artemis.xyz/chains">addresses</a> than Arbitrum for most of this month, and could soon surpass Ethereum mainnet: currently 352,000 vs. 379,000.</li>



<li>After shedding supply since November, Maker has issued an <a href="https://www.coingecko.com/en/coins/dai">additional</a> $840 million DAI in the past seven weeks, equal to nearly 20% growth.</li>
</ul>



<h2 class="wp-block-heading">CZ’s final plea&nbsp;</h2>



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



It’s now up to presiding judge Richard Jones, who has almost 500 pages of memos to sort through —&nbsp;450 of which were submitted by the defense — before next Tuesday’s sentencing.&nbsp;



The government says that <a href="https://blockworks.co/tag/changpeng-zhao">CZ</a> “willfully” and strategically defied US laws to “line his pockets” and grow his crypto exchange. His negligence threatened the security of the US, and he therefore deserves an “above-Guidelines” sentence of three years behind bars, prosecutors wrote in their memo Tuesday.&nbsp;



Read more: <a href="https://blockworks.co/news/government-alleges-cz-threatened-us-security">Government says CZ threatened US security, recommends doubling Guideline sentence</a>



The defense even hired a private firm to create a home security plan that could be used if CZ is placed on home confinement, AKA house arrest. The plan suggests a 10-person guard team, new fencing around CZ’s home, and new locks for all doors, among other things. I guess sacrificing landscaping is a small price to pay to avoid prison.&nbsp;



CZ’s plea agreement, which he signed in November, stipulates that he will pay $50 million. The parties also agreed to a guideline sentencing range of 12-18 months, but they couldn’t get on the same page when it came to enhancements and adjustments. That’s where things get tricky.&nbsp;



The government says CZ should be penalized for knowing that people used Binance to facilitate unlawful activity. He also posed a threat to national security, and an example needs to be made, prosecutors say.&nbsp;



Read more: <a href="https://blockworks.co/news/binance-changpeng-zhao-deal-unpacked">Here are the details of Binance and Changpeng Zhao’s plea deal</a>



The defense, obviously, argues the opposite. CZ took responsibility and admitted fault, they say, so leniency is in order.&nbsp;



This part is murky. Yes, CZ took the plea, but there’s a lot we don’t know. The UAE doesn’t have an extradition treaty with the US, so it makes you wonder what exactly the DOJ had on CZ to get him to come to the negotiating table in the first place.&nbsp;



— Casey Wagner



<h2 class="wp-block-heading">The crypto must flow</h2>



Slowly, and then all at once.&nbsp;



That’s how believers of hyperbitcoinization say BTC will consume the world.&nbsp;



Nigeria reckons something similar has happened to its local currency — and it’s all <a href="https://blockworks.co/tag/binance">Binance</a>’s fault.



<a href="https://bitcoinmagazine.com/hyperbitcoinization">Hyperbitcoinization</a> will supposedly go like this: As crypto adoption increases and global inflation goes parabolic, fiat currencies will rapidly depreciate against bitcoin to the point of worthlessness, and everything with value is priced in ultra-expensive BTC.



Let’s set aside seemingly spurious allegations of money laundering and tax evasion directed at two Binance executives. Bayo Onanuga, special advisor to the president, has claimed Binance fixed exchange rates for the naira pairs on its platform — which only the central bank can legally do.



Read more: <a href="https://blockworks.co/news/binance-ends-support-nigeria-naira">Binance ends Nigerian naira services in wake of scrutiny</a>



The naira, alongside the Nigerian economy, has spiraled since the 2008 global financial crisis. The COVID pandemic and its negative impact on global oil prices have exacerbated the issue more recently, with <a href="https://www.bbc.com/news/world-africa-68272830">inflation</a> up to 30%.



<img decoding="async" src="https://lh7-us.googleusercontent.com/yyTMPeANLZYmv21ExVIPxbOcOmTQvDp3N2C2Ju_iBvn6u2jJATVchtDsmAIHBCYDg8ICgzb16oGKnxAVjsMHS2dimSQzEansvUatH-SSIwI2Kk_UeN0taRnYgFs3D9XxflmVP6sqihx97z8-kd2I2Oc" width="624" height="449.2826184695621">



The naira has lost 72% of its value against the US dollar since 2019



Onanuga was quick to <a href="https://twitter.com/aonanuga1956/status/1760304339988484297">blame</a> Binance, though earlier this year, the central bank governor <a href="https://www.pulse.ng/news/local/cardoso-blames-increase-in-nigerian-students-studying-abroad-for-economic-woes/nzjdbet">blamed</a> Nigerian students who study abroad.



But the central bank had placed strict controls on foreign exchange in a bid to stave off the naira’s outright collapse, including caps on US dollar trade volumes, <a href="https://nairametrics.com/2024/04/25/new-data-reveal-forex-supply-shortage-at-official-window-as-exchange-rates-plunged-in-2023/">reportedly</a> $9.8 billion for the entirety of 2023, and in October, none at all. Nigeria has coincidentally <a href="https://www.bbc.com/news/world-africa-68451238">sought</a> $10 billion in damages from Binance, according to the BBC.



Those caps led to an artificial supply crunch for US dollars, hindering price discovery on official markets. At the same time, discrepancies widened on parallel markets like the ones found on Binance, a crypto-only exchange for years, with stablecoins USDT and FDUSD largely serving as substitutes.



Binance’s naira pairs were for years <a href="https://www.bloomberg.com/news/articles/2022-07-27/crypto-trades-contribute-to-naira-s-dive-in-unauthorized-market">reportedly</a> so popular that local operators regularly cited those prices when conducting broader business, rather than official central bank rates. Parallel markets showed 34% lower prices for Naira-USD trades at the end of last year, according to <a href="https://nairametrics.com/2024/04/25/new-data-reveal-forex-supply-shortage-at-official-window-as-exchange-rates-plunged-in-2023/">Nairametrics</a>, although it’s unclear whether that includes prices found on Binance.



In any case, Binance didn’t set its market rates for the naira. Crypto traders did that.&nbsp;



Crypto trades around the clock, and much of its promise lies in its power to attract liquidity. There are no capital controls in crypto; hypothetically, if all of crypto wanted to swing trade the naira, it could, as long as they had a Binance account.



Nigeria’s beef with Binance is really about it supplying a fiat offramp as the naira tanked. Whether that amounts to market manipulation is a matter for Nigerian courts, which have an unfortunate <a href="https://worldjusticeproject.org/news-year-impact-transparencit-nigeria-corruption">reputation</a> for corruption.



Read more: <a href="https://blockworks.co/news/binance-executive-escapes-nigerian-custody">Binance ‘made aware’ of executive who fled Nigeria</a>



Hyperbitcoinization may not happen. But perhaps hypertetherization could strike inflation-weary economies — a rapid unsanctioned flight from local currencies to crypto-dollars, like what Nigeria believes occurred.



If that happens, then the operation of exchanges in places that need crypto the most will quickly become one of the most dangerous jobs in finance.



— David Canellis



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



<ul>
<li>Jack Dorsey’s Square will let its merchant users <a href="https://techcrunch.com/2024/04/24/block-now-lets-square-merchants-convert-a-part-of-their-daily-sales-to-bitcoin/">convert</a> a portion of their sales into bitcoin, according to TechCrunch.&nbsp;</li>



<li>Mark Zuckerberg’s <a href="https://investor.fb.com/investor-news/press-release-details/2024/Meta-Reports-First-Quarter-2024-Results/default.aspx">metaverse plans</a> are making “steady progress” according to the latest quarterly report from Meta.&nbsp;</li>



<li>Rep. Maxine Waters, D-Calif., told Bloomberg a long-in-the-making stablecoin bill is <a href="https://www.bloomberg.com/news/articles/2024-04-24/key-democrat-touts-progress-on-stablecoin-marijuana-legislation?sref=3REHEaVI">nearly ready</a>.</li>



<li>“Crypto con man” Jay Mazini AKA Jebara Igbara was <a href="https://www.justice.gov/usao-edny/pr/instagram-influencer-known-jay-mazini-sentenced-84-months-prison-overlapping-fraud-0">sentenced</a> to 84 months yesterday.</li>



<li>The “Buy Bitcoin” sign held up behind Janet Yellen in 2017 has sold at <a href="https://scarce.city/auctions/buy-bitcoin">auction</a> for 16 BTC, or $1 million.</li>
</ul>



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



Gauntlet CEO Tarun Chitra is in <a href="https://variety.com/2024/digital/news/crypto-chopping-block-tarun-chitra-lee-reiners-hollywood-use-case-1235980304/">Variety</a> this week, making the case for Hollywood to adopt crypto.



And sure, crypto definitely has the power to crowdfund cool projects, and blockchain can square the kinds of information asymmetry that results in unfair deals for creators and artists.



But let’s not forget how this has played out before. In 2022, actor-producer Seth Green bought a Bored Ape with a mind to turn the ape avatar into a TV star.



Read more: <a href="https://blockworks.co/news/killer-whales-crypto-reality-show">‘Killer Whales’: Crypto finally gets its own ‘Shark Tank’</a>



Except hackers linked to a multimillion-dollar scam ring stole Green’s Bored Ape before the show could debut, putting the entire project in jeopardy.&nbsp;



Did Green hold the copyright if the NFT was no longer in his crypto wallet? Could he be sued by the hacker for copyright infringement?&nbsp;



It appears Green later <a href="https://www.vice.com/en/article/jgp8kd/seth-green-nft-theft-part-of-multi-million-dollar-scam-campaign-investigator-says">forked</a> out $260,000 in ETH — $100,000 more than he paid for it — to the hacker in return for the Bored Ape, and nothing has been heard about the show since.&nbsp;



Crypto might be ready for Hollywood. But I doubt Hollywood is ready for crypto.



— David Canellis



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Empire Newsletter: The war on crypto mixing has a new front

Mark Hendrickson

Blockchains as we know them have been around now for over 15 years.



Yet, the applications for interacting with them are still stubbornly hard for the average person to use, despite the many brilliant minds in the industry. This has been a problem for so long that the way we talk about it has become a cliché.



Product teams don’t make the time to think more about mainstream users.



They forget lean-startup principles and their prescribed conversations with actual customers.



They don’t invest the time to convey highly technical details in terms that the general, non-technical populace can understand.



They allow features possibly required for mass adoption — like multi-party computation (MPC) — to languish perennially over the horizon of their roadmaps.



They fail to deliver an end-to-end lifecycle experience that new users can complete in minutes, not hours or days.



These points are all true, but it’s easy to mistake effect for causality. One might hope that incentives would drive product teams to deliver a substantially better product for an emerging market of mainstream users (helping crypto truly “cross the chasm”).&nbsp;



Instead, they’re driving teams to fight continually over market share among the earliest adopters — the so-called “degens,” who are willing to ape into any new protocol with the most minimum of minimal viable product.



<h2 class="wp-block-heading">What’s going on here? Why can’t we do better?</h2>



Across the retail market, it comes down to one simple fact: The “casino” side of crypto has become too big, trapping teams in short-term ways of thinking with customers who are happy to churn on a moment’s notice.



There’s this elephant in the room. Many of us joined the crypto industry (and specifically the Bitcoin ecosystem) to work on its long-term values and ideals. We were attracted by the society-preserving need for decentralized money and applications that could replace the persistent dominance of Web 2.0 and fiat. This is a mission that takes years of building out use cases with customers who demand long-term security, wealth accumulation and brand trust.



However, many early adopters have now amassed merely to play the speculative game with crypto’s volatile — yet seemingly predictable — market cycles. This makes it easier for teams to aim for those easy wins serving a hyper-short-team market of chain-agnostic degens, with little regard for building anything that can last longer than the latest hype cycle.



It’s very tempting to conclude this is all fine and natural (if not necessary) for pushing crypto along the adoption curve. And that’s true to some extent, since hype helps inject new waves of capital and attention and keep the “rags to riches” narrative of crypto alive.



However, having worked on crypto-related products now for six years, I can say confidently that it also has a toxic effect on the quality of product and market productivity. I fear it cancels out the positive benefits of pursuing degens as a beachhead market.



<h2 class="wp-block-heading">Chasing degens doesn’t build a better product</h2>



Crypto teams are essentially pushed (or push themselves) to ship half-baked features in support of new, half-baked protocols, tokens and NFTs in hopes of capturing a wave of degens.&nbsp;



Since these degens value acquisition speed above all else, they must be given the fastest, most janky solution — or they’ll leave for the competition.



Read more from our opinion section: <a href="https://blockworks.co/news/bitcoin-price-value-nonsense-fiat">Don’t let bitcoin be defined by its price</a>



Teams that follow this playbook find themselves with very impatient user bases that insist on further, faster growth (with little need for deeper improvements), since they’ve already learned to deal with glitches and confusion as part of their investment strategy. As a plus for these degens, the prevalence of confusing and glitchy products helps keep normies out of the rawest of price opportunities.&nbsp;



We saw this dynamic writ large over the past year in the Bitcoin ecosystem with Ordinals, Stamps and related meta-protocols. A flood of (mostly pre-existing) Web3 developers and users (re)discovered the possibility of minting, buying and trading an infinite range of fungible and non-fungible tokens on Bitcoin as a base layer.



It was amazing to see a revival of interest in Bitcoin as a layer for Web3, something those of us who’ve been working around Bitcoin as a Web3 primitive for years now have certainly appreciated.



However, the teams working in this space — myself included — tripped over themselves to deliver new, lightning-fast protocol support, leading to a whole host of issues. This was exacerbated by the relatively high complexity of building Web3 on Bitcoin, a blockchain simultaneously renowned and loathed for both its simplicity and complexity.



<h2 class="wp-block-heading">Solving the Bitcoin problem</h2>



Bitcoin’s simplicity (lack of smart contracts) has meant the pushing of much “contract-like” logic to off-chain indexers and emerging API providers, which aren’t without their standardization and reliability problems.



This complexity has meant the juggling of advanced power user needs with basic ones, often with mixed success. It’s also worsened the need for human-readable explanations, which teams aren’t willing to produce given the time pressure.



With time, my hope is that the downsides of Bitcoin’s simplicity and complexity can be addressed with thorough design improvements on the client, infrastructure and protocol sides.&nbsp;



However, those of us working on these layers need to make that time, since it won’t make itself. And sadly, if recent history is any gauge, most teams will opt for the “sugar high” of short-term degen adoption over pursuit of more sustainable users.



While it’s fun watching the next Bitcoin-backed mooncoin or artist collection come out of nowhere, focus must be more on long-term value. I encourage my peers in the Bitcoin ecosystem (and the crypto industry more widely) to have the sort of conversations necessary with their investors and teams to create an environment in which longer-term thinking and design is rewarded over short-term hype.&nbsp;



Only then, I believe, will we see our industry raise the bar and cross the chasm with millions, then billions, of retained users.



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<div class="wp-block-post-author-biography">Mark Hendrickson is a product leader who lives in Barcelona, Spain having previously grown up in Menlo Park, California, studied at Bowdoin College, and started his technology career in San Francisco. He has extensive experience leading product strategy, management, design, development, and marketing efforts at early-stage software startups such as Hiro, TechCrunch, Plancast, Lift, and KITE. He currently serves as the general manager for Leather, the Bitcoin and Stacks wallet.</div>


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Stop chasing degens

BlackRock’s spot bitcoin ETF had tallied net inflows on every trading day since launching on Jan. 11. That 71-day streak has ended, according to Farside Investors data.&nbsp;



The iShares Bitcoin Trust (IBIT) saw zero net flows on Wednesday — shattering an unprecedented record for a newly launched ETF.&nbsp;



While IBIT’s run was historic for a fund new to the market, according to Bloomberg Intelligence analyst Eric Balchunas, others had longer streaks after establishing themselves over months and years on the market.



IBIT extended its inflow streak to 71 days on Tuesday, marking the 10th-longest streak of all-time, Balchunas said in an X post.&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"><a href="https://twitter.com/search?q=%24IBIT&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$IBIT</a> inflow streak now 71 days which has it officially in the Top 10 all time after passing the ETF One Hit Wonder <a href="https://twitter.com/search?q=%24JETS&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$JETS</a> (remember JETSanity?). Also passed <a href="https://twitter.com/search?q=%24BND&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$BND</a> and <a href="https://twitter.com/search?q=%24VEA&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$VEA</a> which are cash vacuum cleaners. Lot of mountain still left to climb tho. h/t <a href="https://twitter.com/thetrinianalyst?ref_src=twsrc%5Etfw">@thetrinianalyst</a> <a href="https://t.co/NpZzgQe4v3">pic.twitter.com/NpZzgQe4v3</a>&mdash; Eric Balchunas (@EricBalchunas) <a href="https://twitter.com/EricBalchunas/status/1783108200511750517?ref_src=twsrc%5Etfw">April 24, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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But <a href="https://farside.co.uk/?p=997">data</a> by London-based asset manager Farside Investors showed that net inflows into IBIT had ceased on Wednesday.&nbsp;



Only the Fidelity Wise Origin Bitcoin Fund (FBTC) and the Ark 21Shares Bitcoin ETF (ARKB) saw slight inflows on the day, while the Grayscale Bitcoin Trust ETF (GBTC) tallied net outflows of $130 million.



The end of IBIT’s streak comes after two straight weeks of net outflows for the 11-fund segment.&nbsp;



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



Still, net inflows into the 11-fund category stand at $12.3 billion in their three-plus months of trading. IBIT alone has gathered about $15.5 billion in positive net flows to mostly offset GBTC’s nearly $17 billion of bleeding. The net money entering IBIT amounted to about 20% of BlackRock’s total ETF net inflows during the year’s first quarter.&nbsp;&nbsp;



IBIT’s assets under management stood at roughly $17.6 billion, according to BlackRock’s website. That is second in the bitcoin ETF category to GBTC, which has nearly $19.4 billion.



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BlackRock’s bitcoin ETF inflows halt after 71-day streak, data shows

Jack Kubinec

No blockchain ecosystem is seemingly safe from speculative points farming, and the trend has now come to Bitcoin.



Less than a month ago, Merlin <a href="https://twitter.com/SDLerner/status/1772975889673801952?utm_source=blockworks-research.beehiiv.com&amp;utm_medium=newsletter&amp;utm_campaign=the-fud-abounds-some-real-some-imagined">was</a> an also-ran in terms of assets held in Bitcoin sidechains and layer-2s. But after seeing roughly 2,000% growth over the past 30 days, Merlin has over $1 billion in total value locked (TVL), making it far and away the largest Bitcoin sidechain, <a href="https://defillama.com/chains/Bitcoin%20Sidechains">per</a> DeFiLlama, and more than three times as large as the payments-focused Lightning Network.&nbsp;



Merlin is now technically the ninth-most capitalized blockchain, with more TVL than established layer-1s like Avalanche and Polygon, DeFiLlama data <a href="https://defillama.com/chains">suggests</a>.



More than half of Merlin’s $1 billion is held in Solv Finance, a protocol that <a href="https://app.solv.finance/solvbtc?utm_source=substack&amp;utm_medium=email">allows</a> users to deposit wrapped bitcoin and receive “Solv Points” in return. Solv and Merlin are running a <a href="https://x.com/SolvProtocol/status/1782745728848384498">promotion</a> encouraging users to farm for points and tokens.



In crypto, points refer to valueless participation tallies that often determine allocations in future token <a href="https://blockworks.co/tag/airdrop">airdrops</a>. Following a string of recent airdrops that netted converted points to large sums of tokens related to Solana and EigenLayer, so-called points farming may have found its outlet in the Bitcoin ecosystem.



Read more: <a href="https://blockworks.co/news/defi-points-farming-crypto-investments">DeFi ‘points’ farming has reshaped the crypto investment landscape</a>



Merlin also <a href="https://x.com/MerlinLayer2/status/1780840228049297711">airdropped</a> its native MERL token to users last week. The token has <a href="https://www.coingecko.com/en/coins/merlin-chain">slumped</a> nearly 40% since being listed on CoinGecko.



Merlin positions itself as a Bitcoin <a href="https://blockworks.co/tag/layer-2-2">layer-2</a> solution, integrating zero-knowledge proofs with Bitcoin&#8217;s blockchain through Taproot. This integration allows the system to enhance transaction privacy and efficiency significantly.



However, unlike Ethereum zk rollups where proofs are verified on-chain, Merlin&#8217;s proofs are <a href="https://docs.merlinchain.io/merlin-docs/zk-rollup-on-bitcoin/future-upgrades-bitcoins-on-chain-fraud-proof-mechanism">verified</a> off-chain by a decentralized network of oracle nodes before being batched and submitted to Bitcoin&#8217;s blockchain through Taproot. This off-chain handling of data and proofs ensures scalability and security without loading the Bitcoin mainnet with excessive data​.



It&#8217;s worth noting that many solutions called Bitcoin layer-2s, including the Lightning Network and various sidechains, often manage transactions by transferring assets between Bitcoin and independent yet interconnected blockchains. This is different from adding direct functionalities on top of Bitcoin&#8217;s existing infrastructure.



Merlin’s growth speaks to a broader trend in renewed interest surrounding speculative uses for bitcoin beyond just the asset’s price. Runes, an evolution of the Ordinal inscription concept, <a href="https://blockworks.co/news/bitcoin-halving-runes-launch">went live at the halving</a> and have <a href="https://blockworks.co/news/empire-newsletter-bitcoin-memecoin-mania">caused a spike</a> in the network’s transaction fees. And venture capital, which had long been on the sidelines when it comes to Bitcoin, has started to flow into the ecosystem, Blockworks recently reported.



Read more: <a href="https://blockworks.co/news/vcs-funding-early-stage-bitcoin-projects">Bitcoin is suddenly cool again for VCs </a>



There’s also a race alongside Merlin to draw liquidity to Bitcoin layer-2 solutions. A different Bitcoin layer-2, Stacks, just pulled off <a href="https://blockworks.co/news/stacks-nakamoto-upgrade-bitcoin-layer-2s">its Nakamoto upgrade</a> in an attempt to make its product faster and more reliable.



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Points farming comes for Bitcoin as Merlin becomes 9th-largest chain

The Department of Justice announced that it was taking action against the founders and CEO of Samourai Wallet, alleging that it operated as a “cryptocurrency mixing service.”



Samourai’s CEO Keonne Rodriguez and CTO William Lonergan Hill were both arrested on Wednesday.&nbsp;



The wallet startup, founded in 2015, had offered a series of privacy-enhancing features designed to obfuscate the source of funds — tools that prosecutors say enabled criminal activity. The DOJ alleges that Samourai Wallet executed over $2 billion in transactions unlawfully and “laundered over $100 million in criminal proceeds.”



Hill was arrested in Portugal, and US authorities are seeking an extradition. Rodriguez was arrested in the US and will face a judge either Wednesday or Thursday, the DOJ said.&nbsp;



“In coordination with law enforcement authorities in Iceland, Samourai’s web servers and domain were seized,” the DOJ said. The domain now leads to a page that informs the visitor that it was seized as part of a seizure warrant.&nbsp;



“Samourai unlawfully combined multiple unique features to execute anonymous financial transactions valued at over $2 billion for its customers.&nbsp; While offering Samourai as a ‘privacy’ service, the defendants knew that it was a haven for criminals to engage in large-scale money laundering and sanctions evasion,” the DOJ alleged.



Hill and Rodriguez “intended” and knew that “a substantial portion of the funds that Samourai processed were criminal proceeds passed through Samourai for purposes of concealment,” the release continued.&nbsp;



The official account on X, formerly Twitter, “encouraged” users to “launder proceeds” through the wallet, the DOJ claimed. 



The two were officially charged with one count of conspiracy to commit money laundering — which carries a max sentence of 20 years — and one count of conspiracy to operate an unlicensed money transmitting business — which carries a maximum sentence of five years. 



Regulators have <a href="https://blockworks.co/news/fincen-crypto-mixing-controls">long targeted</a> transaction mixing services. Today’s arrests represent the latest move against such services and their developers. 



In 2022, the US government <a href="https://blockworks.co/news/us-treasury-bans-citizens-from-using-mixing-service-tornado-cash">sanctioned Tornado Cash</a>, an Ethereum-based transaction mixing service. One of its developers, Alexey Pertsev, is on trial in the Netherlands for his involvement in the service. A verdict is expected next month.&nbsp;



Samourai has for years publicly criticized the US government for its efforts to inhibit and block mixing services.&nbsp;



In a January letter, Samourai Wallet said that FinCEN’s proposed rules against mixing services would “seriously harm your privacy by effectively outlawing bitcoin mixing as well as conflating basic best practices such as not reusing addresses as a suspicious action requiring enhanced reporting.”



<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">In Oct we asked our attorney <a href="https://twitter.com/Deliver8tor?ref_src=twsrc%5Etfw">@Deliver8tor</a> to assemble an expert legal team to respond to FinCEN&#39;s proposed rules that would effectively ban bitcoin privacy best practices such as not reusing addresses, and coinjoin. Last night our letter was submitted<a href="https://t.co/U9cPGOWogX">https://t.co/U9cPGOWogX</a> <a href="https://t.co/Gs1cCDc5zS">pic.twitter.com/Gs1cCDc5zS</a>&mdash; Samourai Wallet (@SamouraiWallet) <a href="https://twitter.com/SamouraiWallet/status/1749784171239657472?ref_src=twsrc%5Etfw">January 23, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



This is a developing story.



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DOJ arrests founders of privacy-focused crypto wallet Samourai

Decentralized Physical Infrastructure (DePIN) is utilizing blockchain technology to enable users to take ownership of their data.



Tokens incentivize users to provide services in the real world using physical infrastructure and systems. A popular example of a DePIN project today is Helium, a decentralized wireless network.



According to Scott Sigel, the chief operating officer of the Helium Foundation, anybody can buy a helium-compatible gateway — which is similar to a traditional WiFi hotspot in everyday homes — and install it around their properties or in commercial spaces.



Read more: <a href="https://blockworks.co/news/helium-cell-plan-goes-nationwide">Unlimited Helium Mobile cell plan goes nationwide for $20 a month</a>



Once installed, these hotspots will enable community members to access wireless coverage in their neighborhoods or general vicinity. Those who provide the hotspot themselves will also be rewarded with tokens that they can cash out.



“The economics of building out an IoT network has been historically difficult, and a lot of centralized providers have gone bankrupt in the process,” Sigel said.&nbsp;



Sigel explains that Helium started 10 years ago and quickly realized that it was extremely expensive, from a centralized point of view, to maintain the cost of real estate and install networks while building out its IoT network.&nbsp;



“This is something that is the core to DePIN, which is how do you coordinate work in the physical world, and leverage a community to create physical infrastructure?” he said.&nbsp;



In 2019, Helium launched its decentralized wireless network and quickly grew its coverage worldwide. According to the Helium Explorer, there are <a href="https://explorer.helium.com/stats">currently</a> 392,090 hotspots around the world.



Read more: <a href="https://blockworks.co/news/helium-miami-tmobile-hotspots-network-cellular">Helium hotspots go live in bid to turn Miami network profitable</a>



Sigel notes that cellular users, regardless of which network they use, are at the mercy of large telecommunications companies who determine where coverage will be deployed. With Helium, individuals and small businesses have agency to resolve the issue.&nbsp;



“My favorite example is — there’s a company in Portugal where Helium IoT coverage is very dense, and they were in talks with the city of Porto about doing early flood detection, the fact they were able to build businesses and provide a solution to the city, completely relying on the coverage that was built by the helium community and people in Porto, speaks to the success of the business running entirely on community hosted infrastructure,” Sigel said.



Helium currently runs on the <a href="https://blockworks.co/tag/solana">Solana</a> blockchain, a decision Sigel noted was made due to the network&#8217;s performant nature, which could handle high throughput and the large developer ecosystem.



Read more: <a href="https://blockworks.co/news/helium-token-holders-approve-switch-to-solana-blockchain">Helium token holders approve switch to Solana blockchain</a>



“The speed performance of Solana, coupled with their principles around intuitive frontend, were just some of the things that overlapped and made sense for us. This is something that ran through a community vote,” he said.



Apart from Helium, another DePIN project being built on Solana and is gaining interest is Hivemapper, which wants to reshape the mapping industry completely.&nbsp;



According to Gabe Nelson, the head of operations and marketing at Hivemapper, the company&#8217;s founder and CEO, Ariel Seidman, had worked in the maps industry for over 20 years. During this time, a large problem that Seidman was hoping to resolve was to look into ways to create maps in a cost-effective, scalable way.



The current process of mapping roads requires street view vehicles with sensors to drive around each and every street, which is both labor and capital-intensive, creating an enormous barrier to entry into the mapping market.



“Crypto tokens were a way to align the incentives of a big community to build something collectively and bootstrap it to the scale that it needs to reach to compete with existing infrastructure incumbents,” Nelson said. “I’m not aware of any other financial system that would offer this kind of functionality.”



According to the <a href="https://hivemapper.com/explorer">Hivemapper Explorer,</a> there are currently over 130,000 contributors across 3,253 regions. Over 11,231,955 kilometers have been mapped, marking around 19% of the total globe so far.



Updated April 25, 2024 at 12 pm ET: Clarified to emphasize that Helium is a decentralized wireless network, not a decentralized cellular network. 



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DePin projects have gained momentum on Solana blockchain

The 2024 halving is behind us, and for some, that means that the reality has set in.&nbsp;



Block rewards were cut in half earlier this month, going to 3.125 BTC per block from 6.25.



The topic of how bitcoin miners prepared for such a drastic change was extensively covered, with some miners opting to diversify their revenue streams. Hut 8, for example, is already bringing in some revenue from segments like AI.&nbsp;



And with AI being such a big buzzword on Wall Street last year, could we see more publicly-traded miners devote resources to the new technology?



Read more: <a href="https://blockworks.co/news/crypto-fundraising-capital-allocation">As crypto fundraising sees an uptick, where’s the capital set to go?</a>



In short, yes. Analysts believe that AI could start becoming a bigger segment for miners. Though, according to Coinshares Research’s James Butterfill, the current revenue that miners such as Hut 8 and Bit Digital bring in are very small, roughly 3%.&nbsp;



With <a href="https://blockworks.co/tag/artificial-intelligence">AI</a> on the roadmap for other miners — like Core Scientific and Bitdeer — the revenue streams could increase by the end of the year, achieving roughly 5-10% of revenues, Butterfill added.&nbsp;



“As a very rough guide, capital expenditures on AI are roughly 40x the amount required for mining, with hugely demanding redundancy systems, consequently it is a big step up from mining,” he said.&nbsp;



But the promise of the returns may be enough to lure in miners, and catch the attention of <a href="https://blockworks.co/news/empire-newsletter-miner-wall-street-ai-revenue">investors on Wall Street</a>.



Benchmark analyst Mark Palmer told Blockworks that miners with access to inexpensive power may “make the investments necessary to follow suit since the opportunity is so compelling and would provide downside protection during bitcoin bear markets.”



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



As more investors — including institutional ones — look to gain exposure to bitcoin through mining stocks, AI could draw them to specific miners.



Palmer said the institutional investors who added bitcoin <a href="https://blockworks.co/tag/mining">mining</a> stocks to their portfolios are “relatively more balanced in their criteria as they want both exposure to upside and the downside protection afforded by diversification. That is especially the case with buy-and-hold investors with long investment horizons.”



And while diversification wasn’t a make-or-break deal for investors in the past, the opportunity afforded by AI for miners with access to cheap power but AI could change that, Palmer added. It’s worth noting, however, that power is a different ballpark, as miners face energy use scrutiny worldwide.&nbsp;



Read more: <a href="https://blockworks.co/news/climate-conscious-bitcoin-etf">The bid for a climate-conscious spot bitcoin ETF presses on</a>



But the bull market may be enough to stave off the need to further diversify revenue streams for now.



“We are seeing the miners race to put in place as much energy and hash rate capacity as they can not only to offset the reduced bitcoin block subsidies from the halving, but also to capture the upside of self-mining during a bitcoin bull market,” he told Blockworks.



But Butterfill noted there’s a distinction between bitcoin mining and AI: One works at a lower power cost, while the latter is the opposite.&nbsp;&nbsp;



Read more: <a href="https://blockworks.co/news/paypal-research-explores-bitcoin-mining-clean-energy">PayPal research proposes greener bitcoin mining</a>



“Bitcoin mining is essentially won by the miners with the lowest energy costs, while AI is more profitable at higher energy costs, so we could well see those sites with high PPAs (Power Purchase Agreement) switch over,” he said.



AI and bitcoin mining could compete with mining, Butterfill said, causing the sector to shrink.



“We may well eventually see a situation where bitcoin mining focuses almost solely on stranded energy, where energy is the cheapest,” he said.



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



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How bitcoin miners are leveraging AI post-halving

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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