Casey Wagner

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 

Ben Strack

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

David Canellis

Katherine Ross

<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

Bessie Liu

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

Haden Patrick

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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


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


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Memecoin mania can teach us something

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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Government says CZ threatened US security, recommends doubling Guideline sentence

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



— Katherine Ross



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



— Casey Wagner



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



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



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



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



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



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



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



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



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



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



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



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



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



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



— David Canellis



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



— Katherine Ross



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Empire Newsletter: Miners and Wall Street eye new AI revenue

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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Binance’s main stablecoin is diversifying to other exchanges

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



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



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



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



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



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



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



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



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



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



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



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



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