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

Uniswap

Casey Wagner

Consumers and investors burned in recent crypto bankruptcies and failures are taking a page from the Bernie Madoff trial book in opting for civil suits to try to get more assets back.&nbsp;



If certain crypto tokens are deemed securities, it opens a new area of liability with respect to state laws, James <a href="https://go.perkinscoie.com/e/987562/ssionals-james-f-vivenzio-html/3n9vx/104306895?h=LG7QJhyNqK_iRcS-XK-Up6y7AxO_wAwWkJNP7xwLWNs">Vivenzio</a>, senior counsel at Perkins Coie, said during a webinar Wednesday. 



When Madoff was arrested, many of his victims opted for civil litigation to recover losses. <a href="https://blockworks.co/news/the-madoff-playbook-how-ftx-creditors-could-get-their-money-back">Creditors successfully clawed back more than $14 billion</a> of the estimated $18 billion to $20 billion stolen, according to <a href="https://www.linkedin.com/in/marcpowers22/details/experience/">Marc Powers</a>, a former securities law practice leader at Baker &amp; Hostetler — a firm that worked to recover funds for victims of Madoff’s Ponzi scheme.



A similar situation is playing out in crypto, Vivenzio said. <a href="https://blockworks.co/news/what-do-tom-brady-steph-curry-and-naomi-osaka-have-in-common-an-ftx-lawsuit">One class action lawsuit in Florida</a> in November 2022 against former FTX influencers cites the state’s Blue Skies law.&nbsp;



“Blue skies laws are just a state securities fraud law that requires registration and requires that you speak truthfully in connection with a security,” Vivenzio said. “[They are] designed to protect investors from ventures that have no more basis than so many feet of blue sky, as the old saying goes.”&nbsp;



But crypto claims are different from a typical fraud claim, according to Vivenzio, because the asset class is not traded on a national exchange. The FTX lawsuit in Florida alleges that <a href="https://blockworks.co/price/ftt" target="_blank" rel="noreferrer noopener">FTT</a>, FTX’s native exchange token, is a security — and that anyone who aids the sale of that security is responsible for any ensuing damage that may be caused. 



It’s not a common argument because these issues can usually only be charged on a state level,&nbsp; Vivenzio said.



“The state ‘Blue Sky’ theory seen here doesn’t arise in a lot of other cases when you&#8217;re dealing with nationally exchange-traded securities, because there&#8217;s a federal statute that says you can&#8217;t bring a class action for those times,” he said.&nbsp;



A so-called Blue Sky <a href="https://www.investopedia.com/terms/b/blueskylaws.asp#:~:text=Blue%20sky%20laws%20are%20state%2Dlevel%2C%20anti%2Dfraud%20regulations,up%20to%20the%20laws'%20provisions.">theory</a> is generally a state-level protection put in place in an effort to protect investors from securities fraud.&nbsp;



“But crypto is not traded on a national exchange,” Vivenzio said. “If it is a security, it opens up a new area of liability with respect to state or state laws.”&nbsp;



For the most part, celebrities have been targeted with these types of allegations, Vivenzio said, but the law is not limited to public figures. 



“If the theory that is articulated in this lawsuit is upheld, it really would provide for a very broad civil liability on a variety of claims, not just for promoters, not just for celebrities or YouTube influences, but for any agent or employee or officer of the entity that&#8217;s issuing the securities,” he said.



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Keep Your Eye on That FTX Lawsuit in Florida, Attorney Says

Ben Strack

The SEC has targeted another crypto company.&nbsp;



The US securities regulator charged crypto trading platform Beaxy for not registering as a national securities exchange, broker or clearing agency, according to a Wednesday news release.&nbsp;



It alleges that Nicholas Murphy and Randolph Bay Abbott facilitated the trading of crypto securities on Beaxy through a company called Windy Inc.&nbsp;



The <a href="https://blockworks.co/tag/sec" target="_blank" rel="noreferrer noopener">SEC</a> further claims Beaxy founder Artak Hamazaspyan raised $8 million in an unregistered offering of the Beaxy token (BXY) and used at least $900,000 for personal use, including gambling. After Hamazaspyan resigned, Murphy and Abbott continued operating the platform, according to the SEC. 



The SEC also charged market makers operating on Beaxy — including companies it says were run by Beaxy Chair Brian Peterson — as unregistered dealers.



Beaxy said on its <a href="https://www.beaxy.com/">website</a> it had ceased operations, citing “the uncertain regulatory environment surrounding our business.”



The platform did not immediately return a request for further comment. Murphy, Abbott, Hamazaspyan and Peterson could not immediately be reached. &nbsp;



“​​This case serves as yet another reminder to crypto intermediaries that their business models must comply and adapt to the law, not the other way around,” SEC Chair Gary Gensler said in a statement.&nbsp;



SEC Commissioner <a href="https://blockworks.co/news/gensler-too-much-too-fast">Hester Peirce questioned the commission’s approach</a> to regulating the crypto space in remarks last week, noting it may be more efficient to create policy before handing out enforcement actions.



The SEC last week <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">served Coinbase with a Wells notice</a> about potential “alleged securities violations.” The crypto exchange has said the assets it lists are not securities.&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">SEC charges crypto exchange Beaxy with running an unregistered securities exchange. To me this looks like trying to notch some easy precedental wins before going toe-to-toe with <a href="https://twitter.com/coinbase?ref_src=twsrc%5Etfw">@coinbase</a>. <a href="https://t.co/Xb1GbyC99S">pic.twitter.com/Xb1GbyC99S</a>&mdash; Alexander Grieve (@AlexanderGrieve) <a href="https://twitter.com/AlexanderGrieve/status/1641096252010946560?ref_src=twsrc%5Etfw">March 29, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Alexander Grieve, a vice president at government relations firm Tiger Hill Partners, said in a tweet that the SEC is highlighting the verticalization of Beaxy’s exchange, custody and clearing functions — which he noted is “a vector that Gensler has particularly focused on in his criticisms of crypto exchanges.”



“To protect investors, there are separate registration requirements for exchanges, brokers, and clearing agencies, with each essentially acting as a check on the other,” Gurbir Grewal, director of the SEC’s division of enforcement, said in a statement. “When a crypto intermediary combines all of these functions under one roof — as we allege that Beaxy did — investors are at serious risk.”



Abbott and Murphy, along with Windy Inc., agreed to pay $79,200 in civil penalties, while Peterson and his companies agreed to pay a combined $86,600.



The SEC is litigating the charges of securities fraud and the alleged unregistered offering of BXY against Hamazaspyan.



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SEC Crypto Enforcement Spree Continues With Beaxy Exchange

John Rizzo

Those in the crypto ecosystem hoping for regulatory clarity in the new year have been sorely disappointed thus far.&nbsp;



The SEC is now targeting <a href="https://www.cnbc.com/2023/02/20/how-the-sec-and-paxos-busd-fight-could-impact-the-stablecoin-market.html">Paxos</a> with their claims that stablecoin BUSD is an unregistered security (despite signing on to a working group recommending prudential regulation for stablecoins). The SEC has also <a href="https://www.forbes.com/sites/mariagraciasantillanalinares/2022/06/27/sec-chairman-gary-gensler-implies-that-ether-is-a-security-and-falls-under-his-jurisdiction/?sh=159095017775">implied</a> that ether is a security, with the New York Attorney General saying so <a href="https://www.coindesk.com/policy/2023/03/09/new-york-attorney-general-sues-crypto-exchange-kucoin-alleges-ether-is-a-security/">explicitly</a>. The chair of the CFTC is confusingly on the opposite side of the <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit" target="_blank" rel="noreferrer noopener">ether debate</a>. And meanwhile, a newly released Council of Economic Advisors <a href="https://www.whitehouse.gov/wp-content/uploads/2023/03/ERP-2023.pdf">report</a> asserts that the “design (of crypto assets) frequently reflects an ignorance of economic principles.”



It’s fair for industry professionals to wonder whether this language represents an evolution in thinking from the administration’s March 2022 <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets/">order</a> on digital asset development, which discussed the positive role that crypto assets could play in the economy and the lives of everyday Americans.&nbsp;



While market participants are right to continue pushing Congress and the Biden administration to enact a comprehensive regulatory framework for crypto assets, the lack of clear direction from Washington has created an opening in the crypto market. Participants should take matters into their own hands and establish a self-regulating organization (SRO).



There’s no question that crypto opponents in Congress would seek to smear the notion of an SRO with claims that recent malfeasance in crypto markets leaves the industry unable to be trusted to police itself. That’s not what an SRO is, and it’s not an approach I would advocate.&nbsp;



To analyze the merits of an SRO — which has <a href="https://www.politico.com/newsletters/morning-money/2023/03/13/washington-surveys-the-damage-00086733">some traction in Congress</a> — the country needs an honest debate about what this regulatory framework is and is not.&nbsp;



SROs are an <a href="https://www.sechistorical.org/museum/galleries/sro/">old concept</a> that have been used effectively since the 1930s and remain <a href="https://www.sec.gov/rules/sro.shtml">in use</a> today for the New York Stock Exchange and many other financial organizations. The success of America’s financial markets over many decades proves that SROs can work. The <a href="https://www.nyse.com/regulation/disciplinary-actions">long record</a> of disciplinary actions taken by regulatory organizations that violate SRO rules also speaks to their success.



SROs cannot simply write their own rules under this type of regulatory framework; the rules are overseen by <a href="https://crsreports.congress.gov/product/pdf/IN/IN11016">Congress</a> and <a href="https://www.gao.gov/products/129236">regulators</a> and have long had <a href="https://www.govinfo.gov/content/pkg/CHRG-109shrg39621/html/CHRG-109shrg39621.htm">bipartisan support.</a> SROs are <a href="https://www.sec.gov/news/statement/2013-spch050813laahtm">imperfect</a>, but the concept’s staying power over decades proves that this kind of regulatory framework can and does work.&nbsp;



Crypto market participants should not wait for the government to sanction an SRO. Right now, good actors in the industry can come together, agree on a set of high standards and commit to abiding by them.&nbsp;



A private SRO would not end the need for a federal regulatory framework — either through a comprehensive law or sanctioning of the SRO — but it does have the potential to bolster the industry. An SRO would separate the good actors from the bad ones; that is, the majority of the crypto community that is interested in driving innovation and improving lives versus those who see crypto’s current state of light regulation as an opportunity to commit fraud. An SRO would also bolster public confidence in crypto institutions at a time when it’s badly needed. And finally, a first-class SRO would deprive crypto’s opponents of their loudest talking point — the idea that crypto seeks to remain lightly regulated to commit fraudulent acts.&nbsp;



Setting up a private SRO would be challenging for crypto market participants. For instance, hard decisions would have to be made about standards of conduct. For example, firms could insist on prohibitions on commingling customer assets, guidance for the 1:1 backing of stablecoin assets with fiat currency and liquidity standards. While reaching agreement among market participants would be a challenge, the upside is substantial.&nbsp;



Washington may be back and forth about what it thinks about crypto, but that should not stop those who believe in crypto from showing the world that the community can come together around high standards for the greater good.&nbsp;



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


<div class="wp-block-post-author-biography">John Rizzo is Senior Vice President for Public Affairs at Clyde Group where he provides strategic counsel and communications guidance to a broad range of financial services clients, including market participants in traditional finance along with emerging and innovative spaces such as digital assets and fintech. Rizzo most recently served as the Senior Spokesperson at the U.S. Department of the Treasury where he led public affairs strategy on digital assets, fintech, climate finance, financial stability, domestic finance, and economic policy. Prior to his service at the Treasury Department, Rizzo was a top communications adviser to Sen. Chuck Schumer (New York) and Sen. Bob Casey Jr. (Pennsylvania).</div>


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It’s Time for Crypto To Regulate Itself

The summary judgment ruling in the SEC’s case against Ripple Labs — expected any time now — could have major implications on the price of the company’s native token, XRP, and others. 



Ben McMillan, founder and chief investment officer of IDX Digital Assets, said the XRP price, as well as the broader alt-coin market, could swing wildly following the ruling.&nbsp;



&#8220;A favorable outcome for Ripple could easily see XRP gain 100%-plus,&#8221; he told Blockworks in an email. “On the other side, depending on the specifics, an unfavorable ruling could see XRP retest the $0.30 range or lower.”  



XRP’s price was about $0.54, as of 1:00 p.m. ET — up 7.5% in the last 24 hours and roughly 15% higher than seven days ago.&nbsp;



The SEC first alleged in 2020 that Ripple Labs and two of its executives raised more than $1.3 billion in 2013 via an unregistered security offering of XRP.



The token’s latest rally likely reflects the potential rising likelihood that Ripple wins the case outright, or that the court decides the case must go to trial, according to Matthew Sigel, head of digital assets research at fund manager VanEck.&nbsp;



“Algo traders may interpret such headlines on the tape as positive, but the truth will be in the details,” Sigel said. “Either way, I would speculate that a Ripple ‘win’ in this case might move XRP between 15 to 30% in either direction, with a [roughly] 5% reaction from ETH, and 10%-plus for other alt-coins, depending on the specifics.”



McMillan agreed the decision will likely have a price impact that goes beyond XRP.



“I think we&#8217;d see a general risk-on rally among the entire crypto ecosystem given how aggressively the SEC has been targeting all coins — other than bitcoin — as securities,” the IDX executive said.&nbsp;



The SEC and CFTC have brought actions against crypto companies in recent months as part of what industry watchers have called a turf war of sorts between the two regulators.&nbsp;



While SEC chairman Gary Gensler has said he believes a majority of crypto tokens — aside from bitcoin — are securities, the CFTC labeled bitcoin, ether and litecoin as commodities in its <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">recent lawsuit against Binance</a>.&nbsp;&nbsp;&nbsp;



“The Ripple decision has the potential to really provide some long-awaited and much needed clarity on this point which could be very bullish for the crypto-complex,” McMillan said.



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Ripple Decision Could Have Big Implications for XRP Price, Other Cryptos

The share of US-based blockchain developers is shrinking, according to a recent study, though the country has a chance to regain a lead as an upcoming boom of such jobs is expected over the next decade. 



The US has lost 2% of its share of the blockchain developer market per year for the last five years — sinking to 29% market share, venture capital firm Electric Capital found.



Europe is also currently home to 29% of blockchain developers, the data shows, while Asia accounts for 13%.&nbsp;&nbsp;



The number of active open source software engineers grew to 23,343 by the end of 2022, according to Electric Capital, despite crypto prices declining. The <a href="https://www.developerreport.com/developer-report-geography" target="_blank" rel="noreferrer noopener">report</a> estimates that ​​one million new blockchain-related open-source developer jobs could be created by 2030, giving the US a chance to catch up. 



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2400" height="1320" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=1024&amp;h=1024" alt="" class="wp-image-50544" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=2400 2400w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain2.jpg?w=80 80w" sizes="(max-width: 2400px) 100vw, 2400px" /><figcaption class="wp-element-caption">The USA&#8217;s blockchain developer share has shrunk 2% per year since 2017, according to Electric Capital</figcaption></figure>



Regulatory clarity could go a long way to attracting a chunk of that talent, though some industry participants have said they aren’t particularly optimistic. In the absence of a comprehensive crypto framework, the SEC and CFTC have launched enforcement actions against crypto companies and executives in recent months, <a href="https://blockworks.co/news/binance-cftc-damning-quotes" target="_blank" rel="noreferrer noopener">including Binance</a>.



“Providing clear and supportive regulations for the cryptocurrency and blockchain industries will encourage more innovation and foster growth within the country,” the report states. “This will make the US an attractive destination for both new and established developers.”



Coinbase, an industry player <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation" target="_blank" rel="noreferrer noopener">the SEC has targeted</a> recently, said in a blog post Wednesday that “regulation by enforcement” in the US was indeed pushing tech innovation to other parts of the world. 



CEO Brian Armstrong said the company would be “happy to go to court” if necessary to offer some clarity to the industry.&nbsp;



“The US is now losing market share to regions with more regulatory clarity and openness to crypto innovation like Europe and Asia, as well as emerging markets like LATAM, India, and Africa,” the crypto exchange’s <a href="https://www.coinbase.com/blog/new-report-shows-1m-tech-jobs-at-stake-in-us-crypto-policy" target="_blank" rel="noreferrer noopener">blog</a> post states.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2403" height="1335" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=1024&amp;h=1024" alt="" class="wp-image-50548" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=2403 2403w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/braindrain3.jpg?w=80 80w" sizes="(max-width: 2403px) 100vw, 2403px" /><figcaption class="wp-element-caption">Where will the next million Web3 developers go?</figcaption></figure>



While the US, Europe and Asia have the most blockchain developers, India’s share of such professionals has grown more consistently — from 2% in 2017 to 6% in 2022.



“Still the United States has amazing builders, but then India is another ecosystem that is coming on line in the last couple of months and years in a really really big way,” said Ruben Amenyogbo, head of partnerships for Protocol Labs.



Ukraine has been a standout European country in terms of growth, as its share of blockchain developers rose 2% in the last three years.&nbsp;



Macaulay Peterson contributed reporting. 



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US Losing Ground on Blockchain Developer Share: Study

Bessie Liu

Judges of the United States District Court of Southern California have denied the motion to excuse governance token holders from bZx decentralized autonomous organization (DAO), claiming they are plausibly liable for the loss of $55 million in an exploit occurred in 2021.



Users demanded that bZx be held accountable for the lost funds after it was revealed that a bZx developer had fallen for a “phishing” scam that gave a hacker access to the protocol’s private keys.



After failing to return stolen funds, the court emphasized that DAO governance members fell under the arrangement of a “general partnership” and dismissed a motion against them.&nbsp;



This means that despite not being the individual responsible for the attacks, the governing members of the DAO are all plausibly liable to each of the victims, making it possible that each and every token holder is responsible for the return of the lost funds.&nbsp;



​​In a <a href="https://twitter.com/adamscochran/status/1640526928376483842" target="_blank" rel="noreferrer noopener">Twitter</a> post, Adam Cochran, a managing partner at Cinneamhain Ventures said that “dismissing the motion does not mean the court decided that owning the token makes you 100% liable — yet. It just means they refused to take it off the table.”



“It means that they feel there is some grounds for the case that a DeFi app with a DAO structure could extend legal liability to anyone who simply holds the token in certain circumstances — and that argument merits more discussion in court,” Cochran said.



It is important to note that in the United States, by default, general partnerships imply that there is an equal amount of voting power, which is often not the case for DAOs, where different token holders have a very different amount of control over the protocol.&nbsp;



Although partnership structures could benefit certain DAOs, <a href="https://twitter.com/emjicy" target="_blank" rel="noreferrer noopener">Mel.eth</a>, a pseudonymous DAO contributor to Index Coop, told Blockworks, not all DAOs are organized as such. And DAOs that are not structured like this should not be categorized inappropriately.



“The current framework of law isn’t coordinated enough to provide viable solutions and this fact will become increasingly obvious as we see increasingly misfit applications of outdated terminology and organizational strictures,” Mel said. “DAOs are not partnerships in my considered opinion, but a partnership structure might befit some DAOs.”



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DAO Governance Could Change Following This Court Ruling

Shalini Nagarajan

EigenLayer, a restaking protocol that aims to help scale Ethereum, has raised $50 million in a Series A round led by Blockchain Capital.



Other investors in the round include Electric Capital, Polychain Capital, Hack VC, Finality Capital and Coinbase Ventures.&nbsp;



The protocol’s fundraising round is noteworthy given that venture capital funding for crypto startups <a href="https://blockworks.co/news/funding-wrap-venture-funding-down-but-not-out">slowed</a> significantly during the crypto bear market. It previously raised a $14.5 million seed round last year led by Polychain Capital and Ethereal Ventures.&nbsp;



EigenLayer seeks to extend crypto-economic security to applications being built on the Ethereum network through restaking. Fragmented security is seen as one of the key issues within the blockchain ecosystem, meaning applications on Ethereum are responsible for generating their own trust mechanisms.&nbsp;



Founder Sreeram Kannan, who has been an associate professor of Artificial Intelligence and blockchain applications at the University of Washington for more than 8 years, said the mission of EigenLabs is to build protocols and infrastructure that boosts open innovation.



“One of the central bottlenecks to innovation in today’s crypto ecosystem is the requirement for projects to bootstrap trust, or crypto-economic security,” he said in a <a href="https://twitter.com/eigenlayer/status/1640755205443829760" target="_blank" rel="noreferrer noopener">statement</a>. By contrast, EigenLayer would allow developers to become consumers of trust generated by staked ether, according to its <a href="https://docs.eigenlayer.xyz/whitepaper.pdf" target="_blank" rel="noreferrer noopener">white paper</a>.



Kannan told <a href="https://fortune.com/crypto/2023/03/28/eigenlabs-eigenlayer-50m-funding-round-blockchain-capital-infrastructure/" target="_blank" rel="noreferrer noopener">Fortune</a> that blockchain infrastructure is currently blocked from supporting big ideas like Uber or social networks because it’s just not ready yet. And EigenLayer could be a fix for that.



Speaking to Blockworks’ <a href="https://youtu.be/O-uzBSevklk?t=1158" target="_blank" rel="noreferrer noopener">0xResearch podcast</a> in January, Kannan said that EigenLayer will allow staked ether to be used in a variety of cross-chain contexts.



“You can think of EigenLayer as enhancing the expressivity and flexibility of what the Ethereum trust network can do,” he said.



The protocol’s process of restaking, in which Ethereum’s security is redirected to alternative middleware, allows blockchain services to rely on itself for security rather than on the value of their own tokens. It essentially gives users an opt-in function that grants EigenLayer enforcement rights on their staked ETH, which can then be applied to other applications.



Viktor Bunin, a protocol specialist at Coinbase and an angel investor who participated in EigenLayer’s seed round, <a href="https://viktorbunin.medium.com/investing-in-eigenlayer-1020608cd69f" target="_blank" rel="noreferrer noopener">wrote</a> about why he is particularly interested in the startup.



“Sreeram and team are tackling an incredibly difficult problem, but one that has the potential for an enormous amount of impact,” he said. “There’s tens of billions of dollars of staked ETH. In the future there will be trillions. Making this capital useful will be a journey that can place crypto as an industry on a better path.”



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EigenLayer Lines Up $50M In Bear Market Fundraise

Some folk view crypto trading as gambling more than investing. Two ambitious entrepreneurs made the most of it by starting crypto casino Stake in 2017.



Stake has since sprung up to become the seventh-largest gambling group in the world by revenue, per the Financial Times, which cited data from strategic advisory firm Regulus Partners. 



DraftKings, one of the most prominent sports betting firms, lags behind. Stake generated nearly $2.6 billion in gross gaming revenue last year alone, the <a href="https://www.ft.com/content/2490279b-9c94-49a8-beff-cbd7c3307586">Financial Times</a> reported. 



That’s up from 1.8 billion Australian dollars ($1.2 billion) in <a href="https://www.afr.com/technology/aussie-crypto-billionaire-alleges-ex-associate-embezzled-millions-20230212-p5cjvq" target="_blank" rel="noreferrer noopener">2021</a> and a big jump from just $105 million in the year prior.



Stake&#8217;s founders, 27-year-old Ed Craven and 28-year-old Bijan Tehrani, were childhood friends who met on online roleplaying game RuneScape, per the FT. They teamed up to create a crypto dice gambling platform Primedice when they were around 20. Craven is now considered Australia’s youngest billionaire.



Primedice ultimately became the foundation of Stake’s beginnings, with the new venture offering video poker, casino games and sports betting. It accepts both fiat and cryptocurrencies, including bitcoin, ether, dogecoin and bitcoin cash, among others.



The site attracted several “high-rollers” — people willing to spend on gambling lavishly — due to big-budget marketing meant to tame the stigma tied to both crypto and gambling, according to Craven. A goal was to reassure customers that the founders wouldn’t run off with their money, a somewhat common occurrence in some areas of the crypto market at the time.



Canadian rapper Drake signed a $100 million-per-year endorsement deal with<a href="http://stake.com"> </a>Stake.com in 2022, the FT said, citing two people familiar with the matter. Drake has reportedly won $38 million by gambling bitcoin on the platform. Blockworks has reached out for comment.



The crypto casino also has the support of some big names, including sponsorship deals with Premier League club Everton and Alfa Romeo’s F1 team.&nbsp;



Other major online gambling sites focus on tightly regulated markets, but the bulk of Stake’s regular users (which the FT reported as 600,000) hail from more loose jurisdictions across Southeast Asian countries, Japan and Brazil.



Stake reportedly has minor gambling operations, not involving crypto, in the US and UK.



It hasn’t been all rosy, though. Former business associate Christopher Freeman, who worked on Primedice, <a href="https://www.afr.com/technology/aussie-crypto-billionaire-alleges-ex-associate-embezzled-millions-20230212-p5cjvq">sued</a> Craven and his co-founder for $400 million last month, arguing they secretly betrayed him by misleading him about the nature of their next venture.



Crypto might still be in the throes of crypto winter. But at least in Stake’s case, there’s no bear market for gambling.



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Crypto Casino Made $2.6B in Gaming Revenue Last Year

Sebastian Sinclair

After a historic weekly run in the price of digital assets in the middle of March, trading activity has cooled into a range consolidation amid profit-taking.



Bitcoin (BTC) rose 26% from $22,200 beginning March 13 to $28,400 by the week’s end — the largest recorded weekly upside since December 2020.



Concerns over banking sector stability and persistent inflationary pressures encouraged traders to reallocate capital away from traditional assets <a href="https://blockworks.co/news/bitcoin-holders-fed-policy">into crypto</a>. The CFTC’s lawsuit against Binance over trading and derivatives allegations, gave participants pause, but the range established since the close of Friday, March 17, remains intact.



“Bitcoin is now just battle-tested against these sorts of stories in the long run,” Sam Holman, an analyst at Australian trading firm Zerocap told Blockworks. “We tend to see short-term sell-offs when the headlines are published, but longer term it tends to play out like we&#8217;re seeing now with bitcoin&#8217;s price action overnight.”



The asset has managed to consolidate above the $26,900 level, indicating the impact Binance’s news has had on price has been minimal, Holman added.



On-chain metrics point to an increase in the volume of coins deposited to exchanges, signaling a willingness to realize some profits, with the majority of selling pressure coming from short-term holders, <a href="https://insights.glassnode.com/the-week-onchain-week-13-2023/" target="_blank" rel="noreferrer noopener">Glassnode reported</a> Monday.



Profit-taking had begun to take place shortly before the announcement of the CFTC’s lawsuit, with data suggesting short-term holders dominate more than 90% of total inflow volumes, and with roughly 65% of these individuals in the green. Short-term holders are defined as individuals who’ve held for an average of 21 days.



<h2>Zooming out on the bitcoin price</h2>



Peering across the macro view of on-chain activity, Glassnode’s measure of the utilization of the Bitcoin network relative to its 14-year history — <a href="https://medium.com/@tamas.blummer/liveliness-of-bitcoin-174001d016da" target="_blank" rel="noreferrer noopener">liveliness</a> — shows the ratio of Coin Days Destroyed (CDD) to Coin Days Created (CDC) at its lowest point since Nov 29, 2020.



CDD and CDC are metrics used to measure the activity of a given asset and take into account two factors: the number of coins held in a wallet and the number of days held.



The liveliness of a particular crypto increases when long-term holders sell their positions and decreases when they accumulate coins to hold onto.&nbsp;



Liveliness will continue to trend down when individuals prefer accumulation over further sell-side pressure, hinting at strong investor sentiment despite <a href="https://blockworks.co/news/us-bank-regulators-secret-war-on-crypto">a recent campaign of regulation through litigation</a> by policymakers.



The narrative that really established bitcoin&#8217;s price surge higher in the past month — largely centered on the banking sector issues — would need to change for this trend to start to reverse, Holman said.



“If we start to see easing in these emergency loans from the Fed, then we could start to see some weakness in bitcoin.”



Charles Edwards, quant trader and founder of digital asset hedge fund Capriole, agreed, telling Blockworks Signature Bank going off-line this week would have a larger impact than the Binance news.



“The biggest fiat rails into crypto are officially going off-line on [April 5] — that will affect many large crypto entities if they haven&#8217;t set up new banking relationships,” Edwards said. “Probably most have, but we could see a temporary slowdown in capital flows over the next one-to-four weeks.”



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Bitcoin Price Surges Following Mild Retail Sell-Off, Binance Lawsuit

Digital asset exchange Coinbase has responded to the Australian Treasury’s “token mapping” exercise, expressing its support for the development of the country’s regulatory framework.



Australia’s token mapping, in what is said to be a “<a href="https://blockworks.co/news/australia-to-define-crypto-in-token-mapping-exercise">world first</a>,” will seek to define various digital assets and bring them under the purview of appropriate regulators across the country. While the exercise had been planned for sometime this year, the launch is expected sometime next year.



Coinbase said in a <a href="https://assets.ctfassets.net/c5bd0wqjc7v0/3iZ18bsCBT8Z57O3Ji5DeX/04041b41905063c53822b4eafce8f6e3/Coinbase_Response___Australia_Token_Mapping_Consultation_-_March_2023.pdf" target="_blank" rel="noreferrer noopener">consultation paper</a> on Tuesday, it believes that a well-rounded framework should focus on outcomes as opposed to specific rules. Those rules should achieve a balance across a variety of regulatory objectives, it said.



“Given the constantly evolving nature of digital assets and blockchain technology, a fit-for-purpose regulatory regime must focus on outcomes,” the exchange said.



Coinbase’s involvement in the project follows more than a year after the exchange expanded its services to Australian retail investors via its domestically-registered business, Coinbase Australia Pty Ltd.&nbsp;



While the exchange had offered the sale of digital assets to individuals as early as 2016, buying and selling crypto through a local arm was done via its main platform in the US.



The objectives, as alluded to in the paper, entail preserving financial stability, market integrity and consumer protections while fostering “responsible” innovation and growth.



Coinbase also highlights the importance of blockchain technology generally, including its potential to enhance efficiency, transparency and resiliency to the financial system by cutting down on middlemen. That in turn would cut costs, improve the user experience and increase competition, it said.



The exchange also takes particular note of fiat-backed stablecoins, while highlighting the benefits decentralized finance (DeFi) can bring to the table by exponentially expanding opportunities for financial players.



“Regulators have historically overseen financial markets by imposing and enforcing rules on market intermediaries,” Coinbase said. “No such intermediaries exist in the DeFi ecosystem.”



It comes as Coinbase has been sparring with the US SEC regulator for allegedly violating securities laws and selling unregistered products to retail and institutional investors.



The agency issued the exchange a <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">Wells notice</a> — a type of forerunner to formal action — notifying Coinbase of its intentions to probe its <a href="https://blockworks.co/news/coinbase-reports-sharp-revenue-user-growth-in-q4">$2.5 billion</a> business model. Coinbase said it would <a href="https://blockworks.co/news/coinbase-happy-to-go-to-court-with-sec">fight the SEC in court</a> over the matter in a bid to clear itself of any wrongdoing.



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Coinbase Calls For Flexible Approach to Regulation in Australia

Brazilian asset manager Hashdex will be ready to convert its bitcoin futures ETF to a spot product, a company executive said, considering regulatory clarity around such a fund is coming.&nbsp;&nbsp;&nbsp;



It’s just a matter of time. New legislation or a court ruling are both possible options.&nbsp;



Bruno Sousa, head of Hashdex’s US business, told Blockwork his company’s product has an advantage over other competing products on the market when it comes to making the switch. 



The Hashdex Bitcoin Futures ETF (DEFI), which the company launched <a href="https://blockworks.co/news/teucrium-bitcoin-futures-etf-now-carries-hashdex-brand">with the help of fund issuer Teucrium</a> in September 2022, was filed under the Securities Act of 1933 (‘33 Act). Other futures ETFs were filed under the Investment Company Act of 1940 (‘40 Act).&nbsp;&nbsp;&nbsp;



“The concept was that to hold bitcoin, the ‘33 Act structure is a proper structure,” Sousa said in an interview. “The ‘40 Act can only have securities; it can never hold bitcoin itself…so those ‘40 Act ETFs using bitcoin futures don’t have the structure to take on bitcoin directly at any point.”



The ’33 Act structure could well be easier to convert from holding <a href="https://blockworks.co/price/btc">BTC</a> futures to bitcoins than a ’40 Act fund might be, should that conversion process be approved by the SEC, according to Lara Crigger, editor-in-chief at data firm VettaFi.



“That’s because ’40 Act funds have very strict rules around the diversification of holdings and making distributions; as a result, they can’t invest in ‘riskier’ assets, like commodities,” she told Blockworks in an email. “33 Act funds, however, can take the form of grantor trusts, which hold physical commodities … and commodities pools, which hold futures.”&nbsp;



<h2>Who could be first?</h2>



Sousa’s comments come as the prospect for spot bitcoin ETFs have once again gained prominence.



Grayscale Investments is enveloped in a case against the SEC after the regulator last year declined the proposed conversion of the firm’s flagship Bitcoin Trust (GBTC) into an ETF. GBTC shares are now offered through a private placement exempt from registration under the ‘33 Act. They’re initially only available to accredited investors as a result.&nbsp;



During oral arguments in the DC Circuit Court of Appeals earlier this month, <a href="https://blockworks.co/news/grayscale-appears-to-win-opening-sec">judges grilled the SEC</a> on why the regulator approved bitcoin futures exchange-traded products (ETPs) and not the GBTC conversion.



Industry watchers previously told Blockworks, however, that a <a href="https://blockworks.co/news/grayscale-win-over-sec-might-not-change-much-industry-watchers-say">favorable Grayscale ruling might not mean much</a>, as the SEC might choose to deny GBTC’s conversion, and other spot bitcoin ETF applications, for a different reason.



Hashdex launched the world’s first crypto index ETF in February 2021 on the Bermuda Stock Exchange. Now, Sousa argued DEFI has the most “straightforward process” to gaining spot bitcoin ETF approval when the time comes.



“Our conversion is not really a conversion; it’s just a change in investment policy — a very simple procedure,” he said. “And we will re-file whenever there’s a new fact that can lead us to the idea that the SEC might position itself differently.”



The first bitcoin futures ETF in the US, the ProShares Bitcoin Strategy ETF (BITO), hit the market in October 2021. It was filed under the ‘40 Act structure.



Valkyrie Investments, which launched a bitcoin futures ETF also filed under the ‘40 Act in that month, gained approval for a ‘33 Act <a href="https://blockworks.co/news/another-bitcoin-futures-etf-approved-by-sec-with-no-spot-product-in-sight">bitcoin futures ETF</a> last year.



A Valkyrie spokesperson did not immediately return a request for comment on its plans for the product.&nbsp;



Sumit Roy, a senior analyst at ETF.com, said other issuers could just file for a separate spot bitcoin ETF rather than convert their existing futures-based funds.



“If and when the SEC finally allows a spot bitcoin ETF to come to market, I think — and I would hope — that several such funds would be approved at the same time, and that fund structure wouldn&#8217;t be a deciding factor,” he said.



Keep reading for more excerpts from Blockworks’ interview with Sousa. 



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



Blockworks: Hashdex’s bitcoin futures ETF has less than $2 million assets under management, compared to BITO, for example, which has about $960 million. Why has DEFI had such little interest?



Sousa: Last year&#8217;s bear market was a challenging environment for crypto ETFs globally, but bitcoin is clearly on its path to recovery.



We are anticipating more demand from investors as the macro environment shifts and the global banking crisis shines a light on bitcoin’s benefits.



Blockworks: What needs to happen before a spot bitcoin ETF is approved?



Sousa: A lot of the background issue here has been the dispute between the SEC and the CFTC. We’re seeing the commissioner of the CFTC saying that ether is a commodity, and we’re seeing the SEC saying time and time again — and giving indications — that this is a security.



The parallel discussion … is once you have the federal legislation determining who regulates crypto exchanges — we believe that will be the CFTC — and the CFTC rolls out rules for crypto exchanges, then the argument for unregulated markets or market manipulation goes under.



After that, essentially the SEC would be in a position to approve.&nbsp;



Blockworks: When will that be?&nbsp;



Sousa: It depends…but it’s feasible that it can happen this year if the world doesn’t blow up with everything that’s happening, and the folks in DC, New York and other places don’t have to focus on saving the current financial system.



It will eventually come out. It’s closer and closer.



This interview was edited for clarity and brevity.



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Hashdex US Head: BTC ETF ‘Feasible’ in 2023 if the ‘World Doesn’t Blow Up’

South Dakota is keeping its crypto regulatory policy as-is for now. Legislators cited concerns about the bill’s treatment of crypto, even though the word is never mentioned in the text.&nbsp;



Republican Governor Kristi Noem vetoed <a href="https://sdlegislature.gov/Session/Bill/23995/250850">House Bill 1193</a>, which would amend the state’s Uniform Commercial Code (UCC) to exclude all digital assets from the definition of money except for a central bank digital currency.&nbsp;



Noem’s main issue with the proposed law was that it could “pave the way for a government-led CBDC,” she <a href="https://twitter.com/KristiNoem/status/1634403770049220608?s=20">told</a> conservative personality Tucker Carlson earlier this month.&nbsp;



“I believe it’s to pave a way for the federal government to control our currency, and thus control people,” Noem added. “It should be alarming to people and it’s being sold as a UCC guidelines update.”



The bill never mentions the term <a href="https://blockworks.co/tag/cbdc">CBDC</a>, but it does define “money” as any medium of exchange “currently authorized or adopted by a domestic or foreign government.”



Bitcoin, even though it has been adopted as legal tender in El Salvador, would likely not fit the definition, considering bitcoin is not backed or controlled by El Salvador — or any other government. And bitcoin was created long before El Salvador’s adoption of the asset.&nbsp;



Money is not “an electronic record that is a medium of exchange recorded and transferable in a system that existed and operated for the medium of exchange before the medium of exchange was authorized or adopted by the government,” the bill said.&nbsp;



Noem vetoed the bill last week, but the South Dakota House of Representatives opted to uphold the decision Monday evening in a 37-30 vote. The House would need a two-thirds majority to override the veto.&nbsp;



Other states are looking into similar UCC update bills, Noem said.&nbsp;



Proponents argue that the changes outlined in the bill say it could have laid the foundation to link governments and cryptocurrencies.



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South Dakota Governor Turns Down Crypto Regulation Bid

Michael Bodley

Interest in tokenized real estate is spreading. All the way to south Texas.&nbsp;



In the latest <a href="https://blockworks.co/news/tokenized-home-nets-thousands">indicator of the once-niche sector’s spread</a>, startup Homebase has closed out the tokenization of its first single-family rental property, the company told Blockworks exclusively.&nbsp;



The McAllen, TX, single-family home was valued at $235,000. Homebase drummed up $246,800 in about two weeks by tokenizing the residence on Solana (<a href="https://blockworks.co/price/sol">SOL</a>) via a smart contract tied to an NFT created for the purpose: “Homebase 1 [<a href="https://explorer.solana.com/address/9dKvUmegQGtW5uNXGr1XH3ud7wtAk1V87xmqSzC57cDj">The Cardinal</a>].”&nbsp;



The total amount <a href="https://explorer.solana.com/address/9dKvUmegQGtW5uNXGr1XH3ud7wtAk1V87xmqSzC57cDj">raised</a> includes $11,800 set aside to “to account for maintenance and other issues,” a spokesperson said in a statement.



Homebase, according to Domingo Valadez, the company’s chief executive and one of three co-founders, spent seven months getting just the legal and compliance details of its real estate offering ready for market.&nbsp;



The overall effort took a year and involved the regulatory and fiat side of things: filing the SEC paperwork to market security tokens to both retail and accredited investors.&nbsp;



Of the 38 participating investors, 30 were non-accredited, according to the filing. The minimum investment for the sale reported to the SEC was $500.&nbsp;



Homebase spent some time weighing the benefits and drawbacks of various blockchains to host the NFTs and smart contracts. Homebase eventually settled on Solana. The startup supports USDC to allow users to buy tokenized property slices “in one click,” the statement said. 



Homebase considered the Ethereum ecosystem, he said, but was put off in part by concerns over ether (<a href="https://blockworks.co/price/eth">ETH</a>) gas fees that were rising.&nbsp;



Polygon (<a href="https://blockworks.co/price/matic">MATIC</a>) was also in contention, according to Valadez, but blockchain bridges that Homebase would have had to employ resulted in funds disappearing for like “15 minutes,” which would have been “especially scary” for investors new to the sector.&nbsp;



<h2>Fractionalizing real estate mints potential</h2>



Valadez, originally from south Texas himself, spent about five years working for Google before leaving to start up Homebase with two additional co-founders in early 2022.&nbsp;



Living in the pricey Bay Area, Valadez realized something: He “still couldn’t afford anything in the Bay Area after working at Google for five years.”&nbsp;



In spite of working tech hours and earning a tech salary, Valadez said buying a property at the time was out of the question. The US housing market has <a href="https://www.bankrate.com/real-estate/is-the-housing-market-about-to-crash/">slowed</a> in recent months, with some analysts eyeing an even more dramatic drop in residential and commercial property prices on the horizon.&nbsp;



A <a href="https://blockworks.co/news/tokenized-real-estate-crypto">number of tokenized real estate initiatives</a> have started to take shape, including Homebase’s first foray into the competitive market. Those maneuvers come as the Federal Reserve has flashed some indicators that it plans to raise interest rates in a more gradual fashion moving forward.



The Fed’s <a href="https://blockworks.co/news/federal-reserve-interest-rate-25-bps-march">March rate hike clocked in at a 0.25%</a> increase, which appeared to have been largely already priced in by both traditional and digital assets markets.&nbsp;



But the Bay Area and other municipal US hotspots remain stubbornly out of reach in terms of price for most, according to Valadez.&nbsp;



The median February Bay Area home went for a whopping $1,050,000, according to real estate data provider Norada.&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">Why we chose to bring real estate on-chain on Solana, a 🧵👇&mdash; Homebase🏠 (@HomebaseDAO) <a href="https://twitter.com/HomebaseDAO/status/1608604206625132544?ref_src=twsrc%5Etfw">December 29, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Read more: <a href="https://blockworks.co/news/real-estate-investing-guide">The Crypto Native’s Guide to Real Estate Investing</a>&nbsp;



Homebase thinks it can provide a viable alternative — even with real estate prices where they are, by tapping Solana and ensuring compliance with related SEC regulations.&nbsp;



The end goal is to create a product that makes money and helps homeowners, as well as investors, in the process, Valadez said.&nbsp;



<h2>The mechanics of NFT real estate</h2>



Homebase essentially captures a spread on the transaction. The startup put in a small amount of its own capital, which Valadez said was designed to ensure an alignment of financial interest.&nbsp;



“Tokenization in real estate is a means of crowdfunding,” he said. “We see the value in a decentralized future. We see some of the issues in the current financial structures…How do we give more power to individuals when they truly have ownership around their assets?”



Here’s how, in Valadez’s estimation:



<ul>
<li>The Solana tokenization of the McAllen single-family property went live in early March, generating enough demand that a mix of retail and accredited investors filled the Solana order book at the $1,200 average check size in under two weeks.</li>



<li>There was no lien or mortgage on the property, meaning Homebase didn’t have to work around outstanding debt on the transaction. The owner, as a result, held onto 80% of their equity in the property. Homebase took on a 1% interest, and the remaining 19% now belongs to investors in the tokenized offering.&nbsp;</li>



<li>Of that approximately 19%, half was raised in fiat and the remainder was processed by USDC. A total of 38 investors participated, and a spokesperson said the “majority were first-time real estate investors and new to Web3.”</li>



<li>The process resulted in 15 of the 28 backers creating their first Solana wallet, per the company.</li>
</ul>



Homebase started the process by agreeing to exclusive terms with the rental property’s owner. The startup then spun up an SPV (special purpose vehicle) to market the tokenized equity sale.&nbsp;



Investors are required to hold on to their NFTs representing their equity interests for at least one year. The process is verified on-chain.&nbsp;



Backers can then freely buy and sell their Solana NFTs on the open market, and underlying smart contracts tie those transactions to their corresponding equity stakes in the home.&nbsp;



Homebase’s “operating agreements say that non-fungible tokens represent ownership of that SPV,” Valadez said, adding that that way “you don’t have to get a lawyer involved.”&nbsp;



“The way we’re marketing this on the demand side is keep all of your assets on-chain and get to invest in rental properties that are truly able to accrue in value,” he said. “On the homeowner&#8217;s side, it’s an additional option you have when it comes to liquidity — especially in today’s environment, when interest rates are like 6%…[You now have] an additional potential stake to get equity out.”



Homebase’s second tokenized offering is already in the works.



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Real Estate Investors Buy Solana NFT Home for $246,800

The exploiter of DeFi lending protocol Euler Finance has sent a series of messages through the blockchain, apologizing for stealing funds and promising to return all stolen money.&nbsp;



Euler <a href="https://blockworks.co/news/euler-suffers-200m-exploit">suffered a $200 million exploit</a> earlier this month in which a hacker used a series of flash loans to trick Euler’s smart contract into believing it had fewer collateral tokens than debt tokens.&nbsp;



Now, the hacker — who goes by “Jacob” — seems to have had a change of heart.



“Jacob here. I don&#8217;t think what I say will help me in any way but I still want to say it. I fucked up. I didn&#8217;t want to, but I messed with others&#8217; money, others&#8217; jobs, others&#8217; lives,” the hacker <a href="https://etherscan.io/tx/0xedd8102ca037abaeb75ce6a1afe951d2953258392d891ff23510276993a5437c">said</a> in an encoded blockchain message, asking for forgiveness.



In its initial recovery efforts, Euler Foundation launched a <a href="https://blockworks.co/news/euler-bounty-defi-flash-loan-attack">$1 million reward bounty</a> to incentivize the arrest of the attacker.&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">euler just sent an on-chain message to the hacker <a href="https://t.co/0wKIW51NjM">pic.twitter.com/0wKIW51NjM</a>&mdash; 0xngmi (llamazip arc) (@0xngmi) <a href="https://twitter.com/0xngmi/status/1635769041909342208?ref_src=twsrc%5Etfw">March 14, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Threats to the culprit came in from multiple angles, as an address associated with the Ronin bridge hacker — believed to be based in North Korea — attempted to trick the Euler hacker into sending over their private key information through a phishing scam.



The Euler team then sent an <a href="https://etherscan.io/tx/0x054409f252ac293a0ed34108b25e5906476817c5489bd3e98a5d3e1ee0825020">on-chain message</a> to the Euler hacker, warning them of the probable phishing attempt and again urged the return of the stolen assets, noting “the simplest way out here is to return funds.”



Since then, things have taken a positive turn. On Saturday, the Euler attacker returned <a href="https://etherscan.io/tx/0xb0308ee113c541e7c6f4623e833417524d68fd6267d23f43d9041f583c14343f">51,000</a> ETH (about $88 million) to a wallet under the Euler team’s control, and more recently an additional <a href="https://etherscan.io/address/0xb66cd966670d962c227b3eaba30a872dbfb995db">four transactions</a> of 7,800 <a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a> and $30 million in the <a href="https://blockworks.co/price/dai" target="_blank" rel="noreferrer noopener">DAI</a> stablecoin has been returned to a wallet labelled Euler multisig 2, alongside a pledge to make good on all of it. 



<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">Currently, the hacker holds: $18.35M of ETH &#8211; 8K ETH in the Main Caller address &#8211; 2.5K ETH in the Tornado Cash address $13.1M of DAI &#8211; $12M in the Euler Tertiary account &#8211; $1.1M held across Child 1 and 2 They have returned 85K ETH and 30M DAI. That is $177M, 86% of the total. <a href="https://t.co/RuUEZIuZFK">pic.twitter.com/RuUEZIuZFK</a>&mdash; Arkham (@ArkhamIntel) <a href="https://twitter.com/ArkhamIntel/status/1640773421666824195?ref_src=twsrc%5Etfw">March 28, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“The rest of the money will be returned ASAP. I only look after my safety, and that is the reason for the delay. I&#8217;m sorry for any misunderstanding,” Jacob <a href="https://twitter.com/fewture/status/1640594111144292353/photo/1">wrote</a> in a separate on-chain message.



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Euler Exploiter Says ‘Sorry,’ Returns Stolen $177M

Crypto investment firm Paradigm is urging the courts not to embrace what it argues the SEC is pushing for — that crypto tokens are essentially temporary securities.



The argument came in an amicus brief — insight filed by an entity who is not a party in a legal case — in the SEC’s case against Ishan Wahi.&nbsp;



US authorities <a href="https://www.justice.gov/usao-sdny/pr/three-charged-first-ever-cryptocurrency-insider-trading-tipping-scheme">charged</a> Wahi, a former product manager at Coinbase, with wire fraud last July as part of an alleged scheme to commit crypto-related insider trading. He <a href="https://www.justice.gov/usao-sdny/pr/former-coinbase-insider-pleads-guilty-first-ever-cryptocurrency-insider-trading-case">pleaded</a> guilty to two counts of wire fraud conspiracy in Manhattan federal court last month.&nbsp;



But the SEC’s case against Wahi is ongoing. Judge Tana Lin, of the US district court for the western district of Washington, allowed Paradigm’s amicus brief to be filed on Monday, Paradigm crypto counsel Rodrigo Seira said in a tweet.&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">Today, Judge Tana Lin officially granted <a href="https://twitter.com/paradigm?ref_src=twsrc%5Etfw">@paradigm</a> leave to file our amicus brief in the SEC&#39;s case against Ishan Wahi Our brief rejects the SEC&#39;s expansive and unsupported application of securities laws to crypto secondary markets <a href="https://t.co/OWxiajwuxZ">pic.twitter.com/OWxiajwuxZ</a>&mdash; Rodrigo (@RSSH273) <a href="https://twitter.com/RSSH273/status/1640405640907751424?ref_src=twsrc%5Etfw">March 27, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The US securities regulator alleges that Wahi offered inside information to his brother, Nakhil Wahi, and Sameer Ramani, who then allegedly traded based on that knowledge. This included trading in at least nine crypto assets, according to the SEC — assets the regulator is calling securities.&nbsp;



<h2>Temporary securities?</h2>



Paradigm says in the brief the SEC is incorrectly arguing that because the crypto tokens were sold as transactions defined as investment contracts, the tokens themselves became investment contracts — deemed as a type of security per the Securities Exchange Act of 1934.&nbsp;



The nine tokens would not be considered securities “without considering extrinsic factors,” according to the brief.&nbsp;



“The SEC asks the court to accept the novel idea that these tokens are securities for only so long as they are deemed to “embody” an ongoing investment scheme…making them effectively temporary securities,” Paradigm states.



Accepting this “embodiment theory,” as Paradigm calls it, could have “sweeping and unintended effects” on the crypto industry, the company added.&nbsp;&nbsp;&nbsp;



“Essentially, the SEC seems to suggest that market participants should simply assume that&#8230;virtually all crypto assets are securities until the SEC tells them otherwise, a power not granted to the SEC by the Congress,” Paradigm said.



The SEC did not immediately return a request for comment.&nbsp;



<h2>Securities or not?</h2>



Though Paradigm calls the SEC’s latest argument “a novel idea,” the broader argument of whether crypto tokens are securities is not new.



The SEC alleged in 2020 that Ripple Labs and two of its executives raised more than $1.3 billion in 2013 through the sale of crypto token XRP as part of what it deems to be an unregistered security offering. <a href="https://blockworks.co/news/sec-ripple-xrp-case-trial">That case is ongoing</a>.



The regulator <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">served Coinbase with a Wells notice</a> last week about alleged securities violations, though the exchange has <a href="https://www.coinbase.com/blog/coinbase-does-not-list-securities-end-of-story">argued</a> the digital assets it lists are not securities.&nbsp;



Industry participants have told Blockworks that US regulators are jockeying for position in regulating the crypto industry in the absence of comprehensive regulation.The CFTC <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">called bitcoin, ether and litecoin commodities</a> in a lawsuit brought Monday against Binance and its CEO.



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Paradigm: SEC’s Temporary Securities Theory Could Have ‘Unintended Effects’

Federico Ast

Online organizations are becoming a normal setting for a large part of our social and economic interactions. And just like in the offline world, disagreements are now cropping up in these online spaces.&nbsp;



Web3 is no exception: We have recently witnessed disputes in communities such as <a href="https://www.coindesk.com/business/2022/07/06/is-makerdao-becoming-a-company-run-by-politics/">MakerDAO</a>, <a href="https://medium.com/@ClementLesaege/making-sense-of-recent-drama-in-proof-of-humanity-ccf3082eb0fa">Proof of Humanity</a> and <a href="https://decrypt.co/es/124083/defi-llama-drama-resolved-no-token?amp=1">DefiLlama</a>.



Those conflicts were of political nature and involved deep disagreements between different factions within the projects. Members disagreed on matters ranging from resource allocation (how funds and other assets should be assigned), community norms (how members are expected to treat each other) and legal issues (how to manage compliance requirements).



These recent public community governance dramas have put a spotlight on the fact that we are still learning how to govern decentralized organizations. As such conflicts are more likely to become commonplace, decentralized communities need to start experimenting with how to resolve them.



The problems of DAO governance need to be dealt with by people that understand the value of a humanistic, big-picture approach, who realize that there is ultimately nothing new under the sun. If you look all the way back to the days of ancient Athens, philosophers have been trying to understand how to create environments where humans can collaborate effectively and thrive — and DAOs are no different.



<h2>How to agree to disagree</h2>



What do the philosophers of ancient Athenian democracy and the founding fathers of the United States have in common? A big concern about factionalism as the main threat to a working democracy.



When factions win, citizens turn their focus away from the common good and toward the particular interests of their clan or party.



In the book How Democracies Die, Steven Levitsky argues that a key reason for the success of American democracy was the development of a number of informal norms on how disagreements had to be handled and how one was expected to treat political adversaries. A civilized way to agree to disagree.



Efforts should be taken in DAO communities to develop norms of civility, open debate and mutual respect. While this is easier said than done, the way in which a community recruits and educates their new members can play an important role.



<h2>Who’s in charge?</h2>



Many DAO disputes arise from poorly designed governance systems leaving ambiguity on how decisions should be made and who should make them.



Should every member be allowed to vote on every issue, or only experts get the votes? Who counts as a “community member” anyway? Should the DAO work on a 1 token/1 vote system or 1 person/1 vote system?



For example, the failure of Proof of Humanity DAO was attributed to a lack of clear decision rights, according to an <a href="https://drive.google.com/file/d/1l_faHo8WAr-T4MzagCcLyfvIA7xRlUD5/view">ethnographic research paper</a> published by BlockchainGov.



We are already witnessing the rise of constitution-building processes for DAOs. Clarifying the way in which the governance system works (who gets to decide about what and how) will be an important avenue for conflict prevention in the future.



<h2>Bring on the third parties</h2>



After a conflict starts, it’s typically too late to agree on a dispute resolution method —&nbsp;especially in a decentralized organization that owes its existence to a set of rules. DAO governance rules should have an explicitly stated structure for resolving all disputes from the get-go.



DAOs can take an example from the oil and gas or construction industries and make use of a neutral evaluation process: a non-binding mediation or conciliation facilitated by a trusted third party.



Contracts in these industries usually involve long-term commitments between parties over large amounts of money. If a conflict arises (an economic shock unexpectedly sends the price of oil skyrocketing!) parties need a neutral way to resolve the issue while at the same time avoiding any damage to their business relationship.



If the non-binding agreement fails, then the conflict could potentially escalate to a binding instance, a mechanism similar to a “<a href="https://blog.kleros.io/kleros-a-decentralized-supreme-court-for-daos/">Supreme Court of the DAO</a>” which would have the right to make an authoritative decision.



This process should certainly have clear guidelines (how to start the mediation, the type of evidence that would be acceptable), impartial arbitrators, transparency and an enforcement mechanism.



<h2>A forking procedure (when DAOs get divorced)</h2>



Sometimes disagreements between the different factions go so deep that the only option is divorce. When this happens, a number of decisions will have to be made about how to split the right to use the brand and how to divide the treasury and other assets.



Most sovereign states don’t recognize the right to self-determination through secession in their Constitution. But this isn’t <a href="https://en.wikipedia.org/wiki/Secession#Rights_to_secession">without precedent</a>. For example, <a href="https://en.wikipedia.org/wiki/Withdrawal_from_the_European_Union#Procedure">article 50 of the Treaty of the European Union</a> gives the right to withdraw from the EU, which was used by the UK for Brexit. For DAOs, it&#8217;s way easier, as the majority don&#8217;t have a physical territory. If a DAO has a predefined forking procedure from the get go, then this can avoid lots of conflict about the terms for the split (similarly to how prenup agreements can avoid messy divorces).



A DAO constitution should have some guidelines on how to conduct the forking process in case it happens and to give all parties in the conflict clear expectations about the outcome.



<h2>Humans over machines</h2>



Ultimately, putting aside the technical sophistication of blockchains, DAOs are made up of humans who have emotions, passions and fears. Creating good governance systems for DAOs must be more about dealing with the “mental software” of humans rather than the “computer software” of machines.&nbsp;



Topics such as power, inclusion, opportunism and loyalty have been recurrent throughout history. Even if DAOs are novel forms of human organization due to their structure, we can always remember the words of Winston Churchill, “Study history, study history. In history lies all the secrets of statecraft.”



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


<div class="wp-block-post-author-biography">Federico Ast graduated in economics and philosophy from the University of Buenos Aires and holds a PhD in management from IAE Business School. He is founder and president at Kleros, a legaltech company using game theory and blockchain technology in arbitration. As a pioneer in the field of decentralized justice, he has lectured in universities such as Stanford, Oxford and Columbia and in international organizations such as the United Nations.</div>


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