Wing Finance

Casey Wagner

Peter Marton, the head of the virtual currency division at the New York State Department of Financial Services, will leave his position at the end of the month.&nbsp;



Marton, who started in the role in December 2021, is moving to the private sector, a spokesperson told the Wall Street Journal. Prior to joining the NYSDFS, Marton worked in digital asset strategy at IBM.&nbsp;



The NYSDFS spent several months looking to fill the deputy superintendent for virtual currency position prior to hiring Marton.&nbsp;



The virtual currency division is responsible for regulating crypto financial services and products, most <a href="http://blockworks.co/news/ny-wants-crypto-startups-to-pay-5-times-per-year-for-bitlicense">notably the state’s BitLicense program</a>, launched in 2015. The BitLicense is a required certification for businesses looking to engage in crypto business activities, including storing, selling and issuing digital assets in New York. 



The NYSDFS is currently looking for Marton’s replacement, according to a job <a href="https://www.dfs.ny.gov/system/files/documents/2023/09/dep_sup_vc_ns_ri_nyc_20231009.pdf">posting</a> from the agency.&nbsp;



The candidate should expect to be “responsible for overall management of Bitlicense applications process, examinations, and ongoing supervision of Bitlicense,” per the posting.&nbsp;



The news comes shortly after the NYSDFS <a href="https://blockworks.co/news/nydfs-coin-listing-guidelines-btc-eth-gusd">announced it was seeking public feedback</a> on a new proposed rule that would change its listing guidelines for digital assets.&nbsp;



“This coin-delisting policy must include robust procedures that comprehensively address all steps involved in removing support for a coin” and requires the company to tailor the policy to its “specific business model, operations, customers and counterparties, geographies of operations, and service providers; and to the use, purpose, and specific features of coins being considered,” the agency said.



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NY’s top crypto regulator is leaving office this month

Macauley Peterson

A Swiss non-profit working on the world’s first zero-knowledge light client for Bitcoin, has reached a major milestone towards bringing zero-knowledge proofs to the most valuable crypto network.



ZeroSync’s verifier for the Bitcoin network’s block headers makes it possible to build a zk proof-based light client for the network, the first step in a roadmap of permissionless innovation, according project lead Robin Linus.



In the near term, a light client might let you run a Bitcoin full node on, say, a mobile phone. But that roadmap includes a second-layer protocol on top of Bitcoin, that can bring tokens — such as stablecoins — to the Bitcoin network, along with a 20 to 50 times throughput increase, without requiring any sort of fork.



“What is cool about that solution is that, first of all, you can process about 100 transactions on the base layer,” Linus told Blockworks. “And in addition to that, we also get perfect privacy — you can encrypt both the transaction amounts and the transaction graphs, and then you basically get best-in-class privacy, comparable to Zcash.”



The privacy benefit is essentially a byproduct of the protocol’s use of STARKs, the proving system invented by <a href="https://blockworks.co/tag/starkware">StarkWare</a>, not a deliberate design choice.



ZeroSync received a grant from Geometry Research in 2022, one from StarkWare earlier this year, and has since formed the foundation. The group’s work is the first effort to use StarkWare’s Cairo programming language outside of the Ethereum ecosystem.



A soft fork would be required to enable trustless bitcoin bridging on the layer-2 network that ZeroSync envisions. Yet even without that, the network can permissionlessly support useful features, such as token transfers where the fees are paid in a stablecoins, removing the need for bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) to pay for transactions.



Bitcoin is resistant to change by design, requiring consensus from Core developers, and near-consensus from full node operators, including miners. The prior soft fork in 2021, called <a href="https://blockworks.co/news/anticipating-bitcoins-taproot-upgrade-heres-what-you-need-to-know">Taproot</a>, was years in the making and only activated after more than 90% of node operators signaled their assent.



“We want it to be hard to change so that it can be hard money, but some changes are necessary,” Linus said. “It seems to be that there is a consensus that at some point we do want to have some kind of [zk proof] verifier on Bitcoin.”



Linus sees ZeroSync’s role as helping figure out what kind of approach makes the most sense.



“We try to participate in the community and push that forward,” he noted. “Everything has to be free and open-source, otherwise it will never get into the main layer.”



Meanwhile, the chain state proof they’ve completed won’t require any kind of fork.



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



Zk proof technology is <a href="https://blockworks.co/tag/zero-knowledge-proof">still in its infancy</a>. There are many different proof systems available with various different tradeoffs to consider. Those choices have ramifications for virtual machines built on top. Linus recognizes it would be quite hard to reach consensus on just one.



Eric Wall, a board member of the StarkNet Foundation, and a bitcoin thought-leader, <a href="https://hackmd.io/6lwnNQf2RTmc3UQoWvAVQw">articulated</a> one of the challenges with Bitcoin’s decision-making process in this area.



“How is the Bitcoin community ever supposed to reach consensus on enshrining a specific zk-verifying opcode, when the zk community itself is not in any way in consensus on what type of zkVM would be ideal for Bitcoin for the next year, let alone the next 5 or next 100 years?”



Fortunately, Linus sees a likely solution coming via the <a href="https://blog.blockstream.com/en-simplicity-github/">Simplicity programming language</a>, first unveiled by <a href="https://blockworks.co/tag/blockstream">Blockstream</a> about five years ago.



Simplicity, a <a href="https://blockworks.co/tag/smart-contracts">smart contract</a> language similar to Solidity on Ethereum, <a href="https://blockstream-talk-23225031.simplecast.com/episodes/blockstream-talk-26-simplicity-bitcoins-last-soft-fork">has been described</a> as “Bitcoin’s last soft fork.” If it is activated, it will “vastly increase the scripting capabilities of Bitcoin,” Linus said.



“We are already starting to experiment with it because Blockstream just activated it on the <a href="https://blockworks.co/tag/liquid-network">Liquid</a> testnet…that will be the first step for us to experiment with a [zk proof] verifier on Bitcoin’s main layer.”



StarkWare’s co-founder, Eli Ben-Sasson, unsurprisingly <a href="https://twitter.com/EliBenSasson/status/1704564109386170433?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1704564109386170433%7Ctwgr%5Ed073aae1d5e00177a9df25e5c5e902d969faff95%7Ctwcon%5Es1_c10&amp;ref_url=https%3A%2F%2Fblockworks.co%2Fnews%2Fzerosync-starkware-zero-knowledge-proofs-bitcoin">advocates</a> for the Cairo+STARK stack.



<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">I agree that it suffices to pick one Turing complete VM, that can give you all other machines. I don&#39;t think setting the VM to be WASM is the right choice. My guess is that you lose 100-1000x on scale compared to picking Cairo to be the VM. Additionally, the Cairo+STARK stack is…&mdash; Eli Ben-Sasson (@EliBenSasson) <a href="https://twitter.com/EliBenSasson/status/1704564109386170433?ref_src=twsrc%5Etfw">September 20, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<a href=""></a>But Linus said the adoption of Simplicity would allow zk proof teams to sidestep the need to rely exclusively on one proof system or another.



“You can pretty freely choose what proof system you want to use…it&#8217;s a high level language for smart contracting and that allows you to do basically any kind of computation that you can do in regular programming languages,” he said.



“And so there wouldn&#8217;t be much drama anymore about the question of which [zk proof] verifier we want to activate — we would basically just implement what we think is best,” he added.



If anyone else thinks they have a better proof system, they’re free to implement it, without needing anyone’s permission.



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Bitcoin’s first zero-knowledge light client seeks to drive innovation

Former FTX US president Brett Harrison, now the founder and CEO of crypto infrastructure firm Architect, says there is “hope” US lawmakers and regulators will come to an agreement on fair and effective digital asset policy — but it’s going to take a lot of work.&nbsp;



“Regulators are in a difficult position that we have to empathize with,” Harrison said during a panel discussion at the Mainnet conference in <a href="https://blockworks.co/tag/new-york">New York</a> Thursday. 



Agencies are not only responsible for creating and enforcing policy, they also have to answer to the public when things go wrong, like the implosion of FTX last year, <a href="https://blockworks.co/tag/brett-harrison">Harrison</a> said. 



“It’s not presently really the time for pushing for innovation,” he added. “It’s about making sure this doesn’t happen again.” 



Architect, which Harrison founded this year, has had its own regulatory boxes to check.



Just this week the company received its introducing broker license for regulated derivatives, issued under the National Futures Association and independent from the Commodity Futures Trading Commission. Architect is now cleared to accept futures contract trading orders but cannot accept fiat currency or other assets to complete these orders.&nbsp;



“Derivatives markets require modern and secure technological entry points built for the disparate range of products they have come to encompass, physical and digital, in order to enhance and expand institutional participation,” Harrison <a href="https://x.com/BrettHarrison88/status/1704845804077203668?s=20">wrote</a> on X, formerly Twitter, after the announcement.&nbsp;



Harrison, <a href="https://blockworks.co/news/brett-harrison-leaving-ftx-us-moving-into-advisory-role">who left FTX.US in September 2022</a>, just ahead of its <a href="https://blockworks.co/news/ftx-bankrupt-hacked-investigated-a-timeline-of-events">parent company’s collapse</a> in November, added during the panel discussion that the future of crypto policy in the US does not solely depend on one agency.&nbsp;



“It’s wrong,” to say either the CFTC or the SEC should be the main agency in charge, Harrison said, especially given that there are many assets and areas of the industry that could likely fall under joint jurisdiction.&nbsp;



In terms of when the industry should expect to see some movement on Capitol Hill, Harrison said a lot is weighing on the upcoming election season.&nbsp;



“It really depends on the political dynamics at the time and whether or not [crypto policy] is seen as a priority next year,” he said.



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Former FTX US president sees the glass half full on crypto regulation

Ben Strack

While some consider Tether&#8217;s decision to resume lending as questionable, one industry executive believes it won&#8217;t meaningfully disrupt what is currently the most liquid stablecoin.



Tether (USDT), a stablecoin with a market capitalization of roughly $83 billion, is intended to maintain a value of $1 and can be redeemed for US dollars at any time.&nbsp;



Its issuer began accommodating short-term loan requests during the second quarter, a Tether spokesperson <a href="https://www.wsj.com/finance/currencies/tether-is-lending-its-stablecoins-again-b11705f2">told </a>the Wall Street Journal Thursday. These loans — to be eliminated by 2024 — were made to clients with which the company has “long-standing relationships,” the representative added.



It remains unclear who exactly these borrowers are.



The company’s fulfilling of loan requests comes after Tether said in a December 2022 blog <a href="https://tether.to/en/tether-addresses-fud-around-secured-loans-reveals-plans-to-reduce-these-to-zero-in-2023/">post</a> that it would “reduce secured loans in Tether’s reserves to zero” throughout 2023.



James Butterfill, head of research at CoinShares, said Tether had improved transparency via quarterly independent audits and <a href="https://tether.to/en/tether-slashes-commercial-paper-to-zero/#:~:text=Today%2C%20Tether%20announced%20that%20it,the%20management%20of%20Tethers%27%20reserves.">saying</a> in October 2022 that it was replacing commercial paper in its reserves with US Treasury bills.



“It is a little disappointing to see them take a step backwards like this,” he told Blockworks in an email. “That said…we don&#8217;t think it will materially impact their robustness as a stablecoin, as investors still have a much clearer idea as to their holdings.”



Tether’s total assets amounted to roughly $86.5 billion, while total liabilities were about $83.2 billion, as of June 30, according to a July auditor <a href="https://assets.ctfassets.net/vyse88cgwfbl/63oJePOHqIvrcnXWMPZ1M0/4cfaf2e7cdf80c30b17fdc70faaf741f/ESO.03.01_Std_ISAE_3000R_Opinion_30-06-2023_BDO_Tether_CRR.pdf">report</a>. Roughly $55.8 billion of its assets — or nearly 65% — were in US Treasury bills, it notes.&nbsp;&nbsp;



Tether’s secured loans — amounting to $5.5 billion, as of June 30, are “fully collateralized by liquid assets…and are measured at [amortized] cost,” the report adds.&nbsp;



“You would have to assume a very high default rate to consume all of their cushion,” Butterfill said.



Read more: <a href="https://blockworks.co/news/stablecoin-issuers-book-big-profits">Stablecoin issuers like tether may book big profits soon</a>



“Anyone with a minimum understanding of financial markets would see how a company having $3.3 billion in excess equity and on track to make a yearly profit of $4 billion is in all effects offsetting the secured loans and retaining such profits within the company balance sheet,” Tether said in a Thursday <a href="https://tether.to/en/challenges-plague-banking-industry-as-tether-demonstrates-strength-and-commitment-to-high-quality-principles-amidst-scrutiny-from-wsj/">statement</a> in response to the Wall Street Journal story. “Tether is still committed to removing the secured loans from its reserves.”



A spokesperson did not return Blockworks’ request for further comment.&nbsp;&nbsp;



Matt Levine, a former investment banker at Goldman Sachs, wrote in an opinion <a href="https://www.bloomberg.com/opinion/articles/2023-09-21/tether-keeps-lending-tethers?srnd=undefined">column</a> for Bloomberg News Thursday that there is no financial reason for Tether to want these loans.



“Everyone involved in Tether can get dynastically wealthy and live an easy life by putting all the money in Treasury bills,” he wrote.&nbsp;



The Tether spokesperson told the Wall Street Journal that the company seeks to help borrowers prevent the need to deplete customer liquidity or sell their collateral at potentially unfavorable prices.



“If big crypto firms get margin calls and have to dump their assets, that will drive down the prices of crypto assets,” Levine wrote. “Lending them money is not just good for them, it’s good for the crypto ecosystem broadly; it prevents fire sales that might drive down prices.”



The revelation that Tether has resumed lending comes at a time when its market share has been rapidly increasing amid a regulatory crackdown against US-based competitors, Butterfill noted.



USDC’s market capitalization, for example, which peaked around $55 billion in late July 2022, stood at roughly $25.7 billion on Friday.



Read more: <a href="https://blockworks.co/news/usdc-market-cap-falls">Why USDC’s market cap is half of what it was a year ago</a>



“Tether remains the most liquid stablecoin out there,” Butterfill said.



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Tether’s return to lending a ‘step backwards’ but unlikely to hurt USDT: Research exec

Jack Kubinec

While DAOs toy with novel systems to fix sclerotic DAO governance, a16z’s Miles Jennings suggests looking backwards — to Niccolo Machiavelli.&nbsp;



Likening today’s clamoring Discord channels to 15th century Italian city-states, the a16z general counsel and head of decentralization penned two essays using Machiavelli as a jumping off point to propose a series of reforms for DAO governance.&nbsp;



Jennings believes DAO leaders should be held accountable to members, and he thinks governance can be fixed by people doing less of it.&nbsp;



Perhaps the most unique aspect of Jennings’ argument is the notion that DAOs should reduce subjective human decisions in governance wherever possible. Instead, decisions could be made by third-party clients of DAOs, and users can govern by choosing where to do business while protocols remain neutral — if DEX A’s fees are too high, users are free to switch to DEX B without the protocol’s <a href="https://blockworks.co/tag/dao-governance">governance</a> ever getting involved.



Machiavelli was famously pessimistic on human nature, and Jennings believes DAOs should be, too. Starting from the premise that a leadership class will arise in any governing body, Jennings outlines a wonkish bicameral governance structure for <a href="https://blockworks.co/tag/daos">DAOs</a> that would see proposals introduced by one council and approved by the other. 



Jennings advocates direct elections and term limits for some of the “stakeholders” in the legislative councils.



Ultimately, in Jennings’ view, DAOs need to get real about greed.



“Machiavelli’s philosophy was developed with a pragmatic understanding of the struggle for social power,” Jennings wrote, and such realpolitik is needed when decentralization can tend to be for show while insiders profit.&nbsp;



For Jennings, Machiavellian DAOs present a chance at the sort of stakeholder capitalism that seems beyond reach in traditional finance. Jennings’ proposed reforms would wrest some power away from whales and ruffle feathers in the process — but perhaps it’s better for DAOs to be feared than loved.



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DAOs should learn from Machiavelli, says a16z crypto’s Jennings

Katherine Ross

The fraud trial for former FTX CEO Sam Bankman-Fried is set to begin on Oct. 3 with a jury selection. The six-week trial will take place less than a year after the FTX collapse.



Bankman-Fried is accused of fraud and conspiracy in connection to the now-bankrupt FTX.



A <a href="https://blockworks.co/news/sbf-bail-decision">judge revoked Bankman-Fried’s bond</a> back in August following a petition from the prosecutors. As part of the petition, prosecutors cited Bankman-Fried’s contact with a New York Times journalist as a tipping point.&nbsp;



<a href="https://blockworks.co/tag/sam-bankman-fried">Bankman-Fried</a> was accused of leaking former colleague — and ex-girlfriend — Caroline Ellison’s diary entries to the reporter. The government argued at the time that Bankman-Fried had shown a history of witness tampering, including attempting to contact an unnamed witness — the “current General Counsel of FTX US who may be a witness at trial” — via Signal.



Judge Lewis Kaplan, who will oversee the trial, said there was probable cause to believe that Bankman-Fried violated the terms of his bail in his attempts to allegedly tamper with the witnesses.&nbsp;



Since then, Bankman-Fried has been held at the Brooklyn Metropolitan Detention Center. He will remain there for the duration of his trial, as a panel from the Second Circuit Court of Appeals rejected his appeal for release on Thursday, Sept. 21.



The judges wrote that they agreed with Judge Kaplan’s findings that Bankman-Fried had probably attempted to tamper with witnesses.



Bankman-Fried’s lawyers claimed that he was denied a vegan diet.



Read more: <a href="https://blockworks.co/news/brady-dale-sam-bankman-fried">Drowning in Sam Bankman-Fried: A survival guide</a>



In addition to the appeal denial, Bankman-Fried’s legal team suffered a second setback on Thursday after <a href="https://blockworks.co/news/sam-bankman-fried-witness-reject-judge-lewis-kaplan">Judge Kaplan barred seven</a> of Bankman-Fried’s expert witnesses from testifying in October. The government had <a href="https://blockworks.co/news/sam-bankman-fried-doj-discovery-testimonies">previously moved to toss the testimonies</a>.



However, some may be able to take the stand to rebut the prosecution’s witnesses if Bankman-Fried files an additional disclosure, though the government is able to object.



During the trial, the government is expected to call multiple ex-FTX employees and former Bankman-Fried pals to the stand, including Ellison, former FTX Chief Technology Officer Gary Wang and former engineering director of FTX, Nishad Singh.&nbsp;



Ahead of the trial’s start date, here’s a look at what’s happened since Bankman-Fried was arrested in December of last year.&nbsp;



The Department of Justice and the Securities and Exchange Commission announced <a href="https://blockworks.co/news/sec-charges-sam-bankman-fried-with-defrauding-investors">charges against Bankman-Fried on Dec. 13</a> of last year. He was initially charged with eight counts of fraud, money laundering and campaign finance offenses.&nbsp;



US Attorney Damian Williams <a href="https://blockworks.co/news/us-attorney-sbf-perpetrated-largest-financial-fraud-in-american-history">referred to Bankman-Fried’s</a> alleged crimes as “one of the biggest financial frauds in American history.”



However, in July, the <a href="https://blockworks.co/news/campaign-finance-charges-against-sbf">DOJ announced that it would be dropping</a> the charge in a letter to the judge because the Bahamas did not extradite Bankman-Fried on the charge.



The charge drop came in May after lawyers representing Bankman-Fried moved to <a href="https://blockworks.co/news/sam-bankman-fried-sbf-charges">dismiss most of the criminal charges</a> against him unsuccessfully.&nbsp;



A month later, the <a href="https://blockworks.co/news/sam-bankman-fried-new-charges-pleads-not-guilty">DOJ handed down seven fraud and conspiracy charges</a>, all of which Bankman-Fried pleaded not guilty to.



An <a href="https://blockworks.co/news/breaking-sam-bankman-fried">indictment on Aug. 14</a> alleges that Bankman-Fried used $100 million of stolen customer funds to donate to various political candidates and political action committees (PACs).



In late August, Bankman-Fried and his team went back and forth with the government through legal filings after prosecutors handed over roughly 8 million documents from Bankman-Fried’s Google accounts.&nbsp;



The government argued that the tardy discovery was due to a mishap with Google. The defense, in return, <a href="https://blockworks.co/news/sbf-lawyer-temporary-release">argued that the additional discovery</a> was “fundamentally unfair” and that the trial prep time was “entirely inadequate.”



Judge Kaplan, in a hearing, <a href="https://blockworks.co/news/sam-bankman-fried-hearing-discovery-extension">pushed for the defense to consider</a> asking for an extension, though he made no promise to grant one. Bankman-Fried’s team did not file for such a request.



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Sam Bankman-Fried’s trial starts Oct. 3: What you need to know

Bessie Liu

Eclipse will use Solana’s tech stack for its upcoming mainnet launch, the Ethereum layer-2 network project announced. Eclipse’s mainnet is expected to go live before the end of the year.



By design, a blockchain stack contains four different layers: execution, settlement, consensus and data availability.



Blockchains, such as Bitcoin, Ethereum and Solana, carry out all these tasks in a single layer. This means that when a transaction is made, the blockchain executes, settles, reaches consensus, and ensures data availability all within the same layer.&nbsp;



Modular blockchains, on the other hand, are designed to focus on specific tasks.&nbsp;



Neel Somani, founder of Eclipse, notes that he believes all layer-2s — validiums, optimiums and zk-rollups — should be considered “modular blockchains.” 



“At a minimum, they&#8217;ve all separated execution from settlement,” he said.&nbsp;



Notably, Eclipse will use <a href="https://blockworks.co/tag/solana">Solana</a> Virtual Machine (SVM) for execution on its upcoming mainnet. The execution layer is the blockchain layer that holds the code and rules of a transaction; it enables transaction signing and smart contract execution.&nbsp;



On <a href="https://blockworks.co/tag/ethereum">Ethereum</a>, for example, transactions are executed sequentially. On Solana, however, there is a parallel execution environment. This means that more transactions can be processed at a lower cost.&nbsp;



“That&#8217;s probably the biggest difference,” Somani said. “Another benefit is the ‘local fee markets,’ meaning if one application gets a ton of activity, it doesn&#8217;t impact fees for other apps. It is a smaller set of ‘opcodes,’ and it&#8217;s register-based which makes [zero-knowledge] proving easier.”



Elsewhere, Eclipse will use <a href="https://blockworks.co/news/risc-zero-zkevm">Risc Zero</a> for proving. Settlement, like most rollups today, will take place on Ethereum — meaning that it will utilize Ethereum’s security properties to validate transactions. Data availability (DA) will be derived from Celestia. 



Read More: <a href="https://blockworks.co/news/data-availability-ethereum">Why data availability sampling matters for blockchain scaling?</a>



Unlike many rollup solutions today, Celestia’s DA layer utilizes Data Availability Sampling (DAS) over having a Data Availability Committee (DAC), meaning there are fewer trust assumptions.&nbsp;



That said, the team at Eclipse will continue to keep a close eye on <a href="https://blockworks.co/news/ethereum-cancun-upgrade-blobs">Ethereum’s EIP-4844 upgrade</a> and consider migrating to Ethereum’s DA in the future.&nbsp;



“It&#8217;s become clear that the single-threaded EVM is not sufficient to scale Ethereum, which is why apps are turning to their own app-specific rollups,” Somani told Blockworks. “Yet even the most sophisticated designs like Arbitrum are now seeing fee spikes — and it&#8217;s all because of the lack of parallelism and local fee markets.”



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Eclipse is using Solana’s virtual machine to launch an Ethereum L2

Europe-based CoinShares has launched a hedge fund division as part of its expansion into the US.



It’s a notable move, given that other industry firms are departing the US as regulatory uncertainties around crypto persist.



The expansion marks the first time the crypto investment firm will make its products available to qualified American investors, though CoinShares itself isn’t new to the hedge fund space.



The Jersey-based firm began as a commodity hedge fund called Global Advisors that founded the regulated Global Advisors Bitcoin Investment Fund in 2014. That fund operated until 2017.



CoinShares is perhaps better known today for its crypto ETPs, as well as its research and venture arms.&nbsp;



Lewis Fellas is set to lead the new unit, called CoinShares Hedge Fund Solutions. Fellas joined CoinShares in March after founding and working as chief investment officer of Larks Leaf Asset Management, according to his LinkedIn profile.&nbsp;



CoinShares CEO Jean-Marie Mognetti said in a statement that the demand for actively managed exposure to digital assets is a “natural progression” amid a macro environment marked by inflation.&nbsp;



The Federal Reserve has raised the federal funds rate repeatedly over the last 18 or so months to tackle inflation. Though the <a href="https://blockworks.co/news/federal-reserve-rate-decision-bitcoin-ether">US central bank chose this week to keep rates steady</a>, it signaled the possibility of another rate increase by the end of the year.



“The long-awaited return of interest rate-driven volatility is a great opportunity that we plan to capture with our novel fund products,” Fellas said in a statement. “Each product that will be offered is designed to mitigate counterparty risk whilst providing investors with clearly defined asset class and strategy exposures.”



<a href="https://coinshares.com/hedge-fund-solutions">Funds</a> being made available to US investors include vehicles based on Bitcoin and Ethereum, a spokesperson told Blockworks.&nbsp;



The bitcoin fund, called Bitcoin Integrated Strategies, “deploys multiple strategies such as call overwrite, quantitative and arbitrage to generate alpha above the performance of bitcoin,” according to the company’s website.&nbsp;



CoinShares’ Ethereum Integrated Strategies fund uses the same methods, “but optimized for Ethereum.”



A spokesperson did not immediately comment further on the company’s plans in the US.&nbsp;&nbsp;



Expansion to the US market comes as others have abandoned their plans in the country.



Crypto exchange <a href="https://blockworks.co/news/bittrex-us-shutdown">Bittrex said in March it would shut down its US operations</a>, citing “regulatory uncertainty” and an unwillingness by lawmakers to embrace innovation.&nbsp;&nbsp;



The US Securities and Exchange Commission <a href="https://blockworks.co/news/sec-sues-coinbase">sued Coinbase and Binance</a> in June in part for allegedly operating as unregistered securities exchanges — claims the companies deny.&nbsp;



Dave Hirsch, the crypto unit chief within the <a href="https://blockworks.co/tag/sec">SEC’s</a> enforcement division, <a href="https://blockworks.co/news/sec-hirsch-faces-the-music">said that month</a> the regulator intended to continue “pursuing claims for the unregistered offer and sale of securities.”



CoinShares had signaled in a July filing that it was <a href="https://blockworks.co/news/coinshares-pushing-into-active-management">laying the groundwork for hedge funds open to accredited US investors</a>.&nbsp;



“Today’s investors seek more than passive exposure to digital assets and are demanding increasingly sophisticated investment alternatives,” the company wrote in its first quarter <a href="https://s3.amazonaws.com/a.storyblok.com/f/155294/x/97c813bc14/coinshares_q1_23_report.pdf">report</a>.&nbsp;



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As others depart the US, CoinShares expands via new hedge fund unit

James Cirrone

Google Cloud has added 11 more blockchains to public data sets on BigQuery, the tech giant’s data analytics service originally launched in 2010.



Users can now query data from Avalanche, Arbitrum, Cronos, Ethereum Goerli, Fantom, Near, Optimism, Polkadot, Polygon, Polygon Mumbai and Tron, according to a Thursday blog post. 



Google called these blockchains “in-demand” and says that users can now retrieve information about “the flow of assets from one wallet to another, which tokens are most popular, and how users are interacting with smart contracts.”



It also <a href="https://cloud.google.com/blog/products/data-analytics/data-for-11-more-blockchains-in-bigquery-public-datasets">said</a> that customers are often asking things like how many NFTs were minted on specific chains or how transaction fees compare across chains. 



Read more: <a href="https://blockworks.co/news/google-loosens-ad-guidelines-for-nft-game-providers">Google loosens ad guidelines for NFT game providers</a>



Google added that having more access to a wider array of networks can help curious individuals answer questions like those “without the overhead of operating nodes or maintaining an indexer.”



Back in 2018, Google’s cloud segment added support for Bitcoin and Ethereum on BigQuery. And with the advent of ordinals, essentially Bitcoin NFTs, coming to the network in January 2023, Google is also now allowing developers to query satoshis and/or ordinals from the Bitcoin dataset on BigQuery.



Previously, in 2019, six other chains were <a href="https://cloud.google.com/blog/products/data-analytics/introducing-six-new-cryptocurrencies-in-bigquery-public-datasets-and-how-to-analyze-them">added</a> to BigQuery beyond the big two, including Bitcoin Cash, Dash, Dogecoin, Ethereum Classic, Litecoin, and Zcash.



Google’s commitment to advancing blockchain isn’t limited to maintaining large blockchain datasets. Blockworks previously reported that <a href="https://blockworks.co/news/layerzero-google-cloud-oracle-operator-messaging">Google Cloud has become an oracle operator for LayerZero</a>, a cross-chain messaging protocol.



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Google Cloud adds data support for 11 more blockchains

ByBit is suspending services in the UK starting in early October as the UK implements new crypto marketing regulations.



“Bybit has made a choice to embrace the regulation proactively and pause our services in this market. The suspension will allow the company to focus its efforts and resources [on] being able to best meet the regulations outlined by the UK authorities in the future,” a blog post said.



UK customers will no longer be able to create new accounts on ByBit starting on Oct. 1. The company will cease new deposits and position buys on Oct. 8.&nbsp;



“UK Customers who are implicated by these measures are strongly encouraged to take action by Jan. 8, 2024,” the post <a href="https://announcements.bybit.com/en-US/article/announcement-bybit-to-suspend-services-in-the-uk-blt286daa9208c8f3aa/?category=latest_bybit_news&amp;channel=pr_&amp;medium=organic_social&amp;source=twitter&amp;sa_utm_ci=107&amp;pid=Social_twitter&amp;dtpid=16953838071898884&amp;campaign=enannouncement_16953838071898884&amp;utm_source=twitter&amp;utm_medium=organic_social&amp;c=enannouncement_16953838071898884&amp;sa_utm_channel=pr_&amp;sa_utm_tcn=16953838071898884&amp;is_retargeting=true">said</a>.&nbsp;



ByBit cited a June posting from the FCA outlining the new approach as part of its choice to suspend its services in the UK market.



The June FCA <a href="https://www.fca.org.uk/publications/policy-statements/ps23-6-financial-promotion-rules-cryptoassets">post</a> said that the regulation directly impacts consumers buying crypto, FCA-registered crypto companies, those attempting to register and overseas companies marketing to UK customers.&nbsp;



The announcement comes a day after the <a href="https://blockworks.co/news/uk-fca-warning-crypto-firms-unregistered-risk-warnings">UK gave crypto companies a “final warning.”</a>



In the Sept. 21 letter, the FCA cited “poor engagement from many unregistered, overseas crypto asset firms who have UK customers…” It stated that some had “refused to engage with the FCA”, despite the authority&#8217;s outreach attempts. Out of over 150 firms approached, only about 24 responded to a survey.



According to Lucy Castledine, the director of consumer investment, <a href="https://blockworks.co/news/uk-fca-deadline-crypto-marketing-regulation">the regulatory framework requires that crypto firms in the UK</a> present their offerings to UK customers “clearly, fairly and honestly. And they must provide risk warnings people understand.”



The regulations also require certain technical changes, such as the introduction of a cooling-off period. Firms registered within the UK have the option to request an extension of these deadlines until early January.



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ByBit to suspend UK market activity in early October

Shalini Nagarajan

Venture capitalist Tim Draper has launched a venture studio to boost budding crypto and Web3 startups.



Alon Goren, board member of projects like LunarCrush and Ownera, and David Bleznak, who recently worked on Coinbase&#8217;s institutional offerings, join Draper as founding members of the new studio called Draper Goren Blockchain (DGB).



The team indicated that their launch is strategically timed to align with bear market conditions, as they believe many crypto projects will benefit from support to thrive and succeed, according to a <a href="https://www.dgb.vc/">statement</a> published Sept. 20.



“It’s a cliche that bear markets are a time for builders to build, but that means there are incredible projects currently being developed that are in need of capital and support,” Draper said.



Draper is a well-known venture capitalist and entrepreneur, recognized for his contributions to the tech and crypto industries.



In the early 1980s, he founded Draper Associates, a venture capital firm known for its successful investments in prominent tech companies such as Skype, Tesla and Baidu.



Still, he was one of the early backers of the blood-testing startup Theranos, which, as we all know, turned out to be a <a href="https://www.ft.com/content/ccaf2dbd-473f-4b1f-8724-79ca735bb07b">big flop</a>.



In 2014, he <a href="https://blockworks.co/news/us-government-dumps-bitcoin-silk-road">bought</a> around 30,000 bitcoin (worth around $798M at current prices) in a government auction for roughly $18 million, making him an early bitcoin investor.



“With DGB, we are reinforcing our dedication to amplify crypto projects that are advancing the industry in anticipation of an influx of millions of new users and institutions in the coming months and years,” he said.



Draper <a href="https://blockworks.co/news/tim-draper-loves-decentralized-world">told</a> Blockworks last year that his firm chose not to invest in FTX and BlockFi.&nbsp;



Despite the challenges faced by the crypto industry in 2022, he emphasized that his investment strategy remained unwavering, as he continued to hold a strong affinity for the decentralized realm.



In a video <a href="https://twitter.com/AlonGoren/status/1704552918819684657">posted</a> on X, DGB founding member Goren was optimistic about the crypto space despite industry uncertainties, emphasizing the trio’s long-term commitment.



“We&#8217;re in the midst of a crazy bear market for all sorts of circumstances. But we were here early, and we&#8217;re going to be here often,” he said.



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Tim Draper ventures forth as bear market bites

Blockchain data analytics platform Nansen recently suffered a security incident that exposed some users&#8217; email addresses and passwords.



The breach appears to have originated from a third-party vendor whose system was compromised, allowing an attacker to obtain admin rights to an account used for granting customer access to Nansen.



Nansen CEO Alex Svanevik stated that the company became aware of the attack on Sept. 20. Initial investigations indicate that about 6.8% of its users are affected by the breach.



“These users had their email addresses exposed, a smaller portion also had password hashes exposed, and a last, smallest group also had their blockchain address exposed,” Svanevik <a href="https://twitter.com/nansen_ai/status/1705137387838574904">said</a> in an X post on Friday.



“We have informed our users via email if and how they’ve been affected,” he added.



<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">🚨 Important update from us at Nansen. Please take a moment to read this. <a href="https://t.co/syKE0sNnC6">pic.twitter.com/syKE0sNnC6</a>&mdash; Nansen 🧭 (@nansen_ai) <a href="https://twitter.com/nansen_ai/status/1705137387838574904?ref_src=twsrc%5Etfw">September 22, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



A Nansen spokesperson declined to disclose the name of the vendor, but said it has asked them to communicate on the incident publicly in case others are affected.



Nansen contacted affected users via emails sent from its official support@nansen.ai email address on Sept. 21 between 5 pm and 9 pm UTC, instructing them to reset their passwords.



The team also informed users that while their passwords are not stored in plaintext, malicious attackers could still attempt to gain access to accounts using the compromised password and email address.



Data breaches have become increasingly frequent in the industry of late.



NFT platform OpenSea <a href="https://blockworks.co/news/opensea-warns-of-phishing-attacks-due-to-data-breach">told users about a data breach</a> in June last year when staff discovered that email addresses had been shared with an external party.



Last month, ConsenSys <a href="https://blockworks.co/news/metamask-security-breach-consensys-says">disclosed</a> that about 7,000 MetaMask users had their private information, including email addresses, compromised between Aug. 2021 and Feb. 2023.



Also in August, embattled crypto companies BlockFi and FTX also <a href="https://blockworks.co/news/block-ftx-data-breach-kroll">reported being indirectly impacted</a> by a cybersecurity breach related to third-party claims administration platform Kroll.



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Nansen alerts users to security breach involving vendor

Sebastian Sinclair

Options contracts for the quarter on the leading global crypto derivatives exchange are due to expire at month&#8217;s end, a timeframe that has traditionally seen heightened market volatility.



The week ahead marks the month-end and quarter-end expiry date for bitcoin (BTC) and ether (ETH) options contracts for Deribit, with nearly $5 billion notional expiring on Sept. 29.



Luuk Strijers, Chief Commercial Officer at Deribit, told Blockworks the figures this September are consistent with this year’s trend when compared to the previous June&#8217;s $5.4 billion and March&#8217;s $5.2 billion expiries.



The current quarter&#8217;s expiries account for 35% of the platform&#8217;s open interest, involving 113,000 BTC and 1.1 million ETH options contracts, <a href="https://metrics.deribit.com/options/BTC">Deribit data</a> shows.



“Quarterly expiries are typically the most significant, in terms of volume and value,” Strijers said. “In the past month, we have seen stable markets while the Gamma of the September expiries has increased gradually as a function of time.”



In simple terms, Gamma measures how sensitive an option&#8217;s price is to a change in the price of the underlying asset, in this case, BTC and ETH. A rising Gamma means that, as the asset&#8217;s price changes, the option&#8217;s price will change quickly.



In spot markets, a rising Gamma in options can have a ripple effect. When Gamma increases for options, market participants holding those options may have to adjust their positions more frequently to hedge their risks.&nbsp;



Adjustments often involve buying or selling the underlying in the spot market. If Gamma is rising and the price of BTC increases, an option holder might need to buy more BTC in the spot market to remain hedged. Conversely, if BTC&#8217;s price falls, they might need to sell BTC.&nbsp;



The effect of an options expiry depends on the open interest for particular strike prices and how they relate to the current market price, Strijers said.&nbsp;



If a position has a strike price significantly different from the current price, it will likely expire worthless, lessening its impact on trading.&nbsp;



On the other hand, if the strike price is close to the current market price, it could attract more trading activity, potentially leading to increased price fluctuations and volatility, the Deribit executive added.



“The impact of an uneven distribution of Gamma amongst traders would have [previously] resulted in much more volatility as compared to what we have seen these days,” Strijers said. “Therefore we don&#8217;t anticipate strong market moves in the coming week.”&nbsp;



The consensus around September’s expiry is forecasted to have little effect on digital asset spot prices, according to other analysts Blockworks spoke with.



Le Shi, head of trading at Auros said lower volatility in crypto is affecting institutional interest, implying a stable crypto market is likely, especially when juxtaposed with other financial markets that offer higher returns.



“Lower implied volatilities are reflective of the market consensus that not much is expected to happen in the near term,” Shi said.



Markus Thielen, Head of Research and Strategy at Matrixport agreed, adding there existed waning interest in options trading, specifically the decline in premium prices for option sellers.



“While volatility tended to trade at a hefty premium, the decline in premium is now synonymous with picking up pennies in front of a steamroller, Thielen said. “The potential approval of a US-listed bitcoin ETF has added event risk to the mix that is tough to manage for option sellers.”



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Deribit quarterly bitcoin options to expire, but volatility impact should be minor

A federal judge in California denied a motion on Thursday to dismiss a case against key figures in Compound Labs and its associated entities, following allegations they violated financial regulations by selling unregistered securities in the form of COMP governance tokens.



Plaintiffs in the case, initially filed 13 months ago, argue those in control of Compound effectively acted as unregistered &#8220;sellers&#8221; of securities under their soliciting role.



&#8220;They assert one cause of action against a range of defendants for violation of sections 5 and 12(a) of the Securities Act of 1933,&#8221; according to a court filing in the US District Court of Northern California on Tuesday.&nbsp;



They’re also unhappy with the price of the tokens, which have since fallen significantly from a peak in May 2021, when it reached more than $850. COMP is currently trading at a little over $38, down more than 95% from its all-time high.



The individual defendants include Compound Labs&#8217; co-founders Robert Leshner and Geoffrey Hayes. Associated entities include Bain Capital Ventures, Polychain Academy, AH Capital Management, Paradigm Operations and Gauntlet Networks.



Collectively, these entities allegedly control a significant portion of the <a href="https://blockworks.co/price/comp">COMP</a> token voting power, per the filing. It’s alleged fewer than ten people control over 50% of COMP tokens and, therefore, have significant influence over the protocol’s governance.



Blockworks reached out to Leshner and Compound representatives but has yet to receive a response.



Compound was initially created by Hayes and Leshner in 2017 with its Mainnet launching a year later. The protocol allows users to lend and borrow crypto, relying on smart contracts to handle operations.



Each COMP token holder can suggest and vote on modifications to the protocol, including the way its reserves and treasury are managed. A single COMP token equates to one vote, purportedly allowing for democratic decision-making.&nbsp;



If a token holder chooses not to participate in voting personally, they can assign their voting rights to another holder wanting to be actively involved.



The court found that the plaintiffs had &#8220;plausibly alleged&#8221; that each defendant solicited the public to purchase COMP tokens, thereby denying the motion to dismiss the case. A case management conference is scheduled for Oct. 10.



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Securities lawsuit against Compound founders, investors to proceed

Bitmain has agreed to invest $53 million in embattled bitcoin miner Core Scientific alongside a new hosting agreement, as the sector grapples with historically low prices.



The Beijing-headquartered ASIC supplier will plow $23.1 million in cash into the mining company, with the remainder slated for Core Scientific shares, the companies revealed Thursday.



The agreement is contingent upon a year-end approval of a Chapter 11 reorganization plan for the mining firm. Bitmain’s hosting contract with Core Scientific is intended to back its mining operations, the companies said.



It includes the supply of 27,000 Bitmain S19J bitcoin mining servers, with a maximum <a href="https://blockworks.co/tag/hashrate">hashrate</a> of 151Th/s, to Core Scientific. The servers are slated for delivery in the fourth quarter of 2023 and are expected to add 4.1 EX/s to Core Scientific&#8217;s self-mining hashrate, they said.&nbsp;



It comes as the mining sector stares down historically low hash prices — the expected revenue per petahash per second of hashing capability for a miner, according to the <a href="https://data.hashrateindex.com/chart/bitcoin-hashprice-index">Hashrate Index</a>.&nbsp;



Core Scientific says it operates more than 200,000 miners, 99% of which are Bitmain S19 models. The new hardware is expected to improve Core Scientific&#8217;s mining efficiency.



As of the end of August 2023, Core Scientific had a total energized hash rate of 22 EX/s per second, according to a statement. The two companies have also agreed to upgrade older Bitmain models hosted at Core Scientific&#8217;s facilities, aiming to further increase the company&#8217;s hashing power.



Core Scientific, currently in the throes of <a href="https://blockworks.co/news/bitcoin-miner-core-scientific-to-file-bankruptcy-stock-tanks-30">bankruptcy proceedings</a>, is attempting to shore up its business after being caught up in the chaos of last year’s market rout.&nbsp;



CEO Adam Sullivan, <a href="https://blockworks.co/news/core-scientific-new-ceo">recently hired in Augus</a>t, hopes to pull the company back on track and is anticipating an <a href="https://blockworks.co/news/core-scientific-new-ceo-2">exit of its bankruptcy</a> by year’s end — though no definitive timeframe has yet been given.



The Texas-based miner fell on hard times following the collapse of FTX which sent crypto prices reeling alongside a hike in operational costs, namely, rising electricity prices for crypto miners.



In a securities document dated Nov. 21, the company revealed it needed more cash to sustain operations through 2023 and expressed uncertainty about its capacity to secure financing or tap into capital markets.



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Core Scientific gets $53M from Bitmain in bid to re-energize bitcoin mining business

In the ongoing FTX case, Judge Lewis Kaplan accepted the US government’s motion to disallow testimony from seven individuals who Sam Bankman-Fried and his legal team believed could educate the court on the fallen crypto exchange’s procedures.



Attorneys representing the Department of Justice moved to throw out all of Bankman-Fried’s proposed witnesses in late August, and they have now gotten their way.



One desired witness for the defense — Lawrence Akka, an English barrister — was set to testify on FTX’s terms of service, stating that it “did not contain a declaration of trust over any fiat currency, but gave rise only to a contractual creditor-debtor relationship,” according to a Aug. 29 court filing from US attorneys.



Now, the court says that Akka’s testimony isn’t something that would help the jury understand FTX’s terms of service but rather that he’s simply offering “legal opinions as to the meaning of the contract terms at issue.”&nbsp;



Read more: <a href="https://blockworks.co/news/sam-bankman-fried-doj-discovery-testimonies">Government moves to toss seven testimonies in Sam Bankman-Fried case</a>



Therefore, his testimony wouldn’t qualify under the <a href="https://uscode.house.gov/view.xhtml?req=granuleid:USC-1999-title28a-node246-article7-rule702&amp;num=0&amp;edition=1999#:~:text=If%20scientific%2C%20technical%2C%20or%20other,L.">US code’s Rule 702</a>, which states that if a witness’s expertise can assist in the jury’s understanding of matters of fact, that person can opine in the courtroom.



The defense also sought testimony from consultants Thomas Bishop and Joseph Pimbley and data analytics expert Brian Kim on topics relating to FTX’s financials, its software, and document metadata.&nbsp;



The judge denied all of their potential testimony on the grounds of <a href="https://www.law.cornell.edu/rules/frcrmp/rule_16#:~:text=of%20the%20Disclosure.-,The%20disclosure%20for%20each%20expert%20witness%20must%20contain%3A,the%20previous%2010%20years%3B%20and">Rule 16</a>, which ensures the government discloses certain evidence it plans to use during the trial. If <a href="https://blockworks.co/tag/sam-bankman-fried">Bankman-Fried</a>’s attorneys believe that the witnesses can push back against government witnesses, then Bankman-Fried can file to allow certain witnesses to testify. However, the government may object to the filing.



<a href="https://blockworks.co/news/sbf-bail-decision">Bankman-Fried’s bail was revoked in early August</a> after the court said he engaged in witness tampering by allegedly leaking Caroline Ellison’s diary <a href="http://nytimes.com/2023/07/20/technology/ftx-caroline-ellison-bankman-fried.html">entry</a> to the New York Times. He’s now in jail at the Metropolitan Detention Center in Brooklyn awaiting trial, which begins on Oct. 3.



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