Venus Protocol (Venus) is a lending platform and synthetic stablecoin protocol on the Binance Smart Chain. Users can permissionlessly lend or borrow from a pool of assets, and interest rates are set by the protocol and automated based on demand. In addition, suppliers of collateral have the option of minting synthetic stablecoins (VAI) with overcollateralized positions.

Venus

David Canellis

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



Not too shabby at all, even with blobs.



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



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

Katherine Ross

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



— Katherine Ross



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



Base has otherwise raked in a $53.63 million profit for Coinbase since it came online last June, which works out to be $11.5 million per quarter on average. Not too shabby at all, even with blobs.



— David Canellis



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



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



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



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



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



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



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



Q: Was crypto snubbed at the debate?



I’d consider it conveniently forgotten.



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



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



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



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



— David Canellis



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



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



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



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



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



— Katherine Ross



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Why bearish may be the new bullish

Macauley Peterson

Ellipsis Labs has launched the private testnet for Atlas, a blockchain aiming to combine the high performance required by financial institutions with the transparency and security offered by DeFi.



Atlas is optimized for financial applications that require low transaction costs, high availability, fast pre-confirmations and frequent oracle updates, prerequisites for what the team calls &#8220;verifiable finance.”&nbsp;



The platform is expected to attract use cases like spot and programmable orderbooks, margin trading, orderbook-based lending and efficient credit markets, building upon the team’s experience as developers of the Phoenix DEX on <a href="https://blockworks.co/tag/solana">Solana</a>.



Phoenix, an orderbook-based spot exchange on Solana, has processed over $50 billion in unincentivized trading volume — meaning no points, no token.



The new chain takes the Solana Virtual Machine as an execution layer, but settles to Ethereum mainnet. This design choice is the result of the team’s deep experience as DeFi application developers, according to Ellipsis Labs CEO Eugene Chen.



“Atlas is the infrastructure that we wish we had to build Phoenix on top of, and probably where future versions of Phoenix will live,” Chen told Blockworks.



Read more: <a href="https://blockworks.co/news/solana-dex-phoenix-launch">Solana DEX aims to move price discovery onchain</a>



By using a custom implementation of the Solana Virtual Machine (SVM), Atlas is compatible with existing Solana programs, while settling on <a href="https://blockworks.co/tag/ethereum">Ethereum</a>. This hybrid approach allows Atlas to benefit from Ethereum’s security and large asset base, while still maintaining Solana’s execution efficiency.



“We don&#8217;t really care about these purity tests of Solana vs. Ethereum, we basically will want to use the best tool for the job,” Chen said. “We don&#8217;t need to build our own settlement layer&nbsp;



because Ethereum exists and it&#8217;s doing quite a good job at that.”



This approach mirrors efforts by <a href="https://blockworks.co/podcast/0xresearch/28d8c816-3982-11ef-8a88-7b1289010881">Eclipse</a>, another project working to integrate the SVM into Ethereum’s ecosystem by building a rollup.&nbsp;



While Eclipse and Atlas share the same goal of making Solana-based applications compatible with Ethereum, Atlas &#8220;started from scratch on modularizing or decoupling pieces of the native Solana client,&#8221; Chen said, adding that attracting existing Solana dapps is not the goal.



“We are not that interested in having tons of copy/paste applications from Solana, in the same way that I don&#8217;t think it makes a ton of sense for Ethereum layer-2s to have a ton of copy/paste applications from Ethereum,” he said.



A key innovation was re-engineering the SVM to make it play nice with Ethereum, where Atlas will post state differences, Chen explained.



&#8220;We’ve re-engineered the memory system of the SVM to ensure efficient state root <a href="https://app.blockworksresearch.com/glossary/#merkle-tree">Merklization</a>,&#8221; he said, noting this allows Atlas to maintain consistency with Ethereum’s mainnet while offering fast transaction speeds and opening the door for advanced use cases like parallel zk-proving.



Ellipsis Labs hopes its work on the SVM —&nbsp;based on Agave, <a href="https://blockworks.co/news/lightspeed-newsletter-solana-core-governance">the validator client from Anza</a>, formerly known as Solana Labs validator client — will benefit the Solana community as well.



“We understand [Solana’s] shortcomings specifically around the developer experience [and] those are some areas where we&#8217;re really eager to contribute back upstream to the Solana world,” Chen said.



Atlas’ modular architecture will “almost certainly” use an external data availability layer — still to be determined — which technically <a href="https://blockworks.co/news/avail-bridge-data-availability-ethereum-rollups">makes the layer-2 a validium</a>.



Although Chen dislikes the “<a href="https://blockworks.co/news/monolithic-modular-blockchain-debate">modular vs. monolithic</a>” narrative debate, the modular architecture was a deliberate effort to ensure the freedom to optimize all parts of the tech stack.



“Instead of trying to be necessarily as neutral as possible, we&#8217;re actually being very opinionated in the design to be as good as possible for specific types of financial applications,” he said.



In addition to performance improvements, Chen points to its oracle system as a key differentiator. <a href="https://blockworks.co/tag/oracles">Oracles</a> are essential for margin trading and other financial services that rely on timely market data.



“It&#8217;s a very simple idea; we&#8217;re just going to guarantee that as fast as the oracle can spit out price updates, we&#8217;re going to include them on the chain for de minimus cost,” he said.



The current testnet is only available to developers by application, according to <a href="https://atlasxyz.medium.com/introducing-atlas-26d91d0dc3f2">a blog post</a> announcing the project. Looking forward, Atlas is on track to release a public testnet by the end of 2024, with a full mainnet launch expected by mid-2025. The platform will also need to undergo multiple audits before the mainnet launch.



The team is focusing on gradually scaling, while maintaining its core commitment to performance, transparency and security, Chen said.



“There’s still a lot left for us to build, but we’re not going to make any false claims,” he added.



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Atlas to merge Solana’s speed with Ethereum’s security

TRON, Tether, and TRM Labs today announced they have joined forces to establish the T3 Financial Crime Unit (T3 FCU), a first-of-its-kind initiative aimed at facilitating public-private collaboration to combat illicit activity associated with the use of USDT on the TRON blockchain. This novel collaboration brings together the anti-financial crime expertise of TRM Labs, a leading blockchain intelligence firm; the technical expertise of TRON, a leading global blockchain and DAO; and external investigations team at Tether, the largest company in the digital asset industry, to create a safer and more secure crypto community for all.



In the weeks since launch, the initiative, in collaboration with law enforcement, facilitated the freezing of over USDT 12 million in funds associated with a blackmail scam, an investment fraud scheme, and others. Police are aware of at least 11 victims impacted by the scams and expect to identify additional victims as the investigations unfold.



Stablecoins like USDT serve as the backbone of the digital asset industry, providing a stable store of value and enabling seamless movement of funds between platforms. With over $117 billion USD in market capitalization and more than 50% of its circulating supply running on the TRON blockchain, USDT is integral to facilitating transactions and liquidity. However, the same features that make USDT on TRON attractive to legitimate users — low fees, lack of volatility, and ease of use — have also drawn the attention of scammers, terrorist financiers, and other threat actors. And as the TRON blockchain&#8217;s popularity and user base grow, drawn by its high throughput and low transaction costs, so too does its uninvited exposure to these criminal elements. The establishment of the T3 FCU represents a significant step towards impeding the ability of malicious actors to launder and utilize the proceeds of crime, safeguarding the integrity of the TRON blockchain.



As part of the collaboration, TRM will provide ongoing support to TRON and Tether in identifying transactions that have a connection to alleged illegal activities such as terrorism, sanctions evasion, theft, hacking, cybercrime, and fraud. TRM will leverage its proprietary technology as well as its global network of expert investigators to generate intelligence. The work will support TRON’s and Tether’s efforts to disrupt criminal activity and aid collaborations with law enforcement around the world.



By collaborating to proactively identify and disrupt illicit activity, the T3 FCU aims to promote security and prosperity across the TRON network and beyond.



“TRON originated with the belief that technology can be used for good and to empower people across the globe,” said Justin Sun, founder of the TRON blockchain. “By collaborating with TRM Labs and Tether, TRON is helping to ensure that blockchain technology is used to make our world a better place, and sends a clear message that illicit activity is not welcome in our industry.”



&#8220;At Tether, safeguarding the integrity of the blockchain ecosystem is a top priority and a responsibility we embrace with being a key player in the digital asset space. This commitment drives us to take proactive measures in helping maintain the security and trustworthiness of the ecosystem,&#8221; said Paolo Ardoino, CEO of Tether. &#8220;We’re proud to have worked with TRM Labs and TRON in this pioneering effort. This collaboration underscores our dedication to joining with industry leaders and law enforcement to combat illicit activity, ensuring a secure environment for all users.&#8221;



“As adoption of stablecoins continues to rise, it’s critical that key industry players proactively evolve their capabilities to combat illicit activity and ensure a safe and secure environment,” said Chris Janczewski, head of global investigations at TRM Labs. “TRM is proud to collaborate with TRON, Tether, law enforcement, and others who are committed to helping build a safer blockchain industry for all.”



This content is sponsored by Particle Network and does not serve as an endorsement by Blockworks. The veracity of this content has not been verified and should not serve as financial advice. We encourage readers to conduct their own research before making financial decisions.  



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TRON, Tether and TRM Labs establish first-ever private sector financial crime unit to combat crypto crime

Ben Strack

Casey Wagner

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



<ul>
<li>It’s debate day! Ben breaks down where the candidates stand on crypto. </li>



<li>An ETF giant looks to be different as it enters the crypto fund game. </li>



<li>Congress has been back for 24 hours and they’re already fighting about digital asset policy. </li>
</ul>



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



<h2 class="wp-block-heading">Crypto’s an election issue. But is it a debate issue?</h2>



Perhaps a crypto question is coming at tonight’s presidential debate. Perhaps not.



Industry folks certainly view this as a good time to get more details on each of the candidates’ crypto stances. A Chamber of Progress executive sent a <a href="https://progresschamber.org/wp-content/uploads/2024/09/Letter-to-ABC-Debate-Mods_-Crypto-Question-1.pdf">letter</a> to tonight’s moderators asking that they pose such an inquiry to Donald Trump and Kamala Harris.



(Check out our full debate preview <a href="https://blockworks.co/news/harris-trump-crypto-mentions-presidential-debate">here</a>.)&nbsp;



But there are plenty of other big issues expected to be touched on — from inflation to immigration — so expecting to get crypto clarity from the candidates tonight may be optimistic thinking.&nbsp;&nbsp;



Even if the presidential hopefuls aren’t asked about crypto specifically, remarks about fostering innovation or regulatory agency leadership could be telling, industry watchers told Blockworks.



On that latter point, big Democratic donors are <a href="https://www.bloomberg.com/news/articles/2024-09-06/kamala-harris-donors-privately-want-ftc-s-lina-khan-sec-s-gary-gensler-removed">reportedly</a> pressuring Harris’s team to replace SEC Chair Gary Gensler and Federal Trade Commission Chair Lina Khan if the VP becomes president. Trump already vowed to fire Gensler, if elected, during a speech at the Bitcoin 2024 conference in July.



Just hours ahead of this historic debate, let’s take a look at some of the events that have led up to the political clash — highlighting how crypto has become an election issue.&nbsp;



May 21: The Trump campaign revealed it would begin <a href="https://blockworks.co/news/donald-trump-accepts-crypto-donations-2024-election">accepting crypto donations</a>. &nbsp;



May 31: President Joe Biden <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2024/05/31/a-message-to-the-house-of-representatives-on-the-presidents-veto-of-h-j-res-109/">vetoed</a> a resolution (deemed as pro-crypto) that <a href="https://blockworks.co/news/senate-passes-resolution-to-overturn-sab121">would have invalidated</a> the SEC’s SAB 121. Exodus legal chief Veronica McGregor <a href="https://blockworks.co/news/kamala-harris-crypto-policy-reset-outlook">previously told Blockworks</a> she doesn’t think it’s fair to “saddle [Harris] with ownership of everything the <a href="https://blockworks.co/tag/joe-biden">Biden</a> administration has done or not done with crypto.” Still, the less Harris says about crypto, the more she is likely to be associated with Biden on this issue.



June 11: Trump <a href="https://blockworks.co/news/on-the-margin-newsletter-trump-bitcoin-mining-meeting">met with bitcoin mining executives</a> at Mar-a-Lago. He praised an ASIC machine as “beautiful American technology,” according to Marathon Digital executives, who said they shared specific policy proposals with the former president. This came around the time Trump said via Truth Social that he wanted “all the remaining bitcoin to be made in the USA.”



July 8: The GOP party <a href="https://www.presidency.ucsb.edu/documents/2024-republican-party-platform">platform</a> states: “Republicans will end Democrats&#8217; unlawful and unAmerican Crypto crackdown and oppose the creation of a Central Bank Digital Currency.” Various industry watchers have said crypto <a href="https://blockworks.co/news/crypto-republican-democrat">should not be a partisan issue</a>.&nbsp;&nbsp;



July 27: The former president <a href="https://blockworks.co/news/donald-trump-speaks-bitcoin-2024">told a crowd at Bitcoin 2024</a> in Nashville (along with the previously mentioned pledge to oust Gensler) that he would stop government sales of seized bitcoin and create an advisory council focused on crypto issues. &nbsp;



Aug. 14: Several Democratic heavyweights appeared during a virtual “Crypto4Harris” event alongside SkyBridge Capital founder Anthony Scaramucci and billionaire Mark Cuban. Perhaps most notably, Senate Majority Leader Chuck Schumer said he believes the Senate can pass “sensible” crypto legislation by the end of the year. Still, some <a href="https://x.com/nic__carter/status/1824115245197021348">criticized</a> the fact that no one from Harris’ team was present.&nbsp;



Aug. 21: A policy adviser for the Harris campaign <a href="https://www.bloomberg.com/news/articles/2024-08-21/harris-supports-policies-to-expand-crypto-industry-aide-says?srnd=phx-crypto&amp;utm_source=on-the-margin.beehiiv.com&amp;utm_medium=newsletter&amp;utm_campaign=first-month-s-a-doozy&amp;_bhlid=791e8f2e2b8483dd7e2d676dc6e16698a3b3fcc1">told</a> Bloomberg News (when asked about crypto) that the VP would “support policies that ensure that emerging technologies and that sort of industry can continue to grow.” The Harris campaign has not returned Blockworks’ requests for comment.&nbsp;&nbsp;



Sept. 5: Trump doubled down on a promise to make the US “the world capital for crypto and bitcoin” <a href="https://blockworks.co/news/donald-trump-economic-new-york-club-comments">during a speech</a> at the Economic Club of New York. This came about a week after he <a href="https://x.com/worldlibertyfi/status/1829143649315361086">posted</a> a video on X that tagged Liberty Financial and made a similar promise.



With that, the stage is set, so to speak. We’ll be here tomorrow to digest what went down.&nbsp;



— Ben Strack



<h3 class="wp-block-heading">2</h3>



The number of US companies that currently hold a special purpose broker-dealer license from the SEC.&nbsp;



Financial technology company tZero said on Tuesday it received clearance from the SEC and FINRA to custody digital securities, which the company says will go into effect early next year. tZero joins Prometheum, who became the first firm to obtain such a license in May 2023.&nbsp;



<h2 class="wp-block-heading">State Street enters the crypto ETF arena</h2>



The “big three” ETF issuers are BlackRock, Vanguard and State Street Global Advisors — at least from an assets under management perspective.&nbsp;



Now two of them are in the crypto fund game.



BlackRock’s ETF AUM <a href="https://etfdb.com/etfs/issuers/#issuer-power-rankings__aum&amp;sort_name=revenue_position&amp;sort_order=asc&amp;page=1">amounts</a> to roughly $3 trillion. In Vanguard and SSGA ETFs: nearly 2.8 trillion and $1.3 trillion, respectively. Invesco is in a distant fourth place with about half of SSGA’s total.



We know about <a href="https://blockworks.co/news/blackrock-bitcoin-etf-battle">BlackRock’s crypto ETF success</a> — with its iShares Bitcoin Trust (IBIT) so far growing to $20 billion in assets and its ether ETF notching $1 billion of net inflows since its July 23 launch.&nbsp;



Vanguard has said it has <a href="https://blockworks.co/news/vanguard-disallows-bitcoin-etf-trading">no interest</a> in launching crypto ETFs (or <a href="https://blockworks.co/news/vanguard-opposes-platforming-eth-etfs">letting clients buy them on its platform</a>), arguing that crypto products don’t fit in “a well-balanced, long-term investment portfolio.”&nbsp;



That leaves State Street’s asset management arm, which is <a href="https://blockworks.co/news/state-street-crypto-etf-products">getting involved</a> in its own way.&nbsp;&nbsp;



Though not yet looking to offer a spot bitcoin or ether product, SSGA <a href="https://blockworks.co/news/state-street-galaxy-crypto-etfs">revealed on Tuesday</a> the launch of its Digital Asset Ecosystem ETF (DECO), Hedged Digital Asset Ecosystem ETF (HECO) and Transformative Tech Accelerators ETF (TEKX). Galaxy Digital is managing these portfolios as the sub-adviser.



DECO and HECO each target crypto- and blockchain-related stocks, ETFs and futures contracts — with HECO also designed to manage volatility via covered call options and protective put options.



TEKX targets “companies within the value chain supporting new disruptive technologies,” including both blockchain and AI.



So why not spot ETFs? Well, SSGA chief business officer Anna Paglia said in a statement: “Some investors are not comfortable with the short-term, volatile price swings of single-currency crypto.”&nbsp;



The actively managed approach with diversification in mind is the “next evolution of this market,” she added.&nbsp;



We’ll see what other crypto ETFs SSGA comes up with going forward. When it comes to a spot offering from the firm, never say never.&nbsp;



— Ben Strack



<h2 class="wp-block-heading">DeFi’s first day on the Hill&nbsp;</h2>



Congress’s second day back after the Labor Day recess <a href="https://blockworks.co/news/defi-hearing-lawmakers-clash">kicked off with a bang</a>: a hearing on DeFi (a first for Capitol Hill) in the House Financial Services Committee.&nbsp;



Democrats and Republicans, as expected, clashed at the hearing, hosted by the HFS’s digital asset subcommittee.&nbsp;



The goal was to “explore emerging topics like tokenization and DeFi” and “consider how blockchains can be used in finance,” according to subcommittee chair French Hill, R-Ark. Some of his colleagues across the aisle, however, questioned whether DeFi has any use beyond facilitating criminal activity.&nbsp;



“What we have here is an effort to liberate billionaires from income taxation,” Rep. Brad Sherman, D-Cali., told witnesses, adding that DeFi technology allows the wealthy to avoid tax obligations.&nbsp;



“Every time a billionaire successfully cheats on his taxes, a member of the Freedom Caucus earns his wings,” Sherman said.&nbsp;&nbsp;



Witness Peter Van Valkenburgh, director of research at Coin Center, later countered Sherman, arguing that regulators have not given actors in the crypto industry enough guidance on how to comply with regulations.&nbsp;



“Tax evasion is a crime; it should be aggressively policed,” Van Valkenburgh said. “I do not, however, think that tax evasion and its existence warrants a 100% surveilled and controlled financial system.



“A difficult area in the cryptocurrency space has been getting clear tax guidance from the IRS on how Americans can pay their taxes when they earn capital gains, or perhaps their wages, on these networks,” Van Valkenburgh added.&nbsp;



The hearing comes as the Sept. 30 deadline for Congress to pass a spending bill looms. Lawmakers are scheduled to recess again on Sept. 27 (until Nov. 12 for the election), but an out-of-session vote could be called should they need more time. They probably will.&nbsp;



— Casey Wagner&nbsp;



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



<ul>
<li>Crude oil <a href="https://x.com/fejau_inc/status/1833557552719925327">futures</a> have hit a 52-week low, signaling that traders are worried about an economic slowdown and recessionary conditions. More lackluster economic data is likely to send prices lower. </li>



<li>The Monetary Authority of Singapore has launched a probe after some Worldcoin users allegedly transferred ownership of their accounts to illicit actors. Worldcoin’s World ID, <a href="https://blockworks.co/news/worldcoin-not-in-us">launched last year</a>, is advertised as a permissionless protocol for users to verify their identities. </li>



<li>In a sign things may not be as bearish as they appear, Chainalysis co-founder <a href="https://x.com/PregameEmpire/status/1832949688019886427">Jonathan Levin</a> shared a suite with Taylor Swift, Travis Kelce and Patrick Mahomes at the US Open men’s final on Sunday. Our invite must have gotten lost in the mail. </li>
</ul>



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Will crypto get a mention in tonight’s presidential debate?

Republican and Democratic lawmakers clashed on their second day back from recess Tuesday morning as House Financial Services Committee members heard from industry experts during their inaugural hearing on decentralized finance.&nbsp;



The House Subcommittee on Digital Assets, Financial Technology and Inclusion gathered for a <a href="https://www.youtube.com/live/YEz4TgWNj-U">hearing</a> entitled “Decoding DeFi: Breaking Down the Future of Decentralized Finance.”&nbsp;



The goal, subcommittee chair French Hill, R-Ark., said, was to “explore emerging topics like <a href="https://blockworks.co/tag/tokenization">tokenization</a> and DeFi” and “consider how blockchains can be used in finance.” Some of his colleagues across the aisle, however, questioned whether DeFi has any use beyond facilitating criminal activity.&nbsp;



“What we have here is an effort to liberate billionaires from income taxation,” Rep. Brad Sherman, D-Cali., told witnesses, adding that DeFi technology allows the wealthy to avoid tax obligations.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/future-finance-tradfi-plus-defi">The future of finance? TradFi plus DeFi</a>



“Every time a billionaire successfully cheats on his taxes, a member of the Freedom Caucus earns his wings,” Sherman said.&nbsp;&nbsp;



Witness Peter Van Valkenburgh, director of research at Coin Center, later countered Sherman, arguing that regulators have not given actors in the crypto industry enough guidance on how to comply with regulations.&nbsp;



“Tax evasion is a crime. It should be aggressively policed,” Van Valkenburgh said. “I do not, however, think that tax evasion and its existence warrants a 100% surveilled and controlled financial system.”



“A difficult area in the cryptocurrency space has been getting clear tax guidance from the IRS on how Americans can pay their taxes when they earn capital gains, or perhaps their wages, on these networks,” Van Valkenburgh added.&nbsp;



Read more: <a href="https://blockworks.co/news/nft-artists-sue-sec-regulatory-uncertainty">The SEC continues to engage in ‘strategic ambiguity,’ lawyer says</a>



The hearing, which lasted about 90 minutes, wrapped hours before Donald Trump and Kamala Harris are scheduled to <a href="https://blockworks.co/news/harris-trump-crypto-mentions-presidential-debate">meet on the presidential debate stage</a> for the first time. While the Harris campaign has been tight-lipped about any crypto-related policy the Vice President intends to implement should she win in November, the Trump camp has continued to cozy up to the industry.&nbsp;



Trump and his family have endorsed the <a href="https://blockworks.co/news/donald-trump-economic-new-york-club-comments">World Liberty Financial project</a> in recent weeks. The DeFi project is a prime example of how the blockchain industry is fraught with danger, Rep. Maxine Waters, D-Cali., said.&nbsp;



Read more from our opinion section: <a href="https://blockworks.co/news/maxine-waters-sec-regulation">Don’t villainize Maxine Waters just yet</a>



“Bad actors took advantage of the opportunity to scam potential users. Laura Trump and Tiffany Trump&#8217;s X accounts were hacked, and scammers used them to announce links to a coin falsely claiming to represent World Liberty Financial,” Waters said during Tuesday’s hearing. “According to the analysis, at least 200,000 people viewed the posts, and approximately 2000 people purchased $1.8 million worth of the fake token.”



Representatives heard from five witnesses: Brian Avello, chief legal officer of UDHC; Rebecca Rettig, chief legal and policy officer of Polygon Labs; Amanda Tuminelli, chief legal officer of the DeFi Education Fund; Peter Van Valkenburgh, director of research at Coin Center; and Mark Allen Hays, senior policy analyst at Americans for Financial Reform.&nbsp;



Lawmakers will be in session until Sept. 27 when they will break for an election recess until Nov. 12. Tuesday’s hearing comes as Congress’s Sept. 30th deadline to pass a funding bill looms.



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House lawmakers clash at first-ever DeFi hearing 

Jack Kubinec

With crypto markets stuck in a holding pattern and many Solana projects delaying big announcements until the Breakpoint Conference, people seem to be bored.



To fill the momentary void, some of the online crypto world has taken up arguing about Solana’s tokenomic structure — not a new debate by any means, but one that we’re yet to really engage with in Lightspeed.&nbsp;



The main complaint about SOL’s tokenomics these days seems to be that its supply is growing via inflation too quickly. Sources I spoke to seemed split on whether this is in fact a problem Solana should or will address, or if it’s all a non-issue.



Inflation on the Solana network refers to the ongoing creation of new SOL tokens, which are distributed as rewards to validators and stakers. This process incentivizes validators to secure and maintain the blockchain, ensuring network security and decentralization. In simpler terms, inflation is how Solana compensates validators for their essential role in processing transactions and securing the network, while also providing stakers with a yield for participating in the system.



When Solana first enabled inflation, it was set that the token supply would increase by 8% per year, but the inflation rate is set to fall by 15% yearly. Today, <a href="https://solanacompass.com/tokenomics">inflation</a> is closer to 5%. Long term, it will decline to 1.5%.&nbsp;



This 5% inflation figure is commonly cited as a reason to be more bullish on Ethereum relative to Solana, as the ETH supply is <a href="https://ultrasound.money/">inflating</a> at a rate of around 0.7% currently. Inflation puts downward pressure on the price of SOL, since the existing supply is diluted by new tokens. There’s a bit more nuance here, since you can <a href="https://www.helius.dev/blog/solana-issuance-inflation-schedule#inflation-distribution-mechanism">argue</a> that inflation amounts to a value transfer from non-stakers to stakers, since inflation rewards eventually are paid out to stakers.&nbsp;



Still, in a new Lightspeed podcast <a href="https://www.youtube.com/watch?v=Y7x6VFF2Dew">episode</a>, Blockworks Research analyst Dan Smith told me he predicts economic changes are coming for Solana in 2025.



“I feel this changing in the wind,” Smith said, where it “doesn’t feel necessary” to be emitting so many SOL tokens in inflation.



Nate, an anonymous figure helping run the Aurora validator, said he thinks the current inflation level creates a lot of “value extraction,” adding that it would probably be workable to cut validator rewards in half.



Still, Solana is a large network with several stakeholders, and a change like altering the inflation rate — and thus the amount of reward doled out to validators — would take some serious coalition building.



Switchboard co-founder Chris Hermida said he could see proposals coming up to lower inflation, but it doesn’t seem like there will be a “massive outcry” at the current inflation rate, especially when the rate is “(relatively) similar to many other large networks.”



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Debates flare up over SOLonomics

Donald Trump and Kamala Harris are set to face off Tuesday night during a presidential debate that — if a segment of viewers have their way — will feature a question about crypto.&nbsp;



Kyle Bligen, director of financial policy at Chamber of Progress, last week wrote in a <a href="https://progresschamber.org/wp-content/uploads/2024/09/Letter-to-ABC-Debate-Mods_-Crypto-Question-1.pdf">letter</a> to ABC News’ Linsey Davis and David Muir that, as the moderators, they “have an opportunity to illuminate the candidates’ stances on crypto.”



Big issues set to be discussed tonight include inflation and immigration.



But the tech industry coalition executive noted in the letter that “passing bipartisan digital asset regulations is front and center this election cycle” for the estimated 18 million Americans currently holding or trading crypto.



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



Big statements on the campaign trail do not always lead to practical actions, noted Exodus legal chief Veronica McGregor, alluding to Trump’s Gensler remarks. Still, she told Blockworks last month she would love to hear more from both sides.



Read more: <a href="https://blockworks.co/news/kamala-harris-crypto-policy-reset-outlook">Is the Kamala Harris crypto ‘reset’ coming? Give it time, exec says</a> Though <a href="https://blockworks.co/tag/kamala-harris">Harris</a> hasn’t yet <a href="https://blockworks.co/news/more-crypto-remarks-likely-coming-from-trump-harris">addressed the topic of crypto much</a>, a campaign adviser <a href="https://www.bloomberg.com/news/articles/2024-08-21/harris-supports-policies-to-expand-crypto-industry-aide-says?srnd=phx-crypto&amp;utm_source=on-the-margin.beehiiv.com&amp;utm_medium=newsletter&amp;utm_campaign=first-month-s-a-doozy&amp;_bhlid=791e8f2e2b8483dd7e2d676dc6e16698a3b3fcc1">said</a> she would “support policies that ensure that emerging technologies and that sort of industry can continue to grow.”



Ashley Ebersole, general counsel at 0x and a former senior counsel at the SEC, said he expects a crypto-related question is possible “given how high-profile crypto issues have gotten in this election.”



Moderators could pose such a question to Harris, he guessed — noting that she had been part of an administration that has let administrative heads act in a “hostile” manner toward the industry.



“Would you continue that, if in office?” Ebersole posed as an example question. “And if not, what would your stance be?”



Given that <a href="https://blockworks.co/tag/donald-trump">Trump</a> has spoken more about crypto (at the <a href="https://blockworks.co/news/bitcoin-2024-nashville-recap">Bitcoin 2024 conference</a> in July, for example), the moderators could ask Harris to compare or contrast her position to his.&nbsp;&nbsp;



“I would think it would be a question to her because she’s a little more of a blank slate, at least as of now,” Ebersole explained.&nbsp;



Even if the presidential hopefuls don’t talk about crypto specifically, remarks about “fostering innovation” or regulatory agency leadership could be telling, the 0x executive previously told Blockworks.



Big Democratic donors are <a href="https://www.bloomberg.com/news/articles/2024-09-06/kamala-harris-donors-privately-want-ftc-s-lina-khan-sec-s-gary-gensler-removed">reportedly</a> pressuring Harris’ team to replace <a href="https://blockworks.co/tag/gary-gensler">Gensler</a> and Federal Trade Commission Chair Lina Khan if the vice president wins the upcoming election.



Read more: <a href="https://blockworks.co/news/more-crypto-remarks-likely-coming-from-trump-harris">Ex-SEC counsel: More crypto remarks likely coming from Trump, Harris</a>



“Both candidates should shed more light on their positions and explain how we can nurture digital assets while also providing greater consumer protection,” Bligen added in the letter.&nbsp;



Because Trump has already <a href="https://blockworks.co/news/donald-trump-touts-new-family-defi-project">made comments about crypto</a>, such remarks during the debate might not move markets much, BDE Ventures CEO Brian Evans told Blockworks. But if Harris were to utter positive statements about the industry tonight, he added, “this might cause a bit of a market bounce.”



Crypto markets might react even if no crypto comments are made, some segment observers have said.&nbsp;



“People are confident in Trump&#8217;s position on embracing digital assets, and if they come out of that [event] feeling like he will win, I can see a strong run up in bitcoin,” Corestone Capital founder Will McDonough said.



Bitcoin’s price stood at about $57,000 just before noon ET Tuesday — down more than 6% from a month ago.



Yongjin Kim, CEO of derivatives exchange Flipster, noted that a Trump outperformance in the debate could create a “knee-jerk positive reaction” for crypto markets that could then lead to “short-term bullish movement.”



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Will Trump and Harris field a crypto question during tonight’s debate?

Donovan Choy

With LayerZero as its official interoperability provider, BitGo is expanding its tokenized wrapped bitcoin (WBTC) product to BNB Chain and Avalanche.



This effectively enables WBTC — one of the most widely used collaterals for DeFi — to be natively minted on the third and seventh largest chains by TVL without incurring additional bridging risks for users to move WBTC collateral from Ethereum.



BitGo’s expansion to BNB Chain and Avalanche is facilitated by LayerZero’s Omnichain Fungible Token (OFT) standard. It’s widely used today by over 100 protocols, including Ethena, Ether.fi and Swell.



LayerZero’s OFT standard enables the transfer of WBTC between BitGo-approved chains for the low cost of an omnichain message. It serves as a pseudo-global accounting standard that mitigates the traditional risks of double-spending or hacks with a third-party bridge.



To transfer WBTC, <a href="https://blockworks.co/tag/bitgo">BitGo</a>’s security configuration involves a 1-of-2-of-3 decentralized verifier network (<a href="https://medium.com/layerzero-official/layerzero-v2-explaining-dvns-02e08cce4e80">DVN</a>) to approve transfers. This includes BitGo&#8217;s DVN, LayerZero Labs&#8217; DVN and Polyhedra&#8217;s zkLightClient.



This is not to be confused with BitGo’s recently changed 2-of-3 multi-signature security model that is required to mint or burn WBTC.



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



&#8220;WBTC is one of the largest assets in DeFi, and BitGo is one of the most trusted custodians in crypto — so this is definitely a standout example of what can be built on LayerZero,” Bryan Pellegrino, co-founder and CEO of LayerZero Labs told Blockworks.



“With BitGo running their own DVN, they have full control over the security of WBTC, which is exactly how it should be in crypto; that’s why we’re here. It’s all about teams owning their security and shipping cool stuff.”&nbsp;



<a href="https://blockworks.co/tag/layerzero">LayerZero</a> is the most adopted interoperability protocol today. Since 2021, LayerZero has facilitated 135 million omni messages and $50 billion in value across chains, a press release said.



BitGo’s WBTC is the most successful tokenized bitcoin collateral today, with 152,950 WBTC ($8.7 billion) <a href="https://wbtc.network/dashboard/order-book">issued</a> across Ethereum alone.



Read more: <a href="https://blockworks.co/news/building-better-wrapped-bitcoin-for-defi">Building a better wrapped bitcoin for DeFi</a>



The WBTC issuer was embroiled in some controversy last month after it <a href="https://www.bitgo.com/resources/blog/bitgo-to-move-to-jurisdictional-custody-to-accelerate-global-expansio/">announced</a> a change in corporate ownership that involved TRON founder Justin Sun.



Sky Protocol (previously Maker) immediately sought to <a href="https://forum.makerdao.com/t/wbtc-changes-and-risk-mitigation-10-august-2024/24844?utm_source=blockworks-research.beehiiv.com&amp;utm_medium=referral&amp;utm_campaign=short-term-risk-elevated">delist</a> WBTC collateralization from its DAI stablecoin following the announcement. Aave on the other hand, is adopting a wait-and-see approach, said Aave-Chan Initiative founder Marc Zeller on the <a href="https://youtu.be/M-O11MPtEgg">Bell Curve</a> podcast.



Updated September 10, 2024 at 4:20 pm ET: Clarified scope of BitGo&#8217;s decentralized verifier network. 



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LayerZero chosen as interoperability provider for BitGo’s WBTC

Adrian Brink

The world&#8217;s digital infrastructure is under siege, and the only way to protect it is by building conflict-resistant systems. Recent high-profile breaches, such as the theft of every American&#8217;s Social Security number, have exposed a fundamental flaw in how we store and protect data.



At present, we are leaving ourselves open to catastrophic, wide-scale disruptions in the face of growing threats. We must urgently transition to resilient, decentralized technologies that can safeguard our critical information in an increasingly hostile digital landscape.



Recent reports that hackers have <a href="https://www.latimes.com/business/story/2024-08-13/hacker-claims-theft-of-every-american-social-security-number">stolen</a> every American&#8217;s Social Security number, along with high-profile breaches at <a href="https://www.nbcnews.com/news/us-news/t-says-hackers-stole-records-nearly-cell-customers-calls-texts-rcna161507">AT&amp;T</a> and <a href="https://techcrunch.com/2023/11/29/okta-admits-hackers-accessed-data-on-all-customers-during-recent-breach/">OKTA</a>, have made it abundantly clear that our digital infrastructure is alarmingly vulnerable. These incidents aren’t isolated; they’re symptomatic of a broader, systemic weakness in how we approach digital security and data storage.



The challenge of securing our digital world is one of the most pressing issues of our time, and the solution lies in developing conflict-resistant digital infrastructure.



The manner in which these recent hacks were carried out reveals a troubling pattern and underscores the urgent need for system design changes that can both disincentivize and defend against such attacks in the future. Whether the attacker is a lone wolf, a small syndicate or a nation-state actor, the end result is the same: widespread disruption and potentially catastrophic consequences. The focus must shift from who is attacking to how we can build more resilient systems that protect against all threats, regardless of their source.



Read more from our opinion section: <a href="https://blockworks.co/news/funds-stolen-hackers-mind">If you want your funds back, get inside the hacker’s mind</a>



The main reason attackers were able to access vast amounts of user data is because it was all stored in a single, central database. This approach is no longer just careless — it’s outright dangerous. Relying on such vulnerable methods for data storage risks catastrophic outcomes, especially during times of conflict when these systems become prime targets for attacks.



With the exponential <a href="https://www.hackerone.com/thought-leadership/generative-ai-cybersecurity-hacker-perspective">rise</a> in tools like generative AI that enhance even individual actors’ abilities to exploit systems, it’s crucial that we begin repairing and future-proofing these systems before they become untenable. AI doesn’t fundamentally alter the nature of security threats, but it significantly amplifies existing vulnerabilities — particularly by compromising the entire know-your-customer stack.



The 7th Annual Hacker-Powered Security Report <a href="https://www.hackerone.com/thought-leadership/generative-ai-cybersecurity-hacker-perspective">revealed</a> that 53% of ethical hackers are already using generative AI, which highlights how this technology can be leveraged to bypass established security protocols. The potential ramifications are alarming; as AI advances, it could soon render unreliable traditional verification methods (such as voice or facial recognition). This disruption serves as a stark reminder that our security frameworks need to evolve in parallel with these emerging technologies.



Beyond new innovations in disruptive technology, traditional malware such as viruses, ransomware and spyware continue to pose significant threats. Ransomware, where hackers encrypt victims&#8217; data and demand payment for the decryption key, remains particularly problematic for both individuals and institutions.



Enabled by phishing scams and other deceptive tactics, hackers have found considerable success with these traditional methods, and their power will only grow with the new tools emerging from the ongoing AI boom.



The answer to these growing threats lies in truly resilient technology.



Read more from our opinion section: <a href="https://blockworks.co/news/lessons-from-wazirx-hack">We can’t afford to repeat the mistakes exposed by the WazirX hack</a>



Resilient technology <a href="https://www.youtube.com/watch?v=N2Iy1c-1GKY&amp;t=2253s">refers</a> to systems that enable private, autonomous and capture-resistant communication, organization and transactions. It also ensures the protection and preservation of individual identity, actions and ownership. Decentralization and sovereignty, both at the individual and community levels, are essential to resilient technology.



These elements ensure that functionality and autonomy persist even during network disruptions or cyberattacks. Hackers are as bold and brazen as ever despite the legal risks and severe punishments because the potential rewards are enormous, and the targets are often inadequately protected.&nbsp;



Consider the Social Security Database as an example. If a hacker or group of hackers manages to breach that single database, they gain access to the most critical piece of identity for the entire American population. The potential black market value of this data is staggering. If the <a href="https://www.forbes.com/sites/jessedamiani/2020/03/25/your-social-security-number-costs-4-on-the-dark-web-new-report-finds/">estimated</a> $4 value per Social Security number holds true, accessing the numbers of all 333 million Americans could yield a potential value of over $1 billion in stolen data.



The entire incentive for such a heist could be mitigated simply by decentralizing the storage of data. The task becomes much more arduous, and the trail of clues left behind significantly longer, if each SSN is stored separately and must be procured individually. Four dollars per piece is far less attractive than a cache of data worth over $1 billion.



Additionally, zero-knowledge proofs (ZKPs) and shielding technology are emerging as extremely powerful tools in securing the digital world and protecting sensitive data. These advanced cryptographic methods enable the verification of information without revealing the underlying data itself, which would allow for secure interoperability between private institutions and larger public systems.&nbsp;



The implementation of ZKPs allows organizations to minimize data exposure, enhance authentication processes and secure transactions without compromising functionality or user experience. Along with other critical components — such as encryption, secure enclaves and network segmentation — shielding technology offers the means to create robust defense systems against unauthorized access and data theft.



Innovation in encryption methods is also providing powerful new tools in the fight for data protection and system security. Specifically, homomorphic encryption, which allows computations to be performed on encrypted data without decrypting it first, is a highly promising development. This technology, alongside privacy and shielding methods, is crucial for securing individual and institutional data and for national defense.



Read more: <a href="https://blockworks.co/news/what-is-fully-homomorphic-encryption">What is fully homomorphic encryption and how will it change blockchain?</a>



It is in a nation’s best interest to ensure that its citizens’ data is shielded from adversaries, as exposure could lead to targeted attacks and broader security risks. Protecting sensitive information is vital to maintaining sovereignty and security in an increasingly digital and interconnected world.



There is a common thread among the tools that build resilient technology: the ability to protect information, uphold security for users and institutions and ensure sovereignty over critical data and systems. The digital and physical world is becoming more complex and chaotic. However, we have yet to truly experience the level of disruption that a global conflict would bring. In an interconnected digital world, creating chaos-resistant systems is essential to protecting the infrastructure we all rely on.



It is of vital importance that we strengthen these systems now before it&#8217;s too late.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



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Without decentralization, our data will never be safe

One of the world’s largest asset managers now offers crypto ETFs.&nbsp;



State Street Global Advisors (SSGA) has launched its Digital Asset Ecosystem ETF (DECO), Hedged Digital Asset Ecosystem ETF (HECO) and Transformative Tech Accelerators ETF (TEKX).



DECO invests in the stocks of companies “well positioned to benefit from the growing adoption of the blockchain and digital asset industries,” as well as crypto ETFs and futures contracts. HECO does the same, but seeks to manage volatility via covered call options and protective put options.



TEKX targets “companies within the value chain supporting new disruptive technologies,” including both blockchain and AI.



The launches come a couple months after SSGA revealed in June its partnership with crypto-focused <a href="https://blockworks.co/tag/galaxy-digital">Galaxy Digital</a>, which sub-advises the three offerings. The actively managed funds carry the “SPDR Galaxy” brand.



Read more: <a href="https://blockworks.co/news/state-street-crypto-etf-products">Can State Street make up ground in the crypto ETF arena?</a>



SSGA — with $4.4 trillion total assets under management — is <a href="https://etfdb.com/etfs/issuers/#issuer-power-rankings__aum&amp;sort_name=revenue_position&amp;sort_order=asc&amp;page=1">behind only BlackRock and Vanguard</a> in terms of AUM within its <a href="https://blockworks.co/tag/etfs">ETFs</a> specifically. The company launched the first-ever US ETF — the SPDR S&amp;P 500 ETF (SPY) — in 1993.&nbsp;



<a href="https://blockworks.co/tag/blackrock">BlackRock</a> currently runs the largest bitcoin fund (at $20.3 billion in assets) and an ether ETF that has notched $1 billion of net inflows since its July 23 launch. Vanguard has said it has no plans to offer crypto ETFs and <a href="https://blockworks.co/news/vanguard-disallows-bitcoin-etf-trading">does not allow clients to buy BTC funds</a> or <a href="https://blockworks.co/news/vanguard-opposes-platforming-eth-etfs">ETH products</a> on its platform.



For now, SSGA is opting not to launch spot crypto ETFs. Such US-listed BTC funds have seen roughly $1.2 billion of net outflows over the last nine trading days.&nbsp;



Anna Paglia, SSGA’s chief business officer, said in a statement: &#8220;Some investors are not comfortable with the short-term, volatile price swings of single-currency crypto.&#8221; 



She added that the company views “actively managed digital asset portfolios that help investors tap into the benefits of diversification” as the “next evolution of this market.”&nbsp;



The largest US ETF focused on crypto- and blockchain-related equities is the Amplify Transformational Data Sharing ETF (BLOK), which launched in 2018 and manages $627 million in assets.  



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the On the Margin newsletter</a>.



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State Street unveils crypto ETFs with partner Galaxy

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<h2 class="wp-block-heading">The Place Beyond DePINs</h2>



Crypto is absolutely magic internet money. But what’s missing in that definition is just how physical the space actually is.



Like the Web2 “cloud” that doesn’t really exist in the sky — it’s all kept on servers in data centers scattered across the globe — most crypto projects are backed by physical machines.



With this in mind, Bitcoin is actually the premier DePIN project. Users looking to participate in the network can acquire and run a specialized machine (an ASIC rig), which will both service the Bitcoin blockchain and reward the user for their efforts.



And it’s not just proof-of-work blockchains that are like this. Ethereum validators, and other proof-of-stakers, also must run dedicated machines that keep the network smooth. A physical box that pays out digital money for doing some kind of work.



Bitcoin, Ethereum, Solana and practically any other layer-1 or layer-2 network have long been pitched as public goods. Ethereum is a world computer that can compute whatever you like — but most importantly it can host decentralized apps that nobody can censor at the protocol level.&nbsp;



There’s no “Ethereum company” that you pay to use that service. You instead pay the validators on the network transaction fees (alongside a small degree of currency dilution), which might even be yourself, if you’re running your own fully validating node.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeCHGEHwonukdQX8JCNYM78QWYbfXZ0-45OHGWgbh9-fRnmcDb5icaH8dwMWv9-Qh4T7Z6dXjK34TBx9wZ9w9aMQkDW3EoI9zejJpTaErhUPTZe2uA4rz8zcrlnGBCNAan5Or57J5uXCtGo1jxauqXdpWz4?key=wOoAa3SL3waHnCui4hf6Rg" alt=""/></figure>



The DePIN segment of the crypto market has taken this concept and run with it over the past few years, so much so that it’s very much its own thing.&nbsp;



Which makes sense. Blockchains, despite some individual instances of specified branding for particular use cases, are mostly general purpose these days.&nbsp;



A crypto startup, like Helium or <a href="https://blockworks.co/podcast/empire/cb69d42c-6f23-11ef-80c3-cb4bd32154d7">today’s Empire guest</a> DAWN, that wants to sell specialized hardware — say that boosts the range and power of a wireless network in return for tokens — might use that general-purpose blockchain as a means of distributing payouts and automating various processes.



It’s a recipe for public goods (DePIN services) on public goods (layer-1 blockchains). Why pay corporations for services like the internet or file storage when I can effectively pay my neighbor for running the infrastructure themselves — or even take part in the network myself, serve other people and be paid for it?



The devil is always in the details, and the viability of all these concepts isn’t yet completely proven. It’s largely dependent on tokenomics, adoption and frustratingly, the price of bitcoin.&nbsp;



As you can see on the chart above, DePIN as a whole has clearly transcended bull markets — with its total market cap almost reaching an all-time high in March alongside BTC. But it hasn’t yet shaken its correlation with the original DePIN token, which puts a certain damper on whatever <a href="https://blockworks.co/news/empire-newsletter-stablecoins-depin">growth in adoption</a> they’ve enjoyed.



— David Canellis



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



<ul>
<li>BTC and ETH have extended their recoveries, up 3.8% and 2% over the past day. (BTC: $57,260; ETH: $2,350.)</li>



<li>AI super-token ASI is <a href="https://www.coingecko.com/">leading</a> the top-100 over the past week, having gained 11%.</li>



<li>NEAR stablecoin <a href="https://defillama.com/stablecoins/Near">supplies</a> are up 17% in the past week after its second-biggest daily inflow on Monday: $101 million, bringing its total to $774.7 million.</li>



<li>Average Solana transaction fees are at their lowest since February, down to $0.005306, per <a href="https://app.blockworksresearch.com/analytics/sol?dashboard=sol-onchain-activity">Blockworks Research</a> data.</li>



<li>ETH staking protocol Copper has <a href="https://dune.com/hildobby/eth2-staking">attracted</a> 39% more ETH in the past month, reaching 9,984 ETH ($23.5 million).</li>
</ul>



<h2 class="wp-block-heading">Crypto’s comeback</h2>



Gemini’s trying to get a sense of the state of crypto in a new report released this morning.&nbsp;



The worldwide survey — focusing on the US, UK, France, Singapore and Turkey — took place earlier this year and wrapped up in late June, but the findings show some interesting trends.&nbsp;



Not surprisingly, US investors held steady, with 21% of respondents saying they continue to maintain crypto holdings. Same thing with the UK, though France had an uptick from 2022 — up to 18% (the same percentage as the UK), from 16%.&nbsp;



Singapore saw a decline in ownership, down to 26% from 30% two years prior.



“Nearly two in three crypto owners across these geographies (65%) report buying and holding cryptocurrency for its long-term investment potential, and nearly two in five (38%) hold cryptocurrency as a hedge against inflation,” the report said.



Focusing on the US, the spot ETFs actually seem to be attracting some retail.&nbsp;



“In the US, nearly two in five (37%) cryptocurrency owners surveyed said they hold some crypto through an ETF. More than one in 10 (13%) own crypto exclusively through an ETF, suggesting they entered the market through ETFs when they were introduced this year,” the survey said.



We’ve <a href="https://blockworks.co/news/empire-newsletter-crypto-institutional-adoption">talked a lot about institutional interest</a> and how that has, so far, helped lead the charge this cycle. It’s however been a struggle to see much retail participation. Outside of, say, memecoins when <a href="https://blockworks.co/news/is-memecoin-moment-over">Pump.fun was in its heyday</a>.&nbsp;



We all know how 2022 went down. It started off with so much hope until investors were burned by Terra, FTX and the destructive waves they caused. It would be fair for some in the crowd to remain skeptical or hesitant about reentering crypto, though the industry has clearly been through a lot of change since then.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdBiHflJGpMbzxTvS_ldToVXHMgWjJVOQt-Vk_yKDlG2rQYAuEy_Y81MfvuS2scholMwOc6XW509dG74TEmDW6djPA2pcOqIhSvFa-mpOqi6qmysBxXcEc0QZ9_bAfVlLzKiN4AIewsbSSN_o42h7t-AQRp?key=wOoAa3SL3waHnCui4hf6Rg" alt=""/><figcaption class="wp-element-caption">Source: Gemini</figcaption></figure>



Here’s where it gets interesting: Gemini’s survey found that many folks who previously sold during a downturn were interested and bullish about crypto once more. Over 70% of respondents said they’ll be buying crypto in the next year.&nbsp;



And, given the sideways action we’ve seen since the survey wrapped on June 28, perhaps some of them have already taken advantage of the market.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcM_t69T6YoL4mWaZDdMmYQuCOEzqsqKfztrx5K119ptNZ07vSgiGxVT8NgZet9vVWBrPrSRJQNEgcIUu9YLhXE1xm9rWX2V6Vai7SeWUUEJO2eqoxUEt68I7kzKKIW1pNwPPY9sVGQtwUg4RAznFK-fYdw?key=wOoAa3SL3waHnCui4hf6Rg" alt=""/><figcaption class="wp-element-caption">Source: Gemini</figcaption></figure>



The majority of folks surveyed are most interested in the long-term growth of crypto. Still, there were a fair amount — 45% — who said they’re just looking to make a profit.&nbsp;



Another segment, making up 38% of respondents, noted that they wanted to hedge against inflation with their crypto.



Across the board, there are two things that the majority of respondents could agree on: bitcoin and ether will just continue to go up, and companies are going to start accepting bitcoin, ether and stablecoins as payment in the next decade.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeVY_r0SAe98Z7KUU54yQQRqym-WsYArTHKaDHzYxeoQ_dKXqyCHiL868sFU8on1w4e2FgeNaoxQ9u4dnm7fyoMXD4rKVa_yRULiQGCMVyxquqrjd_iwKaoXjnHsmiCoLmzEOgMrPHoGpMYQAfrYiVCAZT5?key=wOoAa3SL3waHnCui4hf6Rg" alt=""/><figcaption class="wp-element-caption">Source: Gemini</figcaption></figure>



We may have gone sideways price-action wise since this survey happened, but there are some green shoots to keep an eye on. Let’s just hope they keep growing.



— Katherine Ross



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



<ul>
<li>Pantera Capital and ParaFi Capital are among the funds that bought Metaplex tokens formerly owned by the FTX estate, The Block <a href="https://www.theblock.co/post/315320/pantera-parafi-others-ftx-metaplex-tokens?utm_source=rss&amp;utm_medium=rss">reported</a>.</li>



<li>Polymarket bettors <a href="https://polymarket.com/event/what-will-trump-say-at-the-debate?tid=1725903490942">think</a> there’s a 21% chance former President Donald Trump mentions crypto or bitcoin at Tuesday’s presidential debate.</li>



<li>Investors lost $5.6 billion to crypto scams last year, the FBI <a href="https://www.ic3.gov/Media/PDF/AnnualReport/2023_IC3CryptocurrencyReport.pdf">said</a>.</li>



<li>Prediction market Kalshi won’t be able to <a href="https://www.coindesk.com/policy/2024/09/09/kalshis-us-election-markets-delayed-until-friday-at-earliest/">roll out</a> US election markets until at least Friday after a judge granted the CFTC a temporary stay in the case.&nbsp;</li>



<li>Regulators from several states, including Texas, reached a <a href="https://www.bloomberg.com/news/articles/2024-09-09/investors-in-1-billion-crypto-skyscraper-scheme-to-get-repaid">settlement</a> with GSB Group to return millions of dollars to investors who put money into crypto projects including tokenized ownership of a skyscraper and metaverse bets.&nbsp;</li>
</ul>



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



Q: Are billion-dollar crypto fraud cases still &#8220;news&#8221;?



I suppose it boils down to what kind of “news” it really is.



Take the recent story about tens of thousands of investors losing $1 billion in a tokenized fraud scheme. Through fractionalized shares, backers had reportedly been told they’d earn 5% per week on metaverse land rights, as well as additional passive income apartments in a yet-to-be-purchased Dubai skyscraper, among other schemes.



None of it panned out and regulators in the US and Canada are working to have all funds returned to investors.&nbsp;



Now, is that a crypto story, or a fraud story? It could even be a tale of desperation, set on a backdrop of accelerating income inequality and financial nihilism.&nbsp;



As crypto grows and seeps into all corners of our daily lives, it can <a href="https://blockworks.co/news/crypto-fraud-financial-scam">only ever be the latter two</a>. The sooner the better.



— David Canellis



Maybe it’s just the journalist in me — I just struggle to think we’ll get to a place where they aren’t still news. But I definitely don’t think they still hold the relevance that they once did.&nbsp;



Fraud stories now serve as more of a PSA, or a sign of what was. The industry’s worked so hard and come so far since 2022, and we can all agree that we want those types of headlines to go poof forever.&nbsp;



Sadly, it’s not that easy. And, heck, it’s not that simple in any other industry either. A billion-dollar case on any level would still be news, technically.&nbsp;



One rotten apple doesn’t spoil the bunch if isolated, so crypto can keep on keeping on as long as the bad actors are kept at arm&#8217;s length.



— Katherine Ross



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the On the Margin newsletter</a>.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

DePIN: A recipe for public goods on public goods

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Welcome to the On the Margin Newsletter, brought to you today exclusively by Ben Strack.&nbsp;



Here’s what you’ll find in today’s edition:



<ul>
<li>A look at the plan for a US strategic bitcoin reserve: Its impact (whether implemented or not), and is it even a good idea?</li>



<li>Where things stand in the crypto markets after BTC’s dip last week.</li>



<li>What we’re monitoring — CPI, PPI, a historic presidential debate.</li>
</ul>



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



<h2 class="wp-block-heading">Debating the ‘strategy’ of BTC reserves</h2>



We’ve talked about the possible near-term catalysts for bitcoin. Included further down in this newsletter include the data drops (and debate) we’re keeping an eye on this week.&nbsp;



We know the markets react to such events and BTC’s price fluctuates. But the type of price prediction <a href="https://www.vaneck.com/us/en/blogs/digital-assets/matthew-sigel-bitcoin-2050-valuation-scenarios-global-medium-of-exchange-and-reserve-asset/#bitcoin-scaling-and-l2s">made</a> by VanEck analysts of bitcoin reaching nearly $3 million per coin by 2050 hinges on something more.



It’s been about a month and a half since Sen. Cynthia Lummis, R-Wyo., <a href="https://blockworks.co/news/senator-lummis-bitcoin-reserve-bill-crypto-policy">floated a plan</a> for a US government-managed <a href="https://blockworks.co/news/empire-newsletter-strategic-bitcoin-reserve">strategic bitcoin reserve</a> — the type of “something more” that would bring broad awareness to the investment case for digital assets.



“Regardless of whether this idea is ever implemented, it has now moved from fringe conversations to mainstream public policy debates, and is likely forcing many governments to better understand bitcoin,” Hashdex CIO Samir Kerbage told Blockworks.&nbsp;&nbsp;&nbsp;



Indeed, <a href="https://blockworks.co/news/donald-trump-speaks-bitcoin-2024">presidential hopeful Donald Trump pledged</a> at the same time Lummis proposed this reserve (during a July speech at the <a href="https://blockworks.co/news/bitcoin-2024-nashville-recap">Bitcoin 2024</a> conference in Nashville) to “keep 100% of all bitcoin the US government currently holds or acquires.” VP Kamala Harris, the Democratic nominee, has yet to share details about her crypto stance.



To be clear, growing education around bitcoin is not an accident, Kerbage noted.



You had the highly successful launch of US spot bitcoin ETFs in January, spurring asset management titans like BlackRock and Fidelity to start marketing their own products (and the broader use case of BTC in a portfolio).&nbsp;



Then there are the <a href="https://blockworks.co/news/wisconsin-discloses-blackrock-ibit-shares">pension plans allocating to</a> (or considering holding) these products — a fact Kerbage notes has a clear effect.&nbsp;&nbsp;&nbsp;



“This type of continued adoption will force policymakers to better understand bitcoin, and could certainly help accelerate the timeframe for the consideration of BTC as a strategic reserve asset,” he noted.



That said, educational efforts are in the early stages.



“The knowledge gap among lawmakers, along with the unanswered implementation questions and the fact that the legislative process takes time, is why it could be years before the idea becomes a reality,” Kerbage added.&nbsp;&nbsp;



Then there’s the truth that not all think this is necessarily a good idea.&nbsp;



Ananya Kumar, deputy director for future of money at the Atlantic Council’s GeoEconomics Center, noted in a blog <a href="https://www.atlanticcouncil.org/blogs/econographics/what-exactly-is-a-strategic-bitcoin-reserve/">post</a> last month that crypto markets lost about half a trillion in market cap (with BTC dropping below $50,000) not long after the Lummis/Trump statements.



“Creation of a strategic bitcoin reserve rests on the premise that bitcoin can be a successful bulwark against inflation and market volatility,” she argued. “But recent days have put this argument to the test.”



While gold stayed relatively stable amid last month’s weak jobs report and a rate hike in Japan, crypto volatility <a href="https://blockworks.co/news/empire-newsletter-crypto-trends">has proved persistent</a>, Kumar said. BTC sometimes “recovers slower” than traditional markets, she added.



“This proposal is at best, premature, and at worst, out of touch with the reality of markets and US national security objectives,” Kumar wrote. “Bringing bitcoin into mainstream use is not reason enough to create a strategic bitcoin reserve.”



It’s unclear how other countries might react if the US chooses to move forward with this idea.



“But if the government of the world’s largest economy decides that BTC should be held on its balance sheet, the impact to the global credibility of bitcoin cannot be overstated,” Kerbage said.&nbsp;



More crypto-related remarks from Trump and Harris ahead of Nov. 5 could help us gauge the actual likelihood of such a plan. Or we could be left waiting much longer.



<h3 class="wp-block-heading">$1.2 billion</h3>



The amount of investor capital that exited US spot bitcoin ETFs over the past eight trading days, according to Farside Investors <a href="https://farside.co.uk/bitcoin-etf-flow-all-data/">data</a>.&nbsp;&nbsp;



That eight-day net outflow run — coming amid a bitcoin price dip — is the longest such streak since the funds launched in January (breaking the two seven-day net outflow streaks in April and June).&nbsp;



The cumulative net inflows for the ETFs, in their nearly eight months on the market, have dipped back to just below $17 billion.&nbsp;



Bloomberg Intelligence downplayed the recent outflows in an X <a href="https://x.com/EricBalchunas/status/1833114120637329507">post</a>, noting that “close to 99% of the investors have hung tough, yet again.”&nbsp;&nbsp;



<h2 class="wp-block-heading">A look at where we stand</h2>



There’s that saying: You don’t know where you’re going until you know where you’ve been.&nbsp;



Or something like that.&nbsp;



Even if knowing where you’ve been (and are) doesn’t precisely tell the future, it’s worth understanding how things stand regardless.



Crypto and equity markets pulled back last week after “a softer-than-expected jobs report and comments from Fed officials downplaying the likelihood of a 50-basis point rate cut this month,” Grayscale research head Zach Pandl said in a Monday statement.&nbsp;



Pandl told Blockworks last Friday that the August jobs report hit the “sweet spot” for BTC given a slowing labor market (allowing the Fed to cut rates) combined with a lack of recession signs.



CME Group <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">data</a> shows the market putting the probability of an interest rate cut of 25 bps at 71% (with a 50 bps cut probability at 29%).&nbsp;



Bitcoin dropped to the $52,500 “support level” late last week, analysts noted, before bouncing back toward $55,000. BTC was trading at about $56,500 at 2:30 pm ET Monday — up 3% from 24 hours prior.



It’s not just about the simple BTC price figure.&nbsp;



Last week’s crypto investment product outflows totaled $726 million, CoinShares data showed — matching a high set in March. YouHodler risk manager Sergei Gorev cited that outflow figure before noting: “The extremely pessimistic sentiment of the crowd prevails in the markets.”



There’s also bitcoin’s relative strength index — designed to measure the speed and magnitude of directional BTC price movements — <a href="https://charts.bitbo.io/monthly-rsi/">dropping</a> to its lowest level since September 2023. The correlation, too, between BTC price and TradFi markets persist.



“Such a pessimistic sentiment in the markets provides an opportunity for local growth — so far, in the form of a corrective movement,” Gorev said. “There are many negatively-minded traders on the market pushing the price lower now; a significant rebound in price may follow next.”



<h2 class="wp-block-heading">On Our Radar</h2>



When crypto prices are down, industry watchers are curious about the potential upcoming catalysts.&nbsp;



A few stand out this week:



<ul>
<li>The Bureau of Labor Statistics will publish the Consumer Price Index (CPI) report for August on Wednesday — data expected to shed light on inflation trends. <a href="https://blockworks.co/news/us-equities-trim-losses-cooler-cpi-report">Last month’s report</a> showed US prices rose slightly less than anticipated the month prior (2.9% in the 12 months ending in July). BTC and ETH initially dropped by about 4% and 5%, respectively, in the two hours or so after the print — showing the effect such reports can have, even if just in the short-term.  </li>



<li>In addition to CPI, an update on the Producer Price Index (PPI), set to be released Thursday, will be “crucial,” BRN analyst Valentin Fournier said in a statement. “These indicators will heavily influence the Federal Reserve’s upcoming interest rate decisions,” he added, noting that a 50 bps rate cut might induce a short-term market selloff. A reminder that we won’t know the Fed’s rate cut decision until next week.  </li>



<li>Beyond economic data, Tuesday night marks the first debate between presidential hopefuls Kamala Harris and Donald Trump. Kyle Bligen, director of financial policy at tech industry coalition Chamber of Progress, last week wrote a <a href="https://progresschamber.org/wp-content/uploads/2024/09/Letter-to-ABC-Debate-Mods_-Crypto-Question-1.pdf">letter</a> to ABC News’ Linsey Davis and David Muir, calling on them to ask a crypto question. “Both candidates should <a href="https://blockworks.co/news/more-crypto-remarks-likely-coming-from-trump-harris">shed more light on their positions</a> and explain how we can nurture digital assets while also providing greater consumer protection,” Bligen wrote.</li>
</ul>



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



<ul>
<li>We talked about the outflows from US spot bitcoin ETFs. As for the ether funds, they saw roughly $91 million leave their coffers during last week’s four trading days. The ETH ETFs have collectively seen $569 million of negative net flows since their July 23 launches. </li>



<li>PitchBook’s Robert Le told Blockworks editor Katherine Ross he thinks “we’re in a new cycle.” <a href="https://blockworks.co/news/crypto-funding-recovery-signs">Check out</a> what he means.</li>



<li>Head over to <a href="http://blockworks.co">Blockworks.co</a> tomorrow for a presidential debate preview. Then check back in (on the site and in the newsletter) on Wednesday and Thursday for a breakdown of that economic data.</li>
</ul>



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Last week, the co-founder of a shuttering NFT business told me that running an NFT platform felt like “<a href="https://blockworks.co/news/lightspeed-newsletter-hyperspace-nft-shutter">fighting the market</a>.” It got me thinking about the path forward for NFTs, as the hype around expensive JPEGs has yet to recover from the 2022 market slide.



There is one group of investors that seem to have an inkling about the future of NFTs, however. Drip Labs, the company behind Solana-based creator platform DRiP, announced it raised $8 million in seed funding today. The round was led by NFX and drew participation from Coinbase Ventures and Progression.



DRiP lets art and music creators list and sell their work as well as receive tips from fans in the form of its in-app currency, Droplets. DRiP <a href="https://blockworks.co/news/drip-haus-mass-adoption-strategy">makes use of Solana’s compressed NFTs</a> (cNFTs), a standard that was initially developed for Instagram during its brief foray into digital collectibles. CNFTs are cheaper to create and store than regular NFTs, and a big part of the DRiP ethos is free or low-cost collectible airdrops from creators to users.



Users can also tip creators with just a few cents-worth of Droplets. These microtransactions are enabled by Solana’s cheap fees and presumably wouldn’t be feasible on pricier traditional payment rails — one of the commonly-cited reasons that Solana rails could make for a better internet experience.



In an email, I asked DRiP CEO and founder Vibhu Norby about this use case for <a href="https://blockworks.co/tag/nfts">NFTs</a>.



“We were never going to make it with $100,000 ape JPEGs,” Norby wrote, adding that a go-to-market that focuses on low-cost, accessible collectibles is more likely to succeed. The feeling is that DRiP NFTs could sell for tens of thousands of dollars or for a few cents, but only offering the former kneecaps your platform.



Norby said most of DRiP’s revenue comes from a take-rate on Droplet sales, which can be purchased for fiat in the app. DRiP also makes money from sponsored campaigns on behalf of <a href="https://blockworks.co/news/lightspeed-newsletter-waka-flocka-drip-creator">creators</a> and a royalty on collectibles issued on the platform. 



In an ideal world, DRiP’s model could separate the helpful traits of NFTs from the unsustainable ones — verifiable ownership, but less wild speculation on highly-priced profile pictures. The <a href="https://blockworks.co/tag/solana">Solana</a> platform 3.land is built with a similar ethos, as is Ethereum-native Zora. Base tried something similar with its recently-wrapped Onchain Summer promotion.



Also, DRiP is acquiring users without the promise of a future native token airdrop — a mechanism that has been perhaps the most successful user and deposits magnet this cycle, at least for the short term.



“The history of consumer apps launching tokens has been extremely poor so far,” Norby said. “I’ve seen so many crypto apps drink their own Kool-Aid thinking they found product-market fit when they were under attack by sophisticated sybil farms and arbitrageurs.”&nbsp;



Norby added that DRiP has faced 2.5 million sybil attacks over the past 18 months as it is. “Imagine an app that’s actually promised a token,” he wrote.



With the fresh funding, DRiP plans to bring a mobile app to market. The app will likely begin to launch in October, a spokesperson told me. Opining on what else the future might bring, Norby said he thinks music has the most potential for growth, since musicians are the most “economically challenged creative class” who can also make good use of DRiP’s direct-to-consumer model.



“Check back with me in [three] years to see if I was right,” Norby said.



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DRiP’s $8M seed round highlights a path forward for NFTs

Governance voting platform Snapshot has announced the <a href="https://snapshot.mirror.xyz/F0wSmh8LROHhLYGQ7VG6VEG1_L8_IQk8eC9U7gFwep0">launch</a> of Snapshot X, a new onchain voting protocol.



The new protocol will be launched on the layer-2 network Starknet and leverage the technology of “storage proofs” from <a href="https://herodotus.dev/">Herodotus</a>, a middleware blockchain infrastructure company.



Snapshot said in the announcement that <a href="https://snapshot.mirror.xyz/F0wSmh8LROHhLYGQ7VG6VEG1_L8_IQk8eC9U7gFwep0">96%</a> of DAOs use its platform for offchain voting.



By voting off-chain, token holders can skirt the high gas fees of the Ethereum layer-1 while signaling their early positions on key governance issues. However, votes are typically considered finalized only after an onchain vote is concluded with a separate voting platform like Tally.



In an effort to bring DAO voting onchain cheaply, the new Snapshot protocol will leverage storage proofs to verify token holdership on Ethereum layer-1 before enabling votes onchain from Starknet.



Read more: <a href="https://blockworks.co/news/mango-markets-dao-sec-settlement">DAO behind Mango Markets votes for SEC settlement</a>



Thanks to Starknet’s support of native Ethereum cryptographic signatures, Snapshot X abstracts the use of the zk-powered layer-2 on the backend. This enables the use of popular EVM wallets like MetaMask on Snapshot X without requiring users to separately onboard to Starknet.



Like the original Snapshot protocol, Snapshot X will also be programmable and allow for different <a href="https://blockworks.co/tag/dao-governance">governance</a> coordination mechanisms.



These include the various features that DAOs have historically used in governance like NFT voting, gasless signature voting, permissioned/whitelisted proposal creation and time-locked execution.



“Essentially, the point of Snapshot X is unstoppable onchain governance,” Snapshot Labs Chief Operating Officer Jeremy Musighi told Blockworks.&nbsp;



Snapshot Labs first raised $4 million in November 2021 in a round led by 1kx venture fund.



Updated September 10, 2024 at 12:19 pm ET: Clarified Snapshot&#8217;s announcement. 



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Snapshot to launch onchain voting on Starknet

Are more token launches coming this fall?



“I think we’re in a new cycle,” PitchBook’s Robert Le told Blockworks.



“In the last six months to maybe even a year, we&#8217;ve been in the same cycle in terms of sentiment, increasing capital going into the space and more developers coming and building. So last quarter, I think, maybe there was a little bit of a lull,” he added.



Le’s feeling pretty positive about the fall, and he thinks it’s just a matter of time until projects start announcing more token launches.&nbsp;



He’s already seen plans for the third and fourth quarters of this year, but there’s currently a “prisoner’s dilemma” where people are trying to figure out “how the market is going to move” so as to time their launches.



Read more: <a href="https://blockworks.co/news/venture-capital-data-not-close-to-2022-levels">Don’t expect venture capital data to hit 2022 levels for several years: Analyst</a>



“Everyone’s playing the waiting game to see,” he added. Projects would prefer if the market was moving up, but also want to be the first to launch their tokens. But there could be a “tipping point” where the launches happen regardless of an ideal market environment, or we enter a “full force” bull market.



The fourth quarter of last year into the first quarter of this year saw a decent chunk of token launches, but it’s since dried up. Even token unlocks aren’t bountiful, according to data from the Tie Terminal.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXe9zoeg9HyG-Ubrz2obQqUMk8DBtECvzyh4moGfubxpZNOsed3n9X3_ygeSi9plPJIq1nW8HWaIh7tT5osA2Bhy7VLgqxyFblskQ5ZFjOCjq93mA8zZD30ZOMzyf4nI234arzyBI937fxSb1uNnLsZDsPId?key=jJVyUwhp0HJi9Ozff7d2sA" alt=""/><figcaption class="wp-element-caption">Source: Tie Terminal</figcaption></figure>



The unlocking of $350 million worth of SUI is the biggest unlock over the last month into September, as shown above.&nbsp;



Read more: <a href="https://blockworks.co/news/lightspeed-newsletter-anatomy-of-a-token-launch">Anatomy of a token launch</a>



While Le thinks that we could be gearing up to see a bull market “sometime next year,” which he believes will happen regardless of <a href="https://blockworks.co/news/september-events-that-could-move-markets">who takes the White House</a>, he believes the election won’t impact crypto.



Le analogized crypto to an “abused child” in search of love, and notes a candidate like Trump is the first one to give the industry <a href="https://blockworks.co/news/donald-trump-accepts-crypto-donations-2024-election">such attention</a>.&nbsp;



In the end though, “governments don’t like crypto because it’s trying to supplant the traditional financial ecosystem or financial system. It won’t necessarily matter if one party over another supports crypto,” Le said.&nbsp;



“I think the pragmatic way to interact with regulators and lawmakers is to work with both sides,” Le told Blockworks. “And I think the crypto industry needs to learn to do that.”



Had Trump been in office post-FTX, his administration would have had to crack down on the industry just as hard as the Biden administration and Securities and Exchange Commission’s Gary Gensler have, he added.



<h2 class="wp-block-heading">Venture capital activity</h2>



Speaking of 2022, we’re not anywhere near the venture capital activity that we saw back then, though things are looking up in comparison to last year.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcAI87i1dNPN4mrzOj3i7G2Rn5QBpOVvCjM6E9JRh9NRH3J4lMLDzDXlm8ptmEg-PGbBzSnDxFNq9wlrAr26vzOn6K4_j7PkMeaWx-VuMhhVtBqQcSmNFj8o9BFYAk3F_Y4fZH1sl9rmLZ5Vi1pE6HecRv-?key=jJVyUwhp0HJi9Ozff7d2sA" alt=""/><figcaption class="wp-element-caption">Source: Crypto VC Funds Report</figcaption></figure>



“As of July 30, 2024, $2.2 billion has already been raised across 24 funds — a sum on track to surpass 2023’s total capital raised. The rebound can be attributed to the overall recovery of the crypto market, in which the total crypto market cap reached 93% of the previous cycle’s watermark in March 2024,” Le wrote in a report.



Per Tie Terminal data, August saw 167 raises totaling $981 million. DeFi projects led the charge, raising $210 million. And the data shows that <a href="https://blockworks.co/tag/gaming">gaming</a> and <a href="https://blockworks.co/tag/metaverse">metaverse</a> segments are showing an uptick in activity, with $65 million raised last month.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfUkrlVvcnZaOvO1npB5z7uEYG95FClCRMs3vK9qn35SMsF4jdFvQ6s6qOpz0UGOvavUMWZH6F5lPxY3B4xntE-14qiXYE_QpXXvuR7pM1oii0vyudAPYM7ItYniIWa1k7fljCMTcNOtP-hISNwKM-cqBg?key=jJVyUwhp0HJi9Ozff7d2sA" alt=""/><figcaption class="wp-element-caption">Source: Tie Terminal</figcaption></figure>



In a report released Friday, Le noted that the median fund size has jumped 76% to $41 million from $25 million last year, with a lot of those being midsized funds (we’re talking $100 million to $500 million).&nbsp;



This shows that “these funds may represent a sweet spot for crypto investors — big enough to support a growing industry but not so large as to struggle with finding viable opportunities. In an industry still in its relative infancy, $1 billion funds face the challenge of needing to write checks worth $25 million to $50 million, which forces them into high valuations and larger bets in a market where startups of that scale are still scarce,” Le wrote.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeM1YEimKqcej9kOp0oiG_hFyvxZ-JQri19UOY5kUM0RiEek0cFFjLuiWsjDa_H8ToGBm6O905xgHXOXC6E6gTyi5BTTYOjc8SEVYxFmVHawSIccZdu28i-AJuNgsv0pfboqDgiOkB0-KBsAaLAj6hlvf_5?key=jJVyUwhp0HJi9Ozff7d2sA" alt=""/><figcaption class="wp-element-caption">Source: Crypto VC Funds Report</figcaption></figure>



Staying below 2022 levels may actually be a good thing, given that hype isn’t necessarily always a long-lasting thing.&nbsp;



But while we’re seeing a rebound, “the crypto fundraising environment will stay tough as the market recovers,” Le wrote.



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



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