May 2023
Ethereum crossed a major milestone in April with its “Shapella” upgrade, completing its multi-year transition to a full Proof-of-Stake (PoS) network. While there were concerns that the ability to withdraw staked ETH could result in a large selling pressure, the bulls won the bears this round with ETH rallying +5% on the day post-upgrade. So far, withdrawals have been largely driven by Kraken after it shut down its staking service in February after a U.S. Securities and Exchange Commission (SEC) investigation, and staked ETH continues to observe net deposits instead of net withdrawals (Nansen dashboard).
With PoS-transition finally completed, what’s next for Ethereum? Bankless highlights “proto-danksharding” in EIP-4844, Distributed Validator Technology and Proposer-Builder Separation as key improvements to watch for in Ethereum’s roadmap. I personally also liked the idea from Amphibian Capital that ETH staking yields could be a crypto-native risk-free rate now that demand/supply mechanics are no longer constrained.
Aside from technological improvements, changing crypto regulations are also laying the foundation for a structural shift in the industry as we observe growing interest from crypto companies (e.g. Coinbase, Gemini) to shift offshore. Interest from traditional industries continues to grow as investment (both human and capital) continues into blockchain/cryptocurrency technologies.
Lastly, the U.S. banking crisis and concerns on the federal debt ceiling continue to highlight issues with the banking system, and calls for an alternative, decentralized store-of-value continue to validate and support cryptocurrencies.
Kenny Chiang
Senior Research Analyst
Ethereum’s Shanghai upgrade is complete, starting a new era of staking withdrawals. The price of ETH remained largely flat at the time the Shanghai hard fork was triggered. Roughly half an hour after the Shanghai upgrade was activated, some 285 withdrawals in epoch 194,408 had been processed, for about 5,413 ETH ($10 million worth), according to beaconcha.in.
U.S. Securities and Exchange Commission (SEC) charges Bittrex with operating an unregistered securities exchange. The SEC identified six tokens as securities: OMG, DASH, ALGO, TKN, NGC and IHT. This is the first time the SEC is charging a crypto exchange for allegedly operating an illegal securities exchange. Also, two of the crypto tokens mentioned as securities – DASH and Algorand – are listed on Coinbase. If it is illegal for Bittrex to trade them then presumably it is also illegal for Coinbase to trade them.
U.S. SEC looks to include DeFi in its expanding definition of a securities exchange. The agency voted 3-2 to reopen an existing proposal to widen how it defines operations that need to be regulated as securities exchanges. To comply with this and other SEC initiatives, crypto operations would have to decide whether to make fundamental changes – such as increased centralization.
European Union (EU) parliament passes MiCA by 13:1 margin. The new regulation covers the supervision, consumer protection, and environmental safeguards of crypto-assets, and targets crypto-assets not regulated by existing financial services legislation. The law will start applying next year, subject to the final vote in the Council of the EU on 16 May.
Source: Patrick Hansen, Circle’s Director of EU Strategy and Policy
U.S. Congress to introduce new draft bill for stablecoins. The draft puts the Federal Reserve in charge of non-bank stablecoin issuers, such as crypto firms Tether and Circle, and failure to register could result in up to five years in prison and a fine of $1 million.
Bill protecting Bitcoin mining rights passes in Arkansas Senate and House. According to the bill, the Arkansas Data Centers Act of 2023 intends to regulate the Bitcoin mining industry as data centers, creating guidelines for miners and protecting them from discriminatory regulations and taxes.
South Korea’s sweeping crypto bill passes first regulatory hurdles. Legislators in South Korea passed a first-phase review of proposed cryptocurrency regulations that include relatively harsh sentencing recommendations.
The Financial Services Agency (FSA) of Japan issued a warning to four overseas cryptocurrency exchanges for offering cryptocurrency trading without proper registration. The four exchanges – Bybit, MEXC, Bitget, and Bitforex – were alerted for violating the administrative guidelines set forth by the agency.
Bank of England hiring a team of 30 people for digital pound CBDC. The bank’s website careers page lists positions for a “Digital Pound Security Architect” and “Digital Pound Solutions Architect”. This is another example of how jurisdictions like the UK, the UAE or HK are moving forward strategically on the topic of digital assets.
Hong Kong’s Financial Secretary declares now is the ‘right time’ for Web3 adoption. In a blog post, financial chief Paul Chan said that despite recent volatility, now is the time to push forward Web3 technologies. He also mentioned that Web3 was identified as one of three focus areas to target in planning Hong Kong’s budget.
Coinbase takes legal action against the SEC. The exchange asked a federal court to order the SEC to provide “regulatory clarity” around how existing securities laws might apply to the digital asset sector. The SEC issued Coinbase a Wells Notice in April, and this filing could be viewed as a preemptive move by the company to argue that the SEC’s approach does not provide sufficient regulatory guidance.
Chinese banks are onboarding crypto companies in Hong Kong. The Wall Street Journal reported that the Hong Kong arm of Bank of Communications is collaborating with several cryptocurrency businesses registered in the city. Additionally, ZA Bank – Hong Kong’s largest virtual bank controlled by Chinese internet insurer ZhongAn Online P&C Insurance – will also act as the settlement bank.
Brazil’s Bitcoin Beach says Lightning Network works better than Visa. The two-year-old Praia Bitcoin project, which means Bitcoin Beach in Portuguese, set a world record for peer-to-peer transactions on the Lightning Network, Bitcoin Magazine reported in February. Participants were able to run 71 transactions in just three minutes and 33 seconds, making it the largest number of peer-to-peer Bitcoin transactions via Lightning to occur in the shortest time possible.
Bittrex plans to exit the U.S. market. Cryptocurrency exchange Bittrex has announced it will be winding down its operations in the United States due to a challenging regulatory and economic environment. The announcement was made on the platform’s ninth anniversary, marking a bittersweet moment for the company.
TradFi banks collaborate to create a digital bonds trading platform on blockchain, with a goal of being environmentally friendly. France’s Credit Agricole CIB and Sweden’s SEB are creating a platform to allow companies to raise capital by issuing digital bonds on a blockchain network, and users will be able to manage securities and raise capital through smart contracts.
Major Brazilian investment bank BTG Pactual plans to issue USD-pegged stablecoin. BTG Dol aims to help its customers interact between the traditional financial system and the digital economy. BTG Dol is based on Mynt, BTG Pactual’s proprietary crypto technology platform launched a year ago that allows users to invest in cryptocurrencies like BTC and ETH.
Arbitrum Foundation backtracked on its controversial governance proposal after a community revolt. Under the proposal, a “special grants” program would be funded by 750 million ARB tokens, worth nearly $1 billion, and would be under the Foundation’s control without input from ARB holders. Concerns were raised about the centralized control of the Foundation and the fast-tracked proposal, which bypassed full on-chain governance. The Foundation began selling 50M ARB tokens before the community ratified its budget, causing a massive drop in ARB’s price. Following the backlash, the Foundation split the AIP-1 package into separate votes, the “special grants” program was rebranded as the “Ecosystem Development Fund”, and it pledged more transparency and context on how the funds will be used.
Bitrue, a crypto exchange got hacked. Singapore-based crypto exchange Bitrue has been hit by a security breach, draining a hot wallet of $23 million in various assets. Bitrue reported that the affected hot wallet only held less than 5% of the exchange’s overall funds. In 2019, the exchange suffered an attack where around $5 million worth of Ripple (XRP) and Cardano (ADA) tokens were drained from Bitrue due to a vulnerability in their internal review processes, allowing attackers to gain access to customer accounts.
Sushi DEX approval contract exploited for $3.3 million. A smart contract on Sushi’s exchange services was exploited on 9 Apr, developers said in a tweet. The exploit specifically involves the “RouterProcessor2” contract, which is used to route trades on the SushiSwap exchange.
MetaMask launches new fiat purchase function for cryptocurrency. The new feature will allow users to purchase cryptocurrencies using various payment methods, such as debit or credit cards, PayPal, bank transfers, and instant ACH (Automated Clearing House).
Apple lets Uniswap’s wallet app out of ‘jail.’ Uniswap’s iOS wallet has gone live on Apple’s App Store after a long delay. In October 2022, Apple updated its app rules around digital assets, saying that apps could facilitate exchange transactions “provided they are offered only in countries or regions where the app has appropriate licensing and permissions to provide a cryptocurrency exchange.” Apple’s posture toward crypto has drawn criticism, especially in regards to the adoption of blockchain-centric gaming apps.
Apple has hidden a Bitcoin whitepaper on every Mac since 2018. This was discovered by a tech blogger who found it by accident. To find it, users can open the terminal and type the following command: open /System/Library/Image Capture/Devices/VirtualScanner.app/Contents/Resources/simpledoc.pdf
After the successful launch of the ARB token, the Foundation backtracked on a controversial proposal following an uproar from its community, raising the question of how decentralized are Decentralized Autonomous Organizations (DAOs)? An opinion piece from the Internet Policy Review sheds light on the fallacies of DAOs.
The Fed is rewiring the U.S. payment system via FedNow. Take a look inside FedNow and learn what does it mean for you.
The original King of Crypto is back! Arthur Hayes rubbed success in the Feds’ faces and got busted. Now he’s returning to a shell-shocked industry.
a16z releases new State of Crypto Index tool in 2023 report. The index aims to track the health of the crypto industry from a technological, rather than financial, perspective. It is constructed from the weighted average monthly growth of 14 industry metrics (e.g. number of verified smart contracts, number of transacting wallets, etc.). View their report here.
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