🔮 Weekly Attestations #10

Ladies and gentlemen, the moment you’ve been glued to your computer and refreshing your email in anticipation for since last Tuesday has finally arrived! If that doesn’t make your ears perk up like learning Apple included Bitcoin's whitepaper in every version of macOS since 2018 or that Thailand’s Opposition Party Is Promising $300 Crypto Airdrop if Elected Prime Minister, we're not sure what will. But first, a thank you from the MJL team is in order as we arrive at our 10th publicly released Weekly Attestations milestone. Our team greatly appreciates all of the support along the way and wholeheartedly enjoys putting together our research and insights for all of our readers.

Now down to business.

Token Specific News

Inside the Arbitrum Ecosystem Boom

• The Arbitrum ecosystem has experienced explosive growth since its launch in August 2021. Arbitrum's daily transaction volume now rivals that of Ethereum itself, and its users have created a thriving ecosystem of DeFi applications, gaming platforms, and NFT marketplaces. However, there are also concerns about the centralization of Arbitrum's governance and the potential for regulatory scrutiny. See similar: The popular Layer 2 blockchain launched its governance proposal (AIP-1) over the weekend, which included the allocation of 750 million ARB tokens going to the foundation for special grants and operational costs. However, 83% of ARB holders voted against the proposal due to the controversy surrounding the token allocation, causing the ARB token to drop 12% within 24 hours. The controversy also arose because the Arbitrum Foundation admitted to transferring 50 million ARB tokens out. This failure to execute the proposal properly led to the belief that the new governance of Arbitrum had already failed. Arbitrum has apologized and plans to release new proposals, including a proposal to vote on the 750 million ARB tokens.

The Rise of Ethereum-Centric Rollup Ecosystems

• The Ethereum ecosystem is evolving to become more scalable, secure and sustainable with the rise of Layer 2 scaling solutions, particularly rollups. Layer 2 rollups allow for more transaction throughput while maintaining the security of the main chain. There are two main types of Layer 2s: Optimistic and zk-Rollups, with Optimistic rollups being the crowd favorite so far. However, the launch of zkEVMs could change this as they make launching apps and getting users onto zk-Rollups easier. These rollups are particularly suited for use cases where large numbers of transactions are required, such as in decentralized finance protocols. As the demand for DeFi continues to grow, the need for these solutions is becoming increasingly important. Ethereum-centric rollup ecosystems such as Arbitrum, Optimism, and zkSync are leading the way in this new era of Ethereum scaling, attracting significant interest from developers and investors alike. While there is still much to be done to ensure these solutions are widely adopted, the growth of rollup ecosystems is a promising development for the future of Ethereum.

Sushi goes through the ringer

• Sushiswap, a decentralized exchange (DEX), suffered an attack by an unknown hacker who exploited a vulnerability in the exchange's code to steal around $19.5 million worth of assets. The attacker targeted a specific smart contract, which had not yet been upgraded to mitigate against the vulnerability exploited. The attack highlights the risks associated with decentralized finance (DeFi) and the importance of continuous auditing and upgrading of smart contracts to prevent vulnerabilities. Sushiswap's team is working to mitigate the damage and recover the lost funds, while also urging other DeFi projects to learn from the incident and ensure their own smart contracts are secure. This is not the first time Sushiswap has suffered a security breach, having previously suffered an exploit in September 2020 that led to a loss of $10 million worth of assets.

Up and to the DEX

• Decentralized exchanges (DEXs) are growing in popularity and trading volume across all DEXs has surged more than 167% since December, reaching $131.2B last month. Uniswap has had its best month since January 2022, with $71.6B in trading volume. It is the second month in a row that Uniswap has seen more volume than Coinbase. Investors are becoming wary of regulators coming after centralized exchanges (CEXs) and DEXs have become more appealing due to their decentralized nature. DEXs use smart contracts to execute trades automatically between users, and there are no intermediaries, which leads to fewer costs and cheaper trading fees. Additionally, users get to hold their own crypto. Most notably, DEXs do not handle fiat currencies and are not on/off-ramps for the industry, which has kept regulators at bay for the time being. The growing popularity of DEXs can be attributed to their decentralization, cost-effectiveness, and relative safety from regulatory scrutiny. See more: Following the introduction of its Liquidity Book (LB), a concentrated liquidity model that rivals Uniswap V3, Trader Joe has experienced the most rapid growth among DEXs over the last 180 days. The forthcoming Joe V2.1 will offer additional features to enhance the LB, including Auto-Pools, limit orders, Permissionless Pools, and gas fees that are optimized.

Who Should Profit From a Protocol’s Economic Activity?

• The recent rise of MEV (Miner Extractable Value) has sparked a debate about who should profit from it. MEV refers to the amount of value that can be extracted from the manipulation of transactions on a blockchain, including front-running, back-running, and sandwich attacks. These activities have become increasingly lucrative, with some estimates suggesting that MEV profits could surpass mining rewards by 2025. However, the question of who should benefit from MEV profits is complex. Some argue that miners should be compensated for their efforts in discovering and executing MEV opportunities. Others suggest that MEV profits should be distributed among all stakeholders in the network, including users and developers, to encourage greater participation and innovation. Ultimately, the issue of MEV highlights the need for more transparent and equitable distribution mechanisms in the blockchain ecosystem.

Ethereum Validator Goes Rogue, Frontruns MEV Bots for $25M

• A rogue validator used a maximum extractable value (MEV) tool to carry out a "sandwich attack" on Ethereum validators, resulting in the theft of $25 million. MEV bots find additional revenue by exploiting knowledge of which transactions are about to be processed, most commonly via arbitrage. Flashbots prevent these kinds of events with tools known as MEV boost relays, which ensure MEV transactions are not revealed in the public mempool, so MEV hunters can't frontrun each other. The incident was first identified by a pseudonymous Twitter user, and Flashbot developers have rolled out a patch to address the vulnerability.

Liquid staking with a side of Lido

• Steakhouse has suggested that Lido DAO adopt an objective-based liquidity design instead of LDO incentives for stETH to enhance on-chain liquidity and sustainability. The analysis found that cutting incentives would not significantly affect daily exchange rates, and most LDO recipients sold their tokens immediately, while large holders were uninvolved in governance. Lido DAO must reevaluate its liquidity management and incentives and establish goals-based approaches while expanding into new domains. Governor Note, the developers of the stETH token, has released an article outlining their plan for an objective-based liquidity design that aims to decrease impermanent loss for liquidity providers. The Governor Note team plans to implement the new design in the coming weeks.

Regulation

Uncle Sam Sells Bitcoin (IroNiCaLlY)

• The US Department of Justice (DOJ) has sold 9,861 Bitcoin for $215m and plans to sell another 41,500 BTC in four more batches over the year, all of which were seized after the Silk Road shutdown. Some observers believe that the 50,000 BTC hitting the market could bring down the price of Bitcoin, but it is unlikely to have a significant impact on the market. Yes, the irony is not lost on us that One week, the U.S. government sells $200M+ on Coinbase... and the next week, the U.S. government says "crypto has no value" and sends Coinbase a Wells Notice for breaking the law.

Treasury Releases 2023 DeFi Illicit Finance Risk Assessment

• A report titled " Illicit Finance Risk Assessment of Decentralized Finance" was issued by the US Treasury to examine the potential risks associated with the use of decentralized finance protocols for illicit activities. This report is the first of its kind and suggests several measures to improve the anti-money laundering abilities of the industry.

Swiss Government-Owned Bank PostFinance to Offer Customers Crypto

• Swiss government-owned bank PostFinance has announced that it will start offering its customers access to cryptocurrency trading and custody services. The bank said that it will initially offer trading in bitcoin, ether, and litecoin, with more cryptocurrencies to be added in the future. The move follows approval from the Swiss Financial Market Supervisory Authority (FINMA) for PostFinance to offer the service. PostFinance stated that its decision to offer cryptocurrency services is in response to increased demand from its customers, particularly younger clients. The bank added that it will provide a secure and regulated environment for its customers to buy, sell, and hold cryptocurrencies. PostFinance is the latest traditional financial institution to offer cryptocurrency services, following in the footsteps of banks such as JPMorgan, Goldman Sachs, and Deutsche Bank.

Binance Opens Argentina Fiat On-ramps as Inflation Hits 100%

• Binance has announced the launch of a new fiat on-ramp for Argentine pesos (ARS) on its global exchange platform. According to the announcement, users in Argentina can now use their credit or debit cards to buy cryptocurrencies directly on Binance with ARS. The fiat on-ramp service is facilitated by a partnership between Binance and Settle Network, a Latin American fiat-to-crypto gateway provider. Binance is one of the largest cryptocurrency exchanges in the world, with a reported trading volume of over $5 billion in the past 24 hours. This move is part of Binance's continued expansion into the Latin American market, where it has been establishing strategic partnerships with local players to expand its services.

A judgement of doubt? Binance and Voyager

• A New York judge stated that the U.S. government has a strong argument to prevent Binance.US from acquiring the assets of Voyager Digital, a bankrupt crypto lender, in a $1 billion deal. The judge aims to quickly resolve the dispute to avoid costly delays for the estate, which could amount to $10 million per month. Previously, a U.S. Bankruptcy Judge had approved the sale, but objections from the U.S. attorney caused the process to be put on hold while Judge Rearden considered the matter. The U.S. government believes that the contract gives Voyager immunity from violations of securities or tax laws. See similar: Binance’s market share drops 16 percentage points in two weeks

Japan Regulator Flags 4 Crypto Exchanges Including Bybit for Operating Without Registration

• Japan's Financial Services Agency has issued a warning to four foreign crypto exchanges - Bybit, BitForex, MEXC Global, and Bitget - for operating without proper registration in the country, violating Japan's fund settlement laws. The FSA clarified that the list of unregistered traders doesn't necessarily indicate the current state of unregistered business. Although Japan is working on new regulations for the crypto and Web3 sectors, it hasn't taken as strict an approach as other larger economies like the US. Bybit was previously issued a warning letter by the FSA for operating without permission in 2021. Bitget has said it will contact the FSA for more information.

Crypto Exchange Beaxy Shut Down After SEC Lawsuit

• Crypto exchange Beaxy has been shut down following a lawsuit filed against the platform by the US Securities and Exchange Commission (SEC). The complaint, filed in a federal court in Illinois, accused Beaxy of selling securities without registering with the agency. The SEC's complaint also accused Beaxy of taking possession and control of assets being traded, which exposed investors to undisclosed risks of asset loss, among other charges. The regulator has requested disgorgement and fines as penalties. The case could be a playbook for the SEC's lawsuit against Coinbase. According to the complaint, Beaxy raised $43 million through an unregistered initial coin offering (ICO) in 2018. The exchange also allegedly promoted its token as an investment that would appreciate in value. Beaxy has agreed to the SEC's demands and will pay a $50 million fine. The SEC's action against Beaxy follows a series of crackdowns by regulators on cryptocurrency companies. In recent months, regulators have investigated and sued several cryptocurrency firms, including Coinbase, Kraken, and Binance, over alleged regulatory violations. The SEC's move is part of a broader effort by US regulators to clamp down on unregistered offerings and increase investor protection in the crypto space.

The Week in Charts

Shapella Upgrade in Charts

The Shanghai/Capella hard fork, expected to happen today (April 12, 2023), will allow ETH funds staked for Ethereum's Proof-of-Stake consensus mechanism to be withdrawn. Stakers who have been active since November 2020 have yet to access their staked ETH and accumulated rewards. However, concerns have been raised regarding the potential market and supply impacts as approximately 18M ETH ($33.92B, 15% of ETH's total circulating supply) becomes unlocked, with fears that it may create significant sell-side pressure for ETH.

Most of the unlocked staking rewards are expected to go towards liquid staking providers, who are unlikely to sell due to being underwater. Only a small number of depositors are waiting to exit their stake, and they are most likely doing so due to technical reasons rather than exiting their position. Even in the extreme case of an exodus of validators, Ethereum's design will limit the amount of stake that can be drained at once, resulting in a stretched-out economic impact. The impact on the Ethereum economy is expected to be less dramatic than many have predicted, and the upgrade may actually benefit the growing staking industry in the long term.

Direction Delivered to Waiting Investors

After a 26-day struggle, crypto has finally surpassed the $1.15 trillion mark on the global market cap index. This breakthrough (second circle) could mirror the period of April-May 2019 (first circle), during which crypto attempted to surpass the 180B milestone for 35 days before eventually gaining 100% within 49 days.

Hong Kong Finance Chief Paul Chan's Web3 Nod Potential Catalyst for Crypto Price Surge

A potential driver of recent surges in cryptoasset prices came when Hong Kong Finance chief, Paul Chan's declared on Monday that now is the 'right time' for Web3 adoption. “In order for Web3 to steadily take the road of innovative development, we will adopt a strategy that emphasizes both ‘proper regulation’ and ‘promoting development,’” said Chan. The news from Hong Kong could be the counter signal to the largely negative stance that US regulators have taken towards crypto in recent months.

Increased Liquidity Enabling Price

Despite the Fed's QT (Quantitative Tightening) efforts, the repo market and TGA (Treasury General Account) have been exceeding their pace. As a result, higher liquidity has futher catalyzed recent price moves.

Combatting the Federal Debt Crisis

Tax-rate legislation will undoubtedly be central to ongoing discussions leading up to the debit limit deadline (as early as June 2023). When looking at Federal tax revenue over a 50-year period, independent of the top marginal tax rate, the amount of Federal receipts that the governmant's able to collect is roughly 20% of GDP. Regardless of whatever changes may come to existing tax-rates to combat the burgenoing US debt, the remaining ~80% must come from other elsewhere, whether it be innovation or austerity measures.

Weekly Trends

Sector Performance Breakdown (7d trend)

Source: Messari

Top 7d Gainers/Losers (Market Cap >$100M)

Source: Messari

Trending 7d Protocol Fees (Market Cap > $50M)

Source: Token Terminal

Trending 7d Protocol Revenue (Market Cap >$50M)

Source: Token Terminal

Trending 7d Protocol Earnings (Market Cap > $50M)

Source: Token Terminal

Trending 7d Daily Active Users (Daily Active Users > 1,000)

Source: Token Terminal

Other Domestic Regulation Updates

• Binance's BNB, Bitcoin Tumble After Crypto Twitter Personality Cobie's Wild Guess
• Tokenized Gold Tops $1 Billion Market Cap Amid Banking Crisis Concerns
• Winklevoss twins infuse Gemini with $100M personal loan
• No Matter What Happens With the SEC, Ripple Has Already Won — Blockworks
• ‘Hubris’, Hot Wallets and Missing Millions: FTX’s New Bankruptcy Report

Other International Regulation Updates

• FTX Vietnam Readies to Pay Back Users — Once Courts Figure How Much
• Crypto Startups Find UK Banks Won’t Give Them Accounts
• The Australian Securities and Investments Commission has cancelled Binance Australia's derivatives license
• Japanese Political Faction Signals Potential Thaw in Crypto Winter
• North Korea's ‘Malicious Cyber Activities’ Deeply Concerning, Say US, Japan, South Korea: Report
• Binance Providing ‘Requested Assistance’ in South Korea’s Do Kwon Case
• Head of Thailand’s Opposition Party Promises $300 Crypto Airdrop if Elected Prime Minister

Pain & Gain

Pain

• Institutional Interest in Crypto ETFs Cooled but Not Gone, Survey Says
• Number of Crypto Hacks, Scams Jumped 192% Year-Over-Year, Reports Immunefi
• Q1 Crypto Attacks Up, Money Lost Is Down
• US Crypto Trading Volume Down 80% Since Mid-March
• FTX Arena Is Now Kaseya Center: Where Crypto Sports Sponsorships Are Headed

Gain

• Apple's Hidden Bitcoin White Paper the Latest in a Long List of Easter Eggs
• MetaMask Launches New Fiat Purchase Function for Cryptocurrency
• MicroStrategy Adds to Massive bitcoin Bet, Takes Total to 140,000 BTC
• 7 Real-World NFT Use Cases That Should Be on Your Radar
• Dogecoin surges 35% as Twitter switches to Shiba Inu logo
• Meta Launches AI Tool That Can Identify, Separate Items in Pictures
• Blockchain messaging protocol LayerZero raises $120M, hitting $3B valuation
• NFT DEX Helmed by Coinbase Alum Goes Live
• Unreleased David Bowie Recording to Debut as Music NFT
• NFT Airline Tickets Are Beginning to Take Off
• Bribing Hackers Seems to Work: 3 Hacks Returned in 3 Months