🔮 Weekly Attestations #12

Token Specific News

Don't Have To Be A Detective To See The Problem With Sherlock : DeFi Insurer Teeters After Reserves Fall 90%

• Sherlock, a platform that offers insurance for DeFi protocols, is in trouble after its reserves fell by 90% to $3m due to a big claim payout and an incorrect assessment of risk pricing. In March, Sherlock paid out $4.5m to Euler Finance, which had suffered a $200m loss after a code exploit. The payout left Sherlock with just $2.9m in reserves. With $16.5m worth of coverage to almost a dozen different protocols, a large claim from one could push the platform to a point where it can no longer honor its contracts. Despite the need for exploit coverage in DeFi, with hackers stealing more than $3.2bn from DeFi protocols last year, Sherlock's losses couldn't have come at a worse time. Sherlock's founders say the platform will not survive if depositors cannot be attracted. Investors have been burned by the platform, with one user reportedly losing 70% of their funds. Sherlock works similarly to traditional insurance companies, charging premiums to protocols for coverage against code exploits.

Source for both: DeFi Llama

ETH... Goodbye Shanghai, Hello... Cancun?

• Ethereum is preparing for three major upgrades, and each upgrade is set to solve an important issue with the Ethereum network. The first upgrade, EIP-4844 or the Cancun hard fork, aims to solve the scalability problem of the Ethereum network. It will do this by introducing "proto-danksharding" which will increase the space of Ethereum network by sharding it into different databases. Sharding is similar to adding more lanes to a congested highway, and it will allow the network to store more data and carry more transactions, reducing the costs of using rollups by an estimated 20 times. The second upgrade is Distributed Validator Technology (DVT), which allows a group of friends to collectively stake different amounts of ETH and run a node, reducing the financial barrier for individuals or small DAOs to participate as validators. DVT also makes node validation an overall more robust process. The third upgrade, lies with MEV. Ethereum's decentralization ethos is threatened by maximal-extractable-value (MEV) attacks. Block validators have been selling priority access to block building to arbitrage bots, leading to centralization on the Ethereum protocol layer. The proposer-builder separation (PBS) aims to create a division of labor between proposing a block and building it, thereby removing the ability of block validators to discriminate between individual transactions. However, PBS will not be ready until at least 2025. Third-party solutions like Flashbots' MEV-Boost have emerged to mitigate this problem by creating an open free market in block building.

Soure: Vitalik Twitter

Pretty Nifty NFT Use Cases - Music

• The music industry has undergone significant changes in recent years, from the way sound is recorded to how it is distributed and how artists earn money. Big Tech names such as Spotify, Apple, and Amazon have dominated the music streaming industry for a long time, but their relationship with musicians has been rocky leading to desire for a paradigm shift. Many independent and lesser-known artists struggle to make a living from streaming royalties alone, leading to the emergence of Web3 music projects that offer fans new forms of engagement beyond just listening to music. These projects use non-fungible tokens (NFTs) to offer exclusive benefits and experiences to fans; Mastercard has launched a free Music Pass NFT, offering holders exclusive tools and experiences with artists. Decentralized music community Audius has added NFT gating to its platform, allowing artists to give certain NFT collectors access to specific songs and mixes. Other Web3 projects, such as Spinamp and Sound Swap, allow users to convert music NFTs into audible files and sell music editions to support independent artists. Finally, Tuning In NFTs is a Web3 collective aimed at supporting upcoming and independent artists.

NFT No More

• The NFT market is in a slump, with metrics showing a decline in the number of daily active wallets engaging with NFTs. OpenSea, the most popular NFT marketplace, has seen a significant drop in daily users. The top collection on OpenSea, the Bored Ape Yacht Club, has also seen a massive drop in value from its all-time highs. The decline in NFT market metrics is a sign that things are changing in NFT land. In the past, NFTs were all about momentum and chasing the next shiny object, but now, companies like Starbucks, Reddit, and Nike are taking a different approach, focusing on low costs, wide access, and deeper relationships with customers. The decline in NFT market metrics is a signal that the NFT market is evolving, and companies need to adapt to stay relevant.

Source: Milk Road

Space and Time Adds Blockchain Data to Microsoft's Azure Marketplace

• Microsoft Azure Marketplace customers can now integrate Space and Time's blockchain data warehouse with their existing enterprise infrastructure through a new one-click deployment feature. Space and Time, which leverages the Chainlink price oracle platform to pull data from blockchain protocols, dapps, and off-chain systems, raised $20m in a strategic funding round led by Microsoft’s M12 fund last year. Its hybrid transactional and analytic data warehouse comes pre-loaded with real-time indexed blockchain data and allows users to feed verifiable data into AI models for training. The integration brings Microsoft's cloud computing service closer to becoming a go-to cloud platform for building Web3 projects.

"Ere. He says he's not dead!"..."Well, he will be soon. He's very ill" - Monty Python on the FTX Situation

• FTX has reportedly recovered $7.3 billion in assets lost during the attack. The exchange stated that it has restored over 90% of users' holdings and expects to recover the remaining amount in the coming weeks. Following the recovery of assets, FTX is reportedly considering restarting its operations in Q2 of 2023. The exchange had been shut down since the attack, which resulted in the theft of over $10 billion in cryptocurrency. In response, FTX established a $1 billion fund to compensate users affected by the hack. The recovery of assets marks a significant milestone for the exchange, which has been working to rebuild its reputation and restore users' trust.

Solana Now Measures Network Carbon Emissions Data in Real Time

• Solana has announced that it is now measuring data on its carbon emissions in real time. The network will monitor key environmental metrics, including its energy consumption, carbon footprint, and network power intensity. The move comes as environmental impact has long been a hot-button issue for blockchain networks, which can suck up huge amounts of energy to generate new cryptocurrency and facilitate on-chain transactions. The network will update a dedicated dashboard with statistics regularly. The emissions tracker, developed in collaboration with carbon data platform Trycarbonara, will gather statistics from on-chain data and data collected directly from a representative sample of Solana validators. The information is also intended to encourage other blockchain networks to disclose their carbon footprint.

Source: Solana Climate

Regulation

Bye Bye America

• Coinbase has announced that it has been g ranted a license from the Bermuda Monetary Authority (BMA) and plans to open a derivatives exchange there as early as next week. Coinbase is also in talks with the Financial Services Regulatory Authority (FRSA) of Abu Dhabi Global Market (ADGM) about the potential of opening a regulated exchange in the UAE's crypto-friendly economic zone. Furthermore, Coinbase CEO Brian Armstrong recently visited the UK, where he met with the Economic Secretary and City Minister, Andrew Griffith, and leading regulators such as the Bank of England and the Financial Conduct Authority (FCA). Armstrong mentioned to Griffith the issue of British banks blocking customers from paying crypto exchanges and called for "further education and collaboration". Armstrong has also criticised the US Securities and Exchange Commission (SEC) for its regulation-by-enforcement strategy and lack of transparency on what constitutes a security.

On A Voyage With Binance

• Voyager Digital Holdings has reportedly reached an agreement with the US federal government to proceed with a $1 billion plan to sell its assets to Binance.US. The approval comes three weeks after the US District Court for the Southern District of New York temporarily halted a previously reached agreement that would see Binance.US pay $20 million in cash to Voyager, and take on crypto assets deposited by the firm's customers. Voyager filed for bankruptcy last July and has been actively working on a plan to redistribute funds to its investors since then. The SEC has launched an investigation into whether Voyager violated federal securities laws, and the FTC has alleged that the deal would unlawfully shield Voyager from accountability for "actual fraud, willful misconduct, or gross negligence."

Grilling Gary

• Republicans in the US House of Representatives grilled Securities and Exchange Commission Chair Gary Gensler on whether ether is a security, stablecoin regulations and the agency's handling of FTX. Gensler faced criticism from the outset of the hearing when the committee's chairman questioned him about whether ether is a security. Gensler responded with previous statements about the amount of digital asset projects and tokens in violation of securities law. The status of ether remains uncertain, and Gensler has implied that ether, and any other proof-of-stake cryptocurrency, could be considered a security, seeming to disagree with those past views of senior commission officials on the world’s second-largest digital asset.

MiCA Will Mark End of Crypto 'Wild West': EU Lawmakers

• The European Union's Markets in Crypto Assets (MiCA) is expected to be voted on by the European Parliament, marking a milestone in the proposal's passage into law. The comprehensive regulatory framework aims to end the "wild west" era of the cryptocurrency industry and restore trust, following the high-profile collapses of last year. The legislation requires companies to disclose conflicts of interest and not use client funds, and will put the EU "at the forefront of the token economy". While there was some dissent, with objections raised about the need for total financial surveillance, many MEPs emphasised the need to keep the regulation relevant and avoid falling behind technological developments.
• Update: Lawmakers in the European Union have voted in favor of a new crypto licensing regime known as MiCA, with 517 votes in favor, making it the first major jurisdiction to introduce a comprehensive crypto law. They also voted in favor of the Transfer of Funds regulation which requires crypto operators to identify their customers in order to halt money laundering. Lawmakers supported the plans to make crypto wallet providers and exchanges seek a license to operate across the bloc and require stablecoin issuers to maintain sufficient reserves.

U.S. House Committee Publishes Draft Stablecoin Bill

• The US House Financial Services Committee has released a draft of a stablecoin bill, which includes provisions for a moratorium on stablecoins backed by cryptocurrencies and a call for research into central bank digital currencies (CBDCs). The legislation, which can be found on the committee's hearing page, is the first significant crypto legislation in 2023 and was prompted by the problems faced by stablecoins such as terraUSD (UST) and USD coin (USDC) over the past year. Some highlights of what the bill would do if it becomes law: (a) Put the Federal Reserve in charge of nonbank stablecoins, which means banks and credit unions would look to their respective financial regulators, (b) A (temporary) ban on new stablecoins without fiat backing, and (c) Direct the Fed to study a digital dollar.

SEC Warned Bittrex of Legal Action Before Firm Announced U.S. Exit

• The US Securities and Exchange Commission's enforcement staff has informed Bittrex, a crypto exchange, that it may recommend legal action over alleged violations of investor-protection laws. Bittrex announced its exit from the US market in March, citing challenging regulatory conditions, but it is uncertain whether the SEC will still take legal action. Bittrex's general counsel has said that the firm would litigate unless the SEC offered a reasonable settlement. Other prominent crypto firms, including Kraken, have recently faced SEC enforcement action. "The SEC has initiated these proceedings despite the fact that Bittrex Global has no U.S. customers, has never held itself out as doing business in the U.S. or with U.S. persons, and has taken pains to disclose to U.S. persons that they are not permitted to use its exchange." - Gensler

The Week in Charts

Crypto’s Correlation to Stocks Has Fallen Sharply, Reverting to Its Historical Mean

Source: CoinGecko, Yahoo Finance

Activity on Layer 2s Has Co Ethereum L1, a Positive Sign for Ethereum’s Long-Term Growth

Source: L2Beat

Ethereum staking continued its steady rise in spite of worries of significant withdrawals post-Shapella Upgrade April 12

The Week in 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 Earnings (Market Cap > $50M)

Source: Token Terminal

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

Source: Token Terminal

Other Domestic Regulation Updates

• The SEC Protects the System, Not You
• Shaquille O’Neal is served in a class-action lawsuit against FTX's founder
• SEC Granted Access to Singapore Records for Terra's Do Kwon

Other International Regulation Updates

• EU Lawmakers Call for 'Human-centric, Safe and Trustworthy' AI Development
• Australians Lost $148M in Crypto to Scammers in 2022
• Stablecoins Offer ‘Efficiency and Functionality’ in Payments, Says Bank of England
• UK ‘Moving Fast’ on Crypto Regulations, Says Coinbase CEO
• Hong Kong’s Largest Digital Bank to Service Crypto Exchanges
• UAE Securities Regulator Launches Mandatory Licensing Regime
• Dutch Court Agrees to Free Tornado Cash Dev Alex Pertsev Pending Trial

Pain & Gain

Pain

• Solana Saga, an Android Phone With a Crypto Twist
• SushiSwap Pays $200K Bounty to Recover $600K Stolen by Hackers
• Kaspersky: Crypto Phishing Attacks Rose 40% to Over 5MM in 2022

Gain

• $598M in Ethereum Still Waiting on Updated Withdrawal Credentials: Nansen
• Roblox Adds Rare, Resellable Digital Items—But They’re Not NFTs
• Crypto SMAs Are In, Wall Street Mutual Funds Are Out
• Uniswap Wallet Goes Live on iOS After Apple App Store Challenges
• Twitter Partners With eToro To Offer Stock, Crypto Trading