🔮The Year of the BTC ETF, Polygon and Ethereum Updates, Chainlink POR

First and foremost, read check out our latest Thematic Research piece; From Sabotage to Mastery: Investing Beyond the Hype Cycle

Token Specific News

Digital Assets Are Booming

In the past two weeks, the DeFi market cap has surged by 14%, rising from approximately $41.5 billion to around $48 billion. The increase can be attributed to the troubles faced by centralized finance companies. Lawsuits against Coinbase and Binance (U.S.) and the closure of other platforms have created a challenging environment for centralized finance. However, this has presented an opportunity for decentralized finance, resulting in various gains such as increased users, higher trading volumes, and rising prices of DeFi tokens. Notable winners in this period include Uniswap (UNI) with a 21% increase, Aave (AAVE) with a 26% increase, and Conflux (CFX) with a 30% increase. Overall, DeFi tokens have experienced significant growth, riding the wave of success in the market.

Source: Coingecko

Ethereum Roadmap

Ethscriptions, a new method for creating NFTs on Ethereum, have emerged as a result of the protocol that brought NFTs to Bitcoin. By utilizing "calldata" instead of smart contracts, Ethscriptions offer a cheaper and more decentralized approach to minting NFTs. The protocol witnessed an impressive start, with 30,000 Ethscriptions created within the first 18 hours. In a separate development, Ethereum developers are considering increasing the maximum stake for ETH validators from 32 ETH to 2,048 ETH. While this move aims to improve network efficiency by reducing the number of validators, critics express concerns about potential centralization. Moreover, discussions are underway regarding compounding validator rewards to enable validators to earn higher interest. The upcoming Cancun (or Dencun) Upgrade introduces a prototype for danksharding, which splits the Ethereum blockchain into multiple shard chains. This upgrade aims to alleviate congestion and lower transaction costs, providing significant benefits to rollups like Layer 2 solutions. The implementation of the upgrade is expected to take place sometime this year.

Polygon Wants to Upgrade PoS Chain to zkEVM Validium

Polygon Labs has proposed upgrading its proof-of-stake (PoS) chain to a zkEVM validium, following the recent launch of Polygon 2.0. This upgrade aims to enhance the security and performance of the network. The integration of zero-knowledge proofs into the infrastructure is seen as a crucial step towards capturing the "value layer" of the internet. The proposed upgrade addresses issues faced by the PoS chain, including fast block times that impact gas estimation efficiency and cause processing delays. The validium upgrade would solve these problems and eliminate chain reorganizations. It suggests replacing the current probabilistic consensus method with a decentralized validator/sequencer sets for deterministic, single-block finality. Polygon Labs describes validium as a lower-cost, higher-throughput sibling of a rollup. While data availability remains outside of Ethereum, Polygon leverages its existing decentralized validator set from PoS chain staking. The proposal aims to ensure operational applications and low fees. If community consensus is achieved, the validium upgrade could be implemented by Q1 2024, according to Polygon Labs.

Source: Dune

Chainlink Proof of Reserve (PoR): Bringing Transparency to the Forefront

Chainlink Proof of Reserve (PoR) is a blockchain-agnostic solution that enhances transparency and security for crypto assets. It uses a decentralized oracle network to provide on-chain data feeds, updating them in near real-time. This is especially useful for DeFi protocols that rely on off-chain or wrapped assets as collateral. Chainlink PoR helps reduce the risks of under-collateralization by triggering circuit breaker mechanisms. Currently, it monitors around $8.5 billion worth of assets, including both on-chain and off-chain reserves. The integration of Chainlink PoR data feeds led to a significant 121% increase in the market cap of TrueUSD (TUSD) within a month, highlighting the positive impact of transparency on user confidence. This solution benefits various stakeholders, allowing application users to verify reserves, asset issuers to provide on-chain guarantees, bridges and wrapped assets to implement fail-safes, DeFi protocols to enhance security, and liquid staking token issuers to ensure consistent backing. By adopting Chainlink PoR, projects can improve transparency, security, and protocol reliability, while also mitigating losses from bridge exploits through faster detection and response times.

Source: Messari

Weekly Inflows to Crypto Investment Products Hit $199M, Largest Since July 2022

According to CoinShares' weekly fund report, crypto-based investment products received their highest weekly inflows since July 2022, totaling $199 million. Bitcoin led the way with $187 million in inflows, and the total assets under management in crypto investment products reached a yearly high of over $37 billion. ETC Issuance GmbH's BTCE and ProShares' BITO had significant inflows of $77.3 million and $60.4 million, respectively. The positive sentiment is attributed to the surge in spot Bitcoin ETF applications, starting with BlackRock's application. Ethereum investment products had lower inflows compared to Bitcoin, indicating a relatively lesser interest in Ethereum at present, while altcoins like XRP and Solana saw minimal inflows during this period.

Regulation

Charlie Schwab Backs an Exchance

EDX Markets, a new crypto exchange backed by Citadel Securities, Fidelity Investments, and Charles Schwab, has launched. The exchange will facilitate trading in popular cryptocurrencies such as bitcoin, ether, litecoin, and bitcoin cash. Notably, EDX operates as a "non-custodial" exchange, meaning it does not directly handle customers' digital assets. Instead, it employs third-party banks and a crypto custodian to securely hold customer assets, addressing security concerns. Although it will not directly serve individual investors, EDX anticipates that retail brokerages will route investors' orders through its platform.

Nevada Forces Crypto Custodian Prime Trust to Shut Down

Nevada regulators are seeking to shut down cryptocurrency custodian Prime Trust, as they have determined that the company is in significant financial distress and unable to serve its customers. The regulators have filed a request to freeze all business activities of Prime Trust and appoint a receiver to manage the company. The filing states that Prime Trust accumulated substantial debt, with allegations that it used customer funds to purchase digital assets to meet withdrawal demands. The company owes more than $85 million in fiat currency and $69.5 million in cryptocurrencies, while having only limited funds available. The Financial Institutions Division (FID) of Nevada considers Prime Trust to be in an unsafe financial condition and/or insolvent, and expects the situation to worsen as more customers withdraw their funds. This development comes after Prime Trust's subsidiary, Banq, filed for bankruptcy, and BitGo withdrew from acquisition talks with Prime Trust.

FED Up With Stablecoins

Federal Reserve Chair Jerome Powell testified before the House Financial Services Committee, stating that payment stablecoins should be considered as money and advocating for the central bank to have a regulatory role in their issuance within the United States. However, a Republican-led bill proposing stablecoin regulation, which includes state approval and preemption for stablecoin issuers, faced skepticism from Powell and Representative Maxine Waters, the top Democrat on the committee. Waters criticized the bill for granting extensive state preemption, allowing stablecoins approved in one state to be sold nationwide without the approval of other state regulators. House Financial Services Committee Chair Patrick McHenry expects a vote on the stablecoin bill, along with a digital assets market structure bill, to take place in the second week of July. See similar: MakerDAO now holds $1.2 billion worth of U.S. Treasury bonds after closing a recent $700 million transaction.

JP Morgan Activates Euro Payment Settlement With Its JPM Coin

JP Morgan has conducted its first blockchain transaction using its JPM Coin for corporate clients in Europe. The transaction involved Siemens AG, a German conglomerate, settling a Euro-denominated payment on JP Morgan's permissioned blockchain. The JPM Coin is exclusively available to institutional clients for payment settlements. The use of blockchain technology enables faster and secure settlement processes for traditional financial companies. JP Morgan's Coin Services division, launched in 2019, facilitates 24/7 transfers between client accounts using the blockchain. The JPM Coin has processed around $300 billion in transactions over the past four years, with JP Morgan handling approximately $9.8 trillion in daily payments. Additionally, other companies like SAP have started exploring the use of cryptocurrencies, such as Circle's US Dollar Coin (USDC), for cross-border payments, aiming to improve efficiency for SMEs.

Score One For Coinbase

Coinbase has secured a victory at the U.S. Supreme Court in a case unrelated to its ongoing regulatory dispute. The case, brought forward by Abraham Bielski as a class action suit, accused Coinbase of failing to reimburse users' funds that were fraudulently taken. In a 5-4 vote, the court ruled in favor of Coinbase, bolstering its ability to resolve customer disputes through arbitration. Coinbase's Chief Legal Officer, Paul Grewal, expressed gratitude for the court's review and praised the American court system. However, Justice Ketanji Brown Jackson dissented, emphasizing the significant implications of the decision on federal litigation. This triumph comes amid Coinbase's legal battle with the SEC, which sued the company earlier this month for alleged violations of securities laws.

BlackRock Bitcoin ETF Prospects Boost Institutional Investor Sentiment

While correlation doesn't equal causation, it appears the bearish trend of outflows from crypto investment products has slowed down in part due to BlackRock's Bitcoin ETF application. Although investors still withdrew $5.1 million from digital asset funds last week, it is significantly less compared to the $88 million withdrawn the previous week amidst SEC lawsuits against Coinbase and Binance. In total, investors have pulled out $423 million from funds over the past nine weeks. CoinShares attributes the reduced outflows to the news of BlackRock's Bitcoin ETP, which resulted in $5 million in inflows. The majority of weekly inflows came through Grayscale, with Ethereum-based products experiencing the most outflows. While the regulatory environment and Federal Reserve's hawkish statements have impacted the industry, U.S. investors made $3.7 million worth of deposits, followed by inflows from Germany. However, investors in Sweden and Switzerland continued to withdraw funds. The report also highlights that Hong Kong has not seen significant inflows amidst the regulatory climate for cryptocurrencies. See more: The first leveraged bitcoin ETF in the U.S. saw $5.5 million in trading volume on its first day. See similar: WisdomTree, Invesco and BlackRock are now all gunning for a Bitcoin ETF. See similar: BlackRock, then Bitwise — How the spot bitcoin ETF filings differ. See similar: Grayscale Bitcoin Trust Gets a Bullish Bump After BlackRock ETF Filing

Other Domestic Regulation Updates

• Getting a crypto bill through Congress is only the first hurdle, policy expert says
• Rep. Waters wants Treasury, SEC input on Republican crypto bill
• Fed Chair Powell Says Bitcoin Has 'Staying Power' as an Asset Class
• TradFi participation, clear rules crucial for crypto adoption: Laser Digital CEO
• U.S. CFTC Wins Precedent Setting Lawsuit Against Ooki DAO
• Binance, SEC Reach Agreement to Avert Shutdown of Binance.US
• New York Bans CoinEx Exchange, Seized $1.7 MM in Crypto

Other International Regulation Updates

• EU Reaches Agreement on Crypto Asset Regulations in Banking
• Deutsche Bank Applies for Digital Asset Custody License in Germany: Report
• Singapore teams up with Korea, Italy and IMF on CBDC operating models
• Crypto Regulation Bill Nearing Final Stages in UK
• Blockchain Security Firm CertiK Found an Infinite Loop Bug in Sui Network
• Hong Kong can draw on Japan, Singapore’s lead for its crypto efforts, says government study
• Hong Kong Monetary Authority Urges Banks to Serve Licensed Crypto Firms
• Do Kwon Sentenced to 4 Months Jail in Montenegro Document Forgery Case

Pain & Gain

Pain

• Binance Under Investigation In France; Quits Netherlands After Failed License Application
• Marvel's 'Secret Invasion' Show Uses Generative AI—And Fans and Creators Are Livid
• Circle was SVB’s biggest client
• It Will Get Harder to Detect Deepfakes: Secta Labs CEO

Gain

• Salesforce Leads $6MM Round for AI Web3 Data Platform
• FTX debtors recover $7B, say investigation has been ‘extraordinarily challenging’
• Gemini Announces Plans to Expand APAC Operations
• MakerDAO snaps up more US Treasury bonds
• DeFi Credit Protocol Concordia Raises $4MM Seed Round