🔮 The Battle for Privacy, Mining Heats Up, NFT Crackdown, ETH Goes Inflationary CFTC Goes After DeFi

Token Specific News

Pushing For Privacy

Ethereum co-founder Vitalik Buterin and Ameen Soleimani have co-authored a research paper introducing a protocol called "Privacy Pools," which aims to balance user anonymity with regulatory compliance in blockchain transactions. Privacy Pools enhances the design of mixers like Tornado Cash, allowing users to maintain privacy while proving that their funds come from legitimate sources, avoiding subsets with known illicit deposits. The protocol operates similarly to Tornado Cash but enables users to generate zero-knowledge proofs when withdrawing funds to confirm they are not using a criminal blockchain address while preserving their privacy. This research aims to create privacy-enhancing infrastructure suitable for regulated environments, addressing concerns about regulatory compliance in blockchain transactions.

Source: Messari

The Crypto Circus of Collateral Carnage

The cryptocurrency space is witnessing a notable trend: a growing number of investors are using Bitcoin as collateral for margin trading in futures contracts, with this practice surging from 20% to 33% since July. This signifies investors' desire to leverage their Bitcoin holdings to bolster additional cryptocurrency investments, favored by aggressive traders. However, analysts express concerns for two main reasons. Firstly, it underscores crypto's liquidity challenge, indicating a scarcity of available cash. Secondly, using BTC as collateral introduces heightened market volatility and liquidation risks; a significant BTC value decline may trigger cascading sell-offs and price drops, termed the "double whammy" by Blockware Intelligence. Once liquidations start, predicting their end becomes challenging, potentially leading to rapid price crashes. In conclusion, closely monitoring this emerging trend of Bitcoin as margin collateral is crucial due to its potential influence on market dynamics and price stability.

Source: Glassnode

Mining Cools Down As Texas Heats Up

In August 2023, Marathon Digital Holdings, a publicly traded Bitcoin mining company, reported a 9% decrease in Bitcoin production due to temporary shutdowns of mining operations in Texas caused by extreme heat. They produced 1,072 Bitcoins during the month, with the decline attributed to "increased curtailment activity" due to record high temperatures. Despite the monthly drop, Marathon saw substantial year-over-year growth, with daily production surging by 477% from August 2022 to reach 34.3 BTC in August 2023. They also increased their U.S. operational hash rate by 2%, reaching 19.1 EH/s, and are awaiting the completion of a new facility in Garden City, Texas. Marathon's joint venture in Abu Dhabi contributed 50 Bitcoins, with plans to scale up production. As of August 31, 2023, they held 13,286 BTC and $111.2 million in cash and cash equivalents, marking a significant increase from the previous year. See more: Riot compensated $30 million to shut off Texas bitcoin miners in August.

Source: Mara

MakerDAO Thinks Of Verticalizing

MakerDAO, a prominent decentralized finance (DeFi) protocol on the Ethereum blockchain, is exploring the possibility of moving to its own dedicated blockchain rather than staying within Ethereum's ecosystem or utilizing a layer-2 solution. Rune Christensen, MakerDAO's founder, suggested the idea of forking the Solana blockchain due to its "most promising codebase" and resilience, especially after the FTX exchange incident, where Solana showed technical quality. He also mentioned Cosmos as a potential contender. This move raised concerns from Ethereum co-founder Vitalik Buterin, who questioned whether MakerDAO was making unconventional decisions. Additionally, Visa's announcement of expanding stablecoin settlement capabilities to Solana added to the context, highlighting Solana's growing importance in the crypto space.

Visa Taps Solana

Visa's announced a pilot program enabling merchants to accept USDC payments via the Solana network. This development is seen as a positive boost for the Solana ecosystem, which faced challenges following the collapse of a major investor, FTX. Despite this setback, Solana's developers have been actively building, with the network's total value locked (TVL) growing by 53% since the beginning of the year. Visa's move to leverage stablecoins and blockchain networks like Solana demonstrates an effort to enhance cross-border settlement speed.

Crypto M&A: Ripple's new Fortress

Ripple has announced the acquisition of blockchain infrastructure company Fortress Trust, further enhancing its regulatory licenses. This acquisition follows Ripple's recent purchase of Swiss custody startup Metaco for $250 million and an investment in the crypto exchange Bitstamp. Ripple, which previously became a minority investor in Fortress' parent company, plans to invest further in Fortress and integrate its FortressPay services with Ripple's payments technology as part of this deal, subject to approval. The specific terms of the acquisition have not been disclosed.

Ethereum Turns Inflationary as Gas Fees Plummet to 2023 Lows

Ethereum transaction fees have decreased to levels not seen since November 2022 due to reduced on-chain activity from NFT sales, meme coin trading, and subsiding Telegram bots. The average fee for Ethereum transfers is now $1.83, while the cost of token exchange via Uniswap is about $4.17. This decline in demand for gas on the Ethereum network has led to an increase in supply, with Ethereum turning inflationary in one of the few such periods since the Merge in September 2022.

Source: Coinmetrics

Regulation

Apes Will No Longer Be Bored As The SEC Cracks Down

The SEC's recent cease and desist order against Impact Theory, a media company that issued NFTs, has raised concerns about the regulatory stance on NFTs. Impact Theory raised $30 million by selling NFTs, which included membership benefits. However, their marketing claims of potential future profits and the use of proceeds to develop their project led the SEC to view these NFTs as unregistered securities, potentially violating the Howey Test. As a result, Impact Theory settled with the SEC, agreeing to destroy the NFTs, stop receiving royalties, and pay a $6 million fine. This SEC action indicates increased scrutiny on NFT projects and their compliance with securities regulations. The SEC emphasized the need to register securities to protect investors. Some SEC commissioners dissented from the order, suggesting that unregistered securities cases typically resolve when issuers repurchase the instruments.

Source: The Block

Pay A Pal For Krak In Europe

Kraken, a cryptocurrency exchange, is gradually introducing PayPal deposits for users in the UK and Europe. A recent email to UK Kraken users confirmed that PayPal can now be used to fund accounts, allowing transfers of up to £1,000 ($1,250) per day from PayPal balances, bank accounts, or linked payment cards. This funding option is currently available exclusively through the Kraken mobile app, with fees depending on the region. To use this feature, users need to be verified, ensure that their PayPal and Kraken account names match, and reside in the UK or Europe (excluding Hungary and Croatia), as per the information provided on a new support page.

CFTC Goes After DeFi

The CFTC has taken enforcement actions against three DeFi platforms—Opyn, 0x, and Deridex—resulting in a combined fine of $550,000 and a cessation of further violations of Commodity Exchange Act and CFTC regulations. These platforms were accused of offering illegal leveraged and margined retail commodity transactions with digital assets. Opyn and Deridex also faced charges for not registering with the CFTC and lacking a required customer identification program under the Bank Secrecy Act. Despite Opyn's geofencing of U.S. users, the CFTC expressed concerns about its effectiveness, potentially setting a precedent for regulatory actions against other decentralized exchanges. However, a recent New York federal court ruling in favor of Uniswap suggested that protocol developers might not be held liable when platforms are misused for lawful purposes.

Mirae Asset Securities Partners with Polygon for Financial Tokenization Advancements

Mirae Asset Securities, a major South Korean investment banking firm, is collaborating with the Polygon network to advance tokenization in the financial sector. Polygon will provide technical consulting to the $500 billion asset manager as they aim to establish the infrastructure for issuing, exchanging, and distributing tokenized securities. Tokenization involves converting real-world assets like bonds, equities, and physical assets into digital tokens that can be traded on the blockchain, with the goal of increasing efficiency, transparency, and liquidity in transactions. Mirae Asset Securities joins institutions like Franklin Templeton in pursuing tokenization projects on the Polygon network. This partnership underscores the growing interest in leveraging blockchain technology for asset tokenization within the financial industry.

Banning Isn't An Option: IMF, FSB

The G20-commissioned paper highlights a consensus among major international policy bodies, including the IMF and FSB, against banning cryptocurrencies outright. Instead, they advocate for stricter regulations and enhanced oversight in the cryptocurrency sector. Notably, the paper identifies stablecoins as a greater financial stability risk compared to other cryptocurrencies. Meanwhile, the U.S. Financial Accounting Standards Board (FASB), overseen by the SEC, is considering a positive change in accounting rules for the crypto industry. This change would allow companies to account for their cryptocurrency holdings at fair-market values instead of reporting unrealized losses on their balance sheets. This potential adjustment is well-received by the crypto industry and could offer improved financial reporting practices in this evolving field.

Stuck At Burning Man Or Stuck In A Turkish Prison

Faruk Fatih Özer, the CEO of the now-defunct Turkish cryptocurrency exchange Thodex, has been sentenced to 11,196 years in prison for aggravated fraud, leading a criminal organization, and money laundering. Özer's two siblings, who were involved in running the exchange, also received similar jail terms. Additionally, a court-ordered fine of approximately $5 million was imposed on them. Thodex, once the largest crypto exchange in Turkey, collapsed in 2021, leaving 400,000 users unable to access nearly $2 billion in crypto deposits.

The Race For ETH ETFs

The race for the first U.S. spot Ethereum (ETH) ETF has officially begun. ARK Invest and 21Shares have filed for a spot ETH ETF called Ark 21Shares, with plans to directly hold ETH. VanEck has also filed for a spot ETH ETF. Coinbase is designated as the surveillance-sharing partner in both filings and is the custodian for ETH in the Ark 21Shares fund. If approved, both ETFs will be listed on the Chicago Board Options Exchange (CBOE). The SEC now has 240 days to make a final decision on these ETFs, with potential temporary deadlines along the way to prompt quicker decisions. However, the SEC is known for delaying decisions and using the full allotted time. This race marks a significant step in bringing Ethereum ETFs to the U.S. market, similar to the previous Bitcoin ETF filings. See similar: Franklin Templeton files with SEC for spot bitcoin ETF

Other Domestic Regulation Updates

• Sam Bankman-Fried's Lawyers Question Former FTX Founder’s Ability to Prepare for Trial
• Coinbase plans international expansion, eyeing EU, U.K. and elsewhere
• Former co-CEO of FTX's Bahamas entity FTX Digital Markets, Ryan Salame, has pleaded guilty

Other International Regulation Updates

• Bank of China to Require Platforms to Offer Digital Yuan as a Payment Option
• Mashinsky's home and assets ordered frozen
• German Regulator Who Spearheaded MiCA to Lead Digital Euro Effort
• London Stock Exchange to Explore Blockchain-Based Market for TradFi Assets
• South Korea’s Hana Bank Partners with BitGo on Digital Asset Services

Pain & Gain

Pain

• FTX's $3.4 Billion Crypto Portfolio Includes Solana, Bitcoin and Ethereum

• $24 million gone phishing
• Pseudonymous whitehat hacker Kankodu claimed yesterday that their bug report inadvertently led to a vulnerability in Euler Finance

Gain

• MetaMask to be usable outside the EVM ecosystem with Snaps launch
• Microsoft Boosts AI Efficiency With a ‘Heavy Metal Quartet’ of Compilers
• Web3 Gaming Startups Raised $297MM in July
• Adidas Launches NFT Artist in Residence Program
• MoonPay Launches Venture Arm to Fund Early Stage Web3 Startups
• Coinbase is spinning up a new crypto lending service in the U.S. for institutional clients