🔮 Token Unlocks & Drops, L2 Solutions and Stables Peak Interest, New FASB Rules, Silbert Resigns as HK Looks to ETFs

I'd like to begin this letter (our last of FY24) with a thank you to our readers. We started this letter internally as a way to stay on top of the news, and as the fund grew so did the letter. We genuinely enjoy writing it and love to share it with you. On to the next...

Token Specific News

dYdX Caught Between Token Unlock and Growth Potential

The decentralized derivatives protocol, dYdX, is facing a complex situation with a recent token unlock and a shift to a fee-accruing model for tokenholders. While the token unlock may create short-term price challenges, the protocol's transition to fee distribution presents a long-term opportunity. With strong fundamentals and market dominance in the perpetual decentralized exchanges (DEXs) category, dYdX has the potential for growth, but it faces challenges such as fierce competition, execution risks, limited trading pairs, and the nature of zero-sum games in the derivatives market.

Source: Messari

Ledger Commits to Transaction Signing Process Update Following $600,000 Exploit

Digital asset wallet Ledger has announced plans to enhance its transaction signing processes following a recent $600,000 exploit linked to its Ledger Connect Kit software library. Ledger aims to replace the user-unreadable Blind Signing with user-reviewable Clear Signing by June 2024, focusing on improving transaction verification and security. The company has committed to reimbursing affected customers, both Ledger and non-Ledger users, by the end of February 2024. The exploit, resulting from a phishing attack on a former employee, redirected user assets to the hacker's wallets, but Ledger hardware devices and Ledger Live remained uncompromised.

Rising Blockchain Transaction Costs Drive Interest in Layer 2 Solutions

As blockchain transaction costs surge, particularly on Ethereum, driven by a recent bullish sentiment and heightened activity in decentralized exchange (DEX) trading and lending, users are increasingly turning to more cost-effective solutions, notably Layer 2 options. The 7-day moving average of Ethereum transactions reached a new high for 2023, exceeding 1.15 million, causing a subsequent surge in the average transaction fee. While Solana and alternative Layer 1 blockchains are experiencing increased activity, Ethereum users looking to tap into the ecosystem are finding Layer 2 solutions, particularly optimistic rollups, appealing due to lower transaction costs. Despite occasional fee spikes, these rollups aim to address Ethereum's high fees, reflected in the rising activity of scaling protocols and increased fees paid for data publishing on Ethereum, reaching levels not seen since May, with December fees already surpassing the total for the previous six months.

Source: The Block

To The Moon(pay)

Crypto payments firm MoonPay has introduced an upgraded checkout tool for NFTs, aimed at simplifying the purchase process for customers. MoonPay Checkout, an extension of the company's original NFT checkout widget, offers a no-code tool that can be easily added to websites, enabling customers to buy NFTs across 41 blockchain networks, including Ethereum, Solana, Polygon, and Flow, using debit and credit cards. The enhanced tool features a streamlined process with fewer steps, integration with Google and Apple accounts for familiar login, and simplified KYC document submission. MoonPay CEO Ivan Soto-Wright highlighted the company's focus on creating a seamless, user-friendly NFT buying experience, reducing the checkout process to a four-click experience.

Stable on Solana

Solana has become the top blockchain in daily stablecoin transfer volume, holding the lead for 7 out of the last 10 days, including a record-breaking $12 billion in stablecoin volume in a single day. This indicates a strong trend of investors loading funds onto the Solana blockchain for various activities such as buying tokens and NFTs or providing liquidity to protocols. The stablecoin situation on Solana has seen significant growth, with the blockchain now hosting the second-largest supply of USDC and the fifth-largest supply of USDT. The USDC supply on Solana increased from just under 580 million to 958 million, and USDT's supply rose from 833 million to 857 million. Despite a slight increase in notional supply, the percentage of USDC's total supply on Solana is substantial at 17.6%, compared to USDT's 2%. Notably, USDC volumes on Solana for December are set to surpass those on Ethereum, reaching $193 billion compared to Ethereum's $119 billion.

Source: The Block

Solana DeFi Trailblazer Prepares for January Airdrop Frenzy

Solana-based DeFi aggregator Jupiter is gearing up for an airdrop in January, with 40% of the 10 billion JUP tokens allocated for distribution to the community. The airdrop will unfold in four phases, starting with 1 billion JUP tokens in January. Additionally, 10% of the total JUP supply will be set aside for community contributors and grants. This distribution plan entails 50% of JUP tokens going to the Jupiter community, while the remaining 50% will be managed by the Jupiter team for team members, strategic reserve, and liquidity provision. Jupiter has processed about $231 million in transactions in the last 24 hours, solidifying its position among the largest DeFi projects on Solana.

Regulation

FASB Introduces Rules for Reporting Fair Market Value of Crypto Holdings in Business Financial Statements

The Financial Accounting Standards Board (FASB) in the U.S. has released rules instructing businesses, including private and public companies, to report the fair market value of their digital asset holdings at the end of each reporting period. The move is seen as a positive development, allowing companies to report appreciation and providing more accurate and timely information to investors and regulators. However, challenges such as developing solid valuation methods and the exclusion of certain crypto assets like NFTs, stablecoins, and wrapped tokens are noted. The rules will be effective from December 15, 2024, with the option for earlier adoption.

SEC-Licensed Crypto Broker Dealer, Prometheum, Nears Market Entry After Gaining SEC Approval and Seeks FINRA Approval

Prometheum, recognized as the world's first special-purpose crypto broker dealer licensed by the SEC, is approaching its market entry after obtaining approval to clear and settle "digital asset securities." SEC Chair Gary Gensler commended Prometheum for its registration with the agency. The exchange is now in the process of seeking approval from FINRA. Although Prometheum has not executed its first trade or listed any assets, co-CEO Aaron Kaplan anticipates the commencement of custody services for institutional clients' assets in the next quarter. Notably, some industry experts have criticized Prometheum's classification of cryptocurrencies as securities, with Coinbase arguing earlier that existing SEC requirements are incompatible with digital assets.

British Virgin Islands Court Freezes Over $1 Billion in Assets of Crypto Hedge Fund Founders

A British Virgin Islands court has frozen more than $1 billion in assets belonging to the founders of the bankrupt crypto hedge fund Three Arrows Capital (3AC), including Su Zhu, Kyle Davies, and Davies' wife, Kelly Chen. The court order was issued worldwide, and the liquidators, Teneo Restructuring, are seeking $1.3 billion to maximize returns to creditors, whose claims total more than $3 billion. See similar: 3AC liquidators estimate 46% recovery rate for creditors

Universal Privacy Alliance (UPA) Formed by Web3 Projects to Safeguard Digital Privacy

Several Web3 projects, including Nym Technologies, Aztec, the Filecoin Foundation, Oasis Network, and Protocol Labs, have established the Universal Privacy Alliance (UPA) with the goal of protecting digital privacy. Aligned with the United Nations' declarations on privacy rights, the UPA advocates for anonymity, informed consent, and secure online interactions free from undue surveillance. The alliance plans to engage in policy and regulatory discussions, initially focusing on the debate around end-to-end encryption (E2EE) in the European Union. Each founding member contributed $15,000 to the initial fund of $150,000.

Hong Kong's Securities and Futures Commission to Accept Applications for Spot Crypto ETFs

Hong Kong's Securities and Futures Commission (SFC) is set to accept applications for spot crypto ETFs, signaling a positive move for the industry in the region. The SFC's guidelines mandate transactions through licensed crypto platforms, allowing both in-kind and in-cash subscriptions and redemptions, highlighting Hong Kong's contrasting stance to mainland China's crypto crackdown.

Silbert Resigns

Grayscale Investments has announced the resignation of Barry Silbert as chairman, to be replaced by Mark Shifke, the CFO of Grayscale's owner, DCG, effective January 1. The move comes amid Grayscale's ongoing efforts to convert its Bitcoin Trust into a U.S. spot exchange-traded fund (ETF), with the application currently under consideration by the Securities and Exchange Commission (SEC). Mark Murphy, president of DCG, also resigned from the board.

Other Domestic Regulation Updates

• U.S. SEC Denies Coinbase Petition for Comprehensive Crypto Rules - Forbes
• U.S. SEC Extends Deadline for Response to Invesco Spot Ether ETF - CoinTelegraph
• ESG-Focused Crypto Asset Manager 7RCC Files for Spot Bitcoin ETF - CoinDesk

Other International Regulation Updates

• UK Publishes Sandbox Regulations for Securities Tokenization - CoinDesk
• Deutsche Bank-Backed Firm Starts Tokenizing German SME Loans - CoinDesk
• Circle Issues Euro-backed Stablecoin EURC on Solana Blockchain - CoinDesk 
• Satoshi, Not Satoshi: Craig Wright UK Case Inches Further Forward

Pain & Gain

Pain

• Ethereum Scaler Arbitrum Suffers Outage—And Inscriptions Are to Blame
• Qredo CEO removed, company gets debt financing

Gain

• Unstoppable Inks 12 New Partnerships to Expand Web3 Domain Adoption - Yahoo Finance