🔮 Weekly Attestations #9

While the regulatory backdrop in the US remains hostile to crypto, the market seems to have taken the view that the country's regulators have cried wolf too many times. The recent civil enforcement action by the CFTC against Binance CEO Changpeng Zhao and three entities operating the Binance platform did not appear to affect market sentiment. Neither did the recent flurry of subpoenas.

Some politicians in the US continue to take a tough stance against crypto, even though a survey by Coinbase suggests that 20% of Americans own crypto and the vast majority see an urgent need to update the financial system. Even if one takes these results with a grain of salt, does Elizabeth Warren and her anti-crypto army actually believe that a majority of people in the U.S. are anti-crypto? Apathetic, maybe, but actively against it? Food for thought.

Token Specific News

A date in Shanghai

• The Ethereum Shanghai hard fork has been set for April 12, according to Ethereum core developers. The upgrade will complete Ethereum’s transition from proof-of-work to a proof-of-stake consensus with the addition of five Ethereum Improvement Proposals, including one that enables staked Ether withdrawals. Analysts predict that the upgrade could trigger a sell-off in the short term. Validators will receive rewards payments automatically at periodic intervals in withdrawal addresses and stakers can exit positions entirely. The transition to PoS started on Sept. 15, 2022, with the Merge and Ethereum’s roadmap has several updates coming after Shanghai.

"Just a little bit (of liquidity)" - 50 Cent

• The recent banking crisis and lack of confidence in banks in the US and Europe has led to a surge in interest in Bitcoin as a decentralized form of money. However, the lack of liquidity in the BTC market has also been a strong price propellant, with BTC market depth reaching 10-month lows. Liquidity on the most liquid trading pair, BTC-USDT on Binance, has dropped 70% overnight due to the reintroduction of fees, potentially causing more volatility as more traders are able to influence prices. While the surge in interest in BTC makes sense given recent events, the lack of support to the upside also applies to the downside, meaning caution is needed for an outsized move downwards in the coming weeks.

Decentralized DAI/DAO

• MakerDAO has passed a governance proposal that ratifies a " Constitution" aimed at making the DeFi protocol and issuer of the Dai stablecoin more resilient against censorship. The proposal includes measures for MakerDAO to increasingly decentralize DAI collateral, allow the stablecoin to free-float relative to the dollar, and improve the protocol's governance. MakerDAO's $1.45 billion real-world assets portfolio will be limited, while the plan will enable MakerDAO to expand its money market investments in the short term and increase protocol revenue. The new Maker Constitution also paves the way for MakerDAO to reorganize into multiple subDAOs with distinct governance jurisdictions and their own native tokens. The proposal passed with 76% support, although participating voters mobilized only 18.4% of MKR's circulating supply in the poll.

Gearing up for staked ETH

• The Ethereum Shanghai-Capella upgrade will allow validators to withdraw their staked ether from the network. As the upgrade nears, staking service providers must plan how to enable withdrawals. Staking providers operate differently, so users should check with their provider for more details. Lido, one of the largest liquid staking service providers, will not allow users to redeem stETH initially due to a needed upgrade expected by mid-May. Coinbase, a centralized exchange that also provides staking services, will make withdrawal requests available 24 hours following the upgrade. Other decentralized Ethereum staking protocols, such as Rocketpool and Stakewise, are expected to enable withdrawals around the same time as the upgrade.

Hungry for RWAs

• The rise of tokenized real estate (and other Real World Asset vehicles), which allows buyers to purchase a share of a property for as little as a dollar, is set to disrupt global property markets, according to accountancy firm Moore Global. Tokenized real estate offerings include tokenized REITs, tokenized rental properties and tokenized mortgage-backed securities, among others. Marius Grigoras, CEO of crypto start-up launchpad BHero, said tokenization is having a direct impact on the real estate industry, offering greater liquidity and access to investment opportunities. Bob Ras, co-founder of tokenization network Sologenic, said smart contracts reduced the need for paperwork, cutting down on the cost, time and effort involved in buying property. Fintech and rental platform Roofstock recently sold a Georgia home to ReaIT, a platform offering fractional real estate investment, while Propy sold an NFT-backed four-bedroom property in Florida last year. However, it is worth noting that not all real estate NFTs have been successful, with one Thousand Oaks, California property not reaching its minimum bid of $2m two years after it was put on the market. See similar: Major Energy Companies Are Trading Tokenized Emissions Credits

Regulation

Did my best to ignore it... SBF back in the news

• FTX's former CEO Sam Bankman-Fried has been charged with an additional bribery charge by prosecutors, who allege he transferred $40m in cryptocurrencies to "one or more Chinese government officials" to influence them to unfreeze accounts owned by Alameda Research, FTX's sister trading firm. The indictment alleges that Bankman-Fried spent months trying to access the funds and resorted to bribery after failed attempts. He is already facing 12 charges, including wire fraud and defrauding the Federal Election Commission, in connection with FTX's collapse. Bankman-Fried has not yet commented on the latest charge.

Bittrex Shuts Down US Crypto Exchange Due to 'Regulatory Environment'

• Bittrex, a Seattle-based cryptocurrency exchange, announced that it would wind down its US operations due to the "current US regulatory and economic environment," and will continue operating its Bittrex Global platform for traders outside of the US. Customers have until April 30 to withdraw their funds, and trading will continue until April 14. Bittrex is the 71st largest digital asset exchange, with a 24-hour trading volume of just $11.7 million, according to CoinGecko.

Texas slashes mining

• A proposed bill in Texas, Senate Bill 1751, seeks to restrict Bitcoin mining companies from participating in a state-run demand response program that rewards miners for giving power back to the grid during peak loads. The bill would also bar virtual currency mining from tax abatements given the projected growth in the state's industry. Bitcoin mining companies in Texas consume about 2,100 megawatts of the state's power supplies, up 75% from last year, according to the Texas Blockchain Council. Riot Blockchain has been a large beneficiary of the current incentives in Texas, earning as much as $9.5m in power credits after suspending operations during a heatwave.

Hong Kong has raised its banner

• Crypto companies and their lawyers have raised concerns that Hong Kong's proposed licensing regime for crypto exchanges and service providers is too stringent and may not attract the companies needed to restore the province's standing as a digital assets center. Hong Kong has recently introduced a new licensing regime in a bid to attract developers and companies back from Singapore and elsewhere. The regime was published as a public consultation and industry members have until the end of March to submit feedback. Among the issues raised are strict limits on tokens and services that exchanges will be able to offer retail investors, the complexity of cold storage rules, and unclear licensing rules. Hong Kong's government has staked a lot of energy and political goodwill on the asset class and the technology behind it in an effort to win back the industry. That said, Hong Kong is charting its own web3 path despite China’s anti-crypto stance.

Laundry day: What the EU’s anti-money laundering regulations mean for crypto

• On Tuesday, policymakers in two European Parliament committees will vote on adoption of an anti-money laundering regulation package, which includes requirements for the crypto industry and firms offering services within the EU. Decentralized autonomous organizations and decentralized finance platforms will also be subject to the rules. There will be enhanced due diligence measures for correspondent relationships with crypto service providers from outside the EU, as well as for payments involving self-hosted wallets. Anonymous crypto and bank accounts will be prohibited under the regulation, and there is a mandate for the European Commission to assess whether to adjust the rule on commercial payments in three years' time.

DAO Governance Could Change Following This Court Ruling

• A United States District Court in Southern California has denied a motion to excuse bZx decentralized autonomous organization (DAO) governance token holders from potential liability for the loss of $55m in a 2021 exploit. The court dismissed a motion against DAO governance members, stating that they fell under the arrangement of a “general partnership”, meaning each token holder could potentially be responsible for the return of lost funds. However, experts have warned that not all DAOs should be considered partnerships, with the current legal framework not coordinated enough to provide viable solutions.

The Week in Charts

The digital asset market continues to consolidate within a narrow price range this week, briefly reaching a new multi-month high of $29.1k. This comes amidst a continued backdrop of regulatory pressure, with the biggest new this week relating to a complaint made against Binance and CEO CZ by the CFTC.

The Stablecoin Shuffle at Binance

Stablecoins are important in the digital asset space and act as a primary entry and exit point for fiat money. However, the aggregate market cap of major stablecoins (USDT, USDC, BUSD, and DAI) has been declining for the past 12 months, reaching $125.8B this week, which is a total decline of -22% since the all-time high of $161.56B. USDT has expanded back to $79.5B, dominating 63.7% of stablecoin capital. USDC has seen $10B (-23%) in net redemption since breaking the peg during the failure of SVB last month. Additionally, following the news of Paxos halting the issuance of BUSD in Feb, many investors have redeemed or converted BUSD into other assets, driving the total BUSD supply down by -52% to $7.7B.

US regulators have been putting continued pressure on Binance, and its CEO is facing a CFTC lawsuit due to alleged regulatory violations. To gauge market sentiment, the net flow of funds in and out of Binance is shown in the chart above, with a positive value indicating an increase in stablecoin supply (inflow) and a negative value indicating a net outflow. The chart shows a 14-day EMA, which indicates the largest net outflow in history of -$295M/day.

The USD-denominated asset profile held in Binance's self-reported Proof-of-Reserves addresses has declined by $29.6B (-45.1%), but it stabilized at $35.9B since the FTX fallout. The decline is mainly due to falls in token prices and large redemptions of BUSD. However, the YTD market rally has brought the total USD-denomination of Binance reserves back above $35B this week.

The growth and decline of BUSD held within the Binance platform over the 2020-23 cycle is shown in a graph. The balances of USDC ($1.16B) and USDT ($2.17B) are historically low, which is partly due to Binance's attempt to shift trade volume to BUSD pairs in recent months.

Options Market Taking Center Stage Leading Up To Ethereum's Shanghai Fork

ETH puts are now at a premium (1 Week), suggesting the market is cautious about the potential of "unlocks" in the short term.

Options OI by strike price for April 7 has over 50k puts for a strike price of $1,600.

The Week in Trends

Sector Performance Breakdown (7d trend)

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

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

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

Other Domestic Regulation Updates

• White House ‘Allergic to Promise’ Says Crypto Industry
• US Agencies Keep ‘Protecting Investors’ — And Tanking Coinbase Stock
• Coinbase Ex-Manager Convicted of Insider Trading Is Crypto's Latest Legal Hope
• DAO token holders are plausibly liable, judge rules in bZx class action
• Gary Gensler: Stop Taking Out Your Crypto Problems on Celebrities

Other International Regulation Updates

• Crypto Firms Bullish on UAE Entrance: But Now They Wait
• Do Kwon to face Montenegro justice first as US and Korea vie for extradition
• Coinbase Calls For Flexible Approach to Regulation in Australia
• Market Shrugs Off CFTC Lawsuit Against Binance
• Crypto exchange Kraken commits to complying with tougher rules in Canada

Pain & Gain

Pain

• ‘Fatal Blow?’: Crypto Industry Reacts to CFTC Suit Against Binance
• 7 Damning Quotes From the CFTC Binance Lawsuit
• UK government cancels plans to launch NFT
• Crypto Firms Discuss Leaving U.S., But Few Take Action
• Disney reportedly cuts metaverse division under Iger's restructuring

Gain

• Trader Joe is Fastest-Growing DEX After Shift to Uniswap v3-Like Model
• How Crypto Has Stayed in the Green During Banking Crisis
• Ethereum Foundation doubled the maximum bug bounty for identifying vulnerabilities to half a million bucks
• Web3 Gaming Developers Continue To Be Favored by Investors
• Gucci and Yuga Labs team up to ‘blur boundaries between physical and digital’
• dYdX Reveals Launch Date for Move From Ethereum to Cosmos
• Polygon Launches Final Mainnet for zkEVM Solution to Scale Ethereum
• Circle Stablecoin USDC To Launch On Cosmos
• Orderly Network raises fresh funding at a flat token valuation of $200 million
• User Acquisition and Retention Across EVM Chains