Cardano, Charles Hoskinson’s $15 billion blockchain, is barreling toward a transition to decentralised ownership, similar to the structure of a decentralised autonomous organisation, or DAO, that’s popular among DeFi protocols.

The development of Cardano, which was created in 2017, has been under the sole management of Hoskinson’s blockchain engineering firm, Input Output Global, along with the Cardano Foundation and EMURGO, Cardano’s official commercial arm.

That will change with the scheduled Chang hard fork this month.

Hard forks happen when developers execute major changes to a blockchain’s programming resulting in a new network version that is not backward compatible with the previous network.

Blockchains like Bitcoin and Ethereum have also completed hard forks in the past that have triggered massive changes to their networks.

Ethereum’s most recent hard fork in 2022 changed the network from a Proof of Work chain with miners to Proof of Stake.

Cardano’s Chang hard fork can happen once 70% of the blockchain’s validators upgrade to the network’s latest node software version.

Instead of centralised entities running Cardano, the blockchain’s governance will be community-driven once the Chang hard fork happens, Hoskinson said on X this week.

With Chang, ADA token holders will have governance rights and be able to vote on changes to Cardano. ADA is Cardano’s native token.

The upgrade will also introduce other DAO-like elements to Cardano such as voting power delegation, budgets for project teams, and a treasury managed by the community.

The Chang hard fork and the resulting pivot to a decentralised governance structure is called the Voltaire era, and is the fifth step in Cardano’s road map. The previous two milestones — Goguen and Basho — introduced smart contract and scalability features to the blockchain.

Despite those new features, Cardano’s DeFi market has struggled to take off and has been overshadowed by Solana and several Ethereum layer 2 networks.

Cardano losing ground to buzzier crypto projects is reflected in its token’s value.

ADA, once the third-largest crypto by market value during the 2021 bull market, has dropped to 11th place, overtaken by popular memecoins Dogecoin and Shiba Inu.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.

President Emmanuel Macron of France has long believed in crypto.

During his seven years in power, his government has taken numerous steps to reward founders with all manner of incentives to set up shop in Paris’s burgeoning digital assets hub.

Now, France’s crypto industry may need to fend for itself.

The centre-right premier’s decision to hold a snap parliamentary election on June 30 has left the digital assets industry pondering a sudden shift in policy.

“It is hard to say what’s next, as the other political parties don’t have specific positioning on crypto,” said Daniel Seifert, Coinbase’s vice president and managing director in Europe and the Middle East.

Incoming crypto regulations

The election on June 30 and runoff on July 7 will not end Macron’s five-year term — the presidential contest won’t be held until 2027. But asking voters to elect a new National Assembly could result in a majority led by the right wing National Rally party, and a new prime minister.

This type of hybrid government is not unprecedented in French political history. But whichever party calls the shots domestically come July, it will have to engage with the new European Commission on incoming crypto regulations.

At the top of the list: the Markets in Crypto-Assets law which comes into full force at the end of the year and will lay out the rules of the road for the industry.

As it happens, MiCA’s rules for stablecoins go live on June 30.

‘It created a lot of confidence for foreign actors to choose Paris. This is something that may disappear.’

William O’Rorke, ORWL

“What remains of Macron’s legacy for the crypto industry in France is yet to be seen, but his ambition has always been to make France a major crypto hub,” said Francois Volpoet, a regional managing director at blockchain analytics firm Chainalysis.

Starting in 2017, Macron’s administration threw open the doors for investment in the sector. The government deployed favourable tax breaks for start-ups and incubation opportunities for investors. As a result, Paris’s crypto scene sprang to life.

Paris is home to several crypto unicorns, such as Ledger and Morpho, and sports a diverse web3 culture. The market regulator has registered more than 100 crypto firms.

Europe’s crypto industry gathers regularly in the capital’s most illustrious venues, including the Louvre, the Ritz Paris hotel, and the palatial Palais Brongniart, the city’s old stock exchange.

Bruno Le Maire, the finance minister, and Jean-Noël Barrot, the digitalisation minister, personally welcomed crypto giants such as Circle, Binance, and Crypto.com when they set up shop in Paris.

“All these players had access to the top level of the ministry of economy,” said William O’Rorke, a lawyer with ORWL, a local law firm that represents crypto ventures.

“That’s important because it created a lot of confidence for foreign actors to choose Paris to set up. This is something that may disappear.”

But, O’Rorke doesn’t imagine there will be direct regulatory changes based on the result of the June elections.

Many industry players remain unphased by which party rules.

The European Parliament’s Renew party, which Macron represents, won only 15% of the vote on Sunday. The far-right Identity and Democracy led the polls with more than 31%. In France, this group is represented by the National Rally party.

Slight shift

While the centre largely held in Brussels, the crypto industry is trying to gauge how the results Sunday may affect the industry across the bloc.

“The slight shift to the right may well see a greater focus over the next five years on competitiveness and growth,” said Mark Foster, EU policy lead at the Crypto Council for Innovation.

“This could lead to a more enabling framework for innovation friendly policies.”

The left-wing Green Party took a hit losing 18 seats in the European Parliament.

“The European Parliament might decrease the focus that was around Bitcoin and the energy consumption of proof-of-work mechanisms,” said Tommaso Astazi, head of regulatory affairs at Blockchain for Europe.

The elections also saw the return of some of the lawmakers that helped shape EU crypto policy in the last mandate.

They include German centre-right lawmaker Stefan Berger and Czech lawmaker Ondrej Kovarik, both of whom helped author MiCA.

“We will still have some of our closest members of the European Parliament, the ones that we’ve been working with for the past five years,” Astazi said.

Inbar Preiss is DL News’ Brussels correspondent. Contact the author at inbar@dlnews.com.

Smoke weed in Singapore and you could end up with 10 years in prison. Get caught with over 330 grams of cannabis and your corporal punishment might include a caning.

But launder US$2.2 billion in illicit cryptocurrencies, cash, and other assets such as luxury handbags? Don’t worry, all you may get is 17 months.

That was the sentence the tenth defendant in the city-state’s biggest money laundering case ever received on Monday.

Su Jianfeng pleaded guilty to laundering proceeds from an illegal gambling operation overseas and giving banks forged documents to disguise the origins of funds.

Police seized US$20 million in illicit cryptocurrencies from him and his wife. Su agreed to forfeit about US$132 million of total US$138 million in cash and assets seized.

Among the dozen other charges, he was accused of hiring a personal chef without a valid work pass.

Luxury haul

His arrest on August 15 last year was part of a massive operation involving over 400 police officers in the city.

The initial raids seized cash and assets worth over US$747 million, with prohibition of disposal orders filed against 94 properties and 50 vehicles and more than 35 connected bank accounts frozen.

Police also unearthed a huge haul of luxury items: 250 designer bags and watches, over 120 electronic devices, two gold bars, 270 pieces of jewellery, an enviable wine and liquor collection, and 11 documents with information about virtual assets.

The money’s origins have been traced back to gambling operations in Southeast Asia.

Each of the ten individuals arrested were found holding passports from multiple different countries, including destinations for so-called “golden passports’' like Vanuatu, Turkey, St Kitts and Nevis and Cambodia.

All are originally Chinese citizens from Fujian province in southeast China.

The relatively lenient sentence may raise eyebrows as Singapore seeks to reassure the global financial industry that it is taking a hard line against criminals who deem it a safe haven to park illicit cash.

Many Singaporeans are questioning why the defendants, none of whom hold Singaporean citizenship, will walk away with millions.

Of the ten, only two have forfeited 100% of the seized assets.

Swift prosecution

But the chief prosecutor, Tan Kiat Pheng, seems fine with it. The prosecution initially asked for prison terms of 17 to 18 months.

“The swift prosecution of these 10 cases is a strong message to would-be criminals that Singapore will not tolerate attempts to flout our laws,” Pheng told the media after the hearing.

The director of the police’s Commercial Affairs Department, David Chew added in a statement that the swift and firm law enforcement efforts and the successful prosecutions of these 10 offenders were testament to the state’s commitment to tackling transnational crime and disrupting the activities of organised crime syndicates.

Still, when five of the 10 defendants received similarly short terms in May, Leong Mun Wai, an influential legislator, said money laundering convicts can get 10 year prison terms.

“In my view, the jail terms that the courts have meted out to the five foreigners who have been convicted are not severe enough,” Leong, a Non-Constituency Member of Parliament from Progress Singapore Party, said in a Facebook post on May 10.

Guilty plea

At the time, K Shanmugam, the minister for Home Affairs, defended the court’s decision. “The sentences meted out by the Singapore Courts have been comparable to those in other jurisdictions,” the minister said.

He also pointed to the relatively early plea of guilt and agreement and asset forfeiture as mitigating factors.

Two of those sentenced, Su Wenqiang and Wang Baosen, have already been released and deported to Cambodia.

The others will all be deported and barred from re-entering Singapore after serving their sentences.

Investigations are continuing against 17 other individuals not in Singapore. Those that end up back in China might find themselves facing new rounds of prosecution.

Beijing has taken a hard line on the organised crime groups operating in Southeast Asia. Chinese authorities issued an arrest warrant for Su in 2017.

Callan Quinn is DL News’ Hong Kong-based Asia Correspondent. Get in touch at callan@dlnews.com.

Spot Bitcoin exchange-traded funds are vacuuming funds like there’s no tomorrow.

Yet Bitcoin’s price isn’t bulging. For almost a month now, the top cryptocurrency has traded in a tight range between $67,000 and $72,000.

Crypto market maker Wintermute offered an explanation in its latest report. The problem, the firm said, is that hedge funds buying ETF shares may well be selling the asset elsewhere.

$100 billion in assets

Bitcoin ETFs have experienced inflows for 19 days in a row as of yesterday — a new record.

And just last week, Bitcoin investment vehicles amassed almost $2 billion globally, bringing crypto assets under management to the $100 billion mark for the first time since March.

But even then, Bitcoin is still trading at $69,000, the same price as in mid-May.

CME, the largest platform in terms of volume for Bitcoin derivatives, offers a clue as to why: Hedge funds have taken up an unprecedented $7.5 billion in short positions, according to Wintermute.

Not necessarily bearish

It’s not necessarily because they’re bearish Bitcoin.

By combining short positions with a potential Bitcoin ETF exposure, hedge funds can profit from inefficiencies in the crypto market, Wintermute said.

These funds are likely targeting the discrepancies between Bitcoin’s spot price in ETFs and its futures on the CME exchange.

This strategy is deemed to be market neutral, which means the firms aren’t making a directional bet on the price of Bitcoin — they’re simply arbitraging the asset on different venues.

Hedge fund strategies

Hedge fund Millennium Management, which manages some $60 billion, had likely deployed such a strategy along with other peers when it purchased over $2 billion across for Bitcoin ETFs in May.

In other words, these flows are purposefully countered on other venues by the very same institutions that acquired the shares.

“The impact of recent market structure changes is becoming evident, particularly with the muted price action despite significant ETF inflows,” Wintermute said. “Markets remain range-bound.”

Crypto market movers

Bitcoin is down 3.2% in the last 24 hours to about $67,145.

Ethereum is down 3.7% over the same period to $3,537.

What we’re reading

How Robinhood’s $200m Bitstamp deal is a bet against the SEC’s crypto crackdown — DL News

Best Crypto Options Trading Platforms June 2024 — Milk Road

Friend.tech to Migrate From Base to Its Own Blockchain — Unchained

Best DeFi Exchanges 2024 — Milk Road

Top crypto VCs bounced back in 2023 as Multicoin led the way with 180% increase — DL News

Tom Carreras is a markets correspondent at DL News. Got a tip about Bitcoin ETFs? Reach out at tcarreras@dlnews.com

A version of this article appeared in our The Decentralised newsletter on June 11. Sign up here.

GM, Tim here.

Here’s what caught my DeFi-eye recently:

ZKsync’s token goes live next week.

Railgun Project co-founder talks to the feds.

A DL News journalist shares his story about getting hacked.

ZKsync’s token launch

ZKsync’s long-awaited token launch is imminent.

In a Tuesday blog post, ZK Nation released details on how it will allocate 21 billion ZK tokens on June 17.

17.5% of the supply will be distributed through an airdrop, with another 49.5% going to the ZKsync community.

Alex Gluchowski, the co-founder and CEO of Matter Labs, the company behind ZKsync, emphasised the ZK token’s utility in an interview with DL News.

“It’s not a financial thing,” he said. “It’s really a governance token.”

Users who transacted on the ZKsync Lite and ZKsync Era networks will be eligible for the airdrop.

Actions such as holding ZKsync NFTs, ZKsync-native tokens, and using popular Ethereum mainnet DeFi apps will increase the number of tokens users receive.

ZK Nation is a newly-set up organisation for the purpose of governing and growing the ZKsync protocol.

ZK token holders will be able to propose and vote on initiatives that govern ZKsync.

“The community will have the power to use it also as a payment means,” Gluchowski said, adding that ZKsync community members could vote to add further functionality to the token.

Token holders won’t, however, get full control.

Two other factions, called the ZKsync Guardians and the ZKsync Security Council, will also have the power to veto proposals and approve emergency actions.

Railgun Project interview

Railgun Project co-founder Alan Scott sat down with DL News to talk about educating authorities on what Railgun contributors are doing to stop bad actors.

The Railgun Protocol has a feature called Proof of Innocence that lets honest users prove the money they put into the protocol didn’t come from stolen funds or illicit activity.

Currently, Proof of Innocence only flags crypto addresses that the Office of Foreign Assets Control has put on its sanctions list, but Scott said Railgun contributors want to change that.

Contributors are working on a secure way to allow law enforcement and crypto security experts to update the list of bad actors in real time — even if the addresses are not yet on the official OFAC list.

A $45,000 mistake

DL News’ Osato Avan-Nomayo recounts the painful theft of $45,000 after a hacker infected his computer with malware.

Osato told the story of how he promised to help a younger relative download a computer game.

But when the relative grew impatient and tried to do it himself, he downloaded a version of the game embedded with malware.

The malware probably installed a keylogger — a programme that records keystrokes — and exposed his wallet details, which allowed the hacker to syphon out the crypto.

Osato disclosed the hack publicly, not only to warn other potential victims, but also to help highlight the need for better safeguards.

If broad-based crypto adoption is the goal, Osato says, then safely storing digital assets needs to become simpler, especially for those who prefer self-custody.

Data of the week

May was the worst month for crypto hacks since November 2022.

The $305 million hack suffered by Japanese crypto exchange DMM Bitcoin made up the majority of the losses.

This week in DeFi governanceVOTE: Arbitrum DAO votes on ventures initiative pilot phasePROPOSAL: Aave DAO discusses Lido-focused Aave v3 instanceVOTE: Compound to launch USDT market on OptimismPost of the week

A recent interview where Australian rapper Iggy Azalea’s expresses scepticism over where Ethereum gas fees go has spawned a new meme — and Crypto Twitter is putting it to good use.

They're called "decentralized autonomous organizations" but basically the team and the investors decide every vote pic.twitter.com/gis2mLaWoV

— davis 🐺🦊 (@basedkarbon) June 8, 2024

What we’re watching

#CertiKInsight 🚨

We are seeing multiple exploit transactions affecting @UwU_Lend

0x841dDf093f5188989fA1524e7B893de64B421f47 is currently holding ~$19.4m of assets pic.twitter.com/b8KeHdZche

— CertiK Alert (@CertiKAlert) June 10, 2024

DeFi protocol UwU Lend was exploited on Monday for $19.4 million using a flash loan.

Got a tip about DeFi? Reach out at tim@dlnews.com.

Crypto users are set for another big airdrop payout.

ZK Nation, a newly-set up organisation for the purpose of governing and growing the ZKsync protocol, announced Tuesday that the protocol’s ZK token will launch next week.

The ZK token’s market value will likely land in the hundreds of millions once it launches on June 17.

Despite this, Alex Gluchowski, the co-founder and CEO of Matter Labs, emphasised the ZK token’s utility.

“It’s not a financial thing,” he told DL News. “It’s really a governance token.”

Matter Labs is the company behind the ZKsync protocol, which consists of the ZKsync Lite and ZKsync Era blockchains.

‘Wen Airdrop?’

The airdrop, or distribution of tokens to a crypto project’s users, ends what’s been a slow drumbeat of anticipation for the new cryptocurrency over the past year.

The ZKsync protocol aims to speed up and make transactions cheaper on Ethereum.

As opposed to other layer 2 blockchains, it uses zero knowledge proofs, a cryptographic method invented in the 1980s, to bundle transactions together and post them to Ethereum.

While Matter Labs launched the first iteration of ZKsync in 2020, it has yet to have a token. However, in May, ZKsync’s X account announced a new upgrade to the protocol slated for the end of June that would hand over “governance” to the layer 2′s users.

“Wen Airdrop??” read one of the first comments underneath the post.

The Block then reported that the token launch could come as early as the middle of June, citing two sources familiar with the matter and an internal message.

And, on Monday, ZKSync’s X account announced the creation of ZK Nation, an organisation tasked with governing and growing the ZKsync protocol, as well as launching its token.

“Pre-game starts tomorrow,” posted ZKsync’s X account. “Get some rest.”

Pre-game starts tomorrow.
Get some rest.

— ZKsync (∎, ∆) (@zksync) June 9, 2024

ZK-nomics

There are 21 billion ZK tokens, with one third reserved for investors and employees of Matter Labs and the ZKsync Foundation, according to a blog post.

The other two thirds are for community members: About 695,232 wallets will receive 17.5% of the token’s supply, 19.9% will go to the ZKsync Foundation, and 29.3% will be set aside for the treasury of what ZK Nation is calling its “Token Assembly.”

That’s akin to a decentralised autonomous organisation that helps govern the protocol.

Gluchowski, the CEO of Matter Labs, told DL News that the airdrop is the only one planned.

He said that the token launch wasn’t a money grab and that Matter Labs had about $200 million in cash.

According to the blog post, investors and employees can’t sell their tokens for one year after the airdrop.

Then, their ability to cash out will follow a three-year release period between June 2025 and June 2028.

“This is a governance token,” Gluchowski said. “But the community will have the power to use it also as a payment means.”

The Matter Labs CEO also said that, following the airdrop, ZKsync community members could vote to add further functionality.

Venture capitalists are the lifeblood of crypto, and luckily for founders, some of the top crypto VCs say their assets rose sharply last year from the year before, according to filings with the Securities and Exchange Commission.

The increases came along with a rise in the broader crypto market.

Multicoin Capital, a venture-capital fund with close ties to Solana, saw its assets’ value jump almost 180%, to $3.81 billion in 2023 from about $1.36 billion in 2022.

Polychain Capital, which was founded by former Coinbase employee Olaf Carlson-Wee, saw its fund’s value almost double, to $5.04 billion in 2023 from $2.61 billion the year before.

And Blockchain Capital, which announced in September 2023 that it had raised another $580 million for more crypto investments, said the value of its assets under management increased to $2.36 billion from almost $1.74 billion.

Others that saw smaller increases include Paradigm, which saw its fund’s value surpass $10 billion; Haun Ventures, which valued its assets at more than $1.5 billion; and Andreessen Horowitz, whose massive fund, which counts crypto among its investments, was worth $56 billion at the end of 2023.

Representatives for five of the venture-capital firms mentioned above didn’t immediately respond to a request for comment from DL News, and a spokesperson for Multicoin declined to comment.

Crypto investments creep back

The rebound in the fortunes of the biggest crypto VCs mirrors the revival of the broader crypto market.

In 2022, top crypto investors said their assets under management were substantially lower than they were in 2021, according to Newcomer.

Paradigm marked down its portfolio 34%, and Multicoin said its assets fell 85% in value.

And the total value in crypto raises dropped to a monthly low of a little less than $300 million in July 2023 from more than $7 billion in October 2021, according to data from DefiLlama.

More than a year and a half later, crypto is back in business.

Bitcoin reached an all-time high of more than $71,000 in March, per CoinGecko, and crypto VCs invested about $1 billion in the industry in February.

More recently, however, VC enthusiasm has trailed off, with May only recording about $200 million in raises.

And, despite renewed optimism for the industry, some crypto VCs still haven’t recovered to the heights of the last bull market.

In 2021, Paradigm said its assets under management were $13.2 billion, and in 2022, it said it employed 73 staff members. Now it has only 59 employees.

A hacker used a massive “flash loan” to drain $20 million from UwU Lend, the crypto lending protocol founded by Michael Patryn, an internet entrepreneur who operated QuadrigaCX, a Canadian crypto exchange that collapsed in 2018 because of fraud.

At UwU, Patryn, who is better known by his pseudonym 0xSifu, has offered the hacker a deal: Return about $16 million in crypto and we’ll drop any potential charges.

“We are offering a 20% white hat bounty of any funds taken,” Patryn wrote in a message sent on Ethereum. “You will face no risk of us pursuing this further and no risk of law enforcement issues.”

The ploy is standard operating procedure in crypto, where identifying hackers and retrieving stolen tokens is a time-consuming ordeal. But it’s often ignored by hackers, with a few notable exceptions.

Launched in 2022, UwU Lend is a clone of lending protocol Aave, which was the second-largest protocol in decentralised finance as of Monday with more than $20 billion in user deposits.

But a key change allowed the hacker to drain the protocol in a series of transactions early Monday, according to crypto security firm Blocksec: the use of easily manipulated price “oracles,” which provide UwU with the price of various tokens.

Along with a multibillion-dollar flash loan — perhaps as large as $4 billion, according to Matthew Jiang, director of security services at Blocksec — the hacker was able to syphon about $20 million from UwU.

“The attacker flash loaned a huge amount of assets,” Jiang told DL News. “He almost borrowed all the assets on the chain that can be flash loaned.”

On X, UwU developers said they had paused the protocol while they investigate the hack. UwU didn’t immediately return DL News’ request for comment on Monday.

Flash loans

Flash loans allow zero-collateral borrowing that must be repaid within the same transaction on the blockchain. Traders leverage these loans for arbitrage trading.

But malicious actors can also use flash loans to syphon liquidity from DeFi protocols. The loans provide the capital needed to take advantage of vulnerabilities within a protocol’s code.

Last year, Ethereum lending protocol Euler Finance initially lost $197 million in a flash loan attack, although the hacker later returned 85% of the stolen crypto.

Other recent flash loan exploits include last month’s $20 million hack of Sonne Finance and the $44 million hack of Hedgey in April.

In the first five months of the year, hackers stole an estimated $560 million from DeFi protocols — a 32% increase from the same period a year prior, according to DefiLlama data.

Patryn was a co-founder of QuadrigaCX, which collapsed because of fraud committed by co-founder Gary Cotten, according to the Ontario Securities Exchange.

The exchange collapsed two years after Patryn had left it. Patryn later became — under his 0xSifu pseudonym – the treasury manager for Wonderland, a popular DeFi protocol. That protocol’s token crashed in January 2022 after Patryn’s identity was revealed.

Aleks Gilbert is a DeFi Correspondent at DL News. Got a tip? Email him at aleks@dlnews.com.

Robinhood says its $200 million purchase of Bitstamp is part of a plan to broaden its crypto business to institutional investors.

Experts say it’s more than that. It’s also taking a strong stand against the US Securities Exchange Commission.

“It’s an indication that the industry feels that the political winds are shifting in Washington,” Sean Tuffy, a former regulation banker with Citigroup, told DL News.

“Firms are increasingly confident that the SEC’s anti-crypto campaign is running out of steam and are willing to continue to expand its offerings.”

Robinhood bought Bitstamp just weeks after the online brokerage disclosed that the SEC had recommended proceeding with an enforcement action against the company over its crypto business.

Instead of baulking at the SEC notice, Robinhood is committing even more resources to crypto, suggesting that the SEC is losing some of its influence over the industry.

Legal battle

The move comes as SEC Chair Gary Genler suffers defeat after defeat in his legal battle against crypto players. Where they once shook in fear, executives now shrug.

“Many crypto companies view the SEC as profoundly evil at this point and not only don’t take them seriously, but see them as an active obstacle to protecting their customers,” Austin Campbell, professor at Columbia Business School and founder of Zero Knowledge Consulting, told DL News.

Robinhood will now attempt a tried-and-true industry strategy: turning to the courts for clarity.

A key court win for Grayscale in 2023, for example, spurred the SEC to review its Bitcoin ETF application, paving the way for a slew of ETF approvals in January.

Gautam Chhugani, a Bernstein analyst, said Robinhood is pursuing a similar strategy for listing tokens on exchanges.

“Robinhood is willing to fight the SEC in the court,” Chhugani told DL News. “That’s the opportunity, right? The fact that they will seek regulatory clarity through the court process.”

With most of Bitstamp’s revenue coming from Europe, buying the crypto exchange is also a serious bet on international expansion far beyond the SEC’s jurisdiction.

The deal is expected to close in the first half of 2025.

Liam Kelly is a Berlin-based DL News’ correspondent. Contact him at liam@dlnews.com.

A version of this story appeared in our The Guidance newsletter on June 10. Sign up here.

Don’t look now, but Congress is softening on crypto.

Even Democratic Party lawmakers are rethinking their longstanding antipathy to the industry.

At least, that’s the narrative in press coverage and op eds as crypto emerges as a surprise election issue.

But there’s not much evidence to show a sea change is truly in the works.

Good signs? Yes, but the new, favourable policies crypto has long desired remain a big unknown.

Crypto pundits have pointed to Congress’ bipartisan vote to scrap a policy called SAB 121 as proof of increasing support for the crypto industry.

That’s particularly exciting when it comes to the Senate, where crypto’s hold is considered tenuous.

More can be found on SAB 121 here. But essentially, it’s regulatory guidance that is blocking big banks like JPMorgan Chase, BNY Mellon, and State Street from muscling into the crypto custody business.

Wall Street wins

But it’s one thing to support SAB 121, and quite another to support crypto.

Firstly, the bill to repeal SAB 121 is not really a crypto bill.

If SAB 121 were scrapped, the big winners would be Wall Street giants.

The banking lobby has made it clear it wants SAB 121 gone, especially since the approval of spot Bitcoin exchange-traded funds in January.

It is pretty funny that the House vote to repeal SAB 121 is being pitched as a crypto win. In reality, it’s basically a move to help custody banks, which couldn’t get more TradFi if they tried.

— Sean Tuffy (@SMTuffy) May 9, 2024

Congress is happy to give Wall Street what it wants, especially when it’s asking for something that will benefit consumers.

Which brings me to my second point: pretty much everyone from pro-crypto lobbyists to hardcore sceptics thinks that SAB 121 is misguided

Sure, President Joe Biden vetoed the repeal.

But outside of a small Democratic coterie, you won’t find many arguments against allowing heavily-regulated, experienced banks to safeguard crypto assets.

So to sum up — even broadly anti-crypto Senators may see an upside in handing the industry over to their friends in the powerful big banking lobby.

A quick look at the votes on the SAB 121 bill backs up my opinion.

Democratic Senators Gary Peters, Mark Kelly, and Jon Tester all voted to get rid of SAB 121.

Peters and Kelly signed on to crypto arch-sceptic Elizabeth Warren’s anti-crypto bill, while Tester once said of crypto that it was “all bullshit.”

What about the House of Representatives?

Pundits point to the passing of the FIT21 Act in May as evidence of support in the lower chamber of Congress.

But DC insiders say the support in the House may have been there all along — it’s just that its measure was never taken before, as this was the first time that the House has voted on a standalone crypto bill.

It’s natural that the crypto industry wants softer treatment after almost four years of a sceptical administration.

But Congress isn’t fully on board yet.

Reach out to joanna@dlnews.com.

In the latest sign that crypto hackers are exploiting private keys, Lykke, a UK-based crypto exchange, shut down trading on June 6, citing “unauthorised access” to its platform.

The closure came two days after the exchange was hacked, according to SomaXBT, a web researcher, who first reported the incident.

The exchange has sustained $22 million in suspicious outflows, said Taylor Monahan, a MetaMask developer and crypto defence expert.

Unable to withdraw

Lykke recorded $2.5 million in cumulative volume in the last month. Its users are currently unable to withdraw their assets from the platform with several of them stating their account balances have been emptied ― another sign the exchange may have been hacked.

Half of the sum was in Bitcoin, and the rest was a mix of Ether, Litecoin, and Bitcoin Cash, according to onchain data.

Onchain data also shows the Ether withdrawn from the exchange was immediately swapped to the DAI stablecoin, which MakerDAO issues.

At the same time, the stolen Bitcoin has been divided among several wallets — a common tactic hackers employ to obscure the transaction trail when they try to launder the stolen funds.

The exchange has largely been mum about the incident. On June 6, b Lykke CEO Richard Olsen apologised for the platform’s downtime in an email sent to customers.

Security incident

“We are still investigating the causes of this security incident,” Olsen said in the email seen by DL News.

“In the meantime, you can rest assured that your funds are safe,” Olsen said. “Lykke is a diversified business with strong capital reserves.”

The exchange’s website currently displays a message saying the platform is “under maintenance following security” and will remain “inactive under further notice.”

Lykke did not immediately respond to DL News’ requests for comment.

Lykke is the second crypto exchange to be hacked in the last two weeks after DMM Bitcoin saw $320 million stolen from its platform on May 31.

Private key leakage

With 2024 almost halfway done, crypto theft this year has crossed $582 million, DefiLlama data shows.

That figure exceeds the $433 million recorded in the first half of last year.

Most of the biggest hacks this year have been due to private key leakage ― a security problem identified by cybersecurity outfit Cyvers as a potential major concern for crypto companies.

Private keys function like passwords and they control access to crypto wallets. If hackers gain control of a crypto company’s private keys, they can syphon all the funds it keeps in the affected wallets.

Last year, Cyvers’ research revealed that 85% of the $900 million stolen from exchanges, bridges and DeFi protocols in the latter half of the year were due to private key leakage.

Cyvers co-founder Meir Dolev previously told DL News the problem could become more endemic to crypto if industry participants did not adopt safety measures.

The DMM Bitcoin hack, this year’s largest crypto theft to date, has been attributed to private key leakage.

Onchain sleuths say Lykke’s security breach bears similar hallmarks.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.

Bitcoin wobbled again on Monday, following the euro and risk assets lower amid gains by far-right parties in European Parliament elections.

French President Emmanuel Macron called a snap national election, adding to the political uncertainty.

“The market is seeing political risk premia from these election results,” Neil Wilson, chief analyst at Markets.com, said in a note to clients.

“There are also questions about support for Ukraine, and lots else. You can see why market reaction is to kneejerk down.”

Bitcoin slumped on Friday after non-farm payrolls in May beat analysts’ estimates, adding 272,000 new jobs. The report dampened expectations that the Federal Reserve will cut rates this year.

“Risk sentiment was always going to be a bit soft after the nonfarm payrolls on Friday,” Wilson said.

Lower interest rates are typically bullish for risk assets like stocks and cryptocurrencies.

Wednesday will see crucial US inflation data along with a Fed policy meeting that may flag whether a rate cut is on the cards.

Higher-than-expected inflation data reduces the likelihood of a rate cut, adding to Bitcoin’s woes.

But some believe a Fed pivot is already a done deal.

BitMEX co-founder Arthur Hayes last week pointed to rate cuts from the Bank of Canada and the European Central Bank as a sign monetary policy in the US will soon loosen.

“The trend is clear,” Hayes said. “The crypto bull is reawakening, and is about to gore the hides of profligate central bankers.”

Crypto market movers:

Bitcoin is down 0.4% over the past 24 hours to $69,302.

Ethereum is down 0.6% to $3,669.

What we are reading:

Wife of Binance exec ‘expected a lot more’ from US as husband languishes in Nigerian prison — DL News

New York Attorney General Sues Promoters Over $1B Crypto Pyramid Schemes — Milk Road

Loopring’s ‘Guardian’ Smart Wallets Hacked for $5 Million — Unchained

Crypto Funds See $2B Inflows; Bitcoin Remains Primary Focus — Milk Road

AI use in crypto scams not yet mainstream, but increasing, Elliptic report says — DL News

Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.

Artificial Intelligence (AI), while in its infancy as a technology, is already being harnessed for criminal acts in the crypto space, according to a report from British blockchain analytics firm Elliptic.

While AI-enhanced crypto crime may not yet be a mainstream threat, identifying emerging trends is important for sustainable innovation, the report said.

Crypto investment scams have recently made use of deepfakes of celebrities and authority figures to promote themselves.

Among others, video images of Elon Musk and former Singaporean Prime Minister Lee Hsien Loong have been used in such scams.

DL News reported earlier this month that an ad on social media featuring video of Lee hawking crypto investments was a deepfake that layered bogus audio over video of a speech he made earlier this year.

“This is extremely worrying: People watching the video may be fooled into thinking that I really said those words,” Lee said in a Facebook post. “The video is not real!”

AI is also a hype-generator for scam tokens, the Elliptic report said.

For example, there are hundreds of tokens listed on blockchains that have some variant of the term “GPT” in their name. Some may be the product of legitimate ventures, but Elliptic said it has identified numerous scams among them.

Threat actors

The report noted there is debate over whether AI tools can be used for code auditing and bug-checking, and whether black hat hackers may use those capabilities to identify and devise hacks.

Though Microsoft and OpenAI have reported instances of Russian and North Korean threat actors engaging in such attempts, others suggest their technology is not yet fully developed, according to the Elliptic report.

Norway returned almost $6 million in stolen crypto from the $620 million hack of the online game “Axie Infinity” in 2022, according to a post on X by Sky Mavis, the blockchain company behind the game.

Sky Mavis thanked the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime for freezing, recovering and returning $5.7 million in stolen assets.

It also expressed gratitude to the FBI in the US for its “tireless effort to track down and recover these assets.”

When the “Axie Infinity” launched in 2020, it pioneered the concept of play-to-earn, an idea that people could earn money playing video games, DL News has reported.

For those in developing countries, playing the game could earn them more than local minimum wages. It attracted millions of players, some of whom made their livings from the game. At its height, the game became a cultural phenomenon.

Then in early 2022, the game’s tokens lost most of their value amid a larger crypto collapse, the number of daily players dwindled, and the chain it was built on, called Ronin, was hacked by North Koreans in one of the biggest cyber-heists ever.

Recovered assets

“About 15% of recovered assets will be used to cover costs and expenses incurred by those involved in the recovery efforts,” including blockchain forensic firm Chainalysis, lawyers and accountants, Sky Mavis wrote in the post.

The remaining 85% of recovered funds will be deposited into the “Axie Infinity” treasury.

The company added as a reminder that about $40 million in separate assets have been frozen by the law enforcement authorities, though the timing of their recovery is uncertain.

Binance, the world’s biggest crypto exchange, said in a post on X that it had reached 200 million global users, despite a leadership change, paying a record fine to US regulators, and other more recent issues.

At the end of 2023, the exchange said it had added 40 million users to bring its total to 170 million, which means that it has gained about 30 million in the first half of this year. “Your support is the heartbeat of our journey to 1 billion users,” the celebratory post said.

“In 2023, reaching settlements with U.S. regulators, we took responsibility for our past conduct and opened a new chapter in Binance’s history. ... The scrutiny has helped create the comprehensive compliance program we have today,” the company said in a year-end blog post.

In November, Binance pleaded guilty to anti-money laundering violations, unlicensed money transmitting, and sanctions violations and paid $4.3 billion in fines and restitution. It was one of the largest payments the Justice Department had ever received from a corporation, Attorney General Merrick Garland said at the time.

DL News reported that founder Changpeng Zhao struck a deal with prosecutors. He agreed to step down from his position as CEO, plead guilty to violating the Bank Secrecy Act, and pay a $50 million fine. He is now serving a four-month sentence at a low-security prison in California.

Zhao’s successor, CEO Richard Teng, pledged a new era of compliance was dawning for the exchange, but he has had to deal with lingering problems.

In March, officials in the Philippines blocked Binance after the exchange failed to obtain a licence following months of warnings.

Then Nigeria’s anti-corruption agency charged Binance with money laundering and tax evasion, charging two Binance executives with the same allegations and even imprisoning one.

Still, the value of funds that Binance holds on behalf of its users exceeded $100 billion in March, according to a company blog post.

Crypto market movers

Bitcoin is down 0.26% today at $67,331.87.

Ethereum is down 0.42% today at $3,688.62.

What we are reading

Iggy Azalea is cashing in on crypto, as her ‘memecoin’ makes $194 million in one week — Fortune

I signed up for Binance, Coinbase, and Kraken in Hong Kong — why this shouldn’t have happened — DL News

Robinhood crypto head says Bitstamp will help lure wealthy investors — DL News

Bitcoin miner Core Scientific rejected an all-cash buyout offer of more than $1 billion from cloud computing company CoreWeave, saying in a news release that the offer significantly undervalued it.

Core Scientific, one of the biggest owners and operators of high-powered digital infrastructure for Bitcoin mining and hosting services in North America, said it had received an unsolicited non-binding proposal from CoreWeave to acquire all of its outstanding shares on a fully diluted basis for $5.75 per share in cash.

This unsolicited proposal immediately followed Core Scientific and CoreWeave entering into a separate series of 12-year contracts for Core Scientific to provide about 200 MW of infrastructure to host CoreWeave’s high-performance computing services.

Core Scientific’s board consulted with independent advisers in reviewing CoreWeave’s proposal and evaluating the company’s growth prospects and near- and long-term value creation potential.

Shareholder interests

It determined that the proposal significantly undervalued Core Scientific and was not in the best interests of its shareholders.

Core Scientific emerged from Chapter 11 bankruptcy earlier this year.

The US Attorney’s Office for the Southern District of New York said in a statement it has charged three UK nationals in connection with a 2021 rug-pull scam involving a collection of 10,000 NFTs called ‘Evolved Apes.’

Mohamed-Amin Atcha, Mohamed Rilaz Waleedh, and Daood Hassan, all 23, were charged with wire fraud and money laundering, according to the statement. Each count carries a maximum prison sentence of 20 years.

According to the indictment, the three executed a type of scam commonly known as a “rug pull,” where developers advertise a digital project, collect funds from purchasers, then abandon the project and keep the funds — in this case, 798 Ethereum worth about $2.7 million at the time.

US Attorney Damian Williams said that “the defendants ran a scam to drive up the price of digital artwork through false promises about developing a video game. They allegedly took investor funds, never developed the game, and pocketed the proceeds.”

Williams added: “Digital art may be new, but old rules still apply: Making false promises for money is illegal. As we allege, thousands of people believed these false promises and were tricked into buying these NFTs, including here in the Southern District of New York.”

The statement alleged that the three had laundered the misappropriated funds through multiple cryptocurrency transactions to their own personal accounts.

DL News reported earlier that last year, rug pulls and related scams totalled about $760 million, according to data from blockchain security firm Quantstamp

Donald Trump said he would be a “crypto president,” while criticising Democrats’ regulation of the industry during an exclusive San Francisco fundraiser that netted him $12 million, Reuters reported, citing three sources who were present.

Venture capitalists David Sacks and Chamath Palihapitiya hosted the event at Sacks’ home in the ritzy Pacific Heights neighbourhood, the report said.

“He said he would be the crypto president,” Trevor Traina, a tech executive and former Trump ambassador to Austria, told Reuters.

San Francisco may be a bastion of political liberalism, but many local venture capitalists and crypto investors are backing Trump, citing excessive regulation under the administration of President Joe Biden, according to the report.

Crypto has emerged as a hot-button election issue as the industry has amassed an $85 million warchest to sway voters before the November election, DL News has reported.

Republican National Committeewoman Harmeet Dhillon told Reuters that Trump had offered no specific policy proposals for the crypto industry.

Dhillon added that Coinbase execs, Tyler and Cameron Winklevoss, and other crypto leaders attended the event.

Biden’s White House has said it wants to work with Congress on a regulatory framework for crypto.

Spokesperson Robyn Patterson told Reuters in a statement that the Biden administration supports crypto innovation as well as protection against the “risks associated with new technologies.”

Crypto market movers

Bitcoin is down 2.58% today at $69,411.91.

Ethereum is down 3.40% today at $3,692.41.

What we are reading

Wife of Binance exec ‘expected a lot more’ from US as husband languishes in Nigerian prison — DL News

Bitcoin falls below US$70,000 after US jobs data and ECB rate cut — Forkast News

I watched hackers drain $45,000 from my wallets — what I did wrong and what crypto must get right — DL News

On the eve of an early morning flight to Nigeria’s capital, Abuja, Binance executive Tigran Gambaryan had a choice to make.

A small carry-on or a large suitcase?

“He was like, ‘I don’t need a bigger suitcase, right?” Yuki Gambaryan, his wife, recalled in an interview Thursday. “‘Because I’m gonna be there only for two days.’”

That was in February. Now, more than three months later, Gambaryan is still in Nigeria and enduring an ordeal neither he, his family, friends, or colleagues could ever have imagined.

As he languishes in prison on what his lawyer says are bogus money-laundering charges, Yuki is frustrated Washington hasn’t done more to help her husband. A former investigative agent for the Internal Revenue Service, Tigran is Binance’s head of financial crime compliance.

“I am shocked at how long it took for us to get to this point,” she told DL News in an exclusive video interview. “It feels like the US government just got to the starting line now, which should have happened a long time ago.”

On Tigran’s second day in Nigeria, officials seized his passport and installed him in a “guest house” where he was kept under guard. On his fourth day, they obtained a court’s permission to keep him there for two weeks.

About four weeks later, officials took Tigran’s phone, and the government’s anti-corruption ministry and tax agency charged him with facilitating money laundering and tax evasion.

‘I didn’t get up to say goodbye or wish him a safe tri. And I regret it. Every single day.’

Yuki Gambaryan

They moved him to a detention facility in the basement of a government building.

After six weeks in Nigeria, Tigran was transferred to a medium-security prison that incarcerated Boko Haram and Islamic State terrorists.

Hostage taking

In the ensuing weeks, he would be denied bail and, potentially suffering from malaria, faint on the first day of his trial in May.

Tigran’s Nigerian attorney has called his arrest “state-sanctioned hostage taking.”

Even though a judge ordered prison officials to transfer Tigran to a hospital, Yuki told DL News he has been denied care. His trial was postponed until June 20.

In the meantime, Tigran has missed his son’s fifth birthday and pre-kindergarten graduation. He turned 40 in prison. On Saturday, he and Yuki, a 37-year-old translator of Japanese, would have celebrated their 15th wedding anniversary.

“All he did was go into a meeting — that’s all he did,” she said in disbelief. “And now he’s sitting in prison. … That just cannot be happening.”

An urgent trip

The ordeal began in February when Tigran and his colleague Nadeem Anjarwalla, Binance’s Kenya-based regional manager, flew to Abuja to meet with Nigerian officials.

After Nigeria’s currency, the naira, collapsed at the beginning of the year, the government was pointing the finger at Binance.

They said the crypto exchange, which was operating without a licence in Africa’s most populous nation, was facilitating manipulation of the currency as well as illicit financial transactions. Binance denies the allegations.

It fell to Gambaryan and Anjarwalla to assuage the Nigerians’ anger. And the situation was urgent.

“Usually when he travels internationally, it starts to get organised maybe two weeks, three weeks prior, but that was not the case,” Yuki said. “It just came up out of nowhere.”

She expressed her concerns. But Tigran was calm. In any case, he had no choice but to go, he told Yuki.

Around 4 am on the day of his flight, she heard him walking around their Atlanta-area home making last minute preparations.

“I didn’t get up to say goodbye or wish him a safe trip, which I usually do,” she said, her voice breaking. “But I just didn’t do it, because it was just so early in the morning. And I regret it. Every single day.”

‘That’s the sacrifice he made for the country, for the government. So I expected a lot more.’

Yuki Gambaryan

When he arrived in Abuja on February 25, he texted Yuki to let her know he’d checked into his hotel.

She wouldn’t hear from or about him for another 30 hours. When she got a call from a family friend who also works at Binance, she was calm. He told her Tigran had been detained.

“When I actually heard it, I basically felt, like, ‘OK, I saw that coming,” she said.

She kept her composure until February 27. Then she received a call from the US embassy in Nigeria and an official there confirmed his arrest.

“That’s when I started freaking out in earnest,” she said.

‘Coercion tactic’

Yuki began reaching out to her state and congressional representatives and government officials.

Her efforts have borne fruit: On Wednesday, Rich McCormick, the Republican who represents the Gambaryans’ Georgia House district, and 15 of his colleagues implored the White House to help get Tigran released.

“Mr. Gambaryan’s detainment has been marked by excessive and harsh treatment,” they wrote in a letter to President Joe Biden and other officials.

“It is crucial to emphasise that the charges against Mr. Gambaryan are baseless and constitute a coercion tactic by the Nigerian government to extort his employer, Binance.”

US lawmakers want the Biden Administration to send a special envoy to Nigeria to negotiate his release. More than a hundred former federal prosecutors and agents echoed that demand in their own letter to Secretary of State Antony Blinken.

Yuki said she was very grateful for the lawmakers’ letter, but added that she expected a swifter response from the US government, especially given Tigran’s tenure at the IRS.

During his 10-year employment at the agency, Tigran was involved in some of the government’s most high-profile investigations and often worked well past midnight, Yuki said.

He would spend as much as half the year travelling for work, leaving Yuki to raise their two kids.

“That’s the sacrifice he made for the country, for the government,” she said. “So I expected a lot more.”

Working around-the-clock

As for Binance, the company insists he had no decision-making authority at the company and has urged the Nigerian government to understand holding him is unfair.

Binance has told Yuki it’s working around-the-clock to bring him home.

“They keep telling me there is this huge group of people within the company who have been working on this case day and night,” she said. “If that’s true, how is it possible that he’s not home yet? It’s been three months.”

‘Inconsolable’

In the days immediately after his arrest, Tigran was detained in a government-owned residence where he was provided freshly made smoothies each morning and allowed to use his phone, DL News previously reported.

Two weeks after Anjarwalla’s stunning, Hollywood-esque escape from Nigerian custody on March 22, however, Tigran was transferred to the notorious Kuje Prison.

Since then, Yuki has received updates from Binance and Tigran’s attorneys in Nigeria, but she has only spoken to him twice: last week and the week prior. Each call lasted about two minutes, and was monitored by a prison guard.

“We just basically asked each other how are you doing, how are you, physically? I miss you, I love you, stay strong,” she said.

“He sounded fine. He always sounds fine. That’s what he does for the sake of me, so I don’t have to worry about him.”

But his tenor masked the fact he’d fallen gravely ill. In addition to a chest infection, a spokesperson for Yuki told DL News he appears to have contracted malaria, a potentially deadly, mosquito-borne infection common in West Africa.

“We have yet to see a single test result, however he had all the symptoms,” the spokesperson said. Normally fit, Tigran has looked gaunt and stressed in his court appearances.

Tigran’s mother, who ‘basically raised him all by herself,’ is ‘inconsolable,’ Yuki said.

After his courtroom collapse on May 23, a judge ordered that officials take him to a hospital to receive treatment.

It doesn’t appear they have complied — after about three hours and “some tests,” he was sent back to Kuje, according to Yuki. Nigerian officials have not shared the results of those tests with her.

Tigran’s mother, who “basically raised him all by herself,” is “inconsolable,” Yuki said. “I don’t even know how to describe her state.”

Something’s wrong

She has yet to tell their children that Tigran has been arrested.

Accustomed to their father’s frequent travelling, their five-year-old son is none the wiser, she said. But their 10-year-old daughter is more circumspect.

“She can tell something’s wrong,” Yuki said.

When her daughter first asked why Tigran had been gone so long, Yuki said, vaguely, that he was dealing with “things.” A few days later, her daughter asked, “what exactly are those things that he has to deal with?”

“I told her the company he works for is having an issue with another country,” Yuki said. “And it’s taking a long time to resolve it.”

With reporting by Osato Avan-Nomayo in Lagos.

Aleks Gilbert is a DeFi Correspondent at DL News. Got a tip? Email him at aleks@dlnews.com.

Almost a dozen firms are competing to launch spot Ethereum exchange-traded funds. But crypto heavyweight ARK Invest isn’t one of them.

“ARK believes in its transformative potential and the long-term value of the Ethereum blockchain, but, at this time, ARK will not be moving forward with an Ethereum ETF,” an ARK spokesperson told DL News.

ARK Invest issued a spot Bitcoin ETF in January alongside 21Shares, a firm that specialises in launching crypto investment products. And the two firms seemed ready for another round, filing for an Ethereum ETF jointly.

No surprise there: The massive success of the Bitcoin ETFs suggests Ethereum ETFs could quickly accumulate billions of dollars in assets with even a fraction of the demand.

But a recent filing showed that ARK has dropped out of the partnership and that 21Shares will pursue a spot Ethereum ETF on its own.

Expensive products

There are a couple reasons why ARK may have changed its mind.

For one, launching an ETF is expensive — and in the case of the spot Bitcoin and Ethereum ETFs, the fees are so low that issuers don’t always make a profit.

“Although Bitcoin ETFs have done well in terms of assets, the issuers face profitability challenges due to fee compression and the relatively high costs of the crypto-related fund service providers,” Will Cai, managing director of indices of Kaiko, a crypto research firm, told DL News.

ARK and 21Shares’ Bitcoin ETF is one of the most successful funds out of the 10 that launched in January. Coming in third behind BlackRock and Fidelity, it has vacuumed up almost $3.5 billion in assets in five months — an impressive performance by normal ETF standards.

Even so, with fees at 0.21%, it may be hard for ARK and 21Shares to break even on the product. They still must pay their Bitcoin custodian — in this case, Coinbase — as well as administrative fees, their cash custodian, and other things like transfer agents.

“This could well put pressure on the terms of the partnership when there isn’t much profit to go around,” Cai said.

Waiting for staking

There’s also the possibility that ARK is waiting for the Securities and Exchange Commission to greenlight spot Ethereum ETFs that also provide staking services.

“We will continue evaluating efficient ways to provide our investors with exposure to this innovative technology in a way that unlocks its full benefits,” the ARK spokesperson told DL News.

In their current design, the ETFs will provide pure exposure only to Ether’s price, without the roughly 3% yield that investors can earn by staking their Ether.

In other words, not only will investors have to pay a fee to ETF issuers for the exposure to Ether, they will be missing out on opportunities to grow their holdings in Ether terms.

“There’s one massive idiosyncratic factor with ETH that will affect demand and that’s staking,” Adam Morgan McCarthy, a Kaiko analyst, told DL News.

“Even paying 0.20% fees without the staking element seems like a nonstarter to me,” he added.

Tom Carreras is a markets correspondent at DL News. Got a tip about ARK or Ethereum ETFs? Reach out at tcarreras@dlnews.com