Just as US politicians were finding common ground over crypto, the bipartisan bliss vanished over an old divisive issue — central bank digital currencies.

The rift over CBDCs was on full display on Thursday, when the House of Representatives voted to prohibit the Treasury from creating a digital dollar without explicit authorisation from Congress.

The bill, dubbed the CBDC Anti-Surveillance State Act, was sponsored by Tom Emmer, a Republican from Minnesota and one of the crypto industry’s biggest congressional allies.

“For more than two years, we have worked to educate, grow support, and pass this important legislation, which prevents unelected bureaucrats from issuing a financial surveillance tool to fundamentally undermine our American values,” Emmer said in a statement on X.

The renewed political entrenchment came during a week when crypto watchers had noted a sense of bridge-building on Capitol Hill across two pro-crypto bills.

The CBDC vote seemingly shattered that illusion.

What are CBDCs?

CBDCs are digital currencies issued by central banks.

They are also a hot button issue in the escalating entrenchment over digital money in the US.

The pro-crypto and predominantly Republican crowd, led by freshly minted crypto bro Donald Trump, warn that CBDCs could supercharge government surveillance.

The anti-crypto and mostly Democratic camp, spearheaded by long-term industry sceptic Joe Biden, has instead opted to focus on how CBDCs can make digital transactions faster and cheaper, and come with the government’s imprimatur, unlike cryptocurrencies.

Three countries have already launched CBDCs, according to the Atlantic Council, a think-tank: Nigeria, Jamaica, and the Bahamas. Another 36 countries are currently piloting their own CBDCs.

The US is considering doing the same.

“We are looking carefully, very carefully at the question of whether we should issue a digital dollar,” Federal Reserve Chairman Jerome Powell told the Senate banking committee in 2021.

The vote

House Republicans want to put a stop to that.

On Thursday, 213 Republicans voted in favour of the bill. None voted in opposition.

Only three Democrats crossed party lines to support the bill. Another 192 voted in opposition.

The sharp partisan split was a notable departure from Wednesday’s bipartisan vote on the Financial Innovation and Technology for the 21st Century Act, a bill supported by crypto industry lobbyists.

It also came after the Senate voted to repeal the Securities and Exchange Commission’s controversial SAB 121 accounting policy, which has been criticised for putting unjust pressure on crypto custodians.

Even the partial approval of spot Ethereum exchange-traded funds on Thursday could be interpreted as Washington warming up to crypto.

“It feels like someone at the Biden White House made a call and said ‘Guys, we can’t be the party against crypto anymore,’” Galaxy Digital CEO Mike Novogratz told CNBC earlier in the week.

CCP-style surveillance

Speaking on the House floor Thursday, Republican Patrick McHenry defended the anti-CBDC bill.

“If not open, permissionless and private, a central bank digital currency is no more than a CCP-style surveillance tool waiting to be weaponised,” he said.

“We’ve previously seen examples of governments and governments around the world weaponising the financial system against their own citizens.”

Maxine Waters, a Democrat from California, said banning CBDCs would threaten the dollar’s dominance in international markets, and urged her colleagues to reject the bill.

“Compared to other digital assets, CBDCs have a greater potential to maintain a stable value, garner public trust, and become a viable means of payment transactions,” she said.

“A United States CBDC would be designed to protect consumer privacy and other deeply held American values.”

The bill would need approval from the Senate to become law.

Politico reported that the Democrat-controlled Senate is unlikely to vote on it.

Aleks Gilbert is a DeFi correspondent based in New York. Have a tip? You can reach him at aleks@dlnews.com.

Ethereum traders are piling into bets on the cryptocurrency’s price, sending a key market metric to a record.

Crypto traders love to speculate via derivative contracts with no settlement date called perpetuals, dubbed perps.

Ethereum perps’ so-called open interest — which reflects the demand for contracts — soared to all-time highs of over $10.7 billion this week.

That’s according to research firm Kaiko, which attributed the market frenzy to optimism about US approval of Ethereum exchange-traded funds, which has buoyed the cryptocurrency’s price.

Analysts see open interest as a valuable metric to assess sentiment.

Ethereum jumped more than 22% over the last week amid a sudden shift in hopes that the Securities and Exchange Commission would greenlight the ETFs.

The SEC seemed poised to deny the applications as late as last week. That changed when Bloomberg ETF analyst Eric Balchunas flagged that “the SEC could be doing a 180 on this” amid political pressure — investors then considered approval a done deal.

The SEC granted approval on Thursday.

Kaiko noted signs of bullishness elsewhere in the market. The funding rate for Ethereum perps jumped from -0.02% on Saturday to 0.03% by Tuesday.

A high funding rate often indicates heightened demand for long positions in the market — traders holding those positions are willing to pay a premium to maintain them.

That’s a sign of optimism about the longer-term price.

Bitcoin hit new highs just weeks after the US Securities and Exchange Commission approved spot Bitcoin exchange-traded funds.

The move let institutions gobble up more than $12 billion worth of the original cryptocurrency, according to data from pseudonymous analyst Hildobby.

Ethereum investors might not be so lucky.

Several indicators suggest institutional interest in Ethereum is much lower than it was for Bitcoin, according to researcher Noelle Acheson, former head of market insights for Genesis Global Trading.

She isn’t the only pessimist.

Bloomberg Intelligence ETF analyst Eric Balchunas expects Ethereum ETFs to be “10-15% of the assets of the BTC ETFs.”

The SEC had long fought against the approval of spot crypto ETFs, arguing they were vulnerable to manipulation.

After losing a lawsuit filed by crypto asset manager Grayscale Investments, the SEC capitulated in January with the approval of 11 spot Bitcoin ETFs.

Still, it had signalled it would deny applications for spot Ethereum ETFs.

That changed this week, amid a flurry of pro-crypto developments in the US.

On Monday, Balchunas and his colleague James Seyffart updated their odds of spot Ethereum ETF approval to 75% from 25%.

That approval came Thursday, but the actual launch may be weeks or months away. And whether it drives Ethereum to its own all-time high is another matter.

“When/if the ETH spot ETFs eventually launch, we should brace ourselves for a disappointing reception,” Acheson wrote in her newsletter, Crypto is Macro.

That’s in part because institutional investors have shown little interest in existing Ethereum-based products.

In Hong Kong, which approved spot Bitcoin and Ethereum ETFs last month, Ethereum accounts for less than 15% of the assets under management, Acheson notes.

In the US, meanwhile, investors already have access to Ethereum futures ETFs. And they aren’t that interested.

“The [assets under management] of the leading ETH futures ETF (EETH) is around 4% that of the leading BTC futures ETF (BITO),” Acheson writes.

As for the spot Ethereum ETF itself, available data suggests institutional interest might be lacking there as well.

“The CME is the largest BTC derivatives platform in the market, in terms of open interest,” Acheson writes.

“But it ranks only fifth in ETH derivatives. US institutional investors are maybe just not really into the ETH narrative?”

To be sure, open interest in Bitcoin was highest on Binance, with CME taking the top spot just before the approval of spot Bitcoin ETFs in January.

There’s evidence that’s already happening with Ethereum: CME was in the sixth spot at the beginning of the week.

And Wall Street executives have repeatedly said they see potential in Ethereum.

“Remove the regulatory uncertainty around proof of stake and watch how Wall Street runs to ETH,” investor Jim Bianco wrote on X, referring to the method Ethereum uses to confirm transactions and create new coins.

“It is an entire ecosystem with borrowing, lending, insurance, tokenomics, staking (yield), stablecoins, NFTS, primitives, L2s, and on and on. Plenty for them to work with here as opposed to hodl-ing one coin,” he said.

Crypto market movers

Bitcoin is down 3.2% at $67,297 over the past 24 hours.

Ethereum is down 3.4% at $3,679.

What we’re reading

With Ethereum ETFs poised to rock the US market, Europe asks ‘what took you so long?’ — DL News.

Kabosu, The Iconic Shiba Inu Behind Dogecoin, Passes Away At 18 — Milk Road.

Why ETH Isn’t Moving Higher After SEC Approves Key Filings for Spot ETFs — Unchained.

Congress Urges SEC For Consistent Review Of Bitcoin And Ethereum ETF Applications — Milk Road.

UK snap election upends crypto legislation and triggers questions — what will Labour do? — DL News.

Aleks Gilbert is a DeFi correspondent based in New York. Have a tip? You can contact him at aleks@dlnews.com.

Spot Ethereum exchange-traded funds are coming.

The Securities and Exchange Commission validated Thursday essential documents for the launch of Ethereum ETFs — all but guaranteeing their eventual approval.

“BOOM!! APPROVED! There it is. The SEC just approved spot Ethereum ETFs,” Bloomberg Intelligence ETF analyst James Seyffart posted. “What a turn of events. It’s really happening.”

Nine different ETFs — issued by BlackRock, Fidelity Investments, Grayscale Investments, VanEck, Invesco and Galaxy Digital, ARK Invest and 21 Shares, Hashdex, Franklin Templeton, and Bitwise — will likely launch.

These are almost the same firms that launched spot Bitcoin ETFs back in January, with only Valkyrie missing.

After months of radio silence, the SEC seemed poised to deny the applications as late as last week.

But following a major shift in attitude in Democratic Party leadership, the agency began frantically communicating with prospective ETF issuers on Monday, and even told concerned exchanges that it was leaning toward approving the products.

The reason for the rush? Thursday marks a crucial deadline on VanEck’s application. Blowing past that deadline would have amounted to rejecting the application.

But it’s not only VanEck’s problem. Just like with the spot Bitcoin ETFs, the SEC likely wants to approve all potential Ethereum ETFs at the same time to avoid giving an advantage to any one specific product. So every issuer needed to hurry to be ready by VanEck’s deadline.

What now?

Two essential forms need to be finalised for ETFs to be approved by the SEC: 19b-4 filings, and S-1 filings.

On Thursday, the SEC approved 19b-4 filings for the Ethereum ETFs, but because the agency’s change of heart was so unexpected, it likely still needs a few weeks — or even months — to review S-1 filings.

“The SEC spent nearly four months reviewing and iterating Bitcoin spot S-1s and five months reviewing Bitcoin futures S-1s,” Scott Johnsson, an associate at international law firm Davis Polk & Wardwell, wrote.

“If the division of Corporation Finance indeed was told about this potential approval [on Monday], then they’re likely just getting started,” he added.

It’s unlikely that the SEC would ratify one set of documents and not the other. So the 19b-4 approvals indicate the agency will most probably officially greenlight the products in the near future.

In other words, the Ethereum ETFs will likely launch sometime this summer.

Seismic shift in Washington

The SEC’s about-face this week came shortly after a group of prominent Democrats, including Senate majority leader Chuck Schumer of New York, voted with Republicans to repeal a controversial crypto accounting rule called SAB 121.

Since then, the Republican-led pro-crypto bill known as the FIT21 Act passed with a bipartisan vote of 279 in favour and 136 in opposition.

The Democratic Party’s sudden friendliness came as a shock to the industry — for a long time, most of its members seemed content to fall behind crypto critic Senator Elizabeth Warren of Massachusetts.

The trigger may have been the growing contrast between former President Donald Trump and President Joe Biden.

Trump, historically crypto agnostic, recently said he will support the industry if re-elected. Biden, meanwhile, threatened to veto a motion to repeal SAB 121 despite bipartisan support for the repeal.

With Trump leading Biden in the polls six months ahead of the presidential election and with crypto super PACs raising over $150 million to push forward pro-industry candidates, sometimes in swing states, Democrats’ aversion against crypto made less and less sense, according to Galaxy Digital CEO Mike Novogratz.

“It almost became a purity test — Republican good for crypto, Democrat bad for crypto. And the Democratic regime woke up and said ‘This is crazy,’” he said.

Bitwise Asset Management chief investment officer Matt Hougan, for his part, said Ethereum ETFs wouldn’t have gotten the nod without the help of Wall Street banks.

The success of spot Bitcoin ETFs “woke Wall Street up to the reality that there is a lot of money to be made in custodying crypto assets,” Hougan said. So they began lobbying in favour of repealing SAB 121 — and for more crypto assets to play with.

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

The second-largest derivatives platform on Solana by daily volume, Zeta Markets has mounted a major campaign to claim the top spot. Since it runs on Solana’s public blockchain network, Zeta offers the best of both worlds: the speed and user experience of a centralised exchange, and full self-custody and transparency for users.

Zeta is one of the most-used, fully on-chain Central Limit Order Book (CLOB) perpetuals exchange on the market today.

With Zeta, users enjoy:

Security: Full self-custody of assets, USDC margined;

Capital efficiency: Up to 10x leverage with cross margin;

Price discovery without centralisation: Fully on-chain CLOB;

Institutional liquidity: Programmatic connectivity to smart contracts using SDK / CPI programmes for market makers and other integrations;

Gamification: Leaderboard, referrals, and trading rewards;

User-friendly experience: Extremely fast and intuitive trading UI for web and mobile;

Quick start: Deposit from Solana or other chains in one transaction on the Zeta interface.

Decentralised perpetual contracts exchanges (perp DEX) registered an all-time high in monthly trading volume in March 2024 at $317 billion, representing 395% year-on-year growth, according to DefiLlama. Solana simultaneously witnessed its largest growth in derivatives trading volume, at 244%. Zeta is the major driving force behind this growth in the perp DEX sector, as its volume soared by 397% over the same period.

Last month, the company unveiled plans to release Solana’s first L2 rollup. This month, even more details of future plans emerged when the company published the release schedule and planned incentives for $Z, its soon-to-be-launched governance token.

The token generation event (TGE) will kick-start the following unlocks: An initial airdrop of 8% of the $Z supply distributed to traders, with loyalty boosts for early users. Initial stakers of $Z will qualify for an additional 2% airdrop, issued in the form of staked $Z 1 epoch (28 days) after the TGE.

Traders will receive incentives comprising 30% of the total supply over 90 months, while 22.5% unlocked over 24 months will be committed to the Community Treasury to fund multi-year growth initiatives. These include liquidity provisioning, as well as Zeta’s creator and ambassador programmes. Finally, the $Z token distribution airdrop will see 20% allocated to contributors and 17.5% to investors.

Zeta’s goal is to compete with central exchanges in speed, cost, user experience, and security, while providing the benefits of DeFi, that is, self-custody, accessibility, and the ability to co-own the protocol and participate in governance.

For traders, trading more on Zeta will earn Z-Score, which will determine allocation of $Z upon airdrop and post-airdrop platform incentives. More Z-Score, more $Z. Users can earn more with Z-Score multipliers, for example, a 10% boost if they use a referral link. Users also earn 10% of referred fees, and 10% of referred Z-Score on a lifetime basis for all referrals. In the last two months alone, users on Zeta referred more than $1bn of trading volume.

The company also recently announced it has raised a $5m strategic round, bringing total funding to $13.5m to-date. The round was led by Electric Capital, with participation from DACM, Airtree, and prominent angel investors such as Anatoly Yakovenko of Solana and Mert Mumtaz of Helius. Wintermute, Jump Crypto and Solana Ventures are investors in previous rounds.

To date, Zeta has processed over 6.5m trades and $7.5bn in volume, with more than 100,000 monthly users. Most of these metrics are growing at an average of 50% each month. Find out more about Zeta Markets and experience perpetuals at the speed of light today.

At Otonomos we help our blockchain native clients set up and manage real-world legal entities. Few topics are more interesting to us than that of DAO legal structuring.

DAOs are an essential part of DeFi, and they are growing fast. DeepDAO estimates there are now 13,000 decentralised autonomous organisations (DAOs) in existence, with a total treasury worth $24.4bn. Projects such as Uniswap, Compound, and MakerDAO show the success of DAOs in enabling decentralised management and execution of on-chain finance protocols.

Others, such as Decentraland and Friends with Benefits, demonstrate the role that DAOs can play beyond decentralised finance. The promise of DAOs is vast, and the gains are already all around us. So too, however, are the pitfalls.

Pull quote

Radically democratic consensus mechanisms risk inefficiency, inertia, and voter apathy.

Attribution text

Block quotePull quote

Inefficient governance bedevils DAO projects: A poorly constructed DAO risks re-creating many of the worst issues of pre-blockchain organisational life. Radically democratic consensus mechanisms risk inefficiency, inertia, and voter apathy. Token holding whales, meanwhile, can recreate the excesses of oligarchic control, using their voting power to disadvantage other DAO members.

Catastrophic legal risks: DAO setup problems can go well beyond creating an inefficient system - at their worst, they expose DAO creators and token holders to massive liabilities. Unless good structuring is put in place, DAOs risk being seen as unincorporated associations or general partnerships, with potentially disastrous effects. In 2023, one notorious US decision held DAO token holders jointly and severally liable for the activities of the DAO itself. (1)

To be successful, DAO projects should consider our tips for real-world legal tooling.

Legal structuring, yes. Wrappers, no.

Pull quote

Sensing opportunity and hoping to attract DAO clients, jurisdictions like Wyoming and the Marshall Islands have rushed out new entity types like a DAO limited liability company

Attribution text

Block quotePull quote

As on-chain and decentralised entities, DAOs are currently somewhat at odds with traditional legal structures. Sensing opportunity and hoping to attract DAO clients, jurisdictions like Wyoming and the Marshall Islands have rushed out new entity types like DAO LLCs. However, such efforts are of limited utility in shoehorning an essentially participatory governance protocol into a hierarchical, centralised legacy legal form. We therefore deem the notion of a DAO ‘wrapper’ flawed, as it limits the new experimental forms of decentralised governance.

To be actually useful for the real world, DAO projects may need:

Operational capacity: To create and issue tokens, manage and give real-world effect to on-chain voting decisions, and to be able to distribute grants and rewards to real-world individuals and organisations that help develop the DAO.

A suitable constitution: Governance and consensus mechanisms that work for their needs.

Legal personality: DAOs need to be able to act as a unified entity, a single point of reference that can validly contract with real-world partners.

Limited liability: DAO projects must be capable of limiting liability for project leads and token owners. If not, then every member of a DAO project is potentially liable when things go wrong.

Effective decentralisation: Unless DAO projects are actually decentralised, project members and token holders fall prey to a raft of regulations, including at least one element of the SEC’s ‘Howey test’.

Achieving all of this is well beyond any single wrapper. Instead, DAO projects should proactively use of entity stacks, which would typically include an interplay between a foundation, token issuance entity, and operational companies.

Entities including the Cayman Islands Memberless Foundation or the Panama Foundation, combined with entities in the British Virgin Islands or Panama, which issue and distribute the project’s token, as well as operational “lab” entities elsewhere, go a long way in minimising regulatory risk. As Web3′s leading entity assembler, Otonomos can help you fit your DAO into a multi-jurisdictional entity jigsaw to ensure your projects are both operationally effective and maximally decentralised.

Book a call with Otonomos to learn how we can help you.

In the US, the crypto industry is buzzing in anticipation ahead of an expected approval of spot Ethereum exchange-traded funds.

But nations across the Atlantic are already miles ahead with similar crypto investment products.

The London Stock Exchange, for one, will begin handling Bitcoin and Ethereum exchange-traded products for the first time by the end of May.

Numerous ETPs

And in Europe, there are already multiple Ethereum financial products, or ETPs, on the market. They include exchange-traded notes and exchange-traded commodities, which operate in similar ways to ETFs.

But the products, which have been on the market for years, haven’t caught much steam. That’s because Europeans are less keen on risky investments and prefer stability, experts say.

“If we’re talking about where’s the alpha going to come from, it’ll be the place with the deeper capital markets and more eager investor base driving the inflows to push these things upward,” Erwin Voloder, head of policy at the European Blockchain Association, told DL News.

Digital asset investment firm 21Shares launched its Ethereum Staking ETP in 2019, and Ethereum ETPs from VanEck and CoinShares made their debutsin 2021.

But inflows are relatively small.

The 21Shares’ Ethereum ETP has over $307 million assets under management, and VanEck’s has a total net assets of $175 million.

Meanwhile, in the US, institutional investors are already prepared to pour $500 million into Ethereum ETFs over the next week if they are approved, according to an analysis by the OKX exchange.

Enthusiasm in the US

The products follow the price of Ether and allow investors a way into crypto through a bank or investment firm without having to open a crypto wallet or an account with a crypto platform.

For proponents, crypto ETFs and ETPs provide digital assets with validation and a bridge to broader financial markets.

The US Securities and Exchange Commission approved 11 Bitcoin spot ETFs in January. The two biggest funds, launched by BlackRock and Fidelity Investments, have vacuumed up more than $30 billion between the two of them as of Thursday.

But there are stark differences between Europe and the US.

Europe has “more of an ecosystemic approach” to innovative finance, according to Voloder.

With legal frameworks for crypto assets starting to come into effect this year and other investment guidelines from regulators, lawmaking sets the foundations.

‘Even if Europe has the regulations, our investor base has always lagged behind America.’

Erwin Voloder

“EU regulators are more proactive and US regulators are more reactive which is why you see broker dealers launching digital asset structured products in Europe,” Voloder said.

“Regulations enable innovation and experimentation,” he added. This is what allows financial institutions to test tokenised financial instruments.

But still the size of the capital markets is reflected by that underlying divergence.

“Even if Europe has the regulations to enable innovation, our investor base has always lagged behind America,” Voloder said.

Crypto ETPs beyond Ethereum

Cardano Staking ETP by Liqwid began trading on Deutsche Börse exchange group on Wednesday. The product is domiciled in Switzerland.

“Switzerland is at the forefront, as staking is regulated here, allowing us to build products incorporating staking—something not yet possible in the US,” Florian Volery, co-founder of Liqwid Finance, told DL News in an email. He is hopeful that the US will eventually catch up.

The DeFi entrepreneur expects to see actively managed ETFs that include other crypto assets like Bitcoin or Solana in an investment strategy.

“This development is a game changer for the crypto industry, making it mainstream and a dedicated investment category within the asset and wealth management industry,” Volery said.

Inbar Preiss is a Regulation Correspondent at DL News. Contact her at inbar@dlnews.com.

Just when the UK was poised to move on new crypto legislation, comes a surprise — a snap election.

Now that Conservative Prime Minister Rishi Sunak called a general election on July 4, crypto leaders are resigned to an unforeseen delay in laws that are designed to stoke blockchain technology startups in Britain.

Ian Taylor, board adviser to trade body CryptoUK, told DL News the development will probably delay long-sought legislation for crypto companies by at least six months.

Even worse, the delay comes as competitors — the European Union, Dubai, Hong Kong, and even the US — are accelerating their rollout of rules and regulations for a burgeoning industry that is going mainstream.

“It’s net negative, really, because we are laggards,” Taylor said. “We’re behind the rest of Europe firstly, and then other jurisdictions in Asia and the Middle East.”

To be sure, the long-term growth of the crypto industry in a nation powered by a global financial centre, ample investment capital, and durable entrepreneurial class shouldn’t be derailed by an election cycle.

“Both parties have committed to language around making the UK a hub for digital financial services,” Isabella Chase, senior policy adviser at crypto sleuthing firm TRM Labs, told DL News.

Yet in the short-term, existing legislation for crypto companies in lawmakers’ pipeline may be stalled.

More crypto rules looming

Zooming out, the regulatory narrative in the industry has been upended in the last month.

In the US, which crypto leaders have long decried as a litigious mess, there is suddenly a dose of clarity as Congress acts on sweeping crypto legislation. Moreover, crypto has become something of a hot-button issue in the 2024 presidential contest.

Donald Trump, the presumptive Republican Party nominee, has discovered his inner Bitcoin bro. And President Joe Biden, the Democrat running for a second term, is confronting some thorny political questions as Congress gets busy on crypto.

Meanwhile, across the English Channel the European Union is moving forward with a raft of crypto and blockchain regulatory changes, including MiCA, the landmark regulatory regime.

Back in Britain, the political state of play has been muddied.

Sunak pledged to make the UK a global hub for crypto asset technology in 2022. But the Labour Party, which is leading the Tories by 21 percentage points in the polls, has yet to lay out a detailed crypto policy.

Entrepreneurs and investors in the UK’s crypto scene must now adjust to the strong likelihood a new government will be in place in six weeks with little affinity for their industry.

“We are still waiting to see Labour’s full plans for the industry,” George McDonagh, co-founder of digital assets investor KR1, told DL News.

Still, there are some clues.

In January, Rachel Reeves, who is expected to become Chancellor of the Exchequer should Labour win on July 4, said there is a need to embrace innovation, including tokenisation of securities and a central bank digital currency.

“But nothing about crypto,” Taylor said.

Any hope that Sunak would pull off an upset and maintain continuity in crypto policy appeared to wash away on Wednesday.

Making his election announcement in pouring rain outside No. 10 Downing Street, Sunak was drowned out by a protester blasting a Labour Party anthem from nearby loudspeakers.

Hardly desirable optics for a prime minister who’s trailed the opposition in the polls for months.

Industry ally

Sunak’s government has positioned itself as an ally to the industry. His ministers have urged regulators not to undermine crypto companies by stifling innovation and enforcing rules too strictly.

Industry observers had also expected to see the government’s rollout of finalised regulations for the industry — including rules for crypto issuance, exchange, investment, custody, and lending — come to fruition in 2024 alongside new rules for stablecoins.

The agenda has now had to hit the breaks.

“That will put companies off coming to the UK, insofar as founders, companies setting up like to have clarity,” Taylor said.

“They like to be able to know what they’re doing and be able to plan for the future,” he continued. “If it’s going to take longer than, say, going to another jurisdiction that already has some legislation in place, then I see that as a problem.”

Inbar Preiss is a Regulation Correspondent at DL News. Eric Johansson is DL News’ News Editor. Got a tip? Email them at inbar@dlnews.com and eric@dlnews.com.

On the second day of Tigran Gambaryan’s money laundering trial in Nigeria, the jailed Binance executive was called to the dock.

He immediately fainted.

Supported by one of his lawyers, Gambaryan was helped to a chair to recover.

The head of Binance’s financial crime compliance unit looked gaunt and stressed, proceedings in the Abuja court monitored by DL News on Thursday showed.

Doctor’s note

Gambaryan’s lead attorney, Mark Mordi, attributed his client’s collapse to his worsening health as he completes his eighth week of incarceration in the African nation’s prison system.

Mordi presented the court with a doctor’s note, but did not disclose details of Gambaryan’s condition.

Mordi asked the court for an adjournment to allow his client to receive medical attention, and Justice Emeka Nwite agreed.

He fixed June 20 and 21 for the resumption of the trial.

The development marks yet another grave turn in the crisis that has befallen Binance, the world’s biggest crypto exchange, in one of Africa’s most important markets.

Nigeria’s Economic and Financial Crimes Commission charged Gambaryan, a colleague, and Binance itself in April with money laundering in connection with $35 million in transactions.

In addition, Nigeria’s Federal Inland Revenue Service, or FIRS, indicted the company and the executives in April on alleged tax violations.

Not guilty

Binance, Gambaryan, and Nadeem Anjarwalla, the company’s regional head based in Africa, have denied money laundering the charges. And Gambaryan has pleaded not guilty.

On May 17, the court rejected his bid to be released on bail during the trial after finding him to be a flight risk.

However, court proceedings for the tax violation trial have suffered numerous setbacks with the most recent happening on Wednesday as legal proceedings were stalled when Gambaryan did not appear in court.

FIRS blamed the Nigerian Correctional Service, which is in charge of the nation’s prisons, for failing to deliver the Binance executive to court.

The tax agency was planning to arraign Gambaryan on the tax charges.

The delay on Wednesday prompted the court to postpone the tax violation arraignment to July 14.

Parlay

Binance’s crisis in Nigeria has escalated from a regulatory dispute to a full-blown criminal case.

Nigeria’s government blamed Binance for causing the country’s currency woes by allegedly allowing foreign exchange racketeers to operate on its peer-to-peer trading platform.

Binance sought to settle the dispute by sending two of its executives to parlay with government officials in February but ended up having its employees detained by the government.

Red notice

Gambaryan, a former special agent of the US Internal Revenue Service based near Atlanta, and Anjarwalla, a British lawyer, were detained in late February and held in a government guest house.

Anjarwalla escaped a month later with a Kenyan passport and is the target of an Interpol red notice.

Binance has condemned Gambaryan’s prolonged incarceration with the company CEO Richard Teng stating that the executive has no decision-making powers and should not be held responsible for company policies and practices.

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.

When Ethereum’s Ether token hit an all-time high of $3,800 in May 2021, the increased activity on the chain sent transaction fees soaring as users piled in.

They became accustomed to spending upwards of $100 just to trade tokens onchain. But many didn’t care — there was money to be made.

Fast-forward to 2024, and Ethereum is revisiting those heady prices for the first time in over two years. But this time’s different.

Despite prices jumping from the recent Ethereum spot ETF U-turn, transaction fees on the top smart contract network remain low — only slightly higher than they were during the depth of the 2022 crypto winter.

It’s a sign that demand for transactions on Ethereum isn’t what it used to be.

So, what gives?

Increases in transaction efficiency, coupled with an exodus of activity to Ethereum’s lower-cost layer 2 networks, like Base and Arbitrum, have helped temper demand and make Ethereum cheaper to use.

While this is great for Ethereum users, there are downsides.

With transaction fees on Ethereum mainnet plummeting, the network is failing to burn — crypto speak for destroy — enough tokens to make the Ether supply deflationary.

Critically, if fees stay low, it could throw the network’s economic model into question.

Ethereum becomes too efficient?

When the Ethereum network destroys more tokens from transaction fees than those it rewards to validators for processing those transactions, the total supply of Ether shrinks and becomes deflationary.

This situation is favourable for the network as it rewards those who help run the network without inflating the supply of Ether.

But if users don’t spend enough Ether on transactions, the Ether supply will inflate indefinitely, breaking the network’s economic model.

Persistent inflation, while unlikely, would devalue Ether and make it less appealing for users to lock up in validators to secure the network. After all, an asset that keeps printing units is better spent than saved.

So far, the Ether supply has shrunk in aggregate since Ethereum slashed issuance of new Ether with its September 2022 Merge upgrade.

But that’s changing. Over the past month, the lack of Ethereum activity meant the network added over 50,000 Ether, worth $190 million.

If activity and fees spent on Ethereum don’t pick back up, the supply of Ether will inflate by 0.5% — or $2.2 billion — over the coming year.

Where are the fees going?

In recent years, many Ethereum users have switched over to so-called layer 2 networks.

Layer 2s like Arbitrum, Optimism and Base offer Ethereum compatibility, faster transactions, and lower costs, while still relying on the main Ethereum network for security.

Activity has exploded. Since the start of 2024, activity and trading volume on layer 2s have soared to all-time highs.

These layer 2s still pay transaction fees on the main Ethereum network, but only a fraction of what it would cost had everyone using the layer 2 sent transactions on the Ethereum mainnet.

What’s more, Ethereum’s March Dencun upgrade cut the already low cost of posting layer 2 transaction data, further decreasing mainnet demand.

Elsewhere, developers are improving the cost that governs Ethereum transactions. The result is reduced gas costs, meaning users pay less in fees for the same kinds of transactions.

With Ethereum more efficient than ever, and a thriving layer-2 ecosystem, how will the network avoid economic turmoil?

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.

With investors anticipating approval of an Ethereum ETF in the US on Thursday, all eyes are turning to which cryptocurrency may be next.

For many, there’s a clear candidate — Solana.

“You got to think about Solana as probably the next one,” said CNBC presenter Brian Kelly on Wednesday. “Bitcoin, Ethereum Solana are probably the big three for this cycle.”

It’s not a bad call.

Joe McCann, CEO of crypto investment firm Asymmetric Finance and self-proclaimed Solana maxi, said SOL must be on deck given its stature in the market.

SOL is up more than 68% this year, according to CoinGecko. And with a market value topping $77 billion, Solana is the fifth biggest cryptocurrency.

Juiced DeFi market

The advent of an Ethereum ETF four months after spot price Bitcoin funds hit the market is juicing the DeFi market. Ether has jumped 29% in the last seven days, which is around six times better than Bitcoin.

Solana, meanwhile, has done even better thanks to its savvy embrace of memecoins earlier this year, and unorthodox ventures like the rollout of a new mobile phone called Chapter 2.

‘A Solana ETF similar to the ETH vehicles should bring no reasonable objection.’

Michael Cahill, Doura Labs

But the big story is how Wall Street powerhouses such as BlackRock, which used to ridicule crypto, are now falling over themselves to package cryptocurrencies into cheap and easy-to-trade exchange-traded funds.

Along with BlackRock, Van Eck and Fidelity have applied to issue Ethereum ETFs. The US Securities and Exchange Commission is expected to green-light the products on Thursday.

As a proof-of-stake token just like Ether, Solana may benefit from regulators’ familiarity with the product design.

“Technically speaking, a Solana ETF that has similar unstaked characteristics to the ETH vehicles being reviewed should bring no reasonable objection,” Michael Cahill, CEO of Doura Labs, told DL News.

“Given the developer activity, I view a SOL ETF as having a greater than 75% of listing this year, and over 95% next year.”

Then again, the bulls may be getting a little carried away.

Polymarket, the prediction market closely followed by crypto investors, reports that a Solana spot ETF has a 7% chance of approval in 2024.

The betting pool is small, too, with just over $100,000. This signals the proposition isn’t attractive enough for speculators.

Solana futures?

Nate Geraci, co-founder of the ETF Institute and President of the ETF Store, is equally pessimistic. At least not until the market sees Solana futures contracts.

Long before the spot Bitcoin ETF was approved, future contracts for Bitcoin were approved to trade on the Chicago Mercantile Exchange, one of the largest derivatives exchanges in the world. Likewise for Ethereum.

Geraci also said that before a Solana ETF can be approved, Congress must approve a clear regulatory framework for digital assets in the US.

Sweeping legislation

Spot price ETFs, of course, are typically marketed to retail investors, although institutions make good use of them as well.

While regulators have long balked at exposing retail investors to crypto ETFs, a number of developments appear to be ploughing the ground for altcoin funds.

On Wednesday, the US House of Representatives passed the FIT21 bill, a sweeping piece of legislation to govern digital asset markets. The bill garnered support from 71 Democrats, which is important because the party has been less supportive of crypto in the past.

The bill still needs to pass the Senate, and President Biden has signalled he doesn’t like the legislation. The White House said it would work with Congress to develop a regulatory framework for the industry.

Is that enough to make Solana a real contender?

Not for a while, say sceptics.Then again, it was only a few months ago when the prospect of an Ethereum ETF seemed the longest of long shots.

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

Institutional investors are ready to pour $500 million into Ethereum ETFs over the next week if they are approved Thursday, according to analysis by OKX, the crypto exchange.

“It’s probably just as, if not more, important as the Bitcoin ETF approval,” Lennix Lai, OKX’s global chief commercial officer, told DL News.

“The potential approval of Ethereum to be traded as a proxy under a traditional framework could bring about the next wave of institutional demand,” Lai said.

Fever pitch

Anticipation is building to a fever pitch after the US Securities and Exchange Commission appeared this week to drop its long-held resistance to approving a spot price exchange traded fund for Ethereum.

Ethereum has soared 24% since Monday and boosted the proof-of-stake sector — Lido Staked Ether, for instance, is up 27% in the last seven days, according to CoinGecko.

Several applicants — such as BlackRock, Invesco Galaxy, Fidelity, and Franklin Templeton— are eagerly awaiting the SEC’s decision.

Asset manager VanEck is, however, first in line to get either a thumbs up or down from the regulator.

While Van Eck’s head of digital assets research said on Wednesday that it expects the SEC to respect the queue, any approval will likely be extended to other applicants to avoid the agency being seen as kingmaker.

Investors expect Ethereum ETFs to follow a similar course to the rollout of Bitcoin funds in January.

Ten such products have been trading at volumes exceeding $1.5 billion since January.

Record rally

The advent of Bitcoin ETFs and Wall Street’s embrace of the asset class spurred a record rally across crypto. This year, the sector’s market value has skyrocketed 50% to $2.7 trillion.

An Ethereum counterpart could excite animal spirits even more. Bernstein analysts’ predicted this week that Ether will surge to $6,600 if the funds are approved.

“Ethereum could potentially surpass its all-time high soon after a potential ETH ETF approval,” Lai said.

An Ethereum ETF will make it easier and cheaper for retail investors to buy exposure to the second most valuable cryptocurrency.

“Like the Bitcoin ETF before it, an Ethereum ETF will be a significant milestone for the industry,” Jean-Baptiste Graftieaux, CEO of Bitstamp, told DL News.

Cost for exchanges

Yet there may be a cost for crypto exchanges such as Coinbase and Kraken.

ETFs enable traders to access the asset class without using digital wallets or industry-native exchanges. Going mainstream, in other words, has many effects.

Yet Lai downplayed the long-term risk for exchanges and said the ETFs will provide a gateway for newcomers to crypto.

“It may actually expand the overall market size, including volume and participants, meaning it’s complementary rather than cannibalistic,” he said.

Crypto market movers

Bitcoin is down 1% over the past 24 hours to $69,550.

Ethereum is up 2.5% to $3,830.

What we’re reading

Solana dev says new crypto phone ‘feels like madness’ — but it already has $65m in pre-orders — DL News.

Coinbase, Meta, And Ripple Unite To Fight Pig Butchering Scams — Milk Road.

Why Spot Ether ETFs Are Now Likely to Be Approved on Thursday — Unchained.

SEC Chair Gary Gensler Warns Crypto Bill Poses Risks To Investors And Capital Markets — Milk Road.

Three experts on when you can buy an Ethereum ETF — DL News.

Eric Johansson is DL News’ News Editor. Got a tip? Email on eric@dlnews.com.

Senior Democrats broke ranks last week and voted in favour of repealing SAB 121, a controversial crypto accounting rule.

Thank Wall Street banks.

That’s according to Bitwise chief investment officer Matt Hougan, who wrote that the vote “signals a much bigger trend: the emerging alliance between Wall Street, crypto, and Washington.”

“It is a massive positive catalyst that I think will lift crypto to new all-time highs,” Hougan added.

Political shift

The vote to repeal SAB 121 was an overture to two political bombshells in the industry.

First, the Securities and Exchange Commission asked spot Ethereum exchange-traded fund applicants to resubmit their applications, sparking speculation that approval is all but a done deal.

Then, the Republican-led pro-crypto bill known as the FIT21 Act passed with a bipartisan vote of 279 in favour and 136 in opposition.

Both votes and the potential ETF change came as crypto is increasingly being seen as a potential issue for voters in the November presidential election.

President Joe Biden has sided with anti-crypto party members, while his rival and Republican frontrunner Donald Trump has planted himself in the pro-crypto camp.

Biden appointee Gary Gensler, whose SEC has lead a crackdown on the digital asset industry, is often a target of industry ire.

So what happened?

“It feels like someone at the Biden White House made a call and said ‘Guys, we can’t be the party against crypto anymore,’” Galaxy Digital CEO Mike Novogratz told CNBC.

The vote

Biden threatened to veto the vote to repeal the SAB 21 provision if approved.

A number of prominent Democrats — including Senate majority leader Chuck Schumer — sided with Republicans and defied Biden to vote for the repeal.

Top Democrat Nancy Pelosi also voted with the majority and sided against Biden, saying in a statement:

“Digital currency is already integrated into our economy and will only grow in significance in the years to come.”

Until then, the Democrats’ voice on the crypto issue was lead by Massachusetts Senator and crypto critic Elizabeth Warren.

Wall Street steps in

The success of spot Bitcoin ETFs “woke Wall Street up to the reality that there is a lot of money to be made in custodying crypto assets,” Hougan said.

For every $1 million worth of, say, Bitcoin that banks have on their balance sheet, they need to hold $1 million in cash.

Banks and financial firms saw the SAB 121 rule, unique to crypto, as expensive and hindered the advent of new crypto products for consumers.

Goldman vs Tether

Banking giant Goldman Sachs posted a net profit in the first quarter of $4.13 billion. Stablecoin company Tether says it made $4.52 billion in profit over the same period.

Hougan pointed out that a coalition of bank lobbying groups that pressured the SEC in February to loosen its grip on crypto regulation.

Wall Street firms are among the largest industry donor to Schumer’s campaign fund, Hougan noted, adding that Wall Street’s pressure on Washington will benefit crypto in the long-run.

“If Wall Street cares about crypto custody, the things that increase demand for crypto custody — like more ETFs — become more likely. If Wall Street cares about stablecoins, the things that increase demand for stablecoins become more attractive,” Hougan said.

“Compared to the overt hostility we’ve faced from DC over the past decade, this is huge progress.”

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

The US House of Representatives voted to pass a landmark crypto bill as digital assets become a political football mere months ahead of the presidential election.

The Republican-led Financial Innovation and Technology for the 21st Century Act, known as the FIT21 Act, passed with a bipartisan vote of 279 in favour and 136 in opposition. More than 70 Democrats voted for the bill, while 133 voted in opposition.

The bill promises to set clear rules for digital assets long sought by the crypto industry.

Hours before the vote, the Biden administration said it was against the bill, but didn’t threaten a veto — a relief for the industry.

The bill would end the “food fight for control” of crypto being fought between the Securities and Exchange Commission and the Commodity Futures Trading Commission, said Republican Rep. Patrick McHenry of North Carolina, co-sponsor of the bill and chairman of the House Financial Services Committee.

“This is the biggest moment in crypto policy and legislating in United States history thus far,” Rashan Colbert, head of policy at open-source software developer and decentralised trading platform dYdX Trading, told DL News.

Senate challenge ahead

The FIT21 bill will next need to make its way through the Senate. Looming elections mean that priorities may shift.

“There’s a decent chance that progress stops after this vote, but that doesn’t mean that this is a useless exercise,” said Colbert, a former US Senate staffer.

The progress is important symbolically, Colbert said, and it shows the political will to regulate the digital assets market. It also creates a reference point for a bipartisan agreement on how to regulate crypto.

And even if the bill doesn’t pass in its current form, its provisions could make their way into other laws.

What’s in the bill

The bill is tailored for digital assets and offers an unprecedented framework for the industry. It passed out of the House Financial Services and Agriculture Committees with bipartisan support in July.

FIT21 sets up definitions for crypto assets, and divides responsibility between the Commodity Futures Trading Commission and Securities and Exchange Commission.

The rules would grant the CFTC, which is considered friendlier to the industry, more jurisdiction of the sector. Definitions determine whether an asset would be subject to SEC or CFTC oversight.

Decentralised finance is outside of the bill’s purview.

The rules would provide an “enhanced level of comfort knowing that we have explicit authority to keep doing what we’re doing, which is really all they want at the moment,” Colbert said.

The vote comes on the heels of another political win for crypto. Last week, the US House and Senate voted to repeal controversial accounting guidance from the SEC, called SAB121.

At the same time, the industry is anticipating regulators’ approval of spot Ethereum exchange-traded funds.

More backlash

The White House wrote in a brief on Wednesday that the bill “in its current form lacks sufficient protections for consumers and investors who engage in certain digital asset transactions.”

But, notably, the White House said it will work on developing a regulatory framework for digital assets with Congress.

Democrat Rep. Maxine Waters of California has called FIT21 a “wish list of big crypto and is undeserving of any of our support.”

The bill’s impact isn’t limited to crypto, Waters said on Wednesday.

FIT21 would move crypto as well as some traditional securities from SEC oversight into a “regulatory no-man’s land, with no primary regulator,” she said. She called it the “worst, most harmful proposal I have seen in a long time” and predicted a recession if it passed.

So did Massachusetts Democrat Stephen Lynch, who called it a “radical rewrite of the securities laws of this country.”

As crypto and traditional financial markets start to merge, he predicted that volatility in the crypto market would lead to catastrophe in the traditional financial market.

“This will cause havoc in our financial markets, eventually,” Lynch said.

While Wednesday’s comments also fell along party lines — with Republicans supporting the bill and Democrats urging their colleagues to vote “Nay” — several Democrats voiced their support.

Rep. Wiley Nickel, a Democrat from North Carolina, said the US was “relying on a 90-year-old securities law, written before the internet was even invented.”

“We can’t wait for the next FTX to take action,” he added.

SEC Chair Gary Gensler, considered a foe of the industry, said that the bill poses a risk to markets and investors.

FIT 21 would “undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk,” Gensler said in a statement on Wednesday.

The SEC has charged key players in the industry, including ConsenSys, Coinbase, Kraken, and Robinhood Market’s crypto businesses, with securities violations.

Industry experts say that SEC requirements aren’t applicable to or designed for digital asset issuers.

“For far too long, the US digital asset ecosystem has been plagued by regulatory uncertainty that has stifled innovation and left consumers unprotected,” McHenry said in a statement earlier this month.

Industry support

“The absence of clear rules leads to confusion in the marketplace for companies – and leaves users and consumers unprotected,” the Blockchain Association wrote in a letter to lawmakers in the Senate on Monday.

“This lack of clarity impedes innovation and hamstrings companies, harming America’s standing in the global technology race.”

Last week, dozens of crypto firms — including Coinbase, Andreessen Horowitz, and Kraken — signed an industry letter organised by the Crypto Council for Innovation in support of FIT21.

“The US lags behind other major jurisdictions in developing a regulatory framework for digital assets,” the letter said, adding that American innovators may migrate elsewhere.

“It is crucial for the US to maintain its leadership in financial innovation.”

McHenry echoed the sentiment Wednesday.

“We’re falling behind Europe,” he said. “This bill catches [us] up so that we do not lose out on innovation policy to the Europeans, to the folks in the UK, to Singapore, to Japan, to Hong Kong.”

Inbar Preiss is DL News’ regulation correspondent. Contact the author at inbar@dlnews.com. Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.

New stablecoins are being minted at a rapid pace in 2024.

Nearly $30 billion have been minted so far this year, with a surge on Tuesday, presumably because of the increased odds that the Securities and Exchange Commission will approve spot Ethereum exchange-traded funds on Thursday.

The two largest stablecoin issuers, Tether and Circle, minted $1.25 billion in stablecoins on Tuesday. Tether minted $1 billion USDT on Ethereum, and Circle minted $250 million USDC on Solana.

Generally, increases in the stablecoin supply are a bullish indicator, because traders use stablecoins to purchase other cryptocurrencies.

Now, large amounts of stablecoins may be used to buy Ethereum in an attempt to front-run traditional investors, especially given the spot Bitcoin ETFs attracted nearly $16 billion in investments since their launch in March.

The process

This bullishness is explained by the process through which Tether and Circle issue new stablecoins.

For both entities, minting begins with a know-your-customer, or KYC, process, which includes standard identification checks and sanctions screenings. Additional documents may also be requested as needed.

Tether allows anyone who passes the KYC check to mint USDT, including individual traders, while Circle permits only registered businesses to mint USDC at scale.

After passing a KYC check, users can deposit fiat currency into Tether or Circle bank accounts. The funds are held in reserve to ensure each stablecoin is backed by at least $1 of fiat currency or cash equivalents.

Tether’s reserves can be monitored here, and Circle’s reserves can be monitored here.

Once funds are deposited, the stablecoin issuer confirms the validity of the deposit and issues the stablecoins to the provided wallet address.

To withdraw funds, users send USDT or USDC to the respective issuer.

The issuer then removes the stablecoins from circulation and transfers the equivalent USD amount from its reserves to the user’s bank account.

Demand for crypto

An increase in minted stablecoins indicates higher demand for crypto exposure, and a decrease suggests reduced demand.

With USDT, newly issued tokens can be “authorised but not issued,” meaning they aren’t included in the total market capitalization.

This method batches mints together, reducing security risks by minimising the number of interactions Tether needs with the minting smart contracts.

For example, although Tether issued $1 billion USDT on Tuesday, according to Tether’s transparency page, $997 million USDT is considered authorised but not issued on Ethereum.

Tether’s USDT is the largest stablecoin, with a market capitalization of $111.3 billion while Circle’s USDC is the second-largest stablecoin, with a market capitalisation of $32.7 billion.

Both stablecoins can be used on more than 70 different blockchains.

Overall, stablecoin minting has ramped up in 2024, as the total market capitalisation has risen to $160.6 billion from $130.8 billion at the start of the year.

That has coincided with an overall increase in crypto prices, as the total market capitalisation for all cryptocurrencies has risen to $2.7 trillion from $1.8 trillion at the start of the year.

Ryan Celaj is a data correspondent at DL News. Got a tip? Email him at ryan@dlnews.com.

Don’t expect spot Ethereum exchange-traded funds to launch immediately after the Securities and Exchange Commission greenlights them.

Up until Monday, the SEC seemed poised to deny all applications for Ethereum ETFs, and the agency’s sudden change of heart has surprised both its staff and prospective issuers.

Now, with a crucial deadline looming, it’s likely that the SEC will approve in all-but-official terms the investment products on Thursday— but it will probably still need more time to sort through paperwork before the ETFs can launch.

“There will be days (at a minimum), likely at least weeks, and potentially months between approval and launches here,” Bloomberg Intelligence ETF analyst James Seyffart posted.

“It will be weeks, not months, but all of us are just making educated guesses,” Eric Balchunas, another Bloomberg Intelligence ETF analyst, told DL News. “The intel will come soon though, we’ll know for sure.”

SEC filings

At issue are two sets of filings that prospective ETF issuers must get sorted: 19b-4 filings and S-1 filings.

19b-4 filings are signed off by the SEC’s Trading and Markets division, while S-1 forms are handled by the regulator’s division of Corporate Finance.

It’s only after they’re both finalised that the SEC can officially greenlight the products.

All prospective ETF issuers need their 19b-4s in order by Thursday if they want their product ready for launch day. That’s because a crucial deadline for VanEck’s 19b-4 filing is coming up: If the SEC doesn’t approve that filing by then, it will be as if the agency rejected the application.

But it’s not just VanEck’s problem. Just like with the spot Bitcoin ETFs, the SEC likely wants to approve all potential Ethereum ETFs at the same time to avoid giving an advantage to any one specific product. So every issuer needs to rush to get that document ready by VanEck’s deadline.

However, once the 19b-4s are approved, the SEC and prospective issuers have a lot more time to finalise S-1 filings.

“The SEC spent nearly four months reviewing and iterating Bitcoin spot S-1s and five months reviewing Bitcoin futures S-1s,” Scott Johnsson, an associate at international law firm Davis Polk & Wardwell, wrote.

“If the division of Corporation Finance indeed was told about this potential approval yesterday, then they’re likely just getting started,” he added.

In other words, the SEC will likely signal on Thursday that it will be approving the Ethereum ETFs by finalising the 19b-4 filings — but it will only officially greenlight them later on, possibly this summer, once the S-1 filings are dealt with as well.

“A month would be a pretty quick turnaround,” Johnsson said. “That’s basically a single turn of SEC comments.”

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

Crypto deposited in Aave, the largest decentralised lending protocol, is approaching a level not seen since the crash of Terra’s UST stablecoin two years ago.

The value of crypto deposited in Aave topped $19.5 billion Wednesday, its highest figure since May 9, 2022, according to DefiLlama data.

It’s the latest sign that DeFi has recovered from the myriad cataclysms of 2022 that wiped two-thirds of the industry’s market capitalization.

It’s also a sign that crypto traders are rushing to double down on Ether after ETF watchers said the Securities and Exchange Commission was likely to approve spot Ether exchange-traded funds in the coming days.

Earlier this year, the launch of spot Bitcoin ETFs sent Bitcoin soaring to new heights. Ether peaked in November 2021 at $4,800. Ether was recently trading at $3,763, down less than 1% in the past 24 hours.

Lending protocols like Aave help traders obtain leverage, a way to supercharge their gains — and their losses. It is built on top of a dozen blockchains, but roughly 90% of the dollar value of deposits are on Ethereum and its layer 2 blockchains, such as Arbitrum.

On Monday, Bloomberg Intelligence analysts James Seyffart and Eric Balchunas amended their odds of the SEC approval of spot Ether ETFs to 75% from 25%, prompting a 20% jump in the cryptocurrency’s value.

Traders have rushed to Aave in the days since.

In the seven days preceding the Bloomberg analysts’ announcement, more than $450 million in crypto flowed into Aave V3, the latest iteration of the protocol. Since Monday, crypto worth more than $517 million has been deposited in V3.

The amount of crypto borrowed on Aave topped $6.7 billion Wednesday, its highest level since May 9, 2022.

Aleks Gilbert is a DeFi correspondent based in New York. Have a tip? You can contact him at aleks@dlnews.com.

Investor activity on zkSync is buzzing once again amid speculation that the blockchain’s much-anticipated airdrop is imminent.

DeFi users have deposited about $47 million into zkSync since Tuesday, DefiLlama data shows.

By comparison, Polygon drew $8 million in flows during the same period, the second highest among all blockchains.

ZkSync, an Ethereum layer 2 blockchain, hasn’t seen this level of inflows since March when memecoin speculation reached a fever pitch.

Speculation of a zkSync airdrop kicked into gear last week when Matter Labs, developers of the blockchain, announced the final network upgrade before it will hand the project’s governance to the community by the end of June.

DeFi-inclined users deduced that announcement to mean the release of zkSync’s native token that will be used to govern the blockchain.

Part of this token release event could also include an airdrop for early adopters ― DeFi users who have conducted a transaction on zkSync.

ZkSync competitors Optimism and Arbitrum also used a token launch and airdrop to begin their decentralised governance process.

Matter Labs hasn’t published any official literature on the airdrop, but reports emerged this week that it could happen on June 13.

That would make June a big month for airdrops with investors also expecting airdrops from DeFi protocol LayerZero and blockchain network Blast.

The Block reported that zkSync’s token generation will happen this month with a supply count of 21 billion tokens.

Splitting a project’s token generation event and the actual airdrop is uncommon in crypto. But Ether restaking protocol EigenLayer chose that method with the tokens locked to prevent a price dump that often happens immediately after airdrops.

ZkSync, along with LayerZero, has been among the most anticipated crypto airdrops, and both have attracted significant farming activity and fears of possible sybil activity.

Farming means completing transactions on DeFi protocols or blockchains to become eligible for possible airdrops.

Sybil farming takes that up several notches by deploying a cluster of wallet addresses to game the process and ensure a greater-than-average share of the token distribution.

LayerZero has already advised mercenary airdrop hunters to self-report or lose their token allocation.

Matter Labs hasn’t publicly stated its anti-sybil protocols, if any.

The developers didn’t immediately respond to a request for comment.

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.

At first glance, Steven Laver doesn’t seem like the guy who would be leading the most audacious project in crypto.

The 43-year-old software engineer worked on the BlackBerry back in the 2000s, and then helped develop the Windows Phone app store at Microsoft.

He didn’t even work in crypto until early 2022.

Nevertheless, Laver is now the lead software engineer on Solana Labs’ push to change the crypto experience by putting blockchain capabilities in the palm of your hand.

“This has that big, sky’s the limit energy,” Laver told DL News in a rare interview. “This feels like madness, but at the same time, this feels like the end result.”

That result is Solana’s second mobile phone.

It’s called Chapter 2 and is slated to come out in early 2025. Preorders for the new device cost $500, and Solana says it has more than 130,000 preorders. That’s $65 million in preorders.

Bold bet

It’s a bold bet for the four-year-old blockchain network. Mobile telephony, one of the most regulated industries on the planet, is dominated by Apple and Samsung.

Why would Solana, a DeFi stalwart with a token worth $82 billion and one of the hottest brand names in crypto, make such a huge gamble on manufacturing hardware?

“It’s a tough, tough ask,” Chris Lewis, an independent telecoms analyst with over 40 years in the industry, told DL News.

The answer: control.

The Chapter 2 is Solana’s bid to liberate crypto from the desktop and the domination of the app platforms at Apple and Google.

The Silicon Valley powerhouses have long plagued crypto-friendly mobile developers by charging huge fees or banning apps from their platforms.

In a world where investing, shopping, banking and everything else happens on a smartphone, crypto is still fighting for a foothold.

“We’re used to everyone bringing a laptop to dinner, so you don’t miss a drop or a claim,” Emmett Hollyer, head of business development and product at Solana Labs, told DL News.

Memecoin madness

Solana, of course, isn’t the first crypto venture to try and pry open the incumbents’ grip.

Over the last decade, more than a dozen bespoke crypto phones have hit the market. But none have gained meaningful traction.

Last year, Solana gave it a shot with the Android-powered Solana Saga. Customers scooped up about 20,000 of the $600 handsets, which was well short of the 50,000 unit goal.

In comparison, Apple shipped more than 80 million iPhones in the fourth quarter alone.

But Saga hit on what has emerged as a not-so-secret weapon in crypto phone development — memecoins.

The device was delivered with a dog-themed memecoin called BONK. Somehow, collectors fell in love with BONK and its price soared 560% last December.

When investors scrambled for the phone on secondary markets, Hollyer and his team realised they’d stumbled on a new type of marketing play.

Now they’re producing a sequel.

‘Consumer hardware is hard, but phones are an order of magnitude beyond that.’

Steven Laver, Solana

While the company declined to disclose how much money it is investing in Chapter 2, it’s not a small number.

“Consumer hardware, in general, is hard, but phones are an order of magnitude beyond that,” Laver said. “Building a phone is an exercise as much in operations, logistics, and compliance as it is the underlying technology.”

The project comes as Solana rides a wave of momentum. Its native token, SOL, has soared 78% this year compared to a 64% jump in the price of Ethereum, according to CoinGecko.

With a market value of $81 billion, Solana is the fifth biggest digital asset.

Solana has also largely captured the red-hot memecoin market. Activity was so high in March that the network generated more fees than heavyweight Ethereum — no small task.

Lingering questions

Still, questions linger about the wisdom of launching a mobile phone.

“What is it you’re bringing in,” Lewis said. “Is it just the security? Is it a new interface? Is it the latest chip power? I think those are the questions you’ve got, and then to be able to build the brand and get it out into the market.”

And, perhaps most importantly, is there really demand for a crypto phone?

Deep roots

Solana’s project has deep roots in Silicon Valley’s mobile scene.

It sprang from a little-known but well-regarded project called Essential, which was founded by Andy Rubin, the brains behind Android at Google.

After Essential shut down in 2020, some staffers launched another mobile company called OSOM. A couple of years later, it developed the OV1 phone, which, sporting a ceramic, titanium body, became a cult fave.

If you look closely, it also looks a lot like the Solana Saga. That’s because they are almost the same. Solana Labs and OSOM announced a partnership in June 2022.

In February 2022, Laver landed at Solana right in the thick of the Saga development.

A Canadian native, Laver studied computer science at the University of Waterloo in Ontario (the same alma mater as Ethereum co-founder Vitalik Buterin).

Iconic products

Laver was present at the creation of several iconic products. He worked on a whole range of BlackBerries, made by the Canadian firm Research in Motion, which introduced handheld emailing and texting to corporate life.

At Microsoft, Laver worked on what would become the Windows Phone app store. He’s also dabbled in other consumer electronics products such as the smart watch manufacturer, Fitbit, plus stints at Apple and Google.

‘There’s a lot of low- and mid-budget Android phones that feel like a cheap car dashboard from the late ‘90s.’

Steven Laver, Solana Labs

From the get-go, Laver said the Saga was designed to have a satisfying heft in the hand and an elegant matte finish.

“There’s a lot of low- and mid-budget Android phones that feel like a cheap car dashboard from the late ‘90s,” said Laver.

Solana’s device was engineered with three features not found on normal handsets.

The first was called the Seed Vault.

This stores the seed phrases users employ to send and receive crypto. Saga’s security is somewhere in between an internet-connected crypto wallet such as Phantom or MetaMask and the vault-like Ledger, said Laver.

It’s not meant to hold millions of dollars of crypto, but you could buy a few cocktails with it.

Challenging Apple and Google

The Solana Mobile Stack lets mobile app developers build crypto apps for the phone. And the Solana dApp Store provides projects with a marketplace for their handiwork.

It’s designed to be an end run around the Apple App Store, which has taken down some of the larger crypto apps in the industry, perhaps most notably MetaMask in October. It was later reinstated.

In-app purchases on the Apple app store are also subject to a whopping 30% fee.

As for Google’s Play Store, it eased its crypto policy last summer. But it, too, typically charges developers fees between 15% and 30%.

Laver says the Solana Labs team is going to let crypto be crypto.

“We take a much lighter hand with our policy,” he said. “We’re trying our best to get out of the way.”

Profit centre

Solana Labs doesn’t charge any fees, except for the costs for posting the app’s metadata to the Solana blockchain.

“This isn’t a profit centre for us,” said Laver.

The platform already includes the NFT marketplace Magic Eden and the decentralised exchange Jupiter.

‘We need to find a way to give builders a reasonable path to distribution.’

Emmett Hollyer, Solana Labs

Hollyer hopes it puts pressure on Silicon Valley to take a more enlightened approach to crypto.

“Hopefully, Google and Apple will come to their senses and see what could be possible if they relax some of their fee structures and some of their restrictive policies,” he said. “Until then, we need to find a way to give builders a reasonable path to distribution.”

Solana recently recorded its 100th dapp.

“We’re just starting to get to this point where developers are starting to see the value of building for a phone like Saga,” Laver said.

BONK goes boom

But the big change in the Solana phone development was BONK, the $2.1 billion meme coin. Solana threw in $750 in BONK tokens with every phone.

When the token skyrocketed in December, 30 million BONK tokens were integrated directly into the Solana Saga phone. An arbitrage trade emerged.

“With the BONK, I bought other memecoins,” Lui Kohl, product manager at token vesting platform Streamflow, told DL News. “Overall, I think I turned $800 BONK into $4,000, so it was monetarily well worth it.”

Thanks to BONK buzz, Hollyer said Solana was able to sell the rest of its phones in three days.

The episode also spurred anticipation in Chapter 2, which will come loaded with five memecoins. Kohl, for one, has already pre-ordered the phone.

Absorbing the lessons of crypto mobile marketing, Laver conceded he was “personally a little confused.”

“Blockchain is just a little different,” he said. “At the end of the day, putting a real physical product, that is well integrated, in people’s hands, that’s why I do this.”

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

Hong Kong authorities on Wednesday ordered the eyeball-scanning crypto startup Worldcoin to cease all operations in the region after a months-long investigation.

The Hong Kong Privacy Commissioner’s Office said the images Worldcoin collects of people’s faces and irises are “unnecessary and excessive,” and violated the city’s data protection principles.

“If members of the public notice that Worldcoin is still operating at any premises with the iris scanning devices in Hong Kong, please report the matter immediately to the PCPD,” Privacy Commissioner Ada Chung Lai-ling said in a statement released on May 22. The PCPD stands for the privacy agency.

Latest setback

It’s the latest setback for the crypto project founded by Sam Altman, the Silicon Valley entrepreneur and CEO of OpenAI.

In classic startup fashion, Worldcoin set up eyeball-scanning orbs around the world without getting licenced or approvals from regulators.

The business is predicated on using biometric data to establish the “humanness” of people in a digital world that is increasingly populated by AI bots and other programmes.

So far, it’s scanned more than 5.3 million people, according to its website. In exchange, it provides volunteers with digital tokens called WLD.

More than a half dozen nations — including the UK, France, Portugal and Brazil — have either directed the company to stop violating the privacy of volunteers, including minors in Spain, or opened probes into the platform.

It’s also the latest in a string of public relations fiascoes for Altman.

This week, OpenAI was forced to pause the rollout of the voice for a ChatGPT personal assistant because it sounded too closely like the voice of actor Scarlet Johansson.

Her lawyers demanded the company cease using the voice.

Worldcoin has previously told DL News it is working to comply with privacy regulations in multiple jurisdictions.

The company did not respond to a request for comment for this article.

Proof of personhood

Worldcoin has big backers in its corner.

Tools for Humanity, a venture that acts as the lead developer of the Worldcoin project, has raised $240 million from top shelf venture capitalist firms such as a16z, Tiger Global, and Coinbase Ventures.

In March, Portugal temporarily prohibited the Worldcoin Foundation from collecting biometric data after saying it had received complaints that underage volunteers had been scanned.

Spain has also temporarily banned Worldcoin from operating in the country, citing privacy concerns, while authorities in Germany, the UK, and France are also investigating the project.

Yet Hong Kong’s watchdogs appear to have executed the most comprehensive probe and prohibition of the venture, including the use of covert visits by investigators.

Six violations

Between December and January, they used warrants to raid six premises involved in the operation of the Worldcoin project and found the same number of violations.

Officials argued that because those operating Worldcoin’s iris scanners were already in a position to verify the humanness of volunteers, the collection of biometric data was unnecessary.

“Taking into account biometric data is sensitive personal data, any wrongful disclosure or leakage of such data could lead to grave consequences,” the PCPD said.

‘Worldcoin failed to provide adequate information to participants.’

Hong Kong privacy officials

The PCPD also considered that Worldcoin had unfairly collected participants’ data.

Officials said device operators did not confirm volunteers’ understanding of a privacy notice and biometric data consent form.

It also did not inform them of potential risks to disclosing biometric data, and did not confirm volunteers were over the age of 18 before scanning their irises.

“Worldcoin failed to provide adequate information to participants to enable them to make an informed choice or give real consent,” the PCPD said.

The PCPD also said Worldcoin was not justified in retaining biometric data for a maximum of 10 years, “merely for the purpose of training AI models for the user verification process.”

A complaint also called into question the legitimacy of Worldcoin’s Proof of Personhood system.

While Worldcoin uses biometric data to prove a volunteer’s uniqueness, the software isn’t perfect.

In 2022, Worldcoin discovered an exploit that operators used to fool the iris scanners into creating multiple signups for the same person, Forbes reported.

Suspected errors

Additionally, Worldcoin’s biometric data consent form said that Worldcoin’s software might mistakenly conclude that someone had already signed up before.

The PCPD said Worldcoin did not have means for volunteers to report suspected errors.

“The PCPD therefore considered that participants did not have the means to exercise their data access and correction rights.”

The PCPD said Worldcoin confirmed that there were 8,302 individuals with their faces and irises scanned for verification during its operation in Hong Kong.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.