A version of this article appeared in our The Decentralised newsletter on May 21. Sign up here.

GM, Tim here.

Here’s what caught my DeFi-eye recently:

The pump.fun exploiter is out for blood.

US prosecutors bring first-of-its-kind MEV case.

TVL on Telegram’s TON blockchain jumps.

Is Solana’s pump.fun in trouble?

Pump.fun, a Solana-based platform for memecoin launches, is back after a temporary shutdown following a $2 million exploit.

But the exploit could just be the beginning of the protocol’s troubles.

Accused exploiter Jarret Reginald S Dunn posted a confirmation that he had been arrested and released on bail by UK police over the weekend.

Now he’s hitting back with accusations of his own against the pump.fun team.

Dunn, who other pump.fun developers say previously worked on the project, accused it of running the UK equivalent of an unregistered securities exchange, or a gambling site with no license.

Pump.fun is currently one of Solana’s most successful projects. Days before the exploit, it generated over $1.2 million in fees in 24 hours — more than the Solana blockchain did in the same period.

If pump.fun faces legal issues and shuts off again, it could kneecap activity on Solana.

But Dunn’s case against pump may be weak.

He’s already appeared to take credit for the exploit, and later said he’s been accused of stealing the $2 million with conspiracy to steal another $80 million.

In the UK, the legality of pump.fun is unclear. But still, its developers likely won’t want to have to defend themselves in court.

Pump.fun did not respond to a request for comment.

US prosecutors bring $25m MEV case

US prosecutors allege a pair of MIT-educated brothers made off with $25 million by targeting crypto trading bots on the Ethereum.

Such trading bots, which rearrange transactions on blockchains for profit, have long existed in a legal grey area. While some trading bots do exploit users, others help maintain efficient markets.

Some say the first-of-its-kind case could signal that more actions against those operating crypto trading bots are coming.

But as always, the devil is in the details.

It appears that the point of contention for prosecutors is that the alleged perpetrators targeted private transactions to extract the funds.

Normally, trading bots can only target publicly-broadcast transactions. However, in this case, the brothers are accused of gaining access to private transactions to trick other trading bots into buying $25 million worth of illiquid tokens.

Those targeting publicly-broadcast transactions for MEV strategies appear to be safe — for now.

TON hits TVL all-time high

Assets deposited to DeFi protocols on Telegram’s TON blockchain briefly hit an all-time high of $270 million.

The boost could be the start of the messaging app converting its 800 million monthly active users into crypto degens.

Helping fuel the rise is Tether’s deployment of its USDT stablecoin on the TON blockchain in April. USDT is the biggest crypto stablecoin with over $111 billion in circulation.

TON has a crypto wallet integrated into the Telegram app, allowing users to send USDT to their contacts worldwide directly from the app.

Users can also earn an annual yield of up to 50% on USDT stored in their TON wallet, paid in TON, the blockchain’s native token.

The TON token rallied some 31% after venture firm Pantera Capital announced an investment in the blockchain on May 8.

While TVL is up, it’s unclear if this recent increase is translating into increased activity.

Data of the week — what’s happening on TON?

The TON blockchain’s TVL spiked again at the start of May, pushing the metric briefly to over $270 million.

But at the same time, other metrics, like trading volume, didn’t show a similar increase.

Historically, increases in blockchain TVL usually result in increases in trading activity.

This week in DeFi governance

VOTE: Arbitrum DAO supports 8-week mergers and acquisitions pilot

VOTE: Aave DAO looks to onboard Ethena’s USDe on Ethereum

VOTE: Lido DAO polls new Lido Alliance framework

Post of the week

Crypto personality Jordan Fish — AKA cobie — has penned another blog post after a nearly-two-year hiatus.

In it he discusses the growing trend of how more and more of a crypto project’s value is captured privately before it launches a token.

Cobie’s previous posts proved highly-influential across the crypto industry — and this one looks to be no different.

What we’re watching...

zkSync firmly stands by its commitment to decentralize.

Since rolling out support for EIP4844 in March, this has been the sole focus. The upcoming release of v24 is the final planned protocol upgrade needed before handing over network governance to the community. The remaining…

— zkSync (∎, ∆) (@zksync) May 17, 2024

Ethereum layer 2 zkSync teases that its token launch could be close.

The project has previously said it plans to decentralise governance of the blockchain through a token.

It now says this transfer will take place after the upcoming v24 upgrade, scheduled for the end of June.

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

Friend.tech made headlines earlier this month by distributing 100% of its native token to users in a move that contrasts with the recent trend of projects allocating smaller sums, typically between 5%-15%.

Many expected that users who amassed large quantities of the FRIEND token during the platform’s V1 phase — where points earned converted to FRIEND — would sell their holdings and cause the price to plummet.

Although the token was extremely volatile on May 3, the day that it launched, it has since remained range bound between $1 and $2, recently trading at $1.98.

That may be because 2.96 million FRIEND tokens are locked in “clubs,” which function as group chat rooms, requiring users to pay for entry with FRIEND tokens. The tokens are then paired with Ether in Friend.tech’s native decentralised exchange.

Now the question is whether clubs can continue to grow, removing FRIEND from the open market.

Each club can choose from three different bonding curves for pricing, letting club creators determine how quickly the price of entry into a club increases. Users generally join the clubs to speak with their favourite influencers or share “alpha,” information that can help traders to realise a profit.

The largest club, named “Hog McCrankerson,” costs users 892 FRIEND, or $1,780. The club has 647 holders, resulting in nearly 1% of the total supply locked in the “memeclub.”

The second-largest club, “Ansem’s Army,” the chat room for the popular influencer blknoiz06, has 0.35% of the total supply locked, around 326,000 FRIEND.

Fewer clubs coming onboard

Still, the question of how sustainable club activity has come into play. The day of Friend.tech’s V2 launch saw 62,118 clubs created by 26,128 creators, but Sunday saw only 1,170 clubs from 339 creators.

Total traders saw a similar decline, falling 96% to 1,449 on Sunday from 33,597 on May 3.

Another significant sink for FRIEND has been providing liquidity for the FRIEND/WETH pair on Friend.tech’s decentralised exchange. This pool has over $37 million in liquidity provided, with just under 9.1 million FRIEND.

Users who provide liquidity to this pool are earning about a 138% annual percentage rate, thanks to swap fees, club fees, and LP incentives.

Liquidity providers earn a 1.5% fee from every FRIEND, and Friend.tech club trade, in addition to a share of the 12 million FRIEND distributed over 12 months.

Most of the yield earned here comes from FRIEND incentives, around 66%, while LP swap fees account for 58% and club fees only 13%.

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

The odds that the Securities and Exchange Commission will greenlight Ethereum spot exchange-traded fund applications have just increased.

Bloomberg Intelligence ETF analyst Eric Balchunas, long bearish on the products’ odds, posted on X that chances of approval have shot up to 75% from 25%.

Balchunas said he was “hearing chatter this afternoon that the SEC could be doing a 180 on this (increasingly political issue), so now everyone is scrambling (like us everyone else assumed they’d be denied).”

“It’s what we’re hearing from multiple sources,” Bloomberg Intelligence ETF research analyst James Seyffart said. “Should see a bunch of filings over coming days if we’re correct.”

Ethereum soared 8% off Balchunas’ tweet, recently trading at $3,400.

“If the spot ETH ETF is approved, it will be a true shock to everyone I know in DC who’s close to this process,” Jake Chervinsky, chief legal officer at Variant fund, posted. “It means approval could signal a major shift in US crypto policy after the SAB 121 vote, perhaps more important than the ETF itself.”

Last Thursday, the Senate voted on a resolution to repeal a controversial accounting guidance from the SEC, called SAB 121, which critics say has deterred investment banks from offering crypto custody at scale.

President Joe Biden indicated that he would veto the provision if approved. Prominent Democrats, however, have sided with their Republican colleagues against the rule, raising speculation that the White House may back down.

Deadline

If the SEC wants to approve the Ethereum ETF products, it will have to be fast about it. The deadline for VanEck’s Ethereum ETF application is on Thursday — and the SEC is unlikely to approve some of the filings ahead of others in order to avoid playing the role of a kingmaker.

Nate Geraci, president of ETF Store, said that even with the tight deadline, it would be possible for the SEC to approve one set of important filings, called 19b-4s, before the deadline, and then “slow play” the second set of filings, called S-1s.

The SEC must approve both set of filings before the ETFs could come to market.

Balchunas had previously told DL News that in light of the reported lack of engagement from the SEC with prospective issuers, Ethereum ETFs were unlikely to get approved before the end of 2025.

If the ETFs are rejected, issuers will likely wait until after the US presidential election to file again, because a victory for presumptive Republican nominee Donald Trump would probably mean a change of leadership at the SEC — perhaps in favour of someone less antagonistic toward crypto than current chair Gary Gensler.

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

Michael Sonnenshein, CEO of crypto asset manager Grayscale Investments, has resigned “to pursue other interests,” the firm said Monday.

Goldman Sachs executive Peter Mintzberg will take over as CEO in August.

Grayscale’s Chief Financial Officer Edward McGee will lead the company in the interim.

Sonnenshein’s three-year tenure as CEO was dominated by a court battle with the Securities and Exchange Commission, which had denied Grayscale’s application to convert its struggling Bitcoin fund into a spot Bitcoin exchange-traded fund.

Grayscale won that battle and paved the way for a flood of Bitcoin ETFs, one of several factors that pushed the cryptocurrency to new heights in March.

But the move backfired on Grayscale.

Its ETF has haemorrhaged over $17 billion in Bitcoin since January, while funds from rivals BlackRock and Fidelity have vacuumed more than $23 billion in assets.

At issue was Grayscale’s 1.5% management fee, which turned out to be multiples higher than their competitors’ 0.2% or 0.3% fees.

“Like a sports team losing games, outflows are tough on the spirit and culture so usually someone get[s] fired, usually the head coach,” Bloomberg Intelligence analyst Eric Balchunas wrote on X.

“It was a tough situation [because] had they matched [BlackRock] at their Terrordome-level fees they’d have likely have killed all their margin and then some.”

Barry Silbert, CEO of Grayscale parent company Digital Currency Group, thanked Sonnenshein in a statement for guiding Grayscale through its legal battle with the SEC, and growing its assets under management from $60 million to around $30 million.

Mintzberg is Goldman’s global head of strategy for asset and wealth management.

He previously held leadership positions at BlackRock, OppenheimerFunds, and Invesco.

“I’ve long admired Grayscale’s position as the leading crypto asset management firm, and I am honoured to join the most talented and pioneering team in the business,” Mintzberg said in a statement.

“This is an exciting time in Grayscale’s history as it continues to capitalise on the unprecedented momentum in the asset class.”

In a post on X, Sonnenshein thanked Silbert and his colleagues at Grayscale.

“I leave @Grayscale with deep gratitude for everyone who has been on this incredible rocket ship journey,” he wrote. “To the moon.”

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

A version of this story appeared in our The Guidance newsletter on May 20. Sign up here.

Republican congressman Patrick McHenry’s landmark crypto bill, the FIT21 Act, is heading to the House floor for a vote.

That’s a big deal because it’s the first time a standalone crypto bill has been heard by the full House.

According to McHenry, the FIT21 Act is poised to bring much-needed clarity to the crypto industry.

However, not everyone is convinced. Democrat Representative Maxine Waters called it a “wish-list of big crypto and is undeserving of any of our support.”

With the Securities and Exchange Commission on a fly-swatting mission — aiming at ConsenSys, Coinbase, and Robinhood’s crypto businesses over alleged securities violations — McHenry’s bill couldn’t have come at a better time.

Three takeaways for FIT

Here are the three key takeaways.

First, the act will clarify who should regulate crypto and how. If a network can prove it’s sufficiently decentralised, for example, it will be under the Commodity Futures Trading Commission’s purview.

If not, it would be handed over to SEC Chair Gensler. According to FIT21, that wouldn’t be a bad thing because crypto companies would finally be able to launch and trade coins lawfully.

This leads to the second key takeaway.

If passed, FIT21 would create a clear registration process for crypto companies to work with the SEC — something the industry says is too onerous at present.

Dan Gallagher, Robinhood’s chief legal, compliance and corporate affairs officer, said his team had spent years trying to register with the SEC. The commission appears to be moving ahead with an enforcement action against Robinhood’s crypto business.

Finally, key takeaway three: Crypto investors will also stand to benefit from FIT21.

The act would require crypto companies to file disclosures about ownership and structure and require exchanges to keep company and customer funds separate, a clear nod to the chaos that caused the collapse of FTX.

Basically, some transparency for anyone looking to do business with a crypto company.

What are the odds?

But how likely is it to pass?

It has a strong chance to make it out of the House, thanks to Republicans’ general pro-crypto stance and majority in the lower chamber.

However, the Senate, with firebrand Democrat Elizabeth Warren leading the anti-crypto charge, will be a higher hurdle.

Cracks in Warren’s coalition are showing, though — take a look at the 32 Democrats who crossed party lines to overturn regulatory guidelines that make holding crypto a costly, cumbersome endeavour for banks.

Liam Kelly is a DeFi Correspondent at DL News. Got a tip? Email at liam@dlnews.com.

Positive signs that the world economy is healing will help drive Bitcoin higher in the coming months, according to analysts.

“The stars are aligning and momentum building for an explosive leg higher. It’s go time,” David Brickell, head of international distribution at FRNT Financial, and former forex trader Chris Mill, wrote in their latest “Connecting the Dots” newsletter.

As stock markets rally to records, “it’s a matter of when, not if Bitcoin also makes new highs.”

The comments come after the price of Bitcoin hovered around $60,000 for most of the last month, the two analysts said.

Inflation

Federal Reserve Chair Jerome Powell seemingly took the threat of raising interest rates off the table at the central bank’s meeting last week, Brickell and Mill said.

While that didn’t equate to an easing of its counter-inflationary policies, the analysts suggested that the comments raised the chances of fresh cuts further down the line.

Powell’s comments came after April’s US consumer price data was lower than predicted, a sign inflation may be coming under control.

US debt

The analysts also predicted that the US is at the start of a new bond rally.

When bond rallies are expected by the market, bond prices tend to increase, leading to lower yields or interest rates on bonds as coupons are fixed.

Lower US yields often make the US dollar less attractive to investors, leading to a weaker dollar.

That could drive investors to seek out alternative assets like Bitcoin as a weaker dollar makes the crypto more attractive for those seeking higher returns, the analysts said.

ETF inflows

Spot Bitcoin exchange-traded fund trading picked up last week will also add momentum to the rally, Brickell and Mill said.

Their comments come as filings revealed that major institutional players like Millennium Management, and even public investment boards such as the State of Wisconsin Investment Board have bought shares in the US spot Bitcoin ETFs.

The surge in institutional interest points to a broader acceptance of Bitcoin into mainstream financial portfolios, the analysts wrote.

The ballooning interest will bolster the case for further price increases in the coming months, Brickell and Mill said.

China

China stepping up its stimulus measures last week is a fourth factor potentially impacting the price of Bitcoin.

Last week, it flagged an “ultra-long bond issuance” to support investment and a rescue package to stabilise its ailing property sector.

Those measures will improve liquidity in the sector, which Brickell has previously noted is “gonna be good for Bitcoin.”

Crypto market movers

Bitcoin is trading flat at $66,940 over the past 24 hours.

Ethereum is trading flat at $3,107.

What we’re reading

Galaxy Ventures bemoans ‘challenging’ market as crypto VC funding set for measly 2.4% gain — DL News.

Kraken Mulls Removal Of Tether (USDT) Amidst New EU Regulations — Milk Road.

‘Memes’ Are One Of The Strongest Growing Crypto Narratives in 2024: Kaito AI — Unchained.

El Salvador’s Strategy For Stacking Sats — Milk Road.

Almost 40% of Asian institutional crypto holders want more exposure — here’s why — DL News.

Sebastian Sinclair is a markets correspondent for DL News. Have a tip? Contact Seb at sebastian@dlnews.com.

Venture capitalists are expected to invest about $12 billion into crypto projects in 2024, according to estimates by PitchBook.

While the previous bull market saw VCs back application layer startups such as Coinbase, the research firm said this year will see backers return to basics.

“This cycle we haven’t seen any applications getting these large investments,” Robert Le, Pitchbook’s crypto analyst, told DL News.

Instead, VCs are eying infrastructure projects — so-called layer 1s — that support all manner of crypto applications and networks.

Top deal

For instance, the top deal of the first quarter of 2024 went to Together AI, a developer of an open-sourced decentralised cloud platform. In March, it scooped up $106 million in an early-stage round led by Salesforce Ventures.

In the first quarter, VC investments in crypto surged 40%, to $2.4 billion, compared with the prior period.

The focus on infrastructure is one of the reasons Le estimates the industry will raise just 2.4% more this year than the $9.4 billion raised in 2023.

He compared it with infrastructure projects like Amazon Web Services raising proportionally less money than application-level startups such as Uber and Facebook.

That being said, Le said he expects application projects to attract more money as this cycle heats up.

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

Venture capital investments into crypto projects will reach $12 billion in 2024 — only a 2.4% increase from the $9.4 billion raised last year even as Bitcoin soared to a new record.

That’s according to PitchBook’s crypto analyst Robert Le.

“The pace of investments will continue to grow, but not at a pace that we saw in 2020, 2021,” Le told DL News.

VC sentiment is often seen as an industry weather vane.

This sentiment is adding to the bearishness among industry insiders, who told DL News that their hopes are waning that Wall Street muscling into digital assets would trigger another bull run.

Sticky inflation, uncertain regulations, and the ghost of scandals past make for a pessimistic outlook.

Scandals

Crypto investments fell almost 70% from 2022 to $9.4 billion in 2023, according to PitchBook.

DefiLlama’s data backs up the picture.

“The last few years in venture capital have been really challenging,” Mike Giampapa, general partner at Galaxy Ventures, told DL News.

Scandals including the collapse of FTX and the Terra crash — and their resulting lawsuits and criminal charges — have curbed investors’ appetites, Le said.

Many major generalist investors who were burnt by their previous crypto investments have yet to return, which has kept the total down, Le said.

Inflation

VCs’ appetite is also influenced by the price of cryptocurrencies. If Bitcoin skyrockets, so does investor sentiment, Le said.

While crypto has rallied this year thanks to the launch of several spot Bitcoin exchange-traded funds by Wall Street giants like BlackRock, sticky inflation has kept that rally muted.

It’s basic economics. High inflation means retail investors have less money to spend on riskier assets like Bitcoin.

With the Federal Reserve keeping interest rates elevated for the time being, there are diminished chances of crypto price surges, which in turn means VC investment will remain muted.

On the flip side, if the US central bank cut interest rates, then crypto would likely surge, which could see VC investments increase 60% quarter over quarter — putting the year’s total at about $21 billion, Le said.

Big politics

Donald Trump and Joe Biden, who are both angling for a second term in the Oval Office, have planted themselves on polar opposites of the topic.

Trump is more pro, while Biden has adopted an anti-crypto stance akin to that held by Securities and Exchange Commission Chair Gary Gensler, who has cracked down hard on the industry during his tenure.

How the election plays out will also affect VC sentiment.

A Republican administration could be more favourable to the crypto ecosystem and mean that Gensler would leave office, though Gensler could leave no matter how the election goes, Giampapa said.

A more favourable SEC chair would lead to more crypto startups being able to scale and exit — for instance through public listings, which enable investors to cash out on their investments, he said.

Le noted that traditional exits fell from 81 in 2021 to 73 in 2023.

“This is not unique to crypto — it’s just the tech market in general,” he said.

That figure doesn’t cover alternative exits in the form of token launches, which enable VCs to cash in on their investments.

Hope

To be sure, there are glimmers of hope for VC investments, with several firms maintaining they are far from idle.

Also, Le’s latest report shows VC investments into the sector rose to $2.4 billion in the first quarter, a 40% increase over the last quarter of 2023.

“We invest across all market cycles and we hold a long term view of the space,” Shan Aggarwal, vice president, corporate and business development at Coinbase Ventures, told DL News, adding that “we were very active in H2 2023.”

Le noted that many firms have a lot of dry powder.

“They can’t sit on those funds and collect management fees forever.”

Moreover, several crypto-focused VCs are raising new funds to pour into the market.

For instance, Paradigm is in talks to raise a new $750 million fund, according to Bloomberg.

Le also noted that while most generalist investors have so far not returned to crypto, their crypto teams have spent the bear market learning more about the industry.

“When we are at a full blown bull market, they’re gonna come back,” he said.

Aggarwal echoed that sentiment: “2024 is shaping to be a very active year for crypto VC and we will need to balance speed and agility to keep pace with the market, while remaining disciplined in our investment and capital allocation heuristics.”

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

Two brothers who studied mathematics and computer science at MIT were accused of hacking the Ethereum blockchain to steal $25 million worth of crypto in 12 seconds.

The US Department of Justice said the exploit by the brothers, Anton Peraire-Bueno, 24, and James Peraire-Bueno, 28, was believed to be the first of its kind, “as they manipulated and tampered with the process and protocols by which transactions are validated and added to the Ethereum blockchain.”

US Attorney Damian Williams said the brothers’ “scheme calls the very integrity of the blockchain into question.”

The two were charged with conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering.

Validators

When a validator is selected on the Ethereum blockchain, the indictment noted, they have about 12 seconds to complete the process.

The brothers drew up a complex four-step plan and established a series of Ethereum validators through concealed identities and shell companies in their months-long preparation for the exploit in April 2023, when they drained $25 million in funds from the blockchain, the indictment said.

After obtaining the money the two refused requests to return it and took steps to hide the stolen funds, according to the indictment.

India’s markets watchdog, the Securities and Exchange Board of India (SEBI), proposed to a government panel that is formulating policy for consideration by the Finance Ministry that several different regulators share oversight of crypto trade, according to documents seen exclusively by Reuters.

The central bank, the Reserve Bank of India (RBI), took a tougher stance by maintaining that crypto is a macroeconomic risk, according to another set of documents submitted to the panel and also seen by Reuters.

The RBI also favours a ban on stablecoins, a person with direct knowledge of the panel’s discussions told Reuters.

The person, who declined to be identified, said the panel may have its report completed by June.

Some history

The central bank in 2018 prohibited lenders from dealing with crypto users or exchanges, which was later struck down by the Supreme Court, the Reuters report noted.

RBI Governor Shaktikanta Das predicted in 2022 that the next financial crisis would come from crypto: “Our view is that it should be prohibited because if you try to regulate it and allow it to grow, please mark my words the next financial crisis will come from private cryptocurrencies.”

Democratic Senator Elizabeth Warren’s campaign against crypto recently encountered opposition within her own party as both the Senate and House voted against a Securities and Exchange Commission guideline that may have discouraged banks from holding digital assets.

Senate Majority Leader Chuck Schumer and several other Democratic senators broke with Warren on Thursday in a 60-38 vote to overturn SAB121, even in the face of a threatened veto by President Joe Biden.

Warren said in an interview with Politico that she is “concerned about anyone in Congress who is not worried about the threat posed by Iran and North Korea and their use of crypto,” but declined to address what seem to be emerging differences on digital assets within the Democratic Party.

This comes at a time when the November elections are drawing closer and former President Donald Trump has jumped aboard the crypto bandwagon, evolving from calling Bitcoin a scam to minting his own NFTs, as DL News has reported.

Not to mention that crypto super PACs have raised millions to invest in the campaigns of crypto-friendly candidates in congressional races.

SAB121 was published by the SEC in 2022, and advises any entity, including banks, safeguarding crypto assets on behalf of others to put them on its balance sheet as if it owned them, DL News reported.

Custodians must then hold capital reserves to offset risky on-balance sheet items so they can fund their positions in the event of a default. This is expensive, and though it is just an SEC guideline, many big banks have been deterred from entering the business.

A recent article in Forbes noted the shifting political tides among Democrats in supporting the SAB121 rollback: “Lawmakers were likely drawn to this issue by a combination of recently having improved their understanding of the technology and economic implications of Bitcoin, as well as recognition that the SEC has been operating beyond its mandate.”

It added that the stage may be set for a more nuanced bipartisan debate on crypto moving forward.

Cory Booker, who was one of 11 Senate Democrats who supported the SEC rollback, told Politico: “I wanted to send a message. … I’m frustrated because we haven’t had a chance to debate any of the real crypto bills.”

That opportunity may come next week, at least in the House, as Republicans have scheduled a vote on the Financial Innovation and Technology for the 21st Century (FIT21) Act, which has been shepherded by Republican Congressman Patrick McHenry and would divide oversight of digital asset markets between the SEC and CFTC.

Crypto market movers

Bitcoin is up 0.43% today at $67,258.30.

Ethereum is down 1.30% today at $3,113.70.

What we are reading

The Clock Is Ticking for Democrats on Crypto — Fortune

Crypto Industry Rallies Behind House Bill as It Heads Toward Final Vote — CoinDesk

Morgan Stanley and Millennium Management are pouring millions into Bitcoin ETFs — Here’s why they’ll buy more — DL News

Two foreign nationals were charged Friday with laundering about $73 million in crypto stolen from victims defrauded in crypto pig-butchering scams, the US Justice Department said.

Daren Li, 41, a dual citizen of China and St. Kitts and Nevis, and a resident of China, Cambodia, and the UAE, was arrested in April in Atlanta. Yicheng Zhang, 38, a Chinese national and resident of Temple City, California, was arrested Thursday in Los Angeles.

According to court documents, Li, Zhang, and other conspirators managed an international syndicate that laundered the illicit proceeds of pig-butchering scams.

“I encourage everyone to educate themselves on pig butchering and other kinds of financial fraud to protect their families against such predatory activity. Vigilance is key,” US Attorney Martin Estrada said.

Such scams involve perpetrators striking up conversations with their victims over a messaging app and earning their trust before convincing them to invest in fake projects, DL News has reported.

In China, tens of thousands have been apprehended for involvement in such schemes — even some who may have have been forced into scamming.

The UN estimates that hundreds of thousands of people are working in compounds in Myanmar, Cambodia, Vietnam, Thailand and the Philippines, forced into “coerced digital delinquency.”

In this particular instance, victims were fraudulently induced into transferring millions of dollars to US bank accounts opened in the names of dozens of shell companies whose sole purpose was to facilitate the laundering of fraud proceeds, the DOJ said.

A network of money launderers then transferred the funds to other domestic and international bank accounts and crypto platforms in a manner designed to conceal their source, nature, ownership, and control.

A cryptocurrency wallet involved in the scheme had received more than $341 million in virtual assets, according to the DOJ.

The US Department of the Treasury this week released its 2024 report on illicit finance, examining threats of money laundering and terrorist financing and its strategies to combat them.

The Treasury cited professional money launderers, financial fraudsters, cybercriminals and those seeking to finance terrorism as ongoing threats to the US financial system.

The 44-page report said anti-money laundering/countering the financing of terrorism (AML/CFT) efforts must continue to adapt in order to be effective.

Among the vulnerabilities cited were obfuscation tools and methods such as mixers and anonymity-enhancing coins, AML/CFT compliance deficiencies at banks and complicit professionals who help facilitate illicit financial activity.

The Treasury cited the prosecution of Binance as an example of its success in supervising virtual asset activities.

Binance failed to prevent criminals, sanctioned entities, and other bad actors from laundering billions of dollars in dirty money, according to court papers. The company pleaded guilty and agreed to pay $4.3 billion in fines and restitution, DL News reported.

Additionally, Binance co-founder Changpeng Zhao was sentenced to four months in federal prison for violating US banking laws and fined $50 million.

The US must continue “to invest in technology and training for analysts, investigators, and regulators to develop further expertise related to new technologies, including analysis of public blockchain data,” the report said.

Such expertise is crucial to the government’s ability to develop responses to new ways in which criminals misuse “virtual assets and other new technologies to profit from their illicit activity,” it said.

Genesis will return about $3bn to creditors

Bankruptcy Judge Sean Lane late Friday approved failed crypto lender Genesis Global’s Chapter 11 liquidation plan, which will pay back its creditors about $3 billion in crypto and cash, according to media reports.

Judge Lane, at the US District Bankruptcy Court for the Southern District of New York in Manhattan, overruled an objection raised by Genesis’ corporate parent, Digital Currency Group, arguing that creditors should receive no more than the value of their crypto assets when Genesis filed for bankruptcy in early 2023, Reuters reported.

Bitcoin was worth about $21,000 in January 2023, compared with about $67,000 today.

Parent DCG is last in line for repayment under Chapter 11, Judge Lane said, adding that whatever value Genesis has remaining will go to creditors, who still won’t be fully repaid, Bloomberg reported.

“Given the size of the creditor claims, DCG is out of the money as an equity holder by billions of dollars,” Judge Lane added.

DCG could appeal the decision.

Genesis had estimated earlier this year that creditors may recover as much as 77% of their assets under its plan.

Crypto market movers

Bitcoin is up 1.37% today at $67,221.12.

Ethereum is up 2.86% today at $3,107.14.

What we are reading

Bank of America Upgrades Coinbase Rating to Neutral, Raises Price Target to $217 — Cryptonews

Does the SAB 121 Vote Mean Anything for Future Crypto Legislation? — CoinDesk

Almost 40% of Asian institutional crypto holders want more exposure — here’s why — DL News

Investors are pouring money into the beleaguered Fantom blockchain ahead of Sonic, a major upgrade expected to bring improved performance as well as a series of airdrops.

Fantom’s token, FTM, is up 25% since validators — the distributed network of computers that run the blockchain — began upgrading their software on Tuesday.

Since Monday, the total value of crypto deposited in Fantom’s DeFi ecosystem is up 20%, to $147 million, according to DefiLlama data.

After the upgrade is complete, Fantom will process up to 2,000 transactions per second and offer higher security, simplified liquid staking, and, eventually, greater throughput using zero-knowledge technology, Fantom Foundation CEO Michael Kong previously told DL News.

Fantom currently processes a maximum of 200 transactions per second, according to the Fantom Foundation.

Additionally, some users will qualify for airdrops, according to Kong.

“The more that you interact with the network, the more value you accrue to the network, that’s going to lead to a higher airdrop,” he said.

Kong declined to share more information about the forthcoming airdrops to avoid attracting mercenary users seeking to “game” the blockchain.

Two-thirds of Fantom’s 60 validators have to upgrade in order for Sonic to take effect network-wide. As of Friday, 25 validators had upgraded their software.

The upgrade will test whether Fantom can mount a comeback after a devastating hack drained a related protocol in 2023.

Founded by infamous DeFi stalwart Andre Cronje, Fantom was once a top five blockchain with almost $8 billion locked in its DeFi ecosystem.

It was heralded as an “Ethereum killer,” along with other low-cost, high-speed networks like Avalanche, Solana, Terra, and Tron.

Like the rest of the crypto economy, it tanked after the collapse of Terra in 2022.

It was dealt another blow last July, when crypto “bridge” Multichain suffered an apparent hack.

Multichain said $125 million in cryptocurrencies was transferred to “unknown addresses abnormally.” The company also confirmed rumours its co-founder had been arrested by Chinese police that May.

So-called bridges like Multichain enable the transfer of tokens between otherwise incompatible blockchains.

The hack rocked Fantom users, many of whom had used Multichain to bring assets from other blockchains onto Fantom.

Users would send crypto tokens such as Ether or USDC to Multichain. The protocol would then mint a Fantom-compatible version of the deposited tokens for use on Fantom.

When cryptocurrencies deposited on Multichain were stolen, many assets on Fantom became effectively unbacked.

The total value of crypto locked in Fantom was roughly $260 million just before the hack. Until Kong unveiled Sonic in March, it had hovered below $100 million.

Aleks Gilbert is a New York-based reporter covering DeFi. Got a tip? Email him at aleks@dlnews.com.

Institutional demand for crypto is growing.

A survey undertaken by SBI Digital Assets Holdings, a subsidiary of Japanese asset manager SBI Holdings, found that nearly 60% of Asian institutional investors had gained exposure to some form of digital assets in the last year.

Of these institutions, almost 40% indicated they were looking to increase their exposure in2024, while 25% said they were planning “significant increases.”

Only 15% said they had no plans to invest or transact in digital assets.

“This trend indicates the growing recognition of digital assets in diversifying investment portfolios,” the report said.

Areas of interest were varied. Of the institutions already dipping their toes in digital assets, 67% said they were most involved in cryptocurrencies — however, 33% predicted that central bank digital currencies would receive the highest adoption within the next three years.

The tokenisation of real-world assets is also a priority, with almost 62% of institutions saying their clients had expressed demand for tokenised securities.

When asked what kind of assets they would prioritise with tokenising, 40% of institutions answered real estate, 14% funds, 14% physical infrastructure, 10% bonds, and 10% collectibles such as artwork. The rest was divided between equities and precious metals.

“On the benefits of tokenising real-world assets, nearly half of participants cite reduced intermediaries as the primary factor, with faster settlement, cost efficiency, enhanced transparency, and increased liquidity as others,” the report said.

But respondents also saw barriers to adoption. The biggest obstacle, 60% of them said, was the “lack of trusted ecosystem to take transactions from end-to-end.” In other words, institutions are worried that existing crypto infrastructure doesn’t allow them to properly conduct their business.

Only 20% of institutions found that cyberthreats constituted a bigger danger, while 18% cited the lack of regulatory clarity around the industry.

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

Memecoins have taken centre stage in the crypto world this year, dominating mindshare and trading volumes.

Now, projects are looking to capitalise on the trend, with some proving to be incredibly successful.

One of the latest is WorldPVP. The game is built on Base, an Ethereum layer 2 blockchain that was incubated by crypto exchange Coinbase.

WorldPVP adds a fun wrinkle to memecoin trading by letting 211 countries, each with its own tokens, compete over a week to see which one can reach the highest market cap.

This unique gameplay has attracted 6,793 traders and generated over $30 million in total trading volume.

The game’s mechanics are straightforward but strategically rich.

Each round culminates with the country boasting the highest market cap gaining access to a “nuclear missile.” With this missile, a country can nuke another country’s token, removing the liquidity.

The Ether from the nuked country’s liquidity pool is then divided, with half reinvested into the victorious country’s tokens and the remainder distributed to a randomly chosen country, adding to the unpredictability of the competition.

Additionally, a prize pool, funded by a 2.5% tax on all trades, is used to buy tokens from the winning country each week.

With the prize pool now at $180,000 and the highest market cap at $2.3 million for the USA, the influence of this pool on token prices could be notable, depending on the volume each week.

Leadership and communication are also crucial to the WorldPVP experience.

Each country’s president — the top token holder — plays a vital role by deciding which country to target with a nuclear strike if they emerge victorious in the weekly competition. This elevates top holders from merely investing in tokens to becoming central strategic figures within the game.

Presidents are easily recognizable by a crown icon next to their names in the platform’s token-gated chat rooms, where they actively engage in discussions that not only facilitate conversation but can also lead to forming alliances or stirring conflicts.

A recent example of strategic alliances formed within these chat rooms is the union between Kazakhstan and Spain.

Spain's Alliance Count Adds Another:

It appears @KazakhstanPVP has come to an agreement with @SpainWorldPvP

Spain clearly has some Based connections in @worldpvpco and is preparing for the first nuke in 42 hours https://t.co/B4H53oZBVC

— WorldPvP Channel 69 News (@WorldPvPNews) May 17, 2024

The presidents of Kazakhstan and Spain formed an alliance called “Kazakhspan,” investing one Ether in $SPAIN to merge their “industrial and naval strengths.”

WorldPVP hasn’t just captured the attention of traders; it also received a grant from Base to continue to work on the project.

The first round is coming to an end in 37 hours with the USA leading with its $2.3 million market capitalisation. Second is China with a market capitalisation of $537,000.

As the first round draws to a close, the strategic elements of WorldPVP intensify.

Will the USA, with its leading market cap, choose to nuke China, its closest competitor? Or might another country make a last-minute surge to shift the balance? Only time will tell.

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

Heavyweight Wall Street firms Morgan Stanley and Millennium Management bought millions in Bitcoin ETFs last quarter, new filings reveal.

And analysts say more buying is on the way as pension funds and others begin to invest in spot Bitcoin exchange-traded funds, which were launched in January after they received approval from the Securities and Exchange Commission.

According to a 13F filing Wednesday, Morgan Stanley bought $270 million in Grayscale Investments’ Bitcoin product last quarter.

Millennium, which managed over $61 billion in assets as of December, bought roughly $2 billion across several different Bitcoin ETFs, including $844 million in BlackRock’s offering and $806 million in Fidelity’s fund.

A hedge fund like Millennium likely uses the position as part of a broader trading strategy and not necessarily to hold the asset long-term.

Apollo Management, Elliott Investment Management, Hunting Hill, Point72 and at least seven others also purchased shares in spot Bitcoin ETFs.

On Tuesday, the State of Wisconsin Investment Board, which manages the state’s pension funds, revealed it had purchased $100 million worth of shares in BlackRock’s Bitcoin ETF.

The arrival of such a large institution for a new product on the market was a surprise, said Bloomberg Intelligence analyst Eric Balchunas.

“Good sign, expect more, as institutions tend to move in herds,” he said.

Matt Hougan, chief investment officer of crypto investment firm Bitwise, said the spate of Bitcoin buying is just the beginning.

“Beginning about six months after the initial allocation, many firms begin allocating across their entire book of clients, with allocations ranging from 1-5% of the portfolio,” he wrote in a post.

Liam Kelly is a DeFi Correspondent at DL News. Got a tip? Email at liam@dlnews.com.

Bitcoin exchange-traded funds were only launched in January.

Now, policymakers and regulators are likely to want a lot more time to digest their impact before committing to anything else.

That’s according to Kinga Bosse, chief operating officer at crypto infrastructure firm MPCH.

“Going forward, the question is really, ‘Okay, what did we just do?’” Bosse told DL News.

Now, with a crucial deadline for coming up on May 23, US regulators now must decide on whether to grant the same approval for Ethereum ETFs.

A former global head of strategic investments and partnerships at banking and custodian giant State Street, Bosse said they may fear that approving the Ethereum products would be like “opening a can of worms.”

“Once you do Ethereum, where do you stop?” she said. The crypto industry could then lobby for a Solana ETF, a Chainlink ETF, or even a Dogecoin ETF.

“It’s going to get harder and harder for regulators to push back if they have concerns.”

The Securities and Exchange Commission is expected to either reject or green light all applications at once — though analysts and bettors believe the odds of an approval are low.

Taking advantage of uncertainty

Fear of a slippery slope is one reason Ethereum’s regulatory status is such a sticking point.

Vitalik Buterin ‘has a lot of say about what happens on Ethereum... not necessarily a comforting notion.’

Kinga Bosse

While the SEC and Commodity Futures Trading Commission both agree that Bitcoin is a commodity — and therefore under the CFTC’s remit — SEC chair Gary Gensler has been cagey about his stance on Ether.

The CFTC, meanwhile, has maintained that Ether is a commodity.

The regulatory uncertainty “gives ammunition to the SEC to push back” on Ethereum ETFs, Bosse said, adding that the agency is unlikely to go forward with the products until the question is settled.

Reasons for uncertainty

But there are more practical reasons for the hesitancy.

Whether it’s Ethereum or Bitcoin, “there is a concern around how these things are really controlled,” Bosse said.

The fact that Ethereum recently underwent a major upgrade — users can now stake Ether to secure the network, and be financially rewarded for it — can be seen as problematic.

After all, who decides which upgrades Ethereum goes through?

Bosse said Ethereum creator Vitalik Buterin “has a lot of say about what happens on Ethereum, so that’s not necessarily a comforting notion.”

And the fact that members of Congress are still wrapping their heads around a digital asset as simple as Bitcoin isn’t making things easier.

“There’s a sliver of policymakers who really understand crypto,” Bosse said. “But a lot more have questions about the effects of crypto on the global landscape. They are very concerned about cryptocurrencies replacing the US dollar.”

The stakes are high

Other jurisdictions — like Hong Kong, Canada, or Singapore — can experiment with new products with little to fear about global ramifications.

But because they are responsible for the leading world economy, US regulators and policymakers don’t have that luxury.

“When the SEC makes the decision, it makes a decision for the entire world market,” Bosse said.

“There’s not a lot of room for error.”

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

The trial of Binance executive Tigran Gambaryan began Friday with an accusation.

But it wasn’t the one the courtroom in Abuja, Nigeria, was necessarily expecting — money laundering.

Instead, prosecutors levelled charges that Binance, the world’s top crypto exchange, was guilty of devauling the African nation’s fiat currency, the naira.

Abdulkadir Abbas, a director of Nigeria’s Securities and Exchange Commission, testified that Binance’s peer-to-peer trading platform acted as an unofficial marketplace for foreign-exchange trading in Nigeria.

Regulatory crisis

Abbas, who testified as a witness for the Economic and Financial Crimes Commission, said Binance’s activities “adversely affected” the naira’s official exchange rate, according to proceedings monitored by DL News.

The SEC director testified that Binance’s market size in Nigeria made the company’s peer-to-peer platform a reference point for determining the naira’s exchange rate.

The testimony followed a pre-trial hearing in which Gambaryan, 40, who has been detained since February 26, was denied bail after a judge deemed him a flight risk.

Currency woes

Nigeria’s anti-corruption agency has accused Gambaryan, his colleague Nadeem Anjarwalla, and Binance itself with perpetrating a $35 million money laundering scheme and tax evasion.

The two men and the company have denied the allegations. Anjarwalla, a British citizen, managed to escape from Nigeria on March 22 and has been traced to Kenya, where he is based as Binance’s regional manager.

Legal crisis

Binance had an estimated 13 million customers in Nigeria and has been embroiled in a legal crisis there since the start of the year.

Nigeria’s government had blamed Binance for the country’s currency woes early this year because the company allowed Nigerians to trade a digital version of the naira against Tether’s USDT, a stablecoin pegged to the US dollar.

Binance has denied accusations of foreign exchange racketeering and said its activities had no bearing on the country’s currency market.

The company then dispatched two executives ― Gambaryan and Anjarwalla ― to settle the simmering dispute in late February.

The pair was unsuccessful in reaching a compromise in a meeting and refused to hand over customer details to Nigerian authorities. They were subsequently detained, escalating the crisis.

In custody

Gambaryan who heads the company’s financial crimes compliance department, has been in custody ever since, despite pleas from his family and his employers. He has been charged on Binance’s behalf by Nigerian authorities.

Apart from negatively influencing the naira’s value, Abbas testified that Binance operated in Nigeria without registering with the SEC.

Binance had previously adopted a loose operating model that favoured a free-floating decentralised entity, under its founder, Changpeng Zhao.

CZ, as he is known in crypto circles, is no longer in charge of Binance and his replacement, Richard Teng, has pledged to focus on regulatory compliance.

Teng recently revealed that Binance tried to liaise with Nigeria’s SEC for regulatory clarity, but did not receive a response.

Gambaryan’s lawyer, Babatunde Fagbohunlu, requested an adjournment to review exhibits tendered in court for his cross-exam of the SEC director, which was granted.

The trial will resume on May 23.

Gambaryan is being held in Kuje Prison in Abuja.

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.