After months of radio silence, the Securities and Exchange Commission looks poised to approve spot Ethereum exchange-traded funds after all.

The resulting “floodgate” of demand for Ether will likely lead to a supply crunch, Joe Lubin, co-founder of Ethereum and founder and CEO of crypto infrastructure firm Consensys, told DL News.

Institutions that have already gained exposure to Bitcoin through the asset’s freshly launched ETFs “will most likely want to diversify into that second approved ETF,” Lubin said.

“There’s going to be a pretty large amount of natural, pent-up pressure to purchase Ether” through the ETFs, he said, but there will be less supply to accommodate that demand than when the spot Bitcoin ETFs were approved in January.

In Bitcoin’s case, authorised participants — the firms contracted to buy Bitcoin on behalf of the ETFs every day new shares are created — could simply purchase idle coins on exchanges or through over-the-counter counterparties.

But onchain data shows that more than 27% of the total supply of Ether is already being staked across the Ethereum network. It’s locked in contracts and earning a yield for its owners.

“Much of the Ether is put to work in the core protocol, DeFi systems, or in DAOs,” Lubin said, referring to decentralised autonomous organisations.

In other words, not only is Ether’s market value lower than Bitcoin’s — making Ether’s price more reactive to inflows — but a significant portion of its supply is unavailable for ETF consumption.

On top of that, renewed activity on Ethereum will cause the network to burn a substantial amount of the existing Ether supply over time, constraining supply further.

Even in Bitcoin’s case, banks were so desperate to purchase coins for the ETFs that they reached out to at least one major Bitcoin mining outfit to acquire some of its Bitcoin holdings, DL News learned. The supply crunch for Ethereum ETFs might be even bigger.

“This could be a pretty profound watershed moment” for Ethereum and the crypto industry as a whole, Lubin said.

Tom Carreras and Liam Kelly write about markets and DeFi for DL News. Got a tip about Ethereum ETFs? Reach out at tcarreras@dlnews.com or liam@dlnews.com

Traders appear to be anticipating approval of a spot Ethereum exchange-traded fund, after Bloomberg Intelligence analyst Eirc Balchunas raised his odds of the Securities and Exchange Commission greenlighting the products to 75% from 25% on Monday.

The optimism has fueled a surge in activity on the Ethereum network as Ethereum trading volume skyrocketed to over $3.3 billion on Monday, the highest level since April 13 and a 157% increase from the day before.

Uniswap, the leading decentralised exchange on Ethereum by trading volume and total value of crypto assets deposited, saw its volume double on Monday from Sunday to $2.3 billion.

Similarly, on Curve Finance, the second-largest decentralised exchange, volume doubled to $576 million on Monday from the day before.

On Lido, a liquid staking platform, and EigenLayer, a restaking platform, the total value of crypto assets deposited rose by 21.6% and 22.7% respectively.

Increases or decreases in total value locked, or TVL, generally track the price of Ether, because a big portion of the TVL in Ethereum-based staking and restaking protocols is composed of Ether. Thus, as Ether’s price rises, the dollar value of the assets locked in these protocols increases.

However, looking at new inflows and outflows, Lido saw about $116 million worth of Ether exit the protocol, while EigenLayer benefited from $37 million in new deposits.

Overall, the total value of crypto assets deposited in Ethereum protocols reached $64.7 billion on Monday, its highest level since May 7, 2022.

Looking at volumes generated by bots on the messaging app Telegram, a rough proxy for memecoin trading, Ethereum marked its highest volume day since April 24 on Monday, generating $26.5 million in volume.

The average transaction fee on Ethereum, which hit its lowest level of the year at $1.70 on Saturday, spiked to $6.69 on Monday, marking a threefold increase.

Further underscoring the excitement around the Ethereum ecosystem, seven out of the top 10 protocols by revenue generated are predominately based on Ethereum in the last 24 hours.

Ethereum saw its largest daily USD increase on Monday, jumping $585. The momentum extended into Tuesday, with Ethereum recently up 3.2% to $3,777.

Adding to this optimistic outlook, the SEC indicated on Tuesday that it is leaning toward approving spot Ether ETFs, according to a report from Barrons. A decision from the regulator is expected to come on Thursday.

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

A “widespread shift amongst Democrats” in Washington in the last 24 hours just upended the Ethereum ETF game completely, according to Galaxy Digital CEO Mike Novogratz.

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

After months of silence, the Securities and Exchange Commission is frantically communicating with prospective ETF issuers — which include Galaxy — in order to get the products ready before a crucial deadline on May 23, CoinDesk reported.

Ethereum has soared 20% since rumours of the about-face first surfaced through Bloomberg Intelligence’s ETF analysts Eric Balchunas and James Seyffart.

If the SEC’s change of heart was politically motivated, “that’s a seismic shift,” Novogratz said. “If that’s what actually happened, prices are going to be much higher than here.”

Firestorm

Prominent members of the Democratic party — particularly Massachusetts Senator Elizabeth Warren — have long been critical of crypto, while Republicans have generally been more amenable to the industry.

The difference in approach became particularly salient in the last couple of weeks. Former President Donald Trump, historically crypto agnostic, recently said he will support the industry if re-elected.

President Joe Biden, meanwhile, threatened to veto a motion to repeal SAB 121, a controversial crypto accounting rule, despite bi-partisan support for the repeal.

The contrast between the two politicians — less than six months before they face off in the US presidential election — “set off a firestorm,” Novogratz said.

“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.

With Trump leading Biden in the polls, and crypto super PACs raising over $150 million to push forward pro-industry candidates, sometimes in vulnerable swing states, Democrats’ aversion against crypto made less and less sense, Novogratz said.

“It has been really Elizabeth Warren and a small group of people who’ve held the Democrats hostage on this,” he said, adding that Democratic Senate leader Chuck Schumer, who voted to repeal SAB 121, likely told Warren “enough, this is becoming dumb.”

“There is no reason to make crypto, which is a technology, a political issue,” Novogratz added. “Hopefully that message is starting to resonate.”

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

Ether-correlated assets are surging after a surprise turnaround on the likelihood of an Ethereum spot ETF approval from Bloomberg Intelligence analyst Eric Balchunas.

While Ether itself rallied 22% to $3,800, several other assets have outpaced it.

Grayscale’s Ethereum Trust has in recent months become a gauge among traders for the likelihood of an Ethereum spot ETF approval.

That’s because the investment product, which launched in 2017, cannot be redeemed for the Ether tokens that back it. The lack of redemptions has meant that the trust has traded below its net asset value — or NAV — for most of the past two years. It traded at a steep 20% discount on Friday.

If the SEC approves spot Ethereum ETFs, however, Grayscale can convert its trust into an ETF. That’s what happened with GBTC, Grayscale’s Bitcoin Trust Fund.

Because ETFs can be redeemed for their underlying assets, that would allow traders to quickly arbitrage the discount to NAV, as they did when Grayscale converted its Bitcoin trust to an ETF in January.

After the recent rally, the Grayscale Ethereum Trust now trades over the counter at %2.7 premium to its backing, indicating that traders believe a conversion into an ETF is likely a done deal.

‘Ethereum betas’ rally

Liquid staking protocol Lido’s LDO governance token is among the biggest gainers, rising 31%.

Other popular Ethereum DeFi tokens, such as Uniswap’s UNI and Aave’s AAVE, have also jumped, but not as much as Ether or Lido.

As the biggest DeFi protocol on Ethereum with $35 billion of deposits, traders often look to Lido as Ethereum beta — a trading term for assets that react more sharply to price moves in a correlated asset, in this case, Ether.

Another popular Ethereum beta is memecoin PEPE, named after comic artist Matt Furie’s popular Pepe the Frog character. It’s the second-biggest memecoin on Ethereum after Shiba Inu.

PEPE gained more than 34% on the revised ETF odds, hitting a new all-time high. It now has a market value of over $5.3 billion.

Other Ethereum-related assets, such as crypto asset manager Grayscale’s Ethereum Trust, have also benefited. After a 31% gain, it’s now trading above its net asset value per share of $32.56 for the first time since March.

The moves upward comes after Balchunas revised his odds that the Securities and Exchange Commission will greenlight an Ethereum spot exchange-traded fund this week to 75% from 25%.

In an X post, the analyst 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).”

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

The long simmering debate around the’ “fully-diluted value” of tokens is back on a boil. On Friday, Binance published research showing how tokens are increasingly launching with a limited supply and sky-high valuations.

It prompted a flurry of responses from crypto developers, investors, and more.

Cobie, the influential pseudonymous crypto investor, urged retail investors to shun newly-launched tokens in a widely-circulated essay.

Fully-diluted value, or FDV, is among the most controversial topics in crypto. But what exactly is it, and why did Binance’s commentary set the crypto community aflutter?

What is FDV?

In crypto, many tokens follow the example set by Bitcoin: they have a finite supply, most of which will be released incrementally, over a multi-year period. Sometime around the year 2140, all 21 million Bitcoin will have entered circulation.

Bitcoin was trading just above $70,000 Tuesday. With roughly 19.7 million Bitcoin in circulation, the cryptocurrency’s market capitalisation was about $1.3 trillion.

Bitcoin’s fully-diluted valuation refers to the market capitalisation of Bitcoin if all 21 million were in circulation. Crucially, it assumes that Bitcoin would still be trading at the same price it is today.

FDV became a key metric after crypto developers responded to a regulatory crackdown on initial coin offerings in 2018 and began tapping venture capital to raise money.

Venture-driven model

The metric was useful because under the venture-driven model a relatively small portion of any given token is typically tradable at launch. The remainder is set aside for a project’s developers, investors, and an affiliated nonprofit tasked with doling out grants to lure users.

Those set-aside tokens are typically locked for a period of one to three years.

In other words, new tokens would launch with limited supply, making their price more sensitive to large or frequent trades.

‘The FDVs of tokens launched in these initial months are already nearing the total for 2023.’

Binance Research

Critics warned retail investors to avoid tokens with an especially “low float,” or low circulating supply, arguing that eventual flood of new tokens — from developers and venture capitalists who’d been holding onto their shares due to lock ups — would decimate the tokens’ price.

In the heady days of 2021, some investors ignored that warning. The market was on a tear, and every launch seemed to mint a new set of millionaires.

By the time FTX collapsed in November 2022, however, the supposedly exploitative nature of “low float, high FDV” tokens was conventional wisdom.

Cobie’s take

But those tokens are becoming more common, according to Binance Research.

“Although we are only a couple of months into 2024, the FDVs of tokens launched in these initial months are already nearing the total for 2023, underscoring the prevalence of tokens with high valuations,” researchers wrote.

Some took issue with Binance’s methodology, arguing the relatively high FDV of tokens launched in 2024 is a byproduct of crypto’s rally earlier this year — in other words, a rising tide lifts all boats.

“Valuations within an asset class tend to move together,” Doug Colkitt, the founder of DeFi protocol Ambient Finance, wrote. “New token launches tend to trade at a relatively fixed ratio to ETH.”

Others pointed out that most new tokens listed on Binance have lost value since their listing date.

In his essay published Sunday, Cobie argued that retail investors should avoid newly-launched tokens.

That’s because an ever-greater share of tokens’ price discovery is happening in private markets, according to Binance Research. That means venture capitalists are buying tokens at a set price pre-launch, or trading the rights to tokens post-launch but prior to their unlock.

Private capture

“Effectively, massive private market raises lead to multi-billion dollar valuations at launch, making it more challenging for public market investors to profit from future growth,” the researchers wrote.

This trend can be seen in investment data. Over the past several years, the returns on newly-launched tokens have dwindled, according to Cobie.

“It is currently not possible to ‘be early’ to new token launches — as we have seen, the private capture of upside happened in an inaccessible way,” he wrote.

“In fact, opting out and protesting with lack of participation seems like the correct response to a lot of recent token launches.”

Memecoins soar

Ironically, the most “useless” tokens have avoided these pitfalls.

Memecoins, which live and die entirely off hype, rather than market fundamentals, typically launch with their entire supply available to buy and trade from the get-go, according to Binance Research.

“Memecoins are typically launched in a way that is accessible to anyone, with little opportunity for institutional participants to acquire tokens at a low cost ahead of time,” the researchers wrote.

No other token has performed as well this calendar year.

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

Ether will surge as high as $6,600 if US regulators green light spot Ethereum exchange-traded funds this week.

That is according to estimates made by Gautam Chhugani and Mahika Sapra, analysts at research firm Bernstein.

They noted that the US Securities and Exchange Commission’s approval of similar Bitcoin products in January spurred a 75% rally in the following weeks.

“We would expect similar price action for ETH,” Chhugani and Sapra said in a report published on Tuesday.

With today’s prices, that would put the price of Ethereum north of $6,600. It hit its previous record of $4,878 in November 2021.

Ethereum is on a tear this week as speculation flies the SEC is warmed to approving ETFs. Ether has jumped 22% in the last 24 hours compared to a 4.5% uptick for Bitcoin, according to CoinGecko data.

Bernstein’s note to clients contributed to the surge of optimism lifting crypto after a choppy couple of months.

On Monday, a pair of influential Bloomberg Intelligence analysts caused a stir by improving the odds of an ETH ETF approval to 75% from 25%.

The deadline for the SEC to give VanEck’s Ethereum ETF application a thumbs up or down is Thursday.

Approval will likely be extended to several other applicants to avoid the SEC being seen as kingmaker.

But the drama has also created confusion in the market around the technical processes of filing for regulatory approval from the SEC.

The odds

Bloomberg Intelligence analysts James Seyffart and Eric Balchunas said they changed their prediction on the ETF amid whispers the SEC was becoming more active in its chats with exchanges.

Hours later, the news hit that exchanges had been prompted to update and refile their applications, according to CoinDesk.

Seyffart and Balchunas said the SEC may approve the Ethereum ETFs in a two-step process rather than reject the entire application, which many investors had feared.

In other words, the SEC might approve an Ethereum ETF in principle but not the actual sale of the products in the marketplace — a distinction that market watchers have interpreted as optimistic.

“I don’t think I’ve ever been so happy to be wrong,” Noelle Acheson said in her Tuesday edition of her Crypto is Macro Now newsletter. “It looks like we just might get ETH spot ETFs listed in the US after all.”

Polymarket confusion

The tumult is whipsawing punters on Polymarket where they’ve placed $8 million worth of bets on the ETFs’ inbound rejection or approval.

But if it’s a two-step process, that could monkey wrench the wagering.

Indeed, bettors are already debating the fine print of when an application is actually approved by the SEC.

This isn’t the first time bettors have clashed on the way wagers are defined on Polymarket.

Crypto market movers

Bitcoin is up 4.5% to $70,360 over the past 24 hours.

Ethereum is up 22% to $3,790.

What we’re reading

Solana memecoin generator pump.fun is under attack from former team member — DL News.

SEC Requests Updates To Nasdaq And CBOE Ethereum ETF Filings — Milk Road.

Analysts Up Odds of Spot Ether ETF to 75% as Prometheum Launches Product That Treats ETH as a Security — Unchained.

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

Grayscale CEO Sonnenshein resigns, replaced by Goldman exec: Crypto reacts — DL News.

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

Europe is hoping its own blockchain will help it break free from dependence on US technology.

On Tuesday, the European Union set up a new organisation designed to introduce blockchain infrastructure and revamp record keeping and the transfer of data transfer between the bloc’s 27 member states.

The launch took place during a meeting of telecommunications ministers at the European Council in Brussels. Lawmakers also rubber stamped the EU’s landmark law on artificial intelligence.

‘Europeum will have a tangible presence in the daily lives of European citizens.’

Mathieu Michel, Belgian state secretary for digitalisation.

The blockchain infrastructure will impact both individuals and companies, said Mathieu Michel, Belgium’s state secretary for digitalisation.

Michel, who pushed for the blockchain project administered by EU states, has dubbed it Europeum.

“Europeum will have a tangible presence in the daily lives of European citizens,” he said at a press conference.

It would allow citizens to trace the origins of their products, and enable businesses to protect their intellectual property by maintaining data on immutable blockchain networks, he said.

Ten European member states, including Italy, Poland, and Greece, have agreed to help operate and roll out the EU blockchain. Other European countries will still be able to use the blockchain infrastructure.

More nations are expected to join, Michel said.

Germany and France have not committed to the arrangement. Still, the latter has been supportive of the project, Michel told DL News earlier.

Europeum for sovereignty

“We need to create a new sovereign infrastructure, rather than depending on Amazon Web Services for telecom,” Michel told DL News at an event earlier in May, alluding to the online retailer’s global cloud computing business.

The idea is that digital identities, wallets, credentials and licences will be recorded on Europeum.

Michel hopes the blockchain infrastructure will translate legal and bureaucratic processes into efficiently automated smart contracts. And that it will support metaverse applications, as well as the European Central Bank’s digital euro.

Digital twins

“We speak about the future of digital twins or the metaverse, so we need to have a sovereign infrastructure that can meet important criteria such as singularity, security, privacy, interoperability.”

The blockchain infrastructure has been under construction since 2017. Under the auspices of an agency called the European Blockchain and Services Infrastructure.

Developers and companies created a prototype which already functions today, European Commission officials have told DL News.

Since the European Commission does not have legal basis to operate a blockchain for European citizens to use, it has remained in pilot mode.

That’s why the project is now transformed into a so-called European Digital Infrastructure Consortium, a multinational project supported by the European Commission.

These consortia come under Europe’s Digital Decade Policy Programme 2030, a project sitting on €165 billion to support its objectives.

“People don’t need to be happy that Europeum exists,” Michel said during the interview.

“They just need to know that if the data is exchanged between nations, administration or companies, it is safe to use.”

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

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.