Top crypto exchanges are continuing to service customers in Hong Kong despite a ban on unlicensed platforms that took effect on May 31.

I should know. I live in Hong Kong and to test which crypto exchanges were changing their onboarding processes for residents, I tried to open accounts at the top 10 global platforms over the last week.

I succeeded at Binance, Coinbase, and Kraken even though official records show none of them have applied for a licence, let alone obtained one.

New regime

Regulators are hoping the new licence regime will curb runaway crypto crime in the city.

Investors are losing hundreds of millions of dollars worth of deposits to online exchanges that disappear without a trace and to a raft of exotic schemes ranging from romance scams to fake crypto lawyers promising to recover stolen assets.

In 2023, crypto crime cases jumped 46% over the prior year, according to the Securities and Futures Commission, or SFC, which watchdogs the markets.

And that doesn’t include more than 6,200 complaints made against JPEX, the exchange that vanished last fall with an estimated $200 million in client deposits, according to police officials.

‘Several, including ByBit, OKX, Mexc, and KuCoin, blocked me from signing up.’

The SFC says its licensing regime will let investors select reputable crypto exchanges from a roster it maintains on its website.

To qualify, exchanges needed to apply by February 29. Those that didn’t were given until May 31 to wind down their services. Companies that have applied for licences are allowed to continue operating until the SFC decides whether to approve their applications.

The SFC’s list does not show Binance, Coinbase, or Kraken.

Kraken declined to comment for this article. Coinbase did not respond to a request for comment.

Binance did reply. “Binance is a global platform and does not actively market to the public of Hong Kong or operate in Hong Kong,” a spokesperson told DL News.

A representative from the SFC also declined to comment.

Those that complied

Some platforms have complied with Hong Kong’s new rules. HashKey Exchange secured a licence. So has OSL.

Other exchanges have opted to pull up stakes.

OKX and Bybit, which until recently were applying for licensing in Hong Kong, have wound down their services and withdrawn their petitions. So, too, did Gate.io (as Gate.HK), HTX, and HKVAEX, a Binance-linked company.

Several, including ByBit, OKX, Mexc, and KuCoin, blocked me from signing up. To do so, they track IP addresses, disallow Hong Kong phone numbers for verification, or reject Hong Kong addresses when asked to provide proof of addresses.

Binance’s stark warning

I assumed Binance wouldn’t work.

For starters, the website itself had previously been inaccessible in Hong Kong. I used to need a VPN to access it.

At some point it came back but the homepage bears a stark warning: “The products and services on this website are not intended for individuals in Hong Kong. Nothing on this website is intended to be construed as a solicitation of any individual in Hong Kong.”

After filling in some details, including my Hong Kong phone number, address and uploading a photo of my ID card, I was happily buying Ether, no problem.

Binance did make an effort to try and get licensed in Hong Kong through a local company, HKVAEX, which is a separate exchange.

HKVAEX withdrew its licence application in April and told users to take their money off the platform.

Coinbase’s fuzziness

Coinbase was invited to apply for a licence in June last year by Hong Kong legislator Johnny Ng. At the time, a Coinbase spokesperson told CoinDesk that it was “dedicated to partnering with high-bar regulators.”

The company did not take Ng up on his offer. Its website doesn’t appear to take different jurisdictions into account.

When I try to open an account, I’m told Coinbase is collecting information about me to “comply with regulations” and that it’s “legally required” to ask for certain information.

By whom? Which nation’s regulations is Coinbase referring to?

This is not specified. Hmmm. Coinbase has not applied for a licence in Hong Kong and is not regulated here, the SFC’s list shows.

Nevertheless, the fine print in its legal and privacy disclosures specifically states that the agreement on its website applies to “customers who reside in Singapore and selected countries (Hong Kong and the Philippines).”

In any event, Coinbase’s know-your-customer process approved my application. For some reason, the only method of depositing fiat currency into the account was via an old fashioned bank transfer.

So I duly paid to send my cash from my Hong Kong account to Singapore. Then I bought my ETH.

“Doesn’t it feel good to own a piece of the future?” said the purchase confirmation email from the company that only accepted deposits via bank transfer.

Kraken’s handy articles

Like Coinbase, Kraken’s website also said it needed to collect certain information due to legal requirements.

A link beneath this message told me I could “learn more.” But the link took me to a blog page that had nothing to do with regulation and instead featured articles entitled “What is Bitcoin?” and “What is blockchain?”

Its terms of service make no mention of Hong Kong. I went through the process and bought some Ether.

Then I sat for a moment as a stark realisation hit me — I was now going to have to do all this again in reverse to withdraw the funds.

I decided to have a cup of tea instead.

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

At midday on May 13, there was $45,000 worth of tokens in my MetaMask crypto wallets.

One hour later, it was all gone.

Sitting at my desk in my home in Lagos, Nigeria, I stared blankly at my computer screen, struggling to register the impact of what had happened.

On multiple open browser tabs on my computer, I could see several outgoing crypto transactions from my wallet to unfamiliar addresses.

I was confused.

I looked at the timestamps displayed on several of the transactions, and I knew I could not have initiated them.

That’s because I had been busy working on a different computer for three hours.

My shock soon gave way to dismay as I realised I’d somehow been hacked. But how?

Pain and guilt

I’ve been a crypto reporter for seven years, and in that time I’ve covered many cases of token owners losing their funds to hackers.

Now, the same thing had just happened to me.

I felt pangs of pain and guilt as I remembered that the bulk of the funds belonged not to me but to my family.

They began amassing these crypto tokens — Ether, Tether’s USDT stablecoin, and Jasmy, an altcoin — in 2020 after the Covid-19 lockdowns sparked economic volatility.

As the resident expert in the family, it had fallen to me to take care of their assets, to keep them safe. I was their crypto custodian and my record was unblemished.

Until now.

As painful as the theft was, it was nothing compared to the anguish I felt as I informed my family about what had happened.

The grief I saw etched on their faces reminded me of my late father’s passing in 2017. My ordeal casts the transparency of public blockchains in a different light.

In a few computer strokes, I can see my stolen crypto in someone else’s wallet, and yet I can’t recover my assets. It is a macabre reminder of my ordeal.

The reality is that a similar fate has befallen many crypto users ranging from professionals to novices.

‘It’s easy to lose your crypto if you make a mistake. In my case, it all started with a game.’

Billionaire Mark Cuban lost $870,000 to a hacker last year after he said he downloaded a MetaMask wallet “with some shit in it.”

In 2023, crypto investors lost $1.7 billion to thieves, according to Chainalysis, the blockchain forensics company.

It’s easy to lose your crypto if you make a mistake such as downloading tainted software that exposes your wallet details.

Sometimes, you can lose your funds if a watchful hacker poisons your wallet address by creating a fake wallet that closely matches the victim’s.

In my case, it all started with a game.

Keylogger

I had promised to help a younger relative of mine download a game called “Dave The Driver.”

He grew impatient and tried to do it himself. The problem was he used the computer with the browser wallet that held my family’s crypto assets.

He downloaded a version of the game embedded with malware and it immediately infected my laptop.

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

Many online wallets, including MetaMask, don’t use proven safeguards to prevent theft, such as fraud alerts and two-factor authentication.

If this was an account at my bank, I’d would have received a fraud alert as soon as the first transaction was initiated.

The bank would have paused the transaction and given me enough time to confirm whether I had indeed initiated the fund transfer.

Virtually no such preventive features exist for crypto wallets.

Staked funds safe

Indeed, the one warning I received from from a centralised exchange where I held some tokens. The hacker was apparently trying to access my assets and the exchange asked them for a two-factor authentication code.

That attempt was unsuccessful and I managed to hold on to those assets, but it was a small amount. Still, here was a situation where two-factor authentication, or 2FA, worked nicely.

The hacker also tried to steal funds from other wallets I used that had staked crypto but they were unsuccessful.

‘Unless the hacker forgets, I’d be in a race with the thief to secure those staked assets in a new wallet.’

That’s because blockchains like Cosmos typically require users to wait 14 to 21 days to withdraw staked assets after they are unstaked.

The hacker initiated the unstaking process, but was unable to transfer the tokens to their wallet. I’ve since restaked those crypto tokens, but that hardly solves the problem.

(Staking is a process of permitting your tokens to be used in validating transactions on a blockchain network.)

Unless the hacker forgets about my assets, I’ll be in a race with the thief to secure those staked assets in a new wallet when they become available for withdrawal, but that’s a problem for another day.

As for the immediate fallout, I am grateful my family didn’t blame me or my young relative for exposing their assets.

Reflecting on the stories I had written about similar cases, I realised I hadn’t given much thought to the families of people who’d lost crypto funds to hackers.

My focus had been on explaining how the hacks happened, where the funds went and possible recovery efforts.

I can see the assets

What was especially frustrating was the fact I can still see my stolen assets three weeks after the crime.

The bulk of the stolen crypto sits in the two addresses belonging to the hacker. They can be seen here and here.

In any event, I contacted a blockchain security firm to try to block the hacker from being able to trade the stolen crypto for cash via a centralised exchange.

They told me it would cost $2,000 for them to try and block the hacker’s wallet addresses.

Recovering stolen crypto is usually a long process that involves law enforcement action and the cooperation of crypto exchanges.

My family members decided it was better to absorb the loss.

They were not enthused at the prospect of spending more money in pursuit of the hacker when the chances of recovery were slim to none.

Better safeguards needed

I’ve had time to reflect on what happened, and there are lessons to be learned from my experience.

First, keep your computers that hold valuable crypto wallets away from little kids!

On a more serious note, crypto wallets need better safeguards.

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

Self-custody comes with the expectation that the user is responsible for keeping their assets safe.

But users need more help ― perhaps in the form of real-time alerts and two-factor authentication.

There are smart contract solutions like Safe’s multi-signature wallet where more than one signer is required to complete a transaction.

While multi-sig wallets help improve security, the individual signers must protect their keys ― again, with self-custody, the onus is on the user to ensure the security of the wallet.

Multi-sig to the rescue?

Assuming I’d set up a multi-sig arrangement with the compromised wallets, the hacker would have still been able to steal the funds. They would have used each compromised address to sign the transactions needed to move the funds.

That process would have been slower, but they’d have gotten away with my family money.

However, it’s poor practice to set up a multi-sig controlled by one entity.

Ideally, each signer would have been a different family member whose wallets were on separate devices.

And that’s what we’ve done.

Some may point to the mistake of keeping the funds in an online wallet that is prone to hacking. Or say the tokens should have been safely ensconced in an offline wallet, such as the type offered by hardware wallet makers.

That was the plan, albeit I’d been slow to make the move.

And now I’ve been hit with a $45,000 lesson for my lethargy.

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.

Crypto projects that have airdropped tokens to users will hear from the authorities sooner or later.

That’s according to Elliot Chun, partner at Architect Partners, a firm that advises crypto companies on financing strategies.

“Regulators will revisit how some of these token airdrops happened,” he told DL News. “You’re going to get a knock on the door.”

Glacial pace

New crypto projects often reward early users of their protocols with tokens. These rewards — called airdrops — can be worth a few cents to tens of thousands of dollars.

“Some of the highest-profile projects” will catch law enforcement’s attention, Chun said.

“The only reason regulators aren’t going for some of the smaller projects is because they’re too small,” he added. “But if they could, they would.”

At issue is the possibility that insiders may have improperly benefited from the airdrop. For example, knowing which requirements to fulfil in order to get the maximum allocation.

“How many of the ICO-era projects have had the knock?” Chun said, referring to a period in 2017 and 2018 when companies would raise funds by issuing new coins to fund their development, sales known as initial coin offerings, or ICOs

Many of those firms were subsequently sued by the Securities and Exchange Commission — and at times were investigated by the Federal Bureau of Investigation.

The only reason airdrop issuers haven’t heard from regulators yet, Chun said, is because they move at a glacial pace.

“The regulators are so slow — they’re only just getting to Ethereum now,” he said, referring to the SEC’s investigation into the Ethereum Foundation.

And Uniswap, one of the first protocols to airdrop tokens, just received a Wells Notice from the SEC in April.

“Uniswap launched in 2018 and airdropped in 2020. So regulators are operating with a four-to-five-year lag,” Chun said.

Crypto market movers:

Bitcoin is up 0.21% at $71,085.62

Ethereum down 0.95% at $3,811.43

What we are reading:

Solana project with $1bn in deposits aims to reward ‘true believers’ with its airdrop — DL News

Kraken Considers Pre-IPO Funding Round Amid Crypto Market Rally — Milk Road

How the U.S. Government Can Protect the Dollar Through Stablecoins — Unchained

European Central Bank Cuts Key Interest Rates By 0.25% — Milk Road

Ex-FTX exec to join boss Sam Bankman-Fried in prison. Who is Ryan Salame? — DL News

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

Robinhood, the publicly traded fintech company that lets users buy and sell stocks and crypto, announced on Thursday that it planned to purchase crypto exchange Bitstamp for about $200 million.

Best known for its role in the memestock craze of 2021, Robinhood has catered to retail investors in crypto, or small-time traders.

Now, it hopes to attract hedge funds, banks, and other trading heavyweights, according to Johann Kerbrat, general manager for Robinhood Crypto.

“We are adding, for the first time, a trusted business with established relationships,” he told DL News, in reference to Bitstamp and its existing service for wealthy traders. He added: “It makes a ton of sense for Robinhood to get into this space.”

Robinhood’s push to expand to a broader set of customers comes amid crypto’s reemergence as a substantial source of cash.

The company’s crypto transaction revenue jumped from $43 million in the fourth quarter to $126 million in the first three months of 2024.

Its fees from crypto trading in the first quarter neared a record, second to only the $233 million it earned in mid-2021.

The deal also comes amid a letter from the US Securities and Exchange Commission last month, warning that Robinhood is the target of potential litigation over its crypto business.

Potential expansion to Asia

Kerbrat not only touched on Bitstamp’s connections to institutional traders but also its international reach.

The crypto exchange says it has over 50 active licences globally, including in Asia.

Robinhood has expanded its crypto trading arm into Europe. When asked if its planned acquisition of Bitstamp meant Asia was up next, Kerbrat wouldn’t say.

“The goal is to keep pushing on the international side,” he said. “And absolutely, Asia is an attractive market.”

If FTX fraudster Sam Bankman-Fried was your prototypical high school nerd, his lieutenant Ryan Salame was the jock.

The onetime executive at crypto exchange FTX was handsome, liked to party, and was popular — so much so that he courted politicians across the US, even Florida governor Ron DeSantis, according to Michael Lewis in his book “Going Infinite.”

Salame’s relationships with politicians, however, landed him in hot water.

In late May, after Bankman-Fried was sentenced to 25 years in prison for fraud, the former co-CEO of FTX’s Bahamas subsidiary was sentenced to seven and a half years behind bars for violating campaign finance law and operating an unlicensed money-transmitting business.

Lewis called Salame a “freedom-loving, tax-loathing Republican.”

Who is he and what was his role at the now-bankrupt crypto exchange FTX?

From the Berkshires to the Bahamas

Salame went to high school in Great Barrington, a town nestled in the Berkshires, a rural highland in western Massachusetts, according to The Berkshire Eagle.

After receiving his undergraduate degree at the University of Massachusetts, Amherst, he did a two-year stint at Ernst & Young before he set off to work in Hong Kong for Circle, one of the largest firms in crypto, per his LinkedIn.

At that time, in 2019, Bankman-Fried was also in Hong Kong running Alameda Research, a crypto hedge fund.

The two met, and Salame, whom Lewis described as “a walking advertisement for worldly pleasure,” eventually left Circle to work for Bankman-Fried.

When Salame joined Alameda, the hedge fund was a hodgepodge of nerds.

“Ryan was less a grown-up than the highest expression of a new species, the crypto bro, that Sam sensed he needed on hand,” wrote Lewis. “He hired Ryan without being totally sure what Ryan would do.”

That same year, Bankman-Fried founded FTX, and, in October 2021, Salame became the co-CEO of FTX Digital, the name of the exchange’s Bahamas entity, according to the Department of Justice’s initial indictment of Salame.

Straw donations

During his tenure at FTX, Salame was often responsible for Bankman-Fried’s cheque book.

When Bankman-Fried decided to move FTX from Hong Kong to the Bahamas, he sent Salame to snap up property for the company and its employees.

Salame’s purchases eventually amounted to between $250 and $300 million in real estate and included $153 million in condos at a luxury resort called Albany, wrote Lewis.

Meanwhile, Salame was also funnelling millions of dollars from Bankman-Fried’s coffers into political campaigns in the US, according to the DOJ.

In what is commonly known as a straw donor scheme, or when a wealthy donor has others donate to candidates on their behalf, Salame and other co-conspirators made over 300 contributions on behalf of Bankman-Fried to politicians across the country.

These were worth tens of millions of dollars, said the government in its indictment of Salame.

Bankman-Fried wanted to appear politically neutral as well as avoid contribution limits, so Salame became the Republican face of Bankman-Fried’s political donation scheme, claimed the DOJ.

For example, Salame sent money to Elise Stefanik, Steven Palazzo, and Diana Harsbarger, all of whom were running as Republicans for the House of Representatives, per data from the Federal Elections Commission.

He even donated money to the campaign of Michelle Bond, a Republican congressional candidate in New York whom Salame was dating and with whom he now has a child, according to his sentencing submission.

The collapse of FTX and a guilty plea

As FTX collapsed, Salame was watching NFL superstar Tom Brady play in Florida, according to Lewis.

After the end of the game, Salame did not go back to the Bahamas, and he remained publicly quiet, even as Bankman-Fried lieutenants, Caroline Ellison, Gary Wang, and Nishad Singh all struck plea deals with the US government.

In April 2023, however, the New York Times reported that the FBI had raided Salame’s home in Maryland, and, in September, Salame pleaded guilty to one violation of campaign finance law and one charge of unlawfully operating an unlicensed money-transmitting business.

Last month, Salame was the first of Bankman-Fried’s co-conspirators to be sentenced to prison.

Although a federal judge passed down a seven-and-a-half-year prison term — even more than what prosecutors asked for — he may only serve five or so years, according to former DOJ prosecutors.

After he received his sentence, Salame is now back on social media and said he wants to tell his side of the story.

During the past year I dedicated a significant amount of my time to writing a complete memoir of my time at ftx and alameda. I'll be keeping 0$ of the proceeds once it hits print. Waiting on publishers at this point but hope to get it done and out asap.

— Ryan Salame (@rsalame7926) June 3, 2024

“During the past year I dedicated a significant amount of my time to writing a complete memoir of my time at FTX and Alameda,” he wrote on Monday.

“I’ll be keeping $0 of the proceeds once it hits print. Waiting on publishers at this point but hope to get it done and out ASAP.”

Ben Weiss is a Dubai Correspondent at DL News. Got a tip? Email him at bweiss@dlnews.com.

Mountain Protocol has bagged $8 million in a funding round led by Multicoin Capital.

The venture is part of a wave of stablecoin issuers — like Paxos and Angle — who are muscling in on big issuers’ turf by sharing the yield of US treasuries with customers.

“Today, Circle and Tether are keeping all of that,” Mountain co-founder Martin Carrica told DL News, referring to the 5% yield on US Treasuries. “Our thesis is, let’s give that back to the holder.”

The market is getting crowded. PayPal, Ripple, Aave, Curve, and Ethena are just some of the organisations to announce or launch stablecoins over the past year.

No wonder: Last year Bernstein predicted that the $161 billion market would balloon to almost $3 trillion by 2028.

Sharing yield

Amid high interest rates, stablecoins backed by US Treasuries have become a cash cow for issuers.

As of Wednesday, the yield on three-, six- and 12-month US Treasuries was just above 5%.

Mountain’s USDM and similar stablecoins are attempting to lure users by sharing the yield they earn on the US Treasuries.

Carrica likened USDM to a high-yield savings account.

However, breaking through the dominance of Tether and Circle — who have a combined market value approaching $150 billion and unmatched liquidity, a feature that appeals to high-volume traders — is a challenge.

After Coinbase Ventures and Castle Island backed Mountain’s $4 million September seed round, Mountain has struggled to maintain early momentum.

While Ethereum layer 2 blockchain Manta using USDM in a rewards campaign fuelled the stablecoin’s growth to a total value of $154 million in March, it’s since fallen to $49 million.

‘It sounds sketchy’

Bermuda-registered Mountain won’t offer its USDM to US users until the country passes stablecoin legislation — which is unlikely to happen in 2024 due to the election and political squabbling on Capitol Hill.

This has been an obstacle when negotiating partnerships or deals with vendors, Carrica said.

“They’re like, ‘okay, why are you not working in the US? It sounds sketchy,’” he said. “It’s less of a pure regulatory issue, and it’s more of a perception issue.”

Carrica said Mountain’s real opportunity is not in the US, but in cross-border payments and countries with unstable currencies, like his native Argentina.

The company will use the new cash injection to boost hiring and bring USDM to an additional 15 blockchains, including Solana and Cosmos.

As of Wednesday, USDM could be issued and redeemed on Ethereum, Polygon, and a trio of layer 2 blockchains: Arbitrum. Optimism, and Base.

Mountain also plans to make it easier to redeem USDM for other stablecoins on a one-to-one basis and for businesses to use USDM.

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

The Solana community is praising liquid staking protocol Sanctum after it revealed details for its token launch and promised to ditch the predatory tactics that have marred other launches.

Sanctum said it will airdrop 10% of its tokens to early users, set aside another 30% for its community, and sell 8% through a public onchain sale.

“Projects in the past started with so little and launched with crazy inflated FDVs,” Sanctum co-founder FP Lee in an X Spaces stream outlining the launch. “We don’t want that. We want to start low and go up.”

Lee was referring to fully diluted valuation, — or FDV — the total value of a token’s supply, including those locked or yet to be distributed, and not just those that are circulating.

Sanctum also said it previously sold 13% of its token to investors, a relatively small amount compared to other projects, and reserved 25% for team members.

“It’s well done, and well-balanced between team, investors, and community,” Kasper Vandeloock, CEO of crypto trading firm Musca Capital and advisor to several DeFi projects, told DL News.

“It signals they are here for the long term, and launching a token is not them trying to find exit liquidity.”

Defi users have pushed back against projects employing what many call predatory “low float high FDV” token structures that benefit early venture investors.

Sanctum lets users stake SOL tokens and receive placeholder tokens in return, which can be used in DeFi.

It differs from other liquid staking protocols by grouping more than 32 different liquid staking tokens into a single pool of liquidity, giving traders better prices when swapping between them.

Sanctum has just over $1 billion in deposits, according to DefiLlama data.

Sanctum’s CLOUD token

Sanctum’s CLOUD token will let holders govern the protocol, similarly to a decentralised autonomous organisation — or DAO.

But it will also have other uses, like as a collateral token that prospective partners would need to stake.

Sanctum’s token plans are largely inspired by decentralised exchange aggregator Jupiter, said Yash Agarwal, a researcher at Superteam, a group that helps Solana ecosystem projects.

Jupiter allocated 40% of its token to its community through airdrops, and only a small amount to VCs.

“It’s also unique compared to other Solana projects, which typically have 10% to 15% in airdrops and 20% to 40% allocated to predatory VCs, launching at astronomical high FDVs,” Agarwal told DL News.

Sanctum will use Jupiter’s launchpad to conduct its token sale.

Several Solana projects have chosen to launch tokens through the launchpad as an alternative to launching through crypto exchanges.

“Centralised exchanges almost always ask for large listing fees: 1%, 3%, 10% of total supply,” FP Lee said in his X post announcing Sanctum’s CLOUD token. “I would much rather those tokens go to the Sanctum community.”

However, Lee said, Sanctum is giving a comparable amount — 1% of the token supply — to LFG, the organisation that runs the launchpad.

Additionally, CLOUD’s initially circulating supply, while bigger than many recent airdrops, is still low.

Top decentralised exchange Uniswap airdropped 60% of its UNI token to early users in 2020, while the Ethereum Name Service airdropped 25% of its ENS token in 2022.

‘True believers’

Sanctum also said it wants to improve on previous airdrops by separating airdrop farmers from “true believers.”

Sanctum’s Lee said he wants to keep details of the project plans secret to avoid giving a head start to those trying to game the system.

He did, however, say that Sanctum could delay airdrop claims, or reward recipients who choose to delay their claim with more tokens.

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

Investors are pouring back into markets — Bitcoin included — as central bank policies ignite a wave of enthusiasm for riskier assets.

The European Central Bank became the latest to cut rates today after Canada cut yesterday.

Now, market watchers expecting the Fed to follow suit.

Neil Wilson, chief analyst at Markets.com, said that economic data this week has been weaker than expected and sent the odds of a rate cut in September to 70%.

That euphoria bled into crypto markets.

On Tuesday, CoinShares found that US spot Bitcoin exchange-traded funds saw the largest one-day investment since March 12.

“It is becoming evident that the US economy is getting weaker, this has ramped up expectations for an interest rate cut to be earlier than expected,” James Butterfill, head of research at CoinShares, told DL News.

According to CoinShares data, Fidelity’s Bitcoin ETF saw the most inflows this week, posting $456 million in investment.

Investors bought $274 million in BlackRock’s iShares Bitcoin Trust and $149 million in the Ark 21Shares Bitcoin ETF.

Crypto market movers:

Bitcoin is up 0.5% over the past 24 hours to $71,266.

Ethereum is up 1% to $3,800.

What we are reading:

Robinhood to acquire Bitstamp exchange for $200m in aim to become ‘on-ramp to the crypto world’ — DL News

Tether and CoinGecko warn of crypto phishing attacks and fake token launches — Milk Road

Q&A with Robinhood crypto general manager: Why the crypto giant went to the EU — Unchained

Judge orders SEC to pay $1.8 million in legal fees, dismisses case against Debt Box — Milk Road

Why Railgun project co-founder talked to the feds — and what’s next for crypto privacy — DL News

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

Forward Research has acquired crypto-based YouTube competitor Odysee, a move expected to bring its seven million users to Arweave and breathe new life into the controversial effort to create a social media platform beyond the reach of government censors — and content moderators.

“We stepped in to save it from going offline,” Sam Williams, the founder of the Arweave blockchain and CEO at Forward Research, a venture firm supporting Arweave, told DL News.

When US regulators forced the closure of LBRY, they almost killed Odysee in the process.

“This has been a very long-term project for us,” Williams said. “It would have been a terrible end just to disappear from the internet like that.”

Williams declined to detail the terms of the acquisition.

Odysee is far larger than other crypto alternatives to social media giants like Farcaster and Bluesky.

“The goal is to topple the monopolies that currently exist in social media. We haven’t won until it replaces Twitter.”

Sam Williams, founder of Arweave and CEO at Forward Research

“They actually have a user base that doesn’t really care about crypto. They came to Odysee because they wanted something that maintained their rights, guaranteed their right to speech and to discuss with one another,” Williams said.

Arweave is one of several blockchains focused on data storage. While Ethereum can store the metadata or links to large files, such as videos, Arweave can host such data entirely onchain.

Welcome to the ‘permaweb’

Williams calls the Arweave ecosystem the “permaweb,” due to its ability to permanently store any content uploaded by its users.

That made Odysee a natural fit for Arweave, he said.

“This is one of the things that really caught our eye about it,” he said. “This is a system that is imbued with crypto values, if you will, and has attracted a mainstream audience. And now the job is just to grow that.”

Odysee has attracted scrutiny for its lax content moderation policy. However, crypto users and free-speech proponents see it as a solution to the growing power that major corporations have over online speech.

“Every time you attempt to speak at distance in the world, you have to use some company service,” Williams said, “unless you use something like Arweave.”

Williams likened Arweave to a content “data lake” that is “shared across every single application.”

TikTok had to slowly build its user base — a long and expensive process for an upstart taking on billion-dollar incumbents. A developer on Arweave could create an interface that would draw from the same pool of content as other Arweave-based social media applications and differentiate itself by choosing what to surface.

Last year, the blockchain introduced its “Universal Data License,” allowing users to set the terms of use for any content they upload.

Williams hopes this opportunity to better monetise content will draw creators and, in turn, users.

“The goal is to topple the monopolies that currently exist in social media. We haven’t won until it replaces Twitter.”

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

Robinhood is acquiring one of the industry’s oldest crypto exchanges Bitstamp, expanding the stock-trading app’s crypto footprint.

The acquisition is worth approximately $200 million, according to Robinhood’s announcement. The deal is expected to close in 2025.

“Through this strategic combination, we are better positioned to expand our footprint outside of the US and welcome institutional customers to Robinhood,” said Johan Kerbrat, general manager of Robinhood Crypto, in the announcement.

Robinhood’s acquisition highlights how a slew of fintech companies — such as Revout, Stripe, and PayPal — are making crypto a cornerstone of their business.

However, the fintech has also found itself in the Securities and Exchange Commission’s crosshairs because of its crypto services.

Robinhood’s crypto push

Robinhood is betting big on crypto.

Kerbrat has told DL News it wants to be “the on-ramp to the crypto world.”

DL News recently revealed that the stock-trading app is recruiting for its crypto team on the back of launching a crypto trading service in the European Union, and expanding its crypto wallet with an Arbitrum add-on.

The efforts are paying off.

Before the Bitstamp acquisition hit the wire, research firm Bernstein estimated that Robinhood’s crypto push would catapult its market cap to about $26 billion in 2025, up from almost $19 billion today.

The company’s crypto arm drove its growth in the last quarter of 2023, with its cryptocurrency revenue surging to $43 million of the company’s total $200 million in transaction-based revenue.

For 2023 as a whole, cryptocurrencies made up for 17% of the company’s $785 million in transaction-based revenue.

The new acquisition fits into this drive.

What is Bitstamp?

Bitstamp markets itself as one of the world’s oldest crypto exchanges, having been founded in 2011.

Today, it serves users in Asia, the US, Europe, and the UK. It also already offers services like lending and staking, which are key components of crypto markets after buying and selling tokens.

The exchange posted more than $232 billion in trading volume in the last day, according to CoinGecko.

The SEC

The announcement comes as the SEC has made Robinhood a target due to its crypto business.

In a May 8-K filing, Robinhood revealed that the SEC had contacted the firm to notify them of its recommendation to file an enforcement action.

The markets watchdog said that Robinhood was offering unregistered securities by letting users buy and sell various cryptocurrencies, a line of reasoning found in its actions against Coinbase and Consensys.

“We firmly believe that the assets listed on our platform are not securities,” Dan Gallagher, Robinhood’s chief legal officer, said at the time.

Robinhood and Bistamp did not immediately respond to DL News’ request for comment.

Liam Kelly is a DeFi Correspondent at DL News. Eric Johansson is DL News’ News Editor. Got a tip? Email them at liam@dlnews.com and eric@dlnews.com.

The Arbitrum DAO is poised to give developers of blockchain-based video games more than $200 million in crypto.

A vote to fund a new “Gaming Catalyst Program” with more than 200 million ARB tokens has received overwhelming support through Wednesday, with more than 149 million votes in favour and almost 31 million votes in opposition.

If approved, the scheme would have 135 million ARB worth about $150 million to invest in game developers and studios, and another 65 million ARB to distribute in the form of grants.

The vote has also attracted opposition, however, with critics calling it an outsized sum for an industry that has produced few blockbuster hits despite receiving billions in venture capital.

“It is too much money to spend on a niche category,” crypto influencer and investor Eric Wall wrote on X.

“I’m just not sure we need to fund this for a quarter billion dollars. Who is it helping?”

Wall, an Arbitrum DAO delegate, was one of several to vote in opposition to the proposal.

The Arbitrum quarrel highlights the precarious state of web3 gaming.

While backers contend that it’s “not a bubble,” the absence of success stories combined with a brutal crypto winter have ground the flood of investments into web3 games to a trickle.

In 2021, web3 gaming projects raised $2.3 billion, according to DefiLlama. Last year, that figure dropped over 70% to $576 million.

Web3 gaming projects have only raised $213 million so far this year, despite venture capitalists slowly returning to the crypto industry.

An ‘aggressive budget’

Karel Vuong, founder of video game developer Treasure DAO, co-authored the Gaming Catalyst Program.

He pitched it as a way to turbocharge game development on the largest Ethereum-based, layer 2 blockchain.

“As a network, Arbitrum falls behind several major competitors across total games migrated, games launched, and total gamers,” the proposal reads.

“We believe that earmarking an aggressive budget to attract builders and retain talent will result in a few major wins.”

The scheme would funnel money toward game publishers and developers over a three-year period.

The “core of this initiative is to create an investment arm for the DAO that would be making investments instead of just giving out grants,” Krzysztof Urbanski, a member of Arbitrum delegate L2BEAT, told DL News.

“The revenue for the DAO does not necessarily have to be coming [just] from sequencer revenue, it may be coming from the return on said investments.”

Criticism

Several Arbitrum delegates — members who use others’ tokens to vote on their behalf — voiced their concern with the size of the Gaming Catalyst Program.

DAO governance firm GFX, an Arbitrum delegate, has led a late campaign to scuttle the proposal.

“This is an enormous amount of money for an industry vertical with no visible winners,” GFX wrote in the Arbitrum governance forum. “This is highly speculative and looks like a YOLO.”

The comment highlights how few web3 games have reached — and held onto — a wider audience.

The most popular, Axie Infinity, found an audience in the Philippines before crashing amid a $600 million hack and broader lull in crypto markets.

Despite a comeback, deposits in Axie’s blockchain, Ronin, are still a fraction of what they were at their 2021 peak, according to DefiLlama data.

Arbitrum delegate Lito Coen voted against the proposal, on the grounds the upfront sum was too great.

“I would prefer if funding was for one year and or one third of the amount and having the GCP group apply for new funding after,” he wrote on X.

Backing the gaming scheme

Nevertheless, most major Arbitrum delegates back the programme.

“For me the benchmark is not Elder Scrolls but rather games like Stardew Valley,” Urbanski said, referring to a big-budget video game series that has sold tens of millions of copies worldwide.

“Or games like Forge of Empires, Travian, or Eve Online. Those are maybe not your cover-making titles but they are money machines.”

And Arbitrum DAO isn’t the only one poised to invest big in crypto gaming.

Recent gaming funds raised by Andreessen Horowitz, as well as Arbitrum competitors Starknet and Polygon, all topped $100 million.

“In web3, such an initiative is not extraordinary,” Urbanski said.

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

Crypto companies need to disclose more information about their tokens, Securities and Exchange Commission Chair Gary Gensler said Wednesday on CNBC.

But his statements were notable for what they left out: the assertion that “most” crypto tokens were securities subject to SEC oversight.

It was the latest suggestion that political winds are shifting in Washington.

In a surprise move last month, the SEC approved spot Ether exchange-traded funds. Additionally, more than 70 House Democrats broke ranks to vote for crypto legislation, a move seen as a major symbolic win for the industry.

“Right now, without prejudging anyone, these tokens, whether they’re the ones Jim [Cramer] listed or other tokens, have not given you the disclosures that you not only need to make your investment decisions,” Gensler said, referring to the CNBC host, who had asked whether the SEC would approve spot ETFs for the BONK memecoin.

In past appearances this year, Gensler had used similar language when asserting most tokens are securities — a classification vehemently opposed by the industry.

“Here we have an asset class, all of these 15 [thousand], 20,000 crypto tokens, many of which — without prejudging any one — many of which are something called investment contracts or securities,” he said on CNBC in February.

Nevertheless, Gensler continued to suggest Wednesday that he viewed the industry as a financial “Wild West.”

“These crypto exchanges, Jim? They’re doing things that we would never allow this New York Stock Exchange to do. Our laws won’t allow you to trade against your customers,” he said.

“Some of the most leading lights of this field are in jail, about to go to jail, or awaiting extradition.”

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

Wall Street giants — from investment banks like JPMorgan to the world’s largest asset manager BlackRock — are touting the benefits of issuing and processing securities onchain.

These firms say so-called tokenisation of assets, from stocks and bonds to art and real estate, will automate what are currently inefficient and error-prone operations in financial markets.

However, all these benefits could be achieved with other kinds of ledgers and databases than blockchain, a finance academic told Congress on Wednesday.

“Crypto runs on permissionless public blockchains, and tokenisation does not need to,” Hilary Allen, who is a law professor at the American University Washington College of Law, said.

Allen was testifying in a hearing convened by the House’s Subcommittee on Digital Assets, Financial Technology and Inclusion to debate whether tokenisation will facilitate efficient markets.

‘Blockchains suffer from inescapable inefficiencies and operational fragilities that make them unsuitable as supporting infrastructure for real-world assets.

Prof Hilary Allen

Consensus concerns

Wall Street has dabbled in tokenisation for years, mostly — thanks to competitive and regulatory concerns — on closed, so-called “permissioned” blockchains.

More recently, however, banks have started testing the capabilities of public blockchains like Ethereum.

The problem is, these blockchains “suffer from inescapable inefficiencies and operational fragilities that make them unsuitable as supporting infrastructure for real-world assets,” Allen said.

For instance, consensus mechanisms — protocols for bringing the nodes of a blockchain into agreement to verify transactions — are ineffective and wasteful, she said.

That’s often by design — many blockchains have built-in delays, for instance — but this does mean they can’t process large volumes of transactions.

Additionally, governance is an issue.

The world’s financial markets run on centralised databases that are monitored for cybersecurity and operational risk, and that are subject to strict controls, rather than by unregulated and sometimes anonymous core developers.

When financial firms experiment with blockchain, they often address these scalability and governance issues by re-centralising control of certain processes, Allen said.

But that raises the question — “Why use the public, permissionless blockchain in the first place?” she asked.

Allen also took aim at the claim tokenisation projects make in their marketing — that they’re democratising finance by offering fractional ownership of assets usually inaccessible to ordinary Americans.

“I urge you not to pin your hopes on tokenisation as a means of improving financial inclusion,” she said.

“With so many Americans living paycheck to paycheck, the problem is not a lack of investment opportunities, but a lack of money to invest in the first place.”

Better rules

Allen sounded the lone sceptical note at the hearing.

Other witnesses represented firms exploring or actively involved in handling tokenised securities.

These witnesses called on Congress to ease legal and regulatory obstacles to tokenisation.

“Existing statutes and regulations were not designed with blockchain in mind,” Carlos Domingo, co-founder and CEO of Securitize, told lawmakers.

Securitize is the transfer agent for BlackRock’s tokenised fund BUIDL.

Among other measures, he called for improvements in the Securities and Exchange Commission’s licensing regime to allow brokers to safeguard digital assets.

The SEC introduced a special broker licence for this purpose in 2021.

However, Domingo said, it is “frustratingly difficult to achieve, limited in scope, and it isn’t clear which tokenised securities are eligible” for the licence.

Email the author at joanna@dlnews.com.

The way Alan Scott tells it, he thought he was being scammed.

As a co-founder of the Railgun Project, a group that educates on and contributes code to the Railgun privacy protocol, he is accustomed to federal agents’ scepticism.

So, when an invitation to speak at the Virtual Currency Symposium — which Scott describes as the biggest international conference for law enforcement agencies looking to catch crypto bad guys — darkened his inbox, he thought it was a con.

“It’s not every day you get somebody from the FBI write to you and say, ‘Hi, we would like you to talk at our conference,’” Scott told DL News in an exclusive interview.

The invite turned out to be genuine.

In late August, Scott stepped up on a Milwakue stage after the deputy director of the FBI’s keynote to tell people policing privacy protocols like his that — contrary to popular belief — these tools are not just for criminals.

That’s a hard sell.

Authorities have spent the past few years cracking down on privacy protocols and crypto mixers.

In April, the Department of Justice arrested two co-founders of Samourai Wallet, a Bitcoin wallet with a built-in crypto mixer.

A Dutch court convicted Tornado Cash developer Alexey Pertsev of laundering $2.2 billion in illicit assets in May, and the European Union is looking to ban crypto mixers and privacy tokens.

But Scott is on a campaign to convince law enforcement agencies, politicians, and the public at large that privacy tools can bolster honest users’ security.

Vitalik’s favourite privacy tool

Railgun has largely flown under the radar since its 2021 debut.

But in recent months, Ethereum co-founder Vitalik Buterin used Railgun on several occasions and promoted the protocol on X to his 5.3 million followers.

The high-profile attention had an effect. On May 27, the protocol recorded its highest-ever weekly volume of $47 million.

Railgun distinguishes itself from similar projects, such as Tornado Cash, with its Proof of Innocence feature, which is designed to prevent bad actors from using it.

This lets users create a cryptographic proof that shows the money they put into the protocol didn’t come from wallets associated with stolen funds or illicit activity, while at the same time keeping the origin of the money secret.

The thinking is that if honest Railgun users generate these proofs, bad actors attempting to launder crypto through the protocol will be the only ones left without them — empowering crypto exchanges and law enforcement to identify them.

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

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

“What if law enforcement around the world would be able to contribute to this?” Scott said.

Scott’s main Railgun contribution is to research as well as facilitate communication and collaboration with other projects.

In recent months, he’s been advocating on behalf of the Railgun protocol and other privacy protocols — telling everyone from casual memecoin traders to the FBI why so many people treasure privacy.

“Overwhelmingly, the response is quite positive,” Scott said.

Privacy protocols under siege

While Scott’s been busy talking with federal agents, anonymity advocates are absolutely alarmed at how privacy is being threatened.

They point at Pertsev’s conviction as well as the US Department of Justice charging two more Tornado Cash developers for running a scheme that enabled criminals to launder over $1 billion of illicit funds.

Privacy advocates argue that these developers are unfairly penalised by others using the tools they created to commit crimes.

“It definitely creates a negative bias in privacy,” Scott said. “There’s even a bit of a chilling effect around privacy because people are like, ‘I don’t want to go to jail for writing code.’”

Such chilling effects include developers choosing not to write and publish code relating to privacy, stifling innovation.

Another example of the chilling effect is that traffic to Wikipedia articles containing keywords tracked by the Department of Homeland Security dropped following revelations about NSA surveillance in 2013.

However, Scott said, he’s not all that worried about Railgun facing a similar fate as Tornado Cash.

“I do find it unfortunate that those dudes are in jail,” he said, adding that “there’s a lot of people developing privacy who aren’t in trouble.”

He pointed to long-running crypto privacy projects like Aztec and Zcash, among others that aren’t facing the same issues as Tornado Cash.

Privacy nuances

There are also signs authorities are starting to recognise the nuances around crypto privacy.

“We believe that there is a difference between obfuscation and anonymity enhancing services that support privacy,” Brian Nelson, the Treasury’s Under Secretary for Terrorism and Financial Intelligence, said at the recent Consensus crypto conference.

Nelson said he understood the desire for privacy in the context of public blockchains, and that the Treasury wants to work with the crypto industry to identify and collaborate on tools that can enhance privacy.

Nelson’s comments, while positive, mean Scott and other privacy advocates like him will likely have a busy time ahead of them.

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

BlackRock and speed trading firm Citadel Securities are backing a new stock exchange in Texas designed to challenge giants such as the New York Stock Exchange.

Founder and CEO of TXSE Group James Lee, who posted the plans on LinkedIn, said the companies are among the deep-pocketed backers of the Texas Stock Exchange, to be based in Dallas.

The new bourse’s $120 million in fundraising makes it the most well-capitalised exchange to file a registration with the Securities and Exchange Commission, he said.

“Investors behind it mean to pressure exchanges on fees and seek to disintermediate them too, if they can, as they hold themselves to be a large source of liquidity and flows in their own right,” Xavier Rolet, former CEO of the London Stock Exchange, told DL News.

Sean Stein Smith, a professor at the City University of New York and board member at the Wall Street Blockchain Alliance, agreed. The move sends a message that Blackrock and Citadel want to compete with New York exchanges, he said.

TXSE will list public companies and facilitate trading in what it calls “the growing universe” of exchange-traded products. These are cheap and accessible offerings that typically index a basket of securities.

BlackRock, the world’s biggest money manager with $10 trillion in assets, has already shaken up one industry this year: crypto.

‘Monopolistic behaviour was always the exchange industry’s Achilles heel’

Xavier Rolet, ex LSE CEO

Its introduction of Bitcoin and most recently Ethereum ETFs has loosened the crypto industry’s grip on retail investors.

CEO Larry Fink has said he wants to bring costs of trading down for ordinary investors — indeed, his Bitcoin ETF costs a fraction of the fees that rivals such as Grayscale charge.

Fink has also set his sights on tokenisation — the digital trading of stocks and bonds — in what could be an opportunity worth trillions.

US dominance

Rolet said the new Texas exchange also highlights the dominance of US exchanges in the global capital markets.

London companies are jumping ship to the US to list their shares publicly. UK chip designer Arm shunned the London Stock Exchange and last year chose instead to list on the Nasdaq.

The IPO valued the company at about $55 billion, the biggest US stock debut since 2021.

The US overwhelmingly dominates in stocks — about 60% of the total value of global equities is on US exchanges.

Rolet said that’s some 10 times the daily liquidity of UK and European equity markets.

“Monopolistic behaviour was always the exchange industry’s Achilles heel,” Rolet told DL News. “They can afford some fragmentation.”

Sean Tuffy, a market structure expert and former Citigroup executive, told DL News that BlackRock’s and Citadel Securities’ reasoning is simple:

“Two of the biggest players in US capital markets are looking to disrupt the existing exchanges because it could be good for their existing businesses to do so.”

Nubit advances blockchain scalability with $12m total funding, integrating major L2 frameworks and supporting multi-chain ecosystems, while pioneering an innovative data availability solution to unlock limitless applications in AI, SocialFi, and GameFi.

This latest round brings Nubit’s total funding to $12m, advancing its mission to develop the most secure and scaleable data availability (DA) layer for multi-chain ecosystems

Nubit has successfully closed an $8m seed funding round, led by Polychain Capital, with participation from Nomad Capital, Spartan Group, L2IV, Big Brain Holdings, GCR, Protagonist, Gate Ventures, Animoca Ventures, Mask Network, and others.

This latest round brings Nubit’s total funding to $12m, advancing its mission to develop the most secure and scaleable data availability (DA) layer for multi-chain ecosystems, supporting limitless applications including artificial intelligence (AI), SocialFi, and GameFi.

“I have known and collaborated with Professor Yu Feng and the Nubit team for a long time. Their historical achievements in Zero-Knowledge (ZK), security, and blockchain give me confidence that their innovative DA solution can unlock numerous application possibilities across various sectors,” said Luke Pearson, senior research cryptographer at Polychain Capital.

Founded by Feng, a computer science professor at University of California, Santa Barbara, Nubit draws on a decade of research to advance blockchain scalability. Nubit leverages Bitcoin’s economic security and optimises key metrics such as fraud detection methods, attestation security, and accessibility with ZK technology.

This allows it to ensure unparalleled trust and reliability, while achieving scalability through a high-performance consensus algorithm and innovative data structures like the Kate-Zaverucha-Goldberg (KZG)-based Namespaced Merkle Tree.

As the crypto landscape evolves, enabling unlimited innovations with the most secure and scaleable DA layer is crucial next step. Bitcoin’s block space is preferred by users due to its unparalleled security, however, limited space and high costs makes it an impractical solution.

Nubit addresses this challenge by leveraging Bitcoin’s economic security to provide an innovative DA layer that ensures both security and scalability. It brings Bitcoin-level security to various applications and infrastructures, effectively bridging the gap between Bitcoin-native solutions and the broader multi-chain ecosystem.

Debuting as a leader in Bitcoin Season 2, Nubit has integrated major players such as Babylon, BounceBit, Unisat, and Merlin Chain.

In April 2024, Nubit launched its Pre-Alpha Testnet, engaging 155,115 users, deploying 5294 modular services, and processing 561,862 transactions

Furthermore, to address the insecure execution layer in the Bitcoin ecosystem, Nubit is committed to developing a programmable, modular, and trustless execution layer for meta-protocols like BRC-20 and Runes. The academic paper “Stateless and Verifiable Execution Layer for Meta-Protocols on Bitcoin” lays the foundation for new possibilities in the Bitcoin ecosystem.

Beyond the Bitcoin ecosystem, Nubit recently extended its support to all major L2 frameworks, including Polygon Chain Development Kit (CDK), OP Stack, Arbitrum Orbit, and Scroll, making it a universally applicable DA solution. As Nubit expands, its strategy now includes a broader scope, focusing on unlocking new possibilities for AI and Machine Learning, as well as on-chain gaming across multi-chain ecosystems.

In April 2024, Nubit launched its Pre-Alpha Testnet, engaging 155,115 users, deploying 5294 modular services, and processing 561,862 transactions. The team will launch the Alpha Testnet in June, the final phase before the mainnet launch later in 2024.

Wolfgang Münchau is a columnist for DL News. He is co-founder and director of Eurointelligence, and writes a column on European affairs for the New Statesman. Opinions are his own.

As a young financial journalist in the mid-1980s, I met the late Ivan Boesky, an investor who called himself a modern arbitrageur.

He had me fooled.

Old arbitrage was the exploitation of price differences between exchanges. If bills of exchange in sterling were cheaper in mediaeval Paris than in Bruges, a merchant banker would buy them in Paris and sell them in Bruges.

This would lead to an equalisation of prices. Even though everybody is in it for the money, there is social value in this transaction. It increased the efficiency of markets.

But this is not what Boesky did. He made the implausible claim that he would arbitrage information — merger arbitrage as he called it.

That sounded intriguing to us, but it turned out to be a euphemism for insider trading.

A few months after our meeting he was arrested. What appeared to me as a financial innovation turned out to be old-fashioned fraud.

He served time in jail, got barred from the financial markets for life, became a government informer, and stayed out of the spotlight until his death last month.

Michael Douglas’ Gordon Gekko character in the 1987 film “Wall Street” — the “greed is good” part — was based on Boesky.

What the Boesky experience taught me is that financial innovation doesn’t actually exist.

‘When someone claims they’e created an innovation, it is usually more likely they’ve found a way to hide risks.’

That might sound like a bold claim. But think about it.

Finance is the intermediation between borrowers and lenders, and savers and investors.

You can structure credit in different ways. Or hedge risk.

But when someone claims they’e created an innovation, it is usually more likely they’ve found a way to hide risks. Case in point: US subprime mortgages in the 2000s, which concealed bad credit in vast pools of investment grade products.

Fundamental observation

So how does this apply to crypto, or more precisely, to decentralised finance?

Let’s start with the tendency by many to conflate the properties of DeFi instruments — tokens, blockchain networks, smart contracts — with the industry itself.

Defi’s promised social value lies in the termination of the financial middleman. This is a big deal, and one that would justify some of the large investment flows into the crypto industry.

What Amazon did initially for books and later later for everything else, is what crypto can do for finance.

Crypto’s potential

In finance, you can estimate the current costs of the rent-seeking middleman in terms of the margin between market interest rates and loan rates, or credit card interest rates.

In other words, the spread you see between central bank capital and the rate your bank is giving you on deposits, or charging you on debt, is massively wide.

That’s the potential in savings crypto can offer.

It can take out some of the hassle of a mortgage application, and it can match borrowers and lenders in ways that is not possible with the mostly static institutions of modern finance.

But beware of claims that go beyond this. In statistics, there is a famous method called “the bootstrap” — a sampling technique that superficially appears to create data out of nothing.

You can bootstrap data, but you can’t bootstrap money, just like a central bank cannot expand the money supply beyond certain thresholds over long periods without creating inflation.

Bubbles can persist for surprisingly long times — decades even. Some people will make a killing while it lasts. If it is not sustainable, it will end.

The natural barrier for DeFi is that ownership of real assets is governed by national laws. It takes a court order to claim a delinquent debtor’s assets.

Uncollateralised lending, which is the business of banks, is difficult in a pure crypto universe.

Wholesale financial markets already operate at high levels of efficiency and low margins.

The main promise for DeFi from an economic perspective would be the parts of the financial markets that suffer the most friction in the form of high transaction costs and barriers to entry.

This would be a social value, but it would still require crypto-friendly regulation.

Social value

This scenario is different from the one I talked about in earlier columns about crypto as a potential replacement for fiat money. That does not require the collusion of authorities.

The social value here is the freedom to transact without state control. What the two have in common is the elimination of the rent-seeking middlemen.

For DeFi, the middleman argument is the one that matters most. But I struggle to see a world of decentralised finance that operates outside of legal systems at scale.

In a fiat money system, one distinguishes between inside and outside money. Inside money is the money created by banks — through loans for example.

Outside money exists outside the financial system, like gold. Crypto money can be classified as outside money from the perspective of the non-crypto world.

In that definition crypto is a bubble that either pops, or that gets fed by fiat money that allows crypto investors to liquidate their positions.

But don’t fall for the financial innovation hype. There are a lot of Boeskys out there in the crypto universe.

I think Amazon is the better way to think about Defi. Amazon brutally cut out the middleman.

But just as Amazon did not reinvent the book, crypto will not reinvent finance.

Vitalik Buterin says he’s far from pleased with the latest round of celebrity joke coins, but that doesn’t mean the $69 billion market is for nought.

It just needs a new direction.

“The north star should be: to have a project where even if eventually all tokens involved go to zero, the average person who participated is happy to have done so,” the Ethereum co-founder wrote on X, previously Twitter.

Memecoins command a combined market value of $68.6 billion, and generated over $6.5 billion in trades over the past 24 hours alone.

Buterin said celebrity memecoins must have “some kind of public-good goal that it’s serving, other than enriching the celebrity and early adopters. Realistically, either an art project or the celebrity’s favourite charity, or both.”

He said Ashton Kutcher and Mila Kunis’ NFT-powered Stoner Cats animated series from 2021 was “vastly more honorable” than other memecoins launched by celebs this year.

The non-fungible tokens of the show’s feline stars were sold to raise money to produce the series. In 2023, the Securities and Exchange Commission charged the project’s creators with offering unregistered securities.

The second factor determining whether the Ethereum co-founder can respect memecoins is whether they enable users to do something other than trading the token.

“As much as I dislike token-voting DAOs, at least they give something for people to do and organise around,” Buterin said. “The DAO should not fully decide the agenda, but it can have some influence.”

Decentralised autonomous organisations are communities that lead many crypto projects.

A quick summary of features that a celebrity crypto project needs to have for me to be more willing to respect it:

1. Have some kind of public-good goal that it's serving, other than enriching the celebrity and early adopters. Realistically, either an art project or the…

— vitalik.eth (@VitalikButerin) June 5, 2024

The third factor?

Whether or not it will last.

“Make something that lasts 10-plus years, rather than bubbling around for a few months and then being forgotten,” Vitalik said.

Memes all the way down

Buterin’s comments come as tokens that are either officially or unofficially linked to famous people like Donald Trump and Caitliyn Jenner have been riding high on the current crypto bull run.

Australian rapper Iggy Azalea launched a token on Solana in May. Since its launch, the token rose more than 520% to $0.1073, according to CoinGecko.

Market watchers expect the current memecoin frenzy to drive Solana — the blockchain many of these joke coins are trading — to record highs this year.

Hitting new highs and making celebs wealthier isn’t enough to meet Buterin’s high bar for memecoiner-y however.

Crypto market movers

Bitcoin is up 3% over the past 24 hours to $70,940.

Ethereum is up 1.1% to $3,800.

What we are reading

Novogratz says Bitcoin will hit $100,000 by year’s end — DL News.

Thailand Approves First Spot Bitcoin ETF, Joining Global Trend — Milk Road.

In the Ongoing SAB 121 Fight, Here’s How Crypto Can Move Forward With Bipartisan Support — Unchained.

BNB Soars To New All-Time High Despite Binance’s Struggle In Nigeria— Milk Road.

Controversial firm Prometheum says it’s jumping on the BlackRock tokenisation trend — DL News.

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

Aaron Kaplan seemed surprisingly relaxed for someone who’s picked a fight with the crypto lobby.

Not only has the co-CEO of digital asset trading platform Prometheum told the industry to stop asking for special treatment, he is coming for its lunch money with a new Ethereum custody service.

“We’re feeling very positive,” Kaplan told DL News, referring to the company’s recent soft launch of its service with unnamed clients.

The firm is also gearing up to tap into a projected $16 trillion boom in the trading of digital securities like equities and structured products — so-called tokenisation.

Siding with Gensler

The crypto lobby has amassed an $85 million war chest ahead of the US election to fight for its own favourable, tailored regulations.

But Kaplan continues to take the view of Gary Gensler, the SEC’s chair, who says that the federal securities laws are adequate to govern digital assets.

The company’s Ethereum product has already attracted negative attention from pro-crypto lobbyists and lawmakers, as it treats Ethereum as a security.

The SEC has never explicitly said that Ether is a security or a commodity — a contentious point for the crypto industry.

Kaplan said, however, that Prometheum has always taken the view it will follow securities laws, whatever they are.

‘We’ve never spent tens of millions of dollars trying to lobby for different laws in Congress.’

Aaron Kaplan

“We’ve never spent tens of millions of dollars trying to lobby for different laws in Congress,” he said.

“We’re just asking for the law to be applied, and whichever way the law goes, we will analyse and proceed accordingly.”

The attitude has already served Prometheum well — it’s the only industry player with a special broker licence from the SEC — but has also made it enemies in the cryptoverse.

Tokenisation

Prometheum’s aim since its founding in 2017 has been to provide a liquid, compliant public market for transacting digital assets, Kaplan said.

To that end, the company went through the rigorous process of obtaining a special purpose broker dealer licence — a new category of approval that the SEC introduced in 2021.

It’s still the only company with this licence, which, as of December, allows it to trade, clear, settle, and custody digital assets — the components of a soup-to-nuts service for investors.

The licence enables Prometheum to do all this with any kind of security.

That includes Ethereum and the company could also handle tokenised securities — on chain versions of assets like stocks and bonds.

It’s a sign BlackRock’s push into tokenisation is drawing more corporate followers.

Investment banks are beginning to issue instruments like bonds on the blockchain, and promoting the cost savings tokenisation.

However, widespread adoption of blockchain for assets like stocks and bonds is slow.

The digital assets subcommittee in the House of Representatives meets on Wednesday to discuss whether there are legal impediments to tokenisation.

Kaplan said, however, that the impediments are more structural than legal — and that’s where Prometheum sees an opportunity.

“I don’t think anything’s necessarily missing in the law,” Kaplan said.

“What’s missing is the market infrastructure licensed under securities laws that allows for the public trading, clearing, settlement, and custody of digital securities.”

Controversy magnet

But Prometheum’s fundamental operating premise — that federal securities laws are adequate to regulate digital assets — has positioned it at the nexus of the most heated debate in crypto in the US.

Industry leaders like Coinbase CEO Brian Armstrong are adamant that crypto is a unique technology that needs its own laws.

A year ago, a then-low profile Kaplan testified in Congress.

He told lawmakers that contrary to complaints from the crypto industry, it is possible to register with the SEC, and that platforms like Coinbase were “scofflaws” for failing to do so.

An ensuing industry backlash levelled accusations at Prometheum that ranged from the arguably reasonable — that it appeared to have no business model — to the absurd. No, Kaplan is not Gensler’s nephew.

Kaplan, however, appears unfazed.

“If the crypto industry wants crypto, they got it. That’s not our primary focus,” he said.

“Our primary focus is securities on the blockchain, and investment contracts are just a small fraction of that.”

Reach out to the author at joanna@dlnews.com.

Michael Novogratz, founder and CEO of crypto investment firm Galaxy Digital, is — surprise, surprise — bullish on Bitcoin.

The crypto billionaire told Bloomberg TV Tuesday that he believes Bitcoin’s price could hit $100,000 by year’s end.

“If we take up to $73,000 in the next week or so, we’re gonna end the year at $100,000, somewhere around there, or even higher,” he said.

Novogratz cited regulatory changes in the U.S government. Specifically, he referenced the Securities and Exchange Commission’s approval of Ethereum exchange-traded funds; bipartisan support in Congress for FIT121, the legislation that would provide a clearer regulatory framework for digital assets; and congressional support for the revocation of SAB 121, accounting guidance from the SEC that many in crypto oppose.

The repeal of SAB 121 passed both the House of Representatives and the Senate, but President Joe Biden vetoed the measure on Friday.

“We’re getting the regulatory clarity, and even though it’s not perfect, we’ve got enough that people now realise [that] this is coming,” Novogratz said in reference to a broader governmental acceptance of crypto.

Bitcoin’s resurgence

Novogratz’s optimism for Bitcoin comes amid a recent resurgence in the cryptocurrency’s price, which has buoyed the broader crypto market.

In mid-March, Bitcoin reached an all-time high of more than $73,000, and the total market capitalization of all cryptocurrencies approached $2.8 trillion, according to CoinGecko.

By early May, however, crypto fervour waned, and the largest cryptocurrency by market capitalization hovered near $56,000, bringing down the total market value of all cryptocurrencies with it.

Now, Bitcoin is approaching $71,000, and the total market capitalization for all cryptocurrencies has jumped to $2.67 trillion from an early May low of $2.33 trillion.

“If you bought Bitcoin and held it like most Bitcoiners do, you’re in the money,” Novogratz said.