Weekly Top Stories - 12/20
This week in the newsletter, we write about Ethena rolling out its new BUIDL-backed stablecoin, Deutsche Bank developing its own Ethereum Layer 2, and Craig Wright being sentenced to prison.
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Ethena Aims to Onboard TradFi through New Stablecoin
Ethena Labs rolls out new BUIDL-backed USDtb stablecoin. Ethena, the DeFi protocol behind the $6bn USDe 'synthetic dollar', is now launching a new USD stablecoin backed primarily by tokenized US treasury funds using BUIDL, a tokenized fund issued by BlackRock. USDtb's reserves will be 90% BUIDL with the remaining 10% in uSDC to provide immediate redemption capability and weekend liquidity.
USDtb is issued by Pallas, a BVI-based entity, with Ethena Labs acting as a service provider. Custodians for USDtb's reserves include Copper, Zodia, Komainu, and Coinbase Institutional.
The new USDtb offering will effectively act as a reserve asset for USDe to help Ethena manage the risks inherent with USDe, which follows a delta-neutral strategy that generates yield from the basis spread between spot and futures markets. During periods of negative funding rates, Ethena can close the underlying hedging positions behind USDe and divert the backing assets to USDtb to support USDe's peg to $1. Since launching on Monday, USDtb has already grown to $80bn as of Thursday evening.
OUR TAKE:
Fresh off USDe overtaking DAI as the #3 largest stablecoin, Ethena Labs is showing no signs of slowing down as it launches a new traditional-style stablecoin. USDtb not only provides Ethena with another type of collateral asset to support USDe during negative funding environments, but it also helps preserve the protocol's yield-generating capabilities by tapping into BlackRock’s BUIDL. Ethena now looks to integrate USDtb alongside USDe into exchanges and trading platforms as margin collateral.
According to Ethena's Head of Growth, the pipeline for Ethena is to leverage BlackRock’s brand to first onboard TradFi participants to USDtb to then get them comfortable with USDe and "help them understand USDe onchain opportunities like Aave, Maker etc". However, it seems more likely that TradFi participants would prefer to directly use BUIDL as a more conservative option over using USDtb. In any case, USDtb still offers significant risk protections to Ethena as it continues its mission to improve trading experiences and unlock new capabilities that cannot be offered by traditional stablecoins. - Charles Yu
Deutsche to Develop Zero Knowledge Ethereum Layer 2
Deutsche Bank, in collaboration with Memento Blockchain and Interop Labs, is reportedly developing its own Ethereum Layer 2 (L2) blockchain using zkSync’s tech stack. The effort to develop the chain is part of the bank’s Project Dama 2, which falls under the Monetary Authority of Singapore’s blockchain exploratory Project Guardian initiative. The scope of the initiative brings together 24 financial institutions to explore blockchain-based asset tokenization. Few official details regarding the chain have been released. However, Boon-Hiong Chang, Deutsche’s Asia-Pacific innovation lead, noted that it “plugs into Ethereum” in a recent interview and that it has the goal of giving institutions an outlet to build on public blockchains without the risks of transacting in unregulated environments.
OUR TAKE:
Deutsche Bank taking the step to develop its own blockchain is yet another sign that the future of finance is moving onchain. More importantly, however, the fact that it will “plug into Ethereum” to some capacity suggests that the future of onchain finance is leaning towards public blockchains. This is something we haven’t seen before from larger, non-crypto financial institutions (e.g. JP Morgan’s Kinexys – formerly Onyx). The bank-sponsored L2 plugging into Ethereum can have a couple of meanings in the context of Layer 1 <> Layer 2 relationships: 1) the L2 will use Ethereum for data availability (DA), posting data bundles of L2 executed transactions to Ethereum, 2) the chain will use Ethereum for settlement, holding a bridge down and posting proofs to Ethereum, allowing assets to be moved between the two chains, or 3) it will use Ethereum for both DA and settlement. The partnership with Interop Labs suggests the relationship will minimally cover bi-directional asset bridging to Ethereum as they are behind the Axelar Network, a general message-passing network connecting blockchains.
In past newsletters, we have noted the trend in finance-oriented businesses moving onchain and the range of broad and business-specific benefits it brings. This has mostly been in the context of crypto-related businesses, however. Regarding Deutsche Bank and their motivation for the experiment, building on an L2 allows them to develop a regulated, sandboxed environment for moving their business onchain while benefitting from having a direct link to public blockchains, like Ethereum. Previously, the lack of regulation around activity on public blockchains has been a gating factor for institutions to move onto them, and the infrastructure to build customizable L2s to offset this factor is just beginning to mature. Notably, Deutsche’s Asia-Pacific industry applied innovation lead stated that customizable L2s can maintain a “more bespoke list of validators” and delegate “super admin rights” to regulators to approve or disapprove of activity onchain. This comment offers a view into what the future of regulated onchain finance might look like, which can have consequences for future infrastructure design and development. In this setting, regulators may have outsized control over L2s and the banks themselves collaborate with them and/ or move their activity to higher layers. - Zack Pokorny
Goodbye Craig Wright
Craig Wright, also known as Faketoshi, will serve a 1-year prison sentence in 2 years and ordered to pay €145k in legal fees. A U.K. judge found Craig Wright to be in contempt of court after he initiated his egregious legal claim of $1.1tn over infringement on IP rights to Bitcoin. The Crypto Open Patent Alliance (COPA), the primary legal party in a UK suit against Wright, which is backed by Coinbase, Block Inc. (formerly Square), and other major cryptocurrency firms, argued that Craig Wright's suit in October violated the U.K. court ruling in July refraining him from pursuing proceedings related to his claim as Satoshi Nakamoto. The final ruling comes after the U.K. court blocked Wright's appeal, with the court stating definitively that Wright is not Satoshi Nakamoto on November 29, 2024. In the decision to block Wright’s appeal, the court stated that Wright provided false arguments through forged documents to his claim that he was Satoshi Nakamoto.
During the virtual hearing, Wright indicated to the judge that he was somewhere in Asia, though his exact location remains undisclosed. While he expressed his intention to appeal the ruling, there is no guarantee that his appeal will be accepted by the court.
OUR TAKE:
The May 2024 U.K. court ruling that Craig Wright was not the author of the Bitcoin white paper marked the nail in the coffin to his claims of being Satoshi Nakamoto. Wright's subsequent prison sentence concludes an eight-year legal battle in which he attempted to claim ownership of Bitcoin. In January 2024, Galaxy Research wrote that Wright's legal team had concerns that justice for COPA may be coming. Fast forward 11 months later, justice has been served and the Bitcoiners who Wright targeted will no longer be harassed. But while Craig Wright’s era attacking Bitcoin participants has come to an end in the U.K., he could still pursue legal action in another jurisdiction. However, given Wrights prison sentence and public humiliation, this seems unlikely.
Wright's campaign included lawsuits against Bitcoin Core developers and influencers, baselessly accusing them of misleading the public about Bitcoin's origins and Satoshi's identity. His attacks on open-source developers, who play a crucial role in maintaining Bitcoin's security, were particularly egregious. The innocent developers and influencers who positively contribute to Bitcoin burdened the stress and monetary harm of being wrongfully sued for years. Wright's clear abuse of the legal system and his eventual downfall serve as a powerful reminder that attempts to claim Satoshi's identity or attack Bitcoin's developers are destined to fail. Bitcoin's decentralized, open-source nature ensures that no single entity can control it, and the truth of its origins remains preserved in its transparent development history. - Gabe Parker
Charts of the Week
Pudgy Penguins, a prominent NFT collection on Ethereum, launched its token (PENGU) airdrop claim on Solana this week. Nearly 1.1 million addresses have already claimed their allocation, with ~900,000 of them claiming within the first 24 hours of the launch. The rush to claim the airdrop sent the transaction count on Solana soaring, with true transactions per second (TPS) - the count of non-vote transactions per second – surpassing 1,500 TPS.
Solana has historically received scrutiny for not being able to handle outsized load on the network, and experiencing outages when under stress. Through the PENGU airdrop, however, the chain added blocks without an outage, and processed blocks at a standard skip rate. About an hour after the claim went live, however, the network experienced about ten minutes of inconsistent block processing, with the minutely skip rate jumping to ~20%. For reference, the skip rate per epoch typically fluctuates between 2% and 5%. Transactions on the network also landed at a healthy rate despite the span increasing significantly through the airdrop.
Other News
El Salvador to limit bitcoin activities in $1.4 billion IMF deal
Kraken unveils Ethereum scaling layer Ink
Pudgy Penguins launches PENGU token
NFT collection CyberKongz says it has received a Wells Notice from SEC
Fantom’s new chain “Sonic” launches
Ripple to launch RLUSD
MicroStrategy joining the Nasdaq 100
Ohio lawmaker introduces Bitcoin reserve bill allowing state to buy BTC
Coinbase to delist WBTC after judge gives thumbs up
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