Weekly Top Stories - 4/4
This week in the newsletter, we write about a stablecoin act passing the House Committee, DTCC adopting blockchain, and EY upgrading its Nightfall rollup to ZK architecture.
STABLE Act Advances in House
On Wednesday, April 2, the House Financial Services Committee passed the bipartisan STABLE Act in a 32-17 vote, with six Democrats voting with Republicans. As we noted in last week’s newsletter, the STABLE Act aims to define a regulatory framework for companies issuing dollar-denominated digital tokens.
With both the Senate and the House advancing their own versions of the stablecoin bill, the next step is reconciling the two, a process expected to unfold over the next two months. While the bills share roughly 80% overlap, they have a few key differences. On licensing, the House version permits state regulators to retain oversight of stablecoin issuers if the states have equivalent strictness as the Feds, whereas the Senate bill mandates federal regulation for stablecoin issuers with over $10 billion in assets. Another distinction is the treatment of foreign issuers, where the House version includes tougher language targeting offshore firms like Tether for concerns about transparency and systemic risk.
Also this week, on Tuesday, April 1, the second largest global stablecoin issuer Circle filed for an S-1 seeking approval to become a publicly listed U.S. equity, aiming for a valuation of $4-5 billion. This is Circle’s second attempt to go public, following a failed effort in 2022, but this time within a more favorable regulatory environment.
OUR TAKE:
As stablecoin legislation advances rapidly and Circle’s IPO moves forward, competition in the stablecoin market is intensifying, particularly between the two leading issuers, Tether and Circle. Tether currently dominates the space with approximately 63% of total stablecoin supply, but it operates as an offshore issuer and has faced scrutiny over its limited transparency. In contrast, Circle is a US-based issuer holding around 25% market share and publishes monthly attestations of its reserves. This regulatory contrast is worth watching, as proposed legislation includes provisions that could affect the treatment of unregistered, offshore stablecoins within US financial markets.
Rumors are circulating that Tether is considering issuing a domestic token in the US to comply with new rules. At the same time, Tether has become the 7th largest foreign net buyer of US Treasuries in 2024. That gives it considerable influence, especially as the current administration focuses on managing the national debt.
Aside from Tether and Circle, other institutions are increasingly eyeing the growing opportunities in the stablecoin space. Fidelity is reportedly testing its own stablecoin, and Trump-affiliated firm WLFI has announced plans to launch stablecoins as well. Even the state of Wyoming is working with LayerZero to develop its own stablecoin initiative. As more players enter the field, now the real question is who can seamlessly integrate stablecoins into traditional financial infrastructure and scale their use in real-world applications. USD-backed stablecoins have a chance to be a massive phenomenon that reshapes the global monetary order, potentially extending dollar dominance significantly and creating a strong buyer base of U.S. Treasuries at a time when the geopolitical landscape is becoming more multipolar. In that sense, the expected growth of stablecoins is a fascinating crosscurrent to the shifts in international trade and power. – Jianing Wu
The DTCC Adopts Blockchain Tech
The Depository Truest & Clearing Corporation (DTCC), the primary US securities clearing and depository entity, launched a blockchain-based platform for the tokenization of real-world assets this Wednesday. Built on DTCC’s AppChain, which utilizes the Linux Foundation’s Besu blockchain client and the DTCC ComposerX system, the platform is designed to improve capital efficiency and liquidity while bridging traditional financial assets with the emerging digital asset space.
The DTCC has a virtual monopoly on US securities clearing, with most large US broker-dealers and banks depositing all securities they and their clients own. The latest numbers from DTCC for 2023 put their assets under custody at>$81 trillion and the value of transactions processed at $3.0 quadrillion. In practice, this means the DTCC is the central location for all securities transfers in the United States, with most securities never leaving DTCC custody and only changing hands on paper on DTCC’s records.
The DTCC chose the Linux Foundation’s Besu blockchain platform to launch their tokenization initiative. Besu is an enterprise-grade, open-source, Ethereum client that supports multiple consensus methods, private and public deployments, and enhanced tooling for permissioned products. The DTCC’s platform isn’t public at the moment but is slated to be demoed on April 23 at the DTCC event titled “The Great Collateral Experiment”. From the functionality the DTCC advertises on their digital launchpad, we can see that they plan on deploying tooling for most of the lifecycle of a securities’ life, from tokenization infrastructure for funds to data standards and management schemas, post-trade settlement solutions, and more.
OUR TAKE:
This move makes sense to us for multiple reasons. Fundamentally, the DTCC has one of the largest structural moats in securities clearing and trade processing in the world. They can defend against nearly any upstart competitor to their businesses, which makes their choice of adopting a blockchain-based system update telling. The DTCC can defend against typical upstarts, but the technology behind a blockchain-based ledger is a near-perfect fit to automate the vast majority of their operations, ownership, and transfer records that are built into the DNA of blockchains. The DTCC is trying to avoid having their position usurped by co-opting the only tech that can feasibly threaten them. Notably, DTCC recognized and embraced the potential for distributed ledgers to disrupt their business and moat as early as January 2016, when they published a seminal paper called “Embracing Disruption.”
The choice of Besu is also telling for what the intersection of traditional and crypto markets may look like. Traditional firms will piggyback on the hard work done by open-source projects that have laid the foundation for digital assets as we know them, reaping the benefits of nearly a decade of battle-tested code protecting hundreds of billions of dollars in crypto assets. Choosing Besu’s EVM and Solidity-based stack versus other chains using Rust, Move, and Go is of little surprise. Engineering choices related to smart-contract coding mean less to traditional players than the availability of battle-tested codebases to license from blue-chip DeFi protocols. Why re-invent the wheel and risk a code exploit when you can simply pay the licensing fee to Aave or Uniswap for code that has been bullet-proofed and tempered through multiple crises?
We are at an inflection point where the open, permissionless DeFi ecosystem has proved its worth. The value proposition is clear, and traditional finance sees the writing on the wall. The next steps may not be a bank-less future aligned with cypherpunk values but a permissioned extension of the traditional markets on-chain. While it may not be as flashy as some other crypto projects promising the world, reducing the DTCC to a set of blockchain-based functions can put the $2bn+ of revenue the DTCC makes annually back into investors’ pockets. This is a productive step in moving towards commoditizing finance for all and reducing the influence of rent-seeking intermediaries. A lot of work still needs to be done on the regulatory side to make this possible, though. More to come. – Thad Pinakiewicz
EY Upgrades its Blockchain, Nightfall, to Zero Knowledge Architecture
Big four firm Ernst & Young (EY) announced an upgrade to Nightfall, the company’s Ethereum-based rollup, that transitions the chain from an optimistic tech stack to a zero knowledge (ZK) one. The upgrade, dubbed Nightfall_4, replaces its optimistic predecessor, Nightfall_3, whose source codes are both publicly viewable in Github. In the press release detailing the upgrade, EY explained that moving from optimistic architecture to ZK simplifies the chain’s design and functionality. The key benefit is that transactions can now reach finality at the same speed as Ethereum, its underlying layer 1, without sacrificing the privacy-preserving qualities of Nightfall_3. That upside comes from the use of cryptographic security under ZK against cryptoeconomic security under optimistic architecture, which requires multi-day to weeks-long dispute periods to resolve incorrect state changes on the chain. In EY’s case, this would require them to offer additional services to clients using the chain, like liquidity services, to bridge the time gap that is operationally cumbersome and eliminated with the changes to Nightfall’s codebase.
EY first released Nightfall publicly in 2019 as a set of protocols for enabling private transactions on Ethereum, with Nightfall_4 being the fourth iteration of the initiative. The company’s core software and service offerings in the global blockchain market, such as EY OpsChain, use Nightfall and both are delivered through EY Blockchain’s SaaS platform, Blockchain.ey.com. The firm’s move to implement ZK into their enterprise-level blockchain is a signal that it plays an important role in maintaining key qualities of traditionally off-chain use cases and possibly to mass adoption of blockchain technology by offchain companies.
OUR TAKE:
EY’s rationale for transitioning from an optimistic tech stack to ZK raises key points around requirements needed for traditionally offchain companies to move onchain and the performance demands of layer 1 blockchains.
Blockchain rails are directly competing with the offchain platforms that businesses already rely on. To migrate to blockchains, companies will need to build products and services on them that at minimum match or beat the efficiency of their current offchain solutions. If these new solutions add more complexity than benefits, there won’t be a strong incentive to switch. In this context, and with EY’s upgrade to Nightfall_4, ZK rollups at least lay the groundwork for companies to address the operational shortcomings of blockchain rails as they currently stand, making them more competitive with existing offchain platforms and potentially unlocking new use cases.
EY’s move also raises questions around how performant layer 1 blockchains need to be designed in order to satisfy the demands of products built by companies on rollups and layers beyond. A key benefit of moving Nightfall_4 to a ZK stack is that the chain can “reach near-instant finality of layer-1 blockchain transactions,” highlighting that, to some extent, the guarantees provided by the rollup are bound to what the performance of the layer 1 can offer. For some use cases, the bound may be tight and require a highly performant layer 1, while others will not. Nonetheless, the performance of the layer 1 will be something companies bringing products and services onchain will consider. – Zack Pokorny
Charts of the Week
Memecoin launchpad, pump.fun, officially rolled out its own dex on March 20. Over the two weeks since it launched, the dex has done more than $3.5 billion in total volume, averaging $236.3 million in daily volume. The dex was created to improve the experience of creating tokens on the pump.fun platform and to build a more comprehensive suite of products under the pump umbrella. A focal point of friction in launching tokens through pump.fun was the migration of tokens meeting the needed requirements from pump.fun bonding curves to Raydium pools. This process carried a 6 SOL fee and fragmented the trading venue of the token. Now, tokens launched on pump.fun migrate to PumpSwap pools free of charge and keep their trading under a single roof – improving the trading experience for users and reducing costs for token creators.
Since launching on March 20, PumpSwap has captured 10% of all dex volume across Solana and 16% between the dex and pump.fun. PumpSwap is showing early signs of taking activity away from Raydium, which was pump.fun’s original dex of choice for token migrations. Over the two weeks since PumpSwap launched, Raydium’s share of Solana dex activity has declined from 57% to 42%, while other dexes have seen net flat changes in dominance.
Other News
Kristin Smith steps down as Blockchain Association CEO to lead Solana's policy push
Bybit becomes latest crypto firm to shutter NFT marketplace
Alabama, Minnesota advance bitcoin reserve plans with companion bills
Ted Cruz introduces FLARE Act to repurpose flared gas for bitcoin mining
Eric Trump backs new bitcoin mining venture with Hut 8
Legal Disclosure:
This document, and the information contained herein, has been provided to you by Galaxy Digital Holdings LP and its affiliates (“Galaxy Digital”) solely for informational purposes. This document may not be reproduced or redistributed in whole or in part, in any format, without the express written approval of Galaxy Digital. Neither the information, nor any opinion contained in this document, constitutes an offer to buy or sell, or a solicitation of an offer to buy or sell, any advisory services, securities, futures, options or other financial instruments or to participate in any advisory services or trading strategy. Nothing contained in this document constitutes investment, legal or tax advice or is an endorsement of any of the stablecoins mentioned herein. You should make your own investigations and evaluations of the information herein. Any decisions based on information contained in this document are the sole responsibility of the reader. Certain statements in this document reflect Galaxy Digital’s views, estimates, opinions or predictions (which may be based on proprietary models and assumptions, including, in particular, Galaxy Digital’s views on the current and future market for certain digital assets), and there is no guarantee that these views, estimates, opinions or predictions are currently accurate or that they will be ultimately realized. To the extent these assumptions or models are not correct or circumstances change, the actual performance may vary substantially from, and be less than, the estimates included herein. None of Galaxy Digital nor any of its affiliates, shareholders, partners, members, directors, officers, management, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information or any other information (whether communicated in written or oral form) transmitted or made available to you. Each of the aforementioned parties expressly disclaims any and all liability relating to or resulting from the use of this information. Certain information contained herein (including financial information) has been obtained from published and non-published sources. Such information has not been independently verified by Galaxy Digital and, Galaxy Digital, does not assume responsibility for the accuracy of such information. Affiliates of Galaxy Digital may have owned, hedged and sold or may own, hedge and sell investments in some of the digital assets and protocols discussed in this document. Affiliates of Galaxy Digital may also lend to some of the protocols discussed in this document, the underlying collateral of which could be the native token subject to liquidation in the event of a margin call or closeout. The economic result of closing out the protocol loan could directly conflict with other Galaxy affiliates that hold investments in, and support, such token. Except where otherwise indicated, the information in this document is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. This document provides links to other Websites that we think might be of interest to you. Please note that when you click on one of these links, you may be moving to a provider’s website that is not associated with Galaxy Digital. These linked sites and their providers are not controlled by us, and we are not responsible for the contents or the proper operation of any linked site. The inclusion of any link does not imply our endorsement or our adoption of the statements therein. We encourage you to read the terms of use and privacy statements of these linked sites as their policies may differ from ours. The foregoing does not constitute a “research report” as defined by FINRA Rule 2241 or a “debt research report” as defined by FINRA Rule 2242 and was not prepared by Galaxy Digital Partners LLC. For all inquiries, please email contact@galaxydigital.io. ©Copyright Galaxy Digital Holdings LP 2025. All rights reserved.