Headlines

Multichain Team Confirms Exploit Across Fantom, Moonriver and Dogechain Bridges
Top Binance Execs Leave Company Over CZ’s Handling of DOJ Investigation: Report
Circle considers issuing stablecoin in Japan
Google Play allows users to earn crypto assets in apps
XRP Ruling a ‘Landmark’ Judgment, Weakens SEC's Stance Against Crypto
SEC asserts XRP case wrongly decided, signals appeal
Crypto Bridging Protocol Multichain Ceases Operations After CEO, Sister Detained in China
Alex Mashinsky, the founder and former CEO of the bankrupt crypto lending company Celsius, has been granted bail at $40M by a U.S. District Judge following his arrest on fraud charges
Europe is set to launch its first Bitcoin ETF
Aave stablecoin, GHO, goes live
Chainlink's Cross-Chain Interoperability Protocol (CCIP) Goes Live
Neon EVM Released to Allow Deploying EVM Application on Solana
Stablecoin Protocol Ethena Closes $6 Million Seed Round Led by Dragonfly
Liquid Staking Protocol StakeWise Released V3 on Goerli Testnet
Uniswap reveals UniswapX
Celo announces transition to L2 built on OP Stack
Lens Protocol introduces its V2
Federal Reserve officially launches FedNow instant payment service
Optimism moves forward with two proposals to add zk-proofs
Vyper vulnerability leads to massive $70M Curve hack
PacWest merges with Banc of California +$400M equity infusion, latest “bank failure”
Crypto staking rewards must count as taxable income, IRS says
Coinbase's Layer2 Network Base Will Open to Public on August 9

GMX V2 Beta Live on Arbitrum and Avalanche Mainnets

July Crypto Markets

In July, while Bitcoin's momentum seemed to pause, the rally in traditional markets continued to flourish. This was largely driven by the anticipation of a "soft landing" for the U.S. economy. The term refers to the delicate balance of reducing inflation to sustainable levels without triggering a recession. The immediate future of the crypto market may hinge on how the debate around the soft landing unfolds. If incoming economic data continues to bolster this thesis, the rebound in major token valuations may persist. Conversely, if the economy falters or the Federal Reserve opts to raise real rates further, the crypto recovery could stall in the near term.

Recent data and Federal Reserve policy signals lend support to the idea that the economy might rebalance without succumbing to a recession. Inflation has further decelerated, particularly in the "core" measure, which excludes fluctuating food and energy prices. This slowdown occurred despite favorable employment conditions, including a low unemployment rate and strong employment growth.

Bitcoin (BTC) and Ethereum (ETH) remained broadly range-bound, experiencing a slight decline month-over-month. Both cryptocurrencies saw their realized and implied volatilities drop to historically low levels, while their daily correlations with the S&P 500 Index rebounded. Bitcoin fees continued to decline, while Ethereum fees saw an increase, particularly following an attempted exploit of the Curve protocol.

Price volatility was more pronounced beyond Bitcoin and Ethereum, and "alt-coin dominance" increased through July. A key catalyst was the U.S. District Court ruling on July 13th in the case SEC v. Ripple Labs. The court's decision had a significant impact on Ripple's native token, XRP, and appeared to influence prices for a few other tokens as well.

Ripple Case

The Ruling

"XRP, as a digital token, is not in and of itself a 'contract, transaction, or scheme' that embodies the Howey requirements of an investment contract." --Judge Torres

In a significant development for the digital assets industry, Judge Analisa Torres has issued a summary judgment in the case of the Securities and Exchange Commission (SEC) versus Ripple Labs. In a victory for the digital assets sector, the Court ruled that XRP, as a digital token, does not meet the criteria of the Howey test, and therefore, is not a security.

To ascertain whether a transaction qualifies as an investment contract, U.S. Courts adopt a nuanced approach, examining the specific circumstances of each transaction type. The SEC alleged that multiple forms of transactions constituted unregistered XRP offerings and sales. However, after careful examination, the Court found that only Ripple’s institutional sales met this criterion. In these sales, sophisticated buyers purchased XRP directly from Ripple Labs, reasonably expecting the firm to use the capital from sales to enhance the XRP ecosystem and increase the token's price. This arrangement satisfies all four prongs of the Howey Test.

Conversely, the Court ruled that purchases of XRP tokens sold by Ripple’s programmatic distributions did not constitute investment contracts. These transactions were "blind" bid/ask transactions, with purchasers having no way of knowing if Ripple received their funds. “Many Programmatic Buyers purchased XRP with an expectation of profit, but they did not derive that expectation from Ripple’s efforts,” the court ruling reads. Because the court identified that the third prong of the Howey Test was not met in these instances, they cannot be considered securities.

This part of the ruling is particularly noteworthy given its potential impact on other cryptocurrency protocols. While few protocols conduct programmatic sales in the manner of Ripple, many do have some form of programmatic emissions, such as rewards for miners or validators.

The case did not cover secondary market sales of XRP, leaving uncertainty about whether such offerings or sales would be considered investment contracts. This summary judgment, while a significant milestone, leaves a question mark over the legality of this segment of liquid crypto markets.

The Implications

This landmark verdict underscores the complexity of the regulatory landscape for digital assets. It highlights the need for clear and comprehensive regulations that balance the need for investor protection with the potential for innovation in the rapidly evolving digital assets sector. As the industry continues to mature, such legal precedents will play a crucial role in shaping its future trajectory.

While the recent summary judgment in the SEC v. Ripple Labs case has provided some clarity, it has also opened new avenues for legal discourse in the digital assets industry. The SEC can still pursue Ripple for unregistered institutional sales, but many of Ripple's token distribution mechanisms have been deemed legal. Moreover, the verdict may have paved the way for the legalization of secondary market token sales.

However, the SEC is likely to appeal Judge Torres's ruling to prevent it from serving as a precedent for future legal arguments. This appeal process could potentially reshape the regulatory landscape for digital assets, setting new standards for what constitutes a security and an investment contract in this rapidly evolving sector.

Binance and the DOJ

The Department of Justice (DOJ) is reportedly treading carefully in its legal approach to Binance, one of the world's largest cryptocurrency exchanges. The concern is that public charges against Binance could trigger a massive sell-off similar to the FTX collapse in November 2022, causing widespread market instability.

The collapse of FTX, a prominent crypto exchange, in November 2022 sent shockwaves through the crypto community. The event led to a market-wide depression in price and volume, from which the industry has yet to fully recover. The memory of FTX's downfall is still fresh in the minds of crypto participants, making the situation with Binance particularly sensitive.

Binance's sheer size and influence in the crypto market make the potential legal actions against it a matter of great concern. The fear is that public charges could lead to an "FTX-style run," where users would panic, flee the platform, and sell their crypto en masse. Such a scenario could have far-reaching consequences, not just for Binance but for the entire crypto ecosystem. The DOJ's reported exploration of alternative legal avenues, such as fines and deferred or non-prosecution agreements, reflects an understanding of these potential ramifications.

WorldCoin

WorldCoin, a verification and identity-based protocol that raised $115 million in a Series C funding round in May 2023, is one such initiative. Co-founded by OpenAI CEO Sam Altman, WorldCoin's "proof of humanity" system uses retinal scans to authenticate human users, combating the increasing presence of bots online. The company is developing World ID, a digital identification system generated using a person's iris, with a focus on preserving privacy. WorldCoin's primary emphasis is on ensuring that each user is a genuine person and controls only a single identity. The project's objectives have been fluid, reflecting shifts in focus from wealth redistribution to introducing new crypto users, to a narrative centered around AI.

WorldCoin has also launched its WLD token on the Optimism Mainnet. The project aims to create a globally inclusive identity and financial network that could potentially increase economic opportunity, scale a reliable solution for distinguishing humans from AI online while preserving privacy, and show a potential path to AI-funded Universal Basic Income (UBI).

Concerns and Vulnerabilities

Despite its ambitious goals, WorldCoin has faced criticism from the crypto community, with concerns over potential data mismanagement and privacy leaks for sensitive iris biometrics. Critics also highlight implementation flaws such as unfavorable WLD tokenomics, lack of accessibility, and mistrust in Sam Altman due to his background in AI.

Tokenomics

WorldCoin's co-founder Sam Altman envisions the project as a path to cryptocurrency-based Universal Basic Income (UBI), a social benefits program where every individual is entitled to payments. By reducing fraud in deploying UBI, WorldCoin could become a key player in addressing income inequality exacerbated by AI's displacement of jobs.

To that end, WorldCoin and its token officially launched in July 2023 but to considerable controversy, mostly in regard to their VC-heavy fundraising strategy, (arguably) predatory tokenomics model, ethics surrounding their marketing, ability to protect users’ privacy, and more.

WorldCoin's tokenomics is characterized by a low float and high Fully Diluted Valuation (FDV) structure. With a maximum circulating supply of 143 million (1.4% of its 10 billion supply cap), the current circulating supply stands at approximately 1.1% of the total supply. “Low float” token launches are (unfortunately) a common occurrence in the crypto space. Projects release a very small portion of the supply, get early users or market makers to pump the low liquidity supply, creating large price appreciation and eye-popping market cap figures in the process. However, the reality is that the current price is nowhere near reflective of the actual value and once the other 90%+ of supply comes onto the market, the price will certainly tank. WorldCoin’s launch is egregious, even for crypto standards, as the majority of the ~1% supply available today is with market makers and not actual users.

Furthermore, the allocation of WorldCoin's tokens is distributed as follows:

Investors: 13.5% of the supply, with a 24-month linear vesting period after a 12-month cliff. This means that all tokens are assumed to be fully unlocked by August 2026.
Developers: 9.8% of the supply, with 1.7% held in reserve.
Operating Costs: 10% is allocated for manufacturing and incentives for independent Orb operators who enroll users.
Ecosystem Fund: 5% is designated for Research & Development (R&D) expenses, audits, liquidity provision, and Foundation operations.
Community Tokens: The remaining 60% are reserved for users who acquire a WorldID and promoters, with the distribution schedule to be determined by governance.

For a project that has hopes of becoming the decentralized digital ID and UBI standard for the future of the world, it seems hypocritical/antithetical to earmark 20%+ for early insiders and investors.

Decentralization Dilemma

Beyond just the token, WorldCoin's claim of decentralization in other aspects is also met with skepticism. The custom Orb hardware, used for iris scanning, is a central point of control, and the process of decentralizing it presents significant challenges. Ensuring that the Orbs are constructed according to specifications and are not modified maliciously is a complex task. The scale of audits required to achieve billions of signups would be enormous, and the risk of malicious Orbs generating fake IDs could lead to irreversible consequences, such as siphoning off WLD tokens.

Privacy Concerns

WorldCoin's approach to privacy is criticized for being superficial. While the project argues that only the IrisCode is stored and that zero-knowledge proofs will preserve privacy, these assurances are hollow. Concerns around the potential leakage of data from the iris hashing algorithm, the risks associated with malicious access to a participant's data, and the scalability of the algorithm to larger populations have all been raised.

The use of zero-knowledge proofs is also questioned, with some critics describing it as "zero-knowledge washing," a way to make a dubious concept appear socially acceptable. The implementation of zero-knowledge proofs would be critical, and the responsibility would largely fall on third parties, such as corporations and governments. The permanent record of sensitive transaction histories linked to a biometric identifier is described as a "nightmare scenario."

Curve Hack

Curve fell victim to an exploit due to a bug in specific versions of Vyper, a programming language used to code smart contracts. The affected liquidity pools were alETH, msETH, and pETH, resulting in losses that exceeded $50 million.

The immediate aftermath of the exploit was a sharp decline in Curve's Total Value Locked (TVL), which decreased by almost 50%, reaching a low of $1.7 billion. This significant contraction in TVL is indicative of the vulnerability that even well-established protocols can face, and it underscores the importance of rigorous code auditing and security measures.

The exploit's impact extended beyond the immediate loss in liquidity pools. Curve's native token, $CRV, experienced significant losses, dropping by over 12%. The price of the CRV/WETH pair on Uniswap, a decentralized exchange, plummeted to nearly zero, reaching a low of around $0.08.

This drastic price movement could have had catastrophic consequences for the broader DeFi ecosystem if it had been used as a reference by other protocols. However, the Chainlink oracle, which provides price feeds for various DeFi protocols, quoted the lowest price at that time as $0.59.

Chainlink's Role

Chainlink is a chain-agnostic and API-agnostic decentralized oracle network initially built on Ethereum. Chainlink is designed to connect off-chain data sources, such as financial market data to on-chain smart contracts. “Oracles'' can be thought of as the bridge on which on-chain smart contracts access, retrieve, and verify data coming from outside of a blockchain. They also relay data and instructions from smart contracts to other off-chain systems.

Chainlink's price feed is determined by a weighted quote of Centralized Exchange (CEX) price and Decentralized Exchange (DEX) price. Since Uniswap's CRV liquidity pool is relatively small, the Chainlink quote did not rely on the Uniswap price. This crucial distinction saved numerous other DeFi lending protocols from cascade liquidation.

The incident highlights the importance of reliable and robust oracle solutions in the DeFi space. Chainlink's ability to provide an accurate price feed, despite extreme market volatility, acted as a safeguard against potential disruptions in the DeFi ecosystem.

Base Launches, Quickly Experiences First Rug

Base is an Ethereum Layer rollup 2 solution built on the Optimism tech stack by Coinbase. Though not officially live, Base launched its “developer mainnet,” enabling developers to build applications on the chain. However, even before its official launch, users found ways to bridge to the chain by sending Ethereum (ETH) to a proxy contract.

Developers were quick to explore the platform's potential, launching various projects and derivatives. However, the excitement took a dark turn on the 29th with the launch of the notorious $BALD token. This memecoin, poking fun at the hairstyle of Coinbase CEO Brian Armstrong, started as a humorous venture and quickly gained attention and market cap on the blossoming rollup chain. The deployer of the token contract continually added liquidity as the coin's value soared, fueled by eager participants. With a total of 6,700 ETH added, the token's market cap surged to just short of $100 million.

The story took a shocking twist after 24 hours when the deployer executed a "rug pull," removing all liquidity and absconding with over 3,000 ETH. This event sent shockwaves through the community, highlighting the risks and vulnerabilities inherent in the nascent world of decentralized finance (DeFi). While the $BALD incident was the most prominent, it was not isolated. Smaller scams and rug pulls were rampant on the Base chain, casting a shadow over what had started as a promising development in the blockchain space.

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