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Crypto Weekly News Recap: Ethereum's Dress Rehearsal and Gemini's Bad Day

Plus: Winklevoss-led exchange sued by CFTC, more DOGE adoption, and a messy airdrop...

Laura Shin

Jun 3
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Last fall, an OpenSea executive named Nathaniel Chastain was caught buying NFTs about to be featured on the homepage and later flipping them for a profit. This Wednesday, the Department of Justice indicted Chastain on charges of wire fraud and money laundering, alleging he engaged in "insider trading."

In this Friday's episode of Unchained, Jason Gottlieb, a partner at MorrisonCohen who specializes in both white-collar crime and crypto, explains why these were the particular charges and whether the government's use of the term "insider trading" indicates anything about whether or not NFTs are securities. He also explains what the ramifications of this case might be on other parts of the crypto industry. Be to check out the full interview!

Check out the show here!

Meanwhile, this was an eventful week in crypto.

Ethereum’s Big Dress Rehearsal for the Merge Is Under Way

Ethereum’s oldest proof-of-work testnet has begun its transition to proof-of-stake, according to Ethereum core developer Tim Beiko, who described the event as the network’s “first dress rehearsal” for miners.

The transition, better known as “the merge,” is scheduled to occur on the Ropsten test net around June 8th – about ten days after a new Ropsten Beacon Chain was launched on May 30th. Ropsten must activate its Bellatrix upgrade to make the PoW chain merge-compatible and trigger a “Terminal Total Difficulty (TTD)” hash rate number on the PoW chain. Once both of those occur, which is estimated to be on June 8th, the Merge should occur in 2 epochs, or approximately thirteen minutes.

This is the final testing stage for Ethereum. Previously, testing had been implemented on clients and shadow forks. Ropsten is the first public testnet to undergo the Merge. After Ropsten, Goerli and Sepolia will also be put to the test.

The Ropsten news comes just a week after Ethereum’s Beacon Chain experienced a 7-block “reorg” – meaning two beacon chains were briefly running in parallel as nodes attempted to find consensus due to some validators running updated software that processed blocks faster than others. Eventually, after seven blocks, the validators agreed on the correct chain, resolving the discrepancy. The core issue of the reorg was validators not running upgraded software; it will be mandatory to upgrade before The Merge occurs.

Meme courtesy of Tim Beiko

Speaking of Ethereum and The Merge, a recent research report from Ethereum researcher Danny Ryan noted that liquid staking services like Lido, where users can earn PoS yield without locking their tokens into the Beacon Chain, pose “significant risks” to Ethereum. Notably, Ryan suggests that liquid staking protocols should “self-limit” the amount of ETH they stake to avoid centralization and overall system risk.

For example, Ryan wrote: “If pooled stake under one [liquid staking derivatives] protocol exceeds 50%, this pooled staked gains the ability to censor blocks. In a regulatory censorship attack, we now have a distinct entity – the governance token holders – that a regulator can make requests of censorship. Depending on the token distribution, this is likely a much simpler regulatory target than the Ethereum network as a whole.”

Rollup Token OP Stumbles Upon Rollout

Optimism, the second-largest Ethereum rollup by total value locked, officially launched its governance token, OP, on Tuesday via an airdrop that saw 5% of OP’s supply released.

Source: @OptimismPBC

However, the drop was not without its issues, as OP trading started hours before the official Optimism website was ready to go due to traders claiming OP tokens directly from Optimism’s smart contracts.

The early OP trading took the Optimism team by surprise. “We have NOT officially announced yet, but we’re already experiencing an all-time high demand,” the team tweeted on Tuesday afternoon. “We’re working to heavily provision more capacity before our official announcement—in the meantime the public RPC may respond slowly.”

During the time OP became available via smart contract and the Optimism front-end was ready, the token dropped from a high of $4.40 to around $1 – giving the highly skilled web3 users interacting directly with the smart contracts a huge advantage in trading the airdrop.

​​“At 11am we deployed and loaded our [smart contract] with the OP tokens for Drop #1,” Optimism explained. “Our biggest mistake here was failing to make this contract pausable. Claims were open, and we had no way to stop them.”

OP is trading at $1.29 – giving Optimism a fully diluted market capitalization of $5.4 billion. This comes in a bit lower than Messari’s projection of a launch market cap of roughly $9 billion.

The OP token will be used in the Optimism Collective “Token House,” one of two entities that will help govern the Optimism treasury and network over the coming years.

The CFTC Goes After Gemini

The US Commodity Futures Trading Commission is reportedly suing the crypto exchange Gemini.

Gemini co-founder Cameron and Tyler Winklevoss

On Thursday, Bloomberg revealed the regulator is accusing Gemini of having “misled” the CFTC in answers to questions about the trading of a potential futures contract pegged to the price of BTC on Gemini’s platform in 2017 and is alleging that the Winklevoss-led exchange has violated the Commodity Exchange Act, along with various regulations.

Solana Goes Down Again

According to data from Solana’s status page, the Mainnet blockchain went down for four hours and 10 minutes on Wednesday. The network was restarted late Wednesday afternoon after coordination by Solana validators on a Google Doc.

Based on a report from Solana, the network was taken down due to a durable nonce bug that led to “nondeterminism” in the blockchain where nodes generated different results for the same block. Notably, this affected withdrawals from major exchanges, as explained by stakewiz.com, a Solana validator, on Twitter:

“A durable nonce is a way in which a transaction can be signed offline ahead of time, without requiring a recent block hash (which expires after two minutes). Usage has recently increased, particularly by exchanges, possibly due to their cold storage setups.”

Network outages are becoming a trend for Solana. The network also faced two hours and five hours of downtime, respectively, on April 30th and May 1st of this year. Solana also experienced downtimes of 16, 8, and 10 hours in January 2022 and 17 hours in September 2021.

Source: @spreekaway

Furthermore, Solana recently lost track of real-world time and is currently 30 minutes behind schedule due to slot times executing at a slower than expected pace. While this does not have any real effect on the network, it does hold economic consequences for SOL stakers, as slower slot times mean less staking rewards.

Terra Suffered a $90 Million Hack Months Ago and Nobody Noticed (Until Now)

A $90 million exploit from October on Mirror Protocol, a synthetic asset platform on Terra, was discovered this week by a blockchain analyst who goes by the moniker “FatMan.” BlockSec, a blockchain security firm, also confirmed the exploit.

Due to buggy code, a hacker was able to drain $90 million from Mirror due to a flaw that allowed an attacker to use a list of duplicate IDs to unlock more collateral than they had. The bug has since been rectified – though it is unclear whether Mirror developers were aware of the hack when fixing it.

Mirror joins Ronin as the second time a significant hack went unnoticed for a substantial period despite the public, on-chain nature of the exploits.

In addition to the $90 million hack, FatMan also pointed out another Mirror attack that allegedly happened this week, which saw over $2 million drained from the protocol due to a bug in a Luna Classic pricing oracle. As of press time, this has yet to be confirmed.

Tech Experts Criticize Crypto

A group of 26 tech experts and academics published a letter to US lawmakers that took aim at the crypto industry. The group included the principal engineer at Google Cloud, Kelsey Hightower, Harvard lecturer Bruce Schneier, along with noted crypto critics David Gerard, Molly White, and Stephen Diehl.

The group urged pro-crypto lawmakers such as senators Ron Wyden, Patrick Toomey, and Maxine Waters to take a “skeptical approach” towards crypto-assets and to “resist pressure” from crypto lobbyists because blockchain technology will “remain forever unsuitable as a foundation for large-scale economic activity.”

For an alternative POV, crypto law expert Preston Bryne wrote a rebuttal:

Link

Five On-Chain Stats to Summarize May

  • 3: Through the end of May, only three tokens in the top 100 by market cap – Bitfinex’s LEO, Tron’x TRX, and Paxos’s PAXG – are up year to date. Notably, Terra Classic is down 100% YTD… but is still the 82nd largest asset by market capitalization.

  • 53,000: On May 31st, Optimism saw 53,000 unique addresses do something on its blockchain. Its previous all-time high? 13,300.

  • 228.51: Bitcoin’s hash rate hit an all-time high on May 6th at 228.51 terahashes.

  • 51.75%: Ethereum NFT sales volume more than halved in May compared to April, according to data from CryptoSlam. Interestingly, Solana NFT volume only decreased by 18.43%.

  • $105.52 billion: The difference between the DeFi market cap on May 1st and May 31st. Total value locked across the DeFi ecosystem fell from $247 billion to $142 billion in May, data from DeFi Llama shows.

If Cobie Were In Charge, Nobody Would Get an Airdrop

Optimism’s airdrop, as explained above, was somewhat controversial this week due to a messy rollout.

The airdrop became even more contentious this week when 0xJohn posted on Optimism’s governance forum calling for all OP sellers to be cut off from future OP airdrops.

Cobie, a psuedo-famous crypto expert, took umbrage with the idea in his troll-centric way.

“I was extremely pleased to see this proposal. Canceling the future airdrops of those that have sold their initial OP airdrop seems sensible, well-considered, and targets the heart of any crypto protocol: the price of its token,” wrote Cobie in his parody governance proposal.

He went on to propose exceedingly sarcastic ideas, like…

  • canceling the OP airdrop for addresses that sold ~any~ tokens in the past six months

  • physically beating up any OP sellers

  • and, my favorite, considering issuing debt tokens that are acceptable by “local debt collection agencies” as an added revenue stream for Optimism

Link

Seems like the Optimism governance structure is off to a good start…

This Week in Crypto Adoption: Space, Burritos, and Kanye

Despite a down market (see: Gemini laid off 10% of its staff due to a “crypto winter”), there was still a wide variety of big names announcing crypto adoption:

  • Elon Musk announced last Friday that SpaceX merchandise will soon be purchasable with DOGE. So, if you’ve been dying to buy that $45 Kid’s SpaceX Spacesuit Onesie, but haven’t wanted to transact with fiat, then your time is coming.

Source: the SpaceX website

  • Chipotle, the popular burrito-based restaurant chain, is now accepting BTC and ETH as payment through Flexa, a digital payments platform.

  • Kanye West’s Yeezus brand filed 17 trademark applications for blockchain-based assets, including collectibles, currencies, and tokens.

If you're interested in learning more about crypto and Web3:

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  • and/or 📚 buy my book, which is all about Ethereum and the 2017 ICO craze, The Cryptopians: Idealism, Greed, Lies, and the Making of the First Big Cryptocurrency Craze

Cover credit: Stefanie Keenan / Contributor

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