Did the SEC intend to make what some people are calling a "stealth attack" on crypto? In this Friday's Unchained, I talk with Peter Van Valkenburgh at blockchain advocacy group Coin Center, who describes a 650-page set of rules proposed by the SEC, that some people believe is just that.
Although crypto, DeFi (decentralized finance) and dexes (decentralized exchanges) are not mentioned anywhere in the proposed rulemaking, many crypto legal experts said that the rules would affect software developers writing DeFi software.
Peter discusses whether the SEC truly meant to capture crypto in its drag net, why Coin Center believes the rulemaking is unconstitutional, and what might happen next. It's a fascinating interview, and you should definitely check it out.
Separately, be sure not to miss this week's Tuesday episode of Unchained, "Why Crypto Twitter's Disrespect Toward Regulators Is a 'Really Bad Business Decision,'" which is extremely relevant to this discussion, as well as this week's episode of The Chopping Block, which livestreamed Tuesday and features me, Laura, as a guest.
And now onto other news of the week.
On Easter Sunday, Beanstalk, a stablecoin project on Ethereum, suffered an exploit worth $182 million.
Rather than a smart contract bug or theft of private keys, this was a governance attack. The Beanstalk hacker was able to get away with roughly $76 million in assets by taking out a flash loan to purchase 70% of Beanstalk governance tokens, publishing and voting for a proposal that sent all treasury funds to the attacker, and then paying back the flash loan – all in one transaction.
The attack was rather sophisticated. To pull it off, the attacker took out $1 billion worth of assorted tokens on Aave in flash loans and exploited Beanstalk’s “emergencyCommit” function, allowing them to immediately execute their proposal without going through the typical lifecycle of a governance proposal. Both of these moves required a high level of DeFi knowledge and skill.
In the aftermath of the hack, Beanstalk’s BEAN stablecoin, which traded at $1 last week, is trading below $.10. According to its Twitter account, Beanstalk is offering the attacker a 10% whitehat bounty.
For more information and discussion on Beanstalk, check out this week’s episode of The Chopping Block, where Tom Schmidt, Tarun Chitra, Haseeb Qureshi, and I go in-depth on the Beanstalk hack and DeFi security in general.
The US Treasury’s Office of Foreign Assets Control, for the first time, added a crypto miner to its list of sanctioned entities on Wednesday. Bitriver, the Russian crypto mining firm, along with ten subsidiaries, has now been added to OFAC’s Special Designated Nationals list. OFAC also sanctioned the publicly traded Transkapitalbank and 39 other individuals and entities.
“Treasury is also taking action against companies in Russia’s virtual currency mining industry. By operating vast server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources. Russia has a comparative advantage in crypto mining due to energy resources and a cold climate,” wrote Treasury in its press release. “However, mining companies rely on imported computer equipment and fiat payments, which makes them vulnerable to sanctions. The United States is committed to ensuring that no asset, no matter how complex, becomes a mechanism for the Putin regime to offset the impact of sanctions,” Treasury concluded.
In a statement shared with CoinDesk, Bitriver CEO Igor Runets pushed back against the sanctions by calling them “unfair.” Runets claims that Bitriver, whose parent company is based in Switzerland, has never provided services to Russian government institutions or sanctioned entities.
The US going after Russia-based miners could have massive implications. Russia is the third-largest source of mining power in the world, accounting for over 11% of hashpower, according to the latest statistics out of Cambridge.
Furthermore, Russia’s President Vladimir Putin expressed interest in Russia’s crypto mining potential in late January.
Additionally, the news comes shortly after the International Monetary Fund published a paper explaining how Russia could avoid sanctions levied in the wake of its invasion of Ukraine via crypto mining:
“Over time, sanctioned countries could also allocate more resources toward evading sanctions through mining. Mining for energy-intensive blockchains like Bitcoin can allow countries to monetize energy resources, some of which cannot be exported due to sanctions. The monetization happens directly on blockchains and outside the financial system where the sanctions are implemented.”
Terra’s native stablecoin UST is now the 13th-largest cryptocurrency by market capitalization and third-largest stablecoin — narrowly climbing past Binance’s BUSD this week. The news coincides with a burst in price from Terra’s governance token, LUNA, which increased 17% between Monday and Tuesday.
UST is still much smaller than Tether and USDC, which command an $82 billion and $49 billion market capitalization, respectively, compared to only $17 billion for UST.
However, UST is now far and away the largest algorithmic stablecoin – meaning instead of being (supposedly) backed 1:1 with dollar-equivalent assets like USDC and USDT, UST is designed to keep its peg to the dollar through a mint and burn mechanism. That being said, one reason that UST has become so popular lately is its transformation from a purely algorithmic stablecoin to a token with some backing – as Luna Foundation Guard has purchased over $1 billion in BTC to back the UST peg in times of crisis. Furthermore, Terra is now one of the largest buyers of CVX, a governance token that plays a significant role in the liquidity of stablecoins on Ethereum, which should give UST more applications outside of being used on Anchor, a borrowing/lending protocol offering almost 20% interest. For example, on Thursday, the Terra- and Frax-backed 4pool yield farm went live on Fantom, bringing in over $30 million in total value locked just hours after launching.
For more information on Terra, check out two recent episodes of Unchained with Terra co-founder Do Kwon, who discusses LFG’s decision to back UST with BTC, and then Galois Capital’s Kevin Zhou, who analyzes the risks associated with UST’s dependence on Anchor.
In related stablecoin news, Tron founder Justin Sun announced plans for a new algorithmic stablecoin, USDD, for Tron, which he claims will have $10 billion in backing from assorted assets via TronDAO.
Credit: @nightmayoralty, memeing about the recent onslaught of algorithmic stablecoins.
Data from CryptoSlam shows that Moonbirds, a new NFT collection, has accrued more volume in the last seven days than the following ten collections combined — and it’s not even close.
The 10,000-piece collection, which launched and sold out on Saturday, has racked up over 113,000 ETH in volume in the past seven days – equating to $344 million. For context, Mutant Ape Yacht Club, the second-largest collection by volume during the same period, only did $64 million worth of volume.
Moonbirds minted at 2.5 ETH, and, less than a week later, the floor price for the entire collection is over 30 ETH – marking a quick 12x return.
Credit: @cmsintern
The hype surrounding Moonbirds seems to be derived from its team, Proof Collective, founded by Kevin Rose, a partner at True Ventures. Proof’s previous 1,000-piece NFT drop that grants access to an NFT investing and collection group currently has a floor price of 97 ETH to join. According to the Moonbirds roadmap, holding a Moonbirds NFT gives access to the Proof Discord, where exclusive Moonbird-related drops, meetups, IRL events, and, most importantly, access to upcoming Proof projects will be available.
The project, however, did not go off without a hitch. As reported by CoinDesk, the project faced complaints about its expensive 2.5 ETH mint price, along with claims of raffle manipulation and rarity sniping by developers.
Coinbase’s much anticipated NFT marketplace was beta-launched this week to a select group of customers. While only a small percentage of users from the 1.5 million waitlist were granted initial access to create a profile, buy and sell NFTs, and so forth, anyone is able to check out the platform.
Source: @Coinbase
For now, Coinbase’s NFT marketplace only supports Ethereum but has plans to support other blockchains and fiat on-ramps, Sanchan Saxena, VP of product at Coinbase, told The Block.
Interestingly, the exchange made the choice to embed its NFT marketplace with social media tools. However, according to CEO Brian Armstrong, these social mechanisms are far from finished products. “Coinbase NFT has a social component to it. Just want to acknowledge that we need to make social more decentralized over time - we're stuck in a web 2.5 world still, moving toward web3,” he tweeted, adding, “Assets are decentralized, and identity can be decentralized, but follower graphs, comments, and some of the post content are still centralized. Opportunities abound to move more of this on chain over time.”
Fun Bits
Zeed, a DeFi protocol running on BNB Chain, was exploited on Thursday after an attacker successfully triggered a distribution vulnerability that 3x’d any rewards earned from the protocol.
Now, why is this a Fun Bits? Because the hacker ended up rugging themselves, according to BlockSec, a crypto security firm. BlockSec explained: “Interestingly, the attacker [did] not transfer the obtained tokens out before self-destructing the attack contract. Probably, he/she was too excited :)”
“Can #Doge truly be the future currency of the Internet and the people?” Robinhood CEO Vlad wondered aloud on Twitter last week.
As currently constituted, according to Vlad, the answer is no – and for a familiar reason, for anyone who has been in the blockchain space for a while. Tenev believes that Dogecoin’s block size limit and transactions-per-second metric of 40 is holding DOGE back from being a “global currency.”
Tenev is now arguing for Dogecoin to move from a 1 MB to a 1 GB blocksize (and later 10 GB) to compete with Visa’s 65,000 transactions per second, even though it would increase hardware requirements for nodes to do so – a tradeoff that Tenev believes is “fair.”
Tenev also pointed out that Dogecoin’s inflationary supply comes out as being less than that of the US dollar.
Meme courtesy of the Unchained intern.
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