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Weekly Attestations
March 29, 2024

🔮 ETF Flows Bounce Back, AI Merger, BTC at 70K, Two Sides of the Meme, SEC Cracks Down

Munchables Hack, KuCoin AML Violations, ETH Warrant Canary, FTX Sells Assets

🔮 ETF Flows Bounce Back, AI Merger,  BTC at 70K, Two Sides of the Meme, SEC Cracks Down

Token Specific News

ETF Flows Back in The Black

Following a week of net outflows, ETF flows have regained momentum, characterized by consistent size across nine ETFs and diminishing outflows from GBTC with total inflows hitting $12.1B. Notably, $IBIT and $FBTC have seen cash inflows for 49 consecutive days, a feat achieved by only 30 other ETFs historically. This streak places them fourth among active streaks, trailing only $COWZ, $CALF, and $SDVY. Particularly noteworthy is $IBIT's dominance, accounting for over half of BlackRock's net flows year-to-date, while $FBTC has significantly impacted Fidelity's flows, representing 70% of their YTD flows and five times more than any other ETF in their portfolio.

Source: Farside

SingularityNET, Fetch.ai, and Ocean Protocol Consider Merger to Forge Decentralized AI Platform

SingularityNET, Fetch.ai, and Ocean Protocol are reportedly in talks to merge their crypto tokens, aiming to establish a decentralized AI platform. The proposed ASI token, with a potential fully diluted value of $7.5 billion, would be overseen by the Superintelligence Collective, led by Ben Goertzel and Humayun Sheikh. While awaiting community approval, the merger plans could be announced soon. This move comes amidst major tech giants' investments in AI, highlighting the race among emerging AI-focused platforms to decentralize AI technology. Although the tokens of the three companies surged on the news, a Coinbase report suggests caution, questioning the sustainability of AI token value amid hype.

Solana Faces 70% Transaction Failure Rate Amid Memecoin Speculation

Solana, renowned for memecoin speculation, has encountered a staggering 70% transaction failure rate in the past month, primarily attributed to bot activity. While this has been a consistent feature of Solana's operation, it poses challenges for organic users, particularly regarding slippage during trades. Mert Mumtaz, CEO of Helius Labs, dismissed the failure rate as a significant issue, emphasizing that failed transactions still undergo processing, with the problem stemming from intentional reversals by app developers. Despite the high fail rate, Solana's user volume surpasses Ethereum's, with over 20,000 tokens launched daily on the platform. Crypto bridge protocol deBridge has recorded over $1 billion in user volume, with a significant portion traded via Solana. However, Solana experiences intermittent outages and performance degradation, contrasting with Ethereum layer 2 networks' enhanced affordability post-Dencun upgrade.

Source: Dune

What Do You Meme?

Memecoins, alongside RWA tokens, have been among the top performers during the recent market rebound, propelled further by the Federal Reserve's indication of potential rate cuts. The GMCI Meme index, launched recently, has soared nearly 230% since the year began, outpacing BTC and ETH, and even surpassing the flagship GMCI 30 index. Notably, the focus on lower-cost chains has sustained the momentum of memecoins, avoiding the fee-related issues that have hindered previous memecoin eras. Centralized exchanges and decentralized exchanges (DEXs) have both experienced record-high volumes, with Solana-native exchanges like Orca and Raydium leading the charge in DEX trading. Despite the anticipation of a potential decline in hype and valuations in the future, memecoins currently thrive in a bullish market, offering traders opportunities for substantial returns.

Source: The Block

Base Layer 2 Resurgence: Is the Golden Age Dawning for Coinbase's Optimistic Rollup?

The Ethereum Layer 2 network, Base, witnessed a remarkable surge in activity, with its daily trading volume reaching $356 million, marking a 51% increase from the previous day. Simultaneously, its total value locked (TVL) hit an all-time high of $745.3 million. This surge follows the rollout of the Dencun upgrade earlier in the month, which significantly reduced transaction fees on Layer 2 networks. Analysts attribute Base's popularity to its cost-effectiveness and the recent launch of projects by notable artists and creators. Additionally, the network's affordability has fueled a surge in memecoin activity, akin to the trend seen on Solana. With Coinbase's recent unveiling of a smart wallet aiming to connect users to the on-chain economy, continued growth is anticipated for Base.

Source: Dune

$63 Million Munchables Hack Sparks Debate on Blast Network Rollback

Munchables, a prominent web3 game and farm on the Blast Layer 2 network, faced a $63 million hack, prompting discussions on whether the Blast team should roll back the malicious transaction. The incident, occurring on March 26, resulted in the theft of two-thirds of Munchables’ total value locked (TVL), plunging from $96.2 million to $34 million. Speculation surfaced regarding the perpetrator's identity, with suspicions of an inside job involving a former Munchables developer. As debates regarding a network rollback ensued, opinions varied on the precedent such actions would set, with some advocating for victim restitution despite centralization concerns. The exploit casts a shadow over Blast's recent mainnet launch, which garnered attention but faced criticism for its launch campaign's trust demands and incentive structures.


Regulation

US Government Accuses KuCoin and Founders of AML Violations: Summary

The US government has leveled accusations against the cryptocurrency exchange KuCoin and its founders, Chun Gan and Ke Tang, for allegedly violating anti-money laundering (AML) laws. Both founders face charges related to conspiracy to violate the US Bank Secrecy Act and operate an unlicensed money transmitting business. Despite the charges, neither founder has been arrested. The US Department of Justice (DOJ) alleges that KuCoin deliberately concealed substantial numbers of US users on its platform to evade AML policies, allowing the exchange to transmit over $4 billion of suspicious funds while receiving $5 billion. KuCoin, Gan, and Tang are accused of actively attempting to hide the existence of US customers and preventing them from identifying themselves during account setup until a federal investigation prompted the adoption of a KYC program. KuCoin previously settled with the New York Attorney General for $22 million over similar allegations and ceased operations in New York. This recent action marks the DOJ's first targeting of a crypto exchange since its settlement with Binance, involving accusations of AML violations, late last year.

Lawsuit Challenges SEC's Treatment of Airdropped Tokens as Securities

The U.S. Securities and Exchange Commission (SEC) faces a lawsuit challenging its classification of airdropped tokens as securities. The DeFi Education Fund (DEF) has joined forces with Beba Collection to sue the SEC, seeking a court ruling that the BEBA token does not constitute a securities investment contract. Beba, having airdropped BEBA tokens to Unisocks and early Base Name holders, seeks preemptive protection against potential SEC classification. DEF argues that BEBA does not meet the criteria of an investment contract according to the Howey Test, as it was distributed via airdrop. A favorable court ruling would establish precedent for the broader web3 sector, shielding entities distributing tokens through airdrops from future SEC enforcement actions. The lawsuit also alleges that the SEC violated the Administrative Procedure Act by implementing a policy without adhering to formal rulemaking processes. DEF asserts that such a ruling would impede the SEC's regulatory overreach. This lawsuit reflects a broader trend of industry pushback against the SEC's regulation-by-enforcement approach, with Coinbase filing a similar complaint in April 2023. Despite controversy surrounding DEF's past actions, the organization aims to provide clarity and protection for the crypto industry amidst regulatory uncertainty.

SEC Proposes $2 Billion Fine Against Ripple Over XRP Sales

The U.S. Securities and Exchange Commission (SEC) has proposed fines totaling nearly $2 billion against Ripple in a proposed final judgment filed on Monday. The fines include $876 million in disgorgement, $198 million in prejudgment interest, and an $876 million civil penalty, reflecting the severity of Ripple's alleged misconduct related to sales of XRP to institutional investors. Ripple achieved a partial victory against the SEC in July 2023 when Judge Analisa Torres ruled that XRP was not a security on the secondary market but would be considered a security when sold directly as part of an investment contract to institutional investors. Ripple plans to respond to the SEC's proposed fines and penalties by April 22, criticizing the agency for making "false" statements and failing to apply the law fairly.

Ethereum Foundation Removes Warrant Canary Amid State Authority Inquiry

The Ethereum Foundation has removed a "Warrant Canary" from its website following a confidential inquiry from an unspecified state authority. The removal, disclosed in a GitHub commit by front-end developer Pablo Pettinari, signifies that the Foundation has been contacted in a manner requiring confidentiality. The Warrant Canary previously indicated that the Foundation had not been contacted by any agency worldwide in a way necessitating non-disclosure. Historical records show the canary was present on the website until January, with a similar removal incident occurring in 2018, attributed to error. Meanwhile, the Securities and Exchange Commission is reportedly intensifying efforts to classify Ethereum as a security, evidenced by subpoenas issued to crypto firms linked to an Ethereum Foundation investigation, as reported by Fortune.

SEC Chair Gensler Calls for Regulatory "Disinfectant" in Crypto Markets

In a speech at Columbia Law School, Securities and Exchange Commission Chair Gary Gensler emphasized the need for regulatory standards in the crypto industry, likening it to requiring "disinfectant" to ensure transparency. Gensler reiterated the necessity for crypto firms to adhere to registration requirements, highlighting the lack of mandatory disclosure in unregistered entities. The SEC has pursued charges against major platforms like Coinbase and Kraken for operating without registration. Despite pushback from crypto firms claiming registration impossibility, Gensler maintains the importance of regulatory compliance. However, the SEC has faced setbacks in high-profile cases, including losses against Ripple and Grayscale, leading to criticism and concerns over court rulings' impacts on digital asset regulation, as highlighted by Rep. French Hill.

Bankrupt FTX Estate to Sell Anthropic Stake for $884 Million

The bankrupt estate of crypto exchange FTX is set to sell two-thirds of its stake (29.5 million shares) in AI company Anthropic for $884 million pending court approval. Abu Dhabi-based ATIC Third International Investment is poised to acquire the largest share, spending $500 million for 16.6 million shares, followed by significant buyers Jane Street and funds managed by Fidelity. FTX founder Sam Bankman-Fried, convicted of defrauding FTX users and investors in November 2023, awaits sentencing. Three years ago, FTX purchased shares in Anthropic for $500 million, with the 8% stake now valued at over $1 billion. The sale of Anthropic shares is part of FTX's bankruptcy proceedings, with proceeds intended to reimburse clients affected by the exchange's collapse in November 2022.

Uncertainty Surrounds Indonesia's Crypto Landscape Amid Regulatory Shifts

Indonesia's crypto landscape is experiencing rapid growth alongside regulatory shifts and political uncertainty. Despite crypto investing being legal while payment usage remains prohibited, the country has seen a significant increase in user numbers and transactions. However, the recent presidential election, contested by allegations of fraud, and a change in regulatory authority from Bappebti to the Financial Services Authority (OJK) raise concerns. Additionally, there's a review of crypto taxes underway, adding further uncertainty to the sector's future direction amid its ambitious goals for digital asset leadership.


Other Domestic Regulation Updates

Other International Regulation Updates

Pain & Gain

Pain

Gain


Important Legal Notices

This reflects the views MJL Capital LLC (“MJL”), but it should in no way be construed to represent financial or investment advice. Nothing in this correspondence is intended to constitute or form part of, and should not be construed as, an issue for sale or subscription of, or solicitation of any offer or invitation to subscribe for, underwrite, or otherwise acquire or dispose of any security, including any interest in any private investment fund managed by MJL. Any such offer may only be made pursuant to a formal confidential private placement memorandum of any such fund, which may be furnished to potential investors upon request and which will contain important information to be considered in connection with any such investment, including risk factors associated with making any investment in any such fund. Further, nothing in this correspondence is, or is intended to be treated as, investment or tax advice. Each recipient should consult their own legal, tax and other professional advisors in connection with investment decisions.

Domenic Salvo
Domenic Salvo

Domenic Salvo is a Managing Partner at MJL Capital, helping lead Portfolio Research and Investor Relations.

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