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Weekly Attestations
April 19, 2024

🔮Hong Kong ETFs, World Coin Launches World Chain, BlackRock to USDC, SEC v. UniSwap

Stablecoin Business Models, Runes, Chainlink Transporter, Concentration Risk, Karak Risk Harbor Ties

🔮Hong Kong ETFs, World Coin Launches World Chain, BlackRock to USDC, SEC v. UniSwap

Token Specific News

EigenLayer's Restaking Protocol Gains Momentum with $500 Million in Delegated ETH

EigenLayer's restaking protocol experienced a successful debut, attracting 28 operators and nearly $500 million in restaked Ethereum (ETH) within its first 24 hours. These operators, including prominent names like Figment, Coinbase, Google Cloud, and Blockdaemon, contribute to network security for applications built on EigenLayer's Actively Validated Services (AVS). The platform, which has seen significant growth in total value locked (TVL), enables projects to utilize staked ETH for network security while offering ETH holders opportunities to earn yield. With over 4.1 million staked ETH amassed since June, EigenLayer dominates the staking sector, capturing nearly 99% of the market share. The mainnet launch introduces stake delegation features, providing restakers with flexibility and options to align with their goals. EigenLayer's roadmap includes in-protocol payment and slashing features, as well as the launch of additional AVSs, indicating continued development and expansion.

Resurgence of Alternative Stablecoin Business Models

Interest in crypto-collateralized stablecoins is on the rise as the total market cap across crypto-backed and algorithmic stablecoins on Ethereum surpasses $9 billion, the highest level since November 2022. While the market faced contraction following the collapse of UST, DAI, the largest crypto-collateralized stablecoin, has seen a resurgence in supply, partly due to higher yields offered on lending platforms like Spark. Additionally, Ethena's USDe has surged in popularity, offering holders staking rewards and earning potential. MakerDAO is considering allocating $600 million worth of DAI to USDe and sUSDe, sparking debate within the community about potential risks. Despite concerns, the stablecoin landscape appears to be evolving, with interest in non-fiat stablecoins growing.

Source: The Block

Unlocking DeFi on Bitcoin : Token Economies to Form

As the upcoming Bitcoin halving approaches, excitement brews not just for its impact on issuance but also for the emergence of Runes, a protocol by Bitcoin developer Casey Rodarmor. Unlike the BRC-20 standard, Runes utilizes a UTXO model, aiming for more efficient token issuance without network congestion. With anticipation building since Rodarmor's announcement in September 2023 and major exchange OKX pledging support, Runes' potential as the next big innovation is gaining traction. The market anticipation has already propelled trading volumes, notably seen in the success of PUPS, a memecoin set to transition to Runes upon launch. However, this enthusiasm has also driven Bitcoin transaction fees higher, surpassing those of Ethereum, signaling a shift in the landscape of blockchain activity.

Source: The Block

Worldcoin Developer Tools for Humanity to Launch Ethereum Layer 2 World Chain

Tools for Humanity, the developer behind the "proof of personhood" crypto project Worldcoin, is gearing up to unveil its own Ethereum Layer 2 solution called World Chain this summer. Unlike its previous launch on the Ethereum Layer 2 network Optimism in July 2023, World Chain will be directly owned and governed by the Worldcoin project. Built using OP Stack, World Chain will remain part of the Superchain ecosystem alongside Coinbase's Base and Optimism. Co-founded by OpenAI CEO Sam Altman, Tools for Humanity aims to parse humans from non-human actors in the future health of the internet. Worldcoin, which assigns a unique World ID to individuals verified through an iris scan, rewards participation with WLD tokens. The World App, a Worldcoin-compatible wallet developed by Tools for Humanity, has recently surpassed 10 million users.

Chainlink Launches "Transporter" Blockchain Bridge for Cross-Chain Asset Transfer

Chainlink, a leading data provider in the crypto space, introduced its blockchain bridge application called "Transporter" on Thursday. This application enables users to seamlessly transfer crypto assets and data across multiple networks, providing a cost-efficient and secure solution for high-value token transfers. Initially available for blockchains including Arbitrum, Avalanche, Base, BNB Chain, Ethereum, Optimism, Polygon, and WEMIX, Transporter leverages Chainlink's Cross-Chain Interoperability Protocol (CCIP). This move addresses a longstanding need in the blockchain industry and is expected to become a standard for cross-chain enablement, according to Nomatic, an investor at Fourth Revolution Capital.

Solana Developers Address Network Congestion with Urgent Fixes

In response to increasing congestion issues on the Solana network, developers have swiftly proposed fixes in version 1.18.11 of the validator client software. The Anza team, which emerged from Solana Labs earlier this year, deployed the proposed fixes on a devnet and is urging validators to upgrade promptly for testing. These fixes aim to optimize validator clients, improve computing unit usage, introduce priority fees, and explore stake-weighted Quality-of-Service (QoS) to prioritize transactions efficiently. The congestion, primarily attributed to spam transactions, has led to significant delays and high transaction failure rates, prompting proactive measures from the Solana Foundation. Despite challenges, developers remain dedicated to resolving the issues, drawing parallels to past network capacity challenges and expressing confidence in overcoming the current hurdles.

Source: SolScan

Regulation

BlackRock Enables Tokenized Fund Holders to Convert Shares to USDC, Enhancing Liquidity

BlackRock's debut into tokenized assets takes a significant leap forward as investors in its inaugural tokenized fund gain the ability to convert their shares into USDC stablecoins through new smart contract features, announced by stablecoin issuer Circle. This move allows sellers to retain digital dollar holdings, offering increased liquidity and flexibility. The initiative follows the launch of BlackRock's BlackRock USD Institutional Digital Liquidity Fund (BUIDL), aimed at qualified investors seeking US dollar yields by subscribing to the fund via Securitize Markets. With traditional finance increasingly embracing asset tokenization, Circle's co-founder, Jeremy Allaire, highlighted how USDC enables swift movement out of tokenized assets, reducing costs and streamlining transactions. BlackRock's CEO Larry Fink has previously endorsed the potential of tokenized securities, seeing them as the future of financial markets, while the success of their iShares Bitcoin Trust underscores their momentum in the digital asset space.

Concentration Risk in the Crypto Exchange Market

Despite the abundance of options, a small fraction of exchanges dominate the market, leading to concentration risk. According to the European Securities and Markets Authority (ESMA), 90% of global crypto transactions occur on just ten exchanges, with Binance alone accounting for nearly half of these transactions. This high level of concentration has raised concerns, especially as liquidity tends to concentrate in a few exchanges, creating potential problems in the event of exchange failures or malfunctions. Additionally, the market is further concentrated due to the dominance of a few key digital assets, such as Bitcoin, Ether, and Tether, which collectively represent a significant portion of the market cap and trading volume. While ESMA's report, issued in support of EU's MiCA rules, does not offer specific recommendations, it highlights the need for continued monitoring of the situation to address concentration risks in the crypto exchange market.

SEC Prepares to Sue Uniswap Labs

The U.S. Securities and Exchange Commission (SEC) is gearing up to sue Uniswap Labs, the developer behind the largest decentralized exchange, Uniswap. Founder Hayden Adams confirmed the SEC's intention with a tweet, expressing readiness to contest the action. While the specific charges remain unclear, Uniswap Labs maintains that the SEC's jurisdiction over securities doesn't extend to secondary market transactions in digital assets. This legal showdown could be one of the most significant cases in the space, given Uniswap's substantial daily trading volume. Despite the impending legal battle, Uniswap Labs asserts confidence that their products are compliant with the law and aligned with historical progress.

Karak Project Under Fire for Alleged Risk Harbor Connection

Karak, a newly launched protocol aiming to capitalize on the restaking trend, faces criticism after being linked to Risk Harbor, a project accused of mishandling funds meant for Terra's UST stablecoin insurance. Despite securing a substantial Series A funding round and support from prominent web3 investors, Karak's past association with Risk Harbor has raised concerns among the crypto community. While Karak's team denies any wrongdoing and attributes the controversy to misinformation, skeptics question the due diligence of venture capitalists. The unfolding saga has not deterred deposits into the Karak protocol, which has seen significant total value locked (TVL) since its launch, albeit amidst ongoing scrutiny.

Hong Kong Approves Spot Bitcoin and Ether ETFs, Marking Crypto-Friendly Stance

Hong Kong's Securities and Futures Commission has greenlit several spot bitcoin and ether ETFs managed by firms like China Asset Management, Harvest Global, Bosera, and HashKey. China Asset Management is set to collaborate with OSL and BOCI International for their offerings, while Harvest Global received in-principle approval for two spot crypto ETFs in partnership with OSL. Bosera and HashKey Capital obtained conditional approval for spot bitcoin and ether ETFs, allowing investors to subscribe using bitcoin and ether directly. The timeline for launch remains undisclosed. This move underscores Hong Kong's crypto-friendly policies, which stand in contrast to China's regulatory crackdown.

Korean Won Overtakes US Dollar as Top Fiat for Crypto Trading in Q1

In a significant shift, the South Korean won has surpassed the U.S. dollar as the most-traded fiat currency for cryptocurrency transactions in the first quarter of 2024, according to data from Kaiko. Centralized crypto exchanges recorded a cumulative trading volume of $456 billion in won, exceeding the $445 billion in U.S. dollar transactions. This trend is driven by the dominance of five fully licensed exchanges—Upbit, Bithumb, Coinone, Korbit, and Gopax—with Upbit leading with over 80% market share on most days. With South Korea's Democratic Party securing a significant majority in recent elections, there are pledges to bolster the local cryptocurrency sector, including the approval of crypto ETFs.

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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