A version of this article appeared in our The Decentralised newsletter on September 17. Sign up here.

GM, Tim here.

What’s behind Aave’s recent success?

DeFi user scoops rare CryptoPunk NFT at 99% discount.

Coinbase launches a DeFi-compatible version of Bitcoin.

DeFi’s dark horse

DeFi lending protocol Aave is booming.

It recently surpassed EigenLayer, becoming the second-biggest DeFi protocol behind liquid staking giant Lido.

Investors have piled into the protocol’s token, pushing it up 28% since the start of the year, outperforming tokens of other major DeFi protocols like Uniswap and Sky, nee MakerDAO.

The recently announced Trump DeFi project, World Liberty Financial, chose to build on top of Aave. If successful, WLF could boost Aave’s $11 billion of deposits — and profits.

How has Aave kept DeFi users hooked during the summer slump while other protocols faltered?

There’s three main reasons:

It’s simple

The concept of a lending protocol is straightforward: Deposit your crypto to earn a yield, paid by those borrowing your tokens.

Aave was the first DeFi lending protocol, which established its dominance. Careful development from its founding company Avara and its DAO have helped it maintain that lead.

In-demand

No matter which way the crypto market turns, there will always be those looking to bet on it. As Aave has the most deposits, it’s the first stop for traders, especially whales, looking for leverage.

Analysis from Bernstein said demand for services like those offered by Aave will increase as US interest rates fall.

It makes money

While DeFi protocols are controlled by decentralised governance structures like DAOs, they still have expenses — and that means they must make more money than they spend.

Aave is among a handful of protocols that reliably make enough to cover their expenditures. It’s projected to bring in $54 million in revenue over the next year, per DefiLlama data.

That’s a steal

The NFT market is a ghost of what it once was.

This lack of interest recently created a unique opportunity for a DeFi user to snag a coveted NFT at an extreme markdown.

Today happened one of the biggest crypto punk heists of all time. Someone with a lot of patience and knowledge just bought ape 2386 for 10 ETH.

How 👇🧵 pic.twitter.com/SY3r7Og8lV

— niftynaut (@niftynaut) September 11, 2024

The NFT in question, ape CryptoPunk 2386, was previously fractionalised on defunct DeFi protocol Niftex.

Fractionalisation means the NFT was broken up into 10,000 fungible tokens, or “shares.”

The way the platform worked is that anyone could propose a buyout of a fractionalised NFT. Those holding the shares are given a 14-day period from when the offer is made to accept or reject it.

Two weeks ago, someone made an offer to buy the Punk at 0.001 Ether per share. Nobody holding shares noticed the low-ball offer and the NFT sold for 10 Ether — about $23,000.

An ape CryptoPunk sold at the start of September traded hands for over $1.4 million.

NFT Valuations, a site that uses market data to estimate rare NFT prices, values Punk 2386 at between $1 million and $4.5 million.

Coinbase launches cbBTC

Coinbase has rolled out cbBTC — a DeFi-compatible version of Bitcoin designed to compete with Wrapped Bitcoin.

Since its Friday launch, cbBTC has soared to a $100 million market value.

Adoption could provide a much-needed boost to Ethereum’s ailing DeFi ecosystem.

Despite Bitcoin hitting an all-time high in March, deposits to Ethereum DeFi protocols have lagged behind their 2021 levels.

And cbBTC has a large pool of potential users.

Coinbase customers store approximately one million coins on the exchange, worth some $58 billion, says an analysis by blockchain data platform Arkham Intelligence.

While around $40 billion of this amount is Bitcoin the exchange holds on behalf of exchange-traded fund issuers like BlackRock, some $18 billion is held by retail and institutional customers.

This week in DeFi governance

VOTE: Arbitrum mulls update to reduce MEV spam

VOTE: Aave to onboard Coinbase’s cbBTC token

VOTE: TrueFi DAO rejects Cicada Partners split proposal

Post of the week

With the Token 2049 and Solana Breakpoint conferences flooding the timeline this week, Crypto Twitter comes out with some humorous conference “life hacks.”

Conference life hack!

Trying to get a drink at the side-event open bar, but the queue is too long? 🥱

Easy! Just tell everyone “it’s not free, you have to pay!”. Most will swiftly vacate, letting you grab your drink in peace🍸

Works even better in bigger venues, or if there…

— 0xWenMoon 💙🧡 (@0xWenMoon) September 12, 2024

What we’re watching

World Liberty Financial has finally released details about its WLFI token distribution:

20% will go to the project’s founding team, which includes the Trumps.

17% will be set aside for user rewards.

The remaining 63% will be made available through a public sale.

That’s in contrast to earlier documentation and code tests that showed the founders’ share at 70%.

Despite the unsettling events of yesterday, our X Spaces with Donald Trump will proceed as scheduled. We admire Mr. Trump's courage to continue in the face of adversity. Join us for a pivotal discussion on the future of cryptocurrencyhttps://t.co/MQit7yx3tp

— WLFI (@worldlibertyfi) September 16, 2024

Got a tip about DeFi? Reach out at tim@dlnews.com.

Forget BlackRock and other Wall Street giants. It’s fintech trailblazers such as Revolut and Robinhood that will breathe new life into DeFi.

At least, that’s what one crypto founder believes.

“We essentially need to build financial infrastructure for the most techy players in finance,” Paul Frambot, the CEO and founder of lending protocol Morpho, told DL News in an interview in Singapore on Monday.

“It’s very clear to me that this is the next step.”

‘Artificial casino’

Originally pitched as a far more efficient and transparent financial system, DeFi has become an “artificial casino” where speculation drives yields, Frambot said in the runup to Token 2049.

Morpho, which has raised $77 million from venture capital firms such as a16z and Ribbit Capital, launched at the peak of the hype cycle in 2021.

In a bid to best the most popular DeFi lending projects, Aave and Compound, Morpho launched Optimiser, a software layer that maximises yields.

Since the summer of 2021, however, DeFi’s total TVL, or invested deposits, has slid 56%, according to DefiLlama data. Fewer investors in DeFi means there are fewer developers and builders, and projects must compete for dwindling resources.

‘Aave versus Maker, Maker versus Ethena — everybody’s competing?’

Paul Frambot, Morpho

“It is getting more competitive, that’s clear,” Frambot said.

“Aave versus Maker, Maker versus Ethena — everybody’s competing.”

Leading fintechs Revolut, Robinhood, and eToro have each embraced crypto as a core piece of their offerings in the banking or brokering market.

Frambot is hopeful they and others can burnish DeFi’s attraction for mainstream users.

“The question is, How do we get from this artificial casino, bootstrapping phase to the broader message?” he said.

Fintechs plug in

Over the past decade, digital banks like London-based Revolut have established a beachhead in the once impregnable domain of traditional banks.

Making a run in payment processing, though, is proving to be harder.

Fintechs must use the same outdated “rails” as banks, remittance firms, asset managers, and other financial players.

“They plug into the traditional financial infrastructure, which has limitations. It’s not efficient, it’s not transparent, it’s not resilient,” Frambot said.

An opportunity

He said this is an opportunity for decentralised finance. And fintechs get it.

They are already building apps to plug into web3, he said.

Robinhood has partnered with Arbitrum on a self-custody wallet.

He expects more fintechs to seek more DeFi partnerships in the months to come.

“They’re aggregating the order flow of finance, and now they can become the owners themselves of the financial infrastructure,” he said.

“They’re essentially breaking free of TradFi.”

Ben Weiss and Jo Wright are correspondents for DL News. Ben is reporting from TOKEN2049 this week.

The Federal Reserve needs to step on the gas and cut interest rates by 0.75% at its next Federal Open Market Committee meeting on Wednesday.

That’s according to Democratic Senators Elizabeth Warren, John Hickenlooper, and Sheldon Whitehouse, who wrote a letter to US Federal Reserve Chair Jerome Powell on Monday.

“For months we have been calling upon you to cut the federal funds rate,” the senators wrote. “Your delays have threatened the economy and left the Fed behind the curve.”

High interest rates were constraining the labour market and pushing the US economy towards a recession, the Democrats wrote.

Interest rates, now in a range between 5.25% and 5.5%, should immediately be cut to 4.5% to 4.75%, the lawmakers said, with the aim of bringing them down anywhere between 3% to 3.5% — a level they described as “a lot closer to neutral.”

“Employment numbers adjust slowly, so the Fed should frontload rate cuts to avoid sliding towards a potential crisis,” the senators wrote.

It’s the fourth time this year Warren has pressed Powell to cut rates, at least in writing. The senator from Massachusetts first called for lower interest rates in March.

Wednesday meeting

High interest rates make borrowing more expensive and incentivizes investors to buy risk-free US Treasury bills, constraining liquidity in the financial system.

Lowering interest rates, consequently, makes it easier for people to take out loans. It also pushes investors to gain exposure to risk-on investments like stocks. Bitcoin, like tech stocks, tends to perform particularly well in low-rate environments.

Powell announced on August 23 that the US central bank will cut interest rates at the next FOMC meeting, scheduled for September 18.

The market is assigning a 41% chance that rates will be cut by 0.25%, and 59% that they will be cut by 0.5%, per FedWatch data. Currently, there is virtually no chance that the 0.75% cut demanded by the senators will happen.

However, the market gives 79% odds that interest rates will be slashed to anywhere between 4.25% and 4.75% in November, meaning that investors expect the Fed to make at least one or two larger-than-ordinary cuts of 0.5% or 0.75%.

But big rate cuts aren’t necessarily better for the market, because they can be seen as a signal that policymakers are panicking and that they view the economy as being dangerously weak.

“The 50 [basis point] cut might send a wrong message to markets and the economy. It might send a message of urgency and, you know, that could be a self-fulfilling prophecy,” George Lagarias, chief economist at consulting firm Forvis Mazars, told CNBC two weeks ago, when poor economic data raised the possibility of a recession again.

At the time, Matt Hougan, chief investment officer at crypto investment firm Bitwise, posted on X that the US central bank was unlikely to make a drastic move.

“0.5% is radical for the Fed,” Hougan wrote. “There’s only one instance in the last 40 years when it has gone 0.5% during a non-emergency. I struggle to see it. Still, it will be nice to move into the rate-cutting cycle.”

Tom Carreras writes about markets for DL News. Got a tip about Powell, Warren, interest rates, or Bitcoin? Reach out at tcarreras@dlnews.com

Donald Trump is set to formally announce his DeFi project, World Liberty Financial, on Monday.

Like most DeFi projects, World Liberty’s got a lofty goal — to “make crypto and America great by driving the mass adoption of stablecoins and decentralised finance.”

If successful, it will also almost certainly further enrich its developers and the Trump family through possible plans to raise a whopping $537 million from token sales.

But World Liberty has already attracted negative attention from senior Democrats such as Maxine Waters, who told Congress bad actors have used the buzz around the project to scam potential users.

Even Trump’s backers are sceptical.

Castle Island Ventures founding partner Nic Carter, a vocal Trump supporter, called the project an “unnecessary distraction,” and a potential embarrassment for the former president.

It’s a family project

It was Donald Trump’s sons, Eric and Donald Jr, who first teased World Liberty at the beginning of August.

Since then, Trump himself has promoted the project on social media. It was Trump, too, who officially announced the launch date for World Liberty on X last week.

.@WorldLibertyFi pic.twitter.com/rHEGQXl4jL

— Donald J. Trump (@realDonaldTrump) September 12, 2024

An adviser to World Liberty, pseudonymously named Ogle, confirmed to DL News that Eric, Donald Jr, and Barron are all involved in World Liberty.

Barron Trump, 18, who recently enrolled at New York University, is listed as World Liberty’s “DeFi visionary,” per the project’s documentation, CoinDesk reported.

His role isn’t clear. Barron doesn’t appear to have any prior involvement in DeFi.

WLFI token

DeFi projects often come with governance tokens that are also usually tradable on the market. World Liberty will also introduce a token, the project’s documentation said, though it claims the token won’t be tradable, meaning it won’t have a market value.

But code tests reveal the token could be made tradable in the future.

It’s also not clear yet what the distribution of the token will look like. Though Trump family members promote World Liberty, none are legally involved, per a disclaimer in the project’s documentation, reported by CoinDesk.

The tests showed plans for World Liberty to sell 30% of its WLFI token at a $1.8 billion valuation.

If successful, the sale would value the remaining 70% of tokens, earmarked for the Trump family and the project’s developers and advisers, at almost $1.3 billion.

World Liberty hasn’t confirmed if the parameters used in these tests will remain the same in the final version of its token structure. A spokesperson for the project declined to comment.

The split of tokens between World Liberty’s team, advisers, and the Trump family isn’t known, either.

Who’s involved

World Liberty has signed on several people to develop and advise the project.

Chase Herro and Zach Folkman

The project’s central figure is the 39-year-old Chase Herro.

Herro, along with his business partner Zach Folkman, are listed in documentation as World Liberty’s head of operations and its data and strategies lead respectively, Ogle confirmed.

Herro is no stranger to controversy. A token he promoted on influencer Logan Paul’s podcast dropped 96% afterward.

Herro runs a members-only trading group, charging members $149 a month for his advice, according to Bloomberg.

“If you do this right, who fucking cares if it goes to zero?” he said in a YouTube video promoting the group.

Steve Witkoff, a real-estate developer, introduced Herro to the Trumps, according to one of the people involved with the project who spoke with Bloomberg.

Herro and Folkman had both worked on DeFi project Dough Finance, a lending protocol that shares similarities with World Liberty, CoinDesk reported.

Dough Finance was hacked in July, costing users some $2.1 million.

Ogle

Ogle is a pseudonymous security expert and co-founder of the Glue blockchain who recently signed on as an adviser to World Liberty.

He told DL News that the Trumps see the new project “as a way of strengthening the US economic system.”

Ogle said he knows Herro and Folkman from his New York business days.

However he was tight-lipped, describing the token compensation for his role as “minimal,” and declining to elaborate.

“If the project turns into a $50 billion fully-diluted valuation token, it won’t change my life meaningfully in any way,” he told DL News.

Ogle also said he’s still in the dark about many of the details of World Liberty, including the specifics of the Trump family’s involvement, and said that official documentation hadn’t been completed yet.

Corey Caplan

Joining Herro, Folkman and Ogle is Corey Caplan, co-founder of DeFi money market Dolomite.

Ogle said he first met Caplan when the Dolomite co-founder pitched a group of New York crypto investors in 2018.

Ogle said Caplan is one of a few people he would trust with his private keys — the password-like codes that grant access to crypto wallets.

Sandy Peng

Sandy Peng, co-founder of Ethereum layer 2 blockchain Scroll, is the latest to sign on to World Liberty as an adviser.

We're proud to welcome Sandy Peng @sandyzkp as our latest advisor. Co-founder of Scroll, one of the largest L2 for scaling Ethereum. Having been in the space since 2013, Sandy brings a wealth of experience as an blockchain investor and operator, scaling an open source project for… pic.twitter.com/4vtXNyWw7S

— WLFI (@worldlibertyfi) September 15, 2024

How Peng became involved isn’t known. She’s well-known in the edgy fringe of DeFi populated by fans of the controversial NFT collection Milady Maker.

Influential Trump supporters in DeFi, such as crypto lawyer Gabriel Shapiro, have sported Milady NFTs as profile pictures on social media.

Aave

World Liberty isn’t building a new DeFi protocol from scratch. It’s piggybacking off Aave, the top DeFi lending protocol with $11 billion in deposits.

This kind of DeFi protocol is fairly common — building on top of Aave doesn’t mean there is any explicit cooperation.

Ogle declined to comment on Aave link, citing a non-disclosure agreement.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.

Forget BlackRock and other Wall Street giants. It’s fintech trailblazers such as Revolut and Robinhood that will breathe new life into DeFi.

At least, that’s what one crypto founder believes.

“We essentially need to build financial infrastructure for the most techy players in finance,” Paul Frambot, the CEO and founder of lending protocol Morpho, told DL News in an interview in Singapore on Monday.

“It’s very clear to me that this is the next step.”

‘Artificial casino’

Originally pitched as a far more efficient and transparent financial system, DeFi has become an “artificial casino” where speculation drives yields, Frambot said in the runup to Token 2049.

Morpho, which has raised $77 million from venture capital firms such as a16z and Ribbit Capital, launched at the peak of the hype cycle in 2021.

In a bid to best the most popular DeFi lending projects, Aave and Compound, Morpho launched Optimiser, a software layer that maximises yields.

Since the summer of 2021, however, DeFi’s total TVL, or invested deposits, has slid 56%, according to DefiLlama data. Fewer investors in DeFi means there are fewer developers and builders, and projects must compete for dwindling resources.

‘Aave versus Maker, Maker versus Ethena — everybody’s competing?’

Paul Frambot, Morpho

“It is getting more competitive, that’s clear,” Frambot said.

“Aave versus Maker, Maker versus Ethena — everybody’s competing.”

Leading fintechs Revolut, Robinhood, and eToro have each embraced crypto as a core piece of their offerings in the banking or brokering market.

Frambot is hopeful they and others can burnish DeFi’s attraction for mainstream users.

“The question is, How do we get from this artificial casino, bootstrapping phase to the broader message?” he said.

Fintechs plug in

Over the past decade, digital banks like London-based Revolut have established a beachhead in the once impregnable domain of traditional banks.

Making a run in payment processing, though, is proving to be harder.

Fintechs must use the same outdated “rails” as banks, remittance firms, asset managers, and other financial players.

“They plug into the traditional financial infrastructure, which has limitations. It’s not efficient, it’s not transparent, it’s not resilient,” Frambot said.

An opportunity

He said this is an opportunity for decentralised finance. And fintechs get it.

They are already building apps to plug into web3, he said.

Robinhood has partnered with Arbitrum on a self-custody wallet.

He expects more fintechs to seek more DeFi partnerships in the months to come.

“They’re aggregating the order flow of finance, and now they can become the owners themselves of the financial infrastructure,” he said.

“They’re essentially breaking free of TradFi.”

Ben Weiss and Jo Wright are correspondents for DL News. Ben is reporting from TOKEN2049 this week.

A version of this story appeared in our The Guidance newsletter on September 16. Sign up here.

Howdy! Ben here.

Welcome to the club, eToro!

After targeting Coinbase, Kraken, Bittrex, Robinhood, FTX, and Binance, the US Securities and Exchange Commission has gone after yet another platform.

On Thursday, the regulator announced a $1.5 million settlement with eToro, which lets customers buy and sell stocks, financial assets, and crypto.

The trading app’s headquarters is in Tel Aviv. As part of the settlement, its US branch agreed to stop customers from trading most cryptocurrencies — except for Bitcoin, Bitcoin Cash, and Ether.

Crypto’s legal talking heads bemoaned the agency’s continued crypto crackdown.

“The US is behind on providing clarity to the digital asset industry,” wrote Kristin Smith, the CEO of the Blockchain Association, a prominent crypto lobby group.

However, Smith and her ilk saw Ether’s inclusion in the SEC’s list of acceptable assets as a silver lining. It’s further confirmation that the SEC does not view Ether as a security, they argued.

Ethereum’s rocky road

Until just a few months ago, it looked like the SEC had its sights on Ether, the second largest cryptocurrency by total value.

In March, multiple companies that had business dealings with the Ethereum Foundation reportedly received subpoenas from the SEC. The nonprofit oversees the development and evangelisation of the Ethereum blockchain.

“ETH is a commodity, not a security,” declared Paul Grewal, Coinbase’s chief legal officer, in response to the news.

If Ether were a security, that would put it under the auspices of the SEC, and entail more stringent financial disclosures and regulation.

In April, Consensys, one of the most prominent developers in Ethereum, sued the SEC. Among other demands, Consensys said it wanted confirmation that the agency has no legal authority to regulate Ether.

Then, the SEC did a surprising about-face.

In May, the agency greenlit the trading of spot Ether exchange-traded funds. This implied that it viewed the cryptocurrency as a commodity.

And then, in June, Consenys said that the regulator had closed its investigation into whether Ether was a security.

‘Nonsecurity commodity’

If Ether’s status was at all ambiguous, the eToro settlement is further confirmation of the cryptocurrency’s status, said industry commentators.

The SEC’s decision to let eToro’s US customers continue to trade Ether is “effectively enshrining it as a nonsecurity commodity,” wrote Alexander Grieve, vice president of government affairs at Paradigm, one of crypto’s marquee venture capital firms.

And Grewal echoed Grieve’s evaluation.

“They just conceded ETH is not offered as an investment contract security in secondary markets,” said the Coinbase executive.

But, he couldn’t stop himself from taking yet another shot at the SEC, which is currently embroiled in ongoing litigation with Coinbase.

“There is no plan, no framework, no logic, no due process, and certainly no respect for the law,” he said, in reference to the SEC’s stance on crypto.

Reach out to me at bweiss@dlnews.com.

Investors await the Federal Reserve’s decision on interest rates this Wednesday, but some warn that too dramatic a cut will harm risk-on assets like Bitcoin.

Lower interest rates are usually seen as a boon to risk-on assets like cryptocurrencies. Counterintuitively, however, a more aggressive cut may be bad for Bitcoin’s price.

Why? Because it suggests that the economy is in worse shape than people think, Shannon Saccocia, chief investment officer at Neuberger Berman Private Wealth, told MarketWatch.

“If the Fed signals deeper concerns about the economy, market participants may retreat from assets that they perceive as risky, including Bitcoin,” Dave Birnbaum, VP of product & marketing at Coinbits, wrote for Forbes.

The Chicago Mercantile Exchange’s FedWatch tool currently shows a 59% probability of a 25 basis point cut, and 41% for a larger 50 basis point reduction.

Data from RIA analyst Michael Lebowitz shows that markets have historically underestimated the scale of the Fed’s rate cuts during easing cycles. In the 2000-2003 and 2007-2009 periods, the market misjudged the Fed’s cuts. This indicates that expecting a 25 basis point cut may be too conservative.

Investor confidence

Crypto investors hope new rate cuts will boost demand for riskier assets like Bitcoin. They have reason to be bullish.

Historical data shows that Bitcoin’s price often rallies when the Fed loosens monetary policy.

In October 2019, the Fed made three consecutive 25 basis point cuts, which Jerome Powell called a “mid-cycle adjustment.”

While the onset of the Covid-19 pandemic initially drove Bitcoin to a long-term low in March 2020, the price eventually climbed 1,300% to top $60,000 for the first time.

Investor confidence already appears to be rising ahead of the Fed’s meeting.

Digital asset investment products saw inflows of $436 million last week, following outflows totalling $1.2 billion in the two weeks before that, according to the latest CoinShares data.

The surge in inflows “was driven by a significant shift in market expectations for a potential 50 basis point interest rate cut,” CoinShares analyst James Butterfill wrote.

Crypto market movers

Bitcoin is down 2% over the past 24 hours to trade at $58,768.

Ethereum is don 4% to trade at $2,311.

What we are reading

Sam Bankman-Fried appeals, alleges judicial bias in FTX case: ‘thumb on scale for prosecution — DL News

Sky Proposes Full Offboarding Of Wrapped Bitcoin Due To Justin Sun Controversy — Milk Road

SEC Surprisingly Details Exemptions From SAB 121, Further Muddying the Waters — Unchained

MicroStrategy Buys 18,300 $BTC, Boosts Holdings To 244,800 — Milk Road

Binance responds to growing Clipper malware crisis with blacklist and safety measures — DL News

Kyle Baird is a Weekend Editor at DL News. Got a tip? Email at kbaird@dlnews.com.

Binance has implemented several countermeasures to tackle the rise of Clipper malware, which alters crypto withdrawal addresses. This has reportedly caused financial losses for a number of users.

These countermeasures include blacklisting malicious addresses to prevent further fraudulent transactions.

A Binance representative said, “We have blacklisted the attacker addresses to prevent further fraudulent transactions. This has successfully thwarted numerous withdrawal attempts from potential victims.”

In addition to this, Binance launched a notification system to inform users about the risk of malware on their devices, advising them to scan for suspicious software or plugins.

The exchange also encourages affected users to report their incidents to assist in identifying and neutralising malicious programs.

ANY.RUN’s Q2 2024 Malware Trends Report highlighted a surge in similar stealer malware, malicious software designed to steal sensitive information such as login credentials, private keys, and crypto wallet data. RedLine, a highly effective example of this malware, witnessed a 379% increase in detections during Q2.

Binance advises users to always verify the authenticity of apps and plugins by avoiding unofficial sources, double-check wallet addresses before completing transactions, and install reputable security software to detect and remove malware.

Residents of Stokmarknes in northern Norway are celebrating the closure of a local Bitcoin mining facility operated by Kryptovault that had been a source of noise complaints for more than two years.

The mining site, notorious for its loud air-cooling systems, prompted neighbours to liken the noise to a sawmill running 24/7. “We had to close our windows at night just to sleep,” said Harald Martin Eilertsen. Despite relief from the noise, the shutdown has brought an unexpected consequence — a 20% increase in electric bills.

Kryptovault, which had been the largest customer of local energy provider Noranett, accounting for 20% of its revenue, declared bankruptcy in September 2023. With the facility now closed, Noranett is passing the financial burden on to other consumers in the region, leading to the increase in electric bills.

Noranett’s network manager said that the electric bill surge will take effect as early as next month.

The shutdown comes on the heels of proposed regulations introduced by the Norwegian government in April 2024, aimed at curbing the growth of energy-intensive data centres and crypto mining.

These regulations, still under deliberation, would require data centers to register their operations, enabling authorities to identify and limit energy-intensive activities like crypto mining.

Digitalization Minister Karianne Tung stressed that Norway aims to attract data centers that bolster national infrastructure rather than deplete energy resources. Energy Minister Terje Aasland echoed this sentiment, saying “[crypto mining]…is an example of a type of business we do not want in Norway.”

If Prop 93 passes, the cryptocurrency mining industry could face major setbacks. Increased compliance costs and stricter oversight would reduce profitability and discourage new projects, potentially driving miners to relocate to more lenient regions.

The government’s focus on supporting socially beneficial data centers could also further limit the energy available for crypto mining.

A Florida man was sentenced to 47 years in prison for his leading role in a scheme involving a series of home invasion robberies targeting crypto.

A total of 12 men have been sentenced for their roles in the crimes, according to a news release from the US Department of Justice.

Remy Ra St Felix, 25, of West Palm Beach, and his co-conspirators stole more than $3.5 million in crypto from victims through SIM swapping and violent home invasions in which they held victims at gunpoint, assaulted them, and bound them with plastic cable ties.

Beginning in late 2020, St Felix’s co-conspirator, Jarod Gabriel Seemungal, 23, of West Palm Beach, and foreign co-conspirators stole crypto from victims’ accounts at exchanges.

They obtained access to the accounts by gaining control of the victims’ phone numbers through SIM swapping, a type of account takeover fraud that targets a weakness in two-factor authentication, with the second factor being a text message or call placed to a mobile telephone.

In 2022, Seemungal and his co-conspirators devised the home invasion scheme and recruited St Felix and others to assist. St Felix became the leader of the robbery crew.

In September 2022, St Felix and the others began a series of violent home invasions in Florida, holding victims at gunpoint, beating and abducting them.

Laundering

They forced victims to provide access to computers and crypto exchange accounts, stealing crypto and laundering the funds through anonymity-enhanced cryptocurrencies and decentralised finance platforms that did not conduct know-your-customer checks, the DOJ said.

The conspirators communicated via an encrypted messaging app to plan their crimes. They identified targets and discussed how to gain entry to homes, the tools required to carry out the crimes, the technical aspects of crypto, and the patterns of life of their targets.

Seemungal was sentenced to 20 years in prison. Other members of the crew have received terms of five to 20 years, with one man to be sentenced in October.

Circle, issuer of second-biggest stablecoin USDC, is moving its headquarters to New York City, CEO Jeremy Allaire wrote in a post on X.

The Boston-based company will be “building out a flagship space on one of the top floors of 1 World Trade Center, an historically important landmark in standing for American global economic leadership,” Allaire wrote.

Circle, which has a market cap of almost $36 billion, applied for an IPO in January. In July, it was granted a key licence to issue stablecoins under the EU’s new crypto assets regulation, DL News reported.

“As this technology explodes into the mainstream, and as Circle becomes a more and more important company and infrastructure for this new internet financial system, it became clear that we needed to plant our flag, both literally and figuratively, in the heart of Wall Street,” Allaire wrote.

He said that 2024 has been a turning point year when stablecoins started to break out in scale, importance and usage, and 2025 will be the year when they go mainstream.

Circle plans to open its New York headquarters in early 2025, among the giants of traditional finance.

The company expects its IPO to take place after the US Securities and Exchange Commission completes its review process, subject to market and other conditions.

Crypto market movers

Bitcoin is up 0.21% today at $60,152.91.

Ethereum is down 0.03% today at $2,420.00.

What we are reading

Sam Bankman-Fried appeals, alleges judicial bias in FTX case: ‘thumb on scale for prosecution’ — DL News

Bitcoin staking is finally unlocking a new way for investors to earn yield — TheStreet

‘An Explosion of Election Gambling’ Is Nigh, CFTC Warns Appeals Court — CoinDesk

Sam Bankman-Fried, founder of the bankrupt FTX crypto exchange, filed an appeal against his fraud conviction, accusing the judge of bias and claiming the court consistently favoured federal prosecutors. The appeal alleges that rulings unfairly aided the prosecution, preventing Bankman-Fried from mounting a full defence.

The appeal also claims that Sullivan & Cromwell, the law firm representing FTX, acted as an arm of the prosecution.

The firm is alleged to have provided evidence and investigative support while withholding material that could have helped Bankman-Fried, all the while billing FTX for hundreds of millions. His team argues that the court’s refusal to order discovery from FTX deprived him of a fair trial. The appeal claims the court “subverted” justice by working with the prosecution, placing “a thumb on the scale.”

Bankman-Fried, who was sentenced to 25 years in prison, also claims the court’s bias created a presumption of guilt that influenced the jury. His filing asserts that FTX’s debtors were quick to brand him a “villain,” in order to shield themselves while cooperating with prosecutors.

The appeal follows a ruling last month in which FTX and its affiliate, Alameda Research, were ordered to pay $12.7 billion to customers and victims of fraud, citing misuse of funds and FTX’s collapse in 2022.

The outcome of Bankman-Fried’s appeal could have significant implications for other key figures in the FTX case, including Caroline Ellison, former CEO of Alameda Research. Ellison, who struck a plea deal and cooperated with prosecutors, is set to be sentenced later this month.

Her legal team is arguing for a non-custodial sentence, despite the severity of her charges, citing her cooperation and attempts to rebuild her life since FTX’s collapse.

The US has imposed sanctions on Cambodian crime syndicates using forced labour operations to run crypto scams that have cost victims billions.

The sanctions are aimed at disrupting both human trafficking and fraudulent investment schemes. The Department of Justice cited widespread corruption and exploitation of trafficked individuals forced to carry out online crypto scams under harsh conditions.

The Cambodian groups perpetrated crypto investment frauds that contributed to a 53% rise in crypto-related investment losses in 2023, reaching nearly $4 billion, according to the FBI’s Internet Crime Complaint Center.

This follows a steady rise in crypto investment fraud, with losses growing from $1.56 billion in 2021 to $2.57 billion in 2022. When taking the latest figures into account, the total increase from 2021 to 2023 represents a staggering 154% surge.

Without stronger enforcement from government agencies, the upward trajectory is unlikely to reverse on its own.

Erin West, a Santa Clara prosecutor, is stepping up to confront this growing crisis. As a key figure in the fight against crypto scammers, West has highlighted the vast scale of the problem. “I talk to victims all day, every day — it’s a firehose of people,” she said, noting the vast number of cases she handles.

The challenge of combating the scams lies in their international nature, as victims are often defrauded by syndicates operating out of countries including Cambodia, Laos, and Myanmar.

Workers, lured by promises of legitimate jobs, are trafficked and forced into slave-like conditions where they must carry out crypto scams. “There’s only one group that’s winning, and that’s an international organised crime syndicate,” West said.

The crimes have not only drained billions from unsuspecting victims, but also highlight the human cost, as trafficked individuals are coerced into the operations.

West added that there is a stigma surrounding victims of crypto scams that makes reporting difficult. “It’s a speed game,” she explained. “The sooner victims report, the more likely we are to recover their money.”

MicroStrategy bought 18,300 Bitcoin for about $1.1 billion, according to a Friday post on X by CEO Michael Saylor and a US Securities and Exchange Commission filing. It was the biggest number of Bitcoin the company has acquired since February 2021.

The company now holds 244,800 Bitcoin valued at about $14 billion, depending on movements of the market. Microstrategy, the No. 1 Bitcoin holder among public companies, said it has seen a 17% gain on its holdings this year.

Last month, Microstrategy said in a regulatory filing that it was seeking to sell its class A shares to raise as much as $2 billion to buy more Bitcoin and for general corporate purposes.

The company, which uses income from its software business to support Bitcoin purchases, has said it considers itself the world’s first Bitcoin development company, committed to the continued growth of the Bitcoin network through its activities in the financial markets, advocacy, and technology innovation.

Bitcoin is up 3.70% today at $59,998.60.

Saylor has defined Bitcoin as an asset class similar to gold and real estate, DL News reported earlier this year, following SEC approval of spot bitcoin ETFs.

“Capital is going to keep flowing from those asset classes into Bitcoin, because Bitcoin is technically superior to those asset classes,” Saylor said at the time.

How will Gen Z (born 1997-2012 and now 12-27 years old) impact the future of the financial sector? Their financial behaviour may shed some light on that, according to a report by Bernstein analysts.

As Millennials (born 1981-1996, now 28-43 years old) and GenZ become a material part of household wealth, the way they manage their finances will help determine what future financial platforms will look like.

While banks and brokerages have had a long run managing the wealth of Baby Boomers (born 1946-1964, now 60-78 years old), over the next decade we may see new financial platforms emerge. Survey data by leading crypto exchanges such as Coinbase indicate the younger generations find the current banking system expensive, slow, and outdated.

They like the idea of assets that the government and big banks don’t control. A FINRA survey shows that 55% of GenZ in the US prefers to invest in crypto.

GenZ likes their finances on-chain rather than online, the report says. They find digital banking platforms clunky and opaque. GenZ prefers managing their finances on-chain, through decentralised finance apps and digital dollar stablecoins.

About 27 million wallets are active every month doing stablecoin payments on-chain. With the improvement in blockchain scaling technology, users can transfer $1,000 cross-border for less than 1 cent.

Almost $160 billion of US dollar stablecoins are live on the blockchain, and with the arrival of AI agents, a new model of stablecoin payments is expected to arise, the report says.

While institutional investors are typically not crypto users and thus often have a blind spot towards crypto, they may take a fresh look at crypto equity opportunities as a new cycle reboots.

DL News has reported that some financial services companies are already moving into the crypto markets, including Robinhood, with 60% of its assets from customers under the age of 43. Revout, Stripe, and PayPal are making similar moves.

Crypto market movers

Bitcoin is up 3.70% today at $59,998.60.

Ethereum is up 3.15% today at $2,419.35.

What we are reading

Crypto firm Circle to move headquarters to New York City ahead of planned IPO — Reuters

Institutions quietly accumulate Bitcoin as new crypto trends gain mainstream attention — TheStreet

TON users brace for billion-dollar airdrop deluge as concerns mount over network stability — DL News

Stablecoins are crypto’s “killer app.”

That’s according to a Tuesday report by Castle Island Ventures, a venture capital firm that specialises in investing in public blockchain startups. Backers also include credit card company Visa, hedge fund Brevan Howard, and blockchain data firm Artemis.

Among its findings: Crypto users in emerging markets — specifically Nigeria, Brazil, India, Turkey, and Indonesia — are increasingly using stablecoins for purposes other than speculation and industry-specific uses.

Of the 2,500 adults surveyed, respondents cited multiple reasons for using stablecoins. Specifically, 47% said they use stablecoins to save money in US dollars, 39% use them for yield generation, and 43% because currency conversion rates are better in crypto than through traditional banks.

“The potential welfare benefits of efficient access to alternative hard currencies for billions of users in emerging markets must have a place in the discussion of the merits of stablecoins,” the report said.

Stablecoin adoption

Stablecoins are cryptocurrencies designed to stay at par with a government-issued currency like the US dollar.

And while Bitcoin and the rest of the crypto market have experienced a mediocre year in terms of price action, stablecoins have grown from a supply of roughly $125 billion in the middle of 2023 to about $165 billion in the summer of 2024.

Even more striking, stablecoins account for about 50% of all value settled on public blockchains. Bitcoin, the largest cryptocurrency by value, only accounts for 25% of such transactions.

Stablecoins are almost exclusively pegged to the US dollar — the second-most popular government currency, the euro, is used for 0.38% of the total stablecoin market.

Why? The preference for US dollars boils down to two things, according to the report: The greenback’s strength against other sovereign currencies serves as an incentive, and most countries haven’t put regulatory frameworks in place to promote their own currencies and keep the dollar out.

That’s quite advantageous for the dollar. Since the biggest stablecoin issuers — Tether and Circle — invest their reserves in short-term US Treasury bonds, users of such stablecoins end up indirectly purchasing US debt and financing the government.

Report findings

The report highlighted the fact that stablecoin users — if they weren’t seeking exposure to the crypto economy — were mostly looking to remedy inefficiencies in their banking systems or lower the likelihood of government interference.

“It’s notable that a majority of respondents in all countries in the sample reported having used stablecoins for a non-crypto trading use case,” the report said.

Currency conversion was the most popular use case overall besides crypto trading, but the survey found differences between countries.

For example, Turkish stablecoins users said their primary objective was to earn a yield on their funds, while Nigerians prioritised saving money in US dollars.

Crypto market movers

Bitcoin is up 0.5% in the last 24 hours, at $58,200.

Ethereum has risen 0.5% in the same period, trading at $2,360.

What we are reading

Shitposting is part of the job for this crypto pro: ‘It’s an art form’ — DL News

Vitalik Buterin: Stage 1+ L2 Networks Will Be the Future of Ethereum Scaling — Milk Road

Why the Investigation Into Gary Gensler’s Hiring Practices Is Unlikely to Result in Any Action — Unchained

Trump Announces Launch of World Liberty Financial: ‘We’re Embracing the Future with Crypto’ — Milk Road

XRP rallies as Grayscale revives trust and ‘pave the way for an XRP ETF’ — DL News

Tom Carreras writes about markets for DL News. Got a tip about stablecoins? Reach out at tcarreras@dlnews.com

A version of this article appeared in our Roundup newsletter on September 13. Sign up here.

Crypto lobbying group Blockchain Association says to brace for more legal attacks this month.

That’s because September tends to be a doozy for the Securities and Exchange Commission.

It just hit crypto trading app eToro, which — alongside a $1.5 million settlement — agreed to stop US customers from trading all crypto but for Bitcoin, Bitcoin Cash, and Ethereum.

“Unfortunately, we’ll see more of these actions over the next few weeks,” said Kristin Smith, CEO of Blockchain Association.

But why September?

The Commission’s fiscal year ends on September 30, and the more work a government agency can show it’s doing, the more money it can ask for from Congress.

And SEC Chair Gary Gensler has a big ask. He’s requesting $2.6 billion for 2025 to build out his team and rein in what he calls “the Wild West of crypto markets.”

Historically, the SEC has issued the most enforcement actions in September for the last five years.

To be clear, this isn’t exclusive to crypto actions.

The SEC oversees all financial markets in the US.

So far, the SEC has issued 12 actions. On average, it’s issued 44 in September over the past five years.

Got a tip about DeFi? Reach out at liam@dlnews.com.

Grayscale Investments relaunches its XRP Trust in a move that drove the cryptocurrency’s price up by 10% and that could pave the way for a new crypto exchange-traded trust.

The digital asset manager shuttered its trust in 2021 during crypto company Ripple’s fight with US regulators. Ripple’s founders developed XRP.

“Grayscale’s relaunch of an XRP trust is noteworthy, as it could pave the way for an XRP ETF,” Presto Research wrote in a note to investors on Friday. “While trusts face lighter regulatory scrutiny, an ETF would require SEC approval, potentially broadening access to the public.”

The approval of 11 spot Bitcoin ETFs catapulted the crypto market into record heights at the beginning of the year. The funds run by the likes of Wall Street giants BlackRock and Franklin Templeton have seen over $17 billion in inflows since January, according to data from SoSoValue.

In July, the success was followed by the launch of spot Ethereum ETFs, which experts estimated will see $15 billion in inflows by the end of 2025.

Since then, people have been wondering which cryptocurrency will be next to get devoted ETFs. Solana has come out as one candidate, but Grayscale’s relaunch puts XRP back in the race.

Relaunch

Presto Research analysts Peter Chung and Min Jung argued that the relaunch is significant. Grayscale decision to convert its Bitcoin trust into an ETF — and its subsequent court fight with the Securities and Exchange Commission to be allowed to do so — led to the launch of spot Bitcoin ETFs in the US, they noted.

“What could further increase the odds of an XRP ETF listing is if CME were to list XRP futures,” Chung and Jung wrote.

There’s no such indication yet, but crypto derivatives exchange Bitnomial applied to the Commodity Futures Trading Commission agency in August to add XRP futures to its offerings.

If the CFTC greenlights it, then the CME may follow suit, the Presto Research analysts wrote.

The absence of a futures market is a roadblock that will prevent the launch of Solana ETFs, Sui Chung, CEO of Kraken-owned index provider CF Benchmarks, told DL News earlier this month.

Court fight

Grayscale’s XRP relaunch comes on the back of Ripple’s long-running legal battle with the SEC ended with the company being fined $125 million — a far cry from the $2 billion penalty the regulator initially sought — in August.

The case, which began in 2020, has been prominent in the ongoing legal debate over whether cryptocurrencies should be classified as securities or commodities, which has yet to establish a clear precedent.

XRP initially jumped more than 10% following the Grayscale XRP Trust news, but quickly gave up half those gains.

This year, XRP has mostly traded sideways, hitting a 2024 high of $0.73 in March, before dropping to $0.40 by mid-July.

At the time of writing, XRP is trading at $0.57, well below its all-time high of over $3 in 2018 and more than 200% off its 2021 peak of $1.90.

Kyle Baird is a Weekend Editor at DL News. Got a tip? Email at kbaird@dlnews.com.

TON’s click-to-earn gambit comes to a head this month.

Several projects on the Telegram-linked blockchain, including Hamster Kombat, Blum, and Catizen, are primed to reward their teeming users with more than $1 billion worth of tokens this month.

While the excitement is palpable, concerns are mounting over the recent arrest of Telegram founder Pavel Durov in France and the network’s ability to handle the strain of airdrop claimants who will number in the hundreds of millions. An airdrop is when users of a crypto network are given tokens for being users.

Still, the TON team is confident the network’s infrastructure is up to the task, even if minor hiccups occur.

“It would not be realistic to expect no issues to arise when we are discussing potentially onboarding hundreds of millions of people,” TON Society co-founder John Booth told DL News. “Nothing like this has ever been attempted before, and we’re proud to be making history.”

Booth also dismissed fears that Durov’s arrest, which spooked investors, would affect the airdrops.

Network outage

During the DOGS airdrop last month, TON’s network went offline for two hours.

DOGS is a TON-based memecoin project that distributed $550 million worth of its tokens to users. The project attracted 53 million players.

Despite the network outage, Booth said the airdrop was a success, citing the 17 million wallets that claimed tokens.

Booth told DL News that TON achieved in two weeks what it took major blockchains much longer: onboarding millions of users.

“TON now counts itself as part of an extremely rare class of blockchains, where too much usage has led to problems,” Booth said. “With every problem exposed and resolved, TON blockchain and the infrastructure supporting it continues to grow stronger.”

Many of the forthcoming projects boast even greater numbers. Here are three highly anticipated TON airdrops.

Hamster Kombat

Hamster Kombat launched in March and peaked at 300 million global users, though an indeterminate number could be bots.

It’s a clicker mini-game where users embody a Hamster avatar to be groomed into a virtual crypto exchange CEO.

Users level up their avatars by tapping to earn coins and completing daily tasks. There’s also a mining level where users can upgrade the speed at which they acquire in-game tokens.

Hamster Kombat plans to airdrop its HMSTR token on September 26, but users have reason to be cautious.

That’s because the airdrop was originally billed to hit the market in July.

Catizen

Catizen is a cat-themed clicker game on TON.

The goal is to breed cats to earn tokens, a pitch the project claims has attracted 34 million users. About 800,000 of them are paying customers.

After postponing an earlier distribution, Catizen will airdrop its CATI tokens to users on September 20.

That delay was due to player backlash over the project’s $100,000 donation to animal rights group PETA.

Blum

Blum is one of the few TON clicker games that isn’t animal-themed.

It’s a vertical scrolling game, and players level up by collecting pixelated flower petals to increase their in-game score.

Players also complete daily tasks to improve their scores and can invite friends by sharing their codes.

The project claims to be backed by two former Binance employees and has amassed over 60 million users.

Blum’s airdrop is also scheduled for September 20 and has secured backing from Binance.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.

How do you explain the complexity of a web of interconnected blockchains?

Perhaps through a comparison to Morman polygamy?

No, that’s a “little cringe,” said Diana Chimes, senior growth marketing manager at Polygon Labs, during a recent Friday brainstorming session that DL News sat in on.

Maybe a better analogue is “Flavor of Love,” a reality TV dating show from the mid-aughts that starred rapper Flavor Flav?

Kimron Flicker, a 32-year-old content marketing manager at Polygon Labs, was only “vaguely aware” of the 65-year-old rapper, she said.

What about the polyamorous relationships between employees at FTX?

“If there’s a picture of SBF, Caroline, and a few other people in the polycule to show interconnectivity,” mused Flicker, “that’d be funny.”

Meme mania

One of Flicker’s responsibilities, per her employment contract, is to produce “humorous memes.”

In other words, she gets paid to shitpost. And she isn’t the only employee in crypto that gets cash to make jokes on the internet.

The industry employs more than a handful of “crypto interns,” the tongue-in-cheek name some use to refer to crypto’s professional meme-makers and social media strategists.

Most businesses have social media-savvy employees. Crypto, though, stands out for a user base that is perpetually online and skews younger.

Traditional finance companies largely communicate to customers with emails, shareholder reports, and stamp-and-envelope mail. Crypto companies often use what their users love best: memes.

“The humour is more human and normal than a traditional banking or fintech company,” Flicker told DL News, in reference to the crypto industry’s online tone.

Am sooo happy to announce that I am @0xPolygon's newest reply guy, joining the elusive and prestigious ranks of crypto interns everywhere, working with @0xlstern, @skyriziii and the rest of the marketing team to spread the word about the AggLayer and Polygon’s vision for… pic.twitter.com/ZNISn2pmbd

— crypto_kimi.lens (@Crypto_Kimi) September 3, 2024

Born to meme

Flicker, who lives in Tel Aviv, Israel, first became interested in crypto in graduate school, where she received a masters degree in international development.

After a stint as a copywriter at a gaming company, she left to work for a blockchain gaming startup and later at a crypto wallet developer.

And, about a month ago, she started at Polygon Labs.

“This is my most writing-focused job in crypto thus far,” she said.

Like any auteur, she has her inspirations.

She said she likes Gwart, a popular crypto account on X; Elon Musk, the Tesla CEO and owner of X, is her celebrity crush; and she finds Martin Shkreli, the former pharmaceutical executive, funny.

“I literally tweeted at him three hours ago, ‘Marry me,’” she said, referring to Shkreli, who went to prison for more than six years for securities fraud and has since dabbled in crypto.

Flicker later said that she finds Shkreli’s social media presence satirical.

when he understands the POL upgrade pic.twitter.com/Wk4Ybs7VDp

— Polygon | Aggregated (@0xPolygon) September 6, 2024

Memes of production

In many ways, Flicker’s job is like that of any remote worker.

When she clocks into work in the morning, she, like many office workers, scrolls through social media. In the afternoon, she attends a daily “stand-up,” or short meeting.

Then, she puts digital pen to paper and works on her projects, which can range from educational content to silly, off-the-cuff jokes.

“It’s not a perfect science,” she said of crypto meme-making. “It’s an art form.”

Meme maker, dream maker

Sam Wellalage, a recruiter who specialises in crypto, told DL News that DeFi projects particularly want meme makers.

“This would not be the case for other crypto sectors,” he said, pointing to companies that more closely resemble businesses from traditional finance.

Over the past year, traditional financial giants have made further inroads into crypto.

Wall Street giants like BlackRock and Franklin Templeton have launched Bitcoin exchange-traded funds and have experimented with tokenisation. Crypto conferences have seen an influx of suits.

It’s hard to imagine that multinational financial institutions will let their employees craft off-the-cuff memes featuring sad frogs. Does this make Flicker worry for her job security?

“I’d like to make a lot of money and retire when I’m 40,” she told DL News. “So, it’s not a concern.”

When later asked if she was joking, Flicker said, “Many a truth is said in jest.”

Ben Weiss is DL News’ Dubai correspondent. Joanna Wright is a regulatory correspondent for DL News. Got a tip? Email them at joanna@dlnews.com or bweiss@dlnews.com.