Grayscale’s victory over the SEC caused the price of Bitcoin to rise by eight percent. Uniswap also got an important victory in court against a class action. BIP300 is generating more and more discussion in the camp of Bitcoin maximalists. Pepe and Stake lost more than 50 million in an attack by cybercriminals. Vitalik Buterin dumped his Maker tokens to protest the project’s move to the Solana platform.
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Grayscale’s victory over the SEC caused Bitcoin’s price to rise
Last week’s biggest news was Grayscale’s victory over the SEC in court. Grayscale is one of the best-known companies in the crypto industry. It runs the Grayscale Bitcoin Fund (GBTC) and holds nearly 625,000 bitcoins. Grayscale would like to change its current fund model to a spot Bitcoin ETF, but the SEC blocked the process at the very beginning.
The SEC is the body that supervises the securities market in the United States. Over the past year, it has attacked numerous crypto projects and exchanges in the United States and sued industry players in court.
Grayscale did not give up on the SEC’s decision but sued the institution instead! A court ruling last week found that the SEC has no authority to block Grayscale’s application. It was a big win and the second major loss for the SEC in a short period. A couple of months ago, it also got a backlash in the battle against Ripple.
Jake Chervinsky, who follows US regulations, commented this in X.
1/ Grayscale's victory over the SEC is *massive.*
It's very rare for a federal circuit court to find that an agency has violated the APA by acting arbitrarily and capriciously.
The DC Circuit just delivered a huge embarrassment for the SEC.
But the ETF isn't approved yet 🧵
— Jake Chervinsky (@jchervinsky) August 29, 2023
The news surprised the market and quickly caused Bitcoin’s price to increase by about eight percent. Unfortunately, this joy only lasted two days. On Thursday evening, Bitcoin’s price had already returned to the level before the news.
The court decision does not mean Grayscale’s spot Bitcoin ETF application has been approved. Grayscale can apply for a Bitcoin spot ETF like Blackrock (and many others). As many as eight entities are currently applying for a spot Bitcoin ETF product. Grayscale has not submitted a new application yet.
The SEC can postpone the decision three times before the final deadline arrives in the spring of 2024. The deadline for the first postponement was at the end of last week. Not surprisingly, the SEC delayed all filings.
In the big picture, Grayscale’s win doesn’t matter much. Blackrock’s spot ETF application was much bigger news in the summer. The rapid price collapse to the level before the news signals that investors also understood this quickly.
However, every lost court battle weakens the SEC’s authority and ability to attack the crypto industry.
An important victory for Uniswap in court
Last week, in addition to Grayscale, there was another important court decision. Decentralized exchange Uniswap won a class action against it by a judge’s decision. This could be a significant decision for the entire DeFi sector.
A group of people had sued Uniswap because of scam tokens. Investors were victims of a so-called rug pull and accused Uniswap of making the trading of scam tokens on its platform possible.
The nature of a decentralized exchange enables anyone to bring their token to be traded on the exchange by providing it with liquidity. A traditional exchange will list new tokens only after a due diligence procedure.
So, the lawsuit was about whether the Uniswap developers could be held responsible for someone misusing the tools they created. According to the New York judge, this is not the case.
A New York court has dismissed a proposed class action lawsuit alleging @Uniswap was responsible for causing harm to investors by allowing scam tokens to be issued and traded.
— CoinDesk (@CoinDesk) September 3, 2023
According to the plaintiffs, Uniswap can be held responsible because the creators of the scam tokens are unknown. They argue that the exchange collects transaction fees and benefits from trades, e.g., through its UNI token. According to the judge, this is not enough to make Uniswap liable.
It was an important decision for the entire DeFi sector. A contrary verdict would have opened “Pandora’s box” and countless lawsuits against Uniswap and other decentralized exchanges.
However, it is important to note that the regulators’ eyes are increasingly focused on DeFi. For example, the upcoming EU MiCa framework does not include DeFi regulation. However, the sector is wanted under regulation and KYC sooner or later.
BIP300 sparks discussion
Active X (Twitter) users have recently noticed a growing conversation about BIP300. What is it about?
BIP stands for Bitcoin Improvement Proposal, and 300 is the sequence number. So, this is an upgrade proposal to Bitcoin’s program code. BIP300 is also connected to BIP301, but for the sake of simplicity, the subject is discussed only through BIP300.
BIP300 is not a new proposal. It is an idea already presented in 2017 and brings drivetrain technology to Bitcoin. In practice, it’s about creating sidechains to Bitcoin that are validated using merge mining.
Merge Mining means miners can simultaneously mine the Bitcoin blockchain and maintain another blockchain with the same effort. This does not create any significant issues for the miner. but the target of merge mining gets the security from the hash rate of the Bitcoin network.
BIP300 defines the rules for creating and validating Bitcoin sidechains. A sidechain may contain completely different technology than the actual Bitcoin blockchain. Bitcoins from the Bitcoin blockchain can be transferred to the sidechain, where their value reflects (at least in theory) the price of the genuine Bitcoin.
Until now, the biggest problem with sidechains is the release of funds back to the Bitcoin blockchain. BIP300 defines how this process would work with the help of Bitcoin miners in a decentralized manner without a centralized entity. Technically, it would be like a huge multi-sig wallet.
According to BIP300 defenders, the upgrade would increase demand for Bitcoin, bring additional income to miners, scale Bitcoin, and, at best, make altcoins redundant. However, it seems that the opposing camp is significantly larger.
A lot of counter-arguments have been collected in the thread below:
10 days ago, I tweeted on Drivechain's (DC) purpose and sidechains (SC).
I've gained insights and I'll detail the 8 reasons I've seen that are against it. I will playfully denote people's names to various arguments even though these people are likely not the originators of the…
— Michael Tidwell (@miketwenty1) August 30, 2023
As you can see from the X post, BIP300 contains many potential risks related to mining. A sidechain would be controlled by mining pools, which may have an incentive to stop merge mining or perform other manipulations.
Many also ask, is there a need for this kind of technology? Blockchains are already connected to Bitcoin, but their demand has been very low. A good example of this is Liquid, built by Blockstream.
According to critics, such sidechains do not bring anything useful to Bitcoin and are an unnecessary risk in its fundamentals. Bitcoin’s program code has been kept as simple as possible for good reason, and making new updates is a very difficult and slow process.
Since Bitcoin is a decentralized community, a new code upgrade must have near-unanimous support from node operators and miners. Otherwise, no network operator will use the new update.
The discussion around BIP300 is just starting. It will be interesting to see if the ratio of supporters to opponents changes in the future.
Pepe and Stake lost tens of millions of dollars
Pepe is a meme coin that came into everyone’s consciousness in the spring of 2023. It capitalizes on the popularity of the classic Pepe the Frog meme. Although Pepe’s market cap has plummeted far from its peak reading, Pepe is the third largest meme coin after Dogecoin and Shiba Inu.
Two weeks ago, the currency took a hit when three founding team members stole about $15 million worth of Pepe tokens and dumped them on the market, causing a sharp price crash.
The remaining founding members confirmed what had happened: three members were enough to use the multisg wallet. After the operation, the individuals deleted their social media accounts and access to the multisg wallet to create distance between Pepe and themselves.
The embed below has a link to the report from the Decrypt website. The project continues forward despite what happened.
Pepe confirms former team members stole $15 million from multisig wallet https://t.co/3TFLSMx3Bc
— The Block (@TheBlock__) August 26, 2023
Yesterday, we also received news of a rare hack involving a crypto casino. Stake, the most famous crypto-casino on the market, was hit by a hit of no less than 41 million dollars. Stake lost, e.g., stablecoins and Ether in BNB Chain, Polygon, and Ethereum blockchains. This tweet shows the exact list of stolen cryptocurrencies.
It was a blow to the casino’s hot wallet. Hot Wallet is a wallet that stores funds for processing withdrawals. The security of a hot wallet is not at the level of a cold wallet. For practical reasons, transfers have to happen more easily and quickly so that customers get their withdrawals as quickly as possible.
For this reason, a hot wallet is a security risk, which is also true with cryptocurrency exchanges. Financially, however, the problem is quite small because as little customer funds as possible are stored in the hot wallet, which is needed to process daily withdrawals.
Stake opened cryptocurrency transfers just five hours after the incident. The company is probably profitable enough that the 41 million dollar blow will not cause problems for its business or customers.
Vitalik Buterin bought his Maker token
Finally, let’s discuss the news about MakerDAO and Vitalik Buterin. The topic came up on social media yesterday. The founder of Ethereum, Vitalik Buterin, decided to sell all his Maker (MKR) tokens worth about 580,000 dollars. Why did Buterin act like this?
It was an expression of opinion towards Maker’s plans. MakerDAO, which governs the DAI stablecoin, wants to create a blockchain using Solana’s technology!
Ethereum co-founder @VitalikButerin sold $580,000 in MakerDAO’s $MKR tokens, after the stablecoin platform's co-founder @RuneKek advocated a move to a new Solana-based appchain. https://t.co/kNnGUROA8L
— Decrypt (@decryptmedia) September 4, 2023
DAI is the largest and most popular decentralized stablecoin on the market. Its development involves a DAO called Maker, with its governance token MKR.
MakerDAO has been planning for a long time to transfer the administration to a new blockchain. It is a process called Endgame and part of a larger trend in the crypto market. More and more crypto projects want an app-specific blockchain where the parameters and the rules can be modified if necessary.
“The most important reason why NewChain is needed is that it will allow the Ecosystem to use hard forks to gracefully Recover from the most severe form of governance attacks or technical failures,” says Rune Christensen, founder of Maker.
Ethereum founder Vitalik Buterin is unhappy with Maker’s direction to move away from the Ethereum platform. He wrote, “MakerDAO is torpedoing itself in weird directions” on Discord and underlined his comments by selling all his MKR tokens.
Despite the sale of Buterin, Maker has been one of the best performers of the last week. Maker’s price is up by more than 10 percent compared to a week ago. At the same time, Bitcoin, Ethereum, and other well-known cryptos are 1-2 percent below zero.