Grayscale Won 🍾

A federal appeals court ruled Tuesday that the SEC must reconsider Grayscale’s application to launch the first BTC ETF ---- plus the top news, stats, and reports of the week in crypto.

Author

Ryan Allis
August 31, 2023

Issue Summary: Welcome back to Coinstack, the weekly newsletter for institutional crypto investors and industry insiders. We review the top news, stats, and reports in the digital asset ecosystem for our 140k weekly subscribers. This week we cover Grayscale’s victory over the SEC, the SEC issuing the first enforcement action targeting NFTs, SBF’s lawyers asking for temporary release, and new venture rounds for Raleon ($3.8M) and FirstMate ($3.75M).

Price performance since we began writing Coinstack in January 2021

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đź’µ Weekly Crypto Fundraises & Deals

Here are all the crypto fundraises we heard about this week, ranked by size…

🗞️ Crypto News Recap: The Top 5 Stories

Welcome back to This Week in Crypto… everything you need to know in one scannable format. Here are the top 5 stories of the week…

  1. 🤯 Court hands Grayscale win in long-running suit against SEC- A court opinion gave Grayscale Investments a win in its case against the Securities and Exchange Commission over its application for a spot bitcoin exchange-traded fund.

  1. ⚖️ SEC Issues First Enforcement Action Targeting NFTs- U.S. regulators ordered a Los Angeles-based company that issued non-fungible tokens to compensate investors who bought the NFTs, arguing that the transactions were illegal unregistered securities offerings. It was the U.S. Securities and Exchange Commission’s first NFT-related enforcement action.

  1. ⚖️ Sam Bankman-Fried's lawyers ask for temporary release from jail- Sam Bankman-Fried's attorneys are urging a district court to grant the former FTX CEO's temporary release from jail to review documents ahead of his upcoming trial, or at least allow him to meet with them five days a week.

  1. 🎭 Balancer Suffers Nearly $1M Exploit as Team Urges Users to Withdraw Funds- Popular decentralized exchange Balancer suffered a hack on August 27, losing close to $1 million.The exploit came less than a week after the team disclosed a “critical vulnerability.”

  1. 🎭 FTX and BlockFi Hit by Third-Party Data Breach, Exposing User Data- Kroll, a third-party agent responsible for managing creditor claims for bankrupt companies, has been hit by a data breach, leading to the compromise of customer data from crypto exchange FTX and lending platform BlockFi.

đź’¬ Tweet of the Week

Source: @Sonnenshein

đź“Š Key Stats of the Week

Here are the most important and interesting stats in crypto this week...

1. Solana DEX Volume was 49% higher in July of 2023 vs the year before.

Source: @StepDataInsight

2. Despite the bear market, in 2022 stablecoins on several Layer-1s (L1s) transacted $6.87 trillion, overtaking Mastercard and PayPal.

Source: @Jamie1Coutts

3. Cumulative protocol fees on friend.tech have surpassed $4 mill less than 3 weeks since its launch.

Source: @rebeccastev

4. USDC's supply dominance on Ethereum has slid from 45% earlier in 2023 to <33% now.

Source: @rebeccastev

5. Bitcoin is now trading below its 200 Week Moving Average.

Source: @saylor

đź“ť Highlights from the Top Crypto Reports

Here are the top highlights from the best crypto research reports this week…

About the Author: Paul Veradittakit, is a Managing Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing into blockchain companies and cryptocurrencies. This is an excerpt from the full article, which you can find here.

Social Media’s Userhood Problem

Modern social media suffers uniquely from a bot problem. Although social media platforms have a mandate to uphold freedom of expression, this issue becomes thorny when the “users” in question are not in fact real users, but bots. And, as it turns out bots can have a significant impact on public discourse, from alleged tampering with US presidential elections to influencing the public opinion on COVID [1]. Especially with its emphasis on anonymity, security, and privacy, any decentralized social media platform inherits the “bot problem” – essentially, how do you convince people that the accounts on your platform are real and not bots, especially in an era of advanced AI?

The naive approach is simply just a traditional know-your-customer protocol, but this approach immediately runs into a privacy problem – the flip side of the coin. How (and why) should you trust any social media platform to hold a treasure trove of our sensitive data (from government IDs to private messages and financial transactions) that is able to recreate someone’s entire personal, social, and professional life?

Thus, the “userhood” problem is a tension between confirming that users are actually human versus making privacy guarantees on personal data. Within this writing, we will explore two distinct approaches to tackling this problem, a biometric approach (with zero-knowledge proofs) and a social-vouching approach.

Worldcoin and Biometric Authentication

Within the “proof-of-personhood” problem space, Worldcoin stands out as one of the most notable and controversial projects. In addition to having Sam Altman, the famed CEO of OpenAI as one of its proponents, Worldcoin’s solution to the “proof-of-personhood” question is very straightforward: use a retina scan to create biometric proof that you are a human (since bots don’t have retinas yet), and receive an authentication token from this. As for data privacy, Worldcoin claims to use Zero Knowledge Proofs to ensure that the biometric data obtained is stored securely [2].

The thesis behind Worldcoin is that with the increasing role that AI plays in society, there needs to be a way of telling humans and bots apart, crucially in a privacy-preserving and decentralized way. Through using the Worldcoin orbs’ retina scans, one can obtain a “digital-passport-like” World ID, which enables recipients to potentially be eligible for a crypto-based Universal Basic Income mechanism and participate in novel mechanisms of global democratic governance [3]. In essence, this World ID is intended as a social primitive to bootstrap the digital social networks of the future.

Throughout its documentation, Worldcoin emphasizes how it has a privacy-first solution. For example, it states that it deletes images collected by the Orb, storing only a hash of the user’s iris, and runs Zero Knowledge Proofs (zk-SNARKs) in order to share proof of personhood information without disclosing any personal data. And although in the current phase of rolling out, these hashes are stored in a centralized database, the team is dedicated in the long-run to store these iris hash data on-chain after the hashing algorithm is fully mature [4].

But despite these privacy-preserving claims, there are still numerous controversies about the true privacy, security, and fairness guarantees. For example, there have been claims of Worldcoin operators having their credentials stolen, and World IDs being sold on digital black markets, such that users could attain Worldcoin tokens without going through the iris scan themselves [5] [6]. There also have been overall equity concerns, with the MIT Technology Review publishing a scathing article in April 2022 on deception, manipulation, and exploitation of nearly half a million users (primarily in developing countries) during its test phase, going so far as to call it a form of “crypto-colonialism” [7]. Indeed, as of August 2, 2023, Kenya, formerly one of Worldcoin’s largest collection venues, had banned Worldcoin scans over security, privacy, and financial concerns [8].

Apart from these project-specific controversies though, there also exist broader concerns about Worldcoin’s overall approach of biometric authentication through dedicated hardware. Because the Orb is fundamentally a hardware device, even if Worldcoin’s software was all perfect, there is no way to guarantee that there is a hardware backdoor that allows Worldcoin (or another third-party manufacturer) to secretly collect users’ actual biometric data, or insert fake profiles into the system [9]. To skeptics, it can appear that all of Worldcoin’s privacy assurances (ZKPs, iris hashes, decentralization on-chain) seem to be no more than an ironic statement of “trust me bro, we’re a trustless solution.”

🎧 Top Crypto Podcasts of The Week

Here are the crypto podcasts that are worth listening to this week...

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đź“° The Coinstack Newsletter:

Tracking the most important blockchain stories of the 2020s, including a decentralized internet and the creation of a new open global monetary system that works for everyone. As always, published for informational purposes only. Please do your own research. Just our opinions. Not intended as financial advice as we are not financial advisors. We may own some of the digital assets we write about as we believe strongly in the sector. Please do your own research. Published and written weekly by Ryan Allis and Mike Gavela.

Coinstack is a news and analysis newsletter for the digital asset industry. None of the information here is a recommendation to invest in any securities or other types of investments. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All investments involve risk and may result in loss.

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