Will Dencun Spawn the L3 Era? 🤔
Weekly News Recap: 🚀 Ethereum's Dencun upgrade, 📈 Bitcoin blasts past its all-time high, 😕 Bearish outlook on spot ETH ETF approvals, and much more!
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In this episode, Jesse Pollak, the creator of Coinbase-incubated L2 Base, discusses the impact that Ethereum’s newly-implemented Dencun upgrade is having on Base’s fees and number of transactions. He estimated that so far, Base has seen a reduction in fees of 10 to 20 times, while transactions have increased by five times.
Pollak also talked about how he thinks Layer 1s and Layer 2s will start to differentiate themselves from one another and eventually spawn a multitude of specialized Layer 3s. “[L3s are] basically going to let people have their own dedicated server where they can write any kind of application, they can power their whole backend, but it will just plug right into Base or other Layer 2s.”
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Weekly News Recap
Ethereum Layer 2’s See Dramatic Drop in Transaction Fees After Dencun Upgrade
The much anticipated Dencun upgrade has led to a significant reduction in transaction fees on Ethereum layer 2 networks.
The Dencun upgrade went live early on Wednesday after it activated on the Ethereum mainnet at epoch height 269568. The upgrade introduced the highly anticipated proto-danksharding functionality via EIP-4844, which integrates off-chain “data-blobs” that decrease the costs associated with storing transaction data.
Ethereum Layer 2 networks, which are designed to provide a faster, cheaper route to executing transactions on the underlying blockchain, were the biggest beneficiaries of the upgrade. On the first day after the upgrade, median transaction fees had dropped to $0.05 on Optimism, $0.064 on Base, $0.5 on Arbitrum and $0.16 on zkSync Era. So far, Optimism and chains based on Optimism’s tech stack such as Base, have seen the biggest reduction in fees.
Spot ETH ETF Approval Outlook Turns Cooler
After the strong debut of the spot bitcoin ETFs, investor attention turned toward when spot ether ETFs might soon receive regulatory approval. The SEC has a May 23 deadline to make a final decision on the first of the spot ETH ETF applications. However, Bloomberg ETF analyst Eric Balchunas this week revised his estimate downward of the likelihood of an SEC approval in May. He now wagers a 35% chance of approval by the deadline, compared to his projection in January of a 70% likelihood.
Balchunas said that while the probability has halved, it is not zero, and an approval may still happen in the long term. Other experts, including James Seyffart and Jake Chervinsky, chief legal officer for the Valiant Fund, echoed Balchunas, noting minimal activity from relevant parties and concerns about the SEC's apparent reluctance to engage in necessary discussions for approval.
Bitcoin ETFs Adapt to Competitive Landscape
Issuers are adjusting fees and launching spinoffs amid the booming market for spot bitcoin ETFs, which have collectively amassed over $55 billion in assets under management within two months of their launch, signaling a positive shift in Main Street investor sentiment as well as market dynamics within the cryptocurrency space.
VanEck has cut the fees to zero for its spot bitcoin ETF, with the ticker HODL, opting to waive management fees entirely for a year. The move was a strategic response to a competitive market that has been dominated by BlackRock’s iShares spot bitcoin ETF.
And it worked. The fee reduction spurred a surge of investment, with HODL experiencing a record-breaking $119 million in inflows on the day following the announcement.
Meanwhile, Grayscale Bitcoin Trust, which has experienced outflows partly due to its comparatively higher fees, filed with the SEC to create the Grayscale Bitcoin Mini Trust, a spin-off that would offer a lower-cost alternative to its flagship product. GBTC has seen outflows of over $11 billion since its conversion into an ETF.
Court Denies Genesis, Gemini’s Motion to Dismiss SEC Suit
In a significant legal development, the U.S. District Court for the Southern District of New York has rejected motions from Genesis and Gemini to dismiss a lawsuit filed by the Securities and Exchange Commission. The SEC alleges that the two crypto firms offered and sold unregistered securities products through the Gemini Earn program. Judge Edgardo Ramos, presiding over the case, ruled that the SEC's complaint was plausible enough for the case to continue to court.
The Gemini Earn program at the heart of the case promised retail customers up to 8% interest on tokens invested through the platform. Gemini Earn withdrawals were halted when its lending partner Genesis struggled to meet demands amid the market turbulence triggered by the collapse of FTX and Alameda Research. Gemini then terminated the Earn program, leading to the SEC's lawsuit alleging billions of dollars were collected from investors without adequate risk disclosures. The legal case is unfolding alongside Gemini's commitment to reimburse affected customers up to $1.1 billion as part of a settlement with the New York State Department of Financial Services, coupled with a $37 million fine for compliance shortcomings.
The denial of Genesis and Gemini's motions to dismiss continues the legal confrontations between major players in the crypto industry and regulatory authorities. The SEC has also initiated legal action against crypto exchanges Coinbase, Kraken and Binance over alleged illegal securities offerings. Notably, Binance has settled with other regulatory bodies for various violations, but its case with the SEC remains ongoing.
Former Binance CEO Told to Surrender Passport
Former Binance CEO Changpeng Zhao, aka CZ, was ordered to surrender his passport under a modified bail bond ahead of his sentencing hearing. According to court documents filed with the U.S. District Court in Seattle on March 11, Zhao now has to inform pretrial services before conducting any interstate travel within the United States and surrender his Canadian passport to a third-party who is under the supervision of his counsel.
These modifications mark the second change to Zhao's bail bond. He was previously forbidden from leaving the U.S., overturning an earlier agreement that would have allowed him to travel to the United Arab Emirates. Zhao had offered his $4.5 billion stake in Binance as security for his return, but a judge wasn’t convinced.
Zhao's legal troubles stem from his guilty plea to violating the Bank Secrecy Act and failing to maintain an effective anti-money laundering program at Binance. As part of his plea deal, he stepped down as CEO, and Binance was fined $4.3 billion. Currently released on a $175 million bond, Zhao awaits his sentencing hearing, originally scheduled for February 23 but postponed to April 30.
Bitcoin Fog Operator Found Guilty of Conspiracy, Money Laundering for Darknet Markets
In other crypto-related courtroom news, Roman Sterlingov, the Russian-Swedish national standing trial in the U.S. for his alleged involvement with bitcoin mining protocol Bitcoin Fog, has been found guilty on charges related to conspiracy, money laundering and operating an unlicensed money transmitting business. The verdict in the U.S. District Court for the District of Columbia leaves Sterlingov facing a maximum of 50 years in prison. His sentencing is scheduled for July 15.
Prosecutors argued that Sterlingov operated Bitcoin Fog from October 2011 to April 2021, facilitating the laundering of approximately $400 million predominantly sourced from darknet markets engaged in illicit activities such as drug trading and identity theft. The court determined that Sterlingov marketed Bitcoin Fog as a tool for anonymizing bitcoin transactions to evade law enforcement, charging fees primarily to users of darknet markets like Silk Road, Agora, and AlphaBay.
The defense team had argued that prosecutors failed to conclusively prove Sterlingov's connection to Bitcoin Fog, and they questioned the jurisdictional reach of the U.S. government in an international case. Sterlingov's attorneys plan to appeal the verdict.
UK Judge Rules Craig Wright Is Not Satoshi Nakamoto
A U.K. judge has declared that the infamous Craig Wright is not Bitcoin creator Satoshi Nakamoto. Wright was sued by the Crypto Open Patent Alliance (COPA) over alleged forgeries in attempts to claim he is the creator of Bitcoin.
Judge James Mellor made some stark declarative remarks prior to issuing his final ruling. “First, that Dr. Wright is not the author of the Bitcoin White Paper,” said Mellor. “Second, Dr. Wright is not the person who adopted or operated under the pseudonym Satoshi Nakamoto in the period 2008 to 2011. Third, Dr. Wright is not the person who created the Bitcoin System. And, fourth, he is not the author of the initial versions of the Bitcoin software.”
Wright’s public claims of being behind the pseudonymous author of the Bitcoin white paper began all the way back in 2016 in an interview with the BBC. The veracity of Wright’s claims has long been strongly disputed by bitcoin users, as he has never been able to provide cryptographic signatures related to addresses presumed to belong to Satoshi.
Elon Musk Teases Possibility of Buying a Tesla With DogeCoin
Speaking at an event at a Tesla factory in Germany on Wednesday, Elon Musk was asked,
“When can you buy a Tesla with Dogecoin?”
Musk answered, “You know, at some point, I think we should enable that,” in a video originally uploaded by X user @dogeofficialceo. “You can buy Tesla merch with Doge, which is cool. So, Dogecoin to the moon.”
Crypto Enthusiasts Raise Nearly $690,000 to Put Dogwifhat Meme on Las Vegas Sphere
Ending things on a lighter note, nearly $690,000 in funds were raised to put the Dogwifhat meme on the Las Vegas Sphere, a massive spherical entertainment venue with LED displays that wrap around its interior and exterior. The popular Dogwifhat meme features the image of a Shiba Inu puppy sporting a pink woven beanie.
Donors to the cause transferred USDC stablecoins into a multisig wallet controlled by five individuals. The fundraiser exceeded its target of $650,000 to reach a total of $688,469 within a few days. WIF, the Solana-based memecoin associated with Dogwifhat, surged along with the fundraiser to become one of the most actively traded assets on Solana-based decentralized exchanges.