On this week’s episode of Galaxy Brains, I talk with Arjun Sethi, GP at Tribe Capital and Co-CEO of Kraken, one of the world’s biggest and oldest crypto exchanges, about markets, regulatory shifts, and institutional adoption of bitcoin.
In the newsletter we write about a stablecoin act passing the House Committee, DTCC announcing a new blockchain solution for tokenization and securities settlement and clearing, and EY upgrading its Nightfall rollup to ZK architecture.
Have a great weekend,
Alex
Market Update
Data via Messari as of 8:00 AM 4/4/25
The total implied network value (market cap) of the digital assets market stands at $2.72tn, down 8.1% from last week (when it stood at $2.96tn). Bitcoin’s network value is 7.5% of gold’s market cap. Over the last 7 days, BTC is down 3.11%, ETH is down 5.5%, and SOL is down 12.1%. Bitcoin dominance is 62.9%, up 114 basis points from last week.
Stories of the week
001
💵 STABLE Act Advances in House
On Wednesday, April 2, the House Financial Services Committee passed the bipartisan STABLE Act in a 32-17 vote, with six Democrats voting with Republicans. As we noted in last week’s newsletter, the STABLE Act aims to define a regulatory framework for companies issuing dollar-denominated digital tokens.
With both the Senate and the House advancing their own versions of the stablecoin bill, the next step is reconciling the two, a process expected to unfold over the next two months. While the bills share roughly 80% overlap, they have a few key differences. On licensing, the House version permits state regulators to retain oversight of stablecoin issuers if the states have equivalent strictness as the Feds, whereas the Senate bill mandates federal regulation for stablecoin issuers with over $10 billion in assets. Another distinction is the treatment of foreign issuers, where the House version includes tougher language targeting offshore firms like Tether, for concerns about transparency and systemic risk.
Also this week, on Tuesday, April 1, the second largest global stablecoin issuer Circle filed for an S-1 seeking approval to become a publicly listed U.S. equity, aiming for a valuation of $4-5 billion. This is Circle’s second attempt to go public, following a failed effort in 2022, but this time within a more favorable regulatory environment.
Our Take
As stablecoin legislation advances rapidly and Circle’s IPO moves forward, competition in the stablecoin market is intensifying, particularly between the two leading issuers, Tether and Circle. Tether currently dominates the space with approximately 63% of total stablecoin supply, but it operates as an offshore issuer and has faced scrutiny over its limited transparency. In contrast, Circle is a US-based issuer holding around 25% market share and publishes monthly attestations of its reserves. This regulatory contrast is worth watching, as proposed legislation includes provisions that could affect the treatment of unregistered, offshore stablecoins within US financial markets.
Rumors are circulating that Tether is considering issuing a domestic token in the US to comply with new rules. At the same time, Tether has become the 7th largest foreign net buyer of US Treasuries in 2024. That gives it considerable influence, especially as the current administration focuses on managing the national debt.
Aside from Tether and Circle, other institutions are increasingly eyeing the growing opportunities in the stablecoin space. Fidelity is reportedly testing its own stablecoin, and Trump-affiliated firm WLFI has announced plans to launch stablecoins as well. Even the state of Wyoming is working with LayerZero to develop its own stablecoin initiative. As more players enter the field, now the real question is who can seamlessly integrate stablecoins into traditional financial infrastructure and scale their use in real-world applications. USD-backed stablecoins have a chance to be a massive phenomenon that reshapes the global monetary order, potentially extending dollar dominance significantly and creating a strong buyer base of U.S. Treasurys at a time when the geopolitical landscape is becoming more multipolar. In that sense, the expected growth of stablecoins is a fascinating cross-current to the shifts in international trade and power.– Jianing Wu
002
🏛️ The DTCC Adopts Blockchain Tech
The Depository Truest & Clearing Corporation (DTCC), the primary US securities clearing and depository entity, launched a blockchain based platform for tokenization of real-world assets this Wednesday.Built on DTCC’s AppChain, which utilizes the Linux Foundation’s Besu blockchain client and the DTCC ComposerX system, the platform is designed to improve capital efficiency and liquidity while bridging traditional financial assets with the emerging digital asset space.
The DTCC has a virtual monopoly on US securities clearing, with most large US broker dealers and banks depositing all securities they and their clients own. The latest numbers from DTCC for 2023 put their assets under custody >$81 trillion, and value of transactions processed at $3.0 quadrillion. In practice, this means the DTCC is the central location for all securities transfers in the United States, with most securities never leaving DTCC custody, and only changing hands on paper on DTCC’s records.
The DTCC chose the Linux Foundation’s Besu blockchain platform to launch their tokenization initiative. Besu is an enterprise-grade, open-source, Ethereum client that supports multiple consensus methods, private and public deployments, and enhanced tooling for permissioned products. The DTCC’s platform isn’t public at the moment, but is slated to be demoed on April 23rd at the DTCC event titled, “The Great Collateral Experiment”. From the functionality the DTCC advertises on their digital launchpad, we can see that they plan on deploying tooling for most of the lifecycle of a securities’ life from tokenization infrastructure for funds, to data standards and management schemas, post-trade settlement solutions, and more.
Our Take
This move makes sense to us for multiple reasons. Fundamentally, the DTCC has one of the largest structural moats in securities clearing and trade processing in the world. They can defend against nearly any upstart competitor to their businesses, which makes their choice of adopting a blockchain based system update telling. The DTCC can defend against typical upstarts, but the technology behind a blockchain based ledger is a near-perfect fit to automate the vast majority of their operations, ownership and transfer records are built into the DNA of blockchains. The DTCC is trying to avoid having their position usurped by co-opting the only tech that can feasibly threaten them. Notably, DTCC recognized and embraced the potential for distributed ledgers to disrupt their business and moat as early as January 2016, when they published a seminal paper called “Embracing Disruption.”
The choice of Besu is also telling for what the intersection of traditional and crypto markets may look like. Traditional firms will piggyback on the hard work done by open-source projects that have laid the foundation for digital assets as we know them, reaping the benefits of nearly a decade of battle-tested code protecting hundreds of billions of dollars in crypto assets. Choosing Besu’s EVM and Solidity-based stack versus other chains using Rust, Move, and Go is of little surprise. Engineering choices related to smart-contract coding mean less to traditional players than the availability of battle-tested codebases to license from blue-chip DeFi protocols. Why re-invent the wheel and risk a code exploit when you can simply pay the licensing fee to Aave or Uniswap for code that has been bullet-proofed and tempered through multiple crises?
We are at an inflection point where the open, permissionless DeFi ecosystem has proved its worth. The value proposition is clear, and traditional finance sees the writing on the wall. The next steps may not be a bank-less future aligned with cypherpunk values, but a permissioned extension of the traditional markets on-chain. While it may not be as flashy as some other crypto projects promising the world, reducing the DTCC to a set of blockchain based functions can put the $2bn+ dollars of revenue the DTCC makes annually back into investors’ pockets. This is a productive step in moving towards commoditizing finance for all and reducing the influence of rent-seeking intermediaries. A lot of work still needs to be done on the regulatory side to make this possible, though. More to come. – Thad Pinakiewicz
003
🌙 EY Upgrades its Blockchain, Nightfall, to Zero Knowledge Architecture
Big four firm Ernst & Young (EY) announced an upgrade to Nightfall, the company’s Ethereum-based rollup, that transitions the chain from an optimistic tech stack to a zero knowledge (ZK) one. The upgrade, dubbed Nightfall_4, replaces its optimistic predecessor, Nightfall_3, whose source codes are both publicly viewable in Github. In the press release detailing the upgrade, EY explained that moving from optimistic architecture to ZK simplifies the chain’s design and functionality. The key benefit is that transactions can now reach finality at the same speed as Ethereum, its underlying layer 1, without sacrificing on the privacy preserving qualities of Nightfall_3. That upside comes from the use of cryptographic security under ZK against cryptoeconomic security under optimistic architecture, which requires multi-day to weeks-long dispute periods to resolve incorrect state changes on the chain. In EY’s case, this would require them to offer additional services to clients using the chain, like liquidity services, to bridge the time gap that are operationally cumbersome and eliminated with the changes to Nightfall’s codebase.
EY first released Nightfall publicly in 2019 as a set of protocols for enabling private transactions on Ethereum, with Nightfall_4 being the fourth iteration of the initiative. The company’s core software and service offerings in the global blockchain market, such as EY OpsChain, use Nightfall, and both are delivered through EY Blockchain’s SaaS platform, Blockchain.ey.com. The firm’s move to implement ZK into their enterprise level blockchain is a signal that it plays an important role in maintaining key qualities of traditionally offchain usecases, and possibly to mass adoption of blockchain technology by offchain companies.
Our Take
EY’srationale for transitioning from an optimistic tech stack to ZK raises key points around requirements needed for traditionally offchain companies to move onchain and the performance demands of layer 1 blockchains.
Blockchain rails are directly competing with the offchain platforms that businesses already rely on. To migrate to blockchains, companies will need to build products and services on them that at minimum match or beat the efficiency of their current offchain solutions. If these new solutions add more complexity than benefits, there won’t be a strong incentive to switch. In this context, and with EY’s upgrade to Nightfall_4, ZK rollups at least lay the groundwork for companies to address the operational shortcomings of blockchain rails as they currently stand, making them more competitive with existing offchain platforms and potentially unlocking new use cases.
EY’s move also raises questions around how performant layer 1 blockchains need to be designed in order to satisfy the demands of products built by companies on rollups and layers beyond. A key benefit of moving Nightfall_4 to a ZK stack is that the chain can “reach near-instant finality of layer-1 blockchain transactions,” highlighting that, to some extent, the guarantees provided by the rollup are bound to what the performance of the layer 1 can offer. For some use cases, the bound may be tight and require a highly performant layer 1, while others will not. Nonetheless, the performance of the layer 1 will be something companies bringing products and services onchain will consider. – Zack Pokorny
There is clear and growing interest in applying Futarchy to improve DAO governance. Inertia from the success of Polymarket has sparked questions on how this model could provide benefits to decentralized organizations.
2024 saw a monumental shift for Bitcoin and digital assets. New products, record inflows, monumental policy shifts, growing adoption, and solidification of Bitcoin as an institutional asset marked 2024.
Alex Thorn talks with Arjun Sethi, GP at Tribe Capital and Co-CEO of Kraken, one of the world’s biggest and oldest crypto exchanges, about markets, regulatory shifts, and institutional adoption of bitcoin.
Memecoin launchpad, pump.fun, officially rolled out its own dex on March 20. Over the two-week period since it launched the dex has done more than $3.5 billion in total volume, averaging $236.3 million in daily volume. The dex was created to improve the experience of creating tokens on the pump.fun platform and to build a more comprehensive suite of products under the pump umbrella. A focal point of friction in launching tokens through pump.fun was the migration of tokens meeting the needed requirements from pump.fun bonding curves to Raydium pools. This process carried a 6 SOL fee and fragmented the trading venue of the token. Now, tokens launched on pump.fun migrate to PumpSwap pools free of charge and keep their trading under a single roof – improving the trading experience for users and reducing costs for token creators.
Since launching on March 20 PumpSwap has captured 10% of all dex volume across Solana, and 16% between the dex and pump.fun. PumpSwap is showing early signs of taking activity away from Raydium, which was pump.fun’s orginal dex of choice for token migrations. Over the two-week period since PumpSwap launched Raydium’s share of solana dex activity has declined from 57% to 42%, while other dexes have seen net flat changes in dominance.
In Other News
Kristin Smith steps down as Blockchain Association CEO to lead Solana's policy push
Bybit becomes latest crypto firm to shutter NFT marketplace
Alabama, Minnesota advance bitcoin reserve plans with companion bills
Ted Cruz introduces FLARE Act to repurpose flared gas for bitcoin mining
Eric Trump backs new bitcoin mining venture with Hut 8
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