Stablecoin Legislation Advances in the Senate, Optimism Rolls Out Futarchy Contest in First Step Towards Governance Overhaul, and Ethereum Upgrade Pectra Delayed to Late April or Early May
On this week’s episode of Galaxy Brains, I talk with Will Foxley about the future of Bitcoin. Blockspace has grown into one of the largest Bitcoin-focused media organizations, featuring investigative journalism, a slew of popular podcasts, and a Bitcoin-development focused conference OP_NEXT, which will occur April 11-12 next month at (Micro)Strategy’s Northern Virginia headquarters.
On Infinite Jungle, Chrsitine Kim interviews Ethereum Foundation Developer Operations Engineer Parithosh Jayanthi and Ethereum Foundation Geth Developer Marius van der Wijden about the recent Holesky and Sepolia testnet upgrades. Both upgrades resulted in major hot fixes to Ethereum clients. She also has notes on the latest Ethereum developer call.
Gabe Parker published a fascinating and important overview of two proposed upgrades to Bitcoin, the OP_CTV and OP_CAT op codes. Gabe’s report provides significant insight into what these op codes are, why they might benefit Bitcoin, and why they might form the substance of Bitcoin’s next major soft fork upgrade. Bitcoin soft forks are very rare, but we wrote in December that we think consensus will coalesce in 2025 on the substance of the next upgrade, and that one or both of these op codes will be included.
In the newsletter we write about stablecoin legislation advancing in the Senate, Optimism rolling out its first experimentation with Futarchy, and a delay in Ethereum’s Pectra upgrade.
Have a great weekend,
Alex
Market Update
Data via Messari as of 10:10 AM 3/14/25
The total implied network value (market cap) of the digital assets market stands at $2.8tn, down 7.9% from last week (when it stood at $3.04tn). Bitcoin’s network value is 7.8% of gold’s market cap. Over the last 7 days, BTC is down 7.9%, ETH is down 14.4%, and SOL is down 12%. Bitcoin dominance is 61.94%, up 58 basis points from last week.
Stories of the week
001
🏛️ Stablecoin Legislation Passes in the Senate
The Senate Banking Committee advanced comprehensive stablecoin legislation to the Senate floor. The committee voted 18-6 to advance the bill, known as The GENIUS Act, with 5 Democrats voting with Republicans. Committee’s Ranking Member Elizabeth Warren (D-MA) led committee opposition to the bill, though she mostly struck a conciliatory tone during the bill’s markup, noting that this legislation is a great first step and suggesting she was close to supporting if certain additional changes were made. Several amendments were agreed to during the committee session Thursday, though many more offered by Sen. Warren and other Democrats were rejected on party lines.
Broadly speaking, the GENIUS Act creates a regulated pathway for both banks and nonbanks to issue “payment stablecoins” by striking a balance between state and federal oversight, with an issuer circulating supply threshold ($10 billion at the moment) determining when a state-licensed issuer must convert to a nationally regulated issuer. The GENIUS Act, initially introduced, by Sen. Bill Hagerty (R-TN), builds on years of work on the topic from the Treasury as well as Fmr. Rep. Patrick McHenry (R-NC) and Rep. Maxine Waters (D-CA), whose back and forth in summer 2023 helped define the contours of the policy debate. Key questions over the years have included: which regulator should govern bank and nonbank issuers, should nonbanks be allowed to register at all, should state-licensed institutions be allowed to issue vs limiting issuance to only nationally overseen firms, at what threshold should a state registered issuer be forced to become national, what should be the role of the Federal Reserve, sanctions and Bank Secrecy Act compliance rules, and questions of how to handle address whitelisting or noncompliance issuers.
The bill is making its way to a full Congressional vote as similar legislation is also advancing in the House.
Our Take
A comprehensive legalization of stablecoin issuance in the United States has never been closer. Based on the Senate Banking Committee vote count, with 5 Democrats joining Republicans to advance the bill to the Senate floor, we expect that the bill will ultimately receive more than the 60 votes required to pass the Senate overall. The widespread legalization and integration of stablecoins into the traditional payment system is expected to significantly grow their usage and thus demand for U.S. treasury bills, which by statute will comprise much of the underlying collateral. Widespread adoption of stablecoins could also significantly disrupt both payments networks and banks, resulting in faster settlement times and lower fees.
One of the biggest questions from such legislation, and one which has been the subject of fierce behind-the-scenes maneuvering and debate, has been how to handle Tether, the world’s largest stablecoin issuer. The current GENIUS Act does not force foreign nonbank issuers whose tokens are available for secondary trading in the U.S. (like Tether and USDT) to come onshore and register, though it incentivizes them to do so or their stablecoins cannot be used in interbank payments. In the current version of the bill, the Treasury Secretary does have the ability to ban such an issuer and prohibit digital asset companies (like brokers or crypto exchanges) from trading their tokens if the issuer does not have the “technological capability” to comply with a lawful sanction or seizure order, such as those issued by OFAC. However, Tether has frozen thousands of such addresses over the years, and is a registered money service business with Treasury’s FinCEN, so this noncompliance designation is not likely to affect them. Rumors and draft language at various stages of stablecoin legislative work over the years had contemplated banning offshore issuers or even seizing their underlying collateral, but this bill does neither and instead creates an incentive for offshore issuers to register in the U.S. An amendment that passed on Thursday and which we viewed does prohibit the use of non-registered stablecoins in broker dealers, DCMs, DCOs, and swap dealers, and prohibits non-registered stablecoins from being considered cash equivalents, but it doesn’t generally ban USDT or force them to register in the U.S.
Still, we view the current language as a victory for the world’s largest stablecoin. Whether Tether chooses to come onshore and register here remains an open question, though Tether CEO Paolo Ardoino was visiting Washington, D.C. and New York City over the last 2 weeks. Based on Tether’s December 31, 2024 attestation, USDT is currently collateralized with about $118bn of assets that would likely qualify under the proposed framework, but about $25bn would not be considered allowable collateral under the GENIUS Act, including corporate bonds, secured loans, “other investments,” and about $7bn of BTC. Rather than divesting these assets, another option would be for Tether to create a new entity and possibly a new version of USDT specifically tailored to meet the new onshore registration requirements. Or, Tether could move some of those assets out of the collateral pool and place them on their own balance sheet somewhere. Generally, the bill has a 12-18 month grace period / implementation period, so in any case, Tether and other issuers will have some time to prepare.
Assuming the GENIUS Act, or something materially similar, does become law, it does appear the door is open to incorporate rather than ostracize Tether, which we view as positive for crypto markets broadly. – Alex Thorn
002
🤖 Optimism Rolls Out Futarchy Contest in First Step Towards Possible Governance Overhaul
Optimism opened up its test Futarchy contest with prediction markets around grant allocations across the Superchain. The market is being used as an accuracy gage for the Optimism grants decision making process, attempting to answer the question “is Futarchy a more effective way to make grant (i.e., capital) allocation decisions than existing approaches?” As a test environment, users are not sacrificing real capital to forecast which apps will have the highest TVL, though forecasters that predict the highest TVL apps accurately will receive OP token rewards. So, while users are not risking actual value, they are incentivized by monetary reward to vote accordingly, which is a central component of Futarchy. At the conclusion of the voting period, the top five applications will each receive 100k OP, about $83,000 as of March 13, grants. Optimism’s Futarchy initiative is the first of its kind in the Ethereum ecosystem and is the first major experimentation outside of Solana.
Our Take
There is clear and growing interest in applying Futarchy to improve DAO (decentralized autonomous organization) governance and other onchain decision making processes. Inertia from the success of Polymarket, which vindicated prediction markets as more accurate, responsive, and democratic sources of truth over centralized polling venues, has sparked questions on how this model could provide benefits to decentralized organizations. This shift towards prediction markets represents a fundamental rethinking of how decentralized communities can make more efficient and informed decisions about resource allocation.
With many crypto users viewing existing DAO governance and onchain decision making as broken and ripe for disruption, Futarchy emerges as a promising alternative. Although its initial implementations are mostly on Solana, its iterations on Ethereum will allow for a valuable apples-to-apples comparison with legacy DeFi DAO governance and onchain decision making processes. This comparison is particularly meaningful given the Ethereum ecosystem's longstanding maturity and established governance frameworks. As a result, the outcome of Optimism's experiment could establish a new benchmark for governance effectiveness and potentially spark widespread adoption of Futarchy mechanisms across the broader blockchain ecosystem. – Zack Pokorny
003
⚡ Ethereum Upgrade Pectra Delayed to Late April or Early May
On Thursday, March 13, Ethereum protocol developers and researchers reached consensus on a new path forward for testing the Pectra upgrade that would push out activation of Pectra on Ethereum mainnet to sometime in late April or early May. First, developers plan on launching a new long-lived public test network called Hoodi for Ethereum infrastructure providers and applications like P2P.org and Lido to test Pectra. Though the Holesky testnet has stabilized after a breathtakingly bad Pectra upgrade, there are aspects of the testnet (specifically the validator exit queue) that are still in recovery mode and will take over a year to return to normal. This is why developers will launch Hoodi on Monday, March 17 as a substitute to Holesky for testing Pectra. Hoodi will be a testnet that mimics Ethereum mainnet as closely as possible in terms of protocol specifications and parameters, as well as the validator set. Developers then plan on activating the Pectra upgrade on Hoodi 10 days after the testnet launches on Wednesday, March 26. If the upgrade goes smoothly and no major bugs are discovered in client software, developers will pick a mainnet date for Pectra activation at least 30 days from March 26 to allow sufficient time for all Ethereum stakeholders to adequately prepare for the hard fork.
Our Take
The estimations shared by developers on the most recent All Core Developers (ACD) call about when Pectra could go live on Ethereum mainnet are highly tentative and subject to change. In the aftermath of the Holesky and Sepolia testnet upgrades, client teams are working through a slew of fixes to their software, some of which are related to Pectra while others are related to protocol hardening for the consensus layer in the event of prolonged network non-finality. Developers not only want to see the Pectra upgrade go live smoothly on Hoodi before picking a mainnet date, but they also want to do further testing on Hoodi to ensure all aspects client software are functioning correctly. This means adequate testing not only for Pectra-related code but holistically for all aspects of client software, even optional pieces of software, such as the slasher, which detects slashable offenses on Ethereum and reports them to the network. Given the amount of additional testing that still needs to be completed for Pectra by both developers and the broader Ethereum ecosystem, Pectra is most likely now to go live on mainnet sometime in May, not April, at the earliest. New bugs in client software discovered on Hoodi could of course delay this timeline further. – Christine Kim
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.
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Solana’s proposal to transition from a fixed, regressive inflation curve to a dynamic stake-rate dependent one, SIMD-0228, failed to pass after the voting period concluded at the end of epoch 755. While the majority of the casted voting power voted in favor of the proposal, with 61.2% of the vote opting for “YES”, it failed to capture the two-thirds majority (66.67%) required to pass the proposal. The diversity in vote totals and the failure of the proposal to pass highlights the spectrum of thinking within the Solana community, going against the grain of common critiques of the network that it is overly uniform in thought and view of the network’s future.
SIMD-0228 was among the most widely participated in proposals in Solana history, with 72% of the network’s total stake casting a vote and 910 of the 1,304 staked validators participating. The elevated participation rate underscores the gravity of this consequential proposal, and highlights the urgency and strong beliefs Solana network participants have in the future of the chain.
In Other News
Solana proposal to cut inflation rate by up to 80% fails to pass
Taproot Wizards will finally release bitcoin ordinals collection in March
Binance founder CZ denies Trump family investment, pardon talks
U.S. Treasury Department consults crypto custody firms on safeguarding bitcoin reserve
Cboe files to allow in-kind redemptions and creations for bitcoin and ethereum ETFs
Bolivias state-owned energy firm eyeing crypto for import payments
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