On this week’s episode of the Galaxy Brains podcast, I interviewed Aubrey Strobel of Halcyon about the various public relations blunders made by crypto companies, interesting usage of AI in advertising, and how her love of surfing overlaps with her interest in Bitcoin.
From the Galaxy Research desk, Thad Pinakiewicz published a detailed risk rating framework for institutional investors to assess DeFi protocols and crypto networks. Unlike the black-box criteria of Wall Street’s credit rating agencies, Galaxy’s scoring system is open-source, available on GitHub, and customizable to suit any investor’s risk profile and capabilities. We intend to refine this document over time and welcome feedback from the public.
In the newsletter, I discuss the significance of Tornado Cash dev Roman Storm’s conviction for unlicensed money transmission conspiracy; Zack Pokorny debunks some old canards about liquid staking tokens (which the SEC this week declared are not securities); and Lucas Tcheyan considers a recent spate of crypto M&A deals.
Have a great weekend,
Alex
Market Update
Data via Messari as of 8:40 AM 8/08/25
The total implied network value (market cap) of the digital assets market stands at $3.95tn, up 3.7% from last week (when it stood at $3.81tn). Bitcoin’s network value is 9.56% of gold’s market cap. Over the last seven days, BTC is up 0.8%, ETH is up 6.62%, and SOL is up 4.6%. Bitcoin dominance is 60.84%, down 112 basis point from last week.
Stories of the week
001
Tornado Cash Co-Founder Roman Storm Convicted on One Lesser Charge
A jury in Manhattan federal court on August 6 returned a split verdict in the U.S. v. Roman Storm trial, finding the 36-year-old developer guilty of conspiring to operate an unlicensed money-transmitting business while deadlocking on the far heavier counts of money-laundering conspiracy and sanctions evasion.
The single conviction carries a statutory maximum of five years in prison. Judge Katherine Polk Failla allowed Storm to remain free on the $2 million bond he posted before trial, and prosecutors have not yet indicated whether they will retry the two mistried counts. A sentencing date has not been set.
Prosecutors alleged that Tornado Cash, the Ethereum-based privacy application Storm helped launch in 2019, laundered more than $1 billion in stolen crypto (including funds tied to North Korea’s Lazarus Group) and presented marketing material that likened the service to “a giant washing machine.”
Storm’s lawyers countered that Tornado Cash is open-source, non-custodial software that runs autonomously; they argued the case threatened the right to publish code and that developers cannot police how strangers use privacy tools once deployed.
Our Take
Wednesday was a dark day for privacy on the internet. Although Storm avoided the most draconian punishment, the guilty verdict still criminalizes the act of shipping privacy-preserving code when the government decides it “looks like” a business.
Labeling Tornado Cash a money services business (MSB) is perplexing. First, Tornado Cash never held customer funds, charged no subscription, and lacked the organizational trappings of a business. Second, the U.S. Financial Crimes Enforcement Network (FinCEN)’s own 2019 guidance was widely read to exclude non-custodial software developers from MSB registration because they “only provides the delivery, communication, or network access services” by publishing software. Coin Center, the industry think tank, has written eloquently about this. We lean in favor of Coin Center’s argument here, but it is worth noting that the interpretation of FinCEN’s 2019 guidance is disputed, including by the DOJ. The jury’s decision to codify the DOJ’s view that neutral code distribution can be unlicensed money transmission ignores the distinction between custodial and non-custodial applications and in doing so blurs the line between speech and service.
There is still a silver lining: prosecutors failed to convince jurors that Storm conspired to launder money or violate sanctions. That outcome hands the Department of Justice a reputational bruise and leaves open the possibility that the hung counts will be abandoned.
Finally, the DOJ’s decision to continue the prosecution at all, and to make these arguments in court, shows that anti-money-laundering, Bank Secrecy Act, and other illicit finance issues are one significant area where the Trump administration is not currently changing course in the crypto industry’s favor. This is also evident from last week’s Presidential Working Group on Digital Asset Markets report, which recommended significant, pro-industry reforms across a range of topics including market structure, tax treatment, and DeFi, but was not particularly supportive of reforming the Bank Secrecy Act or the government’s implementations of it. (Not everyone in government has been quiet on this. SEC Commissioner Hester Peirce gave a speech Monday that included perhaps the most eloquent pushback on the Bank Secrecy Act we have seen from a government official.)
Ultimately, holding open-source developers liable for actions of unknown users sets a dangerous precedent. If publishing decentralized code can retroactively become a licensing violation, every engineer who improves internet privacy tools may have to wonder whether a rogue user (and a creative prosecutor) could land them in prison. If the industry wants to continue to push back on these interpretations, it should treat this case as a clarion call to shore up legal defenses, push for clear statutory safe harbors (like the Blockchain Regulatory Certainty Act, or BRCA, which specifically exempts non-custodial developers from MSB registration and was included in the CLARITY Act passed by the House last month), and double down on the argument that privacy infrastructure is as fundamental to the internet as encryption itself.– Alex Thorn
002
SEC Takes a New, More Nuanced Stance on Liquid Staking
On Tuesday, the Securities and Exchange Commission said it had determined that “certain” liquid staking activities on proof-of-stake (PoS) networks are not subject to securities law. This clarification came two months after the SEC published its views on protocol staking activities (including solo staking, self-custodial staking directly with a third party, and staking through custodial arrangements), which it also stated do not involve the offer and sale of securities. Now, whether for protocol staking or liquid staking, participants do not need to register with the commission under the Securities Act.
Our Take
The SEC’s statements on protocol staking and liquid staking mark a significant shift in its posture toward the activity, a shift that will have a range of benefits for financial markets and blockchains alike.
Representatives of prominent staking protocols have been active in Washington, D.C. over the last few months. These meetings, combined with the SEC’s statements on protocol and liquid staking, show the regulator is taking the time to speak with teams at the industry’s cutting edge to craft thoughtful and calculated guidance on crypto-related activities.
This week's statement on liquid staking also rekindled an old debate about whether such activities amount to a digitized version of rehypothecation, akin to the actions that cratered Lehman Brothers. These claims reflect a misunderstanding about how liquid protocol staking works in practice and overlook key distinctions the SEC made in its definition of “staking” in the liquid staking application.
There are a number of onchain activities with “staking” in their name. The SEC’s statements on protocol staking and liquid staking are purely in the context of “Staking covered Crypto Assets on a [proof-of-stake] Network, the activities undertaken by third parties involved in the Protocol Staking process ‒ including, but not limited to, third-party Node Operators, Validators, Custodians, Delegates and Nominators (‘Service Providers’) ‒ including their roles in connection with the earning and distribution of rewards, and providing Ancillary Services.” So, when the SEC says “staking,” it is referring to the act of staking layer-1 (L1) assets in a network validator and receiving a liquid staking token (LST) in return. The statement does not directly comment on the types of “staking” users can do with their LSTs, or any other assets, downstream of protocol staking, activities that can look more like financial rehypothecation.
In the context of liquid protocol staking as defined in the SEC’s statement, there is no “rehypothecation” in the traditional financial sense. The underlying staked assets never leave the validator they are deposited in (unless withdrawn by the LST owner). The wrapper and the underlying asset can’t be used in divergent use cases. Multiple entities can never have a claim on the same protocol staked asset. If a user deposits an LST in a lending application, the underlying staked asset is effectively taken to the application; more importantly, if a user transfers the liquid wrapper to another user, or surrenders the wrapper by other means (e.g. liquidation), they forfeit the right to claim the underlying asset, even if they minted the liquid wrapper themselves. This arrangement ensures that no more than one entity can have a claim on an underlying staked asset. Under no circumstance, assuming thoughtful and legitimate provisioning of liquid staking services, can the case be otherwise.
Moreover, there is no financial repurposing of the underlying protocol staked assets locked in validators when they are deposited with a liquid staking provider. This is a key distinction because the penalizations around staking that can result in the loss of principal (known as slashing) are entirely detached from market trends and asset prices. The penalization of one operator does not lead to cascading penalizations for other operators staking on the same protocol, as was the case with leverage unwinds that resulted from financial leverage and rehypothecation at Lehman Brothers. You get slashed if you behave dishonestly or allow your validator to go offline; these are things entirely under the operator’s control, unlike market blow-ups.
In that light, the SEC deeming protocol and liquid staking to fall outside its purview clearly shows the commission is taking the time to understand the technology’s nuances and establish guardrails conducive to its healthy proliferation. This is a breath of fresh air following the previous administration’s practice of regulation-by-enforcement and apparent incuriosity about the technology, which created an environment that hindered the growth of existing products and the creation of new ones. Notable players in the industry were sued by the SEC for staking-as-a-service products that were eventually shuttered as a result.
Those times are now behind us. The SEC’s statements have blown the door wide open for more flexible financial products (e.g. staking ETFs), and for improved LST provider quality, as adoption, and in turn scrutiny and questioning of incumbents, ramp up; for more secure networks, now that more players are cleared to participate in staking; and for more liquid, higher-quality LSTs that benefit and reduce risk in financial markets and DeFi. – Zack Pokorny
003
Crypto M&A Heats Up as U.S. Regulatory Environment Thaws
Merger and acquisition activity in the digital-asset sector continues to accelerate. This week Phantom disclosed its purchase of SolSniper, a high-speed trading and analytics platform native to Solana, while Ripple announced an agreement to acquire Rail, a cross-border payments network built around stablecoins.
SolSniper is Phantom’s third acquisition since 2024, following the purchases of Bitski (embedded-wallet infrastructure) and Blowfish (security tooling). While these acquisitions focused on making the Phantom wallet more accessible and secure, the Solsniper acquisition continues Phantom’s transformation from a simple wallet provider to a “comprehensive consumer finance platform.” In July, Phantom integrated Hyperliquid’s perpetual futures directly into its wallet, opening up a new product line for its users by significantly reducing friction for accessing perps. Now, with the addition of SolSniper, Phantom is targeting Solana’s memecoin market, which regularly accounts for more than 50% of monthly DEX volumes and the majority of Solana revenue.
Ripple's $200 million Rail acquisition adds virtual-account infrastructure and compliance rails that will broaden distribution for Ripple’s RLUSD stablecoin. The deal follows Ripple’s $1.25 billion bid for prime broker Hidden Road in April and earlier takeovers of institutional custodians Metaco and Standard Custody & Trust, bringing the firm’s cumulative spend on strategic acquisitions above $3 billion. Ripple reportedly offered to buy Circle for somewhere betweem $4 billion and $5 billion bid, but the stablecoin colossus ultimately listed publicly in July. Galaxy Digital led Rail’s Series A funding round in 2024.
Our Take
The uptick in crypto-related M&A is indubitably the result of a more favorable regulatory environment under the Trump administration and growing adoption and integration of crypto-native products such as stablecoins. This new environment is whetting the appetite for acquisitions among traditional financial firms and larger crypto players as they look to expand their offerings, grow their customer base, and position for the next phase of crypto adoption.
Crypto M&A surged in 2021, but activity tapered off following the FTX collapse and the Biden administration’s crackdown on crypto activities. Starting in 2024, however, deal count and value started rising again, with nearly 200 acquisitions and a record high in total transactions with disclosed deal value that year. Q4’24 and Q1’25 logged the highest deal counts in two years and 2025 is on pace to surpass that with over 150 M&A deals YTD, according to Pitchbook data.
Notably, activity is happening across the spectrum with crypto companies acquiring each other, crypto firms acquiring traditional firms and vice versa. Kraken’s acquisition of NinjaTrader for $1.5b in March, for example, was one of the largest crypto deals in history, with a crypto exchange buying a futures trading platform. Other notable acquisitions this year include Ripple’s $1.25 billion acquisition of HiddenRoad in April and Coinbase’s $2.9 billion acquisition of derivatives platform Deribit.
As shown by this week’s Phantom and Ripple announcements, activity is still largely opportunistic, with well-capitalized and growing crypto-native companies leveraging M&A primarily for product expansion, customer acquisition, or regulatory compliance. As expected, regulatory clarity also has a major impact on the types of deals going through, evidenced in the flurry of recent stablecoin deals beginning with Stripe’s $1.1 billion acquisition of Bridge in Q4’24.
Beyond mergers, all forms of crypto-related capital markets activities are picking up in the U.S. Crypto IPOs, which were largely halted under the Biden administration, are ramping up again with the recent listings of Circle, Exodus, and Galaxy Digital on U.S. exchanges. Crypto exchange Gemini and custodian Bitgo have also reportedly filed for future listings. At the same time, digital asset treasury companies are spawning on a weekly basis (covered in Will Owen’s recent comprehensive report), offering traditionally restricted investors compliant access to crypto exposure, while BTC and ETH ETFs see record flows.
Taken together, these trends signal that crypto has moved well beyond its experimental phase. If the current policy tailwind holds, 2025 is poised to set new highs for corporate deal-making and public-market participation, cementing crypto’s transition to a foundational layer of the global financial system. – Lucas Tcheyan
Alex Thorn talks with Aubrey Strobel from Halcyon, a communications and PR agency that focus on companies working in bitcoin, AI, and stablecoins, about all the Coinbase faux pas and other screw ups in crypto. Alex also talks with Beimnet Abebe (Galaxy Trading) about markets, employment, the Fed, and the national debt.
In Q2, venture capitalists invested $1.976 billion (-59% QoQ) into crypto and blockchain-focused startups across 378 deals (-15% QoQ). While the QoQ drop in capital invested appears extreme, an enormous portion of Q1’s $4.8 billion haul came from MGX’s $2 billion investment into Binance, the world’s largest crypto exchange and hardly a fledgling startup. Without that deal in Q1, volume would have dropped only 29% QoQ in Q2.
Fundraising for crypto venture funds remains challenging, even though the number of new funds rose slightly and capital allocated was relatively flat. The macro environment and turmoil in the crypto market from 2022-2023 have continued to dissuade some allocators from making the same level of commitments to crypto venture investors that they did in early 2021 and 2022. More recently, increased interest in artificial intelligence has also siphoned some attention from crypto investing, while spot ETFs and now treasury companies are also competing for institutional investment. In Q2 2025, the total capital allocated to crypto-focused venture funds was $1.7 billion across 21 funds. For more insights, read Galaxy Research’s Crypto and Blockchain Venture Capital – Q2 2025 report.
