$9B WBTC Custody-Ship Situation

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Good Morning.

The market continues its slow grind up. I guess technically we’re still going sideways but I’m writing this after inhaling my daily dose of hopium. Meanwhile, financial nihilism keeps on winning as PumpFun revenue in the past 24 hours is higher than the other top 20 protocols combined.

In Today's Email:

• What Matters: WBTC custody 🔐 

• Case Study: Kamala crypto stance 🤝

• Governance & Features: ARB staking 📜 

You read and share. We listen and improve. Send us feedback at [email protected].

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WHAT MATTERS

BitGo to Shift WBTC Custody

State of play: BitGo announced its plan to shift its WBTC business to a multi-jurisdictional, multi-institutional custody structure.

• WBTC custody and cold storage are currently US-based.

• As of Aug. 9, BitGo has initiated a 60-day transition to diversify custodial locations, including Hong Kong and Singapore.

• BiT Global is a regulated custody platform in Hong Kong, registered as a Trust and Company Service Provider (TCSP).

• BiT Global is a strategic partnership between BitGo, Justin Sun, and the Tron ecosystem.

• The joint venture will maintain BitGo's multi-sig and deep cold storage, but will now distribute keys across multiple global locations.

However, Justin Sun's involvement in the venture has sparked concerns within the DeFi community.

• MakerDAO’s risk team, Block Analitica, proposed the delisting of WBTC exposure due to elevated collateral risk.

• Loi Luu, the founder of Kyber and one of the initiators of WBTC, said he was surprised by BitGo's moves and argued that WBTC is “in a stable condition and doesn’t require changes to thrive.”

• Meow, the founder of Jupiter and also one of the initiators of WBTC, asserts the need for CAT (certainty, alignment, and transparency) regarding the changes.

What’s next: Sun has clarified on X, saying he’s involvement in WBTC is entirely strategic and claiming that he doesn’t control the private keys to the WBTC reserves and cannot move any BTC reserves.

• Sun also stated that he wants to discuss his involvement in the joint venture in detail to clarify his position on the project.

Why it matters: Block Analitica compared the situation with TUSD, it said Sun's involvement in the new WBTC joint venture poses an unacceptable risk.

• Since Sun took control, TUSD has faced management resignations, halted real-time proof of reserves, and significant depegs.

• Other Sun-affiliated projects, like the stUSDT substitution for Huobi’s USDT reserves, also raise concerns due to a lack of clear audits.

Our take: BitGo might be forced to find a new backer given its canceled acquisition by Galaxy Digital.

• This is a tricky situation. A multi-jurisdiction and multi-entity custody structure makes sense, given that BitGo’s financial strength is somewhat dependent on Galaxy — at the same time, Justin is a colorful character.

For builders and investors: We’re still at the beginning of making BTC a more productive asset — there are rooms to improve on and products to be created on this front.

CASE STUDY

Kamala Harris and Crypto Crackdown 2.0

Credits to Alex Thorn for the original tweets.

Bloomberg reported that Kamala Harris hired two key anti-crypto officials as advisors from the Biden administration, Brian Deese and Bharat Ramamurti, the architects of Biden’s anti-crypto crusade including Chokepoint 2.0.

• Deese famously authored the White House blog which claims to support innovation but frames their crypto policy primarily around "fraud" and "risk mitigation."

The same day the blog was published:

• The Fed extended January 3, 2023, restrictions on crypto activities to all members, including state-chartered entities.

• the Fed rejected Custodia Bank's membership and master account application.

• The coordination of these events and the National Economic Council’s role in shaping policy suggest Deese was central to "Chokepoint 2.0."

Bharat Ramamurti, who worked under Deese has extensive experience working for Elizabeth Warren, the Senate's leading crypto critic. He served in her Senate office and led economic policy for her presidential campaign.

• Robert Kuttner reported in April that Bharat and Deese were the ones who intervened to kill the stablecoin legislation.

Take a peek at our referral reward at the bottom of this issue. Share this newsletter and receive our list of 500 crypto VC individuals 👇

INSIGHTS

Hamster Kombat Criticizes VCs

The viral P2E game Hamster Kombat criticized crypto VC funding as "exit liquidity" and stated in a Tuesday broadcast that it had rejected every offer made by some of the biggest VCs in Web3.

• They stated that many projects have built audiences only to use them as exit liquidity for their backers and that it has become the norm.

• They also said that Instead of focusing on creating real value, companies often secure funding, spend it on marketing, conduct an airdrop or ICO, and then walk away, leaving users holding the bag.

• VCs have been the target of criticism for causing the low float, high FDV tokens.

FEATURES & GOVERNANCE UPDATE

ARB Staking Proposal

The Arbitrum community is voting to launch staking to unlock utility for the ARB token and increase its on-chain usage.

• Upon approval, Arbitrum would implement staking via the Tally governance system, and introduce a liquid staking token, stARB.

• The Arbitrum DAO would retain the power to turn on fee distribution and send the fees to ARB stakers.

• The current proposal does not include turning on the “fee switch”.

• The proposal is open from Aug 9 to Aug 16 and currently has a 99.16% “For” vote, which would see the proposed changes pass.

• Since the proposal went live, ARB’s price has rallied over 20% from $0.48 to $0.58.

Other notable feature updates:

• Synthetix launches USDx.

• Balancer launches CoW AMM.

• Polynomial Superchain L2 goes live.

• Zircuit L2 launches Mainnet Phase 1.

• Soul Wallet launches v1 on Optimism.

• Ore launches mining with the ORE PoW token.

QUICK BITES

• Coinbase to offer services in Hawaii.

• Grayscale launches a MakerDAO trust.

• Coinbase teases tokenized Bitcoin called cbBTC.

• Bitfarms co-founder steps down from the board.

• 3AC liquidators say Terraform Labs owes it $1.3B.

• DRW VC discloses ~$200M of crypto ETF holdings.

• Possible BitGo wallet moves $2B worth of Mt. Gox BTC.

• ezBtc convicted of gambling away millions in user funds.

• Core Scientific plans to issue $350M in debt, stock drops.

• Goldman Sachs reports $418M in spot bitcoin ETF holdings.

• DBS Bank rolls out blockchain-powered treasury tokens pilot.

• Crypto4Harris looks to ‘do a formal reset’ in engagement with the VP team.

NOTEWORTHY READS & MEME

• Safary’s read on the state of web3 growth 2024.

• HFA Research’s read on Mantra's $50M airdrop.

• Alex Thorn’s read on Kamala crypto crackdown continuation.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.