Ethereum ETF Reversal: New All-Time High Soon?

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Good Morning.

Is there a more entertaining market than an industry whose mood can change 180 degrees in under 4 hours? I dare you to find one. Anyway, the market’s mood is back and the bull cycle timeline might have been pulled forward thanks to the unexpected potential approval of the spot Ethereum ETF.

YAHTZEE indeed!

In Today's Email:

• What Matters: Ethereum ETF reversal 📈 

• Case Study: L3 outage post-mortem 🚨

• Governance & Features: Fantom’s Sonic Network 🔵 

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WHAT MATTERS

Ethereum ETF Approval Odds Rise Following SEC Request for Amended 19b-4 Filings

State of play: The chance of Ethereum ETF approval increased following the SEC’s Trading and Markets Division instruction for asset managers to amend and refile their 19b-4 filings, as reported by CoinDesk and WSJ.

• Bloomberg’s ETF analysts Eric Balchunas and James Seyffart increase their odds of Ether ETF approval from 25% to 75%.

• Standard Chartered predicts approval of ether ETFs this week, anticipating $15B to $45B in inflows in the first year.

• Standard Chartered also says that ETH could hit $8,000 by EOY.

• Open Interest in ETH futures on CEXs has hit a new high, reaching $14B.

• According to CoinGlass, this marks a record in USD and represents over a 40% increase from the beginning of 2024.

What’s next: When the SEC asks for funds to do this, it's almost always a positive signal that the ETF will be approved.

• However, for ETF launches, the SEC must approve both 19b-4s (exchange rule changes) and S-1s (registration statements).

• Nate Geraci argues that the SEC could approve 19b-4s and delay S-1s, particularly if engagement is low.

• Grayscale and Fidelity have removed the staking proposal from its spot Ethereum ETF filing.

Why it matters: Despite their generally anti-crypto stance, some Democrats opposed the SAB 121 rule, signaling an increasing acknowledgment of crypto's significance in the election.

• Simply put - Democrats don't want to lose just because of crypto.

• The anti-crypto folks (Warren, Gensler, etc.) are under massive political pressure.

Our take: Market volatility suggests that this development was unexpected, potentially signaling the start of the next bull market phase.

Visit Marco’s thread to read our complete take on this matter.

For builders and investors: Let’s hope for the 2nd leg of the bull market.

CASE STUDY

Conduit L3 Post-Mortem

State of play: Conduit released a post-mortem explaining the outage of two L3s (Degen and Proof of Play).

Here’s a summary of what happened from @0xCygaar:

• The outage was caused by a combination of a significant increase in onchain activity and a misconfigured attempt to push the boundary of what a DA layer can handle.

• A change was applied to reduce tx costs. The change increased a batch size parameter to what was assumed to be a safe value, but it wasn’t.

• Testing simulations didn't catch this issue because the simulated tx was compressed more than expected. As a result, a re-organization of the blocks occurred.

• The re-organization was so large that it also corrupted an internal database, forcing Conduit to unsynchronized each chain from genesis (block 0).

• Conduit plans to increase its alerting and monitoring systems and add a safety harness to the code to prevent the same issue from happening.

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INSIGHTS

Gala Loses $200M+ in Potential Exploit

Gala Games, a Web3 gaming project, experienced a security breach on Monday, according to data on Etherscan. The breach resulted in the unauthorized minting of 5B GALA tokens valued at ~$206M.

• Following the incident, GALA plummeted more than 20% from $0.0481 to $0.0375.

• Currently, GALA is trading between $0.046 - $0.045.

• In early 2021, Gala lost $130M after around 8.65B GALA tokens were stolen.

• Eric Schiermeyer, one of the firm's co-founders, sued Wright Thurston, the other co-founder, for allegedly participating in the hack.

• Thurston issued a counter-lawsuit against Schiermeyer, claiming he had used company funds for personal use.

• Schiermeyer was the co-founder of Zynga. Gala’s third co-founder, Michale McCarthy, was also the creative director of Zynga.

According to a new report, the exploiter has returned $22.5M (5.913 ETH) of the stolen fund.

FEATURES & GOVERNANCE UPDATE

Fantom’s New Frontier: Sonic Network

Fantom posted a new forum discussion that focuses on the future of Fantom and initiates a series of governance votes regarding its new network, Sonic.

• Sonic Network, with a native token utilizing the ticker $S, will be a new L1 chain with a native L2 bridge connected to Ethereum and beyond.

• Holders of $FTM will be able to migrate their tokens to the $S token at genesis in a 1:1 ratio, pending the results of a first governance vote.

• The Sonic chain will use a new secure bridge architecture to enhance user and dApp performance over the current Opera network.

• Fantom Foundation has allocated hundreds of millions of FTM from its treasury for Sonic’s marketing and ecosystem development.

• A series of governance votes will determine community support for proposed changes, including airdrops, liquidity boosts, and grants.

Other notable feature updates:

• BounceBit launched its mainnet.

• Pear Protocol launched public beta.

• Morpho Labs introduced Public Allocator.

• Vertex launched two new Index Perp products.

• Aevo has completed the RBN→AEVO migration.

• Limitless Finance launched its mainnet on Base.

• CyberConnect transitioned into a social L2 and rebranded to Cyber.

QUICK BITES

• Trump accepts crypto donations.

• Gala hacker returns $23M in ETH.

• Binance Labs discloses investment in Aevo.

• Coinbase plans to launch gold and oil futures trading.

• Phantom acquires a16z-backed Bitski wallet platform.

• DTCC added VanEck’s proposed spot ether ETF to its website.

• Uniswap Labs urges SEC to drop pending enforcement action.

• US prosecutors want Ryan Salame to serve 5-7 years in prison.

• Exchanges told SEC leaning towards approval of spot ETH ETFs.

• Fidelity files amended S-1, removing staking from ETH ETF filing.

• ZkSync plans token generation this week with airdrop in mid-June.

• Yuga Labs won’t touch CryptoPunks amid new collection backlash.

• Several Democrats petition colleagues to join ‘yes’ on the crypto bill.

• Coinbase, Meta, and Ripple form a ‘coalition’ to combat tech scams.

NOTEWORTHY READS & MEME

• Arthur Hayes’ read on the easy button.

• Flashbots’ read on cross-chain batch DEX.

• Alex Kruger’s read on how to trade the ETH ETF approval.

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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.