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The developers of Cosmos will organize a community vote on Oct. 31 on a crucial proposal that aims to introduce a new security model for the network’s central blockchain, which is called the Hub. The governance vote had been planned for Oct. 24, but was postponed.

Cosmos is an interoperability network whose ecosystem contains several chains. These chains can interact with one another using the Inter Blockchain Communication (IBC) protocol via the Cosmos Hub.

Cosmos’ developers released a whitepaper document in September proposing new functionalities for the Cosmos Hub, including a mechanism called interchain security.  This mechanism would allow application-specific chains in the Cosmos ecosystem to rely on Hub validators for security. In other words, interchain security is meant to allow certain Cosmos chains to secure themselves using the Cosmos Hub.

The whitepaper also proposed a change to the Cosmos Hub’s native token, ATOM, to make it a collateral asset of choice on the entire network, which is being called ATOM 2.0. This will be put to a vote also. If the changes are approved, they will mark the transition of the Cosmos Hub into an infrastructure service platform, according to its developers.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Matter Labs, developer of Ethereum scaling solution zkSync, said it’s working on a Layer 3 chain called Opportunity.

The Layer 3, still in the initial development phase, is aimed at further improving the scalability of zkSync’s blockchain infrastructure.

Opportunity will be an additional off-chain computation layer on zkSync’s Layer 2 main network. Building on top of zkSync, the Layer 3 is meant to help lower Ethereum scalability and gas costs. Matter Labs said “zkSync’s EMV-compatible Layer 3 proof of concept ‘Opportunity’ will come to life in the first quarter of 2023, bringing a starfield of 10X moments to Ethereum.” 

The team plans to release a proof of concept for its Layer 3 in the first quarter of 2023. This comes just as Matter Labs launched the first phase of its zkSync 2.0, called baby alpha, an Ethereum Virtual Machine (EVM)-compatible ZK-Rollup. 

Notably, zkSync developers are not the first to consider launching Layer 3. Last year, StarkWare revealed the concept and a planned ecosystem of multiple Layer 3s, each dedicated to various use cases.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The Blockchain Association has filed for permission today to submit a brief in the legal battle between the Securities and Exchange Commission and Ripple Labs that would give further context on how the agency’s arguments in the case could affect the wider crypto industry.

If approved, the accompanying amicus curiae brief containing the group’s arguments would be taken into account as the court weighs a summary judgment. These types of briefs can offer context and insight on the facts at hand, but cannot introduce new facts or evidence into the case.

The case, before the U.S. District Court for the Southern District of New York, recently reached the summary judgment stage, with both sides arguing that a trial isn’t necessary since the facts are not in dispute, and instead asking a  judge to rule on the facts that have already been presented. The Blockchain Association, a Washington, D.C.-based advocacy group, is seeking to give context to the wider effects the ruling could have for the crypto industry. 

“It is no exaggeration to say that a ruling in this case, if not cabined to the particular facts and legal issues that are minimally necessary to decide this case, could have an extremely adverse effect on a trillion-dollar industry, and one that — given the limitless possibilities of blockchain technology — might reflect a significant portion of the future of the American economy,” the Blockchain Association said in a filing supporting the submission of the brief.

The proposed brief includes examples from the industry that illustrate how tokens are used in practice outside of the bounds of what’s considered an investment contract. 

The SEC first brought a case against Ripple in 2020 over allegedly failing to register its XRP token as a security. Since then, the legal process has seen the SEC argue that XRP qualifies as a security not only during the initial issuance of the token, but also as it continues to be sold on secondary markets. 

“The SEC’s draconian view that a token initially sold in an investment contract continues to be inextricably linked with that investment contract when it is subsequently transferred — even when any legal rights between the issuer and the initial purchaser are not transferred with the token — would destroy nearly an entire industry,” the amicus brief said. 

The brief seeks to provide context on how much of the industry could fall under what it perceives as ill-defined regulations for how tokens are used. It also takes issue with the SEC’s “pattern of ‘regulation by enforcement'” and “history of inconsistent, incomplete, and confusing public statements.” 

“The SEC’s position that market participants can simply follow the securities laws falls flat, because the securities laws do not contemplate how an asset that may have been issued as a security can exist when it is no longer attached to any form of investment contract, a crucial consideration when attempting to apply [the Howey Test].”

The Blockchain Association’s request joins a number of other groups’ attempts to submit their amicus arguments, including a coalition of XRP holders and an XRP-focused payments app called SpendTheBits Inc. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Digital asset management platform Bakkt will take a $1.3 billion-$1.4 billion impairment in the third quarter, an Oct. 28 Securities and Exchange Commission (SEC) filing shows. 

Its majority stakeholder, Intercontinental Exchange (ICE), said in the filing that it plans to have brought down its investment in Bakkt from $1.5 billion at the end of June to about $400 million at the end of September. The resulting charge will not affect adjusted earnings, ICE said. 

Bakkt also plans to record a charge of between $150 million-$160 million on “certain indefinite-lived intangible assets,” according to the filing. 

Bakkt, launched in 2018, merged with the special purpose acquisition company VPC Impact Acquisition Holdings in October 2021. It went public via the New York Stock Exchange (NYSE) on Oct. 18, 2021. ICE owns the NYSE.

The company reported a net loss of $27.6 million in the second quarter, down from a net loss of $43.3 million in the first quarter. Bakkt said in August that it expected quarterly net losses during the year as it continued to invest in the business. 

Bakkt’s C-suite has seen significant shakeups in the months after going public. The company’s former Chief Operating Officer Adam White announced he was leaving in December 2021, joining Blackstone as a senior adviser in August. Then, the company’s Chief Financial Officer Drew LaBenne announced his departure in May. Karen Alexander assumed the role on an interim basis on May 23, and officially became CFO on Aug. 9. 

Bakkt will announce its third-quarter results on Nov. 3. Its shares fell from a high of around $50 to about $2 today.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Quick Take

• In this weekly series, we dive into some of the most interesting data and developments across the Layer 1 blockchain landscape, from DeFi and bridges to network activity and funding
• The anticipated launch of the Move-based L1 chains Aptos and Sui has captured significant market attention in 2022, partly due to curiosity over the expected performance enhancements and novel user experiences enabled by the MoveVM
• After an initially chaotic token and mainnet launch stemming from a lack of clarity over APT tokenomics, the Aptos ecosystem is now well underway in terms of building out the core DeFi products necessary for enabling capital flexibility and user growth
• In just a short period of time after launch, a few key pieces of infrastructure have already enabled capital to flow freely into the ecosystem, at the same time revealing some of the unique challenges that will need to be addressed in order to facilitate user and developer migration from EVM chains

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Quick Take

• Share prices for most bitcoin miners rose in the markets on Friday.
• Digihost Technology, Stronghold Digital Mining and Hut 8 were among the most well-performing stocks.
• Bitcoin mining stocks also went up over the course of the week.

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Crypto firm Genesis saw a steep decline in its loan originations and trading volumes in the third quarter of the year, following several tumultuous months for the crypto industry marked by bankruptcies and crashes at a number major companies, the firm said in a quarterly report.

“Heading into the fourth quarter, the cryptocurrency market is lacking directional momentum as participants are taking stock after a beleaguering summer of endless negative headlines,” Genesis said in its quarterly report. “Genesis remains prepared for a sustained crypto winter in light of such powerful macro headwinds.”

Loan originations at Genesis were down to $8.4 billion in the third quarter of the year, which spanned July 1-Sept. 30. That’s an 79% drop from $40.4 billion in loan originations in the previous quarter. Genesis did not respond to a request for comment. 

Genesis also saw a smaller  decline in trading volumes. Spot trading declined from $17.2 billion in the second quarter to $9.6 billion in the third quarter, a 44% dip.  

Several Genesis executives have stepped down in recent months. Former CEO Michael Moro left the firm in August and former co-head of sales and trading Matt Ballensweig left in September. Former Chief Risk Officer Michael Patchen departed in October.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

MassMutual is among the creditors identified by bitcoin miner Core Scientific, which said this week it would not make payments due starting in late October and may consider bankruptcy.

The miner owes about $1 billion to an array of companies including crypto lender BlockFi, investment banking firm B. Riley, crypto financial services firm NYDIG and Anchor Labs, the parent company of digital asset bank Anchorage Digital.

“In the event of a bankruptcy proceeding or insolvency, or restructuring of our capital structure, holders of the company’s common stock could suffer a total loss of their investment,” the company said in a U.S. Securities and Exchange Commission filing. Core Scientific acknowledged that it might be sued as a result of missed payments.

BlockFi chief risk officer Yuri Mushkin told The Block that the firm has not underwritten a new loan in the mining sector since the spring of 2022, adding that mining-backed loans are still a minority portion of its larger lending portfolio.

“BlockFi holds risk capital reserves to protect against potential loan defaults, which includes mining-equipment finance business,” Mushkin said in a statement. “Furthermore, our credit risk management team closely monitors the bitcoin mining sector and regularly speaks with the borrowers in the portfolio.”

A large portion of Core Scientific’s loans were taken out to finance hardware and infrastructure improvements, most starting in the second half of 2021, when bitcoin prices were on the rise (reaching a peak of nearly $70,000 in November) and miners were racing to grow their operations.

Most of the debt matures in 2025, as highlighted in this analysis by The Block Research.

Core Scientific’s woes reflect the same struggles others in the industry have dealt with in 2022: a spike in power costs, a decline in the value of bitcoin, and a corresponding rise increase in mining difficulty.

In June, several miners that traditionally held most of the bitcoin they mined began liquidating large portions of their holdings to pay down loans. Core Scientific, for instance, sold 7,202 BTC, which at the time represented about 90% of its holdings.

The largest loans and promissory notes taken out by the miner came from B. Riley, MassMutual Barings and BlockFi, to which it owed $75 million, $65.6 million and $60.7 million, respectively, as of June 30. Barings is an international investment management firm owned by parent Massachusetts Mutual Life Insurance Co., which is widely known as MassMutual.

The Block reached out to Core Scientific’s list of creditors for comment. Trinity Capital said in a statement: “This event is very current and fluid and we are working with the company to find a workable solution for all stakeholders.” Anchorage and B. Riley declined to comment.

Core Scientific’s stock price slumped almost 80% on the market on Thursday, with its shares now trading below $0.20.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Maker founder Rune Christensen was at the heart of a governance vote that aims to shake things up with the way the DAI stablecoin issuer operates, but some critics claim the founder put his thumb on the scale to pass the measure.

The MakerDAO community on Monday passed Christensen’s “Endgame” proposal and with it set the stage for a new governance architecture for the DAO. Endgame, when implemented, will break up MakerDAO into smaller clusters called “MetaDAOs.” MakerDAO currently operates along a number of strategic core units tasked with different functions. These units are all under the governance of the DAO.

However, things will change under the new paradigm of MetaDAOs once they are implemented. MetaDAOs will function independently from one another and they will have their own parallel governance structure. This governance structure will include separate tokens and decision-making architecture for each MetaDAO. One of these MetaDAOs will even handle Maker’s push into real-world asset investments.

Monday’s poll ended with 80% of the votes cast in favor of the Endgame plan. However, Christensen’s influence was keenly felt in the voting process. More than 70% of the “yes” votes cast by delegates were from voting blocs with ties to the Maker founder. This has raised issues about governance centralization.

Some DAO members in opposition to the vote accused Christensen of “organization capture” — a situation where a special interest takes precedence over the general interest of a group, which can lead to a net loss. “We are first and foremost opposed to the manner, methods, and lengths Rune has used and reached to attempt total personal control of the outcome of this vote and MakerDAO as a whole into the future. For that reason alone, we vote no,” stated ACREinvest on the governance forum, adding, “If there are any merits within this take-it-or-leave-it massive bundle of fundamental organization changes, even these are irreparably tainted when implemented in this manner.”

Monday’s vote only passed the Endgame prelaunch process. There are a few steps that will follow before the vision is implemented on the DAO as a whole. Core units will soon need to begin “clustering” to form their own MetaDAOs while the DAO gets ready to split into smaller groups.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Matter Labs has launched the Ethereum scaling solution zkSync on mainnet in what it’s calling a “baby alpha” phase, meaning access will initially be very restricted.

With the release of zkSync 2.0, the network — going beyond the testnet currently in use — has attained the ability to host smart contracts, letting developers deploy DeFi protocols, NFTs and other types of applications.

This is a much-anticipated launch because the scaling solution uses zero-knowledge technology while also being natively compatible with Ethereum applications. This compatibility is what will make it easy and quick for developers to port applications from the Ethereum mainnet to zkSync. In technical terms, it’s called a “zk-EVM.”

“zkSync 2.0 launch is going to be the first zkEVM to go into production, which would likely kick start the race for the most optimal zkEVM. As zkEVM matures, it would be able to onboard a significant portion of the Ethereum community and provide the much needed scaling for Ethereum,” said Arnold Toh, a research analyst at The Block.

When will the network be fully accessible?

For the first month, the network will operate without any external applications open for use, nor will any external participants be able to use it. The team explained that the initial phase is only meant for stress testing and security efforts.

After this is completed, the next phase is called “fair alpha.” This is where developers will be able to port onto zkSync and start building on the network. More than 100 projects have shown interest in deploying their apps on zkSync 2.0, including DeFi protocols like Uniswap — the largest decentralized exchange by volume.

The final phase will be when the network is fully open to everyone. This is expected to happen at the end of the year.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.