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Executive Summary 

Gone are the days when it was thought that there would be “one chain to rule them all”. Dozens of general-purpose layer-1 networks with material levels of adoption have emerged. Several layer-2 networks were recently launched into production and are rapidly onboarding users. Software development kits are making it easy for developers to deploy new application-specific blockchains tailored to one or few use cases. 

To date, cross-chain user experiences have been far from seamless. Layer-1 bridges, which are constructed on an ad-hoc basis and typically employ primitive security mechanisms, have facilitated the bulk of cross-chain flows. While they have been a necessary stop gap solution, they have also placed additional burdens on users and resulted in heightened risk. 

Over $2 billion has been misappropriated in cross-chain exploits in the past 18 months. In many cases, interoperability development organizations and financial backers have stepped in to replenish user funds. But there is no guarantee that they will continue to do so in the future. Cross-chain security is already a critical consideration for application developers and users. Leading interoperability projects analyzed in this report are employing a range of security mechanisms, which all have different trade offs, to safeguard cross-chain value transfer. 

Universal interoperability networks are improving cross-chain experiences. Leading networks facilitate value and arbitrary data transfer between ~10 to ~60 blockchains across their respective ecosystems. They are enabling developers to deploy cross-chain native applications that give users easy access to more assets and applications across many blockchains.  

On-chain data quantifies the state of the emerging cross-chain economy. In the face of broad-based crypto asset price declines in 2022, most fundamental metrics have declined meaningfully. However, the gross amount of value and information flowing cross-chain is already high. Individual interoperability networks, such as Cosmos IBC, have facilitated ~$12 billion of monthly cross-chain value transfer. 

Native tokens are expected to play an important role in decentralizing operation of interoperability networks. Given their relatively early stages of development, many interoperability networks are operated by a small number of independent entities. The impending launch of native tokens is poised to incentivize community participation, reduce development organizations’ influence in their networks, and decentralize network operation. 

Development organizations incubating interoperability networks have raised $400 million in funding in 2022.  Year to date funding in 2022 is already double total funding in 2021 (~$200 million) and forty times higher than funding in 2020 (~$10 million). Development organizations are well equipped to continue investing in developer talent to deploy their technology and expand the breadth of their networks. 

© 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 Acala network today revealed its plans to resume operations after a minting error incident suffered by its aUSD stablecoin in August.

Acala is a decentralized finance Polkadot parachain that powers the aUSD ecosystem with cross-chain functionality.

A misconfiguration incident in August relating to a new iBTC/aUSD liquidity pool caused the minting of more than 3 billion aUSD in error. The smart contract misconfiguration enabled Acala liquidity providers (LPs) to receive the error mints and repeatedly add more liquidity to receive more aUSD, leading to a depegging of the stablecoin.

A significant amount of aUSD was transferred to other Polkadot ecosystem chains and CEXs, though the Acala team confirmed that 99% of the error mints remained within the Acala Network.

Following a series of urgent governance votes, several Acala operations paused while the team investigated the issue. Subsequently, Acala recovered 2.97 billion aUSD error mints from 16 identified addresses and burned the tokens following community discussions.

In today’s announcement, Acala said “after the execution of community governance votes and publication of trace reports, all liquidity pools on Acala are re-capitalized and rebalanced.” All aUSD in circulation are also fully collateralized after the Acala Foundation borrowed aUSD with its own funds to burn and achieve re-collateralization. As such, the Acala network is ready to resume operations.

Noting that a sentiment vote to resume services passed, the Acala team recommended a phased approach. Phase 1 enables LPs to withdraw from liquidity pools. Phase 2 enables all remaining operations except oracles. Phase 3 would then activate oracles.

The Acala Foundation said it would continue to work with legal, law enforcement, and other partners to retrieve the remaining funds. A bounty of up to 5% is open to any party returning at least 95% of funds involved transferred outside of Acala. It said it would take no further action against such addresses.

© 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.

NFT marketplace OpenSea said it would automatically index NFT collections created on the Solana blockchain, making it easier for Solana-focused creators to list on the platform.

According to OpenSea, Solana-focused NFT creators will no longer need to apply to list their collections as those will automatically get indexed based on a few criteria. The first criterion is that NFT collections created with launchpads like Metaplex’s CandyMachine, Magic Eden and LaunchMyNft will be auto-indexed.

Secondly, creators who don’t rely on launchpads can expect their NFTs to automatically be supported on OpenSea’s market automatically if the collection uses a coding standard called “Metaplex Certified Collection.” That open standard aims to make it easier to identify whether certain NFTs belong to a specific collection, according to OpenSea.

“This is another step on the journey towards an open ecosystem where you can work on your project and launch permissionlessly and non-custodially,” OpenSea said in its announcement.

The auto-indexing feature on OpenSea comes amid a surge in NFT activity on Solana, which OpenSea aims to capitalize on. NFT mints on Solana have soared nearly 500% year-to-date, going from 23,000 daily mints to about 113,0000 mints as on 23 September, according to data from The Block. 

While OpenSea dominates the NFT niche on Ethereum, it is relatively still a smaller player on Solana. The Block’s data shows that NFT trading volume on Solana is dominated by marketplaces like Magic Eden, Yawww, and Solanart. 

© 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.

Crypto exchange giant hired Steven Christie to lead its compliance efforts after five years working at rival exchange Kraken as senior vice president of compliance. 

Christie transferred over to Binance back in May and is now leading a team of 750 people. Binance founder and CEO Changpeng Zhao confirmed that Christie has been working with them for several months after the Wall Street Journal published the news Friday. 

CZ indicated that the company is still seeking to fill several hundred more compliance positions. Binance’s move to expand its compliance team follows a series of warnings from regulatory authorities around the world. 

This week, the exchange announced a new global advisory board to emphasize its “commitment to compliance”.

Kraken has also had an eventful week, with Jesse Powell stepping down as CEO and making way for David Ripley, the exchange’s former COO, to take his place in the months ahead. Powell will stay on as chairman of the exchange’s board of directors. 

© 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 Harmony protocol team announced an update for its community and partners regarding its asset-recovery proposal, intending to preserve Harmony’s blockchain without minting new tokens, following the $100 million Horizon Bridge hack in June.

Harmony is an effective proof-of-stake (EPoS) sharded network with a cross-chain model that aims to make it the Layer 1 trustless bridge across all chains.

The hack exploited the Horizon Ethereum Bridge — a cross-chain bridge to migrate assets between the Harmony and Ethereum blockchains. The attackers stole BUSD, USDC, ETH, and WBTC assets worth $100 million, before swapping all tokens to ETH and proceeding to launder the funds.

Harmony offered a $1 million bounty to return the stolen funds, to no avail. Harmony’s core team then proposed a hard fork to mint billions of new Harmony ONE tokens as part of a plan to reimburse hack victims.

At the time, the core team argued against spending its foundation treasury, saying the funds were for growth and ecosystem plans. The Harmony community appeared unhappy with this proposal on the governance forum, concerned at the inflationary impact of such a mint. The proposal was subsequently withdrawn.

In the new proposal, announced today via a blog post, the Harmony team said that after listening to Harmony’s validators and community, it shared the goal of “preserving the foundation of the Harmony blockchain with 0% minting,” and now proposed to use the foundation treasury for recovery funds.

“We propose not minting more ONE tokens nor changing our tokenomics with a hard fork of the protocol. Instead, we propose deploying our treasury towards both recovery and development.”

Harmony added that in coming days it would provide a more detailed update outlining the mechanisms to deploy the funds allocated for recovery.

© 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.

Two investors holding equity in crypto lending platform Celsius filed a request on Thursday for a committee to represent their interests in bankruptcy proceedings.

Growth equity firm WestCap and Quebec’s pension fund Caisse de dépôt et placement du Québec (CDPQ) “urgently require their own fiduciary,” according to their filing. 

The filing says the need for a fiduciary is “particularly critical” considering that there are “only two groups of real economic stakeholders – the retail customers and the Equity Holders.”

The two companies are concerned that without such measures, the court case “will be inappropriately and inequitably skewed in favor of the customers to the detriment of the Equity Holders.”

Objections to the motion will be accepted until next week, and a hearing is scheduled to address the filing on Oct. 6 at 10 a.m. EDT. Celsius wrote on its Twitter account that the claims process and court appearance are projected to begin on the same date.

© 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.

Singapore bank DBS said today that it has introduced a crypto trading product for its wealth clients who are accredited investors. 

This will allow them to trade crypto at their convenience, it said in a news release, adding that it will also provide “hassle-free access to DDEx, one of the world’s first bank-backed digital exchanges.”

Previously, crypto trading on DDEx was limited to corporate and institutional investors, family offices and clients of DBS Private Bank and DBS Treasures Private Clients.

With this latest initiative, the service is now available to accredited investors in the DBS Treasures segment as well. For a start, about 100,000 of these clients in Singapore will be able to access the services offered by the DBS digital asset ecosystem.

“As a trusted partner that helps our clients to grow and protect their wealth, we believe in staying ahead of the curve and providing access to the solutions they seek,” Sim S. Lim, group executive of consumer banking and wealth management, DBS Bank, said in a statement.

DBS first announced its intention to launch crypto trading services for institutional investors in 2020. It said earlier this year that it would look to launch a digital assets trading desk for retail customers by the end of 2022.

© 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.

GitHub, the internet’s most widely used software hosting platform, lifted a ban on Tornado Cash’s open-source repositories on Thursday.

Still, the Microsoft-owned platform restored the code in “read-only” mode, making it available to only open and read the code. The move came after the U.S. Treasury clarified that sanctions against Tornado Cash did not apply to people’s ability to share and read the app’s code. 

In August, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) blacklisted the use of Tornado Cash and certain Ethereum addresses connected to the app, citing use by cybercriminals for money laundering. In response to sanctions, GitHub removed all Tornado Cash code in compliance with the regulator. 

Then on Sept. 13, the Treasury clarified that sanctions on Tornado Cash don’t stop people from sharing its code. “U.S. persons would not be prohibited by U.S. sanctions regulations from copying the open-source code and making it available online for others to view, as well as discussing, teaching about, or including open-source code in written publications,” an official Treasury post read.

Following this clarification, GitHub modified the blanket ban on the application, though the platform did not reinstate Tornado Cash’s full functionality. Currently, it remains in read only mode, so while users can open and read the code, it cannot be modified or deployed on the platform.

Launched in 2019, Tornado Cash was designed as a privacy-preserving tool intended to shield users’ financial activities that are visible to anyone on a public blockchain like Ethereum. Still, it became a tool for cybercriminals to obfuscate transactional activity of assets connected to illicit activities and funds procured from decentralized finance (DeFi) hacks.

© 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.

Episode 90 of Season 4 of The Scoop was recorded live at SALT New York 2022 with The Block’s Frank Chaparro and Research Director George Calle with Multicoin Capital Managing Partner Kyle Samani.

Listen below, and subscribe to The Scoop on Apple, Spotify, Google Podcasts, Stitcher or wherever you listen to podcasts. Email feedback and revision requests to podcast@theblockcrypto.com.

In the last episode of The Scoop, we explored why some venture capitalists are becoming reluctant to invest in token models.

However, not all VCs in the crypto space share this sentiment. Multicoin Capital — a VC whose combined crypto funds total nearly $550 million — is “primarily token investors,” according to managing partner Kyle Samani.

In this episode of The Scoop, Kyle Samani talks through some of Multicoin’s recent investments and lays out when the token model can be an effective value capture mechanism for up-and-coming crypto projects.

As Samani explains, token incentives are ideal for projects that require a large initial investment in exchange for prolonged rewards:

“If you can identify use cases where the token is incentivizing one upfront action that has long lasting or perpetual value creation elsewhere, that is a super, super compelling way to use token incentives.”

During this episode, Chaparro and Samani also discuss:

• How hidden leverage exists in crypto
• Whether or not there is a future for ‘X-to-earn’ models
• Why we might be in a ‘crypto spring’

This episode is brought to you by our sponsors Tron, Chainalysis & IWC Schaffhausen

About Tron
TRON is dedicated to accelerating the decentralization of the internet via blockchain technology and decentralized applications (dApps). Founded in September 2017 by H.E. Justin Sun, the TRON network has continued to deliver impressive achievements since MainNet launch in May 2018. July 2018 also marked the ecosystem integration of BitTorrent, a pioneer in decentralized Web3 services boasting over 100 million monthly active users. The TRON network completed full decentralization in December 2021 and is now a community-governed DAO. | TRONDAO | Twitter | Discord |

About Chainalysis
Chainalysis is the leading blockchain data platform. We provide data, software, services, and research to government agencies, exchanges, financial institutions, and insurance and cybersecurity companies in over 60 countries. Backed by Accel, Addition, Benchmark, Coatue, Paradigm, Ribbit, and other leading firms in venture capital, Chainalysis builds trust in blockchains to promote more financial freedom with less risk. For more information, visit www.chainalysis.com.

About IWC Schaffhausen
IWC Schaffhausen is a Swiss luxury watch manufacturer based in Schaffhausen, Switzerland. Known for its unique engineering approach to watchmaking, IWC combines the best of human craftsmanship and creativity with cutting-edge technology and processes. With collections like the Portugieser and the Pilot’s Watches, the brand covers the whole spectrum from elegant timepieces to sports watches. For more information, visit IWC.com.

© 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.

Galaxy Digital’s co-head of trading Robert Bogucki is leaving for investment firm Brevan Howard’s crypto arm BH Digital, according to a report from Axios. 

Bogucki joined Galaxy Digital in 2021 and worked alongside Jason Urban as co-head of trading. He previously worked in managing director roles at several banks, such as Barclays, Merill Lynch and Lehman Brothers, according to LinkedIn. 

Michael Wursthorn, a spokesperson for Galaxy, confirmed Bogucki’s departure to Axois. 

A string of executive departures

He is not the only executive on the way out of Galaxy Digital. Michael Jordan, the firm’s co-head of investments, is set to depart the firm to launch a new crypto fund called DBA Crypto. 

Jordan will join several executives from trading firm Genesis in launching the fund. Genesis has also seen a string of departures — including that of CEO Michael Moro, who stepped down on August 17. The Block also reported that Genesis has reduced its headcount by 20%. 

Crypto exchange Kraken’s CEO Jesse Powell also announced he was stepping down this week. 

The changes in Genesis’ leadership appear to be in direct response to the firm’s recent high-profile losses. The trading firm lent $2.36 billion to defunct crypto hedge fund Three Arrows Capital (3AC). Its parent company, Digital Currency Group (DCG), stepped in to take on the firm’s liabilities and made a $1.2 billion claim against 3AC.  

Galaxy Digital also had exposure to 3AC and is listed as a creditor to the hedge fund. The investment firm posted a loss of $554 million in its recent quarterly earnings report and recently terminated a high-profile acquisition of crypto custodian BitGo. 

Galaxy Digital and BH Digital were contacted for comment but did not respond by press time. 

© 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.