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In a pre-proposal discussion post, Polygon co-founder Mihailo Bjelic argues why the mainchain should go through a major upgrade.

The engineering team at Polygon Labs has proposed an upgrade to its flagship Polygon Proof-of-Stake (PoS) sidechain to “zkEVM Validium,” a Layer 2 network secured by Ethereum.

According to the proposal, the upgrade aims to align the current Polygon PoS chain with the vision for Polygon 2.0, a future version of Polygon that leverages a specific type of zero-knowledge scaling technology called validium.

The proposal, titled “Polygon 2.0,” states its intention to utilize Polygon’s in-house zkEVM to enhance the sidechain’s security and performance while preserving its low fees. This would be separate from the team’s existing zkEVM, which was rolled out in March 2023.

Polygon Labs upgrade

Polygon Labs indicated that it envisions both the upgraded Polygon PoS and the existing zkEVM coexisting within the Polygon ecosystem. If approved, the upgrade could be implemented on the mainnet by the end of 2024.

If accepted by the community, the upgrade will mark the first time that an existing chain has added ZK proofs and transitioned to become an L2. Polygon is currently one of the most widely used blockchains in the crypto sector in terms of daily transactions and holds over $2 billion in on-chain assets.

© 2023 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.

Trading volume of Grayscale’s Bitcoin Investment Trust (GBTC) has increased 400% since asset management firm BlackRock filed for a spot bitcoin ETF. 

On June 14, just one day before the filing, the daily trading volume of GBTC was $16.1 million. That volume increased to nearly $80 million just five days after BlackRock’s filing, spiking about 400% in volume. 

Grayscale optimism

“Grayscale’s proposal to convert GBTC into a spot bitcoin ETF was rejected last year, and although Grayscale has been fighting the decision, there has been no final ruling,” said Rebecca Stevens, a research analyst at The Block Research. “Optimism around BlackRock being successful in their bid for a spot bitcoin ETF would then pave a clearer way for Grayscale to get their non-redeemable trust shares changed, too.”

The Securities and Exchange Commission rejected Grayscale’s attempt to turn its Bitcoin Trust into a spot ETF on June 29, 2022. The firm subsequently sued the SEC on the same day in an attempt to challenge the decision. 

© 2023 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.

If Democrats and Republicans don’t reach consensus on how to regulate cryptocurrencies, the U.S. will become less attractive for firms and investors as other countries move ahead with their own rules, according to a Moody’s Investors Service report.

The report comes as the House Financial Services Committee is discussing two legislative proposals to regulate stablecoins and another that more comprehensively regulates crypto. A hearing last week showed divides between the two parties on that larger picture, though there could be hope for a consensus on stablecoins. 

Despite some agreement on topics such as protecting consumers, both Republicans and Democrats have differing opinions on the process, the Moody’s analysts said.

“Failure to reach bipartisan agreement and to advance digital assets-specific legislation could make the United States comparatively less attractive for both firms and investors, particularly in a context where many other jurisdictions are moving forward with comprehensive rules,” the Moody’s analysts said in a report on Tuesday.

Market structure bill

The comprehensive market structure bill, proposed by House Financial Services Chair Patrick T. McHenry, R-N.C., would create a pathway for a digital token to go from being treated as a security to a commodity. 

Former House Financial Services Chair Maxine Waters, D-Calif, said she was concerned about consumer protection in that bill during the hearing last week.

“The bill appears to halt any enforcement actions by the SEC against crypto firms, even when they have committed fraud,” Waters said. “This provisional registration could reward bad actors with a ‘get out jail free’ card and allow them to continue harming consumers and investors.”

Stablecoin legislation

Lawmakers have also gone back and forth on a stablecoin bill since last year. Republicans have recently received feedback from Democrats and said they worked that into an updated version. Waters, too, has said she was “encouraged by the legislative process being made” on the stablecoin bill. 

“I do believe that Mr. McHenry and I have gotten a long way in dealing with stablecoins, and I’m sorry that it got interrupted somehow, but I’m looking forward to getting back and negotiating to see if we can move stablecoins forward,” Waters said last week. 

Moody’s analysts warned that the McHenry draft could possibly bring more regulatory arbitrage and harm consumers. Under the draft framework, the Federal Reserve would not be the primary supervisor of stablecoin issuers, and state regulators would supervise issuers, according to Moody’s. 

“By differentiating between bank and non-bank stablecoin issuers at the state and federal level, and by allowing each category of issuer to be supervised by a different body, the proposed framework could lead to regulatory fragmentation and create risk asymmetries between issuers since they would not all be submitted to the same set of rules, which could, in turn, increase regulatory arbitrage and harm consumers’ protections,” Moody’s said.

© 2023 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 European Commission is back on track to publish legislation on a digital euro on June 28, after the controversial topic was previously removed from the executive’s agenda, the bloc’s lead financial services official said on Tuesday.

The Cyprus-based university is building on its roster of blockchain degrees, teaching students how to design and manage virtual worlds with its Master of Science (MSc) in Metaverse degree.

Banking giant Deutsche Bank AG has applied for regulatory permission to operate as a crypto custodian in Germany, the bank said Tuesday.

The Ethereum community is engrossed in a debate sparked by a recent research proposal aimed at increasing the maximum validator balance on the network protocol from 32 ETH to 2,048 ETH. The proposal, which could make the network faster, has been called unnecessary by some.

As it currently stands, Ethereum validators must stake a flat 32 ETH, with the effective limit forcing large-scale staking operations to spin up multiple validators if they want to earn higher amounts of yield. Unsurprisingly, the practice has led to a big increase in the number of validators, and there are currently about 600,000 of them.

Michael Neuder, an Ethereum Foundation researcher and the mind behind the proposal, argues that a modification to the max validator balance would make Ethereum’s beacon chain consensus layer more efficient and catalyze a level of growth conducive to achieving “single slot finality,” a term used to describe when a block can be finalized within a single slot, lasting approximately 12 seconds, as opposed to the existing time frame of around 15 minutes.

The case for the proposal

Neuder emphasized that a large number of validators can stress the Ethereum network. Raising the validator balance cap could curb the growth of active validators, thereby boosting network efficiency and enabling finality within a single Ethereum slot.

“The consensus nodes are strained handling the current validator set,” Neuder said, tying the issue to finality issues seen last month.

Such problems could be alleviated by increasing the max validator balance, and it can benefit exchanges and staking providers like Coinbase, which presently manage numerous validator nodes due to the cap. The consolidation of validators by increasing the max limit could simplify their operations, and staking operators could manage fewer validators with higher stakes, reducing complexity. 

The notion has earned the support of some in the Ethereum community, including investor Eric Conner. He asserts that this change would simplify key management for those with multiple validators and facilitate easier reward compounding.

The proposal “makes key management and staking hassle a lot easier for those of us with multiple validators,” Conner said.

Not everyone’s in favor 

Certain analysts and developers have raised concerns about possible pitfalls of the proposal, including potential heightened penalties for unintentional double attestations, known as “slashing.”

Adam Cochran, Managing Partner at Cinneamhain Ventures, expressed apprehensions, saying that as more validator stakes are consolidated, the risk of slashing could significantly increase for validators. Cochran argued that the proposal would allow staking shops to consolidate more ETH on a single validator, leading to increased slashing risk for users. He went on to add that this change would primarily benefit “wealthy staking services.”

Banteg, lead developer of Yearn Finance, deemed the move as “completely unnecessary,” arguing in a tweet that the network isn’t burdened by additional load, even with the presence of hundreds of thousands of validators.

Eleftherios Karapetsas, founder of the Rotki crypto portfolio app, sees potential advantages in the proposal but also cautioned that the development overhead needed to implement the change might deem it unnecessary.

“Would be cool to consolidate stake, but also perhaps unnecessary as there’s got to be quite some development overhead to achieve this,” he told The Block. “But the current system would need to be uprooted and rewritten to implement it.”

© 2023 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.

New rules could kill off permissionless smart contracts, the industry worries.

Bitcoin finds itself at a crossroads this week, wedged between contradictory monetary policies and vacillating investor sentiment.

As the UK and Eurozone gear up for anticipated central bank rate hikes this week, the digital asset will be in the crossfire of any macroeconomic decisions that could have broad impacts on risk-on investments. Specifically, all eyes are on this Thursday’s meeting of the Bank of England‘s monetary policy committee, where rates are predicted to rise to 4.75%, or even 5%.

Simultaneously, the European Central Bank is projected to implement a 25-basis-point hike on the same day. Last week, ECB President Christine Lagarde announced in a press conference that only a substantial “material change” would deter the central bank from increasing rates.

Crypto risk-on

“The upcoming rate hikes from the ECB and BoE are likely to have a negative impact on risk-on investment in general and crypto included,” Konstantin Anissimov, an independent digital asset analyst, told The Block.

He noted that higher interest rates can lead to a stronger dollar and higher returns for low-risk government bonds, potentially making crypto assets less attractive to investors.

Craig Erlam, a senior market analyst at Onanda, had a similar appraisal of bitcoin’s position. In a Tuesday note, he described chart trends that “remain against bitcoin and until it breaks the pattern of lower highs, recovery rallies that fall short of recent peaks before falling again, it will continue to look vulnerable.”

‘Young and volatile’

Yet, this negative impact is not set in stone, as Konstantin Anissimov stressed the digital asset market is “still relatively young and volatile,” and emerging narratives could sway it either way.

“The market could rebound if there are other positive factors at play, such as the recent news of Bitcoin ETF filing by BlackRock, or the news that Deutsche Bank filed for a crypto license with BaFin,” Anissimov added.

Philippe Bekhazi, CEO of XBTO, corresponded with this view, arguing that idiosyncratic factors have somewhat decoupled crypto markets from broader risk assets. “From my vantage, narratives, and headlines, have been dominating the market,” he told The Block.

Bekhazi pointed to a “clear divergence in themes in global regions, with the EU and China taking a more accommodative stance towards crypto in general than the U.S., which continues to crack down and cause uncertainty domestically.”

This macroeconomic narrative is further complicated by a contrasting stance in East Asia, where China’s rate cuts and expected stimulus could “perk the crypto market.”

China rate cuts

“The rate cuts in China and expected stimulus could perk the crypto market and this is because the Asian region is a major geography in the crypto market, and any positive news from the region could have a ripple effect,” Anissimov told The Block.

However, he added that, in the long-term, the major question remains as to whether these events are enough to get higher mass adoption and to divert investors away from low-risk investments “which in itself generate a circa 5% return at the moment.”

Anissimov pointed out that potential downsides would result from any economic stagnation or growth impediment in the U.S. due to interest rate-related decisions. He added that these could negatively impact the crypto market, given its high correlation with traditional financial markets.

“Crypto markets have for the last 18 months or so had a high correlation with the S&P500 and similar index funds, and interest rates are linked to inflation and would affect the performance of the U.S .economy on the whole,” he said. “Any change which would stagnate or impede the growth of the U.S. economy will very likely have a negative impact on the crypto market. This is of course only true until there is an event that de-correlates crypto markets from the traditional financial markets.”

© 2023 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.