FreeCryptoCurrency.Me

The percentage of OFAC-compliant Ethereum blocks has taken a significant plunge.

The percentage of blocks created using compliant relays has dropped to a daily rate of 27% from 80% in November 2022, according to data from analysis site mevwatch.info. This decrease reveals a substantial reduction in protocol-level censorship by Ethereum validators relying on the MEV Boost mechanism.

Maximum Extractable Value, or MEV, refers to the maximum value that can be extracted from block production, achieved by strategically reordering transactions within a block. In the Ethereum proof-of-stake blockchain, MEV is facilitated by the open-source software MEV Boost. This software assembles transactions and proposes blocks, relaying them to the block validators.

Validators use such software to help boost their earnings. MEV Boost operates in conjunction with various competing entities that run a type of software known as “relay software,” which creates bundles of transactions for dispatch to validators.

Relay operators and censorship

 In August 2022, a shift occurred when some relay operators, including the largest one at the time, Flashbots, began filtering specific transactions on the network. This change was in response to an action by the Office of Foreign Assets Control (OFAC), which sanctioned Tornado Cash and several associated Ethereum addresses in August 2022.

Daily OFAC Compliant Blocks | Source: mevwatch.info

By November 2022, around 80% of all blocks on Ethereum were OFAC-compliant, largely due to widespread adoption of Flashbots. This had substantial implications for Ethereum’s neutrality as a Layer 1 network, sparking considerable concerns among its community.

However, the trend appears to have reversed since then. Non-censoring relay operators such as Ultra Sound Money and Agnostic now command over 60% adoption rate among validators, according to data from relayscan. Meanwhile, Flashbots’ relay operators have seen a significant dip in validator adoption.

© 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.

Grayscale Investments is worried that the SEC may prevent it from using Coinbase as the sole holder of $5.4 billion of its crypto assets, according to CEO Michael Sonnenshein.

In a letter to the SEC dated May 8, Sonnenshein complained that the SEC’s proposed new rules around safeguarding custody of clients’ crypto funds would make it impossible for Grayscale to continue storing its bitcoin and ether with Coinbase’s custody arm.

The SEC wants to make investment advisers responsible for safeguarding the custody of assets they control for clients. Such a rule would be a problem for centralized exchanges like Coinbase, or any platform that manages clients’ assets via Coinbase. Exchanges typically hold customer funds in commingled accounts and credit customers for their value, rather than providing an individual wallet for each customer. The SEC’s proposal would make that illegal. The proposal might also ban investors from using a third party to store their clients’ funds.

Grayscale stores $5.4 billion in crypto with Coinbase

Grayscale controls the Grayscale Bitcoin Trust (GBTC) and the Grayscale Ethereum Trust (ETHE), which it claims are the largest crypto funds of their kind. Both hold about $2.7 billion in Bitcoin and ether. 

Currently, the entirety of those funds is held by Coinbase via the Coinbase Custody Trust Company, Sonnenshein told the SEC. The funds have been there since 2019. Coinbase Custody holds Grayscale’s assets in offline cold storage, via unique onchain addresses, and are never commingled with other clients’ funds, according to the agreement between Grayscale and Coinbase.  

Previously, Grayscale stored cold wallets via a company called Xapo Inc. “Xapo’s custody model relied on geographically dispersed physical vault locations around the world, which changed regularly,” he wrote.

The SEC’s proposed rule would upend Grayscale’s entire model for storing its $5.4 billion in client assets, Sonnenshein said. “As an institutional-grade asset manager, we do not ourselves custody client assets. Instead, we engage expert third-party custodians to provide this service, as is the norm for traditional asset managers. In our ten years of operation, our custodians have never experienced a loss of client assets.”

‘None of these custodians have ever reported a loss of client assets’

“Coinbase Custody also uses specific, industry leading practices in its policies, procedures, and controls for safekeeping and maintaining exclusive possession or control over digital assets that it custodies to protect against the theft, loss, and unauthorized and accidental use of the private keys necessary to access and transfer the digital assets it holds in custody.”

“None of these custodians have ever reported a loss of client assets,” Sonnenshein wrote. “In short, the methods that we and others rely on to safeguard client assets work, and we caution the Commission against taking action that would impose significant new costs, risks, and burdens without added benefit.”

Coinbase has also complained about the proposed rule. “The proposal would ban [registered investment advisers] from trading on non-QC [qualified custodian] crypto exchanges,” Chief Legal Officer Paul Grewal said in a tweet yesterday. “This wouldn’t benefit RIAs or their clients and would in fact harm them. Thus the SEC should allow limited non-QC exposure so RIAs can trade crypto for their clients.”

The SEC’s comment period closes this month.

Related:

• A16z says SEC custody tweak would ban investment advisers managing $128 trillion from exchanges like Coinbase

© 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 Union’s flagship Markets in Crypto Assets (MiCA) regulation can serve as a model for crypto rules in the U.S., according to Hester Peirce, a commissioner at the US Securities and Exchange Commission.

“MiCA can serve as a model for us,” Pierce said on a panel at the Financial Times Crypto and Digital Assets Summit in London, adding that the UK’s regulatory approach could also be mined for inspiration.

“I share with you the approach of telling people ‘look, there are risks here, you can choose to opt into those risks or opt out.’ And then trying to figure out a regulatory model that allows for innovation,” said Peirce, a Republican commissioner who regularly disagrees with the approach of SEC Chair Gary Gensler.

The EU officially passed MiCA last month, expressing hope that the rules will become a “global standard-setter” and a magnet for digital asset businesses. The regulation focuses on the centralized points of the crypto industry and provides clarity over the scope and definitions of crypto regulation. A firm that has a license in one EU member state will be given access to the whole EU market. 

MiCA wins praise from CZ

The European rules have won praise from leaders in the crypto industry, including Binance CEO Changpeng Zhao and Coinbase CEO Brian Armstrong. 

“If we built a good regulatory regime, people would come,” Peirce said earlier in the panel. “We’re shooting ourselves in the foot by not having a good regulatory regime in the U.S.”

However, she concluded that she’s “not very optimistic about the regulatory system” in the U.S. offering clarity anytime soon. 

© 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.

Crypto exchange Binance has launched a new service platform for VIP users to connect them with investment fund managers. Called Capital Connect, the platform will facilitate connections between eligible users and asset managers.

Binance has nine levels of VIP users or high-net-worth customers, and all of them are eligible to join the Capital Connect platform, the company said.

There was high demand for such a platform, Catherine Chen, head of Binance VIP and Institutional, told The Block in an exclusive interview. Chen said the exchange had seen a “very rapid growth of the non-trading type of investors in the past 12 months or so” who don’t want to trade crypto on their own but are looking to engage with active fund managers to park their capital — and that’s how Capital Connect was born.

Capital Connect is free 

Binance won’t charge any fee or commission for providing the Capital Connect platform, but the company will ultimately benefit from it, according to Chen. “Typically, these investment managers, where do they trade? They obviously trade on the platform that offers some of the deepest liquidity. So ultimately, we stand to gain,” Chen said.

Binance is taking a page from the traditional finance book to offer the platform. Chen said such platforms had been there in the TradFi space for decades, giving an example of Edgefolio. But she said Binance’s platform is the first of its kind in the crypto space and would aim to be “more efficient and address pain points” of high net worth clients.

Binance’s over 128 million customers

Binance has over 128 million users, and VIP clients “represent a very small percentage” of the overall user base. However, “they do contribute very significant volume or activity across our different product lines,” Chen said.

Binance won’t do due diligence on fund managers listed on the Capital Connect platform but will permit “only very high-quality” managers, Chen said. They will also have to complete Binance’s verification checks, she said, adding that the verification process applies to all users.

Like Binance’s main exchange platform, Capital Connect won’t be available for users in the United Stattes and other restricted countries, Chen said.

Binance lawsuit

Binance continues to serve its millions of customers and launch new products and services despite recent lawsuits from U.S. regulators. Just yesterday, Binance announced its NFT marketplace would add support for Ordinals, or Bitcoin NFTs.

Binance and its co-founder and CEO, Changpeng “CZ” Zhao, were sued by the U.S. Commodity Futures Trading Commission in March for allegedly operating an “illegal” exchange and a “sham” compliance program. Zhao, at the time, called the suit “unexpected and disappointing” and said they “do not agree with the characterization of many of the issues alleged in the complaint.”

© 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.

A rare hearing between two committees in the U.S. House of Representatives on Wednesday is the latest sign of growing momentum for digital asset legislation. 

The House Agriculture and Financial Services Committees will hear testimony on regulatory gaps for digital assets in the U.S., with an eye towards creating new law explicitly for governing trading platforms and stablecoins. The unusual collaboration comes as policymakers try to put action to broad consensus that more rules are needed for crypto and stablecoin companies in the U.S.  

A number of high-profile firm failures, starting last May with the Luna-Terra crash, months of policy work, and years of lobbying lend some urgency to the effort. So does a quirk of the calendar in which the House and Senate Agriculture Committees will spend most of their time later this year on reauthorizing billions in agricultural and food programs run by the federal government, due to expire in October. 

As opposed to a number of other issues debated in the halls of Congress, crypto has yet to become a fully entrenched or partisan issue, giving efforts to craft new policy on a bipartisan basis chance of becoming law in a narrowly divided government. 

“This is a town where people very much like to fight over turf, and where egos can sometimes get in the way of progress,” said Rep. Dusty Johnson, R-S.D., chair of the Agriculture Committee’s panel with jurisdiction over digital assets during a hearing last month. “That cooperation is a testament to the importance that both Chairman McHenry and Chairman Thompson, as well as teams on both sides of the aisle have had, to getting things done on digital assets this Congress.”

Wednesday’s hearing will be the next indication as to how effective that turf-sharing could be.

Stop. Collaborate and Listen.

After a quiet few months to begin this Congress, talks around new legislation for digital assets became more public in recent weeks. 

Republicans Patrick McHenry and Glenn ‘GT’ Thompson have made a point to work together due to the unusual overlap between their committees on crypto; the Financial Services Committee oversees capital markets and the Securities and Exchange Commission, while the Agriculture Committee maintains power over the Commodity Futures Trading Commission, which regulates bitcoin and ether futures. 

CFTC Chair Rostin Behnam also told a Senate committee in March that stablecoins fall within his agency’s jurisdiction in the absence of legislation telling them otherwise, creating another area of disagreement around digital assets between the commodities regulator and the SEC, and lending more urgency to Congress sorting out the issue. 

House Financial Services Committee Republicans already introduced a fresh draft bill on stablecoins late last month to advance conversations beyond where they stalled on new rules for the payments assets. 

Wednesday morning’s joint hearing will focus on regulatory gaps for cryptocurrencies, with an eye towards building around existing rules and ideas rather than starting from scratch. 

Witnesses include former CFTC Chair Tim Massad, now a Harvard fellow, New York Stock Exchange Chief Operating Officer Michael Blaugrund and Kraken Chief Legal Officer Marco Santori, among others. 

Measured Enthusiasm

Industry advocates have become cautiously optimistic that digital asset legislation has a better chance than most other bills to pass Congress and become law with President Joe Biden’s signature this year. 

Several more hearings related to crypto are expected this summer, and McHenry told The Block last month that the Treasury Department has once again engaged with him and his staff on stablecoins after reaching an impasse last year. 

But whether Senate Banking Committee Chair Sherrod Brown, D-Ohio, whose committee also has jurisdiction, will agree to act on a bill if it passes the House remains to be seen. The Ohio Democrat is a crypto skeptic who told The Block he would defer to SEC Chair Gary Gensler’s views on the topic but he and his staff have engaged more on cryptocurrency policy so far this Congress, in part because of the epic implosion of the industry, highlighted by FTX’s high-profile collapse. 

One industry advocate tracking the bills, who asked for anonymity in order to speak freely, said that his enthusiasm varied from week-to-week. But he felt optimistic when reached on Tuesday.  

“It’s going to be a pretty busy summer,” said the lobbyist, though he added, “We’ll see if Senate Banking ever has that markup.”

© 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.