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Layer 2 project Arbitrum will airdrop a governance token with the ticker ARB to its community members on March 23. This brings Arbitrum one step closer to being fully decentralized.

The token will control the governance of the Arbitrum One and Nova networks through a DAO, which will be supported by a security council, according to a blog post and a newly written constitution. The airdrop will represent 12.75% of the token’s total supply, and tokens will be handed to those who have used the network over the last year. The token won’t be used for paying transaction fees on the network. 

“The goal of the airdrop and the goal of the token is really to give governance power over to the community members and try to identify the real community members that are active in the chain, are participating and will participate,” said Steven Goldfeder, CEO of Offchain Labs, the maker of Arbitrum, in an interview.

What’s most unique about the transition is that Arbitrum’s form of governance will be a self-executing DAO. This means that governance members will be able to pass protocol upgrades that will automatically be applied on-chain. In doing so, Offchain Labs has gone for a more radical form of decentralization; one that Goldfeder reckons is absolutely necessary.

“I think that it’s really the only way to decentralize,” said Goldfeder. “If it’s not self-executing, what it means is the DAO is just a signal and there are some people with the keys to actually do it, and they could or could not break from the DAO, and it’s just that piece of trust. What we want is a decentralized system that doesn’t rely on trust in critical places.”

Offchain Labs also released Arbitrum Orbit, a way for developers to build Layer 3 networks on top of Arbitrum. The newly formed governance system will be able to approve licenses for other Layer 2 networks that settle on Ethereum using Arbitrum’s technology.

Key details of the Arbitrum airdrop

The governance token will be native to the Arbitrum One network, but will also be used to govern the Arbitrum Nova network and any other Layer 2 networks that the DAO officially endorses. 

Offchain Labs worked with crypto data provider Nansen to design the criteria behind who should receive the airdrop, with a focus on rewarding genuine users instead of those who tried to farm the system. The snapshot was taken on February 6 and there will be no changes to the allocations, even if the community finds further addresses that tried to game the system.

The airdrop will hand out 11.5% of the total supply to Arbitrum users, with an additional 1.25% to DAOs in the Arbitrum ecosystem and Protocol Guild, a DAO made up of Ethereum developers. The majority of the supply will go to the Arbitrum Foundation, which will be under the control of the newly formed Arbitrum DAO.

Criteria for the airdrop to DAOs include the total value locked in the protocol and how long they’ve been on Arbitrum. Goldfeder expects that DAOs will find a way to distribute these tokens to users in some way.

The snapshot for the airdrop was taken a few weeks ago, Goldfeder said. Recipients will be able to check their balances from today and will be able to claim the tokens in a week’s time. The reason for the week is that it gives time for people to nominate themselves as delegates, and for airdrop recipients to delegate their tokens to such delegates. The Arbitrum Foundation will approve delegates during this time.

Offchain Labs hasn’t communicated with any centralized exchanges to list the Arbitrum token, according to Goldfeder.

A self-executing DAO

In the pursuit of wider decentralization, Offchain Labs elected to go with a self-executing DAO to take ownership of the Arbitrum One and Nova networks. It will also have a Security Council that will be able to exert control in certain circumstances.

Typically, most DAOs let governance token holders vote through proposals, and then the core team of the project carries out the result by making changes to the network’s code. What’s different with a self-executing DAO is that the codebase is automatically changed following the end result. This means the DAO has direct control over the network.

Goldfeder said that, instead of votes signaling a separate team to change the code, actually having a direct impact on the code is critical to being truly decentralized — and not just “decentralized theater.”

Still, being a self-executing DAO has some risks. If a malicious actor is able to get a code change through the voting process, then it will get automatically applied to the code. This happened with a project called Beanstalk, where a bad actor used a flash loan to get enough tokens to pass a vote that approved the movement of $182 million of funds into their own wallet. (Not to mention what happened with The DAO.)

Goldfeder pointed out that the governance system will work fairly slowly, allowing more time for proposals to be reviewed. Major changes that affect the network will take around 34 days to pass, while minor changes will take around 21 days. 

“If you want a decentralized system, you can’t have a centralized system masquerading as a decentralized system,” said Goldfeder. “And that’s why, you know, I’m very excited here and I’m not too concerned about the risks — and know we do have the Security Council, all highly reputable community members that will be taking an important role in making sure that the chain is secure over time.”

The Security Council is a group of 12 members that have a combined control over the Arbitrum codebase, equivalent to the Arbitrum DAO’s control. These members are able to intervene with immediate action in the case of emergencies — as long as at least nine members are coordinating — and can speed up the governance process for non-emergency situations.

Members of the initial council, which will change every six to 12 months, include Celer Network co-founder Mo Dong, LayerZero Labs CEO Bryan Pellegrino, Ethereum researcher Justin Drake and three members of the Offchain Labs team.

While the self-executing DAO will move Arbitrum toward full decentralization, it will not be completely there. It currently has a permissioned set of more than 10 parties operating as validators on the network and checking for fraud. Plus, the sequencer, which orders transactions, is not yet decentralized. That said, the sequencer is otherwise untrusted, Goldfeder said, as it can’t force a bad transaction or steal funds.

Supporting Layer 3 networks on Arbitrum

At the same time, Offchain Labs released Arbitrum Orbit, a way for developers to build Layer 3 networks on top of either Arbitrum One or Nova. 

Arbitrum is a Layer 2 network that uses optimistic rollups to batch transactions onto the Layer 1 Ethereum blockchain. A Layer 3 network built on Arbitrum would use similar rollups to batch transactions to Arbitrum, which would then get rolled down into Ethereum. It would allow for increased throughput at a relatively low cost.

“In the case of Orbit, you will be able to use either of Arbitrum’s core technologies — its Arbitrum rollup technology or the Arbitrum AnyTrust technology — and you’ll be able to launch Layer 3 chains on top of Arbitrum One or Arbitrum Nova permissionlessly,” said Goldfeder.

Developers building such Layer 3 networks are granted a perpetual license to use and change the Arbitrum source code as they like. This will allow for the creation of application-specific chains or general chains on top of Arbitrum.

This is a bit different from rival Layer 2 Optimism’s approach. Instead of focusing on Layer 3 networks, Optimism is trying to encourage the creation of many Layer 2 networks based on its code stack that can all link up with each other. It has claimed Coinbase as one of its first pioneers.

That said, Arbitrum is open to supporting Layer 2 networks using its code. The Arbitrum DAO will be able to vote on whether it will endorse additional Layer 2 chains that settle to Ethereum using Arbitrum. If these chains choose to accept Arbitrum’s Constitution, they will be known as “governed” chains.

In these situations, Goldfeder suggested the Arbitrum governance might consider factors such as whether there would be any upside to doing so, as well as whether the project would be competitive. But, ultimately, such decisions are now in the hands of the community; Arbitrum has flown the nest.

© 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 proposal on a digital identity framework has passed the European Parliament’s plenary vote, with 418 in favor, 103 against and 24 abstentions.

The EU-wide framework would give citizens access to public services, and they would have their own wallet. The legislation includes zero-knowledge-proof technology to protect users’ privacy. ZK-proof protects privacy by verifying a position without revealing unnecessary data. 

“The implementation of ZK-proof is foreseen in the European Digital Identity Wallet as one the technologies that will give users more control over sharing of personal data,” socialist MEP Romana Jerkovic, who led Parliament’s negotiations on the file, told The Block in an email. “At the same time, it will reinforce the principles of selective disclosure and data minimization.”

Next, the file will continue to inter-institutional negotiations. Jerkovic noted that existing privacy-enhancing technologies must align with one another as they mature — most notably, the EU’s General Data Protection Regulation.

“For me, it is very important that we give the users of the Wallet more control over the use, sharing and managing of their own data,” Jerkovic said. “All the technical solutions that can help us achieve that goal should be considered and discussed. That is why the Parliament has introduced ZKPs into its position.”

© 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.

Larry Fink’s annual letter to BlackRock shareholders once again included his thoughts on digital assets, with the chief executive surprisingly optimistic about the space in light of recent events. 

Beyond the media’s “obsession” with bitcoin and the collapse of FTX, there are several areas of interest to BlackRock, Fink wrote on Wednesday. Advances in digital payments across emerging markets, how this contrasts with developed markets, and the promise of tokenization were among the topics addressed.

“In many emerging markets – like India, Brazil and parts of Africa – we are witnessing dramatic advances in digital payments, bringing down costs and advancing financial inclusion,” the CEO wrote. India is currently exploring a central bank digital currency, and just last month MetaMask integrated with an Indian provider of crypto-to-fiat on-ramp services.

The developments across these regions contrast with sluggish advancements in developed markets, he noted. Wealthier nations, including the U.S., are “lagging behind in innovation, leaving the cost of payments much higher,” according to Fink.

Tokenization

As for the asset management industry, the operational potential of the underlying technologies in digital assets could have “exciting applications.”

“In particular, the tokenization of asset classes offers the prospect of driving efficiencies in capital markets, shortening value chains and improving cost and access for investors,” Fink told shareholders. 

The world’s biggest asset manager, with around $8.6 trillion in assets under management, will continue to explore the digital asset ecosystem, “especially areas most relevant to our clients such as permissioned blockchains and tokenization of stocks and bonds,” its CEO said. 

Don’t expect BlackRock to rush to market with anything just yet, though; Fink’s letter was quick to caveat the promise offered by digital assets.

“While the industry is maturing, there are clearly elevated risks and a need for regulation in this market. BlackRock is committed to operational excellence, and we plan to apply the same standards and controls to digital assets that we do across our business,” he concluded. 

© 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.

Zeng Jiajun used to sit at his desk as a product manager at ByteDance in China generating lists of sensitive terms for content moderators to flag and potentially censor.

ByteDance is the Chinese internet technology company behind popular social media app TikTok. Through the Chinese Communist Party’s Content Quality Center, the Chinese government played a role in heavily censoring content on the platform. Once Jiajun recognized what he was being tasked to do was ultimately detrimental to society, he fled to the U.S. and blew the whistle on TikTok and China’s content moderation practices.

He has now raised $3.1 million from investors including Struck Crypto to build Soul Wallet, a social recovery tool focused on helping users regain access to their wallets, according to a statement shared with The Block. 

“The wallet is the gateway, fundamental infrastructure for people to access such decentralized internet,” said Jiajun in the statement.

“If we said bitcoin is the separation of currency and states, Ethereum is the separation of internet and states since it can run apps on top of it (the Ethereum network) permissionlessly while being censorship-resistant, which means states, especially authoritarian states like China, can’t shut down a decentralized application simply because they don’t like it,” he added.

Jiajun’s Soul Wallet also received a Layer 2 community grant from the Ethereum Foundation. He hopes the tooling he builds will help combat censorship.

“Soul Wallet brings important innovation to the Ethereum community in the form of account abstraction and social recovery, enabling users to recover a lost wallet in minutes,” said Struck Crypto in the statement. “This core technology innovation brings us one step closer to proliferating noncustodial wallets to the masses, lowering the barriers to accessing Ethereum for billions of users.”

© 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 Euler Finance attacker transferred 1,100 ETH ($1.8 million) to the cryptocurrency mixer Tornado Cash in an attempt to launder the stolen funds, according to on-chain data aggregated from security firm BlockSec.

The transfer comes after the lending protocol was drained of $197 million in a flash loan attack earlier this week. Sending funds to a mixer is a common tactic used by cyber criminals to make it harder for law enforcement to track and recover stolen crypto.

In Euler’s case, the laundering development could be significant. In an earlier on-chain message, Euler had offered a 10% bounty ($19.7 million) to the attacker to return the remaining 90% of the stolen funds. This is a common strategy used by crypto projects to incentivize hackers to return assets. Euler warned the perpetrator that if  funds were not returned, it would launch a $1 million reward for information on the attacker.

It remains to be seen if the attacker will accept the offer, but the high value of the bounty could make it appealing for them to return the funds instead of risking legal consequences. However, offering a bounty does not guarantee that the funds will be returned.

‘Change their mind’

Social media commentators suggested that the transfer of funds indicates the attacker may not return any assets. However, BlockSec was more circumspect.

“The amount of money they laundered at this moment does not have a direct relationship with whether the attacker will return the 90% of assets asked for by Euler. The attacker can return the assets if they want, but they may also change their mind,” Matthew Jiang, director of security services at BlockSec told The Block.

Another noteworthy development was that Euler’s victims sent an on-chain message to the attacker’s address requesting a return of the funds. The victim claimed they had deposited 78 wrapped staked ether (wstETH) worth $140,000 into Euler, which they claimed was their entire life savings. Surprisingly, the attacker returned 100 ETH ($165,000) to the victim, more than what was asked. BlockSec said on-chain analysis suggests that the person was a genuine victim based on interactions with Euler.

© 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.

Episode 24 of Season 5 of The Scoop was recorded remotely with The Block’s Frank Chaparro and MetaMask Co-Founder Dan Finlay.

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

Dan Finlay is the co-founder of MetaMask — a leading crypto wallet provider that allows users to access decentralized web3 applications.

In this episode, Finlay makes the claim that people not feeling safe holding crypto is the “biggest plague” the industry faces and unpacks what MetaMask is doing to address the problem.

During this episode, Chaparro and Finlay also discuss:

• A recent MetaMask all-time high
• MetaMask’s plans to decentralize
• “Sign-in with MetaMask”

This episode is brought to you by our sponsors Circle, Railgun, Flare Network

About Circle
Circle is a global financial technology company helping money move at internet speed. Our mission is to raise global economic prosperity through the frictionless exchange of value. Visit Circle.com to learn more.

About Railgun
Railgun is a private DeFi solution on Ethereum, BSC, Arbitrum and Polygon. Shield any ERC-20 token and any NFT into a Private Balance and let Railgun’s zero-knowledge cryptography encrypt your address, balance and transaction history. You can also bring privacy to your project with Railgun SDK, and be sure to check out Railgun with partner project Railway Wallet, also available on iOS and Android. Visit Railgun.org to find out more.

About Flare
Flare is an EVM-based Layer 1 blockchain designed to allow developers to build applications that can use data from other blockchains and the internet. By providing decentralized access to a wide variety of high-integrity data from other blockchains and the internet, Flare enables new use cases and monetization models. Build better and connect everything at Flare.Network.

© 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.

Cathie Wood’s Ark Invest purchased shares in Jack Dorsey’s Block for the third day.

Ark added 122,547 Block shares across three funds on Wednesday. The purchases were estimated at a little over $9 million. Wood’s asset management firm added 104,480 Block shares to its Ark Innovation ETF, 17,162 shares to Ark Next Generation Internet ETF and 905 shares to the Ark Fintech Innovation ETF, according to its latest trade filing.

Block closed up 0.6% yesterday to $74.07. The purchases came to around $9 million based on the price at the close.

SQ chart by TradingView

Wood’s firm has purchased around $29 million — $6.4 million on Monday and $13.7 million on Tuesday — worth of Block shares this week. The lion’s share of the purchases was added to the Ark Innovation ETF. 

The asset manager also revealed it had raised $16.3 million for a new private crypto fund. The fund will be split across the U.S. and the Cayman Islands, according to filings with the SEC. The U.S. fund raised $7.3 million from nine separate investors, and the Cayman fund received just under $9 million from one investor. The funds are open-ended.

© 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.

Circle — the embattled operator of stablecoin USDC — claims to have “cleared substantially all of the backlog of minting and redemption requests for USDC.”

The statement comes via an update on USDC operations, and claims that “since Monday morning, Circle has redeemed $3.8 billion USDC and minted $0.8 billion USDC.”

The update follows Circle CEO Jeremy Allaire’s recent sentiment that the crypto ecosystem needs to be protected from the banking system — not the other way around. “Everybody’s talking about how we need to save the banks from crypto and right now we’re trying to save crypto from the banks,” Allaire said in a recent interview with the hosts of the Bankless podcast.

After finding itself largely bankless in the U.S. after the high-profile collapses of Silvergate, Silicon Valley Bank and Signature Bank, Circle says it went live with a new transaction banking partner for both domestic wires and international wires. “We expect to bring more capabilities back online tomorrow,” the team says.

© 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 markets slid alongside traditional markets as fears over a looming banking crisis.

After soaring past $26,000 on Tuesday and reaching a 10-month high, Bitcoin was trading at around $24,400 as of 5 pm EDT.

Ether was also down, priced at $1,650.

BTC/USD Chart by TradingView

Credit Suisse fell 14%, though shares were trading higher in after-hours after Switzerland’s central bank and financial regulator said they would provide a liquidity backstop if necessary, Bloomberg reported.

Credit Swiss Chart by TradingView

In traditional U.S. markets, the S&P 500 fell 0.7% while the Nasdaq 100 was little changed. Galaxy Digital was down 7% and MicroStrategy 0.8%, while Coinbase rose 2.9%.

© 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.

Innovation-focused fund manager Ark Invest raised more than $16 million for a crypto fund split across a domestic and a Cayman Islands-based version, according to filings with the U.S. Securities and Exchange Commission on Wednesday.

ARK Crypto Revolutions U.S. Fund LLC raised $7.3 million from nine investors, while the ARK Crypto Revolutions Cayman Fund LLC raised almost $9 million from one backer.  CoinDesk first reported the news. 

The filings indicated that both funds opened for investments on March 1.

While the filing specified that the target of the fund was “indefinite,” meaning that it’s open-ended, Ark has been on a crypto buying spree in the last month, adding roughly $30 million in Coinbase shares to its funds over the last month, and more than $20 million in Block shares in the last week.

© 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.