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Episode 63 of Season 4 of The Scoop was recorded live at The Block headquarters in New York with The Block’s Frank Chaparro and Kevin Seqniki, COO of Ava Labs.

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.

No matter the blockchain, individual blocks are limited in the amount of information they can hold; so when blockspace becomes limited, transaction fees increase.

As Ava Labs COO Kevin Sekniqi puts it: “Chains are only cheap as long as the blockspace has not been filled up completely — once blockspace gets filled up completely, it becomes expensive.”

In this episode of the Scoop, Sekniqi explains how Avalanche — the proof-of-stake blockchain Ava Labs launched back in September 2020 — utilizes ‘subnets’ to tackle the problem of blockchain scalability, and how subnets compare to other scaling solutions.

As Sekniqi explains, existing validators of the Avalanche blockchain are able to deploy new subnets, and choose the rules of how they operate:

“The simplest way to describe subnets… is a subset of the Avalanche validators coming together and agreeing to do something.”

For example, the validators of a new subnet could choose to optimize the specifications of the new chain for a specific application, or validators could choose to require users to undergo KYC before interacting with the new subnet.

Whereas an Avalanche subnet could theoretically be run with just a single validator, popular scaling solutions on Ethereum rely on the entire validator set of the base chain to process transactions.

Sekniqi argues that this approach is likely unnecessary, and creates “extreme overhead that you don’t really want.”

Instead, Sekniqi believes the number of validators securing a chain should scale organically alongside its value:

“​​If there’s a lot of activity and it truly is a very valuable chain, more and more people will start validating that chain because there are incentives… and so [security] scales up as the value is built upon it.”

During this episode, Chaparro and Sekniqi also discuss:

• Crypto’s highly reflexive nature
• Blockchain gaming, and gaming optimized subnets
• The need for industry-wide regulation

This episode is brought to you by our sponsors Chainalysis & IWC Schauffhausen

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.

A former Coinbase executive said on Tuesday that his company Merkle Manufactory has raised $30 million in a round led by Andreessen Horowitz (a16z) to develop a social networking protocol called Farcaster. 

Dan Romero, who left the exchange in 2019, announced the round in a post on his website. He explained that he and Varun Srinivasan, another former Coinbase director, had started working together on an idea called RSS+ in 2020. 

“Our goal was to build a credibly-neutral protocol where users have direct relationships with their audiences and developers have the freedom to permissionlessly build new clients,” he wrote.  “We went through a few iterations and ultimately built Farcaster, a sufficiently decentralized protocol for building social networks.”

The company has been testing Farcaster with clients and is now working on a second version of its protocol, with an aim to launch later this year. 

Standard Crypto, Elad Gil, 1confirmation, Scalar Capital, First Round Capital, Volt Capital, A Capital, Todd and Rahul’s Angel Fund, Coinbase Ventures, Mischief, Ansa Capital, Haystack, Ribbit Capital, Chapter One, Multicoin Capital, Offline Ventures, Archetype, Canonical Crypto, Proof Group, Floodgate, Balaji Srinivsasan, 6529, Ray Tonsing and several other angels also joined the round. 

© 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.

Burberry, the British luxury fashion brand, said on Wednesday that it has launched virtual handbags on social gaming platform Roblox, inspired by one of the brand’s physical handbag designs.

Community members on Roblox can purchase and use the bags to dress their avatars. On average, one-in-five daily active users on Roblox update their avatar on any given day.  

While the physical bag retails for more than $1000, the virtual bags cost just a few dollars, which is paid in Robux, the platform’s currency. Each handbag is accompanied by an exclusive emote, which refers to an action that avatars can perform on Roblox, such as levitation or dance. 

“The expression of our digital personas is a fascinating concept and one which we know is increasingly important to our customers,” said said Rachel Waller, vice president of channel innovation at Burberry, in a statement.

Burberry bags on Roblox will resemble real-life physical pieces. [Credit: Burberry]

This isn’t Burberry’s first foray into gaming. In October 2019, the company launched its first online game called B Bounce. Most recently, in June, Burberry announced a non-fungible token (NFT) collection with Mythical Games, who the brand had already worked with last August to launch NFTs.

This is, however, its first partnership with Roblox, which supports over 50 million daily active users. Brands such as Nike and Gucci have already established stores on Roblox.

The digital designer making millions on Roblox

Samuel Jordan has sold 25 million units on Roblox. [Credit: Samuel Jordan]

The bags were created in partnership with digital fashion designer Samuel Jordan, who at the age of 22 has already sold more than 25 million units of his own work on the platform. On average, Roblox pays developers 28 cents-per-dollar spent, based on its developer economics page. This number, however, varies depending on where they are sold on the platform. Jordan has made around $1 million, after $10 million in sales. 

“I first started playing Roblox when I was 12. My older brother Zack asked me to do it just to hang out with him. And I grew up homeschooled so I didn’t have many friends socially. Roblox is really where I found community,” said Jordan in an interview with The Block. 

After enough trial-and-error making games on his own, Jordan was accepted into Roblox’s avatar accessory program in 2019, the platform’s user-generated content program. That’s when he had the chance to upload items to Roblox’s catalog. 

Now, Jordan consults large fashion and luxury brands such as Stella McCartney and Burberry on how to enter the space. 

“Every client I have has completely different interests,” says Jordan.

Some, he says, want to connect with a younger audience. Just under half of Roblox’s community is over the age of 13, with its fastest growing demographic being 17 to 24 year olds. Others want to work with Jordan because they think creating a digital item that looks like a physical one will ramp up sales of the physical item. 

As the industry has grown, a hot topic among digital fashion players has become figuring out what it means to own a piece of digital clothing, and why it matters. Both tech companies and fashion brands are increasingly collaborating to address this question for the broader society of people who still view digital clothing as a passing fad.

Last month, Meta announced a partnership with Balenciaga, Prada, and Thom Browne. Snapchat has also created augmented reality filters for brands like Tiffany’s. Fashion brands are expected to double their investment into technology by 2030, a chunk of which will be dedicated to the so-called ‘metaverse.’ 

Despite signs of a bear market, fashion brands aren’t backing down on experiments in Web3. And neither is Jordan. He hasn’t seen a decline in sales on the platform. 

“Of course, with negative economic times, you always worry about consumer spending dipping. I haven’t seen that happen yet in my sales,” he says. “You’re buying it because you want to wear it. You don’t care if it goes up or down in value. You’re not predicting the future. You’re saying right now, in this game, I want to feel this way. I want to represent myself in this way.”

When asked what plans he has to make sure he stays afloat during a rough economic period, Jordan said he wasn’t planning anything aggressive, but to keep focusing on the consumer journey. “I just want to make things that I think people will enjoy and love and use.” 

© 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 Vermont Department of Financial Regulation has joined a “multistate investigation” into troubled crypto lender Celsius, according to a Tuesday statement. 

The regulator found Celsius of not disclosing critical information, namely the platform’s financial condition, investing activities, risk factors and ability to repay its obligations to depositors and other creditors, according to a consumer alert posted today. 

“Previous representations made by the Company, its CEO, and other Celsius representatives about the safety of customer funds and the company’s ability to meet withdrawal obligations are untrue,” said the notice. 

The department also said that Celsius has been engaged in an “unregistered securities offering” by offering cryptocurrency interest accounts to retail investors. It also found Celsius lacking of money transmitter license, making them “operating largely without regulatory oversight.” 

Earlier today, California Department of Financial Protection and Innovation issued a consumer alert that encourages customers of “crypto-interest account providers that have slowed or paused withdrawals or transfers of crypto assets” to contact the regulator. The alert did not name any firms as part of the investigation, but Celsius has yet to restart withdrawals and transactions since pausing services last month. 

Reports indicated regulators in Texas and Alabama were expanding investigations into Celsius and another troubled crypto lender Voyager following reports that firms may not have adequately disclosed financial condition to investors. 

© 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.

Bitcoin mining firm BIT Mining, formerly known as 500.com, is selling its majority share of Loto Interactive, which began as an online lottery business and shifted to bitcoin mining in 2019.

The company announced Tuesday that it entered into a sale and purchase agreement with an unnamed third party for 51% of Loto Interactive’s shares. After the deal, it will maintain an 8.79% stake.

BIT Mining explained that the move aligned with the company’s plans to keep expanding in the US. After being forced to shut down operations in China last year, the company raised $50 million in a private stock offering to move overseas.

The company is currently in the process of building out a 150-megawatt site in Ohio. The first 50 megawatts of capacity have already been developed, per the company’s first-quarter 2022 earnings report. It also owns one of the largest mining pools, BTC.com.

BIT Mining’s operations, via Loto Interactive, were mainly located in China until the government’s crackdown on bitcoin mining last year. Loto Interactive at one point owned three sites referred to as “big data centres.”

According to Loto’s first-quarter earnings results, one of those sites in Sichuan Province was closed in January 2022, and the other two were also set to close down.

Additionally, Loto started operating a “big data centre” in Hong Kong in November 2021, which generated HK$6.9 million (roughly $878,991) in the first three months of the year, per the document — essentially all the company’s earnings during that time period, with the remaining 9.82% stemming from its “money lending business.”

In the first quarter of 2021, Loto had brought in HK$74,259,000 in revenue (around $9,460,150).

The “significant decrease” in revenue was mostly “due to the termination of operation of the three big data centres in Sichuan Province,” the company said.

BTC.com was founded by Bitmain and sold to 500.com in 2021. Now called BIT Mining, the company is listed on Nasdaq and has indirectly been backed by some state-owned capital, as The Block explained last year.

Similar to Loto, BIT Mining used to be in the business of online sports lotteries and struggled amid China’s 2015 crackdown of online lotteries. 

© 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.

Twitter has sued Elon Musk to compel him to buy the platform for $44 billion, according to court documents made public on Tuesday evening.

Last week, Musk pulled out of the agreement, stating concern that there are bot and spam accounts on the platform.  As a result, Twitter hired Watchell, Lipton, Rosen & Katz LLP in preparation for the lawsuit, which was filed in the US state of Delaware.

“Having mounted a public spectacle to put Twitter in play, and having proposed and then signed a seller-friendly merger agreement, Musk apparently believes that he — unlike every other party subject to Delaware contract law — is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” the lawsuit reads.

The filing later states:

“Twitter is entitled to specific performance of defendants’ obligations under the merger agreement and to secure for Twitter stockholders the benefit of Musk’s bargain. Musk and his entities should be enjoined from further breaches, ordered to comply with their obligations to work toward satisfying the few closing conditions, and ordered to close upon satisfaction of those conditions.”

Yesterday, a letter on behalf of Twitter highlighted that Musk’s move to terminate the deal is “invalid and wrongful.” 

The 62-page lawsuit details Musk’s ongoing relationship with the company.

“Rather than bear the cost of the market downturn, as the merger agreement requires, Musk wants to shift it to Twitter’s stockholders,” it states. “This is in keeping with the tactics Musk has deployed against Twitter and its stockholders since earlier this year, when he started amassing an undisclosed stake in the company and continued to grow his position without required notification.”

© 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.

With Bitcoin prices falling below $20,000 on Tuesday, mining companies were down on the stock market as well.

TeraWulf fell 8.61%, followed by Iris Energy (-7.45%) and BIT Mining (-7.17%). A few companies did see some gains, including Digihost (+3.81%).

Bitcoin’s price was close to $19,470 at the time of publication, according to TradingView.

Here’s how crypto mining companies performed on Tuesday, July 12:

© 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 Treasury is asking the public for comments on the risks and benefits of cryptocurrencies. 

The request for public comment went live on the Federal Register on July 8, but the Treasury did not formally announce it until July 12. The request comes as the Treasury solidifies its policy on digital assets. 

“For consumers, digital assets may present potential benefits, such as faster payments, as well as potential risks, including risks related to frauds and scams,” said Nellie Liang, in a statement. 

The undersecretary for domestic finance, Liang spearheaded the Treasury’s proposal on stablecoin regulation, which ultimately concluded that Congress should limit stablecoin issuance to insured depository institutions, i.e. banks. 

The Treasury’s announcement also noted concern that digital assets posed a greater risk to vulnerable populations: 

“The rise in use of digital assets, and differences across communities, may also present disparate financial risk to less informed market participants or exacerbate inequities. It is critical to ensure that digital assets do not pose undue risks to consumers, investors, or businesses, and to put in place protections as a part of efforts to expand access to safe and affordable financial services experienced by more vulnerable populations.”

Last week, the Treasury sent the White House its framework for international engagement on cryptocurrencies. President Joe Biden put out the executive order at the heart of the development back in March. 

© 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 California Department of Financial Protection and Innovation says it is actively investigating multiple firms offering crypto interest accounts. 

In a consumer alert posted today, the regulator said it’s looking at firms nationwide that offer interest-bearing crypto asset accounts, including some that are preventing customers from withdrawing from and transferring between their accounts. The Department says it’s investigating whether providers are violating jurisdictional laws.

The notice encourages California customers of platforms that have slowed or paused withdrawals or transfers of crypto assets to contact the department. Though the notice doesn’t name any firms as part of the investigation, crypto lender Celsius has yet to restart withdrawals and transactions on its platform since pausing the services last month during a liquidity crisis. Last Friday, reports indicated state regulators in Texas and Alabama were expanding investigations into Celsius and Voyager.  

In its notice, the regulator pointed to recent actions the DFPI took against crypto lenders BlockFi and Voyager Digital, saying these cases found that certain crypto-interest accounts constituted unregistered securities. The purpose of registration, according to the DFPI, is to make adequate disclosures to investors. Now, it’s looking into whether other firms may be on the hook for the same violations.

“The Department warns California consumers and investors that many crypto-interest account providers may not have adequately disclosed risks customers face when they deposit crypto assets onto these platforms,” said the notice. “Crypto-interest account providers are not governed by the same rules and protections as banks and credit unions, which are required to have deposit insurance.”

© 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.

New research disputes concerns that a central bank digital currency would endanger the traditional banking industry. 

The Treasury’s Office of Financial Research published a paper on CBDCs and stability on July 12. The researchers argue that “the adjustments in private financial arrangements in response to a CBDC may tend to stabilize rather than destabilize the financial system.”

The paper took aim at the concern that a CBDC would facilitate bank runs by incentivizing deposit holders to take their money out of banks. It’s a common criticism of CBDCs. Many skeptics of CBDCs are generally fearful of the damage a direct digital link with the Federal Reserve would do to commercial banks. 

However, the authors don’t do much to assuage concerns that a CBDC could become a tool of government surveillance. They indeed point to information that policymakers draw from CBDC outflows as a means of identifying a bank run more efficiently that current systems allow: 

“If they wish to withdraw funding from the bank, they can currently shift their funds to another bank or other liquid assets (for example, government bonds). Regulators might not immediately observe these withdrawals and, even if they do, might have difficultly distinguishing them from the regular inflows and outflows generated by a bank’s client transactions. Once a CBDC is introduced, policymakers have a new source of information: the flow of funds into the digital currency.”

A CBDC has become the subject of intensifying political back-and-full in recent months. In the US, Republicans have been particularly skeptical of a CBDC’s benefits over existing payments systems. 

© 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.