Scenius Sync (Issue #84)

Bitcoin Surpasses Silver As Second Largest ETF Commodity, Binance and SEC Face Off, Bug That Took Down 8% of ETH Validators Sparks Worry, & FTX Sale of ~$1B In Grayscale ETF Explains Outflows

Scenius: The intelligence and the intuition of a whole cultural scene. The communal form of the concept of genius.

Welcome to The Scenius Sync.

Our mission with this concise publication is twofold:

1. Share the essential stories driving the crypto industry and markets.

2. Highlight innovative applications and mainstream adoption of crypto and blockchain technology.

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Essential News 🗞

1. Binance and SEC face off in court with detailed questioning from judge

   • Binance, the largest crypto exchange in the world, faced the Securities and Exchange Commission in court on Monday in an effort to have a lawsuit brought against it by the regulator dismissed. Both parties were met with questions from the judge about why certain cryptocurrencies should be considered securities and subject to the SEC's rules.

2. Bug That Took Down 8% of Ethereum's Validators Sparks Worries About Even Bigger Outage

   • Ethereum just had one of those moments where the big story is what didn't go wrong. A bug in Ethereum's Nethermind client software – used by validators of the blockchain to interact with the network – knocked out a chunk of the chain's key operators on Sunday. Nethermind powers around 8% of the validators that operate Ethereum, and this weekend's bug was critical enough to pull those validators offline. Ethereum stayed up and running despite the issue, and Nethermind's developers released a patch fixing things within hours. The main consequence of the bug was that modest financial penalties fell onto some Nethermind-based validators, but the Nethermind incident followed a similar outage earlier in January that impacted Besu, the client software behind around 5% of Ethereum's validators. The back-to-back outages have reignited a spirited discussion on X, the platform formerly known as Twitter, around Ethereum's persistent problem with client diversity. The idea is that the network becomes more resilient if it's not dependent on any single client software.

3. Terraform Labs files for Chapter 11 bankruptcy in Delaware

   • Terraform Labs Pte. Lte. filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on Jan. 21, according to the court’s website.  The company’s liabilities are estimated to be between $100 million and $500 million, and its amount of assets lies in the same range, its filing showed.  Terraform Labs is the company behind the algorithmic stablecoin TerraUSD and sister cryptocurrency Luna, both of which collapsed in May 2022. The U.S. SEC charged the firm and then-CEO Kwon Do-hyeong with fraud in February 2023. The bankruptcy filing will allow the company to take care of ongoing legal affairs, including the SEC lawsuit and a pending litigation in Singapore, Terraform Labs said in a statement shared with The Block.

4. FTX Sold About $1B of Grayscale's Bitcoin ETF, Explaining Much of Outflows

   • Investors have sold more than $2 billion worth of the Grayscale Bitcoin Trust (GBTC) since it was converted into an exchange-traded fund earlier this month. A large chunk of that exodus was FTX's bankruptcy estate dumping 22 million shares, according to private data CoinDesk reviewed and two people familiar with the matter.

   • In related news, Bitcoin Slides Below $40K, Now Down Nearly 20% From Post-ETF Euphoria

5. SEC says multi-factor authentication had been turned off in run-up to false X post about bitcoin ETF approval

   • The SEC said Monday that multi-factor authentication on its X account had been disabled in the run-up to a false post earlier this month before spot bitcoin ETFs had been formally approved.  "While multi-factor authentication (MFA) had previously been enabled on the @SECGov X account, it was disabled by X Support, at the staff’s request, in July 2023 due to issues accessing the account," the SEC said in a statement on Monday. "Once access was reestablished, MFA remained disabled until staff reenabled it after the account was compromised on January 9." MFA is enabled now for all SEC social media accounts that offer it, the agency's spokesperson added. 

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Innovation & Adoption 💡📈

1. Bitcoin surpasses silver to become second largest ETF commodity in the US

   • After trading for just a week, bitcoin ETFs have exceeded silver ETFs in the U.S. in terms of assets under management. "Bitcoin ETFs have exceeded silver ETFs in the U.S. in terms of size, driven by the substantial market interest they have received," Bitfinex Head of Derivatives Jag Kooner told The Block, adding that pent-up demand for bitcoin has played a crucial role in propelling the digital asset ahead of silver in AUM terms. Silver was previously the second-leading single commodity ETF in terms of AUM in the U.S. However, spot bitcoin ETF funds, including the conversion of Grayscale's GBTC trust, now hold approximately 647,651 bitcoin, which amounts to $27.5 billion in AUM, according to CC15Capital.

2. X launches dedicated payments account, crypto community speculates

   • Elon Musk’s “everything app” X (formerly Twitter) has created a dedicated account for its upcoming payments feature, fueling crypto community speculation about whether cryptocurrencies will be implemented.

     There is anticipation that the X app will introduce in-app payment services by mid-2024. However, it’s unconfirmed whether the feature will support payments beyond traditional fiat currencies.

3. MetaMask introduces Ethereum validator staking feature, powered by Consensys

   • MetaMask, the popular crypto wallet application, has partnered with Consensys Staking to run Ethereum validator nodes on behalf of users willing to stake at least 32 eth, a current value of about $80,000. Following its transition from a proof-of-work network to a proof-of-stake network in the September 2022 known as ‘The Merge,’ Ethereum’s network is now secured by such validators. Many staking providers allow users to pool smaller amounts of funds together to hit the 32 eth requirement to run one validator, splitting the rewards.  MetaMask’s new staking offering, however, promises no pooling and no hardware or software requirements. Rather, the 32 eth stake is used to run a validator node through the Consensys Staking service, which already operates validators totaling about 4% of all staked eth. 

4. Hong Kong finance firm VSFG aims for spot bitcoin ETF launch in Q1: Bloomberg

   • Hong Kong-based financial services firm Venture Smart Financial Holdings Limited is planning to launch its spot bitcoin exchange-traded fund within the first quarter, setting a target of $500 million in assets under management by the year-end, according to Bloomberg. The company, which claims to be Hong Kong's first approved virtual asset manager, has yet to place an ETF application with the Securities and Futures Commission, the city’s financial regulator.  Hong Kong published spot bitcoin ETF requirements for licensed firms last month.

5. EigenLayer plans 'shared security' model for dapps

   • Re-staking protocol EigenLayer plans to adopt a "shared security" system, a mechanism allowing protocols to join the network by leveraging a common pool of ETH stakes. EigenLayer offers a protocol for users to deposit and "re-stake" ether from various liquid staking tokens, aiming to allocate those funds to secure third-party networks. The project's first stage was released on the Ethereum mainnet in June 2023.