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A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

• Stripe brings back crypto payments

• Bitcoin halving and Runes

• SEC lawyers resigning

• SHIB memecoin raise

• Coinbase International Exchange PEPE listing

• Law is law, not code

The Latest

Crypto is back

Disinflation dept.

Bitcoin halving

Happy Bitcoin halving. On April 20th, the most popular cryptocurrency halved its inflation rate from 1.7% to 0.85%. The Bitcoin halving is by far the most well-known event within all of crypto, both due to its economic significance, but also the fact that the Bitcoin halving has historically signaled the start of a full-blown bull market. Time will tell if history repeats itself but the entirety of crypto sure hopes so.

The halving has historically been bearish for miners as in this case, the block reward is reduced from 6.25 BTC to 3.125 BTC, which means all else being equal, a miner’s revenue just dropped by half. A lot of hope goes into the price of Bitcoin appreciating to offset the emissions reduction, but that may not always happen soon enough, or to the magnitude that miners need to offset their costs. For example, mining cost surged to an ATH of $77.4K per BTC post halving, and with BTC currently trading at $68K, it may spell bad news for some miners if the price of BTC doesn’t go up soon. Historically, the halving has resulted in a period of consolidation and acquisitions within the mining industry.

However, there is something that is incredibly good for miners. The launch of runes. Runes Protocol is a new addition to the Bitcoin ecosystem. It offers a fresh take on fungible tokens and utilizes the UTXO model of Bitcoin to simplify the creation and management of tokens. Importantly, it allows multiple tokens to be stored in a single Bitcoin UTXO. Casey Rodarmo, the creator of Runes, also happened to be the creator of Ordinals, the popular way to manage NFTs on Bitcoin.

As a result of the launch of Runes and an incredible amount of speculation, miners earned $89.8M in fees 24 hours after the halving, which is more than the $85.9M in fees they earned for the entire month of March. In addition, it is more than a 3x the previous daily ATH in fees, which was a mere $25M. The average transaction fee on the Bitcoin network on April 20 was $91.89, compared to March’s average of $3.35. If this continues to any extent, then miners might be set up for an incredible bull market with much higher earnings than in previous cycles.

Ethereum has gotten a lot of flak in recent months for having ridiculously high fees, and Runes on Bitcoin are not much better. Anything on Bitcoin is probably the most inefficient way to transfer anything of value or build any new financial primitive. And yet, activity is blossoming with Bitcoin Runes/NFT volume eclipsing every other chain. However, optics-wise, degens think Runes are the next big thing, but continue to express displeasure at Ethereum, even though they both have similar fees and one is a lot more inefficient than the other. There’s something to study in that. — JC

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Quick Bits

SEC lawyers resigning

• Two SEC lawyers recently resigned after a federal judge sanctioned them for gross abuse of power in a crypto case. The SEC’s lawsuit was “marred by false statements and misrepresentations, as well as a lack of evidence.”

• I don’t think it is shocking news for anyone in crypto that the SEC has been abusing its power, making up new terms such as “crypto-securities”, and defining the same term differently three times in a year with what is ultimately zero regulatory clarity for anything in crypto.

SHIB raise

• SHIB, yes that Shiba Inu token that hit a $40B market cap last cycle, has raised $12M. What for you ask? To launch a next-gen fully holomorphic encryption blockchain via $TREAT, a new token within the Shiba Inu ecosystem.

• Memecoin raises have become a bit of a thing recently. For example, $DEGEN, a memecoin within the Farcaster ecosystem famously conducted a $1M sale to VC firm 1Confirmation. Expect to see more such activity as VCs fully lean into memes.

Coinbase International PEPE listing

• Coinbase International, the off-shore derivatives exchange of Coinbase, has finally listed PEPE. It seems that they, like many others in crypto, are fully leaning into the memecoin mania.

• Perps have historically generated a huge amount of revenue for CEXs, so perhaps some of that may benefit Coinbase this cycle as it didn’t have a derivatives exchange last cycle.

And last but not least

Avi Eisenberg convicted

In October 2022, a Solana perp trading protocol, Mango Markets, lost $117M in an “exploit.” To crypto, this event is more widely known as “a highly profitable trading strategy.” Avi Eisenberg, the mastermind behind the attack, pushed up the price of MNGO on various CEXs, increasing the value of the token by 10x in a matter of minutes. Following that, he used MNGO as collateral on Mango Markets to withdraw a wide variety of other tokens, enabled by the fact that he had artificially inflated the price of the tokens, AND the protocol allowed the token to be used as collateral. As a result, Avi Eisenberg was recently found guilty of fraud and manipulation and faces up to 20 years in prison. Alas, we return to the age-old debate of is code law. In this case, the answer is an astounding no. Law is law. If code is law, that means that all responsibility lies in the protocol developer, and any behavior that their smart contracts allow is legal. This means that every smart contract, and more specifically a protocol’s mechanisms must always be sufficiently robust to prevent such malicious activity from taking place.

Market manipulation is a very serious problem that TradFi has spent years tackling. Often, the outcome of market manipulation is huge. For example, the LIBOR scandal, in which the benchmark interest rate likely affected hundreds of millions of individuals’ daily lives was a massive scandal. As a result, the fines also have to be equally large, with many fines in high-profile market manipulation cases being close to $1B. If the future of crypto is truly DeFi, with the De here meaning fully and completely decentralized, then market manipulation shouldn’t really exist. And even if someone did “manipulate” markets, the repercussions lie in a fully decentralized protocol that is owned and governed by a fully distributed set of token holders.

But realistically, that is not the state of DeFi today, for better or for worse. The Mango Markets case lies at an interesting intersection, given that the manipulation of MNGO’s price occurred on a CEX, which for obvious reasons is governed by real-world laws. However, the “exploit” occurred on a “decentralized” protocol. Would this case have been treated differently had the exploit taken place on a CEX while the market manipulation took place on a DEX? Or if both had taken place on decentralized protocols? Probably not. The judge would likely have found Avi Eisenberg guilty either way.

So what does the future hold for us given these facts? Realistically, laws will always apply to any activity on the blockchain. Laws don’t just magically not apply to us just cause we are doing things on decentralized blockchains and protocols, as, fundamentally, it’s the action that matters, less so where it takes place. Perhaps in the future, rather than founding teams suing market manipulators or exploiters, that responsibility may lie in a DAO that will be responsible for forming a legal case and sending it to court. It will be fascinating to watch the first time this occurs. — JC

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.