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:

• BlackRock + RWAs

• EigenLayer airdrop

• CZ sentencing

• Hong Kong ETF launch

• BlackRock BUIDL becomes the largest tokenized treasury fund

• Heroglyphs

The Latest

The case for the long view

Farming users dept.

EigenLayer Airdrop

Hearts have been broken. Conviction has wavered. Users have been farmed. This feels like peak FUD for points programs and airdrops. Of course, I’m talking about the recent announcement from EigenLayer of the EIGEN token, which has been subject to endless debate on CT.

The token was announced through a 43-page whitepaper, which included new fancy terms such as intersubjective attributable faults, and introduced an intersubjective forking mechanism. This culminates in EigenLayer framing EIGEN as a universal intersubjective work token, complementing the utility of ETH as a universal objective work token in the EigenLayer ecosystem. If you have no idea what you just read, neither does anyone in crypto. I would estimate approximately 37 people understood the entire whitepaper.

Back to the details that normal people care about. 5% of the token supply will go to restakers as part of Season 1, with the snapshot having been taken on March 15, 2024. The Season 1 stakedrop will roll out in two phases, with most restakers & liquid staking token holders receiving their tokens in Phase 1, and with complex LRT integrations receiving their tokens in Phase 2. 15% of the initial supply has already been earmarked for future airdrops, and EigenLayer has publicly stated that there will be more seasons to come.

But alas, airdrop farmers will always find a way to be angry at teams. Nothing upsets crypto people more than being given free money in the wrong way. The main gripe this time? The fact that many users in prominent geographical regions are geo-blocked from the claims site. Even turning on a VPN didn’t work for most individuals this time, which means that many of these users have deposited their ETH in EigenLayer for months on end and will receive nothing in return.

I don’t think users should ever expect an airdrop if they are simply interacting with a protocol. I will admit that we are pretty demanding and whiny when it comes to interacting with protocols and that we expect a completely ridiculous amount of money from an airdrop for simply interacting with a protocol with minimal effort. But this one feels a little different.

For starters, EigenLayer gave out points to users, encouraging deposits and boosting the protocol’s metrics. These deposits from users had a certain level of risk to them and also resulted in the opportunity cost of yield forgone. Users paid a very real “cost” depositing into EigenLayer and in return, what did they get? EigenLayer geo-blocking them from claiming an airdrop.

However, on the other hand, this really shouldn’t have surprised anyone. At this point, hundreds of protocols have blocked US users from claiming airdrops, and no one should have expected anything different. EigenLayer is just getting an inordinate amount of flak given that they will quite likely be the biggest airdrop in crypto, ever. EigenLayer is likely a US-based company, that has taken in hundreds of millions in VC investments, and like many other conservative crypto projects, has simply decided they did not want to play with fire and the wrath of Gary Gensler.

Where does all that leave us? Despite the obvious risks, and users very well knowing what they were getting into, many of these same users are now crying at the door. I don’t think human nature is going to change anytime soon and we will all continue to expect ridiculous amounts of free money for relatively little work. But you can’t blame any project for leaning to the safe side with zero regulatory clarity in sight for crypto. So for all the airdrop farmers out there, tread carefully, as the cost of capital is very real. — JC

Quick Bits

CZ sentencing

• Binance founder Changpeng Zhao, better known as CZ, has been sentenced to 4 months in prison. US prosecutors had recommended a 36-month sentence but ultimately decided on 4 months as part of a plea deal.

• Other than the fact that this hilarious ties into the 4 meme from CZ and proves that we are all living in a simulation, CZ will likely enter prison as the country’s richest inmate. Imagine being his next-door neighbor.

Hong Kong ETF launch

• Earlier this week, Hong Kong launched two crypto ETFs for BTC and ETH. Hong Kong ETF issuers expressed confidence that the issuance scale of the spot ETFs on the first day of listing would exceed the first day of the US counterparts, especially thanks to investors in Singapore and the Middle East.

• However, first-day activity fell short of expectations, with total volume only reaching $112M. Can’t blame CT for hoping that we get to run the ETF narrative back turbo again. However, looking at this from the perspective of Hong Kong, by all metrics this was a relatively successful launch.

Blackrock BUIDL becomes largest tokenized treasury fund

• In less than six weeks, BlackRock’s USD Institutional Digital Liquidity Fund has surpassed Franklin Templeton’s one year old tokenized treasury fund to become the largest by AUM.

• The fund now holds $375M in assets and makes up almost 30% of the $1.3B tokenized treasury market. Tokenized government securities currently only account for 1.4% of the total assets tokenized on-chain, but given stablecoins remain crypto’s killer use case, expect that number to dramatically increase in the future.

And last but not least

Heroglyphs

Heroglyphs is a new protocol that proposes incentives to increase the number of solo validators on Ethereum. If you haven’t been following, Ethereum’s validator set isn’t all that decentralized these days, and with centralizing forces such as EigenLayer, may become even more centralized going forward as institutional node operators continue to enter the space. This is without an ETH ETF which would inevitably include staking at some point, and likely result in these ETF issuers only trusting certain node operators to delegate their ETH to. Why is a decentralized validator set with low hardware requirements important? So the network remains censorship-resistant. If one day, all of Ethereum’s node operators were institutions, and they all got ordered to censor OFAC transactions by the US Department of Treasury, then that wouldn’t bode so well for the entire Ethereum network as a whole as users would quickly realize that any transaction can be censored. That is not the case when there is an army of solo/at-home validators validating the network. In that scenario, ETH holders would simply delegate to these solo validators who would not be censoring transactions.

So what role do Heroglyphs play in this? Heroglyphs were created by 0xMaki (famous ex-head chef at SushiSwap). It proposes a BTC inscription-like protocol, creating a system to encode valuable information (such as token creation) into blocks proposed by solo validators. This means that validators can permissionlessly create tokens inscribed into blocks and also enforce the rules around them. How exactly will this promote solo validators? Only solo validators can interact with the Heroglyphs protocol, as the protocol itself determines who has withdrawal addresses as EOAs, which would mostly be applicable to solo validators. Hence, solo validators will be able to create an entirely new asset class on top of Ethereum where solo validators are first class citizens.

Here’s a slightly cynical view of mine. If Ethereum requires an out-of-protocol mechanism to incentivize solo stakers to reach a certain threshold of network decentralization, then the network incentives are fundamentally flawed anyway. It shouldn’t take an out-of-protocol mechanism to incentivize solo stakers, the economic incentives should independently be sufficient to encourage solo stakers. The protocol could easily enforce this at the protocol level, with reduced staking rewards for larger node operators to encourage decentralization.

To go even further on this, a large reason why Ethereum is expensive to use is because of its small block size. The decision behind retaining small block sizes is so that solo stakers can always easily run a validator node at home with minimal hardware requirements. If one looks at the liquid staking landscape today, more than 90% of deposits are with Lido and Coinbase, and these two are essentially entirely run by institutional node operators. In that case, one could ask, does Ethereum really need to be that decentralized given that’s it not really decentralized today? Should we be accepting the reality as it is today, or trying to always leave the door open for solo stakers? — JC

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