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:

• Ethereum consensus failures

• SEC responds to Coinbase

• Worldcoin and Sam Altman

• Tether buying BTC

• Ledger Recovery drama

The Latest

Journalism in the crypto era isn’t easy. When I started covering digital assets in 2015 for Bloomberg News I was quickly surprised to learn how hard it is to get good information that could lead to scoops. There are many reasons for this, one being that crypto startups tend to be run by small groups of tight-knit individuals, and getting them to tell you something newsworthy about their own company is very difficult. It wasn’t like that when I covered Wall Street, there were always sources willing to talk as long as they trusted me. Another tough part of covering crypto is that it moves so fast and one of its endearing qualities is its penchant for going public with news proactively, cutting reporters out of the thrill of breaking big stories.

This all came to mind this week as the founders of Bankless came under attack for a tweet saying Ethereum was broken (see lead story below).

The Bankless co-founders came under harsh scrutiny on Twitter, making them sad. I think this gets at another facet of crypto journalism – many outlets are funded by crypto conglomerates that can lead to charges of bias or a lack of independence. In the case of Bankless (which is independently funded), they have been criticized, rightly, for shilling Ethereum and for some dubious sponsors they’ve taken money from. But is Bankless journalism? I would say no, and I think the co-founders would agree. Yet they have a large influence on Twitter and through their podcast and newsletter. The co-founders are also young – in their mid-20s I believe – and that can be a lot of pressure to bear. Then there was the news that The Block’s CEO had taken $27 million in loans from FTX., which led to the CEO’s resignation and a black eye for The Block. All that being said, crypto deserves rigorous and principled scrutiny from journalists and those with outsized influence.

Of course there has been stellar journalism in the space, such as the Coindesk story that broke the financial house of cards at FTX, leading to its demise and bankruptcy. That’s powerful work and told everyone something they didn’t know, which is journalism’s true power. This is all against the backdrop of a continuing sneering cynicism towards the crypto industry by the mainstream press. I’m torn over the quality of reporting in the space and think it could definitely be better. It’s vital to remember that crypto is really about money and challenging what that amorphous word means. It’s also about a type of financial freedom that hasn’t existed before. With that in mind, my hope is that the journalists and outlets covering this fascinating industry take the care and attention the space deserves. — Matthew Leising, editor in chief, Decential Media

Blockchains aren't always final dept.

Ethereum Consensus Failures

Last Thursday, Ethereum failed to finalize for three epochs. This was followed up with a more severe instance on Friday afternoon, where Ethereum failed to finalize for eight epochs. These two events are probably the most significant technical hiccups for Ethereum in recent memory and show how far blockchain technology has to develop.

What does it mean for a blockchain to fail to finalize? When a blockchain is finalized, previous blocks can no longer be changed, altered, or canceled, hence your transactions have finality. On Ethereum, this is achieved by >66% of validators attesting to the final state of the blockchain.

Why do you want finality? Imagine your employer pays you by check, you think that money is already yours, but the check bounces. Or you bought some GME call options on Robinhood in 2021, but Robinhood decided not to honor those transactions. That is what a lack of finality results in, and theoretically, any centralized ledger can always revert your transactions. And that's exactly one of the key value propositions of blockchain networks, that your transactions can never be reversed and are truly final.

You may be wondering, oh I didn't notice anything wrong with Ethereum when submitting transactions last Friday afternoon. This is exactly how Ethereum is designed. The consensus mechanism decouples liveness from safety, allowing users to continue to submit transactions while validators catch up to finalize blocks, or penalty mechanisms start kicking in to balance online validators with offline validators.

So where do we go from here? For starters, the client issues that caused last week's problems have been hot-fixed already. For other blockchains, they have to decide on whether they want to prioritize liveness or safety, each with its tradeoffs. At the end of the day, user experience is king. — Joseph Cooper, Decential Media

Crypto charting

Here's a deeper look into the economics and mechanics of web3 and crypto courtesy of charts by Pyth Data Association. To see more Pyth research click here.

Meme token market can be extremely volatile! $PEPE

The hottest meme token of 2023 had a fall from grace at the end of last week, falling around 75% from all time highs. However, right when the market thought the meme token craze was behind us, it displayed a spectacular rally over the weekend to almost double in value. Pyth price feeds displayed a tight Confidence Interval, highlighting the available liquidity for traders active in $PEPE.

ETH prices looking for direction! $ETH $stETH

ETH has been in the news ever since the Shanghai upgrade enabled withdrawals of staked ETH a month ago. Market participants were in two opposing camps - the bears expected large amounts of staked ETH to be withdrawn and sold while the bulls expected more institutions to stake ETH with the comfort of being able to withdraw when required. In the end, both sides were disappointed as ETH has performed mainly flat over the last few weeks.

Last week, the market received news of Celsius Network moving stETH and preparing to withdraw $437.7mn of staked ETH. Even this failed to move the ETH market as price remain anchored around the 1800 mark.

Quick Bits

SEC Responds to Coinbase

• On Tuesday, the SEC finally responded to Coinbase. This was after Coinbase sued the SEC in April in a bid to get some much-needed regulatory clarity. Coinbase's complaint was that the SEC was not providing a regulatory framework within a reasonable time.

• Unfortunately, we found out what the SEC defines as "reasonable time." According to them, it's roughly 10-20 years. So don't hold your breath on that fabled crypto regulation we've been wishing for.

Worldcoin, The Intersection of Crypto and AI

• By now, you must know Sam Altman, famous CEO of OpenAI, creator of ChatGPT. What you may not know was that he also co-founded Worldcoin, a crypto project that recently raised nearly $100M and that wants to help provide a privacy-preserving digital identity solution to solve critical identity-based challenges.

• This is achieved by going around and scanning people's eyeballs using the Worldcoin Orb. The premise is eye catching (sorry): in the future, where AI is prevalent and one cannot discern between an autonomous agent and a human being, one of the only ways you can prove your identity and your "proof of human hood" is through biometrics such as your iris, stored on the blockchain. 👀

Tether, The Next Marginal Bitcoin Buyer

• BTC holders rejoice. We have a new Bitcoin buyer in the room. On Wednesday, Tether announced that it would commit to using up to 15% of its future monthly net operating profits to purchase Bitcoin. This Bitcoin will sit on their balance sheet as excess reserves.

• Maybe Tether will now take over Michael Saylor's role as the local top signal whenever he announces a Bitcoin purchase. However, Microstrategy owns ~140K BTC, while Tether owns ~55K BTC, so it'll take a few years before Tether catches up. 

And last but not least

Ledger Social Recovery Drama

On Tuesday, Ledger announced a new service for their hardware wallets, Ledger Recover. It is a recovery service provided through an optional subscription for users who want a backup of their secret recovery phrase. If a user opts in, their private key is split into three fragments and sent to three custodians. A user can then recover their wallet if needed by verifying their identity.

Recovery services are essential, and we are familiar with these features in web2, such as resetting your password through a backup email. However, if you wanted a Ledger, you likely wanted the guarantees that come alongside self-custody. Introducing firmware that could access your sharded encrypted key opens your hardware wallet to new attack vectors. But still, at the end of the day, not everyone cares that much about decentralization. A hardware wallet with a centralized recovery service is likely still infinitely better for the average user than a hot wallet.— JC

Out of the Ether: Special NFT Edition

Have you read the definitive history of Ethereum? No? Well then get your special edition of Out of the Ether while you can. There are only 1,000 that were printed and each copy is an NFT that can be registered on the Lukso blockchain’s Universal Profile protocol.