Telegram, Crypto's Ultimate Super App

The SEC is coming for my son I Robinhood Wells notice | Grayscale withdraws ETH futures ETF | Sybil attackers in crypto

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Decential Media
May 10, 2024

Decential Media
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:

  • The SEC is coming for my son

  • Telegram’s role in crypto

  • Robinhood Wells notice

  • Sui spam

  • Grayscale withdraws Ethereum futures ETF

  • Sybil attackers in crypto

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The Latest

The SEC is coming for my son

It’s funny to think the Securities and Exchange Commission is coming for my son. He’s fifteen and wanted to start investing last year, so we opened a Robinhood account for him. He wanted to buy some stocks, but also crypto. Mind, this was after a dozen conversations with him about non-fungible tokens and how he couldn’t understand their value no matter how hard I tried. Fast forward a few months and he’s placing orders for Ether, Bitcoin and Doge via Robinhood’s platform.

The first thing here is how easy Robinhood is making it for noobs to start buying digital assets (and stocks, too). The interface is what’s needed until wallets become far easier and less scary to use, so if we’re looking for that great onboarding spirit in the sky we shouldn’t turn our noses up at centralized services. The next thing is the little punk doubled his money in this recent bull run and cashed out.

Then this week the news came out that Robinhood is potentially under investigation by the SEC. It received a Wells Notice (see below), which means an enforcement action is likely. This probably has to do with the cryptocurrencies Robinhood offers its customers, which the SEC thinks are securities that must be registered and traded on regulated exchanges. As Reuters helpfully pointed out, Robinhood has been trying to register with the SEC for two years and has delisted coins under pressure from the Gary Gensler led black box. I mean, why work with people when you can just sue the ever-living shit out of them, right Gary?

I’m very tired of writing about Gensler’s SEC, but it is the biggest threat the industry faces. Robinhood came out forcefully, like Uniswap and Coinbase also have, saying it looked forward to making its case that most digital assets aren’t like a stock or a bond. I thought Uniswap but it brilliantly when it said in response to its own Wells notice that not all pieces of paper are stock certificates. Well done. That’s the kind of language and ease of understanding crypto needs to make its case, and I can’t wait to see the SEC argue its side in court.

Ostensibly, the SEC is out to protect retail investors like my son. The agency thinks people don’t know what they’re doing with their own money and must be sheltered. I don’t buy that; I think people know exactly what they’re doing, and when they get rugged on a shitcoin that suddenly goes to zero it’s their own greed and complete lack of risk management to blame. My son knew the risks, took his shot and did very well. If Gary Gensler wants to do something for retail investors like him he should make his case in court, or work to write legislation that gives the industry a rulebook. Clarity is what’s needed, not more obfuscating enforcement actions. That’s the way to protect the little guy. – Matthew Leising, editor in chief, Decential Media

Farming users dept.

Telegram’s role in crypto

I often tell people of Telegram’s critical role in crypto. Without it, zero BD work would get done, everyone would lose an entire Rolodex of valuable relationships, and we would all have to default to lousy Twitter DMs.

Telegram has over 900 million monthly active users, making it one of the largest chat apps today. It is widely used across vast swaths of Asia and Africa and has successfully infiltrated industries and economies alike.

At this point, you might say, that’s all great and all. Telegram is this future-facing, fast, and secure messaging platform, but at the end of the day, it’s a chat app. Yet there’s so much more to it.

One of the largest things crypto lacks today is distribution. The main method by which we try to onboard users is CEXs, which let’s face it, still don’t exactly have the best user experience. Do you know what does have a great user experience and is used daily by hundreds of millions worldwide? A chat app, perhaps one like Telegram!

So how does onboarding people into crypto tie into Telegram? Duh, Telegram built its own blockchain. The Open Network (TON) is a blockchain initiative developed by Telegram that’s designed to leverage the chat app’s extensive user base to create a decentralized network capable of supporting a diverse range of applications. Not stopping at only building a blockchain, Telegram also built out a storage solution, a domain name service, and TON services, which all function seamlessly together.

If you’re thinking where does the wallet piece fit in, fret not. Telegram has developed an in-app wallet called Top.co, which allows users to seamlessly connect to mini apps, similar to WeChat and WeChat Pay. Through Telegram users can easily buy, sell, or manage tokens and NFTs.

So what can users actually do within the TON ecosystem? Fragment is an app that allows users to trade collectibles such as virtual phone numbers and custom Telegram usernames. To date, the app has facilitated over $350M in sales. Or what about Tether announcing that USDT would be deployed on TON blockchain recently? Imagine being able to send USDT to anyone via Telegram, at the push of a button without ever having to leave Telegram. I for one, would greatly appreciate that. Rather than asking for wallet addresses, supported blockchains, and what currency when I need to pay someone back, I can simply just shoot them USDT through my Telegram chat. Or take games such as Catizen which has over four million users, including 700K on a daily basis.

The ecosystem is vast and the user base is wide. Telegram is posed to be a killer distribution channel for many “mini” crypto apps, and could one day become a super app with a multitude of built-in financial products. Oh, I forgot. It has a token, TON, not like that should matter anyway. We’re in it for the tech right? — Joseph Cooper, Decential Media

Quick Bits

Robinhood Wells notice

  • On Monday, Robinhood received a Wells notice from the SEC. The Wells notice alleged securities violations, and one can only imagine that it has to do with tokens that Robinhood has previously listed.

  • Robinhood famously forced liquidated all of its users’ SOL at the lows in 2023 as a result of a large crypto crackdown from the SEC. At the time of liquidation, SOL was trading at ~$20. Today, it is trading at $150. Even doing so did not save Robinhood from the hands of Gary Gensler.

Sui spam

  • How do you generate as much activity on your network as possible before a large supply unlock to the tune of a 43% increase in circulating supply? You launch an app called Spam Sui, where the more transactions you send, the more token SPAM you earn.

  • Spam Sui now makes up more than 80% of Sui’s transactions, which has resulted in it flipping Solana in daily transactions. The timing is certainly suspicious right before such a large increase in circulating supply.

Grayscale withdraws ETH ETF filing

  • Grayscale just withdrew their 19b-4 filing for an ETH futures ETF. While the entire industry awaits a spot ETH ETF approval, this is a shocking move. This was essentially the thing that allowed Grayscale to win its GBTC lawsuit arguing that the SEC can’t approve a futures ETF but deny a spot ETF.

  • There is speculation as to why they would do this. One possible argument is that the SEC spoke with Grayscale, and that whatever they said was enough to spook Grayscale to withdraw its application.

And last but not least

Sybiling in airdrops (LayerZero)

Last week, LayerZero announced something that threw up quite a big kerfuffle amongst CT. As they stated, “We believe it is in the protocol’s best interest to distribute tokens to durable users - not sybil farmers.” They promptly gave Sybil attackers two options. 1.) Self-report Sybil addresses by May 17th for 15% of your intended allocation, no questions asked. 2.) Do not report and receive nothing when an address is flagged by our internal sybil report or by bounty hunters.

This leads to an interesting conundrum for the user. Do they self report in hopes that they get to keep 15% of their intended allocation, or do they hope the Sybil catchers don’t find them and they get their full allocation? Other protocols have tried to play this game before. If you’re asking yourself whether you should self-report or not, if you think you’re a Sybil, you are most likely a Sybil. I think it is pretty clear before you start farming a protocol whether you want to be a Sybil or not. If you decide to become one, you are spinning up tens of wallets, splitting funds across them, and most likely conducting the same set of actions. You can’t describe that activity as not sybiling a protocol.

To arrive at the root of this problem, one must ask, why do people sybil? It’s because protocols don’t give out linear airdrops. Let me explain. A linear airdrop means that whatever metric is used to measure a user’s contribution is directly linearly correlated to the amount of airdrop they receive. So for example for LayerZero, a user that does 10x more bridging volume than another user should receive 10x the airdrop. However, that is often not the case. In order to reward “small fish”, a protocol gives the smallest users a larger airdrop than they would’ve received in a linear distribution. As a result, the incentive is for users to conduct their activity across many wallets as this would result in them being allocated a larger airdrop than had they conducted all their activity in one wallet. If a protocol distributes their airdrop linearly based on a hardened metric that cannot be faked or gamed, then there is zero incentive to Sybil attack.

The community was not pleased at all by the announcement from LayerZero, which would imply that most of the community was Sybil attacking LayerZero. However, there is a bit more behind the anger. For starters, LayerZero Founder, Bryan Pellegrino, publicly stated that if you used one of the most popular applications that utilized LayerZero, Merkely, you would likely be classified as a sybil attacker as no one bridges valueless NFTs around. However, he then went on to clarify that statement and said it only applies to those who send NFTs around in endless loops. The other focal point is how users feel like they have been “farmed” by LayerZero, endlessly led on and helping to inflate protocol metrics while receiving peanuts and treated as a hostile entity in return. To be fair, LayerZero never promised a token, and one should only really be using a product if they find it valuable, but alas, crypto has managed to financialize everything.

Lastly, most things in life follow a Pareto principle, and crypto is no different. Eighty percent of activity is likely due to 20% of users for most protocols. Thus, I never quite understood why crypto protocols even bother with the bottom tier of users. I get that from a core principles perspective, crypto is all about helping the little guy but thinking from a pure business perspective, I would rather reward the users that make up 80% of my protocol’s usage. But that is definitely a hot take in crypto. — JC

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