This edition of Maven’s Insights highlights the approval of Ethereum ETFs by the SEC, signaling a major milestone for the industry. We also explore recent legal updates, including significant settlements involving Genesis and FTX, which promise to reshape the market. Additionally, we provide insights into the implications of the Dencun upgrade on Ethereum's network economics. Stay informed on these pivotal changes and how they may impact your investments and the broader crypto landscape.
While the Dencun upgrade happened in mid-March, this month gave some time to collect data and analyze what the upgrade means for the future of the Ethereum network. Dencun introduced blobs, a more efficient way of posting more data on the Ethereum chain, which allowed L2s to significantly reduce their transaction fees. Since part of the transaction fees paid to the network are burned (ever since the introduction of EIP-1559), the reduction in transaction fees paid by L2s has led to a decrease in the amount of ETH burned to one of its lowest levels since the Merge. Due to this, the supply of ETH is growing at its fastest daily rate, and, at the current rate of network activity, Ethereum will not be deflationary until mainnet or L2 activity increases. Moving forward, the future network economics of Ethereum will be dependent on striking the balance between having significant transaction fees generated on mainnet, which in line with the Ethereum roadmap is working towards optimizing for settlement of L2s, while providing users with cost-effective access to blockspace on L2s.
The month of May brought about winds of change regarding the regulator position of our industry and Ethereum in particular The SEC approved Form 19b-4 for eight Ethereum ETF issuers, which de facto sees the SEC approve spot Ethereum ETFs, after the spot Bitcoin ETFs recently received the same approval ETF issuers still need to have their S-1 registration statements go effective before they can begin trading but expectations are set for between June and August. While the possibility of including staking rewards for these ETFs has not been approved, the landmark approval signals that the SEC views that ETH is a commodity and not a security, a major industry-wide win. Next, SEC Notice 121 (SAB 121) created some regulatory upheaval this month.
Firstly, the U.S. Senate voted 60-38 to overturn the crypto asset accounting rules laid out by the SEC in their previous Notice 121 (SAB 121). SAB 121 would require companies to record their holdings of crypto assets on their own balance sheets as liabilities and would have made it inefficient and expensive to hold customer assets as this would require institutions to drastically increase the amount of regulatory capital needed. A surprise vote that required bipartisan support saw 12 Democrats go against their party line to vote to overturn the new rules. However, US president Biden later vetoed the bill to overturn the introduction of SAB 121. Legislators now look forward, as a two-thirds majority from both Houses of Congress may allow the veto itself to be overturned. More regulatory news followed this month, with the U.S. The House of Representatives passing the joint CFTC and SEC FIT21 bill by a vote of 279 to 136 to more clearly define what makes a crypto token a security or commodity bill will then refine the details and go to the Senate, where it will ultimately need Biden’s approval. Finally, indicative of the role that crypto will play in the 2024 US elections, this month saw significant posturing from both presumed presidential candidates regarding their crypto stances. Donald Trump was quoted saying that Crypto and the future of Bitcoin will be made in the USA, announcing that he will support the right of self custody, while in reaction, president Biden’s re-election campaign has also begun reaching out to key figures in the cryptocurrency industry, seeking guidance on the future development of the cryptocurrency community and cryptocurrency policy, marking a major shift from Biden’s previously.
A series of major settlements were also announced over the month of May. The New York Attorney General announced a $2 billion settlement with bankrupt crypto lender Genesis after the AG sued Genesis, Gemini, and Digital Currency Group in October 2023 for allegedly defrauding over $1 billion from 230,000 investors. Gemini stated that earn users received $2.18 billion in digital assets and will get 100% of their assets back, with Gemini contributing $50 million. Additionally, the FTX estate expects to distribute between $14.5 billion and $16.3 billion to creditors, potentially returning 118% of their claims within 60 days of the plan’s approval. However, this value reflects valuations at the market lows, highlighting a significant opportunity cost for creditors. Distributions will be in fiat, possibly leading to a capital influx back into the market once funds have been distributed. Mt. Gox is also closer to settling its claims, with a recent 143,000 BTC (around $9.5 billion) transfer to a new wallet. Creditors have been updated, and the settlement is tentatively set for October 31, 2024. The tentatively positive resolutions to all of these cases may remove significant regulatory overhang that has long affected the industry.
Our portfolio companies have also been busy. Maple announced Syrup, a new protocol allowing DeFi users to lend USDC to institutions. Users can fund secure, fully collateralized loans for institutional borrowers with yields of around 15% with extra incentivisation via Drips rewards. Justin Sun's team deposited 120,000 eETH (the deposit certificate after ETH is deposited into EtherFi) into Swell L2, worth $376 million at that time. The chain's TVL currently sits at around $3 billion. Swellis is now set to launch their token at the beginning of Q2 this year. Lagrange announced their $13.2 million seed round and has also recently launched their ZK Prover network on EigenLayer with over 20 operators including Coinbase, OKX, and many of the well-known infrastructure companies such as P2P and Nethermind. Cross-chain DEX Catalyst successfully deployed their mainnet The first phase of this rollup will allow users to swap native ETH between Base, Blast, Optimism, and other Superchain rollups. Plural Energy, which facilitates investments in renewable assets, has also announced its $2.3 million pre-seed round and opened the platform for its first public offering. Fuel, one of the most anticipated parallelized L2 solutions, also announced its final public testnet on the Sepolia network as it gears up for mainnet launch later this year. Finally, Chainbound, a recent addition to the portfolio, soft-launched Bolt, a trustless protocol that allows blockproposers in the Ethereum network to offer credible commitments about their block contents through trustless inclusion preconfirmations, a new primitive that aims to enhance Ethereum’s UX and applicability.
