Crypto Fundamentals #80

💫 Shakeups in the Crypto Exchange Market

Robinhood looks to acquire BitStamp, European crypto exchange

The Wall Street Journal reported that Robinhood is looking to expand its crypto offerings through the acquisition of BitStamp for a reported $200 million. BitStamp is the world’s longest-running cryptocurrency exchange and is based out of Europe, where it was founded in 2011. The cryptocurrency exchange has long emphasized regulatory compliance and transparency, exemplified by the fact it has been audited by a Big 4 accounting firm since 2016. The move allows Robinhood, who has been a player in the cryptocurrrency space for several years, to expand their market and product offerings. This will allow Robinhood to enter the European markets in a compliant way. Robinhood, which has long been a retail-only enterprise, will also gain an institutional book of business through this acquisition.

Robinhood experienced lows of $1.2 billion in notional trading volume on its platform in September 2023. However, by March 2024, volume had surged to $23.6 billion. Additionally, net deposits have grown significantly over the past five months, reaching $4.9 billion in April 2024, indicating renewed retail interest in stock and crypto trading.

Robinhood is doubling-down on crypto in spite of receiving a Wells Notice from the US SEC. A Wells Notice is a formal notification sent out by the SEC to inform a company that it has been the subject of a completed investigation. The Wells Notice comes as the SEC continues to stand by its belief that most cryptoassets are securities and should therefore register with the government agency. The SEC’s approval of spot ether ETFs late last month signified, although not explicitly, that the SEC, to some degree, believes ether is not a security. Of course, Robinhood has listed many other cryptoassets on its platform that have not had the level of regulatory exposure that ether has. Robinhood also offers a crypto wallet, and now has the ability to compete much more directly with other leaders in the crypto exchange space like Coinbase and Kraken.

Kraken announces new round of pre-IPO funding

According to Bloomberg, the digital asset exchange Kraken is seeking to raise over $100 million in pre-IPO funding. The firm has long teased at a public listing. As one Twitter user noted, ‘all private funding rounds are pre-IPO funding rounds’. However, according to anonymous sources reporting to Bloomberg, this will be Kraken’s final private funding round before its IPO which may come as soon as the first half of 2025.

🌞 Linea and Cosmos Hub Halt Block Production

This week two separate blockchains halted their block production. Each had a distinct reason for doing so. Let’s take a look at what caused these halts:

First was Linea. Linea is an EVM-compatible Layer 2 built on Ethereum that leverages zero-knowledge infrastructure for security. The halt stemmed from an exploit in one of Linea’s largest DEXes, Velocore. The exchange saw over 90% of its assets stolen in an attack on June 2nd, valued at ~$8.5m. As a result, Linea paused its sequencer, the entity that produces blocks in an L2. The team stated that the primary reason for the halt was that “the hacker had acquired and was beginning to sell a large sum of tokens into ETH. This would have created other issues in the ecosystem for users beyond the liquidity pool draining exploit”.

Naturally, the halt brought to question the core ideals of blockchain: decentralization and censorship-resistance. If one entity - the Linea team - can pause the sequencer, effectively freezing all $1.2 billion deposited to the chain, it calls into question the ideals of censorship-resistance that are touted by the crypto industry. Linea proceeded to state that the Layer 2 still has its training wheels on, allowing them to implement these ‘safeguards’. They still hope to decentralize their sequencer one day and become truly censorship-resistant.

The other big halt of the week came on Wednesday, on CosmosHub, home to the 2nd largest token in the Cosmos Ecosystem by market cap, ATOM. The chain was halted shortly after the latest software upgrade was released. According to the official post-mortem, '“the upgrade triggered a bug when a validator leaves the active set of validators and another validator takes its place”. The post also stated that the chain halt happened automatically due to a “function [that] happens to include a sanity check that halts the chain if the number of validators exceeds the MaxValidators parameter”. The chain was halted for about 5 hours as various validators and relevant ecosystem entities worked to patch the bug.

Unlike the Linea halt where there was outrage and disagreement around the halt, the CosmosHub halt was met with praise for the rapid response and transparency. The former halt was done voluntarily by a centralized entity, while the latter happened automatically by code ran by network validators. These are reminders that there are still issues in blockchains and that there is still a long way to go, and much to be built.