The Protocol: Now Everyone's Putting a Wrapper on Bitcoin

As a seasoned blockchain enthusiast with years of experience under my belt, I find the rising trend of private transactions on Ethereum both intriguing and concerning. Having witnessed the transformative power of decentralized networks, I can’t help but feel a sense of unease as we seem to be inching towards greater opacity in our transactions.

Tron founder Justin Sun – described on a recent podcast episode as “shameless” but “very shrewd” and “one of the smartest on-chain users, period” – is in the headlines this week, and not just because of the new self-referentially named memecoin launchpad, SunPump. His move to take a role alongside BitGo in the custody of the $9 billion-plus wrapped bitcoin (WBTC) project has made waves in the highly competitive arena of tokenizing bitcoin for use in decentralized finance (DeFi) protocols on Ethereum and other chains. Read on.

PLUS:

Urbit’s in upheaval, as founder Curtis Yarvin returns, Josh Lehman departs.
Top picks from the past week’s Protocol Village column: GOAT Network, BitVM2, Linea, Status, Babylon, Network3.
Nearly $200 million of blockchain project fundraisings: PIP Labs, Chaos Labs, Fabric Cryptography, GenLayer, Corn, Holonym Foundation, Rhinestone, Crunch, Lumia.
Dark pools on Ethereum – are they taking over?

As a seasoned technology enthusiast with a keen interest in the rapidly evolving world of cryptocurrency, I can wholeheartedly recommend checking out “The Protocol”, our weekly newsletter that delves deep into the technical aspects of crypto one block at a time. With years of experience under my belt, I’ve come to appreciate the importance of staying informed about the latest developments in this space. By subscribing, you’ll receive this insightful publication every Wednesday, straight to your inbox. Trust me, it’s an essential read for anyone looking to stay ahead in this fast-paced industry. Sign up now!

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The Protocol: Now Everyone's Putting a Wrapper on Bitcoin

The amount of wrapped Bitcoin (WBTC) available has experienced fluctuations, along with its market value, due to the volatile nature of Bitcoin itself, as the value of the WBTC token tends to mirror that of Bitcoin according to Dune Analytics.

“Exciting Changes Ahead: As a Crypto Investor, I’m Noticing a Revolution Brewing in the Realm of Bitcoin Tokenization for Ethereum!”>”

In 2019, BitGo and two collaborating entities introduced “wrapped Bitcoin” – a method of securing Bitcoin and issuing an equivalent token, WBTC, which could be utilized on Ethereum, a significant hub for many crypto traders due to its hosting of the largest decentralized finance (DeFi) protocols. The WBTC initiative gained popularity quickly, with its market capitalization skyrocketing by late 2021 to approximately $16 billion, before eventually stabilizing around $9 billion, maintaining a position among the top 20 cryptocurrencies. It’s worth mentioning that BitGo was the only custodian for the secured Bitcoin, a factor that raised potential concerns.

It appears that BitGo’s recent plan to shift WBTC into “multi-jurisdictional custody” by expanding operations in Hong Kong and Singapore may alleviate certain issues. However, some projects and critics have focused on Justin Sun’s role as the founder of Tron in BiT Global, the firm now handling the securely locked bitcoin, as a potential new threat. As Greg Cipolaro, head of research at Nydig, noted on Aug. 16, “This partnership has sparked concerns among industry experts.”

In a tweet, Sun acknowledged he had “heard that the community has some concerns about my involvement in various projects, including WBTC,” but insisted that his “personal involvement in WBTC is entirely strategic. I do not control the private keys to the WBTC reserves and cannot move any BTC reserves.” BitGo CEO Mike Belshe joined an X Spaces to point out that “there is no single party that has the ability to mint or steal from the underlying treasury.”

Despite a lively debate on its forum, MakerDAO, a decentralized stablecoin issuer, approved a motion on August 14 to phase out its association with WBTC. This decision was made due to apprehensions that the revised system could confer too much control to BiT Global, as per CoinDesk’s Sam Reynolds’ report. For the time being, DeFi protocol Aave continues to work with WBBC, according to CoinMetrics, but this shift has brought custodial and operational risks into sharp focus, leading to a surge of interest in decentralized alternatives.

These could include Threshold’s tBTC, dlcBTC by another entity, and a new contender from Coinbase called cbBTC. Over the past week, these have been extensively discussed on various podcasts. On platform X, crypto influencers have endorsed FBTC, an alternative wrapped bitcoin launched last month with Mantle Network’s support, as a potential answer to WBTC’s centralization concerns. According to Galaxy Digital’s Gabe Parker in his newsletter, these players are hastening the creation of decentralized alternatives to wrapped bitcoin. As Tarun Chitra from Gauntlet stated on the Chopping Block podcast, “There’s going to be a significant surge to try to fill this gap.”

From Presto Research’s perspective, attempting to decentralize a crucial part of the Decentralized Finance (DeFi) structure could be a positive move, even with its difficulties, regardless of personal opinions about Sun’s role.

ELSEWHERE:

U.S. Senate Majority Leader Chuck Schumer came out guns-blazing during a Crypto4Harris event, saying what’s been considered a longshot idea of getting some kind of crypto legislation out this year could really happen. Billionaire Mark Cuban said former President Donald Trump and his party are primarily interested in crypto to make rich digital assets investors richer. (Fwiw, Trump is once again in the lead on the prediction-betting site Polymarket’s election winner contract, with his odds of beating Vice President Kamala Harris now seen at 52-47.)

‘Wartime CEO’: Urbit’s Founder Returns in Shakeup at Moonshot Software Project

Urbit founder Curtis Yarvin (David Merfield/NASA, composite by Jesse Hamilton for CoinDesk)

The daring and unique initiative known as Urbit, aimed at completely overhauling the foundational framework of the internet, has drawn back its contentious creator, Curtis Yarvin, following a five-year absence. Although he doesn’t hold an official position, he is spearheading the strategic direction of the project.

The executive director of the Urbit Foundation, the organization responsible for guiding main development, has been let go by its board. For now, Christopher Colby is taking over as an interim leader while they search for a permanent successor.

Instead of the foundation running low on funds, it finds itself short on financial resources. In place of the Lehman-supported plan to construct a fresh layer-2 blockchain upon Ethereum, they’ve opted for Yarvin’s approach, which entails developing a utility token potentially within Base, Coinbase’s own layer-2 system.

Click here for the full article by Marc Hochstein

Protocol Village

Here are my top highlights from the past week at Protocol Village, a space I’ve come to know well over time. This column has consistently been a go-to source for me, offering insights into the ever-evolving world of blockchain technology and its latest updates. Let me share with you some key advancements and news that have caught my eye this week:

Illustration in the GOAT Network whitepaper showing the two main strategies that Bitcoin owners can employ to engage in the sequencing process (GOAT Network)

1. EXCLUSIVE FOR PROTOCOL VILLAGE: GOAT Network Unveils Its Whitepaper: The GOAT Network, which claims to be the pioneer in Bitcoin layer 2 networks that distribute network ownership, has revealed its economic whitepaper outlining their economic model and a sustainable approach for Bitcoin returns. A brief overview states: “GOAT Network utilizes decentralized sequencer technologies such as BitVM2 and zkVM to establish a platform that combines the security of the Bitcoin mainnet with solutions tailored to various investor financial requirements.”

To start, Robin Linus – the Bitcoin developer who stirred up the crypto tech world last year with a potential way to make the original blockchain more versatile – has introduced an updated version known as “BitVM2”. This new iteration promises significant enhancements that may bring the idea closer to practical application in the real world. The fundamental design employs cryptography to minimize programs into smaller sub-programs, which can then be executed within Bitcoin transactions, as outlined in a white paper published by Linus and his five collaborators on Thursday.

3. Linea, a layer-2 network similar to EVM that was initially launched by Ethereum developer Consensys, and Status, a self-described “open-source decentralized communication super app,” are joining forces on a concurrent chain. The team behind this collaboration is launching the new L2 rollup, Status Network. Initially, the Status team will utilize Linea’s code through their open-source repositories, with developers actively engaging with the Linea codebase to run a parallel version of Linea. This collaborative effort aims to reinforce the entire ecosystem by having two identical versions of Linea operating in tandem. The team also plans to contribute to the ongoing engineering on Linea, including efforts to increase client and prover diversity, as well as research to advance Linea’s roadmap towards greater decentralization.

4. The Bitcoin (BTC) staking platform Babylon, spearheaded by a Stanford University professor and anticipated as one of the more promising new scaling projects for the oldest and most extensive blockchain, is advancing to the next phase of its development. It’s aiming to debut the initial stage of its main network on Aug. 22. Recently, Babylon successfully raised a $70 million funding round led by Paradigm. The project is headed by Stanford engineering professor David Tse, renowned for his previous work in information theory while at University of California, Berkeley. In the first phase, Bitcoin (BTC) holders will have the opportunity to secure their tokens on the Bitcoin network, as stated in an email announcement on Monday.

5. Network3, a protocol designed for secure, authenticated, anonymous, and dependable data transfer and computation, unveiled its dual mining device, dubbed the N3 Edge, which is compatible with both IoTeX and Network3 tokens.

Network3’s new physical dual mining machine, N3 Edge (Network3)

Money Center

Fundraisings

PIP Labs, the initial core contributor behind intellectual property-focused blockchain Story Protocol, announced an $80 million Series B fundraising, led by the venture capital firm Andreessen Horowitz (a16z).
Chaos Labs, a New York crypto startup known for its suite of on-chain risk management tools, has raised $55 million in a Series A funding round led by the venture capital firm Haun Ventures.
Fabric Cryptography, a startup focused on hardware, has raised $33 million in a Series A fundraising round co-led by Blockchain Capital and 1kx. Other participating investors included Offchain Labs, Polygon and Matter Labs.

Fabric Cryptography team (Fabric Cryptography)

ETH

Deals and grants

Per Bitcoin Magazine: “Marathon Digital Holdings, a leading U.S.-based Bitcoin mining company, has announced that all Bitcoin blocks mined in America will now be stamped with the label ‘Made in USA.’ The company declared on X, ‘MARA is Team USA, proudly declared in each American-made bitcoin block we mine.'”
State Street Selects Taurus for Crypto Custody, Tokenization

Data and Tokens

Justin Sun Bets on Memecoins With Tron-Based Token GeneratorTop Crypto Startup Drove Other Projects’ Airdrops to Its EmployeesBlackRock’s ETHA Becomes First Ethereum ETF to Cross $1B in Net InflowsFloki Scores Major Deals With English Premier League TeamsCrypto’s Bet on Election Betting Expands to Solana

Regulatory, Policy and Legal

Controversial Crypto Firm Prometheum to Treat Uniswap and Arbitrum’s Tokens as Securities
Solana’s Former Top Decentralized Crypto Exchange Faces SEC Securities Violations
What a Dubai Court Ordering a Company to Pay Its Employee in Crypto Means
Shaquille O’Neal Will Have to Defend Some of the Allegations Against Him in the Astrals NFT Lawsuit
Coin Center Wins Right to Sue U.S. Treasury, IRS Again Over Controversial Tax Reporting Rule

Dark Pools Dominate Ethereum as Private Transactions Surge – at Least by One Measure

Since September 2022, the proportion of private transactions on Ethereum, as determined by the total amount of gas consumed, has been on an upward trend (according to Blocknative).

More and more experienced Ethereum users are opting for confidential transactions within the blockchain – they’re using what are called “dark pools” to bypass trading bots that might exploit their trades, but this could mean giving up the transparency and openness that are fundamental aspects of decentralized public systems.

According to recent findings from Blocknative, a company focused on mitigating or reducing Maximal Extractable Value (MEV), this term refers to the profits gained by swift software programs that can rapidly execute trades, taking advantage of transactions pending in the network’s public queue before they are processed.

On Ethereum, approximately half of all transactions now bypass public queues and are instead sent directly to validators or block proposers, based on the total gas usage (which represents the computational resources needed for processing). This trend has grown significantly since the network transitioned to proof-of-stake in September 2022, with just 7% of transactions using this method at that time. However, the percentage has risen sharply this year, increasing from around 15% since the beginning of 2024.

In an interview, Blocknative CEO Matt Cutler stated that there are just a few individuals capable of viewing confidential data streams. This means some people have access to information, while others do not. Such a situation offers opportunities and advantages for those with access.