Weekly Top Stories - 9/27

This week in the newsletter, we write about VP Kamala Harris' latest comments on digital assets, the launch of a new software client for Solana, and the announced approval of Bitcoin ETF options.

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Vice President Harris Mentions Digital Assets for the First Time

Vice President Kamala Harris directly signals support for digital assets for the first time. Speaking at a NYC fundraiser, Harris said "We will encourage innovative technologies like AI and digital assets, while protecting investors and consumers." Just three days later at a Pittsburgh rally, Vice President Harris said that she wants the U.S. to be "dominant in blockchain."

Vice President Harris' comments come more than a month after the formation of the Crypto4Harris movement, which hosted a town hall to discuss a Democratic "reset" on digital asset policy. Additionally, Harris' recent comment also follows her campaign's first comments on the issue from Brian Nelson, senior campaign advisor for policy, who stated in August that Vice President Harris is "going to support policies that ensure that emerging technologies and that sort of industry can continue to grow."

OUR TAKE:

While a change in tone and even just the utterance of the terms "digital assets" and "blockchain" are significant on their own, the statements from Vice President Harris and her campaign so far lack any concrete plans for digital asset policy. After Brian Nelson's comments on the Harris campaign's outlook on crypto policy on Aug 21, we wrote that "it appears that the Harris/Walz campaign's current strategy is to signal some support for crypto without formally or explicitly deviating from the current Administration's policies, hence the lack of concrete policy positions coupled with some private outreach and tepid public statements. Said another way, it appears that the Harris/Walz campaign wants to prevent any defection to Trump by pro-crypto Democrats without engaging in any real effort to win over net-new crypto-focused voters. " While the candidate herself - Harris - is now speaking directly, the recent comments don't convincingly confirm a change in strategy or policy.

With the election less than 6 weeks away, Vice President Harris' moderate support for crypto arises at a crucial point in the election. According to Polymarket, the current election odds stand at 50% for Harris and 49% for Trump. Although one faction of crypto enthusiasts was ecstatic about Harris' comment on "blockchain", others are skeptical given that 1) the specific policy items at issue are well known to all, including Harris's economic advisors (market structure, stablecoins, any expansion of Bank Secrecy Act compliance requirements, etc.); and 2) she has surrounded herself with policy advisors who have been deeply involved in advancing antagonistic digital asset policy for Biden's White House, particularly Bharat Ramamurti, a former Deputy Director at the National Economic Council.

Overall, Harris' comments are positive in that she made them at all, but as it stands her comments remain tepid and vague. Both her comments about "encouraging innovative technology like… digital assets, while protecting investors and consumers" and Nelson's comments about "supporting the growth" of "that sort of industry" are not explicitly at odds with current administration policy, or even the long-held views of prominent industry critics like J.P.Morgan CEO Jamie Dimon. Her vision of supporting "blockchain" and "digital assets" innovation could easily mean promoting permissioned blockchains (like the ones Dimon supports) while maintaining the hostility to decentralized public blockchains and non-custodial software and wallets shown by the Biden administration. Democrats should continue to push for concrete policy statements from the Harris/Walz campaign, and even seek support for some deal in Congress on a key issue during the lame-duck session as a means to codify statements that today have been vaguely positive at best. - Alex Thorn & Gabe Parker

Solana's Firedancer Takes Main Stage at Breakpoint Conference

Frankendancer, the interim version of Solana's highly anticipated Firedancer client, reaches mainnet. The highlight announcement of Solana's Breakpoint conference in Singapore last weekend was the mainnet launch of the 'Frankendancer' validator client - the prototype of the full Firedancer client, which just launched on testnet. Development of Firedancer has been led by Jump Trading and started back in 2021-22 when Solana faced frequent network outages. Firedancer promises substantial improvements to both the performance and the resilience of Solana by introducing a second validator client to the existing Rust-based Agave client.

The Firedancer client leverages a distinctive modular architecture by completely rewriting the functional components of networking, runtime, and consensus. Firedancer is built with a tile architecture (using individual Linux C processes), which is core to the project's operational philosophy of optimizing the use of available hardware resources. During his Breakpoint presentation, Jump's Chief Scientist Kevin Bowers showcased that Firedancer is capable of handling over 1m TPS. See this Helius blog for more technical details about Firedancer.

'Frankendancer' is an interim non-voting version of Firedancer that combines aspects of Agave - it has implemented the networking features for transaction processing and block propagation, though the runtime and consensus components under the full Firedancer client are still in development. While the full Firedancer has progressed to testnet, Bowers had not shared when the new client software would come online. "We view this project as the consumer science equivalent of civil engineering," Bowers said.

OUR TAKE:

The technical progress of Firedancer to approach mainnet launch represents a major technical milestone for Solana, which is already billed as "the world's fastest blockchain". With Fire(Franken)dancer, Solana now looks to build on its reputation by enhancing the performance of the blockchain with even further optimizations to hardware resource utilization. To put the 1m TPS figure in perspective, the current theoretical max throughput of Solana is ~80k TPS, though the actual usage has only peaked at ~3k TPS and averages ~400 TPS (compared to Visa's capacity to execute ~65k TPS).

Solana's history of network downtime, although the network has not suffered an outage since February of this year, may now be a problem of the past as Frankendancer introduces another validator client to improve the network's resilience (Solana has already made significant progress in this area thanks to network upgrades including QUIC, stake-weighted QoS, and fee markets). The February outage lasted only 4 hours and the previous outage was a year earlier in February 2023.

Bowers' Firedancer presentation was the most anticipated and attended event at Breakpoint, and Solana app teams have recognized the significance of Firedancer and the potential benefits that it can unlock. Payment teams including Circle, Visa, and PayPal have expressed optimism around Frankendancer's mainnet launch. Still, Frankendancer represents just one intermediary step towards the full Firedancer vision. If Firedancer lives up to its promises, Solana could be on the brink of a massive scaling leap. - Charles Yu

SEC Approves First Bitcoin ETF Options

The Securities and Exchange Commission (SEC) granted "accelerated approval" for the listing and trading of options for BlackRock's spot bitcoin ETF (IBIT) on September 20, 2024. Additional approvals from the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC) are required before the options officially list and become tradable on the Nasdaq, however. Approval from both of these entities does not follow a predetermined schedule or fixed timeframe, so the exact date when the options will get their approval and begin trading remains uncertain. Bloomberg ETF analyst Eric Balchunas expects options on other spot bitcoin ETFs will be approved by the SEC in the near future.

Notable details around the functionality and trading of the options outlined in the SEC's filing include surveillance procedures to address market manipulation and position limits. The Nasdaq ISE outlined plans to implement surveillance procedures, including using existing options monitoring systems and collaborating with other exchanges, to address the possibility of market manipulation. The procedures that will be applied to IBIT options are consistent with that of other ETF options. The exchange also set a conservative position limit for IBIT options compared to bitcoin futures. While CME bitcoin futures have a 2,000 contract limit, the 25,000 contract limit for IBIT options allows for a much smaller aggregate position in terms of equivalent bitcoin exposure.

OUR TAKE:

The listing of options on spot bitcoin ETFs would be significant because the biggest players in traditional equity volatility markets will soon have ready access to trade options on crypto assets. Currently, the bitcoin options market is dominated by OTC options dealers and offshore exchanges like Deribit. Thus, as Galaxy's Kelly Greer points out, to trade bitcoin options in size today, investors need either be offshore or be eligible contract participants (ECP), a designation only obtainable by financial institutions, broker-dealers, and investors with more than $10m in assets. ETF options are much more widely accessible by traditional investors than the current market which is dominated by sophisticated crypto-native players on both the buy and sell sides. The vast majority of US retail investors (who represent 44% of the listed equity options market today) are unable to participate.

Long term, these new options will help support the growth of bitcoin as an asset. The Options Clearing Corp. will protect investors from counterparty risk, which is a significant factor in the current market structure. Volatility selling is likely to increase over time, helping to reduce Bitcoin's realized volatility, and further enabling larger investors to allocate to the asset, helping to deepen liquidity. When combined with the recent news that Bank of New York Mellon (BNY), the world's largest custody bank, will begin offering custody for bitcoin and other digital assets, the institutionalization of Bitcoin is rapidly approaching. - Alex Thorn & Zack Pokorny

Charts of the Week

Bitcoin's intended block interval, which governs the rate at which new supply is pushed into circulation through block rewards, is ten minutes. At this rate, 144 blocks are intended to be mined daily. Fluctuations in hash rate, however, put the actual number of blocks mined per day above or below this deliberate rate as hash increases or decreases respectively. Every 2,016 blocks, for approximately two weeks, the network self-adjusts how computationally intense it is to mine blocks based on the amount of hash power online. This keeps the approximate block interval, and in turn bitcoin's supply schedule, on the path outlined in its whitepaper in aggregate.

September 15, 2024, saw the first day in six months where exactly 144 blocks were mined in a single day. This is a rare phenomenon that has only happened on 112 days in bitcoins 15-plus year history, with five of these days coming this year. The target rate is exceeded the majority of the time, with 61.79% of days having more than 144 blocks mined daily.

The target rate being consistently exceeded is due to the sustained upward trajectory in the network's hash rate through most of its life. Hash rate growth is attributable to increased efficiency in mining machines over time, which packs more mining power into a single machine, and growth in the scale of mining operations. Hash rate currently stands near all-time highs in absolute terms, at 654.17 EH/s, and using the 30-day moving average, which is at 648.19 EH/s. Read Galaxy Mining's recent mid-year report to learn more about the bitcoin mining landscape.

Other News

• Guggenheim Tokenizes First Digital Commercial Paper on Ethereum

• South Korea Reminds Crypto Scammers of Possible Life Sentence If Illicit Gains Exceed $4 Million

• Curve Finance Mulls Removing TrueUSD as Collateral for Stablecoin Curve USD

• XProtocol's Ethereum Phone XForge Launching to Take on Solana Seeker

• SEC Chair Gensler Denies Knowledge of Anti-Crypto Operation Choke Point 2.0

• TrueUSD Backers Settle SEC Charges Over 'Purported Stablecoin'

• Turkey Shelves Additional Plans to Tax Stocks and Crypto

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