Weekly Top Stories - 10/11

This week in the newsletter, we write about the HBO documentary that claimed to unmask Satoshi Nakamoto, developments in Bitcoin supply overhangs and the FTX estate distributions, and the announcement that Uniswap is launching its own Ethereum L2.

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HBO Documentary Claims Peter Todd is Satoshi Nakamoto

HBO's new documentary Money Electric: "The Bitcoin Mystery" aired on Tuesday, October 8. The documentary, directed by Cullen Hoback, investigates the largest unsolved question in crypto, who is Satoshi Nakamoto? Cullen interviews early Bitcoin contributors such as Adam Back (founder of Blockstream), Samson Mow (founder of Jan3), Roger Ver (early bitcoin investor), and Peter Todd (early Bitcoin Core Contributor).

The documentary highlights how each cast member got into Bitcoin along with their online interactions with Satoshi on the original Bitcoin Talk forum. The cast members shared their view that Satoshi's identity will never be found and that this is one of Bitcoin's key defining features. However, the evidence from Cullen's investigation points to Peter Todd being Satoshi Nakamoto. Cullen's basis for Peter Todd being Satoshi is based on several circumstantial evidence, including that Peter's first reply to Satoshi appeared as if he was finishing Satoshi's sentence. Peter Todd later denied in an email to Coindesk that he was Satoshi.

OUR TAKE:

Since Bitcoin's inception, the identity of its creator, Satoshi Nakamoto, has remained crypto's greatest mystery. Despite 14 years of research, no definitive evidence has emerged. Satoshi's deliberate anonymity was designed to eliminate personal bias and centralized control, allowing Bitcoin to evolve organically as a community-driven project. The recent HBO documentary ultimately undermined Satoshi's wish for anonymity. Instead of emphasizing this crucial aspect, the documentary pursued sensationalism by presenting unsubstantiated theories in an attempt to unmask Satoshi.

The quest to unmask Satoshi carries significant ethical concerns and potential for harm. Previous attempts at "doxing" have had destructive consequences, disrupting the lives of wrongly identified individuals like Dorian Nakamoto and Hal Finney's family. As Peter Todd noted following the documentary's release, such baseless speculation poses real dangers, potentially exposing innocent parties to threats from those seeking Satoshi's supposed fortune.

Overall, Bitcoin advocates understand that searching for Satoshi's true identity is irrelevant. The dormancy of Satoshi's estimated 800k-1m BTC over 14 years and multiple market cycles suggests these coins are permanently inaccessible, whether due to deliberate action or Satoshi's passing. This underscores the irrelevance of unmasking Satoshi. Those who truly grasp Bitcoin's historical significance as a movement recognize that preserving Satoshi's chosen anonymity is paramount-it's the cornerstone of his legacy and Bitcoin's decentralized ethos. - Gabe Parker

Silk Road Bitcoin May Hit the Market

On Monday, the last legal claim against 69k Bitcoin (~$4bn) from the Silk Road failed. Battle Born Investments, on behalf of Raymond Ngan, had argued in court for a claim to the Bitcoin forfeited by Individual X. They claimed ownership of the Bitcoin, but without the private keys or any evidence of control over the Bitcoin, their claim was denied in lower courts. Battle Born appealed all the way to the U.S. Supreme Court, which declined to hear the appeal, ending the legal battle. As the dispute is now concluded, the $4 billion of BTC is now unencumbered by legal proceedings and theoretically can be sold by the U.S. Marshals. This represents a significant one-third of the U.S. government's remaining seized bitcoin.

That same day, the courts ruled that the FTX estate could move with its distribution plan. The FTX estate has already dollarized all of the crypto, and this ruling gives the green light for a near-term distribution of dollars to crypto holders from the previous cycle. Small holders with claims less than $50k are likely to receive $1.1 billion before the end of the year, while larger claims worth about $10 billion are likely to be paid sometime in Q1 or Q2 2025. It remains uncertain how many FTX claimants will reinvest in crypto or if they are still reeling from the psychological effects of FTX's collapse and will remain on the sidelines.

That's not all for supply overhangs in the market. The US government also stated that Bitfinex is likely the sole claimant for the Bitcoin hack from the exchange almost a decade ago. Bitfinex is expected to receive ~$8bn in Bitcoin from the U.S. government, with the majority distributed to LEO holders. The LEO token was launched post-hack, featuring deflationary economics based on buy-and-burn mechanisms from exchange revenues, along with a promise to reimburse holders with recovered funds. The LEO whitepaper gives Bitfinex the flexibility to either buy LEO on the open market or burn an equivalent amount of the supply. It's unclear how much of LEO is circulating beyond the 7% already burned, and with 98% of the supply is in Bitfinex's multisig wallet, the provenance between users and the exchange is unclear. Bitfinex will likely choose to retain the low-cost basis BTC received and burn an equivalent amount of LEO.

OUR TAKE:

Bitcoin began dropping from the $64k area to as low as $58.8k Thursday. It's unclear whether the dip was caused by US government selling, although heavy selling was observed on Coinbase, where BTC was trading as much as $200 below other exchanges. Regardless of whether this week's dip was caused by US government sales, the "Individual X" Silk Road BTC is the last big chunk of coins seized by the US that are likely to be sold on the open market. Given that Bitfinex was the victim of a hack, it's not surprising to us that the US government is indicating that the stolen property will be returned rather than sold.

The FTX plan's approval is another positive step for the resolution of one of crypto's most sordid episodes. Of course, many creditors are disappointed that claims were dollarized, as native crypto assets have appreciated substantially since the FTX bankruptcy filing. Nonetheless, creditors stand to receive more than 100% of the cash value of their claims, making this a notably positive outcome. Claims had at one point sold on the secondary market for as low as ~$0.10. - Alex Thorn

Uniswap Confirms Plans to Build Own L2

Uniswap Labs unveils Unichain, an L2 built for DeFi and liquidity. The main development team behind Uniswap announced it has built a new L2 network powered by the OP Stack. Unichain will be part of Optimism's Superchain ecosystem, joining networks including OP Mainnet and Coinbase's Base. Uniswap Labs noted in its announcement blog post that it is partnering with OP Labs and will become a core contributor to the OP Stack, working to implement native interoperability, which will "enable single-block, cross-chain message passing among Superchain L2s."

According to the project's whitepaper, Unichain adopts a novel block-building protocol enabled by Rollup-Boost, developed in collaboration with Flashbots. Unichain leverages a trusted execution environment (TEE), which enforces transaction ordering in a transparent, verifiable manner. Unichain will include a decentralized validation network that will allow full node operators that stake the UNI token to validate blocks. "This approach reduces the risk of sequencers proposing conflicting or invalid blocks, which could delay transaction finality or expose users to financial risks from interacting with unfinalized blocks." Fast block times (between 200-250 milliseconds) will make transactions feel instant while also improving market efficiency and reducing the value of MEV opportunities lowering the value lost to MEV.

The Unichain testnet went live as of Thursday and the mainnet launch is targeted before the end of the year. Currently, block times are set at 1-second intervals and the acceleration to 200-250ms block times is expected at a later date. The community validation network is expected to come in 2025. After Unichain's launch, the team intends to introduce cross-chain swapping into the Uniswap web interface. Following the announcement, the UNI token was up as much as 16% on the day and is currently trading at around $8.10 at the time of writing.

OUR TAKE:

Unichain will be a welcome addition to the OP Stack and the broader Superchain ecosystem. Uniswap has served as the primary liquidity hub for the Ethereum network and Unichain could become a new DeFi hub to connect the rapidly growing ecosystem of fragmented L2s and appchains. For Uniswap, Unichain complements the suite of Uniswap products, including the multi-chain DEX, the Uniswap Wallet, and the upcoming Uniswap v4. In addition, Unichain's community validation network and staking option also offer some utility for the UNI token in an alternative manner to the contentious fee switch.

With Unichain, Uniswap joins other DeFi majors in building their own dedicated chains, including Maker (NewChain), Aave (Aave Network), and Frax (Fraxchain). Fraxchain is the only solution that is live in production, while Maker's NewChain and Aave Network have yet to launch. However, Uniswap's Unichain stands out among these other solutions due to the network's architecture and MEV design: by leveraging Flashbots TEEs via Flashblocks and the newly announced Rollup-Boost solution, Unichain facilitates MEV capture by apps (rather than the sequencer of the rollup) to be redistributed to users.

The use of trusted execution environments (TEEs) has received some pushback from the Ethereum community in the past, and some also questioned Uniswap Labs' decision to leverage the OP Stack over other rollup tech stacks (e.g., Arbitrum's Nitro stack which already has had 250ms block times for three years, as noted by the Offchain Labs team). The decision may have been partially motivated by shared 'Ethereum-alignment' between the projects and close relationships between the development teams (Uniswap was one of few projects to be whitelisted for Optimism's mainnet launch in 2021, receiving "preferential treatment" as alleged by CTO of Sushi - Uniswap's main competitor at the time). Still, the design space for L2s is big and the announcement of Unichain validates their importance in the evolution of Ethereum ecosystem applications. - Charles Yu

Charts of the Week

Onchain stablecoin borrow rates have reached 70-day highs at 7% in the three weeks since the Federal Reserve reduced its interest rate target by 50 basis points to 4.75% to 5%. This comes in the wake of rate cates sparking near-term risk-on sentiment. Onchain rates have historically been reflexive to cryptocurrency prices; as prices move higher so do onchain rates and vice versa. Although most of the major cryptocurrencies are flat to slightly down since the September 18th rate cut day, they experienced 10%-20% increases in price in the two weeks that followed.

The move higher in onchain rates can be attributed to expansion in the number of stablecoins being borrowed, indicating demand is driving rates higher as opposed to a supply crunch. Borrow rates are a function of supply (stablecoins deposited on lending applications) and demand (amount of stablecoins borrowed) and are expressed as a percent utilization rate, which is calculated as Demand / Supply. The combined utilization rate of USDC, USDT, and DAI on the major lending markets on Ethereum Mainnet is the highest it has been since late June 2024 at 87%.

Other News

• Commissioner Mark Uyeda says SEC's crypto approach has been a 'disaster

• SEC sues Cumberland for operating as an unregistered securities dealer

• South Korea to review lifting ban on spot crypto ETFs

• Bitcoin Layer 2 Bitlayer raises $9 million Series A extension at $300 million valuation

• Crypto.com sues SEC after receiving a Wells notice from the agency

• Bitcoin rewards app Fold files S-4 for IPO merger

• Coinbase seeks early appeal in SEC case after agency appeals Ripple ruling

• Coinbase to delist non-compliant stablecoins in EU following implementation of MiCA guidelines

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