advancing the science & tech of web3; hacks; policy moves
1. Watch & learn: new YouTube channel with web3 research
With the goal of highlighting work that advances the science & technology of the next generation of the internet/ web3, a16z crypto hosted a multidisciplinary seminar series this summer organized by head of research Tim Roughgarden. We recorded many of the presentations — from both a16z crypto research partners and visiting scientists — so we could share them publicly on our *new* YouTube channel… so be sure to subscribe now to keep up with the latest releases! Videos so far include:
An evolution of models for zero-knowledge proofs from Sarah Meiklejohn
Introduction to verifiable delay functions (VDFs) from Joseph Bonneau
A survey of proof-of-stake (PoS) blockchain designs from Valeria Nikolaenko
Long-range attacks on PoS blockchains from Valeria Nikolaenko
Permissionless feature addition to Ethereum: EigenLayr from Sreeram Kannan
Redistributive allocation mechanisms from Scott Duke Kominers
watch & subscribe here
2. In context: Bridge hack, wallet hack
Matt Gleason, Riyaz Faizullabhoy, Nassim Eddequiouaq, Sonal Chokshi
This week’s all-new episode of our podcast ‘web3 with a16z’ digs into recent high-profile hacks that took place in the crypto space — including of the Nomad bridge; and of the Slope wallet — teasing apart what’s hype/ what’s real, as well as the signal vs. the noise, in the narratives out there. In less than an hour, we cover: technical breakdowns of the what and the how (and how we know); the categories of the hacks; issues specific (and not specific!) to web3 security; related trends such as the role of open source; themes such as communication and social media signaling around hacks; …and lessons, solutions, and advice for builders.
listen to the episode here (or in your podcast app)
3. The trend: Why so many creators are going cc0
Flashrekt, Scott Kominers
If NFTs are all about enabling ownership, then why are so many creators choosing to give away intellectual property (IP) rights through creative commons licensing (cc0) that allows anyone to make and profit from derivative works, without fear of legal consequences? This may seem counterintuitive relative to classic IP strategies, but such experimentation and recombination can sometimes grow the value of IP. There are many strategies and business models for building brands, communities, and content through intellectual property in web3; and going CC0 isn’t going to magically lead to results. As with open source software, cc0 works best for NFT projects that create the potential for a rich, expanded ecosystem…
4. Signal vs. noise: In defense of stablecoins
Crypto critics have been using the collapse of specific dollar-pegged virtual currencies as ammunition to attack stablecoins generally, and the crypto industry, as a whole. Lost in the conversation however is the root cause of the turmoil. A better understanding of what went wrong — and why — could help protect consumers, while still safeguarding innovation. a16z crypto’s general counsel outlines the case, and the real culprit behind recent crypto tumult, in the Financial Times. (Hint: it was not technology, but a concept familiar to traditional finance — bad collateral.)
5. News & moves: Regulatory recap
🇺🇸 United States
💸 Department of the Treasury
The Office of Foreign Assets Control (OFAC) added Tornado Cash to its Specifically Designated Nationals list of blacklisted people, entities, and virtual currency addresses. U.S. persons are now prohibited from interacting with Tornado Cash or any of the Ethereum wallet addresses tied to the protocol, and anyone who does so may face criminal penalties. OFAC guidance for sanctions compliance in the virtual currency industry is available here.
U.S. senators sent an open letter to the Acting Comptroller of the Office of the Comptroller of the Currency, asking that he rescind interpretative letters allowing banks to engage in crypto activities and explain how involved banks are becoming in crypto.
Senate Agriculture Committee chair and others introduced the Digital Commodities Consumer Protection Act of 2022. Among other things, the legislation clarifies that Bitcoin and Ether are commodities (as opposed to securities), which would place them under the jurisdiction of the CFTC; and it creates new categories of registration (including digital commodity brokers, digital commodity custodians, and digital commodity dealers, and so on).
🏦 Federal Deposit Insurance Corporation
The FDIC simultaneously released a fact sheet titled, “What the Public Needs to Know About FDIC Deposit Insurance and Crypto Companies,” and an advisory on “FDIC-Insured Institutions Regarding FDIC Deposit Insurance and Dealing with Crypto Companies”. The FDIC clarified what it perceives to be a principal point of confusion, that is, that the FDIC only pays deposit insurance after an insured bank fails, but does not protect non-bank’s customers against default, insolvency, or bankruptcy of any non-bank entity (including crypto custodians, exchanges, brokers, wallet providers, and neo-banks).
📈 Securities and Exchange Commission
The SEC charged 11 individuals for their roles in creating and promoting Forsage, an allegedly fraudulent crypto pyramid and ponzi scheme that raised more than $300 million from investors worldwide, including in the U.S. The SEC’s Complaint seeks injunctive relief, disgorgement, and civil penalties.
Law firm Simpson Thacher & Bartlett published a useful article in Law360 explaining the Securities and Exchange Commission’s insider trading lawsuit that it brought against a former Coinbase product manager on July 21, 2022.
India’s Enforcement Directorate raided properties related to a director of WazirX, a trading platform that is based in Mumbai and allegedly owned by Binance. In a press release, the Enforcement Directorate stated that WazirX had “actively assisted around 16 accused fintech companies in laundering the proceeds of crime using the crypto route.”
The CEO of the Hong Kong Monetary Authority told financial officials at a G20 meeting that he did not “think crypto and DeFi [would] disappear,” and called for greater regulation of the crypto industry to prevent a crash like the collapse of terraUSD.
The U.K.’s Financial Conduct Authority released a policy document in which it stated that investment in crypto assets should be capped; and that consumers should be warned to be able to invest with confidence, understand the risks involved, and get the investments that are right for them that reflect their appetite for risk.
The Law Commission of England and Wales published a consulting paper proposing to extend property rules over crypto and NFTs, including proposing the creation of a new category called “data objects” to account for things composed of data in an electronic form like databases, software, digital records, domain names, and crypto.
—Sonal Chokshi, Robert Hackett, Tim Sullivan, Stephanie Zinn, and a16z crypto team
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