The Protocol: Fades as Crypto Craze, but Ethereum Is Scaling

This week in blockchain tech: Polygon's new "chain development kit," Farcaster's move to Optimism, Shibarium's return and Interlay's new Bitcoin layer-2 network, and Pancake Swap expands to Consensys's Linea.

AccessTimeIconAug 30, 2023 at 6:05 p.m. UTC
Updated Apr 9, 2024 at 11:09 p.m. UTC

Last week in The Protocol, we talked about the frenzy that was happening on the app, atop Coinbase’s Base blockchain – and made the point that, like a lot of crypto crazes, it might pass quickly. That appears to be happening now.

But there is a lesson here from looking at Ethereum fees – that the largest smart-contracts blockchain’s plan for scaling via the addition of supplemental “layer-2” networks might be paying off. Lyllah Ledesma has the feature.

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Activity has slumped on the platform “as quickly as it rose,” according to the analysis firm Messari. (Messari)

FICKLE FRIEND.TECH: The social marketplace, which went viral after being launched a few weeks ago on Coinbase’s new Base blockchain, is now at risk of being discarded as the latest crypto has-been. According to a Dune Analytics dashboard, the number of buys and sells on the platform plunged in the past week along with prices for shares or keys in listed influencers. The analysis firm Messari, in a report titled, “An End to the Friendzy,” estimated that the number of traders was down 40% off their peak, and users complained of high feeds and slow load times. “As quickly as it rose, activity on has cooled off,” according to the firm. There might be a second act, however: Decrypt reported that creators of adult (and often explicit) content from the website OnlyFans were flocking over to the platform, after it enabled the sending of photos to “key holders.”

BINANCE BUZZ: There’s been a lot of news over the past week on the big U.S. crypto exchange – some of it good, some not so good, some neutral. The overarching theme is that the company expanded rapidly in recent years, and now it’s facing intense scrutiny from regulators, having to retrench in some business lines and regions, while pivoting in others. Binance this week cut ties with five sanctioned Russian banks listed on the exchange’s peer-to-peer service for transferring funds in rubles. The move came just days after the Wall Street Journal reported that Binance was enabling peer-to-peer trades of rubles for digital tokens, frequently involving banks on Western blacklists – a popular method for Russians to transfer money abroad. Binance said it was discontinuing its crypto-backed debit card in Bahrain and Latin America, where it has been available for less than a year. According to Reuters, Mastercard decided to end the programs. Then on Tuesday, Binance announced it had launched a new crypto-based program Send Cash that will allow users in nine Latin American countries to transfer money directly into friends’ and family members’ bank accounts in Colombia and Argentina. In Belgium, Binance has been ordered to cease operations by the country’s local regulator, but customers can continue using the exchange via a Polish entity. On the trading side, Binance announced that, starting Wednesday, it would offer “T+3” daily options contracts allowing traders to bet on the BNB token over a three-day period. The BNB token has been volatile this year, falling recently to a one-year low (get update on this). Market observers have long speculated that Binance might attempt to prop up the token’s value by selling bitcoin (BTC), but exchange CEO Changpeng “CZ” Zhao has said it wasn’t the case. Binance and Zhao were sued by the SEC in June, accused of offering unregistered securities to the general public allowing for commingling of customer funds, along with other violations of securities laws. ByteTree, a research firm, wrote this week that Binance was “in the crosshairs,” adding that its share of global crypto exchange trading volume has slid to about 45%, from 64% six months earlier.

Bitstamp said it would shut down its ether staking service in the U.S. as of Sept. 25 due to regulatory scrutiny of the practice, which the Securities and Exchange Commission has likened to investment contracts. The crypto exchange Kraken agreed in February to end its staking-as-a-service platform for U.S. customers and pay $30 million to settle SEC allegations it offered unregistered securities.

Magnate Finance, a lending and borrowing platform on Coinbase’s new Base blockchain, appears to have rug-pulled users out of $6.5 million, just hours after the blockchain sleuth ZachXBT warned on X (Twitter) that the project might be a scam – based on data records tying Magnate to an earlier $4.8 million exit scam known as Solfire, Cointelegraph reported.

Will crypto ever be rid of influencers like BitBoy?

Protocol Village

Highlighting blockchain tech upgrades and developments.

  • Polygon, the Ethereum scaling firm, is releasing a toolkit for developers to help them build blockchains fueled by zero-knowledge (ZK) proofs. The Chain Development Kit (CDK) is an open-source codebase that developers can use to create their own customizable layer 2 chains using Polygon’s ZK technology.
  • Shibarium, new layer-2 blockchain atop Ethereum for Shiba Inu community and its SHIB coin, plans to reopen the network after its much-hyped launch was marred by network issues and a faulty bridge.
  • Farcaster, a protocol for decentralized social apps including the Twitter-like Warpcast (where Ethereum’s Vitalik Buterin sometimes posts), moved to Optimism’s OP Mainnet from Goerli Ethereum testnet.
  • Token withdrawals out of the Shibarium bridge are now live and available to users, weeks after a much-hyped launch quickly fizzled out after being riddled with software bugs that led to millions of dollars in limbo on the network. Shibarium is an Ethereum layer-2 network, created via a fork of Polygon, that uses SHIB tokens as fees in what is part of a broader plan to position Shiba Inu as a serious blockchain project.
  • The team behind Interlay, a decentralized network designed to provide DeFi tooling for Bitcoin, announced plans for BOB, a new Bitcoin layer-2 network compatible with Ethereum’s EVM software environment, “featuring Rust smart contracts compatible with Bitcoin libraries such as Lightning and Ordinals.”
  • Pancake Swap, a decentralized exchange, has expanded to the Ethereum layer-2 blockchain Linea, from the big Ethereum developer Consensys. PancakeSwap was already available on Ethereum, BNB Chain, Aptos, Polygon zkEVM, zkSync Era and Arbitrum.

Money Center

Deals and grants

  • Prime Trust, the beleaguered crypto custodian, detailed in a bankruptcy-court filing how it came to be in such a deep financial hole, including investing some $6 million of client funds in the Terra blockchain project’s failed UST stablecoin, in addition to $2 million of funds from its own treasury. The company also inadvertently provided customers with addresses where they could contribute cryptocurrency into a muti-signature wallet, known as 98f, before later realizing that it couldn’t gain access to the wallet; so employees reportedly had to use some $76.4 million of fiat currency from the company’s accounts to satisfy ETH withdrawal requests.
  • Binance Labs wrote in a blog post that it has invested in Delphinus Lab, an infrastructure provider that is “leading the zkWASM space, where zero-knowledge (ZK) cryptography is deployed in WebAssembly (WASM) environments.”
  • Wintermute Trading, one of the biggest market makers in crypto, is trying and failing to convince supporters of Yearn Finance to loan it 350 YFI tokens – worth over $2 million, with no collateral posted – in exchange for Wintermute supporting markets for Yearn’s yCRV token. Yearn voters are roundly rejecting the advances as extremely unfair.

Data and tokens

  • The bitcoin (BTC) price surged after a federal appeals court ruled that the U.S. Securities and Exchange Commission (SEC) must review its rejection of Grayscale Investments' attempt to convert its Grayscale Bitcoin Trust (GBTC) into an ETF.
  • The meme coin PEPE plunged in price after blockchain analysts noted that the project had changed the rules of its multi-signature wallet so that only two out of eight addresses had to sign off to effect a transaction, instead of five. Right after the change happened, some 16 trillion tokens (about $14M worth) flowed out of the PEPE wallet, heading to addresses associated with the crypto exchanges Binance, OKX and Bybit. Late Friday, the twitter user @pepecoineth posted an explanation on X, noting that the project has “unfortunately been plagued by inner strife” since inception, “with a portion of the team being bad actors led by big egos and greed.” The user said that the “multi-sig was set up to require 3/4 signers present for an approval,” and that the a theft of tokens occurred after “Yesterday these 3 ex-team members came back behind my back.” The user apologized and said the remaining 10 trillion tokens are safe.
  • THORChain, a cross-chain liquidity protocol built using Cosmos software, saw the price of its native token RUNE surge as wealthy investors seeking alternatives to centralized exchanges used the platform to conduct multi-million dollar token swaps and tried a new “streaming swaps” product that debuted in early August, The Defiant reported.

Hedera’s HBAR Dominates August Returns Among Smart-Contract Platform tokens

Ether (ETH), the native cryptocurrency of the Ethereum blockchain, is up 44% in 2023, but August has not been a strong month. The CoinDesk Smart Contract Platform Index (SMT), which includes Ethereum as well as projects like Optimism and Algorand, is down roughly 10% so far this month. The most notable outlier is Hedera Hashgraph’s HBAR, which shot up in price after the U.S. Federal Reserve’s instant payments platform FedNow added "Dropp," a Hedera-based micropayments platform, as a service provider. The HBAR token was sitting on a 10% gain for August.

(CoinDesk Indices/Tracy Stephens)
(CoinDesk Indices/Tracy Stephens)


Edited by Bradley Keoun.


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Bradley Keoun

Bradley Keoun is the managing editor of CoinDesk's Tech & Protocols team. He owns less than $1,000 each of several cryptocurrencies.