24 September

“The CFTC on Thursday announced settled charges against the founders of bZeroX, the company behind the bZx protocol. The CFTC fined bZx founders Tom Bean and Kyle Kistner $250,000 for allegedly “illegally offering leveraged and margined retail commodity transactions in digital assets,” as well as failing to adopt customer identification requirements known as KYC.

But in a novel move, the CFTC also filed a lawsuit against an associated DAO. The CFTC alleges that the Ooki DAO, which Bean and Kistner purportedly founded as a way to decentralize control of the bZx protocol, likewise violated the same laws. Though Bean and Kistner settled charges against themselves and bZeroX, while neither admitting nor denying the charges, the CFTC is seeking penalties against the DAO, including disgorgement, fines, and potential trading and registration bans.

In an unprecedented action, the CFTC reasoned that Bean and Kistner are liable for the DAO’s allegedly illegal behavior because they held Ooki tokens and voted on governance proposals related to how the DAO operated.

The order finds the DAO was an unincorporated association of which Bean and Kistner were actively participating members and liable for the Ooki DAO’s violations of the [Commodity Exchange Act] and CFTC regulations.

In a dissenting statement, CFTC Commissioner Summer Mersinger called the action “blatant regulation by enforcement” and said it fails to “rely on the legal authority” of the Commission’s mandate. ‘I cannot agree with the Commission’s approach of determining liability for DAO token holders based on their participation in governance voting.’

The way in which the CFTC defined the Ooki DAO as an unincorporated association and determined the bZx founders’ liability could have far-reaching implications in the world of DeFi and DAOs—the latter of which becoming an increasingly popular way to quickly organize large groups of people toward a singular goal, including fundraising for a common cause, while decentralizing decision-making for the group.

The enforcement action is already having a chilling effect on certain DAOs, according to Delphi Labs General Counsel Gabriel Shapiro. ‘Already seeing DAO delegates talking about quitting their roles.’

If nothing else, the CFTC has made it clear that merely organizing as a “DAO” does not exempt participants from abiding by existing regulations.

Being a DAO in the U.S. is a dangerous business. Simply distributing a token and holding a few votes doesn’t absolve founders who are breaking the law from any legal responsibility.”

See Also: Deep Dive: Here’s What’s In the White House’s Crypto Reports

“One topic that often re-emerges in layer-2 scaling discussions is the concept of “layer 3s”. If we can build a layer 2 protocol that anchors into layer 1 for security and adds scalability on top, then surely we can scale even more by building a layer 3 protocol that anchors into layer 2 for security and adds even more scalability on top of that?

Unfortunately, such simple conceptions of layer 3s rarely quite work out that easily. There’s always something in the design that’s just not stackable, and can only give you a scalability boost once – limits to data availability, reliance on L1 bandwidth for emergency withdrawals, or many other issues.

Newer ideas around layer 3s, such as the framework proposed by Starkware, are more sophisticated: they aren’t just stacking the same thing on top of itself, they’re assigning the second layer and the third layer different purposes. Some form of this approach may well be a good idea – if it’s done in the right way. This post will get into some of the details of what might and might not make sense to do in a triple-layered architecture.

Let’s look at what Starkware, in their post on layer 3s, advocates:

  1. L2 is for scaling, L3 is for customized functionality, for example privacy. In this vision there is no attempt to provide “scalability squared”; rather, there is one layer of the stack that helps applications scale, and then separate layers for customized functionality needs of different use cases.
  2. L2 is for general-purpose scaling, L3 is for customized scaling. Customized scaling might come in different forms: specialized applications that use something other than the EVM to do their computation, rollups whose data compression is optimized around data formats for specific applications (including separating “data” from “proofs” and replacing proofs with a single SNARK per block entirely), etc.
  3. L2 is for trustless scaling (rollups), L3 is for weakly-trusted scaling (validiums). Validiums are systems that use SNARKs to verify computation, but leave data availability up to a trusted third party or committee. Validiums are in my view highly underrated: in particular, many “enterprise blockchain” applications may well actually be best served by a centralized server that runs a validium prover and regularly commits hashes to chain. Validiums have a lower grade of security than rollups, but can be vastly cheaper.

What’s the point of validiums, and privacy systems, and customized environments, anchoring into layer 2 instead of just anchoring into layer 1? The answer to this question turns out to be quite complicated.

One possible argument for the three-layer model over the two-layer model is: a three-layer model allows an entire sub-ecosystem to exist within a single rollup, which allows cross-domain operations within that ecosystem to happen very cheaply, without needing to go through the expensive layer 1.

But as it turns out, you can do deposits and withdrawals cheaply even between two layer 2s (or even layer 3s) that commit to the same layer 1! The key realization is that tokens and other assets do not have to be issued in the root chain. That is, you can have an ERC20 token on Arbitrum, create a wrapper of it on Optimism, and move back and forth between the two without any L1 transactions!

A three-layer scaling architecture that consists of stacking the same scaling scheme on top of itself generally does not work well. Rollups on top of rollups, where the two layers of rollups use the same technology, certainly do not. A three-layer architecture where the second layer and third layer have different purposes, however, can work. Validiums on top of rollups do make sense, even if they’re not certain to be the long-term best way of doing things.

See Also: Ethereum co-founder Vitalik Buterin defends DAOs against critics

“The economic landscape may seem dire at the moment, but it’s unlikely to affect blockchain development, according to Pantera Capital CEO Dan Morehead. During the first half of this year, Pantera Capital raised about $1.3 billion in capital for its blockchain fund.

Like any disruptive thing, like Apple or Amazon stock, there are short periods of time where it’s correlated with the S&P 500 or whatever risk metric you want to use. But over the last 20 years, it’s done its own thing. And that’s what I think will happen with blockchain over the next ten years or whatever, it’s going to do its own thing based on its own fundamentals.

We’ve been very focused on DeFi the last few years, it’s building a parallel financial system. Gaming is coming online now and we have a couple hundred million people using blockchain. There’s a lot of really cool gaming projects, and there still are a lot of opportunities in the scalability sector.”

See Also: XRP Jumps 44% in a Week After Ripple Moves to Dismiss SEC Lawsuit

Inca will develop a crypto ecosystem mapping tool to analyze crypto financial data and risk. Its aim will be to help the U.S. government and the private sector understand how crypto may be linked to money laundering, terrorist financing and sanction evading, as well as identify how cryptocurrency may affect traditional financial systems and vice versa.

Given the increasing prevalence of digital assets, the Department of Defense and other federal agencies need to have better tools to understand how digital assets operate and how to leverage their jurisdictional authority over digital asset markets globally.”

The Merge drastically lowered the barriers to entry for the average person to get involved in securing Ethereum. You don’t need to spend thousands (or millions) of dollars on hardware and energy costs, all you need is a laptop and some ETH.

While liquid staking protocols offer a more accessible solution for those that don’t meet the 32 ETH threshold, running your own validator helps preserve the decentralization & censorship-resistance of the network.

Today, you have three main options:

  • Plug & play solutions (dAppNode & Avado)
  • Solo staking (DIY hardware)
  • Rocket Pool Operators

All these have different trade-offs.

Interested in getting started and earning some rewards? Here’s how anyone can become an ETH validator.”