In this patch of your weekly Dispatch:
- Exploits in the industry show the importance of audits
- A new US bill defines ETH and BTC as commodities
- The ETH merge approaches
The Big Idea
A Different Set of Hacks
Not just one but two rather large exploits defined the week that was. On Monday, cross-chain bridge protocol Nomad was exploited and drained of approximately $200M. One of the wilder exploits we’ve seen, the bridge’s smart contract had been updated in a way that approved incorrect transactions as valid and allowed improper withdrawal of funds. Quite extraordinary.
Like Ronin and Harmony, Nomad was targeted through a flaw in its code that allowed hackers to take advantage of a “chaotic” security exploit in a “free-for-all” obliging opportunists. By contrast, as researcher Samczsun put it: “you didn't need to know about Solidity or Merkle Trees or anything like that. All you had to do was find a transaction that worked, find/replace the other person's address with yours, and then re-broadcast it.”
Then on Tuesday, another exploit started dominating the discussion. One Solana auditor tweeted that around 5,000 Solana wallets had been drained. Was it a wallet problem? A Solana problem? After 18 hours, outlets reported that the closed-source Slope Wallet might have been responsible. Rather than an issue with a specific layer 1, it appeared to have been a supply chain attack.
The occurrence of two large-scale exploits in a week reminds us of how early we are and how much room for growth and improvement there is.
Put terribly simply, these latest developments underscore time and again the importance of routine audits — both in a protocol’s code and a company’s books. With such procedures, despite humans’ inclination for self-destruction, the industry is becoming a safer place and incidents like these are actually pressuring players to maintain higher security standards.
Making sure users can safely navigate the world of digital finance is a mutual responsibility – one we’re fully committed to – because you can’t hack your way through the future.
The Latest In…
One of the bright spots in 2022 has been the US regulatory discourse continually being better than expected for the industry. The latest example is the Digital Commodities Consumer Protection Act of 2022. The act, which was co-sponsored by two Democrats and two Republicans on the Senate Agriculture Committee, would define a new type of “digital commodity” (to include BTC and ETH) and give regulatory oversight to the CFTC. While Coin Center gave fair warning that some of the definitions of “broker” and “dealer” might be overly broad in the bill, by and large, it was welcomed by the crypto community as welcome progress.
The Latest In…
Here’s one for the history books. After 33 years as CEO, Michael Saylor is stepping down from the role at MicroStrategy. Instead, he’ll spend all of his time in his Executive Chairman role with the company, where he’ll be better able to focus on the company’s Bitcoin acquisition strategy and leave the day-to-day enterprise software to a new leader. While some were skeptical of this explanation for the move, others were quick to point out that Saylor controls 68% of voting shares at the company, meaning that MicroStrategy is unlikely to move away from BTC any time soon.
The Latest In…
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The Latest In…
The Ethereum Merge
One of the biggest narratives in crypto is excitement around the Ethereum merge and the network’s transition to Proof of Stake. This week began the final merge test before the actual mainnet event next month. Happening on the Goerli chain, the merge's first step started this week and will continue into the next. At the same time, however, the discussion is growing on the possibility of a forked ETH chain that remains on Proof of Work and what the implications might be for markets. Some exchanges even started announcing support for a fork. Whatever happens, we’re in exciting territory now!
The Week’s Most Interesting Data Story
ETH Merge Trade in a Single Chart
Around the middle of June, markets bottomed out. In crypto, institutional failure was compounding the larger weak macro environment for risk assets. Since that bottom, however, all risk assets have leveled out slightly. The breather has allowed crypto-centric narratives to return to the market, as opposed to just being focused on the US Federal Reserve’s Monetary policy. In that context, no narrative has been stronger than the ETH merge trade. For some, it’s just that – a trade. For others, it represents one of the more significant events in crypto history. That combo is fueling some serious action and separating ETH from the pack.
What the Community Is Discussing
From the man’s mouth directly.
Out of touch, much?
Seriously, can we take a vacation?
What to Watch for Next Week:
- Will the final ETH merge test on Goerli go as smoothly as the previous tests?
- Will the Senate actually take action on this new crypto bill?
- What will H2 bring in terms of crypto fundraising?