The Protocol: Bitcoin’s Call for Volunteers, Ethena’s USDe, Blast’s Blast-Off

As the bitcoin (BTC) price pushes past $60,000 for the first time since November 2021, The Protocol is covering what’s happening on the technology side of Bitcoin, the world’s oldest and largest blockchain. Apparently, help is needed with the volunteer job of helping to manage proposals for Bitcoin software upgrades. We’ve also got an exclusive interview with Trust Machines CEO Muneeb Ali, co-creator of Stacks, one of the top Bitcoin layer-2 networks – at a time when many new Bitcoin layer-2s are under development.

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TERRA-FI-ING? If it seems too good to be true, it sometimes is. But hope springs eternal that the crypto project Ethena’s new USDe token might prove sustainable despite yields that typically might signify high risk. Described as a “synthetic dollar” rather than a stablecoin, USDe is backed by Ethereum liquid staking tokens such as Lido’s stETH, but paired with short ETH perpetual futures positions on derivatives exchanges. As of Monday, the annualized yield was calculated at 24%, and according to DeFiLlama, the project has already pulled in nearly $500 million of deposits. There’s an “active discourse among the crypto community as critics fear another Terra-like collapse with an algorithmic stablecoin,” analysts at Galaxy Digital wrote last week. Terra, of course, was the project behind the UST stablecoin, which offered 19% returns before its collapse in 2022 touched off a domino-like wave of defaults, bankruptcies, lawsuits and regulatory crackdowns across the crypto industry. Coinbase Institutional researchers noted that the project has a $10 million insurance fund to guard against risks, such as yields flipping negative, but they also worried about its potential to distort market signals: “Should this protocol grow substantially, it could cause a possible imbalance in favor of shorts in the perps market, thus having a disproportionate effect on funding rates.” Ethena recently announced a $14 million fundraise, but it got messy after a draft press release went around to media listing investors who hadn’t yet committed. To the project’s credit, Ethena has gone out of its way to disclose what might go wrong, including funding risk, liquidation risk, custodial risk, exchange failure risk and collateral risk. “We believe it is crucial to highlight the risks associated with USDe, the actions we have taken to mitigate these risks, as well as the future plans to further manage and ameliorate these risks,” according to Ethena.

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Screenshot from Avalanche’s network status website shows last week’s outage. (Avalanche)

Top picks of the past week from our Protocol Village column, highlighting key blockchain tech upgrades and news.

Schematic from the paper illustrating the basic flow of the “Snarktor” aggregation service. (Alberto Garoffolo, Dmytro Kaidalov and Roman Oliynykov/Cryptology ePrint Archive)

See the entire Protocol Village list from this past week here.

There’s a buzz around Bitcoin these days, and it’s got as much to do with the development taking place on the original blockchain – evvel seen as a sleepy and ultra-conservative ecosystem compared with Ethereum, and its higher frequency of upgrades and greater programmability – as with the newly approved spot bitcoin ETFs that have pulled in billions of dollars from investors.

Bitcoin the cryptocurrency is in the midst of a powerful rally, headed for a sixth straight monthly gain, its longest such streak in three years. With a market capitalization of $1.12 trillion, bitcoin (BTC) accounts for roughly half the value of all cryptocurrencies; put another way, it’s worth as much as all other digital assets combined.

But it’s the newfound spirit of development that’s got engineers and programmers including Muneeb Ali, CEO of Trust Machines and co-creator of the Stacks project, suddenly hitting the talking circuit. Top blockchain tech podcasts are airing episodes about the prospects for Bitcoin layer-2 networks, analysts are scurrying to assess the potential, NFT-like digital arka on Bitcoin are fetching tens to hundreds of thousands of dollars, and there’s even a new venture-capital fund to plunk down money into Bitcoin DeFi projects.

CoinDesk’s Jenn Sanasie interviewed Ali, who has a Ph.D. in computer science from Princeton University, about the flurry of activity, and what he sees as the real breakthroughs that are making it all possible, and what he expects to come of it all. He also spoke about the Stacks project’s much-anticipated Nakamoto upgrade, tipped to drastically improve the speed.

Click here for the full interview by Jenn Sanasie

Fundraisings

Deals and Grants

Regulatory, Policy and Legal

Every member of the benchmark CoinDesk 20 Index of large digital assets was in the green during February. Bitcoin (BTC), the largest and oldest cryptocurrency, gained for a sixth straight month, rising 45% and pushing past $60,000 for the first time since 2021 – as enthusiasm rose along with billions of dollars of inflows into new bitcoin spot ETFs. Bitcoin’s all-time-high price around $69,000 is now very much in sight, though obviously anything goes in notoriously volatile crypto markets. The CoinDesk 20 Index was up 37% during the period, vastly outperforming the S&P 500’s 2.6% month-to-date increase.

The big leader in the CoinDesk 20 during February was the decentralized exchange Uniswap’s UNI token, soaring 79% as the project’s governance lead, Erin Koen, proposed a new mechanism that would reward token holders who stake and delegate tokens. (According to the author “defioasis,” writing in the Wu Blockchain newsletter: “Assuming the proposal is passed and 1/10 to 1/4 of the LP fees are distributed as protocol fees to UNI holders, then UNI holders could receive approximately $62.62 million to $156.5 million in annual dividends.”)

Polygon’s MATIC token, one of the biggest losers in digital-asset markets over the past year, staged a bit of a recovery, rising 36%. Even so, it trailed the 49% gain for Ethereum’s native cryptocurrency, ETH, which was lifted by speculation that the token might win approval for its own spot ETF. Stellar’s XLM token trailed with a 13% rise, even as the decade-old network underwent a major upgrade to increase its programmability via the “Soroban” smart-contracts project.