🏦Treasury Says Most DeFi Protocols Should Be Considered Financial Institutions

GM Defiers!

The US Treasury Department says the growing use of cryptocurrency to pay for goods and services is a threat to government attempts to limit money laundering, and argues that most DeFi protocols should be regulated as financial institutions. Layer 2 network Arbitrum is attempting to salvage this week’s governance debacle with a set of new proposals promising increased transparency and oversight. Meanwhile, the Euler hacker has returned nearly all the stolen funds, and we’ve got some exclusive insights from a negotiator involved in the recovery. Finally, we dive into the lofty valuations of Layer 2 tokens and ask investors if they’re justified.

✍️ In today’s newsletter:

Treasury Report On Criminal Use Of DeFi Argues Most Protocols Are Subject to Bank Secrecy Act
Arbitrum Amends Foundation Proposal After Failed Vote
Exclusive Interview With Negotiator Who Helped Euler Recover $230M

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Do Rollup Tokens’ Use-cases Justify Their Valuations?

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🎬 WATCH

Watch our video on the implications of $33B worth of ETH being unlocked in a week, and our podcast with Carl and Trent of the Ethereum Foundation

Regulation

Treasury: ZK Proofs Can Be Boon Or Bane Of AML Compliance

TLDR A new report by the US Treasury Department highlights the growing use of cryptocurrency for payments as a threat to AML efforts and suggests the use of privacy-enhancing tech, such as zero-knowledge proofs, to verify compliance with anti-money laundering regulations without broadcasting personal information.

SO WHAT The report also noted that most self-proclaimed DeFi businesses in the U.S. — even those that are truly decentralized, with little to no ability to modify or control a protocol after its release — are financial institutions subject to the Bank Secrecy Act and, in turn, anti-money laundering obligations.

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DAO Governance

Arbitrum Amends Foundation Proposal After Failed Vote

TLDR Arbitrum, the leading Ethereum Layer 2 network, has proposed new measures to limit the spending capabilities of its Foundation after the failure of its first governance proposal. The new proposals include a token vesting schedule, operational expenses, and ecosystem funding initiatives, along with outlining the Foundation’s $36M annual budget.

SO WHAT While many applauded the move as a step in the right direction, some community members are still skeptical about the proposed budget, demanding a more detailed breakdown of payroll and expenses.

Exclusive Interview

Euler Hacker Was ‘Just a Regular Guy’

TLDR A pseudonymous independent security researcher named Ogle helped to negotiate the return of over $200M in stolen crypto, and in an interview with The Defiant, shared information about the “wacky” hacker, the negotiation process, and mistakes that companies often make when trying to recover stolen crypto.

SO WHAT Euler has recovered almost all the money stolen in the hack and claimed it as one of the largest recoveries in DeFi history. The hacker was not a sophisticated group or state-backed actor, but rather just an individual who saw an opportunity.

Premium Story

What’s Governance Worth? Ethereum Scaling Tokens Say Billions

TLDR The market value of two of the biggest Ethereum scaling tokens, ARB and OP, has surpassed $2 billion collectively. However, the primary use case of these tokens is governance, as they neither secure the scaling solutions’ networks nor do users pay for transaction fees denominated in them.

SO WHAT Investors are questioning the billion-dollar valuations of these governance tokens as their value proposition is unclear. With the potential for increased competition among Layer 2s, teams will be under even more pressure to substantiate the value of their tokens. Rollups may already be profitable, but how tokens accrue value from that profit is still unclear.