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In this week's edition, Jianing Wu breaks down the debate over the risk AI poses to cryptography; Lucas Tcheyan looks back on the 10/10/25 liquidation event a year later; and Thad explains the CFTC’s latest move to provide regulatory clarity.
Mathpocalypse Now? OpenAI’s Big Claims Stoke Crypto Prep Debate
WHAT HAPPENED
The latest claim of mathematical progress from a frontier AI lab has triggered a broad and heated debate on the soundness and durability of the cryptography that secures digital assets.
On Tuesday, OpenAI released 719 math results on GitHub, following September’s high-profile claimed solution of the Navier-Stokes Millennium Prize problem. With roughly 4,000 problems posed, OpenAI used an internal frontier model to attempt solutions, on average spending about three hours of ChatGPT Pro compute per result.
The results span 17 mathematical subfields, and OpenAI claimed progress on the famous longstanding open questions related to Riemann hypothesis, the Birch and Swinnerton-Dyer conjecture, and the Hodge conjecture. Out of the 719 results, none of them explicitly relates to cryptography, but there are adjacent discoveries.
One day after the math drop, Justin Drake, a senior researcher at the Ethereum Foundation who has deep expertise in cryptographic protocol and consensus design, wrote on X urging “the blockchain industry to calmy begin planning for ‘bunker mode’” as the “OpenAI drop made it clear that mathematical superintelligence is upon us.” Drake's concern is that AI will find a classical computer algorithm that can break ECDSA, the elliptic-curve signature scheme behind Bitcoin and Ethereum. Vitalik Buterin, one of the founders of Ethereum, echoed Drake's worry that the threat extends beyond “quantum-vulnerable cryptography” to “potentially AI-vulnerable cryptography.” Scott Aaronson, a theoretical computer scientist, further mentioned that, according to his unnamed sources, “AI companies have now started, gingerly and discreetly, investigating whether their latest internal models can break important cryptographic protocols and primitives.”
Meanwhile, Yehuda Lindell, the Head of Cryptography at Coinbase, pushed back on Drake’s stance and claimed that there is no evidence that ECDSA is going to fail.
OUR TAKE
While the speed of AI development is real, the fear of AI posing a near-term threat to cryptography (or humanity, for that matter) is more of an extrapolation than reality.
From the Hugging Face incident to Jacob Coxon’s warning of AI massacring humanity to frontier labs’ collective call to “pace the frontier,” some marketing incentives likely sit behind the scary headlines. It is also curious that frontier labs have been pushing hard on mathematical discoveries rather than those of other sciences such as physics or chemistry. Aside from the fact that math results do not require wet lab experiments, there is a possibility that mathematical breakthroughs are being advertised and used as a strong signal of model capability for the frontier labs’ own benefit, as the field carries a reputation for difficulty and purity.
Where incentives are involved, hype and truth often coexist. However, this does not invalidate the truth, and each claim should be evaluated on its own merits. Drake’s concern about AI’s threat to cryptography can be described as follows.
Essentially, encryption in cryptocurrency transactions is a one-way function. When a transaction is initiated, the private key signs the transaction, and the public key, which is generated with the private key using elliptic-curve math, is used to verify signatures. The public key stays hidden behind the address until the first time the owner spends any coins. In the transacting process, the math runs one way and has been historically infeasible to reverse, so it cannot be worked backward to generate the private key, which holds access to funds. This assumption lays the foundation of cryptographic security.
The industry sees two threats to the security of private keys. One, quantum computers, which could run Shor’s algorithm to solve the underlying math and recover the private key from the public key. Two, a classical algorithmic discovery that finds a mathematical shortcut to reverse the process that could run on ordinary hardware. Drake’s claim is about the second.
Notably, the examples Drake cited of math breakthroughs that caused him to worry – n log(n) bound for integer multiplication and the 3SUM conjecture – were not directly related to cryptography. They are, rather, long-assumed mathematical barriers that got broken, suggesting AI is getting better at math than the public realizes. His argument implies that ECDSA’s security rests on an unproven assumption that there is not a faster approach to generate the private key with public key information. If math was falling victim to AI, it’s certainly possible that this assumption fails too. Yet there is no current evidence of such a failure.
Drake also noted that OpenAI’s math drop said little to nothing about cryptography-related discoveries. Aaronson also noticed this, remarking that “cryptography is a subfield that’s extremely conspicuous by its absence.” The absence fueled speculation that the government is censoring cryptographic breakthroughs due to the potential damage to broadly used technologies, such as transport layer security (TLS), which powers the HTTP protocol. When such breakthroughs are ultimately made public, it could catch the cryptocurrency industry off guard and force disorganized, rushed migration of assets. All of these worries are tied to the speed of AI development and distrust of institutions and frontier labs. OpenAI’s methods in breaking through math problems have been obscure, and its operations and narratives are also unclear. At the time of writing, none of the 719 math results are externally verified by mathematicians; they are only validated by Lean, a computer program that verifies formalized proofs. The Navier-Stokes solution has also not yet been accepted by the Clay Mathematics Institute.
However, there is room for concern regarding cryptographic asset safety as AI capabilities advance. Against this backdrop, Drake’s call to prepare for “bunker mode” and move funds to new addresses is simply a wise practice. Indeed, Satoshi Nakamoto also advocated using a new key pair for each transaction and consequently new addresses in the original Bitcoin whitepaper. The fear of AI’s threat to crypto security also accelerates work on the defensive side alongside solutions for a post-quantum world.
All in all, the only things to fear are fear itself and its opposite, complacency. But fear, rightly channeled, is also what turns a warning into preparation before the warning proves true. – Jianing Wu
A Year Later, 10/10 Is Shaping Up to Be a Blip in Crypto’s History
WHAT HAPPENED
Tomorrow marks the first anniversary of an unfortunate event in the crypto market.
On Oct. 10, 2025, at 20:50 UTC, President Trump posted on Truth Social threatening 100% tariffs on China. Over the next 24 hours, more than $19 billion in leveraged crypto positions were liquidated, the largest notional deleveraging on record and nearly double the previous high of roughly $10 billion on April 17, 2021. Bitcoin fell from $122,000 to the low $106,000s before rebounding. Equities sold off too, with the Nasdaq down 3.6% and the S&P 500 down 2.7%, their worst days since April of that year.
The long tail took the worst of it. Tokens outside BTC and ETH fell about 33% within 25 minutes, and on Binance, ATOM and ENJ briefly traded near zero as collateral was dumped into empty order books. About 1.62 million accounts were liquidated, roughly 87% of them longs. Hyperliquid and Bybit accounted for 75% of liquidations, and Hyperliquid triggered auto-deleveraging (ADL) for the first time in more than two years, force-closing profitable shorts to keep the exchange solvent.
Binance had its own crisis. After the main BTC and ETH selloff, the USDe stablecoin fell to about $0.65 on Binance even though issuer Ethena’s mint-and-redeem functions kept working and the token traded at par on most other venues. The wrapped tokens wBETH and BNSOL hit 80% to 90% discounts to their underlying assets. Binance was in the middle of moving margin calculations for those assets from market prices to redemption values, but the change wasn’t finished in time. It later distributed about $300 million to affected users and launched a $100 million low-cost loan program for market makers, while disclaiming liability for traders’ losses.
OUR TAKE
A year after 10/10, the crypto market looks fundamentally different…for the better. Two shifts stand out: regulation and token design.
Despite the CLARITY Act stalling in the Senate, the SEC and CFTC have pushed forward with the guidance the market needs (as we’ve written about here, here, and here, and below). A CFTC pilot now lets bitcoin, ether, and USDC serve as derivatives collateral, futures commission merchants can accept those assets as margin, and the SEC has opened a path for tokenized stocks to trade onchain. The GENIUS Act’s stablecoin framework is on track to take effect in January 2027. Issuers aren’t waiting for it. Onchain real-world assets grew from ~$28 billion to $39 billion over the past year, and tokenized stocks alone went from $650 million to nearly $3.3 billion, a 5x increase. Both are still a fraction of the overall market size, but the direction has never been clearer.
Token design has improved just as much. A year ago, most tokens were governance rights with no claim on the business. That’s changed, and prices reflect it. Excluding stablecoins, wrapped tokens, tokenized commodities, and liquid staking tokens, eight of the top 50 tokens are currently trading above their 10/10 levels. Most of those share two traits – a durable underlying business, and a mechanism that ties that business’s value to the token. That shift makes crypto far more investable. It also makes it easier for outside investors to tell which projects have product-market fit and shows crypto can work as a platform on which companies launch, grow, and turn a profit. It’s also thinning the herd for projects with no real traction, with a growing number announcing shutdowns in recent months.
10/10 did nothing to catalyze these changes. But that’s the point. In retrospect, it’s looking more and more like a blip in crypto’s longer growth trajectory. Bitcoin and other majors still trade below their 10/10 levels. Onchain activity hasn’t caught up, with monthly application fees and DEX volumes (two good gauges of onchain usage) still below their October 2025 levels. But the fundamentals driving crypto’s growth and adoption look materially better.
That doesn’t mean everything has been resolved. The 10/10 unwind still lacks a full public accounting, so it’s hard to say whether the fixes needed to prevent a repeat are in place. Some venues have tightened liquidation engines and margin requirements, oracles have improved, and more spot and futures trading has moved to onchain venues as traders look for transparency. That shift traces back to 10/10 itself. While centralized venues froze, Aave liquidated about $180 million in loans without downtime and Uniswap cleared a record $10 billion-plus in volume. But auto-deleveraging remains unsolved, market depth never fully returned, and the core problem of correlated leverage on fragmented liquidity hasn’t changed. The best argument against a repeat is that leverage sits well below last October’s peak and exchanges now carry a wider mix of assets, including stocks and commodities, which makes their exposures less correlated.
But for the most part, the market that crashed on 10/10 doesn’t really exist anymore, while the one that replaced it is just starting to get priced in. – Lucas Tcheyan
The CFTC Would Like to Let You Hold Your Own Keys
WHAT HAPPENED
Michael Selig walked into a Fordham Law symposium on Monday, quoted Ronald Reagan on "the nine most terrifying words in the English language" (I'm from the Government, and I'm here to help), and then unveiled Regulation CTX, which is how the Commodity Futures Trading Commission plans to help.
The help, Reg CTX and its companion Reg CAM, fills a 108-page advance notice of proposed rulemaking (ANPR). The Dodd-Frank Act of 2010 says leveraged, margined, or financed retail commodity trades must happen on a registered exchange. The CFTC spent the last decade enforcing that requirement against crypto without explaining how to comply. Finally, the industry is getting a guide.
OUR TAKE
This ANPR is a fantastic starting point for the industry to work from. The questions are specific and well informed, which means the industry finally gets to argue about margin rules and custody, instead of coming in with comments and leaving with a Wells notice.
Let’s back up: Traditional futures markets are deliberately split into separate pieces. The exchange (a designated contract market, or DCM) matches trades, enforces rules, and surveils its markets. The broker (a futures commission merchant, or FCM) holds your money, segregated from its own, at approved depositories, backed by net capital and watched over by the National Futures Association. The clearinghouse (a derivatives clearing organization, or DCO) steps into the middle of every trade, guarantees both sides, and has to keep enough resources to survive the default of its largest member. One company can own several of these; the CME Group owns both an exchange and a clearinghouse, but each is a separate registration with its own rulebook.
Crypto exchanges were never built that way, partly because of the bearer nature of crypto, and partly because of a lack of regulatory guidance. They list, match, settle, and custody all in one place, with your coins recorded as a line on their internal ledger. Reg CAM wouldn’t force crypto exchanges to break up these functions into different entities. It would let a crypto asset market register as its own FCM, its own DCO, or both, a "fully integrated CAM" (a structure Coinbase asked for last year in a comment letter).
Now yes, an exchange that is also your broker, your lender, and your clearinghouse is roughly what FTX was. The CFTC's answer is that FTX already ran the experiment and that the CFTC’s regulations worked to protect the minority of FTX customers under its purview.
Selig noted: "Although FTX had a U.S. subsidiary with state money transmitter licenses, its customers’ funds were nowhere to be found. However, the customer property held by FTX’s CFTC-registered subsidiaries remained segregated and secure” (in contrast to 130 other FTX affiliates that the ANPR noted went bankrupt).
The integrated structure is for Coinbase and other existing U.S. crypto exchanges. The rest of the document is for everyone else, and it's where things get interesting.
Delivery: A trade escapes the exchange requirement if it results in "actual delivery" within 28 days, and Reg CTX finally sketches what that means for crypto. Real delivery "may require possession of the credentials (e.g., private key(s))," which we anticipate means that coins on an exchange's internal ledger don't count, but coins in a wallet where you hold the private keys probably do. The CFTC "preliminarily understands" that onchain trading protocols typically deliver assets "directly to the purchaser's digital wallet." Once that happens, footnote 279 says the agency "no longer has jurisdiction" beyond policing fraud and manipulation. It is a strange and lovely thing to watch a futures regulator arrive, through 300 footnotes of case law, at "not your keys, not your coins" in an ANPR (and also tweet the slogan).
"For those who prefer to do things the way the cypherpunks originally envisioned…we aim to provide the clarity needed for onchain finance to flourish," Selig said.
We’re not lawyers, but to us this suggests a Uniswap-style swap into your own wallet needs no CAM, no DCM, and no FCM. It's heartening to see the two market regulators converge here: when the Securities Exchange Commission released its innovation exemption last month, departing Commissioner Hester Peirce said peer-to-peer smart contract trading doesn't need an exemption at all. And last week the SEC proposed custody rules that would let state trust companies hold crypto for investment advisers and funds and even let advisers hold the keys themselves when no qualified custodian will. Both regulators seem to have settled on “your keys, your coins” as federal policy (sorry, Noah Doe).
Vaults: So the trade itself can get out of the CFTC's reach. The interface used to make it might not. Reg CTX treats an "offer" of leverage very broadly: it can live in a platform’s terms of service and attach to "all transactions available on an exchange." Question IV.B.iii in the ANPR asks whether offering access to onchain "vaults" through "the same exchange interface in which retail customers may purchase crypto assets" counts as an offer of leverage. It's an open question with a lot of money riding on it. Coinbase lets customers borrow USDC against their crypto through Morpho and lend USDC into Morpho vaults curated by Steakhouse Financial, which helps fund those same loans. Both sit in the same app where those customers buy crypto. It's hard to find a more literal match for "the same exchange interface."
Code Tests and Audits: For smart contracts that run "without human intervention or discretion," the Commission asks whether to require "pre-deployment testing, formal verification, audit, or fail-safe mechanisms." Code audits are notoriously low-signal, with many of the largest crypto exploits coming from smart contracts that have been audited. A formalized structure for evaluating smart contract code may be useful, but it feels more like a bit of regulatory box to check than anything that will improve crypto market functioning. That said, advancements in LLM coding capabilities and improvements to fuzzing and formal verification techniques may make this impactful down the line.
Proof of Reserves: The proposed rules describe proof of reserves as a third-party auditor attesting that reserves "are sufficient to cover all liabilities to its customers," and asks about versions using "innovative applications of blockchain technologies." We believe that this should go in the rule, and the blockchain version is a superior solution to traditional audits. Reserves sit onchain where anyone can see them, and liabilities can be committed to a Merkle tree so that not only proof of reserves, but proof of solvency can be demonstrated.
A Regulated Onchain Exchange: This is the big one. Section V.B of the ANPR asks whether the Commission should "confirm that a CAM (or DCM) may use a blockchain system as its matching and execution layer." Put that next to the testing questions and it is our view that you can almost see a compliant Hyperliquid, with an onchain order book behind an FCM-gated, KYC'd door for U.S. users. The price of admission is probably transparency. A regulator can't formally verify a signed binary, and Hyperliquid's node software is still distributed that way. We believe that a compliant instance might involve open-sourcing the code.
Refreshing as it is, it is our view that this ANPR is a consolation prize. Congress had the chance to put market structure into law with the CLARITY Act and fumbled it in the Senate. What we got instead isn't even a proposed rule yet. It's an advance notice from a Commission with exactly one commissioner, and anything an agency writes can be erased by the next administration.
Still, a body of thoughtful work like this makes it harder for the next administration to pretend the market structure questions are simple, or that crypto exchanges are flagrant rule breakers. With luck, it drags the fight out of cable news and back into boring boardrooms with bad coffee. Comments are due 60 days after Federal Register publication, so if you have opinions about vaults, liens, or proof of solvency, now is the time to file them.
Selig closed his speech on a high note: "Satoshi's technological revolution has transformed global financial markets. If America can embrace this paradigm shift and get the right regulations in place, we can usher in a golden age like those that followed the transformative technologies of the past."
The government is here to help. For once, the help mostly consists of letting you keep your own keys. - Thad Pinakiewicz
Other News
🚨 Ledger investigates reports of fund losses from wallets purchased through reseller
📈 OKX raises while its JV with NYSE parent files with SEC for tokenized stock trading...
🚀... as Securitize readies tokenized Apple, Nvidia and Tesla shares on Solana
👧🏻 Nous Research raises $90m ($1.5b valuation) to bring open-source AI to enterprises
🔮 Polymarket upgrades back end while “exploring an onchain asset tied to economics”
☁️ Google Cloud quitting blockchain node business, sends clients to Quicknode
🚮 FinCEN scraps long-festering proposals on unhosted wallets and mixers ...
⚖️ ... as DOJ presses on with retrial of Tornado Cash dev Roman Storm
🏦 Community bank group sues OCC for granting crypto firms trust bank charters
🤯 New prediction market platform lets you trade on disputed facts (example)
Charts of the Week: Solana ‘Accelerates’ Its Target Slot Interval
Solana has been working to reduce its target slot interval from 400 milliseconds (ms) to 200ms in a phased rollout after SIMD-0525 was approved in May. It’s getting close: over the last roughly 13 epochs (432,000 slot intervals) the network has averaged a median slot interval of 267ms.
Throughout the gradual descent to the 200ms target, the slot skip rate (number of slots that do not get filled with blocks per epoch) has been contained. Keeping the chain reliable in this way is a prerequisite to further reductions in the target interval. Skip rates per epoch have stayed below 0.87% over the last 50 epochs and have stayed below 0.11% over the last ten epochs. – Zack Pokorny
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