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Top Stories of the Week - 9/8

Galaxy Research, Weekly top stories, 9/8/23, Charles Yu

This week in the newsletter, we write about Visa’s stablecoin expansion, a new Ethereum privacy proposal, and ARK and VanEck’s filings for an Ethereum spot ETF.

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Visa expands points of acceptance for stablecoin payments

Visa expands USDC settlement capabilities to Solana, forms new partnerships with merchant acquirers. After a successful pilot program in 2021 to test stablecoin settlement on the issuance side, Visa is now rolling out the service to other markets and expanding on its capabilities on the settlement side. Visa worked with and Anchorage in its pilot program to reduce the time and complexity of international wire transfers by leveraging USDC on Ethereum under the Visa card program.

According to Tuesday's announcement, Visa's treasury operation will continue testing receiving funds onchain from multiple issuers but, with the new settlement capabilities, Visa can use its own Circle account to manage settlement payouts in USDC to Worldpay and Nuvei—two of the leading global merchant acquirers. Worldpay and Nuvei can then then route the USDC payments to their end merchants, which may include on-ramp providers, games, and NFT marketplaces who may prefer to receive stablecoins over traditional fiat currencies for the card payments they accept. Visa's USDC settlement capabilities enable Worldpay and Nuvei to offer their merchants more funding options.

In addition, due to demand for higher performance blockchains with higher speed and lower costs than Ethereum, Visa added USDC settlement support to Solana. Per the press release, "this makes Visa one of the first major payments companies at scale to directly utilize Solana for live settlement payments between its clients."


The largest card network based on purchase volumes and cards in circulation continues to modernize its payments network with its crypto initiatives. Visa's integration with acquirers Worldpay and Nuvei to facilitate USDC settlements onchain is significant. Visa is a network of networks - it has global connections with issuing banks, acquirers, consumers/merchants, and governments. The integration with Worldpay and Nuvei broadens Visa's points of acceptance for its stablecoin settlement capabilities and should attract new payment flows for the crypto economy. Visa has established the core infrastructure needed to accelerate stablecoin adoption for commerce payments, which have so far failed to gain meaningful traction.

Visa is also pioneering other meaningful crypto initiatives such as piloting auto payments for self-custodial wallets and experimenting with paying for gas fees directly in fiat money through card payments, which utilizes a combination of novel crypto concepts including paymaster smart contract agreement and the ERC-4337 standard for account abstraction.

Visa's expansion to Solana is also a significant development as most of the card network's previous and ongoing crypto initiatives have solely leveraged Ethereum. Payments use cases might make more sense on Solana than Ethereum, as it is optimized for high throughput, low gas fees, and low latency. Visa's added support should complement Solana Pay, which recently secured another significant win to integrate its plug-in with Shopify for USDC payments.

The integration and acceptance of crypto technology by traditional payment companies is quickly accelerating. Aside from Visa, Worldpay, Nuvei, and Shopify, we are also seeing other material developments by PayPal, which announced its PYUSD stablecoin just last month, as well as JPMorgan, which was reported this week to be exploring its own blockchain-based deposit token for cross-border payments and settlement (separate from JPM Coin). As the saying goes, “first they ignore you, then they laugh at you, then they fight you, then you win.” –Charles Yu

Privacy Pools Introduced as a Solution to Tornado Cash Woes

Vitalik Buterin and a team of contributors published a new paper proposing a privacy solution called Privacy Pools. The authors hope to tackle a key challenge in crypto – transacting privately in a regulatory compliant manner. Privacy Pools aims to fix the shortcomings of platforms like Tornado Cash, where users lack sufficient tools to disassociate from unrelated criminal activity conducted on the application, such as those linked to groups like North Korea's Lazarus Group.

The application introduces the idea of association sets and membership/exclusion proofs. When making a withdrawal, users choose a specific association set made up of depositors to the Privacy Pool. They then generate a zero-knowledge membership (or exclusion) proof proving that their withdrawal comes from that association set (or does not belong to that set). These association sets can be as wide or narrow as the user prefers and may be created by the user themselves, other Privacy Pool users, or even third-party providers called association set providers (ASP). Users' ability to prove that their original deposit address does or does not belong to an association set, “creates a separating equilibrium between honest and dishonest protocol users.”

To provide a concrete example, imagine there are five Privacy Pool users. Four of them are honest actors and one is a hacker who recently exploited a DeFi protocol. The address the hacker used to deposit funds is known by all the users and the four honest users do not want to be mistaken for the hacker. To withdraw their funds, the four honest users designate their association set to just include the other honest depositors. When withdrawing funds, they can generate a proof that they are one of the four addresses in the honest actor association set, without revealing which exact one they are, and are not the hacker. The hacker, on the other hand, cannot create an association set without including themselves, preventing them from generating a proof that definitively proves they are not the hacker.

The application was first introduced by Ameen Soleimani of Moloch Dao (a coauthor of the paper) in March of this year and is currently in testnet on Optimism’s Goerli network.


Privacy Pools represent an incremental improvement in enabling users to transact on public blockchains in both a private and regulatory compliant manner.

Criticism of the paper has primarily focused on two specific aspects. First, that users of the application would likely be reliant on third-party association set providers (ASP) such as Chainalysis (one of the co-authors of the paper) and TRM Labs to regularly update and monitor association sets. This opens the application up to capture by regulatory adjacent companies and, if adopted widely, could enable them to dictate onchain standards for what type of activity is and is not compliant. While a valid concern, Privacy Pool does not require users to use a specific ASP and it is possible that over time users are incentivized to create their own association sets.

Second, the proposed design falls short of preventing bad-actors from using the application to obscure their funds, even if it makes it harder for them to do so. This is especially concerning following the OFAC designation of Tornado Cash contract addresses as Tornado Cash did eventually introduce a means for users to prove the source of their funds and even blocked OFAC sanctioned addresses from using its front end. It is unclear at this time whether the measures proposed in this paper are sufficient to deter similar treatment by OFAC.

As with all existing privacy solutions, Privacy Pools is not without its trade-offs. But it represents a novel approach for honest actors to engage in private onchain transactions while adhering to regulatory requirements, offering them the opportunity to prove their innocence while maintaining a degree of privacy – a significant departure from the current landscape where privacy often comes at the cost of compliance. – Lucas Tcheyan

Spot ETH ETF Race Kicks Off with ARK 21Shares and VanEck Applications

On Wednesday, the Chicago Board Options Exchange (CBOE) filed two 19b-4 applications to the Securities Exchange Commission (SEC) seeking approval for spot Ethereum ETFs. The applications request approval of two spot ETH exchange traded fund (ETF) products, one from Ark Invest and 21Shares, and the other by VanEck. The initial registration form known as the S-1 for VanEck’s spot ETH ETF product was filed back in May 7, 2021, while the S-1 for Ark’s spot ETH ETF was filed recently on the same day CBOE filed their 19b-4 applications with the SEC. Filing a 19b-4 for these products officially starts the review process with the SEC that can last up 240 days and must end in an approval or denial.

There are 8 outstanding spot BTC ETF products also under review by the SEC as of September 7, 2023. The final deadline for the approval of most of these ETF applications is March 14, 2024. However, Ark’s spot BTC ETF application, which was initially filed through an S-1 in June 2021 and kicked off for review through a 19b-4 application later in April 2023, has a final deadline approaching in January 2024.

Optimism about a potential approval for a spot BTC or ETH product has grown significantly in recent weeks following Grayscale’s court victory against the SEC. On August 29, a three-judge panel of the District of Columbia Court of Appeals in Washington ruled that the SEC did not provide sufficient reasoning for their denial of Grayscale’s spot BTC ETF product. “The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP. … In the absence of a coherent explanation, this unlike regulatory treatment of like products is
unlawful,” the court opinion said.

Grayscale’s lawyers filed a letter to the SEC on Tuesday, September 5, requesting a meeting to discuss “the way forward in view of recent developments in the Trust’s ongoing effort to convert to an exchange-traded product (‘ETP’).” Since the ruling, Bloomberg Intelligence analysts have increased their odds of spot Bitcoin ETF approval by the end of this year from 65% to 75%, and up to 95% by the end of 2024. Bloomberg Intelligence analyst James Seyffart added that he also expects to see more spot ETH ETF filings, aside from the two put forward this week, in the coming days given heightened chances of regulatory approval.


As stated in last week’s Galaxy Research brief, there are no guarantees that the SEC will approval Grayscale’s spot BTC ETF product in response to the court’s ruling. The SEC still has until October 13th to file an appeal of the decision. The SEC could also theoretically deny Grayscale’s conversion to a spot BTC ETF for some other reason. However, as explained last week, we view appeals as unlikely to occur, let alone succeed. Given that it’s been reported that the SEC is unlikely to deny a handful of reported futures-based ETH ETFs, coupled with the order from the DC Circuit Court of Appeals which casts significant doubt on the SEC’s distinguishment between spot and futures ETFs, it’s likely we will see more filings for spot ETH ETFs. It would appear last week’s court victory has opened the floodgates to renewed confidence in a near-term approval by the SEC of several crypto-based ETF products.

It will be important to watch for a possible appeal by the SEC over the court’s ruling in the coming weeks. The more time that passes without an appeal, the greater chances that the SEC may be leaning towards working with Grayscale to ultimately approve its spot BTC ETF product. -Christine Kim

Charts of the Week

The total circulating market cap of stablecoins experienced its strongest 14-day change (+1.79%) since March 2022 at the end of last month. It was also the longest streak of 2-week growth since the same point. Now sitting at $123.8 billion in market cap, the value capture of stablecoins has compressed 10% YTD and 34% from its all-time high.

U.S. Dollar Stablecoin, Circulating Market Cap, all chains and assets, Charles Yu
U.S. Dollar Stablecoin, Circulating Market Cap, all chains and assets, Charles Yu
Total circulating stablecoin market cap, Charles Yu
Total circulating stablecoin market cap, Charles Yu

The number of users interacting with NFTs (buying, selling, minting, using in games, etc.) across the major L1s and L2s has continued its negative trajectory. Down 72% from its all-time high of 242,620 daily active address (using the 30-day SMA), there are a combined 67,509 active NFT addresses across the 8 subject chains today.

Number of users, interacting with NFTs, buying, selling, minting, using in-games, Charles Yu
Number of users, interacting with NFTs, buying, selling, minting, using in-games, Charles Yu
Daily active defi addresses, NFTs, Charles Yu
Daily active defi addresses, NFTs, Charles Yu

Other News

  • Riot compensated $30 million to shut off Texas bitcoin miners in August

  • FBI says North Korea-linked Lazarus Group was responsible for $41 million theft on Stake

  • Coinbase creates crypto lending service for institutional clients

  • FDUSD stablecoin market cap grew 51% to $394 million over last 30 days

  • MetaMask adds 'cash out' function allowing users to sell crypto for fiat

  • Circle deploys USDC on Layer 2 networks OP Mainnet and Base

  • Vitalik sells MakerDAO stake after co-founder Christensen suggests Solana-based blockchain

  • Base TVL doubles to $390 million following Aerodrome launch