Weekly Top Stories - 12/19/25

In this week’s newsletter, Zack Pokorny breaks down the drama in the Aave community; Marc Hochstein shares takeaways from the SEC’s roundtable on financial privacy; and Lucas Tcheyan debunks a misconception about the recent wave of corporate blockchain adoption.

🌱 Think General-Purpose L1s Are Dead? You’re Wrong

Over the past few weeks, headlines have piled up around a new wave of “corporate” blockchains purpose-built for specific use cases. The DTCC is tokenizing DTC-custodied securities on Canton. Stripe launched a testnet for Tempo, its payments-focused chain. Robinhood is building its own L2 for real-world assets.

For crypto natives, these developments may trigger a familiar anxiety: that the cypherpunk values underpinning crypto are being diluted. That the general-purpose, permissionless blockchains that enabled crypto’s adoption will be bypassed by regulated incumbents with distribution and balance sheets.

If tokenization, real-world assets, and stablecoins are increasingly deployed on private or semi-permissioned rails, what role is left for decentralized protocols? A fair question. The answer: plenty.

OUR TAKE:

To borrow from Mark Twain, reports of general-purpose L1s’ death have been greatly exaggerated. These networks are doing exactly what they were designed to do. They remain the only environment where new financial primitives can emerge at scale. As technology accelerates, regulation clarifies, and experimentation becomes cheaper, that role becomes more essential.

Yes, the competitive landscape is getting more crowded. But competition from specialized or permissioned chains does not invalidate the role of open networks. Instead, it highlights the different problems they solve (and no, please do not mistake this as an argument that we need to launch more general-purpose L1s).

The core mistake is assuming that blockchains are interchangeable infrastructure. They are not. Corporate chains excel at tokenizing existing assets within known legal and financial frameworks. That is both a strength and constraint. General-purpose L1s, by contrast, are where new assets, markets, and coordination mechanisms are created. Bitcoin did not emerge from a working group at the UN. Neither did DeFi or stablecoins. These systems required an environment where anyone could deploy code, issue assets, and iterate without permission. That capability is not a side feature of decentralized blockchain; it is the primary driver of their long-term value. Nearly every crypto-native primitive (blockchains, stablecoins, etc.) that later attracted institutional interest was born in a permissionless environment.

In that sense, permissionless chains often appear to “cannibalize” themselves. Their most successful innovations are eventually adopted, replicated, or internalized by centralized entities once the models are proven and demand is clear. But this is not a failure of public blockchains; it is evidence of their role as discovery engines for the broader financial system.

This dynamic matters even more in an AI-driven economy. As AI reduces the cost of launching products, services, and entire businesses, the demand for programmable, neutral financial infrastructure will increase alongside it. Permissionless L1s provide global settlement, composability, and instant distribution for economic experiments that no regulator or incumbent could approve in advance. They are optimized for discovery. Most experiments will fail, but the few that succeed can redefine markets.

It is also a mistake to assume that regulatory clarity will inherently advantage centralized or permissioned chains. If the recently passed version of the Clarity Act in the U.S. House is any indication of where market structure may land, decentralization may increasingly function as a protective feature rather than a liability. More decentralized networks can afford developers and applications greater freedom to innovate within clearer legal boundaries. This is reflected in Galaxy Research’s internal analytical framework used for research purposes only, which assigns higher scores to more decentralized networks due to their resilience, neutrality, and reduced single-point-of-failure risk. In other words, as regulation matures, decentralization may shift from being perceived as a risk to being recognized as an advantage.

Finally, sentiment around L1s cannot be separated from their token price. When L1 tokens underperform, narratives about irrelevance gain traction. This cycle is nothing new. It is a recurring feature of crypto’s boom-bust dynamics. The reality is that chains like Ethereum and Solana are tied to innovation cycles, not quarterly product launches. Their relevance should be measured in decades. Look no further than Bitcoin. –Lucas Tcheyan

➗ Aave Realignment Proposal Highlights the DAO-Company Divide

A new Aave governance proposal aims to better align the community’s DAO, Aave Labs, and the AAVE token amid growing concern that other projects’ acquisitions are deprioritizing token holders. Under the proposal, the DAO and AAVE token holders would regain control and ownership of Aave’s brand assets (domains, social handles, naming rights) by placing them into a DAO-controlled vehicle with strong anti-capture protections, rather than leaving them under any third party’s unilateral control. The debate was sparked when a community member observed that a new swap integration in the Aave app front end redirected fees toward Aave Labs that previously accrued to the DAO.

Aave operates under a bifurcated structure where the DAO (by way of the AAVE token) governs the protocol (e.g. pool parameters, asset onboarding/offboarding, new instance launches) and Aave Labs develops and manages all off-protocol components of the product suite (e.g. app(.)aave(.)com, Aave Family Wallet). Aave Labs holds the project’s brand, trademarks, and intellectual property (IP) because DAOs, historically faced challenges owning IP directly in many jurisdictions—this is a bone of contention within the greater conversation of aligning all parties working on Aave.

The crux of the issue is that segmented DAO–company structures weaken the economic and governance link between tokens and the systems they supposedly represent. In practice, tokenholders govern onchain contracts, while the most valuable sources of control and monetization (front ends, brand, IP, distribution, and product direction) reside in offchain legal entities. This separation misaligns interests: tokenholders bear governance risk and confer legitimacy but lack enforceable claims on the assets and cash flows that increasingly define the project’s economic value.

OUR TAKE:

Aave is, in many respects, a best-case example of a bifurcated DAO-company structure functioning well. By every observable metric (TVL, user adoption, brand recognition, protocol longevity) Aave has succeeded. It has long been the largest lending application onchain, a household name in DeFi, and is actively expanding into new verticals (e.g. RWAs and banking). That success lends credibility to those arguing in favor of the existing bifurcated structure.

However, even in Aave’s case, that structure introduces unavoidable structural tension, particularly as the locus of value creation shifts away from the protocol and toward the surrounding surface area: front ends, integrations, branding, distribution, and development teams.

Recent acquisitions across the industry underscore why this matters. In Circle’s acquisition of Interop Labs (the team behind Axelar), Pump.fun’s acquisition of Padre, and Coinbase’s acquisition of Vector, acquirers captured teams, technology, and IP while tokenholders did not receive direct economic participation in those transactions. These deals highlight a recurring pattern: when value resides in offchain assets, it can be monetized, transferred, or repurposed without any obligation to tokenholders. In Aave’s case, Aave Labs, not the DAO, controls those same value-defining assets. Critically, the AAVE token does not confer any direct claim on them.

Perhaps this structure is acceptable so long as expectations are clearly set. A bifurcated model can allow teams to pursue product development and commercialization alongside onchain protocol governance, and investors can decide whether that tradeoff aligns with their objectives. However, clarity doesn’t eliminate consequence. When the primary drivers of growth and monetization sit outside the DAO, the token’s economic potential is constrained by design, and its value becomes detached from the success of the entity operating around the protocol.

These are precisely the types of high-stakes choices where governance by opinion risks entrenching politics rather than surfacing truth. Futarchy was designed for this exact class of decision. Rather than debating alignment in the abstract, Aave may be better served by letting markets determine which governance path best maximizes AAVE's long-term value. – Zack Pokorny

🔒 Privacy, Please: SEC Leaders Nudge Overton Window on Surveillance

If you closed your eyes during the Securities and Exchange Commission’s Monday roundtable on financial surveillance and privacy, you might have wondered if you were eavesdropping on a cypherpunk meetup.

Chairman Paul Atkins set the tone in his opening remarks. Alluding to past regulatory and legislative attempts to impose reporting requirements on participants in decentralized systems, he said: “[i]f the instinct of the government is to treat every wallet like a broker, every piece of software as an exchange, every transaction as a reportable event, and every protocol as a convenient surveillance node, then the government will transform this ecosystem into a financial panopticon.”

Lofty ideals aside, Atkins also noted that institutions moving onchain have hard-nosed business reasons to demand privacy. “If every order, hedge, and portfolio adjustment was suddenly visible in real time, we could invite front-running, copycat behavior, and ‘pile-on’ dynamics that make it harder, not easier, for firms to manage risk,” he said.

Commissioner Hester Peirce, who has been beating the privacy drum since the summer, pushed the envelope even further than Atkins in her remarks Monday. Days before Samourai Wallet co-founder Keonne Rodriguez was set to report to prison, she reiterated that such services have benign uses. “Mixers enable people to make charitable donations get paid, lend money to a friend, or engage in other legal transactions without telegraphing them to the world,” said Peirce. These remarks were not intended to excuse illicit activity, which remains subject to enforcement under applicable law.

Defending mixers might have sounded heretical in past administrations, but the Overton window has widened under the current administration. As SEC commissioner Mark Uyeda said at the roundtable, the attributes of crypto “raise questions insofar as how the Bank Secrecy Act should be applied or revised” (emphasis added).

OUR TAKE:

The very fact that a federal regulator devoted a full day to public discussion of financial privacy and surveillance is significant. Remember when then-President Barack Obama grumbled that phone encryption meant “everybody is walking around with a Swiss bank account in their pocket”?

Without raining on the privacy parade, however, the SEC is a secondary player on this issue. Atkins mentioned that the agency scaled back the Consolidated Audit Trail, which he lamented “became a powerful system that moved the SEC closer toward mass surveillance.” But the more critical policies in this area fall under the purview of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

That agency has given crypto and financial privacy advocates cause for cautious optimism. One the one hand, FinCEN has widened the reporting dragnet for financial transactions in border counties as part of the administration’s crackdown on illegal immigration. At the same time, FinCEN has signaled ambivalence about a Biden-era proposed rule to treat crypto mixing as a class of transactions of primary money laundering concern.

Atkins and Peirce appear to be using the SEC’s Crypto Task Force (which convened Monday’s roundtable) as a bully pulpit. It is rare to hear government officials lecturing their counterparts, but that is essentially what the SEC leadership is doing. To the degree that other agencies are on the fence, perhaps the commissioners think they can nudge can them in a more permissive direction.

One last note of caution: During a panel following the commissioners’ speeches, Carole House, a former Biden administration official, gamely defended the BSA anti-money-laundering regime, arguing that data brokers pose a greater threat to privacy. House was the outlier among the speakers Monday, but she could get a major role in the next administration if the Democrats retake the presidency. Crypto and privacy now have a place at the table, but the industry should recognize there are still other views out there and it cannot afford to become complacent. – Marc Hochstein

Charts of the Week

When measured in 2020 dollars, Bitcoin never actually crossed $100k (topped out at $99,848). The inflation adjustment below uses the U.S. Consumer Price Index (CPI), rebased to 2020 dollars.

Other News

🏈U.S. Senate punts crypto market structure bill to next year

🔦SEC clarifies crypto custody rules for brokers

🤖Bitcoin miner Hut 8 inks $7b AI data center deal

⛓️‍💥Fed withdraws 2023 guidance that hamstrung uninsured banks’ crypto activities

🤯Coinbase adds stock trading, perps and more to become ‘Everything Exchange’

👔JPMorgan tokenizes a money fund on Ethereum

🔧Lead Bank, big stablecoin payment processor, tightens risk controls

💸FDIC proposes bank stablecoin regulations under GENIUS Act

🧘‍♂️Bhutan pledges 10,000 bitcoin worth $1b to fund ‘Mindfulness City’

🏦BitGo, Circle, Paxos, Ripple approved for U.S. bank charters