Weekly Top Stories - 3/7

This week in the newsletter, we write about the President’s executive order establishing a strategic bitcoin reserve and digital asset stockpile, an important upcoming vote on Solana’s SIMD-0228 proposal, and the activation of the Pectra upgrade on Ethereum’s Sepolia testnet.

Bitcoin Gets its Strategic Reserve

Trump signs executive order creating Strategic Bitcoin Reserve and Digital Assets Stockpile as cryptocurrency executives descend on White House for first ever “crypto summit.” Following a whipsaw week of speculation and fervor over the White House’s plans for a bitcoin reserve and digital asset stockpile, President Trump signed an executive order (EO) in the Oval Office Thursday night titled “Establishment of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile.”

Regarding the creation of the Strategic Bitcoin Reserve:

• The EO mandates the creation of a “Strategic Bitcoin Reserve” to be operated by the U.S. Treasury Department and to be “capitalized with all BTC held by the Department of the Treasury that was finally forfeit.”

• The order requires that each government agency review its current BTC holdings and its authorities to transfer to the Treasury within 30 days.

• The EO explicitly mandates that “Government BTC deposited into the Strategic Bitcoin Reserve shall not be sold and shall be maintained as reserve assets of the United States.”

• The EO mandates that the “Secretary of the Treasury and the Secretary of Commerce shall develop strategies for acquiring additional Government BTC provided that such strategies are budget neutral and do not impose incremental costs on United States taxpayers.”

Regarding the creation of the U.S. Digital Asset Stockpile:

• Similar to the SBR, the EO mandates the creation of a “United States Digital Asset Stockpile,” to be operated by the Treasury Department and to be “capitalized with all digital assets owned by the Department of the Treasury, other than BTC, that were finally forfeit.”

• Similarly, within 30 days, each agency must review its non-BTC holdings and authorities to transfer such holdings to the Treasury.

• Unlike the SBR portion, the Digital Asset Stockpile section mandates that the “Secretary of the Treasury shall determine strategies for responsible stewardship of the United States Digital Asset Stockpile.”

• Also unlike the SBR, the EO explicitly prohibits the Treasury from purchasing new altcoins, saying “the Secretary of the Treasury shall not acquire additional Stockpile Assets other than in connection with criminal or civil asset forfeiture proceedings or in satisfaction of any civil money penalty imposed by any agency without further executive or legislative action.

Finally, the EO requires the head of every government agency to provide the Treasury Secretary and the Presidential Working Group with a “full accounting of all Government Digital Assets in such agency’s possession,” including any information regarding custodial accounts in which such Government Digital Assets are currently held that would be necessary to facilitate a transfer of the Government Digital Assets to the Strategic Bitcoin Reserve or the United States Digital Asset Stockpile.”

The signing of the executive order came after a whirlwind week that started with President Trump’s Sunday posts on his platform Truth Social regarding the strategic reserve, in which he said it should include XRP, SOL, and ADA, which raised eyebrows across the industry. Trump subsequently clarified that “obviously” BTC and ETH would be included as well. The posts sparked backlash from the crypto industry, with even prominent non-Bitcoin maximalists pushing back on the idea of a reserve that isn’t focused at least initially on bitcoin only. Among others, the founders of all three major U.S.-based retail crypto exchanges signaled skepticism of a reserve that extended beyond bitcoin, including Gemini co-founders Cameron and Tyler Winklevoss, Kraken founder Jesse Powell, and Coinbase co-founder and CEO Brian Armstrong. Commerce Secretary Howard Lutnick, who is a self-described bitcoin bull, said “a bitcoin strategic reserve is something the President’s interested in” and that “Bitcoin is one thing, and then... the other crypto tokens... will be treated differently—positively, but differently.” And then on Thursday, the President signed an EO that takes positive, but different, approaches to both sets.

More than a dozen executives from across the cryptocurrency industry are set to meet at the White House today for a roundtable dubbed the first-ever “Crypto Summit.” Executives from Coinbase, Kraken, Gemini, Bitcoin Magazine, MARA, Solana, Chainlink, Exodus, and more will meet with David Sacks and Bo Hines at the White House to discuss issues related to digital assets policy, and Trump is expected to attend and address the group.

Before the various reports this week, we had considered the term “reserve” to refer to the concept of retaining the government’s existing coins and perhaps acquiring new bitcoin through purchases, while the “stockpile” was thought to mean simply retaining what the government currently holds. The EO builds on that understanding but explicitly aligns “Bitcoin” and “Reserve,” creating a new delineation: “reserve” now means holding and possibly buying bitcoin, while “stockpile” means holding and definitely not buying altcoins.

According to our own analysis utilizing Arkham Intelligence data and other sources, the U.S. government held approximately $17.8bn of seized cryptoassets as of Wednesday evening, 97.7% of which was BTC (~198k units). However, approximately 112k units of that BTC (57%) was seized from Ilya Lichtenstein and Razzlekhan, convicted hackers of Bitfinex, and appears will be returned to the exchange and thus not eligible to be part of the reserve. When those 112k BTC are removed, only approximately $7.9bn of assets remain for eligibility in a bitcoin reserve or stockpile, and at least some of those assets (which include 43 different tokens other than BTC and ETH in amounts of $10k or more) may also be encumbered in legal proceedings. We estimate the maximum amount of Government BTC available to create the Strategic Bitcoin Reserve is 88k BTC ($7.56bn).

Whatever happens today, the Bitcoin Policy Institute is also hosting an invite-only summit “Bitcoin for America” in Washington on Tuesday alongside Sen. Cynthia Lummis (R-WY) that will feature another slate of prominent Bitcoin and crypto executives, lawmakers, and government officials. We expect that further announcements will emanate from that meeting, particularly as it relates to congressional action on the topic, including the possibility of new funding mechanisms for the Strategic Bitcoin Reserve.

OUR TAKE:

There was a lot of news and narrative shifting on the strategic bitcoin reserve this week. Trump’s post about it that included three altcoins in a reserve did appear to spark backlash and ultimately shift the Overton window in favor of a bitcoin-only reserve, which is where the policy ultimately landed. The White House has directed the executive branch to hoard its digital assets, but specifically to place Bitcoin in a reserve and figure out ways to buy more while fencing altcoins in a stockpile but prohibiting purchases and giving Treasury latitude to manage that portfolio. This results in a big, key takeaway: as far as the U.S. government is concerned, there’s bitcoin, and then there’s everything else. The executive branch is also authorized to look for ways to acquire more bitcoin. But altcoins, while they may be warehoused, may not be purchased (and by our read, can still be sold).

There are still key issues to determine.

• What assets can be transferred into a BTC Reserve or a Digital Asset Stockpile? The EO makes clear that, to be moved to the Treasury’s new storage vehicles, the assets must be “finally forfeit” to the U.S. Treasury. Here lies an important distinction between seizure and forfeiture, with the former being subject to ongoing legal proceedings but the latter being fully owned by the government. As I wrote above, we think that a huge portion of the government’s current BTC holdings have not been forfeited to the government and instead will be returned to Bitfinex. The EO mandates a “full accounting” on this topic within 30 days, so more information on this will come.

• What are budget-neutral strategies for acquiring Bitcoin? This is a key question regarding the Strategic Bitcoin Reserve and one that will gate whether or not, or how much, the government can acquire. Savings uncovered from DOGE cuts, surpluses in Treasury’s Exchange Stabilization Fund, revaluing and selling some of the government’s gold holdings, and even selling altcoins have all been floated in the last 12 hours. Sharing ideas for creating budget-neutral strategies to buy BTC is the key topic of this Tuesday’s “Bitcoin for America” conference in Washington hosted by the Bitcoin Policy Institute.

• What will Congress’s role be here? Sen. Cynthia Lummis (R-WY) has The BITCOIN Act, which proposes raising funds to purchase BTC by re-valuing gold to fair market value, but there could be other strategies. We expect that her Senate bill will gain new co-sponsors over the coming days and that a concurrent House version is on the verge of being introduced that may also include bi-partisan co-sponsorship. Regardless of the merits of these bills’ specific funding mechanisms, we expect that Congressional action on this topic will coalesce around those vehicles, and then negotiation and debate may alter their contents.

We expect that today’s summit will work to address some of these questions, with the White House specifically soliciting budget-neutral ideas to finance new purchases of Bitcoin, a peculiar one given that many of the attendees aren’t actually supporters of Bitcoin.

Another very key, but mostly unrelated, topic that could be on the agenda is what to do with stablecoin legislation. The Senate’s GENIUS Act authorizes the issuance of stablecoins in the U.S. by regulated banks and non-bank entities if they register, but a key question is what happens to Tether, which is issued offshore by the El Salvador-headquartered Tether Ltd. There are domestic forces both inside and outside crypto seeking to undermine Tether, but USDT still comprises more than 65% of the global stablecoin market. Stablecoin legislation has, for now, preserved a non-bank pathway to registration, which is the avenue by which Tether could register, but would it? Would Tether come and register in the U.S.? Tether CEO Paolo Ardoino is in DC this week talking to policymakers, and his firm stores its sizeable U.S. treasury portfolio at Cantor Fitzgerald, the firm currently helmed by the son of Commerce Secretary Howard Lutnick. This is a key question about the future of stablecoins and perhaps the long-term market viability of a legalized U.S. pathway.

Lots happening very quickly these days – we recommend you follow our X account @glxyresearch for more immediate updates. – Alex Thorn

Voting on Solana's SIMD-0228 Begins

Voting on Solana’s SIMD-0228 proposal is slated to begin at the start of network epoch 753, which is expected to be around Friday (March 7) evening U.S. Eastern time. The proposal, if passed, will transition the SOL inflation curve from a fixed deflationary, time-dependent curve, similar to that of bitcoin, to one that is dynamic and stake-rate (the share of SOL delegated to Solana validators) dependent. Based on the proposed inflation curve and the current stake rate at 63.5%, SIMD-0228 would put the gross annual inflation of SOL around 1.5%. At the current inflation rate of 4.68%, this would, with all else remaining equal, reduce inflation, and by extension network-wide inflation-sourced staking rewards, by 68%.

The inflation reduction outlined by the proposal has sparked debate between the YES and NO camps. Those in favor of the proposal primarily argue the proposal 1) likely leads to reduced dilution of SOL via inflation and improves the real yield on staking, especially after the passing of SIMD-0096 which eliminated the burn of priority fees, 2) lets the network pay a market-driven amount of resources each year for network security, and 3) mitigates the “leaky bucket” problem of stakers paying taxes to governments and other middlemen. Those against the proposal predominantly advocate that 1) fees alone cannot yet subsidize an adequate amount of decentralization in Solana’s validator set and cutting inflation would negatively impact validator economics and strengthen centralizing forces, 2) investors might view Solana’s relatively high nominal staking APY more favorably than that of other proof-of-stake (PoS) assets, specifically in the context of exchange-traded products (ETPs), and 3) the passing of the proposal has downstream consequences that may require additional updates to combat, leading to a domino effect of runaway problems.

The question of how validators should cast their votes has become an important piece of the proposal’s fierce debate. Traditionally, stakers delegate to validators they believe align with their vision for the chain and trust that they will vote accordingly, in addition to capably earning rewards and safeguarding assets. However, the controversy around the proposal – exacerbated by the differing economic impacts of reduced inflation on delegates versus node operators – has led validators to consider casting “split” votes, a move encouraged by Toly (the cofounder of Solana Labs). Splitting votes allows delegators to vote individually and then submit a net vote from the validator they are delegated to. In this case, delegators get a more direct say in the outcome of the vote, which is typically commandeered by validating node operators.

OUR TAKE:

Both sides of the aisle have presented thoughtful and valid cases for why SIMD-0228 should or should not pass, with the proposal becoming the most hotly debated and watched SIMD in Solana's history. This is due, in part, to the fact that the proposal introduces a massive overhaul of Solana’s network economics that raises questions around several hard-to-quantify downstream consequences. On the flip side, similar proposals in Ethereum, like EIP-1559 and the Merge, which changed more than just the inflation rate of ETH, faced less debate from the Ethereum community at a time when components like validator economics were completely unknown. However, last year a proposal to further tighten ETH’s issuance curve was met with pushback and was never enacted. In this sense, Solana is working through its “Bitcoin block size war” moment through SIMD-0228 where a major change to the protocol is driving powerful debate and discourse.

Overall, the ongoing debate within the Solana community is both healthy and indicative of a diverse range of perspectives on the network’s development. On one hand, proponents argue that the network has matured sufficiently to consider reducing inflation and revising its economic mechanisms. On the other, some caution against precipitous changes, emphasizing the need to preserve the network’s positive momentum. In a more nascent stage, a proposal of this magnitude might have attracted overwhelming consensus – either by endorsing a drastic 68% inflation reduction as a last-ditch effort to bolster asset value or by uniformly opposing any change on the grounds of immaturity. However, the significant and mature deliberation highlights Solana’s current strong position and its evolution and growing importance within the industry.

Additionally, the public encouragement of split votes and validators taking time to poll the opinions of their delegates before voting is an important externality of SIMD-0228. Historically, delegating stake has been hindered by the “principal-agent problem,” where a conflict arises when users (principals) entrust their stake to validators (agents) who may not always act in their best interests. When significant votes, such as SIMD-0228, occur, users must place substantial trust in validators to vote in their best interests rather than in a self-serving way. Although not perfect—given the challenges of tracking validator-delegate relationships and proving stake ownership—the split vote mechanism returns more power to delegates in the voting process and creates a more democratic environment than is seen in traditional protocol governance procedures. – Zack Pokorny

The Pectra Upgrade Goes Live on Sepolia

Ethereum developers activated the Pectra upgrade on Ethereum’s second and final public testnet Sepolia on Wednesday, March 6. This was following the Holesky upgrade the week prior which resulted in one of the worst public testnet failures in Ethereum’s history. The Sepolia upgrade went better than Holesky but still resulted in a brief period of network instability. Developers discovered a bug in the Sepolia validator deposit contract that prevented validators from including transactions in blocks. Client teams issued a hotfix to address the issue within a matter of hours following Pectra activation on Sepolia and the testnet has since stabilized back to a state of normalcy.

The following day, on Thursday, March 7, developers convened for their weekly All Core Developers (ACD) meeting, where they discussed next steps for the Pectra upgrade. Developers agreed not to schedule a date for Pectra mainnet activation yet. They said they would wait until they have launched a clone, also called a shadow fork, of the Holesky testnet, which is expected to go live next week, and until they have made more progress on stabilizing Holesky itself, which remains in a state of non-finality or weakened security. Developers were initially planning to upgrade Ethereum mainnet 30 days after the Sepolia upgrade in early April.

OUR TAKE:

On the latest ACD call, Ethereum developers did not acknowledge any impact from the last two testnet upgrades on the Pectra timeline, but not because they are confident that Pectra will go live on Ethereum mainnet in early April. At this point, it is almost certain Pectra will not launch on Ethereum in April. Rather, it appears developers are unsure about how to assess the readiness of Pectra for mainnet in light of what has happened on Holesky and Sepolia. Major applications on Ethereum like Lido rely on Holesky as a staging environment for upgrades so without it, it is not possible for these teams to adequately prepare and test features in Pectra. Developers have agreed to clone Holesky through a shadow fork of the testnet next week, but even so, this means that stakeholders can only start testing their infrastructure for Pectra two to three weeks later than expected after this new public testnet is live.

Also, developers made clear on the latest ACD call that they do not intend to abandon the original Holesky testnet. They intend to deprecate the Holesky clone soon after Holesky begins to finalize again which they estimate could happen in three weeks. However, this means that applications like Lido should split their testing efforts between both testnets in the interim, such that they maintain infrastructure on Holesky and spin up additional infrastructure to start testing Pectra on the Holesky shadow fork. The additional resources required to do both are a concern not only for applications and service providers on Ethereum. The Ethereum Foundation will be deprecating two Pectra testnets, Pectra Devnet 7 and Mekong, to reallocate resources for the launch of the Holesky shadow fork. It is an open question as to how the Holesky shadow fork and Holesky recovery plan could impact available resources and the timeline for other Pectra testing infrastructure. – Christine Kim

Charts of the Week

February marked the lowest amount of monthly revenue generated by 23 of the leading blockchains since September 2024 at $234.9 million. All of the chains tracked in the query experienced month-over-month declines last month, excluding Gnosis, Arbitrum, Binance Chain, and Avalanche. Notably Binance Chain had its best revenue month since March 2024, bringing in $29.6 million in fees. Solana, which has consistently been a top two fee-generating chain over much of the last eight months, experienced a 64% drawdown in monthly fees capturing $196 million worth of in and out of protocol fees and transaction tips.

Solana still occupied the greatest share of the total revenue generated by the observed chains in February, holding a 57% share. Solana has occupied at least half of all the monthly revenue generated for three of the last four months.

Other News

• Nasdaq-listed BioNexus becomes first public firm to approve Ethereum treasury

• U.S. authorities begin releasing some seized cryptocurrency miners

• IMF imposes new bitcoin rules on El Salvador through its $1.4 billion loan

• Bybit seeks return of fees from DeFi exchange after North Korea’s $1.4 billion hack

• SEC's Crypto Task Force assembles mix of agency veterans