Weekly Top Stories - 5/9

This week in the newsletter, we discuss the GENIUS Act failing in a Senate vote, Ethereum’s Pectra upgrade going live, and a proposal by Aave Labs in the Uniswap governance for the two DeFi titans to collaborate.

Senate Vote on Stablecoin Bill Fails after Whirlwind Week in Washington

Stablecoin vote fails in Senate after whirlwind week in Washington. On Thursday afternoon, the Senate failed to enact cloture on the GENIUS Act, leaving the landmark stablecoin bill unable to advance. The Senate requires 60 votes to enact cloture and advance a bill into the final stages of debate and voting, but the GENIUS Act failed to reach that threshold.

The vote failed, with 49 votes for Nay and 48 votes for Yea, well short of the 60 Yea votes required to advance the bill. 46 of 47 Democratic Senators voted Nay, along with 3 Republicans. Senate Majority Leader Thune voted Nay in a procedural move that preserves his ability to reintroduce the legislation.

The failure comes after a week of intense debate between the two political parties. Despite previously passing the Senate Banking Committee with Yea votes from 5 Democrats in March, on Saturday, 9 key Democrats issued a statement saying they could not pass the bill in its current form, which we wrote about on Monday. That kicked off a week of intense negotiations in the hopes that last-minute changes could be made, either by reintroducing a new, altered version of the bill or via amendments on the floor post-cloture.

Now, the hope is that a deal between Democrats and Republicans can emerge over the weekend and a new version that can reach 60 votes can be introduced next week, though prospects for such a deal are unclear.

In response to the vote’s failure, Treasury Secretary Scott Bessent said the Senate “missed an opportunity” and challenged Senators to “step up and lead or watch digital asset innovation move offshore.”

OUR TAKE:

The failure of the GENIUS Act on the Senate floor was an unwelcome and unanticipated defeat for a bipartisan crypto bill that had previously been seen to be able to garner a significant majority. The bill was introduced by Sen. Bill Hagerty (R-TN) and was cosponsored by two Democrats, Sens. Gillibrand (D-NY) and Alsobrooks (D-MD), and has had significant bipartisan support for months across its various forms and stages.

Widely seen as the more politically easy of two major crypto legislative initiatives (the other being market structure, a draft of which was released by the House Financial Services Committee this week), the stablecoin bill would create a comprehensive federal regulatory framework for stablecoin issuers, giving much needed clarity and laying a foundation for the wide distribution of the U.S. dollar on blockchain rails.

This week’s stablecoin failure, despite previously having bipartisan support, casts doubt on the ability of Congress to successfully pass any crypto legislation in 2025. The parties need to be pressured to come to the table and secure a deal that puts stablecoin legislation back on track. If stablecoins can’t advance in the next 2 weeks, the odds of passage drop dramatically, as the Senate has extremely limited floor time and many other issues to deliberate. Failing to pass legislation leaves the US stablecoin market unregulated at the federal level, exposes consumers to a complete lack of protections, and does nothing to address ongoing concerns about the safety and soundness of issuers. Overall, it perpetuates a losing status quo, leaving the crypto industry disappointed, but still with deep pockets, long memory, and no reason to wait for Washington to catch up. – Alex Thorn

Ethereum’s Pectra Upgrade Goes Live on Mainnet

Ethereum’s Pectra upgrade was successfully activated on mainnet on May 7, 2025, at 10:05:11 UTC. This was the network’s first upgrade since Dencun in March 2024, which most notably introduced EIP-4844 (Proto-Danksharding) to improve rollup scaling and make them more economically competitive for users to transact on. Pectra, while increasing the blob target and upper limit per block through EIP-7691, had a more direct focus on user and validator experience on the layer 1 (L1).

On the user side, Pectra principally introduced EIP-7702, which represents a major step toward account abstraction, enabling users to enhance their Externally Owned Accounts (EOAs) with smart contract functionality. This hybrid approach combines the simplicity of EOAs with the programmability of contract-based accounts. In practice, it enables wallets to support:

• Transaction batching, where multiple operations execute atomically within a single transaction

• Gas sponsorship, which allows outside parties to pay for users’ transaction fees

• Spending controls, which can limit how many tokens a specific application can spend or cap daily outflows from a wallet, improving security

• Recovery mechanisms, which provide different options for users to safeguard their assets without migrating to new accounts

On the validator side, Pectra notably introduced two EIPS, 7251 and 6110 (in addition to 7002). EIP-7251 raises the maximum balance a validator can receive rewards on (MaxEB) from 32 ETH to 2048 ETH. For stakers, this enables new reward compounding. Previously, any rewards earned beyond a validator's 32 ETH deposit would not count towards their active stake. Stakers who wanted to stake more than 32 ETH could only do so in fixed 32 ETH increments, requiring multiple validators to be spun up to capture maximum rewards. This EIP allows larger operators to consolidate multiple validators by merging multiple 32 ETH validators, in turn reducing the operational overhead for validators and the bandwidth requirement for the network as a whole. Lastly, EIP-6110 removes the delay validators experience when spinning up new validators from nine hours to approximately 13 minutes, which streamlines the onboarding process for validators.

OUR TAKE:

Pectra had a clear focus on making Ethereum more usable, scalable, and user-friendly by having an update for each of the network’s execution and consensus layers and rollups. Over (minimally) the last year, but especially over the last few months, the network has been under fire for its laser focus on the rollup-centric roadmap while neglecting the user experience of the layer 1. Pectra catered to some of these concerns by introducing EIPs around account abstraction and an increase to validator MaxEB, allowing transactions to be cheaper and more expressive (among other benefits) and limiting bandwidth overhead for validators that can make the network run more smoothly. In tandem with these updates have been separate efforts to raise the network’s gas limit, which aid in making transactions cheaper and help the network scale its usage. Additionally, the Fusaka upgrade, which is anticipated to go live on mainnet as early as this year, will potentially include a substantial 4x increase to the gas limit that can further drive down transaction costs and scale activity on the L1. It has become clear that the Ethereum community is beginning to shift some of its focus to the L1 as the criticism has mounted.

In its new mission of restoring L1 usability, Ethereum faces two key battles: 1) on the demand side for L1 use and builders, and 2) on its ability to ship meaningful updates in a timely manner. Over the last three years, the network has pushed users and app development teams off the L1 and onto rollups, shifting user demand for Ethereum blockspace and developer talent from the L1 to its plethora of rollups. Now, if the network is serious about scaling the L1, it must work to bring them back while still being hindered by a relatively uncompetitive user experience and a lack of activity for app teams to build around. This effort involves two prongs where the network must convince users and developers to leave rollups and come back to the L1, which is more of a marketing effort, while shipping upgrades that provide material improvements to the protocol that are competitive with the experiences users and developers have gotten accustomed to on rollups the last number of years. Without genuine alignment between substantive protocol gains and a narrative that makes L1 blockspace worth building on capital and talent will stay parked on rollups, leaving Ethereum’s L1 scaling mandate more aspirational rather than realized. – Zack Pokorny

Aave Details a Possible Collaboration with Uniswap and its GHO Stablecoin

This week, Aave Labs published a Request For Comment (RFC) proposal in the Uniswap governance forum detailing a collaborative venture between two of the largest DeFi protocols. The proposal outlines a plan to incorporate Uniswap liquidity position (LP) tokens into Aave’s framework, initially allowing users to mint (borrow) GHO, Aave’s protocol-owned stablecoin, against Uniswap V4 LP tokens. Eventually, users may have the ability to use these LP tokens as collateral to borrow other assets available on Aave. In return for allowing Aave to tap into Uniswap, Aave Labs proposed a revenue-sharing agreement between the decentralized autonomous organizations (DAOs). At the start, the DAOs will 50 / 50 split all revenue generated by LP token collateral, represented as interest paid on GHO borrows collateralized by Uniswap LP tokens. After certain milestones are reached, the revenue sharing will pivot to an 80 / 20 split in favor of the Aave DAO. As part of the proposal, Aave Labs requested $3.3 million in grant funding from the Uniswap Foundation for the development, testing, auditing, and maintenance of the infrastructure that makes the collaboration possible.

Aave Labs noted in the proposal that a feature-complete prototype of the infrastructure needed to facilitate this functionality is already 90% developed, only requiring depth testing and internal/external security reviews to be completed.

Several blockers were mentioned in the comments of the proposal by individuals associated with Uniswap and other DeFi applications working on similar efforts, including:

• Concerns around tax liabilities in the revenue-sharing agreement

• Incompatibility with the scope of the Uniswap grants program from which Aave Labs is requesting funds

• The amount of requested funds occupying too large a share of the Uniswap Foundation’s total grants pool

• The funding of the effort distorting otherwise unincentivized market trends already in place around borrowing against Uniswap liquidity position (LP) tokens and Uniswap choosing winners in the race

The proposal will work through the Uniswap governance process and receive the requested funding if the Uniswap community deems it worthy.

OUR TAKE:

If the proposal passes Uniswap governance, or if it fails and Aave still chooses to implement the already developed infrastructure, it would not be the first time Aave incorporated LP token collateral into its markets. In March 2021, Aave enabled users to borrow against Uniswap and Balancer LP tokens in its isolated automated market maker (AMM) market, and again in May 2020 when Aave introduced an isolated Uniswap market to its protocol suite, allowing users to borrow non-Aave-issued stablecoins, like USDC and DAI, against a number of Uniswap LP tokens. These markets looked similar to those of custom isolated Aave markets today (e.g., Aave’s Lido market), where users deposit Uniswap LP tokens as collateral and select corresponding borrow assets against them in markets that are separate from the core market. The strategy proposed by Aave Labs in the Uniswap governance forum is principally similar to these markets, where dex LP tokens are used as debt collateral in an “isolated” market, but has the distinct qualities of (1) the LP tokens being used as collateral to issue its GHO stablecoin and (2) directly ties Aave app infrastructure to that of Uniswap – something that wasn’t possible at the time of the original Aave Uniswap market.

Introducing a Uniswap V4 GHO facilitator allows Aave to better isolate and wrangle the risk of introducing the somewhat bespoke collateral asset class to its product offering and more easily bootstrap the use of these assets as collateral. In the scenario of using LP tokens as GHO collateral, Aave, the issuer of GHO, and the users of GHO are absorbing the risk. Aave liquidity providers (LPs) and core markets bear no risk in this scenario because GHO is synthetically issued and not deposited by LPs for others to borrow. As a result, Aave LPs face no risk of loss if the LP token collateral fails, and the core market is kept exclusive from the activity. GHO holders, on the other hand, face the risk of the stablecoin depegging from its dollar reflection in such a scenario. As of this writing there are $172.06 million GHO borrowed against $6.4 billion worth of stablecoin LP deposits on the Aave core market on Ethereum layer 1 (the primary Aave market and the market from which GHO is issued) - highlighting that significantly less capital is at risk in GHO than in the core Aave market. Using a GHO facilitator also allows Aave to introduce the new collateral without the need to source liquidity, which has been historically difficult for custom markets to do, because Aave can simply issue the stablecoin synthetically as demand warrants it, eliminating the need for LPs and/or favorable market conditions. This opportunity is made possible by the modular architecture of Uniswap V4, which allows external contracts like Aave’s to natively interface with LP positions, enabling tight infrastructure integration while preserving both protocols’ core design principles.

One final consideration is the sheer scale of dex LP tokens, with over $20 billion in value currently deposited across decentralized exchanges. The dex Aave intends to use for its GHO facilitator only has $740 million in total value locked (TVL), however. If Aave can establish a robust and reliable risk framework for this asset category, it can potentially unlock significant liquidity for the protocol. Utilizing LP tokens as collateral for a synthetic asset like GHO also enables Aave to more effectively leverage this scale, as its supply can grow without being constrained by LP deposits or the need for favorable onchain yield conditions. Furthermore, GHO borrowing generates direct revenue for the Aave DAO, as interest payments accrue to the protocol itself; unlike its other lending markets, where interest is primarily distributed back to LPs. Even with the 50 / 50 revenue split, the GHO facilitator model is more financially beneficial for Aave DAO than standard borrows of LP deposits, especially on stablecoin markets where Aave only skims 10% to 25% of the interest paid. As a result, the proposed Uniswap V4 facilitator mechanism has the potential to open the door to a substantial financial unlock for Aave. – Zack Pokorny

Charts of the Week

MetaDAO, a facilitator of futarchy markets for Solana decentralized autonomous organizations (DAOs) to vote on governance proposals, cleared $3 million in total volume since releasing version 2 of the protocol. The recent surge in volume was driven by ORE and mtnCapital, which completed a combined six proposals, joining for $495,100 in volume over the last ten days.

ORE and mtnCapital each had proposals make it into the top ten MetaDAO v2 proposals by volume, claiming the fifth spot in the case of ORE and the sixth and seventh spots in the case of mtnCapital. These proposals, which all ended in rejections, highlight a key component of futarchic governance: it allows disagreement to be better factored into the decision-making process than traditional DAO governance models. Six of the top 10 MetaDAO votes by total volume traded ended in rejections. The four that were approved passed by large margins (pass prices eclipsing fail prices by 8.5% to 40.9%). This tells us two things: 1) futarchy is an improved canvas for expressing contention and disagreement over traditional governance, where proposals rarely fail, and 2) when the community views a proposal as exceedingly positive for the DAO they use the futarchic markets to add/maintain exposure to the underlying token at an elevated rate.

Other News

• Hester Peirce details a pathway for the SEC to allow tokenized securities

• Coinbase's latest protocol revives old internet status code for web payments

• Robinhood plans to launch a blockchain trading platform using Arbitrum or Solana

• Revolut will integrate Bitcoin Lightning Network payments

• Bhutan enables crypto payments for tourism services through Binance Pay and DK Bank partnership

• CFTC ends legal battle with Kalshi Prediction markets

• Florida joins other US states in withdrawing bitcoin reserve bills