Dominic Weibel
Head of Research, Bitcoin Suisse
The Weekly Wrap: ECB rate decision, Coinbase backs lawsuit, Bellatrix Upgrade
Sep 9, 2022
1. ECB interest rate decision and U.S. labor market
The Facts:
- On Thursday, the ECB announced a record margin interest rate hike of 75 bps taking the deposit rate above 0% to curb the ongoing inflationary pressure.
- The ECB furthermore raised its inflation expectations to an average of 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024 after hitting another CPI record in August at 9.1%.
- Meanwhile, the U.S. labor market continues to signal strength despite heavy macro conditions as weekly jobless claims fell to a three-month low at 222’000 down 6’000 and significantly lower than forecasted at 240’000.
Why it’s important:
- The hawkish move from the ECB comes at a reasonable delay as they maintained rates in the negative range since 2014 in an effort to stimulate the economy.
- As surging energy prices remain a key driver of inflation, ECB President Christine Lagarde stated in a speech that “Governments not central bank should help energy firms under stress from market volatility and prudential requirements should not be eased at clearing houses and derivative counterparties”.
- Following the jobless claims in the U.S., FED chair Jerome Powell signaled that the bank would likely remain hawkish and follow through with high interest rates in order to bring back inflation to normal levels.
- In this context Powell stated that “The longer inflation remains well above target, the greater the risk that the public sees higher inflation as the norm”.
- Despite the tight monetary policy of the FED and a contracting GDP, indications of widespread layoffs are yet to be seen.
2. Coinbase to back lawsuit against the U.S. Treasury after Tornado Cash sanctions
The Facts:
- Coinbase revealed Thursday, that they’ll back a lawsuit against the U.S. Treasury that was filed by 6 individuals affected by the Tornado Cash sanctions.
- The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) previously sanctioned Tornado Cash, a privacy protecting crypto mixer, and 44 smart contract addresses associated with it for aiding thieves in laundering stolen money.
- Although the OFAC has some sanctioning authority, the lawsuit argues that smart contracts and software code fall outside of its purview and that "Tornado Cash is not a person, entity, or organization. It is a decentralized, open-source software project that restores some privacy for Ethereum users".
- This week also saw several other developments likely impacting the regulatory environment as pro crypto Lizz Truss became UK’s next prime minister, Bank of Russia announced to legalize crypto for cross-border payments and the White House stated in a report that they might consider legislation to ban PoW mining.
- Moreover, SEC’s Gary Gensler signaled support for more crypto oversight of the CFTC in a speech on Thursday.
Why it’s important:
- Crypto enthusiasts likely welcomed the lawsuit as plenty of users utilized the platform for legitimate reasons such as anonymous donations and are now affected by the sanctions.
- Not only do a multitude of innocent users now have trapped funds but the ecosystem has also lost a critical tool for privacy as the sanctions rendered Tornado Cash inaccessible.
- As Coinbase’s chief legal officer, Paul Grewal, framed it: “It sets a dangerous precedent”.
- Furthermore, the sanctions fueled discussions around censorship resistance as several points of centralization in the Ethereum tech stack were exposed in the process.
3. The final pre-Merge upgrade Bellatrix goes live
The Facts:
- On Tuesday, the Bellatrix upgrade on the Beacon chain, Ethereum’s PoS consensus layer, successfully activated.
- The recent Bellatrix upgrade is the last checkpoint before the Merge scheduled for next week between September 14, 20:49 2022 UTC and September 15, 02:59 2022 UTC.
- As the Merge activates in two phases, Bellatrix prepares the Beacon Chain to include user transactions from the execution layer once the TTD is hit.
- The last and final phase activates with the Paris upgrade, which then actually triggers the Merge of the consensus and execution layer.
- According to ethernodes.org, 84.5% of execution clients are now ready and synced for the upcoming PoS transition.
Why it’s important:
- With the Bellatrix upgrade going live, the countdown to the highly anticipated Merge now has officially begun.
- While the Bellatrix upgrade was completed successfully, around 5% of validators weren’t prepared accordingly and missed out on subsequent block rewards.
- Post-Merge, missed blocks should be mitigated as they might impact time-to-finality and potentially increase fees as pending transactions stack up.
- Participation rates quickly caught up after Bellatrix, though, as the missing block rewards pushed node operators to update their clients.
- Ahead of the Merge, several CeFi platforms such as Binance, FTX and Coinbase announced that they’ll halt withdrawals and deposits or suspend transactions to certain networks that is primarily related to precautionary measures and the possible PoW fork.
- DeFi platform Aave on the other hand voted to stop ETH loans prior to the Merge to avoid liquidity issues as users rush to borrow ETH in order to amplify their fork token allocations.
As the Merge is rounding into its final lap, please head to our dedicated Ethereum Merge Hub if you seek details around the PoS transition lying ahead. We will also make sure to keep you up-to-date on any relevant news.
In other news
- Swiss SEBA bank to launch institutional grade ETH staking (via Decrypt)
- Binance pulls support for Circle’s USDC (via CoinDesk)
- EU plans to fight counterfeiting via NFTs (via Bitcoin.com)
- BlackRock to use Kraken’s CF Benchmarks for crypto offering (via The Block)
- GameStop partners with FTX (via Reuters)
- Voyager Digital to auction off their digital assets on September 13th (via Crypto Briefing)
- Terra Luna Classic surges 600% within two weeks (via CoinDesk)
77.1 (China) vs. 76.1 (U.S.)
Another kind of flippening as the life expectancy in China is now higher than in the U.S.
My personal opinion is if we allow censorship of user transactions on the network, then we basically failed, and this is the hill I’m willing to die on. If we start allowing users to be censored on Ethereum then this whole thing doesn’t make sense. […] I think censorship resistance is the highest goal of Ethereum and of the blockchain space in general so if we compromise on that there’s not much else to do in my opinion.”
Marius van der Wijden, developer from the Geth client team, on protocol level censorship resistance (via Galaxy)
Missing the fundamentals? Read our introduction to "Ethereum Merge Definitions?"
The latest episode of Decrypt titled “Points of centralization in Ethereum” sheds light on Ethereum’s weak spots regarding centralization-enabled censorship.