The Weekly Wrap: MiCA and crypto sanctions, ETH Index Fund, BNB chain halted

1. EU approves legal text of MiCA and imposes crypto sanctions on Russia

The Facts:

• On October 5, 2022, the full legal text of Markets in Crypto Assets Regulation (MiCA), a long-awaited piece of legislation, was approved by the EU.
• The following institutional stages are a passage in the ECON (the European Parliament's Committee on Economic and Monetary Affairs) on October 10, 2022 and then the ultimate passage in a plenary session of the European Parliament prior to the actual release.
• Alongside, measures calling for mandatory identification for cryptocurrency transfers involving non-custodial wallets (user owns the private key) were withdrawn from amendments submitted by European Parliament members on Anti-Money Laundering (AML) law.

Why it’s important:

• In a first-ever, MiCA will introduce a licensing regime for wallets as well as exchanges and reserve requirements for stablecoins after the massive collapse of algorithmic stablecoin Terra.
• Noteworthy, DeFi and NFTs remain outside the scope of the current version of MiCA.
• Meanwhile, the EU banned all Russian crypto wallets and accounts from interacting with the EU.
• According to Bitcoin Magazine, the Chairman of the Russian Congress Finance Committee stated that EU’s ban "will only stimulate the development" of the market in Russia and that they can "easily bypass" the sanctions anyway.

2. Fidelity launches Ethereum Index Fund

The Facts:

• Fidelity expands its crypto offering with a new Ethereum Index Fund.
• According to a SEC filing, Fidelity revealed to launch the fund on October 4, 2022 and raised ~$5 million since sales started on September 26, 2022.
• The new fund, that is not exchange-traded, offers clients exposure to Ethereum’s native currency ETH, available from $50’000 minimum investment.
• Fidelity already launched its crypto-focused institutional custody and trading platform Fidelity Digital Assets four years ago and offers a metaverse and a digital payments themed crypto ETF.
• Also happened this week, CME Group proposed direct derivates trading after FTX.US and Grayscale announced a new investment vehicle for mining infrastructure.

Why it’s important:

• With the new offering, Fidelity signals strong conviction regarding crypto after they recently launched Bitcoin custody and access to retirement accounts.
• Fidelity’s move is interesting, as it extends its product range beyond BTC, offering clients a more diversified exposure towards digital assets.
• Ethereum’s PoS transition likely plays a role in new demand as also CME Group launched ETH options prior to the Merge.
• Nasdaq, Blackrock, Fidelity and Citadel remain undeterred by the crypto winter and instead prepare to address growing interest from institutional investors.

3. BNB chain halted after $100m exploit of cross chain bridge BSC Token Hub

The Facts:

• On Friday, a sophisticated exploit of the BSC Token Hub, a cross-chain bridge between BNB Beacon Chain (BEP2) and BNB Chain (BEP20 or BSC), drained ~$100m in funds.
• BNB Chain composed of BNB Beacon Chain and BNB Smart Chain (BSC) is closely linked to the crypto exchange Binance.
• Due to broken cryptographic verification, the hack is similar to the Ronin and Harmony exploits.
• All validators were asked to temporarily stop validating and halt the blockchain to contain the issue.
• After validators coordinated a node upgrade, BNB chain is now running again after being halted for several hours.
• Due to community effort and security partners of BNB chain, an estimated $7m of drained funds were already frozen.

Why it’s important:

• After yet another exploit, cross-chain bridges remain the most successfully attacked spot in the whole crypto ecosystem.
• Since July 2021, 11 significant cross-chain bridge attacks have drained more than $2b in funds.
• Interestingly, none of them has implemented circuit breakers or automated throttles to mitigate exploits.
• Vitalik stated earlier this year, that there are fundamental security limits for cross-chain bridging and therefore, multi-chain will be the future not cross-chain between multiple sovereign chains – so far, he couldn’t be more precise.
• Despite taking quick actions halting the blockchain and avoiding what could have been the biggest hack of all time, an open, permissionless, decentralized and robust blockchain is not supposed to be paused and switched-off.
• Shutting down a blockchain puts the degree of decentralization and robustness into question, similar to Solana, that suffered yet another major outage this week, and pressures the narrative for alternative L1 chains – for instance, neither Bitcoin nor Ethereum ever experienced a similar scenario, it is simply not possible to just halt them.

In other news

• NYDIG raises $720m for Bitcoin investment fund (via Blockworks)
• Telegram now supports P2P transactions by Wallet Bot (via CoinDesk)
• MakerDAO to allocate $500m in U.S. treasuries and bonds (via Cointelegraph)
• IOTA’s staging network Shimmer launches (via CoinDesk)
• Kim Kardashian charged for $1.26m from SEC for unlawfully promoting crypto securities (via CNN)
• Celsius leaks client names and trading history in legal filing (via The Block) while top executives cash out $17m prior to bankruptcy (via CoinDesk)
• 3AC NFT collection moved to Gnosis Safe (via Blockworks)

Source: (Data) Glassnode, Blockchain.com, (Chart) Bitcoin Suisse Research

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