Unchained - Crypto Points Systems Are a 100x Opportunity, But Founders, Be Wary - Ep. 585

Starting point is 00:00:00 I see a lot of crypto projects as sort of deploying points is we don't have product market fit. Let's try to get users through the door and try to get product market fit by just having points program. And I think that's just as unsustainable as the AirDrop strategy of giving people tokens to use your product. Hi, everyone, welcome to Unchained. You're a no-hype resource for all things crypto. I'm your host, Laura Shin, other of their cryptopians. I started covering crypto eight years ago and as a senior editor at Forbes was the first mainstream reporter to cover cryptocurrency full-time. This is the December 22nd, 2023 episode of Unchained.

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Starting point is 00:01:16 VaultCraft is your no-code DeFi toolkit for customizing non-custodial automated yield products on any EVM chain. Join the referral program today and start earning rewards. Learn more at vaulcraft.io. Today's guest is Leyen, co-founder and general partner at Variant. Welcome, Lee. Thanks, Laura, so much for having me. It's great to be here. There's been a phenomenon in crypto that's taken off over, I guess you could say, like, the last year or so, which is points.

Starting point is 00:01:45 What are points? And how are they being used in crypto? Yeah. So points are basically like off-chain points, literally, like a number, that applications. that applications are giving to users to reward them for certain behaviors that they want to incentivize, like engagement or retention in some way or transacting in some way. And it's usually structured around a program. So these applications would have points programs and users accrue points.

Starting point is 00:02:15 And down the line, I think users are under the hope or sometimes these applications even state that they'll be able to use these points in different ways, whether that's like explicitly saying that you'll be able to redeem your points for certain economic value or rewards or sometimes they're more ambiguous and say that points are the first step to including the community and the success of the application. But regardless, points are becoming very popular across the application layer of crypto as a way to really incentivize usage, engagement, and reward users for using an application. And what would you say are some examples of the more popular

Starting point is 00:02:53 projects that have instituted points or what have been some of the more successful, you know, uses for points. Totally. Well, first I should point out that points are by no means unique to crypto. Points have a long history and consumer applications and beyond software in the consumer world in general. You see points all around you, whether it's at the grocery store or for people who shop at Sephora, you're familiar with their insider points, the STEM, Dunkin' Donuts, his points, like a slew of brands and applications all have points. And so it's become this very popular kind of program to incent loyalty to your brand or to your application. But they've really just taken off probably in the last year or so definitely in the last couple of months in crypto and

Starting point is 00:03:39 seem to be gaining a lot of steam. And so far in crypto, we've seen applications ranging from Rainbow Wallet, which just announced a points program, I think a couple of weeks ago for your activity on Ethereum to Blackbird has points that they call fly tokens to blast the new L2 from the NFT marketplace blur, having blast points to reward users for bridging funds over, as well as FrenTech, Mint Fund. There's a bunch of other examples. But I think the commonality between all of these is that the points are off-chain. They're not on-chain ERC-20s. They are really just represented in a database that these applications keep. And so they're very similar to those Web 2 points programs. And why do you think they're taking off now in crypto? Yeah, I think that,

Starting point is 00:04:29 I mean, I haven't talked to all of these founders. And so I can't say for certain, but I would ponder and sort of guess that it's because that the space has seen that tokens are very effective for driving user growth and for getting people to try out your application in the first place. But they also come with a lot of downsides. So when you issue tokens, there's a lot of regulatory risks and considerations. You're effectively giving away potentially governance power if you're trying to stay compliant or potentially economic ownership over your app or protocol. And it sort of limits what you can do in the future.

Starting point is 00:05:05 And you might have given away too much of your token table, et cetera. And so points are kind of like, I think, a way to get a lot of the benefits of issuing tokens, but without all of the downsides. because they are off-chain and they don't really have any economic value unless you decide to give it economic value. And so by creating an off-chain kind of just numerical representation of users' loyalty, you can still get all of the psychological benefits that tokens and air drops and yield farming got for you, which is to say that it got people really interested in using your app.

Starting point is 00:05:41 It's a hook to get people through the front door, but sort of mitigates a lot of the downside risks that tokens have. And so why do you think they're being designed off chain? Well, I guess just because then they're not tokens, but do you see them ever going on chain? I think that is the intention. I think that like users are under the impression that the points are going to convert to on chain tokens in the future, that this is going to have economic value behind it, that they are going to be liquid and tradable. And so they'll be able to sell them for some economic value. I very much think that that is the impression that users have and the reason why people are engaging with these points programs at any sort of scale. On the part of founders, I can't speak for what their plans

Starting point is 00:06:25 are, but I think that is the intention as well, because founders recognize that unless you give real perks or some sort of value behind the points, people are going to lose interest eventually. They can't just be an empty promise of future value forever. So speaking of dissatisfaction with points, you recently wrote a newsletter about points and you based on learnings that you had from working at Web2 companies with similar loyalty programs or points. And I wanted you to just maybe talk about the first one, which is you talked about how they can kind of incentivize inorganic behavior. So describe a little bit what that phenomenon is and then talk about whether or not you're seeing that play out with these current points programs in crypto. Yeah. So for context, about a decade ago,

Starting point is 00:07:12 I was a product manager at a Web 2 mobile app company. It was a real world shopping app, meaning that we sort of bridge the digital to the physical world. And on one side of the marketplace or network, we had retailers and brands who were interested in engaging consumers. And then we had users of our app that we would reward for certain activities like walking into physical stores or engaging with products at the shelf, picking them up, et cetera.

Starting point is 00:07:38 And so to basically facilitate this behavior, we designed a points program to reward users for engaging in these high value actions that retailers and brands really wanted to drive. And so people would get a certain number of points for walking into a store or for scanning a certain barcode on a product. And the thinking was that these actions have value. And so we could take some revenue and actually pass it along to users in the form of points. And then they could actually redeem those points for actual gift cards. So they were getting economic value at the end of the equation. And there were so many learnings that I had from this experience. And I think this experience was really formative in shaping my interest in loyalty and rewards and also crypto in general because it was all about incentive design and how do you construct a marketplace for certain activities and get people to do things. But one of those key learnings, as you outlined, was that whenever there's an extrinsic incentive, it shifts users' behavior in some way. because it sort of psychologically impacts them.

Starting point is 00:08:41 People no longer just do the thing purely out of intrinsic or organic interest. They're doing it for this benefit that they're getting in the form of financial value in our case. And so we saw all sorts of really interesting behaviors sprout up that wouldn't have happened under normal circumstances. People would go out and take a drive around their neighborhood and go to these stores, like park in the parking lot, walk into the store, walk out. and then continue on their route without any intention of actually going in and buying anything. And like under normal circumstances, you would never do anything like that because it's a waste of time. But they're literally doing it because they were getting rewarded for walking in the store, just literally walking in. Correct. Yes. And so, yeah, the incentive system that we created, obviously created the behavior that we wanted to incentivize.

Starting point is 00:09:33 It wasn't just like, oh, I happened to be shopping. Let me get points. Anytime you introduce that incentive, it's going to cause people to do that action, whereas they wouldn't have organically. And this even impacts people who are interested in shopping, you know, are predisposed to already use the application. They're always conscious of the incentive and it compels them to use it even more. And then closely related to that phenomenon, I also outlined in that recent piece on my newsletter, like the second phenomenon, which is that anytime you're introducing an extrinsic incentive program, like a points program, it's actually going to change the mix shift of users that you get in your application. It doesn't just change user behavior on the margin. It doesn't just convert less loyal users to more loyal users. It actually like brings people

Starting point is 00:10:25 through the front door that you wouldn't have gotten otherwise. So we had designed this application with like fashion enthusiasts and shopping enthusiasts in mind. But instead, because of the existence of these points and rewards, we actually got like coupon, extreme coupon hunter type of people or like bargain hunter types of people, people who are actually trying to earn money by using our app and doing it almost like a full-time or part-time hustle. So that was really fascinating. And I think you're seeing some of that. Sounds like Axy Infinity.

Starting point is 00:10:55 Correct. Yes. I was just about to say, I think you're seeing a lot of that sprout up in the crypto world and have seen it sprout up already through tokens and yield farming where people are just doing the action, using the app, because of tokens. Now I think you just substitute out tokens or inflates them with points, and people are probably also engaging with these apps purely because of the point system, not because they were interested in the application at all. So in a moment, we're going to talk about some of the other pitfalls of the point system, but first a quick word from the sponsors who make this show possible. Arbitrum stands at the forefront of innovation as the

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Starting point is 00:12:49 Reve the benefits of the growth of a reliable exchange. Curious, visit Femex.com today, and as an added bonus, unwrap a potential Christmas surprise. Back to my conversation with Lee. Yeah, something that was so interesting is, you know, on this notion that you can have this point system and you're thinking you're rewarding users, but it can kind of backfire against you a little bit. You tweeted, quote, if your points program is effectively discounting the cost of something or paying people for transacting as yield farming tokens did, then you are actually creating more disloyalty than loyalty. Can you elaborate on that? Yeah. I think at the highest level, points are just one strategy in the toolkit for an application builder or a brand or whatever. And the aim of the strategy is to

Starting point is 00:13:41 increase user loyalty. The aim isn't to just give people a bunch of points or discounts. The end goal of any sort of points program and broadly like loyalty strategy is to engender more loyalty. I think people have forgotten the plot a little bit and are thinking about points as like the end all be all. But yeah, I want to emphasize. like you really should first start out with what are the business goals that you're trying to drive? And I'm assuming it's like usage and loyalty and repeat engagement. And a points program is only one potential way to do that. There's lots of other ways and strategies and tactics to engender greater loyalty.

Starting point is 00:14:21 But anyways, at the highest level, like a points program is in service of greater loyalty. So if you design a points program that is just effectively giving users a rebate and making discounting products or like, you know, you accrue some number of points and then you cash in those points for some amount of dollars, you're effectively just discounting your products or discounting transactions. And what you're actually doing then is causing the behavior to arise of people thinking in terms of like, well, what is the effective price if I accrue all of these points? Like you're trading them to be sort of bargain hunters or couponers or discount seekers. kind of like how yield farming did or air drops did.

Starting point is 00:15:06 They were effectively like a stipend for using a product. You were getting paid to use a product. And so obviously it cultivated this mindset of, well, okay, let me see how much I can earn. And if a better earnings opportunity comes along, yeah, I'm going to switch to that thing. And I think points run the risk of being quite similar in this effect. Okay, so what's the alternative to doing that? The alternative is to not just use points as a discount, but instead, to use points more strategically to get users to, for instance, like, try out different products that you have.

Starting point is 00:15:37 So, like, I think Sephora does this really well where you get some number of points and then you can get a certain, like, set of different rewards, items that they select that usually go outside of the bounds of what you would normally purchase. And by doing so, like, it causes users to try out something new and potentially hooks them to buying that thing later as the full size thing. Or another example of this is like if a coffee shop wanted to incentivize users to try out different products instead of like buying nine coffees and getting the 10th coffee free, which is pointless because you would have probably bought the 10th coffee anyway if you already bought nine. Instead like shifting them to different product and thereby kind of like encouraging them to spend more with you or expand the selection of what they were buying from your store in the first place. And then you can get really fancy with different points tactics too, where like you can accrue some number of points and that unlocks special access or more personalized service or another tier of rewards. This is what airlines do. And so they actually engender more loyalty because you feel like you have this special status with them. You actually get better treatment.

Starting point is 00:16:50 You get access to the priority line. These are benefits that don't have really a dollar value associated with them, but they really hook you. in and make the switching costs to some other airline quite high rather than just like discounting your ticket all the time. So yeah, there's a nuanced difference between points as discounts or points as like just payment for using the product versus points to engender more loyalty. And do you have any particular like types of crypto projects that you think are better suited to using points versus others or or certain ones that you think are, you know, like just ill-suited? I think any product,

Starting point is 00:17:27 that is building at the application layer, meaning has consumers as the end users and has some degree of product market fit. And also where the core product is maybe more of a commodity is probably a good fit for a points program. So unpacking those things like where the core product is kind of a commodity, I think these are the categories in the real world where points programs have been used to greater effect. So airlines are a prime example or coffee shops are another example. When the core product is a commodity, really all you have is a brand is user loyalty to you. And so points programs can actually increase that switching costs and make it more challenging for users to go elsewhere to buy that thing. And then the other element that I mentioned was

Starting point is 00:18:15 has some degree of product market fit. This was something else that I tweeted the other day, like Points do not equal product market fit. I know, I saw that. Yeah, I think going back to something that I mentioned earlier, points are one way of creating greater loyalty. The basis of loyalty is people already want to use your product. And a points program ideally just takes, you know, that segment of users who had tried you, were sort of into you, but like not super loyal or not super retained and like shifts them up one level of that loyalty tier. It doesn't take a non-user and then turn them into like a user.

Starting point is 00:18:54 That's not the right sort of application of points in my view because that's like gets people into the discounting mentality. And unfortunately, that's where I see a lot of crypto projects is sort of deploying points is we don't have product market fit. Let's try to get users through the door and try to get product market fit by just having points program. And I think that's just as unsustainable as theirdrop strategy of giving people tokens to use your product. Yeah, I mean, it feels like most of them are doing that. In particular, actually,

Starting point is 00:19:24 though, I want to ask you about how Rainbow was using points, because in a way, they're kind of using them almost like as a vampire attack to siphon users from MetaMask. And I wondered what you thought about that strategy. Yeah, I think it's actually pretty smart because I do think Rainbow fits that criteria that I mentioned of how's product market fit. I also think it fits the other criteria of like basically being kind of a commodity category. Like, while I'm a lot of a commodity category, like, are basically like just kind of transaction signing tools at this point in the crypto evolution. And so for a user who might have a slight preference over like between Metamask versus Rainbow versus whatever their wallet, like the existence of Points program could actually tip them over

Starting point is 00:20:08 into giving Rainbow another shot, getting them to come back, all else being equal. Okay. So I have to also ask you because you, in your newsletter, you advised that teams keep the economic value of the points ambiguous. And I wondered how exactly they could accomplish that because it just feels like at a certain point, they're going to be able to kind of figure out what the value is, right? Or how would they do that? This might be a little bit tricky in crypto, especially if the points become a token later on and actually have like just tangible value that can be measured. But I think the beauty of a lot of points programs in the Web 2 world is that, the value of the points redemption is kept unclear or it's actually inconsistent between rewards.

Starting point is 00:20:57 So if you study like credit card points systems, the redemption value per point, if you have Amex points or chase points or whatever, the redemption value actually differs whether you spend it on an airline ticket or hotel or you go to their e-commerce store and you try to spend it on some sort of e-commerce site. And so by doing that, they sort of maintain. the mystery and the fun for users where users don't exactly know the tangible dollar value that they're getting for spending and for getting points, which I think is better for you as a business because it allows you to sort of manage your P&L more carefully. But it's also better from a user psychology perspective because if people are always doing that conversion in their minds,

Starting point is 00:21:40 it actually sort of detracts from how engaging the points program is, especially if that dollar amount is quite minimal. So for instance, at shop, which was the shopping application that I was a product manager at, if you actually converted the value of like a single walk in, the points that you would get for a single walk into a store to dollars, I think the value was something like 25 cents or 50 cents. But when we put in points terms, it was like 200 points or 100 points. It feels a lot more meaningful. And we kept that translation, that conversion kind of unclear for users, like there were multiple hops to go from points to gift cards. And by doing that, I think you maintain how engaging the sort of points

Starting point is 00:22:27 game is for users to play versus just making it too transparent. And then people start getting thinking through the calculus of like, is this actually worth my time? Okay. I just, it's not totally clear to me how a crypto project will keep that ambiguous. You know, it just feels like at a certain point, it's going to become pretty transparent. Yeah, I think that's really fair. I think what's critical for crypto projects is one day when the points do become fungible tokens, that they've built like a more robust rewards and loyalty program that goes beyond the economic incentives and includes things like special perks or access or other sort

Starting point is 00:23:02 of like personalized service such that users care about their token ownership beyond just the financial value. I think when you sort of get into danger territory when people are just doing that little conversion of like how much effort have I exerted versus how much have I financially benefited. And instead, you want users to feel the sense of lock-in to your ecosystem because they feel like they're treated more special or they get all of these benefits that they can't literally buy from another application because they're this valued part of your ecosystem. So I think it goes beyond just like making them tokens or not. I think it has to do with like the holistic construction of an overall loyalty strategy. Yeah. Just your point about how the reward would be something that they're not already doing or whatever. Like it just makes me think of, you know, like NFTs. Like they could like just offer up

Starting point is 00:23:54 something new or yeah. But anyway, so one thing, you know, and you did kind of reflip mentioned this, I'm sure you know, some people have said and you kind of alluded to this that points are a way for projects to avoid kind of any regulatory difficulty, particularly with the SEC. And so are there, you know, I don't know if in your role as a VC, if there's like anything that projects and teams are discussing in terms of like what they should avoid when it comes to using points, so it's not to, you know, have an issue with regulators down the line. Yeah, I think points insofar is they're just kind of like a database entry and they're totally off chain. My understanding is like, I don't think they are under the purview of any regulator, although don't quote me on that.

Starting point is 00:24:39 I think they're just so prevalent that I assume that that is the case because they are valueless. They're really just kind of like this intangible representation that you as an app developer have decided to construct. But I think where they become an on-chain representation of loyalty, that probably gets more tricky, especially if you plan to give economic value to users. And I think that is where talking to your lawyer and talking to a regulatory expert, like our chief legal officer, Jake Tremensky, would probably be best and goes above my pay grade. Okay. Yes, true. And he's a former securities litigator. So last question, is there any particular evolution or new development with points that you see on the horizon or that you're looking out for? Yeah, so at the end of my newsletter, I alluded to this, but I mentioned that I think bringing points on chain could be really, really interesting, even if they don't have any economic value per se, but they just sort of are represented on chain and are transparent and openly and publicly sort of viewable by every builder and every user in crypto. I think that could unlock a lot of really interesting experiences for consumers. So going back to my shopkick experience, One of the guiding visions that we had was, what if we could build a universal loyalty system?

Starting point is 00:26:00 The status quo in the offline world is that you go to a certain store, you have that store's loyalty program. You go to a certain grocery store. You have points at that grocery store, but there's no communication between them. And so the vision behind Shopkick was, what if we could just incentivize loyalty at a more universal level and anyone who joins the network could sort of see users' degree of loyalty to all of these different merchants and all of these different brands. It was really difficult for us to jumpstart that network because we had to do the direct sales motion into every retailer and every brand and also bootstrap the user side. But I think this vision is like super well suited to the crypto world and crypto can like

Starting point is 00:26:39 100x what we were able to achieve by just implementing points on chain. When you do that, other application builders can see that users have points with a certain application. They're probably power users of that application. They could just, decide to reward users in their own application and create status benefits in their own application. And this kind of solves some of the cold start problem of building your own loyalty points program or your own rewards program. So the example that I gave was, yeah, imagine if other merchants or other brands could see your loyalty like Macy's or to Best Buy and decide to target their offers accordingly. Graham, who was the former CTO of Mir, wrote this post where he talked

Starting point is 00:27:22 about how if you imagine, like, I think Duolingo has points, if they put those points on chain, then countries or network states could decide to issue visas based on your language fluency. So there's a lot of very interesting sort of like composability possibilities that arise when you have this information on chain. Oh, I love it. I hope the Italian government is listening to this. Yeah, last comment I want to make about that is just that if points go on chain, but they don't have economic value, then would it be that they take the form of something like

Starting point is 00:27:55 Soulbound tokens or something like that? Right. Yeah, I think that could be an implementation of it. I think that would probably be the simplest. They would just sort of be non-transferable. Yeah, you could sort of represent them maybe as a non-transferable NFT that is sort of in accordance with your particular loyalty tier at that particular app. Blackboard does something similar here. The Blackbird is that restaurant rewards and loyalty network that was starting. by the former founder of Resi. In Blackbird, you have different NFTs at different restaurants that you go to, which showcase how much you're irregular there and what perks you have at that particular restaurant.

Starting point is 00:28:34 But they're all non-transferable because restaurants don't really want you to transfer the status of being irregular to someone else. And they don't want to create a market around that. So it's really just for users to keep and to be able to port over to other applications down the line if they wanted to, but it's an NFT and it's just non-transferable. Okay. Yeah, because otherwise it just sort of feels like if it is transferable, then eventually there will be a price on it.

Starting point is 00:29:03 Correct. Yes. Okay. Well, it has been such a pleasure. Thank you so much for coming on unchanged. Yeah. Thanks so much for having me, Laura. And yeah, if any builder listening to this wants to talk more about points programs

Starting point is 00:29:15 and points design, hit me up. My DMs are open. So thanks so much. Great. Don't forget, next up is the weekly news recap, today presented by Unchained contributor Megan Christensen. Stick around for the seeking crypto after this short break. Defy just got way easier with Valkraft, your no-code toolkit for building, deploying, and monetizing automated yield strategies in a few clicks. Forget spending months of R&D and capital when you can instantly launch your crypto fund with Valkraft on any EVM chain.

Starting point is 00:29:46 From wallets and institutional service providers to anon-D-GYNs, anyone can use Valkcraft to supercharge their crypto. Join Valkraft's referral program, unite with the community, and supercharge your crypto. Details on Valkraft.io. Welcome to this week's crypto roundup. This week, we cover a spectrum of developments from FTX's strategic moves in its bankruptcy proceedings to Binance facing a hefty CFT. FICE Fine. We'll also delve into Salana's remarkable surge in stable coin volume, the legal twist in Three Aeros Capital Saga, and more. Thanks for turning into the weekly news recap. I'm Megan Christensen, a producer here at Unchained. FTX advances reorganization efforts. FTX has taken a significant step in its

Starting point is 00:30:35 bankruptcy proceedings by filing an amended Chapter 11 reorganization plan. A key aspect of this proposal presented to a Delaware court is the valuation of customer asset claims based on market prices at the time of the bankruptcy filing. The strategy involves converting these claims into cash using specific conversion rates determined by the exchange's value at that critical juncture. Interestingly, the cryptocurrency market has witnessed a noticeable upturn since FTX's bankruptcy filing. For instance, FTX's Solano Holding surged to $4.2 billion. This market rebound could have implications for the value of the claims under the proposed reorganization plan. Furthermore, Galaxy Digital's assets under management have tripled to $5.3 billion,

Starting point is 00:31:21 partly due to managing holdings of bankrupt crypto firm FTX, and the firm is now eyeing other bankrupt crypto firms' assets. FTX's reorganization strategy also includes a plan to return up to 90% of recovered funds to creditors. The estate has emphasized its commitment to maximizing and efficiently distributing value to all creditors. However, as is common in high-profile crypto-bankruptcy cases, the plan might face challenges in opposition from various creditor groups. A court hearing to discuss and potentially approve this plan is anticipated in 2024. Meanwhile, FTX debtors reached a settlement with Bohemian subsidiary FTX digital markets, coordinating bankruptcy proceedings across jurisdictions for asset distribution to FTX.com customers.

Starting point is 00:32:08 The court rejects extension request by former FTXC, CE. Sam Bankman-Fried. A federal judge has denied the request of Sam Bankman-Fried, former CEO of F-T-X, to postpone his sentencing process. Bankman-Freed's legal team sought an extension, citing the possibility of a second trial on additional charges. This request included delaying a pre-sentencing interview scheduled for this week. Lewis Kaplan, the judge overseeing the case in the Southern District of New York, emphasized that there were no objections when the original sentencing date of March 28 was set. Bankman Freed, convicted last month on seven charges, including fraud and conspiracy, is alleged to have misused funds from FTX customers, investors, and Alameda's research lenders,

Starting point is 00:32:51 and was found guilty by a jury in New York last month. The judge noted that sentencing could be deferred if the Department of Justice proceeds with a second trial on other charges. Three arrows capital founders' assets frozen. Creditor recovery estimated at nearly 46%. The British Virgin Islands Court. The British Virgin Islands Court has frozen up to $1.1 billion in assets belonging to the founders of three errors capital. Suju and Kyle Davies and Davies's wife, Kelly Chen. The liquidator, Tenio, initiated this action to prevent them from handling their global assets.

Starting point is 00:33:25 This move is linked to claims that the founders contributed to the firm's downfall. Meanwhile, Tenio estimates a 45.74% recovery rate for creditors, with the estate holding $563 million in illiquid tokens, with the estate holding $563 million in illiquid tokens expected to be unlocked over three years. The firm's total assets are valued at $1.16 billion against claims of $2.7 billion. The liquidators have been converting liquid tokens and NFTs to fiat, already realizing $66 million. And U.S. court levies $2.7 billion fine against finance and former CEO, Cheng Penzow. A U.S. court has ordered cryptocurrency exchange, Finance, and its former CEO, Cheng Penzal, to pay a cumulative $2.7 billion in fines to the U.S. Commodities and Futures Trading Commission.

Starting point is 00:34:18 The court found finance in violation of the Commodity Exchange Act and CFTC regulations. Finance is to pay $1.35 billion in penalties and refund an equal amount for alleged, quote, ill-gotten transaction fees, end quote. Additionally, Zau faces a $150 million fine. The court also imposed a $1.5 million penalty on Binance's former chief compliance officer, Samuel Lim, for aiding those violations. Furthermore, Binance is required to enhance its compliance controls, including off-boarding accounts not meeting KYC standards and establishing a robust corporate governance structure. Listen to our recent Unchained episode with Dorothy DeWitt and Michael Dawson, where they discuss the implications, challenges, and potential. potential outcomes of Binance's compliance monitorship, Solana's stablecoin volume soars as Saga phones sell out in the U.S. In a remarkable week for Solana, the blockchain network has taken a significant lead in daily stablecoin transfer volume, surpassing major competitors like Ethereum, Tron, and B&B chain. Since December's start, Salana's stablecoin transfer volume

Starting point is 00:35:25 has skyrocketed by 600% to $16.6 billion, marking a significant surge in activity and liquidity. growth is partly attributed to the JTO Airdrop and the popularity of meme coins like Bonk and Whiff on the platform, driving increased retail activity and the highest daily active address numbers for Solana since summer of 2022. Over the past year, the value of Solana's token has surged by 580%, reaching $84 at the moment of this report. Additionally, Solana's blockchain activity has recently seen a marked increase, with Defi Lama's data indicating that the decentralized exchange volume on Solana has exceeded that of Ethereum in the past week. Simultaneously, Solana's Saga mobile phones have sold out in the U.S., fueled by the crypto community's keen interest

Starting point is 00:36:13 in acquiring the bonk allocation offered with each device. Each phone includes 30 million bank, a Shiba-inu-themed cryptocurrency, which has seen a dramatic price increase of over 600% in two weeks, making the bonk allocation more valuable than the phone itself. The surgeon's sales may lead Solana Labs to increase its focus on the Saga phone, with limited units now remaining for the EU market. The mania rose so high that a Solana saga phone sold for $5,000 on eBay. Moreover, the hardware wallet provider Trezer announced that it will now support Solana and SPL tokens, while Phantom, the most popular Web3 wallet on Solana expanded its services to include support for Bitcoin, Ordinals, and BRC 20 tokens. Lastly, Circle's Euroback Stablecoin went

Starting point is 00:37:01 live on Solana. U.S. Court finalizes $3 billion seizure in Silk Road crypto case. The U.S. Court of Appeals concluded a significant chapter in the Silk Road case, finalizing the seizure of cryptocurrencies worth about $3 billion. This includes 69,3,370 Bitcoins, Bitcoin Gold, Bitcoin SV, and Bitcoin Cash, initially hacked from the infamous Silk Road Markplace. The cryptocurrencies were seized from an individual known as, quote, individual X, end quote. who had consented to the forfeiture in November 2020. At that time, the seize crypto was valued at over a billion dollars, with Bitcoin priced around 13,742. The Silk Road, operational from 2011 to 2013, was known for using Bitcoin to facilitate illegal activities, leading to the conviction and life

Starting point is 00:37:50 sentencing of its creator, Ross Albert. And strategic shifts in crypto-etf space, industry giants adapt to SEC preferences. This week, major players in the exchange trading, funds arena made significant strategic shifts. BlackRock, Arc Invest, and Wisdomtry amended their Bitcoin spot ETF proposals to align with the SEC preferences, a move seen as essential for regulatory approval. These amendments include transitioning from in-kind reductions to cash creation. According to Bloomberg ETF analyst James Seafurt, this change primarily affects back-end transitions with little impact on investors. The SEC's recent meetings with fund managers indicate a preference for cash-based ETFs over in-kind redemptions. BlackRock remains hopeful for return to in-kind redemptions for its I-share's Bitcoin trust in the future, subject to regulatory approval.

Starting point is 00:38:40 Also, the crypto asset manager 7RCC has proposed an innovative Bitcoin ETF, combining Bitcoin and Carbon Credit futures. This proposal aims to reflect Bitcoin's price and the value of carbon credit futures, integrating cryptocurrency investments with its focus on ESG investing. Meanwhile, Bitwise asset management launched a high-profile advertising campaign. campaign featuring Jonathan Goldsmith for its upcoming Bitcoin ETF, while hashtags followed with a short video on X. Lastly, the SEC has delayed decisions on multiple Ethereum-focused ETFs, including those from hashtags and grayscale, and is seeking public feedback on their potential listings. And Senator Warren escalates pressure on crypto industry's government ties. Senator Elizabeth Warren has intensified her scrutiny of the cryptocurrency industry, focusing on its hiring

Starting point is 00:39:28 of former defense, national security, and law enforcement officials. Warren's letters to Coinbase, the Blockchain Association, and Coin Center demand details on the recruitment of these officials. She accuses the crypto lobby of using these hires to obstruct regulations targeting crypto's role in financing terrorism, particularly citing the October 7th Hamas attacks. Industry leaders argue that they are exercising their rights to free association and government petition. This move signifies Warren's ongoing efforts to implement stringent regulations in the crypto market, underscoring her stance on anti-money laundering and terror financing. Her approach reflects a broader concern about the, quote, revolving door, end quote, between government service and private sector lobbying, especially

Starting point is 00:40:13 in emerging industries like cryptocurrency. Coin Center, executive director, Jerry Brito, referred to the letter as a, quote, bullying, publicity stunt, end quote. And while Kristen Smith from the blockchain association wrote on X. Quote, this letter is yet at another disappointing step taken by Senator Warren to discredit our industry and the individuals who are working to build a more inclusive financial system and user-focused internet. End quote. In a related topic, Coinbase, together with a crypto-focused group, including Cracken and Ripple, raised $78 million to support pro-innovation, political candidates in 2024. Genesis secures court order to maintain DCG ownership structure. A New York bankruptcy court has ruled in favor of Genesis, a bankrupt

Starting point is 00:41:00 crypto lender prohibiting its parent company, digital currency group from altering its ownership until the closure of Chapter 11 proceedings. This decision aims to preserve Genesis tax benefits linked to approximately $700 million in operating losses. The court recognized that maintaining the current ownership structure is crucial for Genesis to leverage, quote, federal net operating loss carry forwards, end quote, potentially enhancing its cash position and aiding successful reorganization. Rehearing in Doe Kwan's extradition process due to procedural violations. A Montenegro appellate court has ordered a rehearing of Do Kwan's extradition case, finding significant procedural violations in the initial hearing. The court's decision delays the potential extradition of the

Starting point is 00:41:45 Terra co-founder to the U.S. or South Korea, where he faces fraud charges linked to the terror blockchain's $60 billion collapse. The ruling, focusing on technicalities rather than the merits of the case, mandates a fresh examination of the extradition request. This development adds complexity to the ongoing legal proceedings surrounding Kwan and his associate, Han Cheng June, detained since March. And that's all. Thanks so much for joining us today. Unchained is produced by Laura Schitt with help from Kevin Fuchs, Matt Pilchard, Juan Aronovich, Megan Gavis, Nelson Wang, Choshank, and Margaret Curia. The weekly recap was written by Juan Aronovich and edited by James Rubin. Thanks for listening. Unchained is now a part of the

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Unchained - Crypto Points Systems Are a 100x Opportunity, But Founders, Be Wary - Ep. 585

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