Weekly Top Stories - 08/01/25

In the newsletter this week, Alex Thorn breaks down the long-awaited report from the Presidential Working Group on Digital Asset Markets; Jianing Wu explains the importance of the SEC allowing in-kind creation and redemptions for crypto ETFs; and Will Owens finds out why Base has overtaken Solana as the top chain for daily token launches.

White House Lays Out Blueprint for U.S. Crypto Dominance

On Wednesday, the White House released the Presidential Working Group (PWG) on Digital Asset Markets’ comprehensive report, “Strengthening American Leadership in Digital Financial Technology.” The document is explicit in its ambition: make the United States the “crypto capital of the world” and tell regulators to use every inch of existing authority to work toward that goal while Congress finishes the job. It runs 166 pages and spells out 116 distinct policy recommendations captured in a 19-page table that closes the report.

Those action items are sweeping in scope. On market structure, the PWG urges Congress to give the Commodity Futures Trading Commission (CFTC) spot-market authority and to let Securities and Exchange Commission (SEC) and CFTC registrants operate side-by-side trading, custody, lending, and settlement businesses under a single “fit-for-purpose” license. On banking, the report pushes the Federal Reserve Board, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corp. (FDIC) to publish crypto-specific capital, liquidity, and custody guidance, and urges the agencies and Congress to bar the Fed from piloting a retail central bank digital currency (CBDC). A chapter on payments champions dollar-backed stablecoins as strategic infrastructure and asks the Treasury Department to design fast-track approval for payment-system integration. Illicit-finance sections call for a modernized regime for suspicious activity reports (SARs) and real-time information-sharing among exchanges, banks, and law enforcement. The tax chapter proposes treating actively traded digital assets as their own class, applying wash-sale and constructive-sale rules, and carving out de minimis exemptions for micropayments and staking rewards. Finally, a “miscellaneous” bucket tackles cybersecurity baselines, open-source R&D funding, repatriation incentives for foundation entities, and the creation of federal Web3 sandboxes.

The report devotes a single page to establishing the Strategic Bitcoin Reserve (SBR) seeded with forfeited BTC, but punts operational details to Treasury and an inter-agency legal task force, acknowledging the formidable forfeiture, custody, and budget-scorekeeping hurdles.

Less than 24 hours later, SEC Chair Paul Atkins invoked the document as the “blueprint” for Project Crypto, a commission-wide sprint to draft rules and, where necessary, grant interim exemptive relief so tokenized stocks, bonds, and other securities can trade onchain inside U.S. markets while rule-making proceeds. Atkins also told staff to explore Reg NMS amendments, publish an “innovation exemption” for novel business models, and coordinate with the CFTC so non-security tokens and security tokens can list side-by-side.

OUR TAKE:

The PWG report is a watershed moment: never before has a White House-level working group produced a document that reads like a business plan for U.S. crypto primacy rather than a risk memo. The quality, scope, and specificity of the report make it possibly the most comprehensive and decisive crypto policy document ever created by any major government. The only thing we can think of that comes close in its comprehensiveness is the European Union’s Markets in Crypto Assets framework, and that was full-blown legislation, not a policy paper. (MiCA is also far less accommodating to the industry than the White House wants the U.S. to be.) By instructing agencies to act now (within their current mandates) and by providing a granular, 116-item checklist for Congress, the administration has moved the debate from abstract principles to executable policy. We at Galaxy Research were proud to provide data on CeFi and DeFi lending markets (Zack Pokorny’s Q1 crypto leverage report) and a version of our “phases of cryptocurrency and digital asset markets adoption” graphic. Congratulations to the many who worked on it across the working group agencies, particularly David Sacks and Bo Hines in the White House and Tyler Williams and Andrew Rittenhouse at the U.S. Treasury Department.

Those who expected a detailed SBR playbook were disappointed but may not understand the complicated nature of the project. Markets should not have been surprised by the lack of detail here. Converting seized BTC into sovereign reserves touches forfeiture statutes, custody law, and even budget scoring. It’s likely that Treasury is still untangling that web. In our view, the working group was wise to acknowledge the reserve without providing a detailed update on its status, given how consequential a project it is and how many outstanding questions there may be. Note, we predicted in December that the U.S. government would formally hold Bitcoin in a reserve but would not make a purchase in 2025. At this point, we put the odds that the government conducts a purchase before the end of the year at 50-50 at best.

Atkins’ Project Crypto announcement was also extremely welcome. His twin-track approach (draft rules while issuing targeted, conditional relief) could shave 18 to 24 months off the timeline for live, regulated tokenization, compared to the time that formal rulemaking usually takes. But the Chair will need to marshal staff to deliver simultaneous workstreams on custody, market access, onchain recordkeeping, and cross-border settlement. Without disciplined project management, the SEC’s ambitions could stall under their own weight. Chair Atkins said that he hears “from our regulatory policy staff that firms—from household names on Wall Street to unicorn tech companies in Silicon Valley—are lined up at our doors with requests to tokenize.” The SEC has to figure out a way to bring the speed, efficiency, and transparency of public blockchains into the traditional capital markets, and it must do so soon if America is to lead.

If the PWG supplied the detailed map, Atkins is already stepping on the accelerator. If we see follow-through on the 116-point checklist and Treasury unlocks a workable SBR regime, the next 18 months could be the time in which the United States truly achieves the goal of being the “Bitcoin superpower and crypto capital of the world.” – Alex Thorn

In-Kind Finally Comes to Crypto ETFs

On Tuesday, the SEC officially approved in-kind creation and redemption for U.S. spot Bitcoin and Ethereum exchange-traded funds (ETFs). This regulatory shift marks a key structural evolution for crypto ETFs, aligning them more closely with TradFi industry standards and addressing inefficiencies tied to the previous cash-only framework.

Bitcoin spot ETFs were approved in the U.S. more than two years ago, with Ethereum spot ETFs following a year later and recently marking their one-year anniversary. Until this week, the SEC allowed authorized participants (APs) of these products to create or redeem shares only with cash, not with the underlying asset. This was a notable departure from the treatment of most traditional ETFs, including gold and other commodity funds, which allow either cash or in-kind creation and redemption. Under the cash-only structure, fund managers had to handle the purchase and sale of the underlying crypto assets.

In a typical ETF setup, the creation and redemption process involves two key intermediaries between end investors and the assets: AP and the ETF fund manager. Under an in-kind model, APs exchange ETF shares directly for the underlying asset, removing the need for the fund manager to trade on the investor’s behalf. In a cash model, APs deliver or receive cash, and the fund manager is responsible for executing trades in the open market to adjust the ETF’s holdings. In the case of crypto, the cash setup introduced additional operational steps, where APs relied on ETF issuers to execute trades and manage custody, often incurring slippage and trading fees. These costs were passed back to APs and ultimately to investors.

OUR TAKE:

ETFs are known for their tax efficiency and serve as wrappers that make it easier for investors to access a wide range of asset classes through traditional financial infrastructure. In the context of crypto, they also relieve investors of the burden of self-custody and wallet security. Allowing in-kind functionality builds on those strengths and brings crypto ETFs more in line with the operational norms of the broader ETF industry.

Here are a few key benefits we expect to see:

• Tighter spreads. Under the in-cash model, APs had to rely on ETF managers to trade BTC and ETH, exposing them to slippage, transaction costs, and financing charges. These inefficiencies were reflected in the ETF’s bid-ask spread. With in-kind creation and redemption, APs can manage the crypto leg themselves, often more efficiently. They can source or sell crypto using over-the-counter (OTC) trading desks or their own inventory, reducing costs. This should lead to a marginal decrease in spreads and investor costs. However, because the largest ETFs, including BlackRock’s IBIT, already trade within one basis point spreads, and the leading asset manager’s ETHA trades within four basis points, the improvement will be limited in practice.

• Tighter net asset value (NAV) premium or discount. With in-cash creation, only a few firms, those that are both APs and crypto liquidity providers, can take advantage of arbitrage opportunities when the ETF trades at a premium or discount to NAV. For others, creation costs are higher, which limits participation in the arbitrage. By enabling in-kind creations, more participants can step in, reduce inefficiencies, and help bring the ETF’s market price closer to the actual value of its underlying assets.

• Tax benefits. In-kind redemptions allow ETFs to offload appreciated assets without triggering a taxable event within the fund. Under the in-cash model, selling assets to meet redemptions could result in capital gains distributions passed on to shareholders. With in-kind functionality, the ETF can hand off the actual BTC or ETH to the AP, reducing the fund’s tax bill. Investors only recognize gains or losses when they sell their shares. This is especially valuable in fast-moving crypto markets where unrealized gains can accumulate quickly.

The SEC’s approval of in-kind creation and redemption for crypto ETFs should lower the implicit costs of owning these products, enhance price efficiency, and reinforce the tax advantages that ETFs are known for. While the near-term impact on large BTC and ETH funds may be modest due to their already tight spreads and liquid markets, this decision lays the groundwork for future altcoin ETFs if they were to get approved. For those products that tend to trade at wider spreads and thinner liquidity, the benefits of in-kind creation and redemption will be even more pronounced.

The switch also reinforces a clear departure from the previous SEC stance under former Chair Gary Gensler, which required the in-cash model. With recent regulatory guidance allowing banks to custody crypto assets, the infrastructure is gradually being put in place for traditional financial institutions to participate more directly in the in-kind creation and redemption process. While it may take time for operational and compliance frameworks to fully mature, this development expands the field of potential authorized participants and aligns with the broader trend of institutional integration into crypto. – Jianing Wu

Base Flips Solana in Daily Token Launches; What Are We Minting?

On July 16, Coinbase rebranded its wallet product as the Base App, a mobile-first platform that blends onchain identity, social media, and DEX trading. Less than two weeks later, the company’s layer-2 blockchain, Base, flipped Solana in one of the most important real user metrics in crypto: daily token launches.

Since the wallet’s rebranding, onchain activity on Base has exploded (especially on Zora, the social protocol that makes every post tradable). In the two weeks since launch, the $ZORA token pumped over 800% and now trades around $0.064. Daily token creation on Base jumped from ~4,000 to over 50,000, surpassing Solana for the first time since 2023.

Zora accounts for the majority of Base’s mints. It turns each piece of content into a token and routes trades through Uniswap. With the Base App, the user experience for minting a token is basically as easy as tweeting. Just post, and it’s live onchain (no contracts or liquidity provider setup). The mobile experience is essentially a memecoin factory.

Speaking of memecoin factories, Solana is still digesting Pump.fun’s token generation event. $PUMP is down ~50% since launching a couple weeks ago. And LetsBonk has overtaken Pump.fun as Solana’s leading launchpad by a significant margin.

OUR TAKE:

Zora’s explosive growth shows what’s possible when you lower friction for users. But making every single post tradable is not reinventing social media. Most of these coins are forgettable and get dumped minutes after creation. It’s fair to ask: how sustainable is this activity?

Even if the answer is “not at all,” it’s probably a net positive for the industry. Crypto needs these kinds of constant experimentation to test what people want. Zora allows the market to play with content monetization and creator incentives and see what comes out of it. Even if 99.9% of these tokens go to zero, the feedback loop they’re generating is valuable for future product innovation.

What’s happening on Base is encouraging because it shows that user-driven growth doesn’t require a billion-dollar incentive program. The UX loop of post -> mint -> trade is working, at least for now. Whether or not it lasts, it’s a signal about what socialfi might eventually look like. – Will Owens

Charts of the Week

On July 31, Tether released its quarterly attestation report, disclosing details of the collateral mix of its stablecoin, USDT. As of June 30, Tether reported 157.1 billion outstanding USDT backed by $160.91 billion in assets. The share of Tether’s assets occupied by miscellaneous investments (including corporate bonds, funds, metals, and bitcoin) reached a new relative all-time high at 10.98% of total assets held. This is due to appreciation in BTC and metals, including gold, over the quarter.

Conversely, the relative share of Tether’s asset basket occupied by Treasuries reached a six-quarter low of 65.61%. Despite the relative share declining, Tether holds more Treasuries than it ever has at $105.57 billion.

Another noteworthy disclosure in Tether’s attestation report was the amount of outstanding secured loans the company had extended. As of June 30, Tether had a record $10.14 billion of loans extended, a quarter-over-quarter change of $1.31 billion (or +14.9%). This growth in loans over the quarter on Tether’s balance sheet tracks with the industrywide trend of strong growth in onchain crypto-backed loans, as highlighted in Galaxy Research’s quarterly leverage report. More on Tether’s secured loans and the crypto-secured lending space will be discussed in our Q2 leverage report next month.

Other News

📈 Tether Posts Record $4.9 Billion Profit for Second Quarter

🔷 ‘Lean Ethereum’ Vision Unveiled Day After Blockchain’s Tenth Anniversary

👔 JPMorgan to Enable Crypto Purchases via Credit Cards in Coinbase Tie-Up

💳 PayPal Lets U.S. Merchants Accept Bitcoin and 100+ Cryptos at Checkout

🔵 Circle to Add Native USDC to Hyperliquid, Including Direct Deposits, Withdrawals

😰 Jury Begins Deliberations in Trial of Tornado Cash Developer Roman Storm

⚖️ Samourai Wallet Developers Change Plea to Guilty Ahead of Storm Verdict

⛓️‍💥 US Appeals Court Overturns OpenSea PM's Wire Fraud and Laundering Conviction

⚔️ Privacy Coin Monero Grapples With Potential 51% Attack

🧠 Ex-BlackRock Crypto Head Chalom Named Co-CEO of Ethereum DATCO SharpLink

🚀 Ethereum Layer-2 Linea Reveals Token Plans, Taps SharpLink for Distribution