Weekly Top Stories - 7/25

In this week's newsletter, Zack Pokorny and Marc Hochstein discuss Polymarket’s forthcoming reentry to the U.S. market; Will Owens catches us up on Jack Dorsey’s Bitcoin infrastructure work; and Lucas Tcheyan considers Jito’s initiative to reshape Solana’s block space economy.

Polymarket’s U.S. Homecoming

Polymarket announced the acquisition of U.S.-licensed derivatives exchange, and is reportedly considering issuing its own stablecoin, a week after the government dropped a months-long investigation of the prediction market platform.

Polymarket, which runs on blockchain rails, has a history of run-ins with U.S. regulators. In January 2022, the Commodity Futures Trading Commission (CFTC) brought enforcement action against Blockratize, Inc. d/b/a Polymarket, for operating as an unregistered derivatives trading platform, specifically in the area of event-based binary options contracts. Polymarket settled the accusations by paying a $1.4 million penalty and agreed to cease activity that did not comply with CFTC regulations. This implicitly barred U.S. users from its application, used by traders around the globe.

Two years later, after Polymarket decisively outperformed traditional news outlets and polls in predicting the outcome of the 2024 election, the FBI raided the home of founder and CEO Shayne Coplan. The motivation of the raid was opaque and perceived by the crypto industry to be politically motivated.

Now, Polymarket’s troubles with U.S. regulators appear to be in the rear-view mirror. The platform, based in New York, is poised to reenter the U.S. market with the $112 million acquisition of QCEX, which holds designated contract market (DCM) and derivatives clearing organization (DCO) licenses from the CFTC. And according to CoinDesk reporter Ian Allison, Polymarket is weighing either issuing its own stablecoin or cutting a revenue-sharing deal with Circle, issuer of USDC, the stablecoin in which bets on the platform are denominated.

OUR TAKE:

A sword of Damocles has been lifted from Polymarket’s head, freeing up the management team to focus more of its attention on building the business. Moreover, the end of the probe by the Department of Justice and CFTC, and Polymarket's impending reshoring, are bullish developments not only for the platform itself but for prediction markets and crypto broadly. They are further signs that the Trump administration is taking a more open stance toward financial innovation and digital asset markets than its predecessor.

However, key questions remain about the U.S. reentry. It is unclear whether Polymarket intends to transfer QCX’s licenses to itself, which might require a vote of the commission to be approved. If QCX retained its licenses, a commission vote would not be needed, but only it, and not the rest of Polymarket, would likely be allowed to operate as a DCM.

At least in the latter scenario, Polymarket would likely have to bifurcate itself, leveraging QCX in the U.S. while maintaining its flagship platform for the rest of the world. Such an arrangement runs the risk of fragmenting liquidity, leaving each platform less compelling to traders and less valuable to the public as a source of forecasting signals than a unified venue would be.

However, if all of Polymarket were to become a DCM (possibly subject, again, to approval by a commission vote), it would likely have to conduct know-your-customer (KYC) checks on all users, not just U.S. ones. Historically, the platform has required customer identification from only a subset of users. Stricter KYC policies across the global platform would make regulators happy, but arguably would undermine Polymarket's power as a source of informational signal. As we’ve written previously, while volume and liquidity are important to a prediction market’s success, so is open participation, which allows anyone with true expertise to communicate their insights to the rest of us through their bets. Requiring identification stands to discourage at least some of those “in the know” from sharing what they know with the world.

All told, we would not be surprised to see two Polymarkets – one for Americans, and one for everyone else.

Meanwhile, the potential introduction of a Polymarket stablecoin could help the platform overcome one of its biggest hurdles as a business: monetization. Polymarket does not charge commissions, and for good reason.

Monetizing a prediction market is not straightforward. While these markets are powered by infrastructure similar to that of decentralized exchanges (DEXes) that charge swap fees, the intended purpose of prediction markets (i.e. providing signal on the probability of an outcome and offering ample incentive to participate in the market) differs greatly from that of traditional DEXes, which exist simply for users to exchange one asset for another.

There are two problems with charging fees on prediction markets. First, the fees paid by users are effectively backed out of the market and distributed to the platform operator. Every dollar removed from the market limits the financial incentive for participants to enter markets, because all liquidity is ultimately distributed to those on the winning side. For instance, if a platform charges a 5% fee on $100 of nominal losing stake, the victor receives only $95 effectively. This not only reduces the final payout but fundamentally distorts the individual return profiles of bets, as participants must now overcome this added cost for their trade to be profitable.

Secondly, and more critically for the market's core function, adding fees distorts the forecasts. The predictive signals of these markets are fragile; to be a true representation of reality, it must remain as untouched by external forces as possible. A prediction market's price, using a binary YES/NO market as an example, is a direct reflection of the ratio of capital backing a "YES” versus a “NO” outcome. When a fee is charged on a trade, less capital enters the markets than traders intended to risk. This systematically mutes the impact of every single trade on the YES/NO ratio, resulting in a warped signal that no longer provides the purest measure of the crowd's collective belief.

The introduction of a stablecoin could mitigate Polymarket’s monetization challenge without introducing trade fees by allowing the platform to collect yield from the reserve assets. In this scenario, Polymarket acts as a stablecoin issuer and can reap the benefit of the yield-bearing reserves of the dollars that power its prediction markets. The ultimate amount of revenue achievable through the stablecoin depends on the scale of the supply and productivity of the reserve assets, but in almost every scenario could conceivably provide Polymarket some amount of revenue.

Alternatively, CoinDesk reported that Polymarket is exploring a revenue-sharing agreement with Circle, the issuer of USDC, which is already the primary stablecoin fueling Polymarket. Such an agreement could be an effective means of scaling revenue through a stablecoin strategy while keeping intact the existing stablecoin based on Polymarket’s platform. However, under the recently enacted GENIUS Act, it is unclear if stablecoin issuers will be allowed to continue leveraging revenue-sharing agreements; it will ultimately come down to how strictly the Treasury writes the rules around the action. – Zack Pokorny and Marc Hochstein

Dorsey Releases New Bitcoin Products

Jack Dorsey’s company Block said it’s rolling out bitcoin payments at Square merchant payment terminals.

This week, Block's payments platform Square, whose mobile credit card reader made card acceptance viable for small businesses and individuals, began onboarding merchants to accept BTC via the Lightning Network. Payments are confirmed in real time over Lightning and converted into fiat by Square at the point of sale. The rollout is in the early stages, but the company aims to make Lightning-powered payments available to all Square sellers by next year.

Also this week, Block ($XYZ) joined the S&P 500, becoming only the second crypto company (after Coinbase, ticker: $COIN) to be included in the benchmark stock index. The move brings indirect BTC exposure to passive investors via index funds and other investment vehicles.

These developments come two weeks after Dorsey introduced Bitchat, a peer-to-peer messaging app he incubated. The app enables users to send encrypted messages and Bitcoin transactions without internet or cell service. It uses Bluetooth and mesh networks to transfer data between nearby phones. The goal is to provide a communication layer for individuals who live in areas of low connectivity or censorship.

OUR TAKE:

Dorsey is one of the few household names in crypto actually building toward Bitcoin’s original vision. In a market full of treasury companies looking to capture flows and make headline-grabbing token purchases, Dorsey is focused on the censorship-resistant value of the Bitcoin network. Onboarding merchants to Lightning or broadcasting BTC transactions offline won’t make waves like a massive purchase, but such moves could prove invaluable when it matters most. Bitchat reflects a deeper thesis of Bitcoin as a permissionless protocol enhancing freedom. In regions with authoritarian controls, the ability to move messages and money alike is a tool for autonomy.

With stablecoins getting most of the attention in crypto payments right now, it’s notable that Square is integrating Lightning. The company is also exploring the integration of stablecoins into its payment ecosystem, but Lightning takes a fundamentally different approach. It enables a native Bitcoin experience for sellers without reliance on centralized stablecoin issuers. Critics love to dismiss Lightning as too niche or complex, but Square is doing the hard work of abstracting away the complexity. The goal is for merchants not to even need to know what Lightning is. They can just provide a scannable QR code, get paid, and move on.

Block’s addition to the S&P 500 gives passive investors exposure to the most valuable, most battle-tested, and arguably the most secure digital asset in existence. Index funds now hold a piece of a company that owns almost 9,000 bitcoin (8,584, worth $1.02 billion at recent prices), facilitates retail buying through Cash App, and is actively shipping infrastructure that routes around traditional choke points.

Satoshi designed Bitcoin as a network to reclaim user agency in a world of increasingly surveilled and censored systems. Dorsey hasn’t forgotten, and he’s still building toward that future. – Will Owens

The Big BAM Theory: Jito’s Vision for Solana Block Space

Jito, Solana’s leading liquid staking token and block-building infrastructure provider, introduced a transaction processing system called the Block Assembly Marketplace (BAM).

BAM adds a new hardware layer, BAM nodes, and a programmable software layer, plugins, to Solana’s block-building stack.

BAM nodes run alongside the existing Solana validator set and are responsible for transaction sequencing. They use trusted execution environments (TEEs) to keep transactions private until they are executed by the validator in an attempt to reduce maximal extractable value (MEV), a term for manipulating the order of transactions. Plugins provide a customizable software layer that gives applications bespoke transaction‑ordering logic when submitting transactions. Examples include just‑in‑time oracle updates, market‑maker cancel priority, and private auction flow.

Under the proposed design, users will now send transactions directly to BAM nodes rather than to validators. The BAM nodes then sequence the transactions and send them to the current validator leader (which is responsible for executing the transactions). Once executed, the validator provides an attestation to BAM confirming correct execution, a measure meant to ensure validators stick to the submitted ordering and create a public audit trail for transaction ordering.

Jito plans to roll out the infrastructure in three phases over the coming year. Phase one will only involve Jito Labs and a select cohort of validators accounting for 5% of Solana’s stake. Phase two targets adoption by 30% of Solana stake and the live launch of plugins. Phase three will see the open sourcing of the BAM node code and target full validator adoption.

OUR TAKE:

In March 2024, Jito made the controversial decision to shut down its mempool service, a major driver of value for the decentralized autonomous organization (DAO), but also the primary enabler of detrimental MEV practices like sandwiching. BAM offers not only a replacement, but an upgrade. The use of a TEE will help mitigate malicious MEV activities by not revealing user transactions until after they are executed, while driving a new source of revenue for Jito’s DAO.

Beyond MEV mitigation, BAM tackles a bigger question for general‑purpose L1s: how to give apps their own sequencing logic. Hyperliquid’s success has put pressure on chains like Solana to offer comparable sequencing customization for its applications. Most notably, Hyperliquid lets market‑makers prioritize maker and cancel orders so they can offer tighter spreads. Plugins offer one answer by letting apps embed custom ordering rules directly into their transactions. They also keep the activity on the L1, unlike competing approaches such as app‑specific chains on network extensions (Solana’s version of an L2).

Still, BAM is early in its development and will need to demonstrate it can work in a live environment. It remains unclear how it will handle competing orders from different applications with the same plugin logic. Additionally, Jito will need adoption of BAM on par with that of its validator client (97%+ of Solana stake uses Jito). If not, applications may face headaches having to create two different transaction submission scenarios depending on what type of validator is the leader. For now, the team is betting that the improvements introduced by BAM will result in increased revenues that drive rapid adoption. And BAM isn’t the only emerging Jito initiative. In June, the DAO formed a cryptoeconomics sub‑DAO tasked with linking DAO cash flows to the JTO token, signaling more value‑accrual experiments ahead.

In the bigger picture, BAM is a reminder that while the spotlight often lingers on Solana’s memecoin and launchpad dramas, the protocol’s underlying infrastructure continues to evolve at a rapid pace. Over the next year, two new validator clients – Alpenglow from Anza Labs and Firedancer from Jump Crypto – are expected to come online, bringing significant boosts in throughput and finality, as well as modular sequencing. On the networking front, Double Zero is developing a blockchain-native transport layer aimed at increasing bandwidth and reducing latency. And just this week, Solana validators approved a 20% increase in per-block compute limits, pushing capacity beyond that of Ethereum and all of its L2s combined. In a sign of things to come, less than 24 hours after the update was implemented, a new proposal was submitted to raise it another 66%. – Lucas Tcheyan

Charts of the Week

Next Wednesday, July 30, will mark the 10-year anniversary of Ethereum’s launch. In honor of this milestone for the second most valuable blockchain, and the top smart contract network, here’s a look back at the highs and lows of Vitalik Buterin’s creation.

Other News

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🤝 PNC Partners With Coinbase to Offer Crypto to Banks

🪙 Western Union Sees Stablecoins as an Opportunity

🛡️ CoinDCX Suffers $44m Breach, Vows to Cover Losses from Reserves

🇬🇧 UK Prepares to Sell Billions in Seized BTC

🚀 Coinbase Perpetual Futures Trading Now Live for U.S. Traders

💰 Trump Media Acquires $2b of Bitcoin as Part of Crypto Treasury Strategy

🏦 BitGo Files for Confidential IPO With a $1.75b Valuation

👔 Goldman Sachs, BNY to Launch Tokenized Money Market Fund