🤪 Don't hate the player, hate the memes

If Bitcoin were completely free to use, there would be mayhem not unlike the troubles currently Solana faces.

No fees would clog Bitcoin’s mempool — a reservoir of pending transactions — with useless mini-transfers to the point that legitimate users would face extended delays and even be ignored altogether.

Bitcoin would process transactions on a first-in, first-out basis. So, some rogue rascal could code a script to send millions of transactions for individual sats between wallets in a steady stream, beating you to the punch every time until the spam ran its course.

Considering only about 2,500 transactions fit inside Bitcoin blocks right now, it could take nearly a week in this particular scenario for your lunch money to go through.

Bitcoin’s fee auction model prices out that kind of attack. Users bid against each other for inclusion in the next block. It currently costs more than 1,000 sats to send one sat with low priority, making most kinds of spam economically unfeasible and leaving more room for legitimate activity. 

Solana actually does operate on a first in, first out basis. There’s no mempool, so users — usually through apps and wallets — send their transactions directly to the network’s block builders (referred to as “leaders”) for inclusion.

Users were without a priority fee option until bots took the network down for hours in peak 2021 bull market, after which developers sought to fix the spam problem by enabling real users to price out offenders. However, not all Solana apps have incorporated priority fees, reducing their effectiveness, and besides, the network is still so cheap that bots haven’t yet been deterred.

Stats thrown about last week indicated that 77% of non-vote transactions were being “dropped” (which is different from “failed” despite a lack of differentiation in some wallets and apps). 

Dropped transactions are functionally those that have taken too long to process, due to others getting there first. With Bitcoin, those transactions would generally sit in the mempool until they’re eventually added to blocks in times of low demand. But without a mempool, Solana simply lets those transactions disappear without processing after a period of time.

As Solana users share anecdotes of dropped transactions, insiders say most of them are experienced by arbitrage bots. They’re drowning block leaders with masses of transactions with designs to profit from sizable price differences on memecoins between DEXs, brought on by a mixture of low, fragmented liquidity across platforms and record-high hype since the success of BONK and WIF.

It might cost a few hundred dollars in fees for transactions that never make it. But it could all be made back and then some with one highly profitable arbitrage trade. 

Unless Solana fees are higher than the economic risk of missing out on those trades, then regular folk are destined to suffer dropped transactions — an existential problem. Solana devs have known this for months and are encouraging more app developers to incorporate priority fees, in hopes that more bot activity could be priced out. 

A new fee structure doesn’t yet seem to be a priority. Instead, the most anticipated next step is reducing the network’s reliance on QUIC, a transport layer developed by Google years before Solana launched, with Jump Crypto’s proposed validator software Firedancer pegged to be the client that does it.

Improving Solana’s networking layer — how apps and other users communicate with the underlying infrastructure — will supposedly better inform a potential fee model overhaul in the future. 

The bots are in control until then. Or, at least until memecoin mania dies and the arbitrage opportunities dry up — whichever comes first.

— David Canellis

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🐂 All aboard the bull?

It might be time to start preparing to talk about crypto during this year’s holiday season if pundit predictions are to be believed.

Ripple CEO Brad Garlinghouse told CNBC that he believes the crypto market cap could double to around $5 trillion by the end of 2024. The total market cap currently stands around $2.8 trillion, according to CoinGecko.

Garlinghouse’s bullish call is one of the biggest so far this year, but he’s not alone. Bernstein analysts, in a note earlier this year, said that they see the crypto market jumping to $7.5 trillion by the end of 2025. 

The biggest contributor to crypto’s market cap is bitcoin, which sits at a market cap of $1.4 trillion, according to Coinbase data. Bitcoin’s also one of the biggest drivers in the market upturn so far, gaining over 150% in the past year.

Multiple analysts believe that bitcoin could carve out more all-time highs before the end of the year. Standard Chartered sees a path where bitcoin hits $150,000 while others, such as Binance CEO Richard Teng, believe $80,000 is on the horizon. 

Ark Invest CEO Cathie Wood adjusted Ark’s call for bitcoin to hit $1 million before 2030, telling Markets with Madison last month that she thinks the new price target is “well above” the previous figure. She didn’t cite a new number.  

However, the price predictions aren’t all positive, with JPMorgan warning that bitcoin could pull back to around $42,000 post-halving in a note last month. 

Currently, the Ripple-Bitcoin ratio is at its lowest point since the 2021 peak, per CoinGecko data, which could mean that XRP gets left out of the bull run, at least in terms of bitcoin. 

But with some — including Pitchbook analyst Robert Le — saying the market’s still in the early stages of a bull market, there could still be time to catch up.

— Katherine Ross

🎲 Win some, lose some

The courts were busy last week handing down rulings in two pending cases between crypto firms and the Securities and Exchange Commission. 

On Friday, the Court of Appeals for the Second Circuit reversed a lower court ruling to dismiss a customer lawsuit against Coinbase. Last year, the lower court opted to toss the case based on Coinbase’s 2021 user agreement, which the district court judge said contradicted the customer’s claims in their complaint that Coinbase allegedly sold unregistered securities. 

While the appeals court decided to reopen these claims, it opted to maintain the lower court ruling to dismiss claims raised under the US Securities and Exchange Act. The customers say they should be able to rescind transactions, but the court says there has to be a specific contract for there to be liability. 

The opinion is potentially a really big deal, as lots of pending cases rest on this idea of whether or not a physical contract has to exist in order for an asset to be deemed a security. Ripple Chief Legal Officer Stuart Alderoty seemed pleased. 

Last week we also got a ruling in the SEC’s civil case against Terraform Labs and Do Kwon, which wrapped after a two-week jury trial on Friday. The jury says Terraform and Kwon are liable for fraud after the co-defendants misled investors about the stability of TerraUSD. The rest of the industry seems to be granting Kwon — who is still in Montenegro battling out his extradition fate — no sympathy. 

Coming up, it looks like the SEC’s case against Coinbase (the one alleging Coinbase operated as an unregistered broker, exchange and clearing agency) is headed for a trial. The exchange notched a partial win when the judge agreed to dismiss charges related to Coinbase Wallet, but there are still a number of other issues to sort out. 

Both parties will submit their case management plans later this month. 

We are also still waiting on a ruling on Binance’s motion to dismiss the SEC’s charges against it. The case is similar to SEC v Coinbase, but there are also allegations that Binance mishandled customer funds by commingling them with company revenue. 

If you’re hoping for a full dismissal, don’t hold your breath.

— Casey Wagner

• Pantera Capital’s token fund rose 66% in Q1 thanks to investments in Solana and other smaller-cap digital assets, per Bloomberg. 

• Crypto price site CoinGecko is celebrating its 10th launch anniversary today. Happy birthday, folks. 

• The New York Times explored how tech giants are testing the limits of copyright law as they train their AI products. 

• Spotify launched a new AI product today, allowing users to build playlists with prompts. 

• Wait ‘til the last minute to plan for today’s solar eclipse? This NASA tool can help.

Memecoins are dumb and indicative of widespread financial doomerism among the terminally online.

But memecoins are, more critically, complete benchmarking software for blockchains.

Individually, they are pointless. As a whole, they serve as a percent placeholder for the kinds of real financial activity that can never port to blockchains unless they’re capable of handling the volume. 

If BlackRock’s Larry Fink is right — that all financial instruments will be tokenized and trade on crypto rails — then those systems must be stress-tested and improved upon until they can support the world’s trade. 

Memecoins fit the bill to a tee.

— David Canellis