BlackRock and Wall Street Giants Entering the Decentralized Crypto Industry: Will They Spoil the Party?

Traditional Finance Meets Decentralized Finance

Recently, big Wall Street companies like BlackRock and Fidelity have started getting involved in the decentralized crypto industry. Many people in the crypto community are worried that these financial giants might ruin the idea of decentralizing finance. Larry Fink, the co-founder and CEO of BlackRock, has shown strong support for cryptocurrency. In a recent interview, he said that Bitcoin is legitimate and believes that cryptocurrency should be part of an average investor’s portfolio.

What is Decentralized Finance (DeFi)?

Decentralized finance, or DeFi, is a part of the crypto world that aims to create an open and borderless financial system. This system operates without relying on traditional finance or centralized intermediaries like banks. The main goal is to limit the power of these centralized institutions and to provide financial services to billions of unbanked people around the world.

Financial Institutions Entering the Crypto Space

Financial institutions like BlackRock have now entered the crypto space. After getting approval from the Securities and Exchange Commission (SEC) for spot Bitcoin ETFs in the U.S., BlackRock’s iShares group launched the iShares Bitcoin Trust (IBIT) earlier this year. This is the largest spot Bitcoin exchange-traded fund, holding more than $18 billion in assets. BlackRock also plans to launch an Ether ETF in the near future.

Views on DeFi and Traditional Finance

Noelle Acheson, a crypto expert and author of the “Crypto is Macro Now” newsletter, believes that the blockchain ecosystem will continue to grow whether or not large institutions are involved. She says that “BlackRock and Fidelity don’t control the development of decentralized services; rather, they complement it.” This means that while these big companies are involved, they don’t have full control over the decentralized finance world.

The Need for Some Centralization in DeFi

Even though crypto is decentralized, it still relies on certain centralized aspects like crypto exchanges, key players in mining, and core developers who often have control over the software. This traditional financial system is necessary for the development of cryptocurrency and blockchain ecosystems. For example, BlackRock’s BUIDL fund, launched in March, tokenizes assets like cash, short-term debt, and securities on the Ethereum blockchain network. This process enhances transparency and liquidity and shows how traditional finance and blockchain are merging.

Concerns About Bitcoin Centralization

Peko Wan, the co-CEO of blockchain platform Pundi X, is worried about a different issue. She thinks that decentralizing finance does not necessarily mean decentralizing ownership. BlackRock’s iShares Bitcoin Trust (IBIT), the largest spot Bitcoin exchange-traded fund, holds more than $18 billion in assets. Similarly, Michael Saylor’s MicroStrategy holds 1% of the total Bitcoin in circulation.

Wan says that if a large quantity of Bitcoin is held by certain organizations, people don’t know what these organizations will do with their holdings. She added that it’s a common fear because 70% of the world’s assets are actually held by maybe 5% of the population. Even though crypto is built on a decentralized network, who holds the crypto is becoming centralized. “If Bitcoin becomes too centralized because of who is holding it, people may lose trust in that,” she said.

The Future of Money

The financial model is now a mix of centralization and decentralization instead of just one or the other. DeFi has brought about some groundbreaking changes, but it has also experienced several setbacks. To rebuild confidence in the system, a hybrid model is becoming more popular. It’s important to consider the original purpose of decentralized finance and whether it is truly addressing the needs of the unbanked population.

Conclusion

At the time of writing, Bitcoin was trading at $66,320, up 4.2% over the last 24 hours. The involvement of financial giants like BlackRock and Fidelity in the decentralized crypto industry is both exciting and concerning. While it is promising to see cryptocurrency gaining mainstream acceptance, there is a real fear that these big players might undermine the core idea of decentralizing finance. As traditional finance merges with decentralized finance, the future of money looks like a blend of both worlds, aiming to benefit everyone, especially the unbanked.

A fee war has broken out among companies planning to launch the first U.S. exchange-traded funds (ETFs) holding Ether. This week, eight asset managers filed their final paperwork with the Securities and Exchange Commission (SEC), detailing the fees they plan to charge for their proposed spot Ether ETFs. This is one of the last steps before these ETFs start trading next Tuesday.

Fees and Waivers by Asset Managers

Here’s a breakdown of the fees that asset managers plan to charge for their spot Ether ETFs:

• BlackRock: Plans to charge 0.25%. After a partial fee waiver for the first year, the fund will charge 0.12% for its first $2.5 billion in assets.
• Fidelity Investments: Will charge a fee of 0.25% and waive the fee through the end of 2024.
• 21Shares: Plans to charge 0.21% and waive the fee for six months or the first $500 million in assets, whichever comes first.
• VanEck: Will charge 0.2% and waive the fee for the first year or until the fund reaches $1.5 billion in assets. If assets exceed $1.5 billion before the year is up, those over $1.5 billion will be charged 0.2%.
• Franklin Templeton: Will charge 0.19% and waive the fee for the first six months for the first $10 billion in assets.
• Invesco and Galaxy Digital Joint Venture: Their fund will charge 0.25%.
• Bitwise Asset Management: Will charge 0.2% and waive the fee on the first $500 million in assets for six months.
• Grayscale Investments: Will charge 2.5% for its Ethereum Trust and 0.25% for its Ethereum Mini Trust. The Mini Trust will have a fee waiver for the first year, charging 0.12% for its first $2 billion in assets.

Competitive Fees and Discounts

Most of the soon-to-be-listed Ether ETFs are offering temporary fee waivers or discounts to attract investors. According to filings with U.S. regulators, these promotions range from full fee waivers to discounts of about 50%, lasting from six months to a year. Some discounts expire once the ETFs manage a certain amount of assets under management (AUM).

Seven out of ten proposed spot Ether ETFs are offering fee cuts. The Grayscale Ethereum Trust (ETHE) and the Invesco Galaxy Ethereum ETF are not participating in the fee war. ProShares Ethereum ETF is behind in the registration process and is not expected to list next week.

SEC Filings and Listing Dates

Issuers filed the final round of amended S-1 registrations for nine proposed spot Ether ETFs on July 17. The SEC has reportedly indicated that July 23 will be the listing day for these funds. The latest filings detail the management fees for each fund.

Leading the Fee Race: Franklin Templeton

Franklin Templeton’s Franklin Ethereum ETF (EZET) is leading the fee race. Its management fees are fully waived for one year or until the fund reaches $10 billion in AUM. After this period, the baseline fee will be 0.19%, the lowest among the proposed ETFs.

Other spot Ether ETFs have fees ranging from 0.20% to 0.25%, with one exception. The Grayscale Ethereum Trust (ETHE), which has been trading under a different fund structure since 2017, will continue to charge its longstanding management fee of 2.5%.

Grayscale’s New Mini Trust

Grayscale is also launching a new fund, the Grayscale Ethereum Mini Trust, with a more competitive fee structure. For the first 12 months or until the fund’s AUM hits $2 billion, the Mini Trust’s fee will be reduced from 0.25% to 0.12%.

Industry Reactions

Grayscale faced criticism on July 17 for not lowering fees on its legacy fund, ETHE, which has nearly $10 billion in AUM. Some industry analysts also believe that the fees for the new Mini Trust are too high.

Bloomberg ETF Analyst Eric Balchunas commented that while the Mini Trust is cheaper, it may not be enough to attract significant organic investment, especially since BlackRock offers a similar fee.

Fee Waivers and Promotions

Most Ether ETFs are offering fee waivers and promotions to stay competitive. These waivers range from six months to a year and can significantly reduce the cost for investors. Here’s a closer look at some of these promotions:

• BlackRock: Offers a partial fee waiver for the first year, charging only 0.12% on its first $2.5 billion in assets.
• Fidelity Investments: Waives its 0.25% fee through the end of 2024.
• 21Shares: Waives its 0.21% fee for six months or the first $500 million in assets.
• VanEck: Waives its 0.2% fee for the first year or until the fund reaches $1.5 billion in assets.
• Franklin Templeton: Waives its 0.19% fee for the first six months on the first $10 billion in assets.
• Bitwise Asset Management: Waives its 0.2% fee on the first $500 million in assets for six months.
• Grayscale Investments: Waives the Mini Trust’s 0.25% fee for the first year, reducing it to 0.12% for the first $2 billion in assets.

Expected Impact of Fee Reductions

The fee reductions are expected to make these spot Ether ETFs more attractive to investors. Lower fees mean higher returns for investors, which can help attract more assets and boost the popularity of these funds.

The competition among asset managers is intense, with each trying to offer the most attractive fees and terms to capture a share of the market. This competition benefits investors, who can take advantage of lower costs and better terms.

Conclusion

As the first U.S. spot Ether ETFs prepare to launch, a fee war is heating up among asset managers. Companies like BlackRock, Fidelity Investments, 21Shares, VanEck, Franklin Templeton, Invesco, Galaxy Digital, Bitwise Asset Management, and Grayscale Investments are all vying for investors’ attention with competitive fee structures and promotional waivers.

The SEC’s approval of these ETFs and the competitive fees being offered are significant milestones in the development of the Ether ETF market. Investors will soon have more options for investing in Ether through ETFs, with the potential for lower costs and higher returns.

By staying informed about the fees and promotions offered by different asset managers, investors can make better decisions about which Ether ETFs to invest in. As the market evolves, it will be interesting to see how these fee wars impact the performance and popularity of these new investment products.

Overview of the Incident

WazirX, a well-known cryptocurrency exchange, recently suffered a major exploit. Over $230 million worth of crypto assets were stolen in an unauthorized transfer. This incident has raised significant concerns in the crypto community.

The attack targeted WazirX’s multisig wallet on the Ethereum network. This type of wallet requires multiple private keys to authorize a transaction, making it generally more secure. However, the exploit managed to bypass these security measures, leading to a massive loss of funds.

Details of the Exploit

The security firm Blocksec explained that the attacker upgraded the implementation of the Safe Wallet to a malicious contract. This malicious contract allowed the hacker to drain the funds from the wallet. The private key compromise was likely the reason behind this exploit.

Yajin (Andy) Zhou, co-founder of Blocksec, stated, “It appears that there was a private key leakage in the WazirX exchange. The leaked private keys were used to upgrade a safe multi-sig wallet, which holds a large number of assets, to a malicious contract. Then the malicious contract was used to drain most of the assets in the Safe Wallet.”

WazirX’s Response

WazirX confirmed the exploit and acknowledged the incident. The exchange has paused all INR and crypto withdrawals to prevent further losses and ensure the safety of users’ assets. The company is actively investigating the outflows and working to understand the full impact of the security breach.

“We’re aware that one of our multisig wallets has experienced a security breach. Our team is actively investigating the incident. To ensure the safety of your assets, INR and crypto withdrawals will be temporarily paused,” WazirX announced.

Stolen Crypto Assets

The hacker moved the compromised funds to an address that has started converting stolen assets into ether. On-chain data shows that over $100 million in Shiba Inu (SHIB) was stolen, along with 15,290 ETH (worth $52 million) and 20 million MATIC tokens (worth $11 million). Additionally, the hacker took 640 billion PEPE tokens (worth $7.5 million), 5.7 million USDT, and 135 million GALA tokens (worth $3.5 million).

Impact on the Crypto Community

The WazirX exploit has caused widespread concern in the cryptocurrency community. Such large-scale security breaches undermine confidence in the safety of crypto exchanges and the security of digital assets. Many users are now questioning the security measures in place at exchanges like WazirX.

What is a Multisig Wallet?

A multisig wallet, short for multi-signature wallet, requires multiple private keys to authorize a transaction. This type of wallet is considered more secure than a single-signature wallet because it reduces the risk of a single point of failure. In the case of WazirX, the exploit targeted this supposedly secure wallet, highlighting the vulnerability even in advanced security measures.

Lessons Learned

This incident underscores the importance of robust security measures and constant vigilance in the cryptocurrency industry. Exchanges must regularly update their security protocols and educate users about potential risks. The WazirX exploit serves as a reminder that even the most secure systems can be compromised if not properly managed and monitored.

Future Steps for WazirX

WazirX is taking steps to prevent such incidents in the future. The exchange is likely to implement stricter security protocols and enhance its monitoring systems. Additionally, WazirX will need to rebuild trust with its users by demonstrating transparency and a commitment to security.

The company has not yet announced any plans to compensate users for the stolen funds. However, ensuring the safety of remaining assets and preventing further losses will be a top priority for WazirX.

Conclusion

The exploit of WazirX’s multisig wallet on the Ethereum network, resulting in the loss of over $230 million in crypto assets, is a significant event in the cryptocurrency world. This incident highlights the ongoing challenges and risks associated with securing digital assets. The crypto community will be watching closely as WazirX investigates the breach and works to strengthen its security measures.