The Office of the Comptroller of the Currency (OCC), the US regulatory body responsible for overseeing national banks, issued a significant clarification on Friday regarding crypto activities. The OCC announced that banks are now permitted to engage in certain crypto-related operations without seeking prior regulatory approval, giving the green light for banks to custody digital assets.The OCC statement outlined specific crypto activities that national banks can now undertake, including crypto-asset custody services, certain stablecoin operations, and participation in distributed ledger networks, enabling them to become validators on public Proof-of-Stake networks.The announcement marks a step change in this administration’s regulatory approach, eliminating the requirement that banks obtain advance permission from regulators before engaging in these activities.Under Biden, bank personnel were required to inform their supervisors about planned crypto activities, demonstrate their risk management strategies, and ensure there were no objections from supervisory bodies. The OCC also withdrew its previous statements that cautioned banks against engaging with the crypto sector. Acting Comptroller Rodney Hood affirmed:“The OCC expects banks to have the same strong risk management controls in place to support novel bank activities as they do for traditional ones. Today’s action will reduce the burden on banks to engage in crypto-related activities and ensure that these bank activities are treated consistently by the OCC, regardless of the underlying technology. I will continue to work diligently to ensure regulations are effective and not excessive while maintaining a strong federal banking system.”“Biggest news of the day,” commented Nic Carter, partner at Castle Island Ventures and the cofounder of blockchain data aggregator Coinmetrics.io

Centralized exchanges (CEX’s) serve as a crucial intermediary between crypto market participants and blockchain networks, “facilitating billions of dollars of value transferred each day,” the Coin Metrics team noted.Many user’s first interaction with crypto is “likely to occur through an exchange.”However, exchanges vary greatly in quality “across their primary functions,” the Coin Metrics report added.In this issue of Coin Metrics’ State of the Network, they’ll delve into how they “assess exchange quality.”As the use-case for crypto data has expanded, “the importance of precise, high quality data has been further emphasized.”Coin Metrics created the Trusted Exchange Framework “to vet which exchanges should be included to calculate precise market metrics as well as select the highest quality constituents for indexes.”Coin Metrics assess exchanges based on the following categories:Data Quality: The level of confidence that the exchange’s reported data is accurate.The level of confidence that the exchange’s reported data is accurate. Transparency: The quality of publicly disclosed information from an exchange, such as its quality of its Proof of Reserves or its publicly disclosed balance sheets.The quality of publicly disclosed information from an exchange, such as its quality of its Proof of Reserves or its publicly disclosed balance sheets. Resilience & Security: How well an exchange protects its users against market and security risks.How well an exchange protects its users against market and security risks. Regulatory Compliance: An exchange’s ability to meet regulatory requirements via its existing licenses, adjusted by the relative of the regulatory environment it conducts business.An exchange’s ability to meet regulatory requirements via its existing licenses, adjusted by the relative of the regulatory environment it conducts business. API Quality: An exchange’s quality to be used as a programmable entity.During the early stages of the crypto industry, it was “common for exchanges to artificially inflate their trading volume in order to attract customers and falsely demonstrate legitimacy.”In 2019, Bitwise conducted a comprehensive analysis of fake volume in crypto exchanges in which they claimed that 95% of volume is “fake”.Inspired by Bitwise’s methodology, Coin Metrics “created a series of tests for detecting and filtering out fake volume.”Thus we can arrive at their best-guess estimate “for crypto trading volume, which we call our ‘Trusted Volume’.”As of April 26th, 2024, trusted volume on “a rolling average weekly window is at $40 billion, about half of the $80 billion peak this year and a little over a third from the all-time highs of May 2021.”For comparison, NYSE and NASDAQ daily trading volumes “hover on the order of $1-2 trillion according to CBOE data. Note that this trusted volume metric is a lower bound estimate; DEXes and centralized exchanges outside of our coverage universe are not included.”This raises the question of what percentage of “all crypto volume is fake.”According to the analysis from Coin Metrics, it depends “on how you count all fake volume.”Any exchange can theoretically generate “an infinite amount of fake volume from wash-trading bots.”Additionally, fake volume tends to “not be evenly distributed across exchanges: regulated, reputable exchanges have a significantly lower proportion of its total volume as fake, while less reputable exchanges tend to have a higher or even majority of its total volume to be fake.”In reality, the vast majority of real usage “happens on exchanges where most of its activity appears organic

Innovation once more appears to be heating up in the digital asset space as old paradigms are set aside and new horizons become realized, the team at Coin Metrics noted.Coin Metrics also mentioned that Bitcoin is evolving “from a specialized chain whose primary purpose is to serve as a settlement layer for transactions to a more general-purpose platform that leverages its extraordinary security to serve layer-2 functionalities.”Similarly, with the recent Dencun upgrade, Ethereum is moving “towards a modular blockchain architecture, with specialized layers to handle its functions.”According to the report from Coin Metrics, we are also “witnessing the birth of new layer-1 blockchain like Aptos, leveraging different virtual machines, and others like Monad, bringing parallel execution capabilities to the EVM.”In this issue of Coin Metrics’ State of the Network, Coin Metrics explore “the diverse landscape of layer-1 blockchain networks and understand their implications for the broader crypto ecosystem.”In the crypto ecosystem, a Layer-1 (or L1) is “the base layer or the foundational blockchain network upon which other layers and applications are built.”L1 blockchain networks are “standalone, decentralized ledgers that operate independently and establish their own rules for consensus, transaction validation, and data storage.”These networks serve as “the infrastructure and provide the essential functionalities required for the development and deployment of decentralized applications (dApps) and other blockchain-based solutions.”Numerous layer-1’s have emerged over the past cycles, “with each gaining varying levels of traction and maturity.”While all L1 networks share the fundamental characteristics of being decentralized and securing their respective ecosystems, they can “be broadly categorized into two types: specialized networks and general-purpose platforms.”Specialized Networks: These L1s are designed “primarily to facilitate secure peer-to-peer transactions and serve as robust settlement layers.”The Coin Metrics report noted that examples “include Bitcoin, Litecoin, and Dogecoin. While they may not directly support complex smart contracts or decentralized applications, their primary purpose is to leverage strong security guarantees and decentralization to provide a reliable and trustless transfer of value, even if additional functionality is added through protocols such as Omni or in the form of L2s or roll-ups built on top.”General-Purpose Platforms: These L1s are designed to “serve as programmable platforms that can support a wide range of decentralized applications and smart contracts. Examples include Ethereum, Tron, Solana, Avalanche, and others.”These networks often prioritize features “such as programmability, scalability, and interoperability to enable the development and deployment of various decentralized solutions, including decentralized exchanges, lending and borrowing protocols as part of DeFi, etc.”Layer-1’s can be further categorized “by their architectural differences or approaches to core blockchain functions, including execution, consensus, and settlement.”Monolithic: This includes L1’s such as Bitcoin and Solana, which “handle the execution and settlement of transactions as well as the maintenance of consensus within a single layer.”Modular: This includes L1’s like Avalanche, Cosmos and recently Ethereum, “with its rollup-centric roadmap. Modular blockchains separate these functions into distinct, specialized layers.”While these categories provide a high-level generalization, “understanding the nuances and trade-offs between these categories of L1 networks is essential for comprehending the broader dynamics and potential of the decentralized ecosystem as it evolves.”To get a deeper understanding of Layer-1s, Coin Metrics has taken “a data-driven look at how these networks span different approaches and provide innovative solutions to the underlying problems posed by decentralized networks.”The performance capabilities of L1 blockchains “can be influenced by several technical factors such as their consensus mechanism, block size (amount of data that can fit in a block) and block time (time it takes to add a new block to the blockchain), to name a few.”The Coin Metrics report explained that these factors “can directly impact the transaction speed and network throughput of the L1 and therefore the user experience of the blockchain.”Due to the unique design choices and architectural trade-offs of L1’s, these metrics “do not serve as a direct comparison, but as a means to understand their technical differences.”Shorter average block times, as “exhibited by Solana (approximately 0.4 seconds) and the Avalanche C-Chain (2 seconds), result in a faster execution of incoming transactions.”The Coin Metrics report further noted this is “particularly beneficial for high-frequency transactions such as financial trading on applications like decentralized exchanges (DEX’s), micro-transactions or gaming related interactions where speed is critical. Furthermore, AVAX-C and Ethereum also feature constant block times, which make for a very tight distribution around the average (with some outliers coming from missed blocks).”On the other hand, Bitcoin and Litecoin “have larger average block times (around 10 minutes for Bitcoin and 2.5 minutes for Litecoin), which prioritize network security over transaction speed.”This same relationship can also be understood “as a tradeoff between the ease of participation in the consensus process and the performance of the underlying network.”This is evident when we “consider the size of the blockchain as a function of the size and rate of creation of new blocks.”Blockchains that have longer block times and “smaller” blocks, like Bitcoin, “are easier to synchronize with as an independent node operator.”Compared to Ethereum, the requirements “are greater as the network performance requirements for including blocks on a faster basis add up to a larger download size and require a more performant computer and network infrastructure to maintain comparable oversight over the network as would be afforded.”The report also noted that with stablecoins starting to proliferate across various L1’s, the value transferred in each stablecoin provides “a crucial proxy for their usage across these blockchains. Tether (USDT) has maintained a strong footing on Tron due to its low fees and proclivity to emerging markets, with an adjusted transfer value of $14B and a median transfer value of $312.”This is followed by USDC and USDT on Ethereum currently “displaying a transfer value of ~$6B, with median transfers of ~$800 and ~$1000, respectively.”With the re-emergence of the Solana ecosystem, USDC has also “gained traction on the blockchain, with an adjusted transfer value of $3B