The Protocol: Coinbase Launches Own Blockchain as Sleuths Scour PayPal's Stablecoin Software

Today’s big news story in the blockchain tech world is the U.S. crypto exchange Coinbase’s launch of its new Ethereum layer-2 network, Base – possibly the first of its kind to be launched by a publicly traded company. Is it the start of a new era? (Please see coverage in Protocol Village, below.)

Our feature by Sam Kessler takes a look at the past two weeks' debacle (and near disaster) involving the decentralized stablecoin exchange Curve – and adds up the lingering risks the industry still needs to address.

You're reading The Protocol, CoinDesk’s weekly newsletter that explores the tech behind crypto, one block at a time. Subscribe here to get it every week.

PAYPAL STABLECOIN: PayPal, the peer-to-peer payments platform, unveiled its own stablecoin, PayPal USD (PYUSD), to be backed by U.S. dollar deposits, short-term Treasuries and cash equivalents. Built atop the Ethereum blockchain using the ERC-20 token standard, PYUSD is the first stablecoin to be launched by a large traditional financial company. The actual issuer of the stablecoin is Paxos, whose original stablecoin Pax dollar (USDP) has failed to gain significant market share compared with leaders like Tether’s USDT and Circle’s USDC. Paxos previously managed BUSD, the Binance-branded stablecoin, but stopped minting it in February at the direction of New York state regulators. Walter Hessert, head of strategy at Paxos Trust, told CoinDesk TV that holders of the new PayPal stablecoin might be have more protection since the company is regulated, and “customers’ assets are protected, including if Paxos were to go bankrupt.” X (formerly Twitter) filled up with snarky posts from blockchain sleuths analyzing the Ethereum smart-contract coding for the stablecoin. One narrative focused on an “assetProtection” role that appears to allow a centralized actor to wipe balances; another thread homed in on the project’s use of a five-year-old version of Solidity, a programming language used for Ethereum smart contracts. Scammers immediately started trying to defraud unsuspecting users by issuing fake tokens with the same trading ticker as PayPal’s. There’s some speculation that PayPal’s entrée might put pressure on U.S. lawmakers to push forward on stablecoin legislation. Our columnist David Z. Morris notes that the real prize for PayPal might be interest revenue from reinvesting customer deposits.

EXCHANGE JITTERS? Huobi, the crypto exchange advised by Tron’s Justin Sun, saw its stablecoin reserves decline by $49 million in a week, or about 33%, as financial media in Hong Kong reported that several executives had been taken away by police in China. (A Huobi spokesperson denied the reports.) Then on Tuesday, blockchain data showed that a large investor (a “whale” in crypto slang) made two large deposits into Huobi worth more than $200 million, boosting the exchange’s holdings of USDT and Ether. A Huobi spokesperson said that the address does not belong to Justin Sun. The address is tagged as one of the top-10 holders of TRX token.

OPEN-SOURCE, OPEN WOUND. Matter Labs, developer behind the Ethereum layer-2 network zkSync, was accused by rival Polygon of copying part of its open-source code without providing proper attribution. Matter Labs quickly acknowledged that some code was copied, but insisted that the attribution had been provided. Matter Labs CEO Alex Gluchowski later conceded that its attributions could have been more prominent, writing on X (formerly Twitter) that “there is a more standard approach to attributions, which we will wholeheartedly apply from now on." The kerfuffle provided a lesson on the community norms around usage of open-source software – and an example of just how touchy things can get in an ultra-competitive environment.

Worldcoin, the “proof-of-personhood” identity project with its iris-scanning orb, had its Nairobi warehouse raided by Kenyan police, local news organizations reported.

LinksDAO, an online community that bought a golf course in Scotland earlier this year for roughly $1 million, is accepting new members.

David Rubenstein, billionaire private-equity titan, says bitcoin is here to stay, notes that there’s demand for a form of money that can’t be controlled by governments, regrets not buying BTC at $100.

Fundraisings

Deals and grants

Data and tokens

Decentralized finance or DeFi ecosystems are still suffering through crypto winter, according to the analysis firm Messari. As a whole, the industry’s total value locked, or TVL – a key metric that represents collateral and deposits put into blockchain protocols – has been declining. On Ethereum, by far the biggest DeFi ecosystem, TVL dropped by 13% drop to $23 billion over the past 30 days. Optimism and Solana eked out gains.