Autor Cointelegraph by Christina Comben

Just when you thought crypto was getting boring, a new phenomenon is lighting up Crypto Twitter — Fake World Assets (FWAs). Yes, really.It’s the latest iteration of the onchain gacha craze, where users receive a random collectible, or collectibles, that are usually worth very little, but are sometimes worth quite a lot.Within four days of launch, FWAs guzzled so much Ethereum gas that they briefly became the chain’s largest gas consumer by fees over a 24-hour period. At its peak on July 25, FWAs generated approximately $1.53 million in daily fees, and even leapfrogged Tether and Circle to briefly rank among Ethereum’s biggest consumers of blockspace. Its creators, TokenWorks, proclaimed:“4 days since launch. Fake World Assets are the next big thing.”TokenWorks is far from an impartial observer, but TVL continues to climb, reaching over $6.15 million on July 31. Fee revenue has now eased to around $350,000 per day, which equates to an annualized run rate of roughly $268 million. By August 1, FWA had seen 10,000 ETH in volume, and 100,000 purchases. Some of the activity is driven by users trying to access early FWA token incentives, but there also appears to be genuine interest in the gamified mechanic.Fake World Assets TVL and fees. Source: DeFiLlama Not everyone is convinced the excitement around FWA will last. Simon Dedic, founder of venture capital firm Moonrock Capital, and an early backer of onchain collectible platforms, tells Magazine:“I’m very bullish on gamified commerce… my skepticism on FWA is specific.”Dedic argues that much of the current activity is driven by generous token incentives rather than genuine demand.“The whole thing is purely aimed at crypto degens so they can gamble and speculate,” he says. So, is this just another short-lived obsession, or has the industry finally stumbled upon something built to last? All very interesting, but what the heck are FWAs?Crypto has spent years trying to put the real world onchain, from stocks and bonds to collectible cards and Brazilian cows. Related: Gambling on random Pokémon cards: Onchain gagcha hits record high as crypto sinksTokenWorks decided to flip the idea on its head by creating Fake World Assets, which are just NFTs. Rather than buying a specific collectible like a Bored Ape, users pay to spin an onchain “gacha” machine for the chance to win a randomly selected NFT backed by Ether. The prizes on offer come from dozens of well-known collections, like CryptoPunks and Azuki to Lil Pudgys and Art Blocks. Fake World Assets is just the latest Ethereum-based protocol to put a new spin on the craze. Gacha is short for gachapon/gashapon, which are vending machines invented in Japan in the 1960s that spit out a random toy in a capsule. This mechanic migrated to mobile and browser games, with the loot boxes in Dragon Collection in 2010 often cited as the first major gacha game. Meanwhile a similar mechanic was at work with real world Pokemon trading card “booster packs” that offered a random assortment of collectible cards, of various rarity levels and values. These cards were subsequently tokenzied onchain by projects such as Collector Crypt, Beezie and Courtyard. As Magazine reported previously, onchain gacha saw a record $324 million in volume in June. (Hundreds of these tokenized cards have now been wrapped for use on FWA.)The concept is expanding every week, with developers experimenting with randomized “token packs” containing ERC-20 tokens, while StockRip on Robinhood chain, shows how tokenized stocks can be wrapped into NFT-based gacha packs. Fake World Assets. Source: fwa.funAs AzFlin, founder of DAO launchpad daos.world and a former Uniswap engineer, says:“Just when you think everything in crypto has been invented, something new springs up.”What is the appeal of onchain gacha?The gacha mechanic combines crypto, collectibles and gambling . As pseudonymous crypto commentator 2Lambroz puts it, from the player’s perspective, “you’re buying a lottery ticket on the pool.” “People enjoy playing the lottery, and it’s important to take that seriously,” says Benjamin Lockwood, a Wharton economist whose research into state-run lotteries found that people value the experience itself, not just the chance of winning.Related: Pudgy Penguins expands retail footprint with Target trading card rolloutMeir Statman, the behavioral finance pioneer and professor at Santa Clara University and author of A Wealth of Well-Being, tells Magazine:“There is a parallel to ‘onchain gacha’ in people bidding on the contents of abandoned storage units. Most find items worth placing in the trash, but some find items they can sell on eBay. One found a painting worth hundreds of thousands of dollars. These combine hope for riches with playfulness. This is what lotteries offer.”Two sides to every story Why do people play the lottery? Source: Knowledge at WhartonThere are two sides to the FWA protocol.NFT holders become liquidity providers (LPs), depositing collectibles alongside ETH and earning a share of the fees while their position remains in the pool.Players, meanwhile, pay for the chance to pull a randomly selected NFT, deciding afterwards whether to keep it or redeem most of its attached ETH value instead. (Blockworks Research notes that at present, around 70% of purchasers choose to convert their winnings to FWA.)As 2Lambroz explains, LPs are effectively hoping their NFT stays in the pool long enough to earn fees before it’s selected, while players are chasing the chance of landing a prize worth far more than the cost of a spin. FWA: The two sides. Source: 2LambrozSelf-proclaimed Ethereum maxi, Materkel says:“The most fun NFT/casino primitive in over a decade of crypto, where users actually get to be both players and the house at the same time […] Money legos on Ethereum are back!” Can the hype last?While Dedic believes much of the activity relates to token incentives, he says he’s “very bullish on gamified commerce for a generational reason.”“The further Gen Z moves into being the generation with the strongest buying power, the more shopping is going to be gamified and come with a dopamine kick attached.” And rather than offering random NFTs from last cycle, Dedic believes the mechanism is better suited to assets people already want to own, such as collectibles like Pokémon cards, watches and even whiskey.“I see enormous potential in selling much-demanded assets in a gamified way,” he says. “I see very little in building Ponzi schemes to create demand for assets nobody wanted in the first place.”The real test will come when the novelty wears off and the incentives fade. If users keep spinning anyway, onchain gacha may have found a retail use case crypto has been searching for all along. If not, they’ll join the dumpster fire of failed crypto experiments that burned brightly before fading away.Magazine: The 100x obsession: Fundamentals grow in importance as crypto maturesCointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Some articles contain affiliate links, from which Cointelegraph may earn a commission. These relationships do not influence which products we review or our editorial conclusions. Content published in here does not constitute financial, legal or investment advice. Readers should conduct their own research and consult qualified professionals where appropriate. Cointelegraph maintains full editorial independence.

“Investments change fast; human nature and human aspirations stay constant.”That’s how Meir Statman, behavioral finance pioneer and professor of finance at Santa Clara University, explains one of investing’s oldest puzzles. And it may be why every crypto cycle so far has been about chasing the next hot narrative rather than fundamentals, whether its DeFi, meme coins or decentralized compute.In an industry that has spent years maturing into an ecosystem of institutional investors, revenue-generating protocols and real-world use cases, investor attention still gravitates toward the next shiny thing that can offer the promise of outsized returns.“Crypto is still a young asset class, and price discovery in young markets tends to be driven by attention before it’s driven by analysis,” Samar Sen, head of international markets at Talos, tells Magazine.“A new narrative gives investors a simple story to underwrite quickly, while assessing the fundamentals of an established protocol takes real work, from understanding usage and revenue to token design and competitive position.”This behavior isn’t unique to digital assets; it’s just particularly pronounced in an industry that prizes memes over sustainable business models.A Pokémon card, a digital asset and a tech stockA recent MarketWise study compared hypothetical $10,000 investments across cryptocurrencies, stocks, exchange-traded funds and collectibles between January 2021 and April 2026.The study found that a sealed Pokémon card box outperformed Bitcoin, while a pair of limited-edition sneakers nearly matched Dogecoin’s returns. At the same time, some of Wall Street’s most popular artificial intelligence funds lagged the broader stock market despite AI dominating the investment headlines.A $10K investment has very different outcomes. Source: MarketWiseWhat does a Pokémon card, a digital asset and a tech stock have in common? According to Statman, they’re driven by the same thing: investors aren’t simply looking for the best asset; they’re buying a lottery ticket to a life-changing outcome.Investors are chasing transformation, not cryptoTraditional finance tends to assume that investors want to maximize returns while minimizing risk, but Statman argues that people often invest for a very different reason.In an unpublished paper shared with Magazine, Statman argues that many investors mentally divide their wealth into two layers. The first is a “not-poor” layer, which is designed to preserve their standard of living and avoid falling into poverty. The second is a “be-rich” layer, which is for transformative goals, like buying a house, becoming financially independent, or fundamentally changing their circumstances.Within that framework, concentrated investments aren’t necessarily irrational; they exist because diversified investing, while statistically sensible, may never offer someone with limited capital a realistic chance of achieving those goals.James Royal, a senior writer at MarketWise, tells Magazine:“The asset class may change, but the behavior barely does… Investors aren’t exactly loyal to crypto, stocks or collectibles. Their loyalty is to whatever promises lucrative returns next.”Statman says that, while some of today’s investors pin their hopes on meme stocks, “a century ago it was railroad stocks […] today’s investors are simply expressing the same aspirations through a new asset class.”Investors aren’t becoming more tolerant of risk, however, just more willing to accept volatility for a chance of life-changing wealth.“Investors aren’t necessarily on the hunt for risk, but they’ve got a case of FOMO on the next life-changing return, and that can lead them down a path of underestimated downside risk,” Royal says.Why stories beat fundamentalsIf investors are searching for transformation rather than simple returns, that helps explain why narratives so often overwhelm fundamentals, particularly in crypto.The decentralized finance sector is a case in point. Despite some of its largest protocols like Aave or Uniswap generating substantial revenue, attracting billions of dollars in deposits and processing enormous trading volumes, their tokens struggle to capture the same excitement as newer narratives built around the latest craze.Aave’s token was trading at around $98 at the time of writing, some 85% from its 2021 peak, but its TVL is over $14 billion, and had reached over $37 billion at the height of the bull market in October 2025.Aave’s TVL is over $14 billion while its token price is 85% from its 2021 peak. Source: DeFiLlama.Thomas Probst, a research analyst at Kaiko market data provider, says that while assets may outperform in the short term, fundamentals will always be more important in the long term.“Market fundamentals continue to play an important role, particularly resilience, liquidity, and volatility… [an asset’s] ability to establish itself over time also depends on the robustness of its market structure,” he says.Yet, while a mature protocol generating sustainable cash flow may be an attractive long-term investment, it offers little appeal to investors allocating money toward their “be-rich” bucket. A token that might double over several years will always struggle to compete with the possibility, however remote, of a 100x moonshot.“Investors like to confuse a great technological breakthrough with a great investment opportunity,” Royal says, which might explain why many AI-focused ETFs have underperformed, despite AI arguably becoming the defining investment narrative of our time. “The real skill isn’t identifying exciting investments, it’s recognizing when optimism has already been priced in.”That same skill comes in handy with market timing. MarketWise’s report found that investors who bought Bitcoin in January 2021 turned a hypothetical $10,000 investment into more than $24,000 by April 2026, with +141% gains.Those who bought during its cycle peak in October 2025, however, saw the same investment shrink to just over $6,000 with a -38% return by April (and it’d be worth about $5,000 today).Anyone who FOMO’d into AAAVE around the same time would be sitting on +85% losses today.Institutions play a different gameInstitutional investors approach investing from an entirely different perspective, Sen says:“Institutional mandates simply don’t allow for chasing outsized, speculative returns. Institutions are underwriting risk-adjusted performance, liquidity, custody arrangements and operational resilience long before they look at upside potential.”AAVE’s price performance since 2021. Source: CoingeckoAnd while that doesn’t mean institutions are immune to emerging narratives, they generally look at whether the underlying infrastructure can support meaningful capital allocation rather than whether the token could 100x.“It’s usually a mix, and the order matters,” Sen says. “Most of these themes, DeFi, AI, memecoins, do start with a genuine shift: a real technical unlock or a new use case that wasn’t possible before.” Once the narrative begins attracting speculative money, however, prices often move faster than fundamentals, he says.“Investors arriving later in a cycle are often responding to the narrative as much as the fundamentals that started it […] Institutional capital, which tends to move on process and discipline rather than trend-following, is often a step behind the initial narrative and a step ahead of the correction.”The next Bitcoin isn’t really the pointThe search for the next life-changing investment is unlikely to disappear, and neither, Statman argues, is the human desire to improve one’s circumstances.The next 100x token certainly exists, and investors will continue to seek it — even when the odds and fundamentals say they’re looking in the wrong place.Magazine: The real reason DeFi projects that survived 2022 crash are shutting down nowCointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Some articles contain affiliate links, from which Cointelegraph may earn a commission. These relationships do not influence which products we review or our editorial conclusions. Content published in here does not constitute financial, legal or investment advice. Readers should conduct their own research and consult qualified professionals where appropriate. Cointelegraph maintains full editorial independence.

“Investments change fast; human nature and human aspirations stay constant.”That’s how Meir Statman, behavioral finance pioneer and professor of finance at Santa Clara University, explains one of investing’s oldest puzzles. And it may be why every crypto cycle so far has been about chasing the next hot narrative rather than fundamentals, whether its DeFi, meme coins or decentralized compute.In an industry that has spent years maturing into an ecosystem of institutional investors, revenue-generating protocols and real-world use cases, investor attention still gravitates toward the next shiny thing that can offer the promise of outsized returns.“Crypto is still a young asset class, and price discovery in young markets tends to be driven by attention before it’s driven by analysis,” Samar Sen, head of international markets at Talos, tells Magazine.“A new narrative gives investors a simple story to underwrite quickly, while assessing the fundamentals of an established protocol takes real work, from understanding usage and revenue to token design and competitive position.”This behavior isn’t unique to digital assets; it’s just particularly pronounced in an industry that prizes memes over sustainable business models.A Pokémon card, a digital asset and a tech stockA recent MarketWise study compared hypothetical $10,000 investments across cryptocurrencies, stocks, exchange-traded funds and collectibles between January 2021 and April 2026.The study found that a sealed Pokémon card box outperformed Bitcoin, while a pair of limited-edition sneakers nearly matched Dogecoin’s returns. At the same time, some of Wall Street’s most popular artificial intelligence funds lagged the broader stock market despite AI dominating the investment headlines.A $10K investment has very different outcomes. Source: MarketWiseWhat does a Pokémon card, a digital asset and a tech stock have in common? According to Statman, they’re driven by the same thing: investors aren’t simply looking for the best asset; they’re buying a lottery ticket to a life-changing outcome.Investors are chasing transformation, not cryptoTraditional finance tends to assume that investors want to maximize returns while minimizing risk, but Statman argues that people often invest for a very different reason.In an unpublished paper shared with Magazine, Statman argues that many investors mentally divide their wealth into two layers. The first is a “not-poor” layer, which is designed to preserve their standard of living and avoid falling into poverty. The second is a “be-rich” layer, which is for transformative goals, like buying a house, becoming financially independent, or fundamentally changing their circumstances.Within that framework, concentrated investments aren’t necessarily irrational; they exist because diversified investing, while statistically sensible, may never offer someone with limited capital a realistic chance of achieving those goals.James Royal, a senior writer at MarketWise, tells Magazine:“The asset class may change, but the behavior barely does… Investors aren’t exactly loyal to crypto, stocks or collectibles. Their loyalty is to whatever promises lucrative returns next.”Statman says that, while some of today’s investors pin their hopes on meme stocks, “a century ago it was railroad stocks […] today’s investors are simply expressing the same aspirations through a new asset class.”Investors aren’t becoming more tolerant of risk, however, just more willing to accept volatility for a chance of life-changing wealth.“Investors aren’t necessarily on the hunt for risk, but they’ve got a case of FOMO on the next life-changing return, and that can lead them down a path of underestimated downside risk,” Royal says.Why stories beat fundamentalsIf investors are searching for transformation rather than simple returns, that helps explain why narratives so often overwhelm fundamentals, particularly in crypto.The decentralized finance sector is a case in point. Despite some of its largest protocols like Aave or Uniswap generating substantial revenue, attracting billions of dollars in deposits and processing enormous trading volumes, their tokens struggle to capture the same excitement as newer narratives built around the latest craze.Aave’s token was trading at around $98 at the time of writing, some 85% from its 2021 peak, but its TVL is over $14 billion, and had reached over $37 billion at the height of the bull market in October 2025.Aave’s TVL is over $14 billion while its token price is 85% from its 2021 peak. Source: DeFiLlama.Thomas Probst, a research analyst at Kaiko market data provider, says that while assets may outperform in the short term, fundamentals will always be more important in the long term.“Market fundamentals continue to play an important role, particularly resilience, liquidity, and volatility… [an asset’s] ability to establish itself over time also depends on the robustness of its market structure,” he says.Yet, while a mature protocol generating sustainable cash flow may be an attractive long-term investment, it offers little appeal to investors allocating money toward their “be-rich” bucket. A token that might double over several years will always struggle to compete with the possibility, however remote, of a 100x moonshot.“Investors like to confuse a great technological breakthrough with a great investment opportunity,” Royal says, which might explain why many AI-focused ETFs have underperformed, despite AI arguably becoming the defining investment narrative of our time. “The real skill isn’t identifying exciting investments, it’s recognizing when optimism has already been priced in.”That same skill comes in handy with market timing. MarketWise’s report found that investors who bought Bitcoin in January 2021 turned a hypothetical $10,000 investment into more than $24,000 by April 2026, with +141% gains.Those who bought during its cycle peak in October 2025, however, saw the same investment shrink to just over $6,000 with a -38% return by April (and it’d be worth about $5,000 today).Anyone who FOMO’d into AAAVE around the same time would be sitting on +85% losses today.Institutions play a different gameInstitutional investors approach investing from an entirely different perspective, Sen says:“Institutional mandates simply don’t allow for chasing outsized, speculative returns. Institutions are underwriting risk-adjusted performance, liquidity, custody arrangements and operational resilience long before they look at upside potential.”AAVE’s price performance since 2021. Source: CoingeckoAnd while that doesn’t mean institutions are immune to emerging narratives, they generally look at whether the underlying infrastructure can support meaningful capital allocation rather than whether the token could 100x.“It’s usually a mix, and the order matters,” Sen says. “Most of these themes, DeFi, AI, memecoins, do start with a genuine shift: a real technical unlock or a new use case that wasn’t possible before.” Once the narrative begins attracting speculative money, however, prices often move faster than fundamentals, he says.“Investors arriving later in a cycle are often responding to the narrative as much as the fundamentals that started it […] Institutional capital, which tends to move on process and discipline rather than trend-following, is often a step behind the initial narrative and a step ahead of the correction.”The next Bitcoin isn’t really the pointThe search for the next life-changing investment is unlikely to disappear, and neither, Statman argues, is the human desire to improve one’s circumstances.The next 100x token certainly exists, and investors will continue to seek it — even when the odds and fundamentals say they’re looking in the wrong place.Magazine: The real reason DeFi projects that survived 2022 crash are shutting down nowCointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Some articles contain affiliate links, from which Cointelegraph may earn a commission. These relationships do not influence which products we review or our editorial conclusions. Content published in here does not constitute financial, legal or investment advice. Readers should conduct their own research and consult qualified professionals where appropriate. Cointelegraph maintains full editorial independence.

When DeFi dashboard Zapper announced this month that it would shut down after nearly seven years, it joined a growing list of decentralized finance projects that have folded in 2026. Bitcoin DeFi platform Botanix, Solana portfolio tracker Step Finance, DeFi analytics platform Parsec and DEX aggregator Odos Protocol also wound down or are winding down this year after multiple market cycles.The carnage isn’t limited to DeFi — RootData has tracked 101 “dead” crypto projects in total this year as of July 26 — but it accounts for more than half the cadavers.Is it simply a case of bear market blues, or is there more to it than meets the eye? Botanix’s founders pointed to weak demand when announcing the platform’s closure, and told Cointelegraph in June that onchain activity consolidating around a few venues like Hyperliquid and big centralized exchanges hastened Botanix’s decline.While complaints the overall industry is consolidating into a fewer, larger venues are common, Artemis Research’s Alex Weseley tells Magazine that’s not the case in DeFi:“The prevailing narrative has been that concentration is increasing in DeFi, caused by a series of exploits and capital rotation into the most ‘Lindy’ protocols. But the data disagrees.”So, why are projects that survived the collapse of Terra, the implosion of FTX and the grip of Chokepoint 2.0 shutting down today? If the 2022 bear market didn’t kill these DeFi protocols, what is it about the 2026 market structure that is finishing them off?Capital has rotated rather than exitedAccording to Artemis data, concentration across tracked DeFi protocols has actually drifted lower since 2024. And while each major sector still has one dominant player like Uniswap in decentralized exchanges, Aave in lending and Jupiter in perpetuals by locked capital, “every one of those leaders holds a smaller share of its sector now than it did two years ago,” Weseley explains. Liquidity concentration by sector (TVL Herfindahl index). Source: ArtemisHe argues that onchain activity has shifted into different corners of the crypto economy rather than leaving the ecosystem altogether. “The economics didn’t disappear; they rotated to adjacent apps (Hyperliquid, Polymarket, pump.fun), so classic DeFi viability shrank even as total onchain fee generation stayed high.” Related: Mark Cuban-backed DeFi dashboard Zapper shutters after 7 yearsIn this view more protocols are competing for a slice of the pie, making each slice smaller.Markus Levin, co-founder of blockchain infrastructure company XYO, says today’s landscape holds little resemblance to the early days of DeFi.“The DeFi space is much more competitive than it was during the last bear cycle,” Levin tells Magazine.“Early DeFi projects benefited from first-mover advantage and a relatively small field of competitors. Now, there are thousands of protocols competing for the same users and liquidity.”Wesley explains it’s more instructive to look at revenue generation to work out where economic activity is occurring in DeFi, rather than the more common measure of total value locked (TVL). “TVL is the right tool for the narrow ‘liquidity’ question but misleads elsewhere,” Wesley says.“Fees and revenue are best, because they measure economic viability directly and expose shifts that TVL and headline usage hide.” Artemis estimates the number of DeFi applications generating at least $1 million in monthly fees climbed to around 33 or 34 in mid-to-late 2025 before falling back to roughly 25 or 26 during the first half of 2026. The number generating more than $10 million in monthly fees roughly halved over the same period.The rules for attracting capital have changed DeFi risk management firm Gauntlet argues the broader market remains healthy, despite numerous DeFi protocols shutting down this year.“Demand is the strongest it has ever been,” Nicholas Cannon, chief business officer at Gauntlet, tells Magazine. “Stablecoin supply keeps growing, and traditional finance is moving toward DeFi rather than away from it.”101 crypto projects have died so far in 2026 alone. Source: RootDataAccording to Gauntlet, the defining change since the previous market slump is that investors have become more selective and aren’t as easily distracted by short-term yield farming token incentives.“What changed is that capital got discerning. In previous cycles, liquidity followed incentives wherever they pointed. Today it follows sustainable yield, track record, and curation. Incentives still have a role in bootstrapping, but they no longer carry a protocol on their own.”Levin says that institutional capital in particular is more selective in 2026, favoring platforms with established track records over protocols luring users with shiny token incentives.“The projects that survive this cycle are likely to be the ones that already have meaningful user distribution or can reach users beyond the traditional DeFi audience,” he said, and that may prove to be a tougher test than the bear market itself.Tokenized assets, stablecoins and emerging areas such as agentic DeFi are examples of where new experimentation is taking place.Related: ARK pushes back against a16z’s ‘TradFi wants blockchain, not DeFi’ claimInfrastructure is consolidating while innovation moves higherOne consequence of the industry’s maturation, Cannon said, is that fewer teams are trying to build the next Aave or Uniswap. Instead, they’re using established DeFi infrastructure as a foundation for their products and services. The trend is also reflected in where investment dollars are flowing. DeFi lender Morpho announced a $175 million raise to bring institutional lending onchain in June, one of the sector’s largest fundraises, while agentic DeFi startup Alpaca raised $135 million in July to build infrastructure for AI-powered financial applications. Monthly protocol fees: Classic DeFi vs new-guard apps. Source: ArtemisMorpho Labs co-founder Merlin Egalite says the next generation of successful protocols will increasingly focus on distribution rather than competing directly with established infrastructure.“The protocols growing fastest will be the ones embedded into the platforms where users already are. Fintechs, wallets, exchanges building on top of you rather than competing with you.”Egalite also argues that future growth will come from making DeFi infrastructure easier for traditional financial firms to adopt.“The next wave of growth comes from fintechs, banks, and platforms that want to embed DeFi infrastructure without rebuilding it,” he says.Magazine: Fears of AI-driven DeFi hack epidemic overstated for now — but not for longCointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Content published in here does not constitute financial, legal or investment advice. Readers should conduct their own research and consult qualified professionals where appropriate. Cointelegraph maintains full editorial independence.

The long-awaited US Digital Asset Market Clarity Act (CLARITY) has hit another snag. This time, it’s not software developers or the turf war between federal regulators at stake, but the thornier question of ethics — ironic, given many politicians’ demonstrable disdain for them.After months of negotiations and what Coinbase’s chief executive Brian Armstrong called “thousands of hours of work on both sides,” disagreement over a code of conduct could make or break CLARITY once and for all.Pretty much everyone agrees the United States needs clearer rules around digital assets. But negotiators are divided over whether the bill’s ethics provisions are strong enough, and, more importantly, who should enforce them.Democrats worry the current proposal relies too heavily on the Department of Justice, arguing state attorneys general should be able to step in if the DOJ fails to enforce the law. In a joint statement Wednesday, seven Democratic senators said the Republican proposal “falls short.”“Key provisions including those addressing ethics for elected officials, consumer protection, illicit finance, conflicts of interest and market integrity must be strengthened,” the senators said.For their part, Republicans are pushing to keep enforcement of the ethics provisions with the DOJ, arguing that federal rules should be enforced through a single national framework. Attorney and former Republican Senate candidate John Deaton said Wednesday:“The CLARITY Act is federal legislation… The Department of Justice – not fifty different state AGs with fifty different political incentives and fifty different interpretations – is the appropriate body to enforce federal law.”Can lawmakers find a middle path before the bill reaches the Senate floor, or has the ethics debate become CLARITY’s biggest obstacle yet? What the latest ethics proposal actually does The latest Senate draft made public Wednesday would prohibit the president, vice president, members of Congress and other senior federal officials and their spouses from issuing or sponsoring digital assets while in office. Democrats oppose current CLARITY text. Source: Senator Ruben GallegoThat means future presidential meme coins would be off the table, at least temporarily, with no Trump 2.0 or Melania 2.0-style token launches while the restrictions are in play. Related: CLARITY Act could help CFTC deal with prediction markets: LawyerThe proposal would also prevent crypto platforms from listing assets issued or sponsored by covered officials. Restrictions would expire in 2029, after President Donald Trump’s current term ends, though covered officials would still be permitted to own cryptocurrencies.Democrats say current proposal falls shortDemocrats have made it clear the text needs additional work before gaining their support, but getting CLARITY over the line isn’t doomed; they’ve also signaled a willingness to see the bill through to the end. “We have been working in good faith with our Republican colleagues for the past year and will continue doing so to get this over the finish line,” the senators said.Senator Angela Alsobrooks said negotiators were “fairly close” to reaching an agreement during a Semafor event on Wednesday, despite warning the ethics provisions remained a dealbreaker. The Maryland Democrat said:“Although I have been supportive to this point, I absolutely will not support on the floor any legislation that does not include provisions around ethics.”Her main concern is not only the substance of the rules, but who would enforce them.“It’s an absolute that we cannot completely rely on the DOJ, given what we’ve seen of their inability and their unwillingness to enforce the law,” Alsobrooks said.The debate has been fueled by Trump’s rapidly expanding crypto business interests spanning meme coins, World Liberty Financial and other digital asset holdings.Related: Trump claims he can ‘future proof’ crypto regulation with CLARITY ActThe President’s crypto ventures have reportedly generated $1.4 billion on paper, prompting Democrats to argue stronger safeguards are needed to address potential conflicts of interest. Senator Elizabeth Warren has focused on whether the restrictions go far enough, with the Massachusetts Democrat saying that the latest draft “does nothing to stop President Trump from making his next $1.4 billion from crypto.”Former SEC official Amanda Fischer also argued the draft would still allow Trump to benefit from his existing projects, with limited restrictions on future crypto income streams.Republicans say proposal already unprecedentedRepublicans reject the idea that the ethics provisions are weak. Senator Bernie Moreno described the draft as containing “the most powerful ethics language in US history,” pushing back against Democratic claims that the provisions are insufficient.The latest CLARITY Act text. Source: US Congress.Patrick Witt, a former White House and Senate counsel, said Democratic opposition appeared to rest on one of two positions: either that ethics rules without state attorneys general are “meaningless,” or that they fail to penalize President Trump for past crypto activity.“If you hold position (1), then you are basically saying that ALL current federal ethics laws are meaningless because none of them are enforceable by state AGs,” he said. “If you hold position (2), then there is literally nothing that can be done to appease you because what you are advocating for is blatantly unconstitutional.”Others argue that, even if the legislation is imperfect, passing it would be preferable to preserving the status quo. Andreessen Horowitz co-founder Chris Dixon said the US has a similar opportunity to the early internet era, when lawmakers established rules that allowed innovation to flourish rather than forcing new technology into outdated regulatory frameworks. While acknowledging that “no law is perfect,” Dixon argued the CLARITY Act would deliver long-overdue consumer protections and provide regulatory certainty for blockchain innovation in the US.Can lawmakers find a middle path?Despite stumbling over the ethics hurdle, most industry and policy observers still believe a deal remains in reach. Kristin Smith, former chief executive of the Blockchain Association and now president of the Solana Policy Institute, sees that the latest draft is already a meaningful compromise.“The new text includes a substantive, one-of-a-kind ethics provision, a necessary step to win the support of Senate Democrats,” Smith told Cointelegraph.“But ethics is far from the only thing at stake. The Senate has added a full disclosure regime, an entire illicit finance section, and improved spot market regulation.”Smith warned that rejecting the bill in pursuit of stronger ethics language could leave lawmakers stuck with no market structure legislation at all.“There is no version of a ‘no’ vote that produces a stronger bill,” she said. “A ‘no’ vote produces no bill at all: no disclosure regime, no illicit finance protections, no spot market improvements, no ethics provisions, nothing.”Vincent Chok, co-founder and chief executive of stablecoin issuer First Digital, said the fact negotiations have narrowed to ethics rather than the broader structure of the bill is itself a sign of progress.“The core debate is no longer whether digital assets need a regulatory framework, but how to finalize one that commands broad support,” Chok told Cointelegraph.He said that while no regulatory framework is likely to be perfect from day one, businesses can adapt to clear rules that evolve over time. Prolonged uncertainty makes long-term investment and product development far more difficult, he said.Salman Banaei, head of public policy at Plume, a blockchain network focused on tokenized real-world assets, also believes a compromise remains possible, although he cautioned that the White House’s initial ethics proposal “is not a good starting point.”For now, both sides appear to agree on one thing: a compromise is still possible, but exactly what it looks like remains the biggest unanswered question. Magazine: Will the crypto lobby’s $189M campaign get CLARITY over the line?Cointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Content published in here does not constitute financial, legal or investment advice. 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