Welcome to The Protocol, CoinDesk’s weekly wrap-up of the most important stories in cryptocurrency tech development.

In this week’s issue of the Protocol newsletter:

• Trump’s crypto team
• Aptos’ leadership shake-up
• TikTok meets tokens
• Kraken scales up

This article is featured in the latest issue of The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time. Sign up here to get it in your inbox every Wednesday.

Network News

TRUMP CRYPTO APPOINTMENTS: President-elect Donald Trump continues to make high-profile appointments embracing cryptocurrency and emerging technologies in his second term. 1) Stephen Miran, tapped as Chair of the Council of Economic Advisers, is a pro-crypto advocate who aims to integrate blockchain and decentralized finance into the U.S. economy. 2) Bo Hines, a former college football player, will head the newly formed Crypto Council. Hines is tasked with balancing innovation and consumer protection as he builds a regulatory framework for digital assets. 3) David Sacks, a veteran of Silicon Valley and vocal blockchain supporter, is stepping in as AI and Crypto Czar. Sacks plans to merge blockchain with AI while bolstering U.S. dominance in both sectors. These appointments signal a clear shift from Trump’s earlier skepticism of digital assets. The big question now is how these moves translate into meaningful policy amid regulatory gridlock and political friction.

APTOS LEADERSHIP SHIFT: Aptos Labs CEO and co-founder Mo Shaikh has stepped down, with co-founder Avery Ching taking over as CEO. Shaikh, who will remain a strategic adviser, highlighted the company’s achievements, including raising $400 million in venture funding and building a thriving ecosystem supported by partners like BlackRock, Google, Mastercard, and PayPal. Known for its layer-1 blockchain leveraging the Move programming language from Facebook’s Diem project, Aptos Labs is expanding into finance and AI applications with the help of advisers like former Grayscale CEO Michael Sonnenshein and OpenAI’s Kevin Weil. The leadership transition underscores the company’s ongoing focus on scalability, security, and innovation in blockchain technology.

SONIC TO AIRDROP TIKTOK: Sonic, a Layer 2 solution on the Solana blockchain, has announced plans to airdrop its native token, SONIC, to TikTok users. This initiative aims to introduce TikTok’s vast user base to decentralized finance (DeFi) by integrating blockchain technology with social media platforms. The airdrop is part of Sonic’s strategy to enhance user engagement and promote the adoption of Layer 2 solutions for improved scalability and reduced transaction costs on the Solana network. By targeting TikTok users, Sonic seeks to bridge the gap between mainstream social media audiences and the DeFi ecosystem, fostering broader participation in decentralized financial services.

ALSO:

• MicroStrategy added 5,262 BTC to its holdings as its stock secures a spot on the Nasdaq 100, reinforcing its long-standing Bitcoin strategy.
• Nokia enters the crypto world with a patented technology for encrypting digital assets, signaling its move into blockchain innovation.
• Ripple’s legal chief urges Congress to focus on regulating crypto practices rather than stifling innovation by targeting the technology itself.

Feature: Kraken’s Ink Layer-2 Goes Live

Kraken, the seventh-largest crypto exchange, said its layer-2 rollup network, built on top of the Ethereum blockchain, has gone live.

The network, called Ink, is based on the OP stack, a customizable framework that lets developers build their own rollups using Optimism’s technology. The team had originally planned for Ink to go live in early 2025, so the launch of its main network is ahead of schedule.

Kraken agreed to receive 25 million OP tokens (worth about $58 million) as part of a deal to build on the OP Stack. Optimism has acknowledged that handing out developer grants for participants building on the stack is part of its strategy, which in turn contributes back to the wider “Superchain” ecosystem.Kraken competitor Coinbase said in August 2023 that it would build a layer-2 network with OP Stack.

The product, called Base, is now the second-largest rollup network according to L2beat. At the time, Optimism said the Base team would receive up to 118 million OP tokens and, in return, would contribute the higher of 2.5% of its sequencer revenue or 15% of its profits to the Optimism Collective.

Read the full story by Margaux Nijkerk here

Money Center

Fundraising

• Avalon Labs has secured $10 million in a Series A funding round to expand its Bitcoin-backed stablecoin, aiming to enhance liquidity and stability in the cryptocurrency market. The investment reflects growing interest in Bitcoin-collateralized financial products as a bridge between traditional finance and digital assets.

Deals & Grants

• Tether has announced a $75 million deal to acquire a stake in Rumble, a video-sharing platform. The investment aims to support decentralized media and aligns with Tether’s commitment to fostering open communication technologies.

Data & Tokens

• Bonk (BONK) surged 30%, leading a rebound among dog-themed meme tokens, with Shiba Inu (SHIB) and Dogecoin (DOGE) also experiencing gains. Additionally, the Commodity Futures Trading Commission (CFTC) classified Floki (FLOKI) as a utility token, potentially influencing its regulatory status.

Data Corner: 60M USDC Outflows Hit Hyper Liquid

Hyper Liquid, a cryptocurrency exchange focused on perpetual contracts, has reported a record outflow of $60 million in USDC amid speculation that North Korea is investigating the platform. The sudden exodus of funds raises questions about the exchange’s liquidity and the stability of its operations. This highlights the growing tension of crypto markets with geopolitical issues, as regulatory scrutiny and potential misuse of platforms by state actors come into focus. The incident underscores the vulnerabilities in crypto markets, particularly for exchanges dealing with high-risk financial products like perpetual contracts. Hyper Liquid’s situation may prompt further scrutiny of similar platforms, emphasizing the need for stronger safeguards in the face of increasing global regulatory pressure.

Get the full scoop by Omkar Godbole here

Calendar

• Jan 9-12, 2025: CES, Las Vegas
• Jan. 15-19: World Economic Forum, Davos, Switzerland
• January 21-25: WAGMI conference, Miami.
• Jan. 24-25: Adopting Bitcoin, Cape Town, South Africa.
• Jan. 30-31: PLAN B Forum, San Salvador, El Salvador.
• Feb. 1-6: Satoshi Roundtable, Dubai
• Feb. 19-20, 2025: ConsensusHK, Hong Kong.
• Feb. 23-24: NFT Paris
• Feb 23-March 2: ETHDenver
• March 18-19: Digital Asset Summit, London
• May 14-16: Consensus, Toronto.
• May 27-29: Bitcoin 2025, Las Vegas.

Users affected by FTX’s 2022 crash will begin receiving bankruptcy distributions, with the option to receive payouts in stablecoins, through Kraken and BitGo.

The FTX estate confirmed that its bankruptcy disbursement plan will become effective on January 3, 2025, following court approval by U.S. District Judge John Dorsey in October.

Sunil Kavuri, a spokesperson for FTX’s largest creditor group, identified Kraken and BitGo as the confirmed distribution partners, citing the platforms’ payment capabilities. According to Kavuri, customers will have the option to receive repayments in stablecoins.

The plan, ruled by Judge Dorsey in Delaware, approved 98% of creditors to receive 118% of their claim value in early October. FTX’s decision to repay users in cash drew criticism from Kavuri and other bankruptcy claimants.

Yet, court documents showed that 94% of creditors with claims against the crypto exchange voted “Yes” to the plan. This group comprises nearly $7 billion in claims, according to the reorganization plan.

Bankruptcy administrator John J. Ray III commended his interim team for recovering about $16 billion in assets and cash for FTX creditors. Ray took over as CEO in late 2022, replacing Sam Bankman-Fried. Companies under the FTX umbrella, such as Alameda Research, also collapsed, and several of Bankman-Fried’s top associates signed plea deals with federal prosecutors in exchange for lighter sentences.

By November 2023, Bankman-Fried was found guilty on seven charges and sentenced to 25 years in prison for fraud. Under CEO Ray’s leadership, the defunct crypto exchange has worked to reconstruct the remnants of Bankman-Fried’s one-time crypto empire.

For the past two years, our team of professionals have meticulously and efficiently worked to recover billions of dollars to reach this point. The Plan becoming effective in January 2025 and the start of distributions are reflections of the outstanding success of the recovery efforts.

John J. Ray III, FTX CEO

Kraken’s Australian entity, Bit Trade, is facing a multi-million fine for failing to comply with rules requiring a target market determination for its margin extension product.

The Australian operator of the Kraken crypto exchange, Bit Trade, has been fined AUD 8 million (around $5.2 million) for unlawfully issuing a credit facility to more than 1,100 customers, the Australian Securities and Investments Commission said in a Thursday press release, Dec. 12.

The Federal Court ruled that the company failed to follow Australian laws requiring financial products to have a target market determination to ensure they are sold to the right customers.

From October 2021, Bit Trade offered a margin extension product that “provided for margin extensions to be made and repaid in either digital assets like Bitcoin (BTC) or national currencies such as U.S. dollars,” the regulator says. However, the product was marketed without a required target market determination, a key regulatory document meant to ensure financial products are offered only to suitable customers.

The court found Bit Trade’s product breached design and distribution obligations requirements every time it was issued without a target market determination. Customers were charged fees and interest exceeding $7 million, with trading losses surpassing $5 million, the regulator claims.

One investor reportedly lost nearly $4 million using the margin extension product. Justice Nicholas, in his ruling, described Bit Trade’s actions as “serious and motivated by a desire to maximize revenue,” adding that the company failed to address compliance requirements until flagged by ASIC.

Commenting on the ruling, ASIC Chair Joe Longo called it a “significant outcome,” adding that “it is ASIC’s first penalty against an entity for failing to have a TMD and a reminder for digital assets firms to consider their regulatory compliance obligations.” In addition to the fine, Bit Trade was ordered to cover ASIC’s legal costs.