Credit spreads are widening and have reached their highest levels since August 2024 — a period that coincided with bitcoin (BTC) dropping 33% during the yen carry trade unwind.

One way to track this is through the ratio of the iShares 3–7 Year Treasury Bond ETF (IEI) to the iShares iBoxx $ High Yield Corporate Bond ETF (HYG). This IEI/HYG ratio, highlighted by analyst Caleb Franzen, serves as a proxy for credit spreads and is now showing its sharpest spike since the Silicon Valley Bank crisis in March 2023 — a moment that marked a local bottom in bitcoin just below $20,000.

Historically, bitcoin and other risk assets tend to fall during sharp credit spread expansions.

The key question now is whether this surge has peaked or if more downside lies ahead. If spreads continue to rise, it could reflect mounting stress in financial markets — and spell further trouble for risk-on positioning.

A credit spread represents the yield difference between safe government bonds and riskier corporate bonds. When spreads widen, it signals growing risk aversion and tightening financial conditions.

However, Friday’s market action seems to indicate that bitcoin is starting to decouple from the traditional markets, outperforming equities. One analyst event called it the new “U.S. isolation hedge,” indicating that BTC might be starting to act more like a safe haven or digital gold for TradFi investors.
Read more: Crypto Outperforms Nasdaq as BTC Becomes ‘U.S. Isolation Hedge’ Amid $5T Equities Carnage

Bitcoin’s (BTC) recent stability amid Nasdaq turmoil driven by tariffs has generated excitement among market participants regarding the cryptocurrency’s potential as a haven asset. Still, the bulls might want to keep an eye on the bond market where dynamics that characterized the COVID crash of March 2020 may be emerging.

Nasdaq, Wall Street’s tech-heavy index known to be positively correlated to bitcoin, has dropped 11% since President Donald Trump on Wednesday announced reciprocal tariffs on 180 nations, escalating trade tensions and drawing retaliatory levies from China. Other U.S. indices and global markets have also taken a beating alongside sharp losses in the risk currencies like the Australian dollar and a pullback in gold.

BTC has largely remained stable, continuing to trade above $80,000, and its resilience is being viewed as a sign of its evolution into a macro hedge.

“The S&P 500 is down roughly 5% this week as investors brace for trade-driven earnings headwinds. Bitcoin, meanwhile, has shown impressive resilience. After briefly dipping below $82,000, it rebounded quickly, reinforcing its status as a macro hedge in times of macroeconomic stress. Its relative strength could continue to attract institutional inflows if broad market volatility persists,” David Hernandez, crypto investment specialist at 21Shares, told CoinDesk in an email.

The perception of stability could quickly transform into a self-fulfilling prophecy, solidifying BTC’s position as a haven asset for years to come, as MacroScope noted on X.

Treasury basis trade risks

However, sharp downside volatility in the short term cannot be ruled out, especially as the “Treasury market basis trade” faces risks due to heightened turbulence in bond prices.

The basis trade involves highly leveraged hedge funds, reportedly operating at leverage ratios of 50-to-1, exploiting minor price discrepancies between Treasury futures and securities. This trade blew up in mid-March 2020 as coronavirus threatened to derail the global economy, leading to a “dash for cash” that saw investors sell almost every asset for dollar liquidity. On March 12, 2020, BTC fell by nearly 40%.

“When market volatility spikes – as it is now – it unearths highly leveraged carry trades vulnerable to big market moves. The blowup in the US Treasury market in March 2020, which disrupted basis carry trades, is a recent example. Risk of leveraged carry trade blowups is high…,” Robin Brooks, managing director and chief economist at the International Institute of Finance, said.

The risk is real because, the size of the basis trade as of March end was $1 trillion, double the tally in March 2020. The positioning is such that a one basis point move in Treasury yields (which move opposite to prices) would lead to a $600 million shift in the value of their bets, according to ZeroHedge.

So, increased volatility in the Treasury yields could cause a COVID-like blowup, leading to a widespread selling of all assets, including bitcoin, to obtain cash.

On Friday, the MOVE index, which represents the options-based implied or expected 30-day volatility in the U.S. Treasury market, jumped 12% to 125.70, the highest since Nov. 4, according to data source TradingView.

The gravity of the situation is underscored by a recent Brookings Institution paper, which advises the Federal Reserve to consider targeted interventions in the U.S. Treasury market, specifically supporting hedge funds engaged in basis trading during times of severe market stress.

Let’s see how things unfold in the week ahead.

Staff at the U.S. Securities and Exchange Commission (SEC) are reviewing past crypto-related guidance to determine whether it still reflects the agency’s current priorities, according to a statement from acting chairman Mark Uyeda, posted on social media platform X.

Among several key documents, the SEC staff’s statement on funds registered under the Investment Company Act Investing in the bitcoin futures market is under review, according to the X post. Other documents include digital assets “investment contracts,” and custody frameworks. The reviews could result in more clarification for regulatory frameworks around the digital assets sector.

The request from Uyeda is related to Executive Order 14192, Unleashing Prosperity Through Deregulation and comes after a recommendation from Elon Musk’s D.O.G.E.

It is worth noting that the statement is coming from SEC staff and not from Commissioner Hester Peirce, making it less binding. However, it still shows the SEC’s willingness to ease pressure on the digital assets sector since the agency was taken over by President Donald Trump-appointed leadership.

The move is part of interim Chairman Mark Uyeda’s efforts to overhaul the regulator’s crypto position. That includes throwing out most of the prominent enforcement cases the agency had pursued against digital asset businesses.

Read more: U.S. SEC Staff Clarifies That Some Crypto Stablecoins Aren’t Securities

Bitcoin could be headed for its most sweeping cryptographic overhaul yet if a new proposal gains traction.

A draft Bitcoin Improvement Proposal (BIP) titled Quantum-Resistant Address Migration Protocol (QRAMP) has been introduced by developer Agustin Cruz. It outlines a plan to enforce a network-wide migration of BTC from legacy wallets to ones secured by post-quantum cryptography.

Quantum computing involves moving away from a process reliant on binary code, ones and zeros, and exponentially increasing computing power by employing Quantum bits (qubits) that exist in multiple states simultaneously. Such a jump in power is expected to threaten modern computing encryption built by classic machines.

The proposal suggests that after a predetermined block height, nodes running the updated software would reject any transaction trying to spend coins from an address using ECDSA cryptography, which could theoretically make it vulnerable to quantum attacks.

A hard fork debate

Bitcoin currently relies on algorithms, including SHA-256 for mining and the Elliptic Curve Digital Signature Algorithm (ECDSA) for signatures. Per Cruz, legacy addresses that haven’t yet transacted are protected by additional layers, while those that have exposed their public keys—necessary to conduct transactions—may now be vulnerable “if sufficiently powerful quantum computers emerge.”

The move would require a hard fork, which is likely going to be a tall ask from the community. A hard fork refers to a change to a blockchain that renders an older version incompatible.

“I admire the effort but this will still leave everyone who doesn’t migrate’s coins vunerable, including Satoshi’s coins,” said one Reddit user about the new proposal.

“Bitcoin could implement a post quantum security for all coins but that would need a hard fork, which due to bitcoin’s history and the mantra repeated by maxis that would create a new coin and would not be bitcoin anymore.”

Read more: The Blocksize Wars Revisited: How Bitcoin’s Civil War Still Resonates Today

Preventive measure

The proposed solution sets a migration deadline to lock those funds unless they’re moved to a more secure wallet. This proposal isn’t a response to any imminent breakthrough in quantum computing. Instead, it’s a preventive measure, yet it comes a little over a month after Microsoft unveiled Majorana 1, a quantum processing unit designed to scale to a million qubits per chip.

During a migration window, users would still be able to move funds freely. The BIP calls for wallet developers, block explorers and “other infrastructure” to build tools and warnings to help users comply.

After the deadline, non-upgraded nodes could fork from the network if they continue accepting legacy transactions.

This is not the first time someone has suggested a mechanism to defend Bitcoin from quantum computing threats. Most recently, BTQ, a startup working to build blockchain technology that can withstand attacks from quantum computers, has proposed an alternative to the Proof of Work (PoW) algorithm involving quantum technology.

In its research paper, BTQ proposed a method called Coarse-Grained Boson Sampling (CGBS). This process uses light particles (bosons) to generate unique patterns—samples—that reflect the blockchain’s current state instead of hash-based mathematical puzzles.

However, this proposal would also require a hard fork involving miners and nodes replacing their existing ASIC-based hardware with quantum-ready infrastructure.

Read more: Quantum Startup BTQ Proposes More Energy Efficient Alternative to Crypto’s Proof of Work

PayPal has added chainlink (LINK) and solana (SOL) to its growing list of supported cryptocurrencies, giving users of both PayPal and Venmo the ability to buy, hold, sell and transfer the tokens directly from their accounts.

The move reflects the payments giant’s continued push into the cryptocurrency space after first launching crypto support in 2020. The new tokens will roll out to U.S. users over the next few weeks.

“Offering more tokens on PayPal and Venmo provides users with greater flexibility, choice, and access to digital currencies,” said May Zabaneh, PayPal’s Vice President of Blockchain, Crypto, and Digital Currencies, in a press release.

The company, which has also launched its own U.S. dollar-backed stablecoin, has last year moved to allow its business clients access crypto directly form their accounts in the U.S.

President Donald Trump’s reciprocal tariff unveiling had led to a $5.4 trillion U.S. equities market wipeout in just two days as the S&P 500 index dropped to its lowest level in 11 months and the Nasdaq 100 entered bear market territory.

Yet, amidst the chaos, cryptocurrency prices are showing resiliency, with bitcoin (BTC) dropping roughly 6% since the tariffs were unveiled, compared to the Nasdaq’s 11% drop. The broader crypto market, as measured by the CoinDesk 20 (CD20) index, dropped by roughly 4.9% over the same period.

To put the sell-off figures into perspective, the total crypto market cap is around $2.65 trillion, according to data from TheTie. In the last 24-hour period, bitcoin dropped 0.3% to $82,619.77, while the broader CD20 went up by roughly 0.2%. At the market close on Friday, most crypto-related stocks fell as well, but some actually moved up.

Bitcoin miner MARA Holdings (MARA) rose 0.6%, while Core Scientific (CORZ) saw a 0.4% upward move. Strategy (MSTR), the largest corporate holder of bitcoin with 528,185 BTC on its balance sheet, rose 4%. It significantly outperformed the Nasdaq on Friday, which plunged 5.8%.

Cryptocurrency prices are likely to remain resilient. Given their accessibility through traditional investment products, including exchange-traded funds (ETFs), and their performance, they could be “useful as a TradFi hedge,” according to Standard Chartered’s Geoffrey Kendrick.

“Over the last 36 hours I think we can also add ‘US isolation’ hedge to the list of bitcoin uses,” Kendrick wrote in an email dated April 4, adding in a chart showing that among the Magnificent 7 stocks, only Microsoft outperformed BTC during the sell-off.

The resilience is also coming as the crypto community celebrated the purported birthday of bitcoin creator Satoshi Nakamoto. The date is based on the bitcoin creator’s profile with the P2P Foundation.

The date, some speculate, isn’t real but instead symbolic. It coincides with the anniversary of Executive Order 6102, signed by President Franklin D. Roosevelt on April 5, 1933. The order required Americans to turn in their gold to the Federal Reserve.

Read more: Bitcoin Begins to Decouple From Nasdaq as U.S. Stocks Crumble

Last month, the U.S. Treasury Department’s Office of Foreign Asset Control delisted Tornado Cash from its sanctions list, months after an appeals court ruled that the watchdog could not designate the mixer’s smart contracts.

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Fair winds

The narrative

In November 2024, a Fifth Circuit Court of Appeals panel ruled that the Treasury Department’s Office of Foreign Assets Control (OFAC) couldn’t sanction smart contracts tied to crypto mixer Tornado Cash. Last month, OFAC delisted Tornado Cash entirely, though it left developer Roman Semenov on its Specially Designated Nationals list.

Why it matters

Whether Tornado Cash could be sanctioned to begin with has been a point of contention for the crypto industry. The Fifth Circuit ruling sparked a rally in the TORN token’s price and raised hopes that it would be more difficult for the U.S. government to block legal uses of mixers.

Breaking it down

Tornado Cash’s delisting included smart contract addresses and other components of the overall mixer, and followed November’s ruling. The delisting may have been an effort to preempt a court ruling that would force OFAC to permanently delist Tornado Cash.

Backing up a little: A group of developers sued OFAC after Tornado Cash was first sanctioned with backing from crypto exchange Coinbase. That case, Van Loon v. Treasury, received an initial ruling from a district court judge that was favorable to the Treasury Department. On appeal, however, the Fifth Circuit ruled — somewhat narrowly — that smart contracts were outside the scope of OFAC’s jurisdiction. The appeals court panel threw the case back down to the district court to sort out next steps.

On March 21, the same day it removed Tornado Cash from its sanctions list, OFAC filed a notice telling the court that the removal meant the legal case remedies cot “the matter is now moot.”

Peter Van Valkenburgh, the executive director at Coin Center, said the November decision left OFAC with few options.

“They could have waited for the court to invalidate the sanctions or they could have delisted them themselves, and they delisted themselves,” he said. “You can read that two ways. You can read that as ‘I want to try and preserve some ability to fight in the future or [make] some other listing,’ [and] that’s really tough because that Fifth Circuit opinion is really bad for them.”

The other read for the delisting is OFAC just wanted the matter resolved quickly, he said.

Leah Moushey, an attorney with Miller & Chevalier, said the court may choose to reject OFAC’s filing because there’s an open question as to whether Tornado Cash can be redesignated in the future. She pointed to a Supreme Court case with thematic similarities.

The court said in that case, FBI v. Fikre, that the U.S. government had not sufficiently proven that just removing an individual from a no-fly list meant he would never be placed back on the list.

OFAC may have to show in this case that Tornado Cash can’t be designated again.

Another open question for Tornado Cash is whether the delisting has any bearing on the U.S. Department of Justice’s criminal case against developer Roman Storm. After the Fifth Circuit ruling, Storm’s attorneys filed a motion asking the judge overseeing the criminal case to dismiss the indictment, but the judge has already ruled that the case should move forward.

“The judge determined that the scope of the conduct went beyond the interactions with the smart contract,” Moushey said. The Fifth Circuit ruling did not discuss Tornado Cash as an entity.

Van Valkenburgh noted that OFAC left its sanctions against Semenov in place, and the DOJ will continue to try and argue Storm conspired to violate sanctions.

The Storm case is currently set for trial in July.

Stories you may have missed

Illinois to Drop Staking Lawsuit Against Coinbase: Illinois has become the latest state to announce it would drop its lawsuit against Coinbase, joining Kentucky, Vermont and South Carolina. New Jersey and Washington regulators say their investigations remain open.

Tron’s Justin Sun Bailed Out TUSD as Stablecoin’s $456M Reserves Were Stuck in Limbo, Filings Show: Justin Sun loaned Techteryx nearly $500 million after the company lost access to its reserves’ liquidity through what Sun and Techteryx allege are mismanagement by First Digital Trust, the Hong Kong-based fiduciary managing the TrueUSD reserves, legal documents claim.

First Digital to ‘Pursue Legal Action’ Over Justin Sun Allegations as FDUSD Drops: First Digital threatened a lawsuit against Justin Sun, saying his allegations that it was “effectively insolvent” was a “smear campaign.”

U.S. SEC Staff Clarifies That Some Crypto Stablecoins Aren’t Securities: The SEC’s latest staff statement addresses stablecoins, with the usual caveats about it being a staff statement and not commissioner guidance.

Stablecoin Giant Circle Files for IPO After $1.7B Stablecoin Reserve Windfall: Stablecoin issuer Circle filed to go public.

Circle’s IPO Filing Tests Crypto Market Confidence After Trump’s Tariff Shock: A number of companies looked set to go public before the entire stock market tanked this week. Circle was on that list.

This week

Wednesday

14:00 UTC (10:00 a.m. ET) The House Financial Services Committee held a markup on the STABLE Act, Financial Technology Protection Act and the CBDC Anti-Surveillance State Act, ultimately passing all three bills — after a daylong session addressing some 40 different proposed amendments.

Thursday

14:00 UTC (10:00 a.m. ET) The Senate Banking Committee voted to advance the nominations of Securities and Exchange Commission Chair Paul Atkins and Comptroller Jonathan Gould.

Elsewhere:

(404 Media) T-Mobile offers a GPS tracker for parents to keep tabs on their children. Last week, 404 Media reports, some parents found they were unable to track their own kids but did receive the location data for other kids.

(The New York Times) The Times reported on a Ponzi scheme that used crypto promises to sucker a large number of people in an Argentinian town. These kinds of scams are very common.

(The Atlantic) The Trump administration said in a court filing it had sent an individual with protected legal status to an El Salvador prison camp without holding a hearing through an “administrative error.” A federal judge ordered the administration to bring him back to the U.S. on Friday. White House Press Secretary Karoline Leavitt responded with a statement saying “we are unaware of the judge having jurisdiction or authority over the country of El Salvador.”

(The Wall Street Journal) New Jersey Democrat Cory Booker broke the U.S. Senate record for longest floor speech after giving a marathon 25-hour address in protest of President Donald Trump’s policies.

(The New York Times) Donald Trump unveiled a whole set of tariffs on countries around the world, saying they were reciprocal against tariffs imposed by the U.S.’s trading partners. “The markets are going to boom,” Trump said in remarks.

(Yahoo! Finance) The markets “cratered on Friday,” following an equally rough Thursday.

(Wired) Among the countries and places tariffed by the U.S. is the Heard and McDonald Islands, which is uninhabited by humans and does not export goods.

(ABC News) The White House said its tariff rate against individual countries was half of those countries’ tariff rates against the U.S. Economists say the actual calculations were done by dividing a country’s trade deficit by its import value, then divided in half, ABC News reported.

(Reuters) The other effect of the renewed tariffs appears to be rising recession odds, according to a J.P. Morgan note shared by Reuters.

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Bluesky @nikhileshde.bsky.social.

You can also join the group conversation on Telegram.

See ya’ll next week!

The U.S. Securities and Exchange Commission has no business with certain stablecoins or their issuers, the regulator’s staff declared in the latest statement outlining the corners of the crypto sector for which it doesn’t have a legal interest.

Since the agency was taken over by President Donald Trump-appointed leadership and formed a Crypto Task Force to ease pressures on the digital assets space, its staff has issued a series of statements meant to clarify the crypto areas outside its jurisdiction — so far including memecoins and proof-of-work crypto mining. It’s now added stablecoins to that list. The SEC’s Division of Corporation Finance issued the Friday statement — not yet a binding rule, or even formal guidance — to declare stablecoins “do not involve the offer and sale of securities.”

“Persons involved in the process of ‘minting’ (or creating) and redeeming Covered Stablecoins do not need to register those transactions with the Commission under the Securities Act or fall within one of the Securities Act’s exemptions from registration,” according to the statement.

It went on to clarify that such stablecoins — an arena dominated by Tether’s USDT and Circle’s USDC — “are marketed solely for use in commerce, as a means of making payments, transmitting money, and/or storing value, and not as investments.”

Congress has been moving forward on establishing a new set of U.S. standards for the issuance of such tokens. This week, the House Financial Services Committee advanced a stablecoin bill toward a vote of the overall House of Representatives. The Senate is building toward consideration of a similar bill that’s also been approved by committee there — in both cases by a wide, bipartisan vote.

While they’re the most sedate of crypto assets, stablecoins have been a colorful political topic in recent weeks, as the Trump-backed World Liberty Financial pitched its own stablecoin, and some congressional Democrats are concerned that Elon Musk will leverage his status as a tech giant to follow suit.

SEC Commissioner Hester Peirce, who is leading the agency’s task force, has said she feels the early, nonbinding moves to reverse crypto resistance at the SEC are important and should be done as rapidly as possible, even if they’re not yet official policy. She’s said non-fungible tokens (NFTS) may also be considered for such a statement. Read More: SEC ‘Earnest’ About Finding Workable Crypto Policy, Commissioners Say at Roundtable

The SEC is set to have its second in a series of crypto summits next week. This one is set to focus on trading.

The agency may also soon be taken over by Trump’s pick for a permanent chairman if Paul Atkins is confirmed by the Senate. The Senate Banking Committee approved his nomination in a party-line vote this week.

Even before his arrival, interim Chairman Mark Uyeda has made dramatic moves to overhaul the regulator’s crypto position. That’s included throwing out most of the prominent enforcement cases the agency had pursued against digital assets businesses, though a few remain.

After U.S. President Donald Trump’s reelection in November, optimism surged among crypto companies eyeing the public markets. Trump floated big promises: clearer rules for the industry and ambitions to make America the crypto capital of the world.

For a moment, it looked like the floodgates might open. IPO pipelines buzzed with activity. Founders dreamed of ringing the opening bell. But beneath the surface, storm clouds were gathering. A bull market is the lifeblood of successful listings, and few foresaw just how rocky the road ahead would become.

Circle didn’t wait for perfect conditions. After years of false starts and regulatory hangups, the stablecoin issuer finally filed its S-1 with the U.S. Securities and Exchange Commission (SEC) on Tuesday, taking a long-delayed step toward becoming a publicly traded company.

The filing landed with a mix of energy and doubt. Some in the industry saw it as a bullish signal—another crypto heavyweight inching closer to the public markets. Others questioned the timing. Markets remain shaky, and Circle’s path to a successful debut is far from guaranteed.

“I believe Circle will be able to price their IPO and raise capital, however it isn’t going to be easy,” said David Pakman, managing partner and head of venture investments at CoinFund. “Generally, companies going public would like to debut during strong equity markets.”

Equities have been in a free fall since Trump announced so-called reciprocal tariffs on about 90 U.S. trade partners, including China and the European Union, deepening fears of a global recession. Both the S&P 500 and the Nasdaq have dipped 11% and 17% year-to-date, respectively, marking one of the worst quarters in recent years.

As a result, cloud computing firm CloudWeave, which went public last month, saw a disappointing debut, even though the stock rebounded on the second day of trading as investor demand for artificial intelligence companies appears to be stronger than short-term anxiety in markets. Payments app Klarna said it paused its IPO plan earlier today.

But Circle doesn’t just face broader market jitters as a potential threat to its IPO. Analysts have pointed out the company’s financials, which could make it difficult to attract investors.

“While I personally have tremendous respect and appreciation for Circle and their leadership, their financials show the challenges they have faced with growth and the high cost of their distribution partnerships,” Pakman, who noted that he still believes long-term value of the company, said.

Circle’s IPO filing revealed shrinking gross margins and high spending, which comes at a time when clearer stablecoin regulation could bring increased competition to the market.

“Circle is currently being priced like a traditional crypto business — cyclical, interest rate-dependent, and not diversified enough. If Circle can evolve to look more like a payments network with high margins and strong moats, its valuation might reflect that,” Lorenzo Valente, a crypto analyst at ARK Invest, wrote in a post on X.

Many aspects about the company’s structure seem to be in question, including how its revenue-sharing agreement will evolve, as well as the growth of Base, the blockchain created by Coinbase that uses Circle’s USDC, according to Valente.

“One precaution Circle has taken is a lower valuation. But, still hurdles remain as the rollout and implementation of digital rails in the banking system will take time,” said Mark Connors, chief investment strategist at Risk Dimensions, a New York-based Bitcoin investment advisory.

Circle’s rumored valuation of $4 billion to $6 billion, roughly 13 to 20 times its adjusted EBITDA, is in line with Coinbase and Block, and “not necessarily cheap, especially considering its recent drop in profitability,” Valente said.

“We do like the prospect for the growth in US-backed stablecoins based on the growing commercial use, shift in U.S. the regulatory and legislative (GENIUS Act) winds and the U.S. Treasury’s incentive to find new buyers of its growing stack of U.S. T-Bills,” according to Connors.

Over $6 trillion of Treasury bills will be rolled over this year, with additional issuance likely to fund the still-growing U.S. deficit.

Despite market uncertainty about the remaining year, several other crypto natives are looking to fulfill their IPO dreams, including Kraken, Gemini, Blockchain.com, Bullish (the parent company of CoinDesk) and BitGo. Even more crypto firms are rumored to be in talks to go public as well.

However, others will likely put their IPO plans on hold as they wait for regulatory clarity and better market conditions. Analysts at crypto M&A advisory firm Architect Partners expect the majority of IPOs to be filed in the second half of 2025 after written regulations and policies are clearly completed.

When Ethereum’s hottest startup of last year, EigenLayer, launched a year ago to massive expectations — many community members were quick to criticize that it was lacking a critical feature.

An announcement from the project on Wednesday said that the feature — slashing — is finally set to arrive on April 17. The introduction of slashing will mark the first “feature complete” version of the protocol.

EigenLayer pioneered the concept of restaking, a way for Ethereum users to secure additional protocols beyond the base layer by recommitting their staked Ether. Slashing was supposed to be a core part of this system, providing apps a way to punish bad actors by seizing a portion of their capital.

The implementation of slashing will allow Actively Validated Services (AVSs) — apps built atop EigenLayer’s restaking system — to set custom conditions penalizing operators who fail to meet pre-established conditions and rewarding those who do.

“This is a major step forward in the EigenLayer protocol because it allows for a free marketplace where Operators can earn rewards for their work and AVSs can launch verifiable services,” EigenLayer said in a blog post.

EigenLayer attracted more than $15 billion to the platform within a year and generated massive hype for the EIGEN token, which launched in October.

EigenLayer’s ecosystem has been expanding, with “100+” AVSs in development, according to its website. Notable services include EigenDA, a data availability service operated by Eigen Labs, and ARPA Network, which specializes in trustless randomization.

While EigenLayer pioneered restaking, the lack of slashing left room for competitors to gain market share. Symbiotic, which allows for the restaking of any asset, has been used by EigenLayer early adopters including Hyperlane, an interoperability framework, and Ethena, a popular synthetic dollar protocol.

Read more: EigenLayer, Crypto’s Biggest Project Launch This Year, Is Still Missing Crucial Functionality