Hi all, happy Wednesday! Crypto markets were mixed overnight as strength rotated into the Ethereum ecosystem and lending names, while AI and perps continued to cool off.

Today, we examine whether Zcash is solving the two biggest obstacles facing private cryptocurrencies: proving monetary soundness and scaling private transactions without sacrificing security.

Let’s get into it.

The same AI pullback that has been prevalent in global equities is also happening onchain. The AI sector was the worst-performing sector over the last 24 hours (-4.9%) as concerns surrounding the moat and margins of frontier models continue to rise.

However, most of the decline came from DEXE, which declined over 82%. For context, DEXE recently experienced a massive run-up, hitting an all-time high of $48.89 on July 13. This rally was primarily fueled by an exchange listing on July 9 and a subsequent short squeeze, rather than long-term fundamentals. When the buying momentum dried up in a thin market, the price was left highly vulnerable to a sharp reversal. 

Perps also disappointed (-2.7%), with HYPE leading the downward charge, falling -6.4%. Given that these have been two of the best-performing sectors YTD, pullbacks like these aren’t unexpected.

Adding to HYPE's specific weakness is the recent onchain activity from Multicoin Capital. Data reveals that the venture firm initiated a massive unstaking of 1.96 million HYPE tokens valued at approximately $120 million (spread across multiple wallets). With portions of their holdings already being deposited into exchanges like Coinbase Prime for apparent profit-taking, and Hyperliquid's standard 7-day unstaking queue delaying immediate liquidity, the market is likely pricing in the anticipation of this impending sell pressure.

The best-performing sectors were the Ethereum Ecosystem and Lending, as both printed 6% gains in the last 24 hours. 

Within the Ethereum Ecosystem index, AAVE showed the largest gains at 6.4% with ENA at 4.7%, MORPHO at 3.5% and SKY at 2.3%. Three of the top four assets were lending-focused, which explains the strong performance from that sector as well. Meanwhile, eight out of the ten Ethereum Eco tokens showed positive returns, with the last two both declining by less than -0.5%. Zooming out, it’s worth noting that ETH itself is up close to 25% on the month, which helps higher-beta tokens in its ecosystem.

Overall, most sectors finished in the green, highlighting broad-based growth.

— Marc

Zcash: Zakura & Ironwood

Zcash has always had one of the most compelling visions in crypto as it aims to create digital money that combines Bitcoin’s scarcity with the privacy of physical cash.

However, building private money introduces a challenge that transparent cryptocurrencies do not face. Users must be able to verify that the monetary supply remains sound even when transaction details are hidden.

On transparent blockchains, every transaction is publicly visible, making it relatively straightforward to verify that no unauthorized inflation has occurred. In shielded systems, transaction details are intentionally hidden, creating a more difficult problem. How can users independently verify that no one has secretly created additional coins?

In late May, a vulnerability was discovered that could have allowed hidden inflation in Zcash’s Orchard Pool. While developers believe it is unlikely that the vulnerability was exploited, Orchard’s privacy guarantees meant users could not independently verify whether unauthorized coins had been created.

As a result, confidence in Zcash's shielded pool has deteriorated, leading to meaningful outflows. In the week before the vulnerability was disclosed, approximately 5.15 million ZEC was shielded. That figure has since declined 15% to 4.39 million ZEC. These outflows have consequences beyond capital leaving the shielded pool. Zcash's privacy guarantees become stronger as more users participate in the same anonymity set, meaning a shrinking shielded pool also weakens the privacy users receive. This incident highlighted one of the fundamental tradeoffs facing privacy-preserving cryptocurrencies. The same technology that protects user privacy can make it more difficult to verify monetary soundness. 

Zcash is now attempting to solve this problem while simultaneously addressing another major limitation of private cryptocurrencies, scalability. Earlier this month, Zcash unveiled Zakura, a new node architecture developed by Tachyon and Valar that lays the foundation for scaling private transactions to 50,000 transactions per second. The initial release introduces a faster, more efficient node while serving as the integration point for future cryptographic and networking improvements.

Zakura's throughput improvements are only part of the story. Alongside the new node architecture, Tachyon and Valar have also focused heavily on formal verification and eliminating potential sources of hidden inflation that have historically represented one of the biggest risks facing shielded monetary systems.

This work culminates in Ironwood, a major upgrade designed to strengthen Zcash’s monetary guarantees. By introducing stronger supply accounting mechanisms during the transition from Orchard, Ironwood aims to allow users to verify the integrity of Zcash’s supply without relying solely on external assurances.

Together, Ironwood and Zakura address two of the biggest obstacles facing private cryptocurrencies. Ironwood strengthens Zcash’s monetary guarantees, while Zakura lays the foundation for scaling private transactions to mainstream levels. If both efforts succeed, Zcash will have removed two of the main barriers that have kept private money from broader adoption.

The market appears to be taking notice as well. After falling to $362 post-disclosure, ZEC has since rallied 42% to $513. Whether that recovery continues will ultimately depend on execution. Zakura and Ironwood are ambitious technical upgrades, but they also represent an opportunity for Zcash to restore confidence after one of the most challenging episodes in its history. If the upgrades deliver as promised, they will not just strengthen Zcash’s technical foundation; they could also restore investor confidence in its long-term vision.

— AJC

Morpho Midnight & New Markets App

Morpho has officially launched Morpho Midnight, a new noncustodial protocol for fixed-rate, fixed-term onchain credit, alongside a dedicated Markets App. Designed to complement its existing variable-rate product, Morpho Blue, Midnight provides institutions, fintechs, and everyday users with the exact predictability and control over risk, rates, and maturities that variable pools lack.

By building fixed rates as a foundational primitive rather than layering them over variable pools, Morpho aims to overcome past scaling issues and bridge the gap to traditional finance. To prioritize security, the protocol is rolling out gradually, starting exclusively on the Base network with a cbBTC/USDC pair and limited maturities before expanding to broader markets.

Galaxy Launches Bitcoin Quantum Readiness Initiative

Galaxy has launched the Bitcoin Quantum Readiness Initiative, a comprehensive program designed to proactively protect Bitcoin’s cryptographic foundations from the future threat of quantum computing. To bridge the gap between fast-moving quantum advancements and Bitcoin’s deliberate development pace, the initiative features a $5 million grant program to fund developers working on post-quantum cryptographic solutions.

Additionally, Galaxy has established a dedicated research and publishing arm to educate stakeholders, alongside a Quantum Advisory Council of leading academic experts to guide the firm's efforts. By taking these practical steps to fortify Bitcoin's underlying elliptic curve cryptography before cryptographically relevant quantum computers are built, Galaxy aims to secure the network for the long term while inviting the broader industry to collaborate on the effort.