🛡️ Rethinking White-Hat Incentives
🗞️ A Different Kind of Dollar
💰 Yield Recap
📈 Weekly Market Review

This week, I spent some time rethinking how the industry approaches security.

Liquid gave us a useful case study. Roughly 4,000 BTC moved through an exploit, most was eventually returned, and the actors asked to keep a portion as a bounty. It raises a difficult question for the industry. If a vulnerability puts hundreds of millions at risk, are our incentives for responsible disclosure designed for that reality?

Looking for other frameworks being rethought led me to a new Springer Nature paper on stablecoins as private money. The paper asks a similarly fundamental question about digital dollars, including who should earn on the assets backing them and what holders should receive in return.

Both left me thinking about the same thing. Evolving financial systems need rules and incentives designed for how they work, not inherited assumptions from what came before.

Crypto security had another difficult week.

Roughly 4,000 BTC was withdrawn from Liquid’s federation wallet after an exploit in its peg-out path.

The actors claimed to be white hats and communicated with Blockstream through on-chain messages. After the affected nodes were patched, they returned 3,400 BTC, about 85% of the funds, while retaining roughly 598.5 BTC and later demanding a 10% bug bounty from Blockstream.

The incident exposes an uncomfortable incentive problem.

If a researcher discovers a flaw that puts hundreds of millions of dollars at risk, the value of that discovery can dwarf a conventional bounty. Security programs need to account for that before funds move.

A stronger model would make responsible disclosure the most attractive option from the start. That means clear bounty terms, rapid escalation channels, independent review, and predefined rewards that scale with the severity and funds at risk.

AI makes the timing more urgent. There is no public evidence it played a role in the Liquid exploit, but AI is making code review, edge-case testing, and vulnerability discovery cheaper and faster. More people and more machines will be searching for weaknesses.

The industry should formalize these incentives before the next critical flaw is found.

Hermetica’s security reports continue to go through Immunefi, with rewards up to $100,000 for eligible vulnerabilities. We continue to review how that process can evolve as the threat landscape changes.

Stablecoins are redefining the dollar. 

A peer-reviewed academic study published by Springer Nature argues that stablecoins should increasingly be understood as private money rather than simply crypto assets. At scale, the authors argue, policymakers have to think about reserves, redemption, interoperability, financial stability, and even whether stablecoins should be allowed to pay holders.

That last question is especially interesting.

For most of modern banking, money and yield live in separate products. Cash is for spending. Savings accounts and money-market funds are where capital earns. Stablecoins can compress that distance by making it easier to move directly from a digital dollar into yield without leaving the same financial system. 

USDh is one version of that idea. It is a dollar that can be staked to earn from BTC basis and Bitcoin-backed credit. You move from dollar exposure to yield inside the same on-chain system rather than into a separate banking or brokerage product. 

The bigger story is not any one stablecoin. As private digital money grows, competition may increasingly move beyond who maintains the best peg to questions of what backs the money, who earns on those assets, how transparent the system is, and what holders receive in return.

The paper offers a useful framework for thinking about where that debate goes next.

7 days passed.

Here’s evidence Hermetica made them productive for your assets.

hBTC: 1.0%
USDh: 8.0%

Bitcoin pulled back after last week’s test of the $81,800 to the high $77,000s. BTC is now below the 7-day SMA near $78,974 and still below the 360-day SMA near $81,150; price has not cleared the next resistance zone. The pullback has not broken the higher-level recovery because BTC remains above the 30-day SMA near $74,607, the 180-day SMA near $70,154, and the 200-week SMA near $65,184.

The key dynamic this week is supply absorption. Short-term holders have transferred 549.3K BTC to exchanges since August 19, realizing profits into the move. Buyers absorbed much of that pressure, but BTC has not yet pushed through the main resistance zone. A move back above $79,000 would show demand is strong enough to absorb profit-taking near current levels, while a break above $81,800 would be stronger evidence that the recovery is turning into a broader trend reversal. Until then, BTC is consolidating after the breakout, with Total3 also cooling near $772B and Bitcoin dominance falling to 59.5%.

Data Summary:

Simple Moving Averages (SMAs) in Figure 1:

Bitcoin is now trading below the 7-day SMA near $78,974. Near-term support sits around $74,500-$75,000, where the 30-day SMA is near $74,607. Below that, the more important support zone is $70,000-$71,000, near the 180-day SMA at $70,154. Holding that zone would keep BTC above the medium-term trend level it reclaimed during the breakout. Resistance is now $79,000 first, followed by the $81,000-$82,000 zone, where the 360-day SMA near $81,150 and the recent local high near $81,800 are clustered.

Net outflows totaled $449.44M this week.

Spot Bitcoin ETF flows turned negative on a weekly basis after last week’s $986.85M of net inflows. Cumulative spot Bitcoin ETF net inflows now stand at $55.17B, while total spot Bitcoin ETF net assets sit at $97.49B. September remains positive at $320.71M month-to-date, but demand has cooled sharply since the $730.87M inflow on September 3 and last week’s strong close. ETF demand is still positive for the month, but this week’s flow data has shifted from supportive to a near-term headwind.

DVOL rose to 39.59% from 38.95% last week, but the move remains contained. The index traded between roughly 39.02% and 41.26% in the latest session, staying above the compressed early-August range but well below the volatility spikes seen earlier this year.

BTC has pulled back from the $81,800 local high, but implied volatility has not expanded aggressively. Options markets are pricing a slower market after the breakout rather than a disorderly selloff. Traders are no longer treating the move as one-way upside, but they are also not paying a large premium for downside protection.

The equal-weighted basis across observed maturities rose to 4.33% APR from 3.41% last week. The curve remains positive across all visible maturities; March 26, 2027 is the curve high at 4.80%, while September 25 is the curve low at 3.37%, leaving a low-to-high spread of 1.43 percentage points.

Short-dated carry recovered from last week’s depressed levels. September 18 sits at 4.50%, September 25 at 3.37%, and October 2 at 3.79%. Farther out, the curve rises into October 30 at 4.46%, November 27 at 4.65%, December 25 at 4.77%, and March 26, 2027 at 4.80%. Carry is positive across the curve again, with the back end stable in the mid-to-high 4% range.

Markets are no longer just pricing the Fed. They are pricing a wider inflation stack. The FOMC did not meet this week and is now in blackout ahead of the Sept. 15-16 meeting, leaving markets to trade the data. August CPI is the last major input before the decision, and the setup became harder after PPI rose 0.4% month over month and 5.4% year over year. Energy was the main pressure point, with processed energy goods up 7.3%, diesel fuel up 24.1%, Brent briefly above $107-$108, WTI above $102, and gasoline near $4.27-$4.28 per gallon.

The long end also pushed back against the idea that Treasury buybacks can fully contain rate stress. A weak $22B 30-year auction and a buyback operation that accepted about $5.2B against a $6B target left the 10-year near 4.96% and the 30-year near 5.36%. AI added another layer of demand pressure. Oracle reported $19.3B of revenue, cloud infrastructure revenue up 121%, $664B of remaining performance obligations, and 850MW of added data-center capacity. AI is now pulling on power, uranium, copper, construction, financing, and local infrastructure, not just tech equity multiples.

BTC is being pulled into the same hard-asset conversation as gold, copper, and uranium as markets price energy shocks, long-end yields, fiscal stress, and real-asset supply constraints. ETF demand still helps, but flows cooled this week and short-term holders are realizing profits into the move.

Sincerely,
The Hermetica Team