Welcome to The Protocol, CoinDesk's weekly wrap of the most important stories in cryptocurrency tech development. I’m Margaux Nijkerk, a reporter at CoinDesk.

In this issue:

• Bitcoin Mining Faces 'Incredibly Difficult' Market as Power Becomes the Real Currency
• Bitcoin Liquid Staking Gains Momentum as Lombard Launches BARD Token and Foundation
• Optimism Taps Flashbots to Supercharge OP Stack Sequencing
• Hemi Labs Raises $15M to Expand Bitcoin Programmability

Network News

BITCOIN MINING PLAYERS FACE CHALLENGING MARKET: Bitcoin miners have long been defined by the boom-and-bust rhythm of the four-year halving cycle. But the game has now changed, some of the industry’s most prominent executives said at the SALT conference in Jackson Hole earlier this week. The rise of exchange-traded funds, surging demand for power and the prospect of artificial intelligence (AI) reshaping infrastructure needs mean miners must find ways to diversify or risk being left behind. “We used to come here and talk about hash rate,” said Matt Schultz, CEO of Cleanspark. “Now we’re talking about how to monetize megawatts.” For years, mining companies — whose revenue derived mainly from producing bitcoin — lived and died by the halving cycle. Every four years, rewards were slashed in half and miners scrambled to cut costs or scale up to survive. According to these executives, that rhythm no longer defines the business. “The four-year cycle is effectively broken with the maturation of bitcoin as a strategic asset, with the ETF and now the strategic treasury and whatnot,” Schultz said. “The adoption is driving demand. If you read anything about the most recent ETF, they've consumed infinitely more bitcoin than have been generated so far this year.” Cleanspark, which now operates 800 megawatts of energy infrastructure and has another 1.2 gigawatts in development, has begun turning its attention beyond proof-of-work. “Our speed to market with the electricity has created opportunities such that now we can look at ways to monetize power beyond just bitcoin mining,” he said. “With 33 locations, we now have a great deal more flexibility than we ever did before.” Schultz is not alone in calling the industry's shift in business model. Patrick Fleury, CFO of Terawulf, echoed the sentiment and didn’t sugarcoat the profit squeeze the miners are feeling. “Bitcoin mining is an incredibly difficult business,” he said. He broke down the economics of bitcoin mining in straightforward terms: with electricity costing five cents per kilowatt hour, it currently costs around $60,000 to mine a single bitcoin. At a bitcoin price of $115,000, that means half the revenue is consumed by power alone. Once corporate expenses and other operating costs are factored in, the margins tighten quickly. In his view, profitability in mining hinges almost entirely on securing ultra-low-cost power. — Helene Braun Read more.

BITCOIN LIQUID STAKING RISES: For most of its history, bitcoin has been touted by its supporters as digital gold: an asset to hold rather than use. That passivity has left trillions of dollars’ worth of BTC sitting idle in wallets, disconnected from the yield strategies and composability that define decentralized finance (DeFi). The rise of liquid staking tokens promises to change that, positioning bitcoin not only as a store of value but as a productive asset integrated into on-chain capital markets. Liquid staking allows users to offer their crypto to help secure a network and receive in return a liquid, tradable token that represents the staked assets and can be used across DeFi while the original tokens continue earning staking rewards. Lombard Finance has emerged as one of the prominent projects in bitcoin liquid staking. Its flagship product, LBTC, is a yield-bearing token backed 1:1 by BTC. When BTC is deposited into the Lombard protocol, the underlying coins are staked, primarily via Babylon, a protocol enabling trustless, self-custodial bitcoin staking. Users receive LBTC in return, which can be deployed across DeFi ecosystems while the original bitcoin earns staking rewards. This dual functionality is key. Holders can keep exposure to bitcoin while using LBTC in lending, borrowing and liquidity provision across protocols such as Aave, Morpho, Pendle and Ether.fi. Designed for interoperability, LBTC moves across Ethereum, Base, BNB Chain and other networks, preventing liquidity fragmentation and ensuring bitcoin can participate in a multi-chain DeFi environment. — Jamie Crawley Read more.

OPTIMISM AND FLASHBOTS TEAM UP: Optimism is teaming up with Flashbots to revamp how transactions are processed across its OP Stack ecosystem, aiming to make some of Ethereum’s most popular layer-2 networks faster and more customizable. The partnership centers on sequencing, the behind-the-scenes process that determines how quickly a transaction confirms, which trades are prioritized, and how much users ultimately pay. Optimism says Flashbots’ infrastructure, which is already responsible for building more than 90% of Ethereum’s blocks, will now bring near-instant confirmations and user-friendly transaction ordering to every chain in the so-called Superchain.This matters because the OP Stack underpins more than 60% of all Ethereum layer-2 activity, the Optimism team claims, including some of the most well-known layer-2 chains like Base, Unichain, World Chain, Ink and Soneium. Until now, advanced sequencing features such as ultra-fast settlement, frontrunning protection and custom compliance rules were available only to the largest chains with resources to build them in-house. With Flashbots on board, those features will be available via tools for any project building on Optimism’s OP stack. — Margaux Nijkerk Read more.

HEMI LABS RAISES $15 MILLION: Hemi Labs, the Bitcoin programmability network founded by Jeff Garzik, raised $15 million in funding to accelerate development and expand its ecosystem. The round included YZi Labs (formerly Binance Labs), Republic Digital, HyperChain Capital, Breyer Capital, Big Brain Holdings, Crypto.com and others, according to an emailed announcement.The company said the funds will support applications for borrowing, lending and trading on Bitcoin while further developing its Hemi Virtual Machine (hVM), a layer that embeds a Bitcoin node inside an Ethereum VM — the term for a decentralized system that can execute smart contracts and process transactions on Ethereum. — Jamie Crawley Read more.

In Other News

• Aave Labs introduced Horizon, a new platform dedicated for institutional borrowers to access stablecoins using tokenized versions of real-world assets (RWAs) like U.S. Treasuries as collateral. At launch, institutions will be able to borrow Circle's USDC, Ripple's RLUSD and Aave’s GHO against a set of tokenized assets, including Superstate’s short-duration U.S. Treasury and crypto carry funds, Circle’s yield fund, and Centrifuge’s tokenized Janus Henderson products. The platform aims to offer qualified investors short-term financing on their RWA holdings and allow them to deploy yield strategies. — Kristzian Sandor Read more.
• Google Cloud is moving forward with plans to launch its own layer-1 blockchain, positioning the network as neutral infrastructure for global finance at a time when fintech competitors are developing their own distributed ledgers. In a LinkedIn post published Tuesday, Rich Widmann, Google’s head of Web3 strategy, provided fresh details on the project, known as the Google Cloud Universal Ledger (GCUL). He described the platform as a credibly neutral, high-performance blockchain designed for institutions, supporting Python-based smart contracts to make it more accessible to developers and financial engineers. “Any financial institution can build with GCUL,” Widmann said, arguing that while companies like Tether may be unlikely to adopt Circle’s blockchain and payment firms like Adyen may hesitate to use Stripe’s, Google’s neutral infrastructure removes those barriers. — Siamak Masnavi Read more.

Regulatory and Policy

• The crypto industry's Washington lobbyists are trying to draw a line in the sand over the market structure bill that's steaming through the U.S. Senate, saying they can't back a law that wouldn't fully protect software developers from being held responsible for bad actors abusing their technology. The industry made its case to the Senate's Banking and Agriculture committees "with one voice," sending a letter Wednesday signed by Coinbase, Kraken, Ripple, a16z, Uniswap Labs and more than a hundred other crypto businesses and organizations, including almost all of the major U.S. lobbying groups. This unified effort comes the week before the Senate gets back to work, and is likely to rekindle full negotiations on the language of the legislation that represents the industry's top U.S. goal. — Jesse Hamilton Read More.
• The U.S. Commodity Futures Trading Commission is about to drop to a single commissioner when Democrat Kristin Johnson leaves the agency next week, and the only other person waiting in the wings to join the regulator is President Donald Trump's chairman nominee, Brian Quintenz. As of Sept. 3, the five-member commission will drop to one, because that's when Johnson plans to exit. "In advancing an agenda in the name of growth, it is critical not to dismantle the foundational resilience that supports financial stability and protects the broader economy," she said in a farewell statement encouraging the agency to stick to the fundamentals as new technologies come on board. — Jesse Hamilton Read more.

Calendar

• Sept. 22-28: Korea Blockchain Week, Seoul
• Oct. 1-2: Token2049, Singapore
• Oct. 13-15: Digital Asset Summit, London
• Oct. 16-17: European Blockchain Convention, Barcelona
• Nov. 17-22: Devconnect, Buenos Aires
• Dec. 11-13: Solana Breakpoint, Abu Dhabi
• Feb. 10-12, 2026: Consensus, Hong Kong
• May 5-7, 2026: Consensus, Miami

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