Ethereum developers are under pressure as the Pectra upgrade rolls out to a new testnet following several unexpected issues that have delayed its deployment to the mainnet.

The Pectra upgrade, which was expected to hit the Ethereum mainnet in March, was deployed into the network’s Holesky testnet on Feb. 24. However, the upgrade failed to finalize on the network, prompting developers to investigate and address the causes. 

On March 5, the update was rolled out to the Sepolia testnet. However, developers again encountered errors, which were made worse by an unknown attacker who used an “edge case” to cause the mining of empty blocks. 

To better prepare for the upgrade, Ethereum core developers created a new testnet called “Hoodi.”

Ethereum developers “exhausted” from Pectra preparations

Hoodi was launched on March 17, and the Pectra upgrade will roll out on Hoodi on March 26. If the upgrade runs smoothly, Pectra may hit the mainnet as early as April 25. 

In an interview with Cointelegraph’s Felix Ng, Ethereum Foundation’s protocol support team member Nixo Rokish said developers have been through a lot while preparing for the Pectra upgrade. Rokish told Cointelegraph: 

“I think that people are nervous because we just had two testnets in a row basically have really unexpected issues that were not fundamentally related to how it would have gone on mainnet.”

Rokish added that exhaustion is setting in, especially for the consensus layer developers, as Hoodi marks the third attempt to test Pectra.

“I think the consensus layer devs especially, but also like somewhat the execution layer devs are exhausted right now,” Rokish told Cointelegraph. 

Related: Ethereum devs agree to stop forking around and accelerate the roadmap

Ethereum devs solved what needed to be solved

According to Rokish, the Holesky testnet failed in part because it had never been tested with such a small validator set on the canonical chain.

“As decentralized as Holesky is, it has never been tested at so few validators on the canonical chain,” she said. 

When about 10% was left on the canonical chain, the validators overloaded their RAM and memory as they kept the state for 90% of validators on the non-canonical chain. 

Rokish said they had never seen this before. “And so the consensus layer devs all of a sudden had this problem where they had to change a bunch of things, and I think that that was really tiring for them,” she said. 

Despite the recent testnet challenges, Ethereum’s broader development continues to show progress.

On March 13, 2024, the network rolled out the Dencun upgrade, which implemented many changes in the blockchain. 

High gas fees, which were once a huge problem for the network, have become a thing of the past. A year after its Dencun upgrade, Ethereum’s gas fees dropped by 95%. On March 23, average gas prices reached historic lows of 0.28 gwei.

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Zero-knowledge proof (ZK-proof)-based compliance protocol PureFi has launched its Know Your Customer (KYC) and Anti-Money Laundering (AML) integration for the Uniswap decentralized exchange (DEX).

According to a recent announcement shared with Cointelegraph, PureFi claims that its ZK-proof-based KYC and AML integration for Uniswap helps address security and compliance concerns at the protocol level. While the integration can be implemented as part of any Uniswap v4 pool, it was deployed as part of the PureFi DEX Uniswap implementation, replacing standard interfaces with custom compliance routers.

The new decentralized finance (DeFi) platform also introduces level-based verification that scales checks based on transaction volume. Checks go from basic identity and sanctions verification at low volumes to comprehensive KYC with risk-based wallet scoring and real-time monitoring at high volumes.

Related: Know Your Peer: The pros and cons of KYC

Not everyone is on board

Hedi Navazan, the chief compliance officer at DEX aggregator developer 1inch Labs, told Cointelegraph that “relying on transaction volume thresholds for progressive compliance enforcement is not, in my view, the right approach.” She shared concerns that such thresholds “fail to capture the broader, more complex risk profile that DeFi and financial ecosystems demand.” She explained:

“Risk assessment should be holistic, considering a variety of factors, not just a singular indicator like transaction volume.”

PureFi CEO Slava Demchuk said that compliance is usually implemented on the front-end (the user interface) and not in the underlying smart contracts on the back-end. The implementation leaves protocols “vulnerable to interface bypass” by bad actors interacting with smart contracts directly. He explained the advantages of the latest PureFi implementation:

“Through the Uniswap v4 hook, we address a long-standing industry-wide blind spot. DeFi needs a middle ground to preserve privacy but align with regulatory standards.”

PureFi Uniswap v4 Hook Infographic. Source: PureFi

So far, the exchange is fully operational for the UFI/BNB trading pair; this implementation is meant to be a blueprint on which to build. The modular design allows offchain updates to compliance rules, centralizing the part that must be changed as regulations evolve to allow easier adaptation.

Related: Abracadabra.Money’s GMX pools hacked, $13M lost

DeFi’s long battle with compliance

Navazan said, “in DeFi, we need a more tailored approach.” According to her, solutions developed for centralized finance are not suitable for its decentralized counterpart due to different priorities:

“Mechanisms that function in centralized finance do not work in the decentralized space, which prioritizes privacy and autonomy,” she added.

Navazan explained that this contrast is “a critical aspect for the crypto and DeFi compliance issue.” She raised concerns that while mixers and privacy coins are on regulators’ watchlists, the use of ZK-proofs might help:

“If zero-knowledge proofs can provide compliant-friendly privacy, regulators might be more likely to allow for privacy-preserving financial instruments.”

She further highlighted that regulatory adoption is “the biggest challenge so far” for DeFi, with regulators equating “financial transparency to seeing every transaction and identity.” She noted that ZK-proofs changed that model and asked if regulators would adopt proofs instead of raw data.

ZK-proofs are a family of advanced cryptographic protocols that allow mathematically proving an aspect of some piece of data without revealing the underlying data. For example, they can show that an entity is not sanctioned and is allowed to use a financial service — without providing the full documentation and private data and while remaining anonymous.

A correct ZK-proof implementation ensures that no additional data is leaked beyond the fact that the proven claim is valid. Those proofs are also efficient data-wise since they can be significantly smaller than the considered data, making them better suited for onchain storage if necessary, as happens with ZK-rollups.

Magazine: DeFi will rise again after memecoins die down: Sasha Ivanov, X Hall of Flame

Fidelity Investments is reportedly in the final stages of testing a US dollar-pegged stablecoin, signaling the firm’s latest push into digital assets amid a more favorable crypto regulatory climate under the Trump administration.

The $5.8 trillion asset manager plans to launch the stablecoin through its cryptocurrency division, Fidelity Digital Assets, according to a March 25 report by the Financial Times citing anonymous sources familiar with the matter.

The stablecoin development is reportedly part of the asset manager’s wider push into crypto-based services. Fidelity is also launching an Ethereum-based “OnChain” share class for its US dollar money market fund.

Fidelity’s March 21 filing with the US securities regulator stated the OnChain share class would help track transactions of the Fidelity Treasury Digital Fund (FYHXX), an $80 million fund consisting almost entirely of US Treasury bills.

While the OnChain share class filing is pending regulatory approval, it is expected to take effect on May 30, Fidelity said.

Fidelity’s filing to register a tokenized version of the Fidelity Treasury Digital Fund. Source: Securities and Exchange Commission

Increasingly more US financial institutions are launching cryptocurrency-based offerings after President Donald Trump’s election signaled a shift in policy.

Custodia and Vantage Bank have launched “America’s first-ever bank-issued stablecoin” on the permissionless Ethereum blockchain, which will act as a “real dollar” and not a “synthetic” dollar, as Federal Reserve Board Governor Christopher Waller called stablecoins in a Feb. 12 speech.

Source: Caitlin Long

Trump previously signaled that his administration intends to make crypto policy a national priority and the US a global hub for blockchain innovation.

Related: Trump turned crypto from ‘oppressed industry’ to ‘centerpiece’ of US strategy

Fidelity’s spot SOL application is “regulatory litmus test”

Fidelity’s stablecoin push comes a day after Cboe BZX Exchange, a US securities exchange, requested permission to list a proposed Fidelity exchange-traded fund (ETF) holding Solana (SOL), according to March 25 filings. 

The filing may provide insights about the SEC’s regulatory attitude toward Solana ETFs, according to Lingling Jiang, partner at DWF Labs crypto venture capital firm.

“This filing is also more than just a product proposal — it’s a regulatory litmus test,” Jiang told Cointelegraph, adding:

“If approved, it would signal a maturing posture from the SEC that recognizes functional differentiation across blockchains.”

“It would accelerate the development of compliant financial products tied to next-gen assets — and for market makers, that means more instruments, more pairs, and ultimately, more velocity in the system,” Jiang added. 

Related: SEC dropping XRP case was ‘priced in’ since Trump’s election: Analysts

Meanwhile, crypto industry participants are awaiting US stablecoin legislation, which may come in the next two months.

The GENIUS Act, an acronym for Guiding and Establishing National Innovation for US Stablecoins, would establish collateralization guidelines for stablecoin issuers while requiring full compliance with Anti-Money Laundering laws.

A positive sign for the industry is that the stablecoin bill may be on the president’s desk in the next two months, according to Bo Hines, the executive director of the president’s Council of Advisers on Digital Assets.

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