Bridges move assets between blockchains using lock-and-mint, burn-and-mint, or liquidity pool mechanisms, but their trust assumptions have made them the most exploited category in crypto.

Introduction

Blockchains do not talk to each other. Ethereum cannot read Solana’s state. Arbitrum cannot verify a transaction on Avalanche. Each chain maintains its own ledger, its own consensus, and its own finality rules. This isolation is a feature of security design, but it creates a practical problem: users hold assets on one chain and want to use them on another.

Bridges exist to solve this. A bridge is a system that lets a user deposit assets on chain A and receive corresponding assets on chain B. The concept sounds simple. The implementation is where billions of dollars have been lost.

The core difficulty is verification. When a user claims to have deposited 100 ETH on Ethereum and asks for 100 ETH on Arbitrum, someone or something must verify that the deposit actually happened. The mechanism chosen for this verification determines the bridge’s security model, its speed, its cost, and its attack surface. As a Coinbase analysis of bridge hacks noted, bridge security failures consistently stem from the gap between the trust assumptions a bridge claims and the trust assumptions it actually enforces.

This guide covers how the major bridge architectures work, why each of the largest exploits succeeded, and what to check before trusting a bridge with your funds.

Lock-and-mint: the original bridge mechanism

The earliest and most common bridge design is lock-and-mint. The mechanism works in three steps:

1. Lock. The user sends tokens to a smart contract on the source chain. The tokens are locked (held) in that contract, not burned or transferred.
2. Verify. A set of validators, relayers, or an oracle observes the deposit on the source chain and attests to its validity on the destination chain.
3. Mint. A smart contract on the destination chain mints a synthetic version of the locked token. The user receives “wrapped ETH” or “bridged USDC” that represents a claim on the locked original.

To move back, the process reverses: the user burns the synthetic token on the destination chain, validators attest to the burn, and the original tokens are unlocked on the source chain.

The security of lock-and-mint depends entirely on the verification step. If an attacker can convince the destination chain that a deposit occurred when it did not, they can mint unbacked tokens. This is exactly what happened in the largest bridge exploits.

The arithmetic problem. Lock-and-mint bridges must maintain a 1:1 ratio between locked originals and minted synthetics. If 10,000 ETH is locked on Ethereum, exactly 10,000 bridged ETH should exist on the destination chain. Any discrepancy means some bridged tokens are unbacked. When exploits create unbacked synthetics, the last users to redeem find the vault empty. This creates a bank-run dynamic: once news of an exploit spreads, every holder of the wrapped token rushes to redeem, knowing that only the first to arrive will receive real assets.

Burn-and-mint: native cross-chain tokens

Burn-and-mint eliminates the wrapped token problem by destroying the original and creating a new one.

1. Burn. The token is permanently destroyed on the source chain.
2. Verify. The burn event is verified on the destination chain.
3. Mint. New tokens are minted natively on the destination chain.

This model works only for tokens whose issuers control minting on multiple chains. Circle’s Cross-Chain Transfer Protocol (CCTP) for USDC is the largest implementation. When a user bridges USDC from Ethereum to Avalanche through CCTP, the Ethereum USDC is burned and native USDC is minted on Avalanche. There are no wrapped tokens, no liquidity fragmentation, and no unbacked synthetics.

The limitation is that burn-and-mint requires the token issuer to deploy and operate infrastructure on every supported chain. It is not a general-purpose mechanism. Arbitrary ERC-20 tokens cannot use burn-and-mint unless their developers build the cross-chain minting infrastructure. CCTP currently supports over a dozen chains, but each integration requires Circle’s direct involvement.

Liquidity pool bridges: speed through capital

A third model avoids both wrapping and burning by using pre-funded liquidity pools on each chain.

The mechanism:

1. Deposit. The user deposits tokens into a pool on the source chain.
2. Withdrawal. The user (or a relayer acting on their behalf) withdraws equivalent tokens from a pool on the destination chain.
3. Rebalancing. The protocol periodically rebalances pools across chains to maintain adequate liquidity.

Stargate (built on LayerZero) and Across Protocol use variations of this model. The advantage is speed: because tokens already exist on the destination chain, there is no minting delay. The user receives real, native tokens immediately.

The tradeoff is capital efficiency. Liquidity must be pre-positioned on every supported chain, and that capital earns a return only when bridges are actively used. During low-volume periods, liquidity providers earn little while their capital sits idle. The aggregate capital requirements across all supported chains can reach hundreds of millions of dollars, creating a barrier to entry and a concentration risk if a single liquidity provider dominates.

The Ronin bridge hack: $624 million from compromised keys

On March 23, 2022, attackers drained $624 million in ETH and USDC from the Ronin bridge, which connected Ethereum to the Ronin sidechain used by the game Axie Infinity.

Ronin’s bridge used a multisig validation scheme. Nine validator nodes verified bridge transactions, and any five could authorize a withdrawal. The security assumption was that compromising five of nine independent validators would be impractical.

The assumption was wrong. Sky Mavis, the company behind Axie Infinity, controlled four of the nine validator nodes. A fifth validator had granted Sky Mavis temporary permission to sign on its behalf during a period of high transaction volume and never revoked the permission.

The attackers (later attributed to North Korea’s Lazarus Group by the FBI) compromised Sky Mavis’s systems and obtained the private keys for all five validators. With five of nine signatures, they authorized two fraudulent withdrawals: 173,600 ETH and 25.5 million USDC.

The exploit was not discovered for six days. It came to light only when a user tried to withdraw 5,000 ETH and found the bridge did not have enough funds.

The lesson. Multisig security is only as strong as the independence of its signers. When a single organization controls a majority of keys, the multisig is a single point of failure with extra steps.

The Wormhole hack: $326 million from a verification bypass

On February 2, 2022, an attacker exploited the Wormhole bridge to mint 120,000 wETH (wrapped ETH) on Solana without depositing any ETH on Ethereum. The exploit was worth approximately $326 million.

Wormhole’s bridge relied on a set of 19 guardians to verify cross-chain messages. The guardians would observe a deposit on Ethereum, produce a signed attestation (called a VAA, Verified Action Approval), and the Solana-side contract would verify the signatures before minting.

The vulnerability was in the Solana-side signature verification. Wormhole’s Solana contract used a deprecated system instruction (verify_signatures) that did not properly validate the accounts passed to it. The attacker crafted a fake guardian set, submitted a forged VAA with signatures from that fake set, and the contract accepted it as valid.

In effect, the attacker told the Solana contract “these guardians approved this mint” and the contract did not check whether the guardians were real.

Jump Crypto, which backed Wormhole, replaced the stolen 120,000 ETH from its own reserves. The full restoration happened within 24 hours, an unprecedented response that prevented cascading losses across Solana DeFi protocols that held wETH.

The lesson. Bridge verification code is high-value attack surface. A single logic error in how signatures are validated can allow unlimited unauthorized minting.

The Nomad hack: $190 million from a faulty update

On August 1, 2022, the Nomad bridge was drained of approximately $190 million. Unlike Ronin and Wormhole, Nomad was not attacked by a sophisticated group. It was drained by hundreds of individual copycats after the initial exploit became public.

Nomad used an optimistic verification model. Cross-chain messages were submitted and assumed valid unless challenged within a 30-minute window. A routine contract upgrade introduced a bug: the contract was initialized with a trusted root of 0x00, the zero bytes32 value.

In Nomad’s verification logic, every message was checked against the trusted root. Because 0x00 is the default value for uninitialized storage in Solidity, every message automatically passed verification. Any user could submit any message and the contract would accept it as proven.

Once the first attacker demonstrated that arbitrary messages were accepted, others copied the transaction, changed the recipient address, and replayed it. The bridge was drained by a swarm of opportunistic attackers, including white-hat hackers who later returned approximately $36 million in recovered funds.

The lesson. Initialization bugs in bridge contracts can be catastrophic. A single misconfigured parameter turned Nomad’s security model from “optimistic verification with fraud proofs” to “no verification at all.”

The Harmony Horizon hack: $100 million from a two-of-five multisig

In June 2022, the Harmony Horizon bridge lost $100 million when attackers compromised the private keys of two out of five validators in the bridge’s multisig. Harmony’s bridge required only two of five signers to approve a transaction, an unusually low threshold for a bridge holding $100 million.

The attack reinforced the Ronin lesson: multisig bridges are only as secure as their weakest signer set. When the threshold is low relative to the number of signers, a single infrastructure compromise can be sufficient. Security researchers had publicly criticized Harmony’s two-of-five threshold before the attack occurred.

The lesson. Threshold selection matters as much as validator count. A five-of-nine multisig offers meaningfully different security than a two-of-five multisig, even though both use the same underlying mechanism.

Cumulative losses and attack patterns

The scale of bridge losses is without precedent in smart contract security. Bridge exploits represent roughly $3 billion of the $17 billion in total crypto hacks over the past decade, making bridges the single most attacked category of smart contracts.

The attack patterns cluster into three categories:

Key compromise. The attacker obtains enough validator or signer keys to forge bridge messages. Ronin and Harmony followed this pattern. The vulnerability is not in the code but in the operational security of the signer infrastructure.

Verification bypass. The attacker finds a bug in the verification logic that allows forged messages to pass. Wormhole followed this pattern. The vulnerability is a code-level error in the most critical function of the bridge contract.

Initialization or upgrade errors. The attacker exploits a misconfiguration introduced during deployment or upgrade. Nomad followed this pattern. The vulnerability is procedural: the team made an error during a routine operation.

Each pattern requires a different defense. Key compromise is mitigated by increasing signer diversity and using hardware security modules. Verification bypass is mitigated by auditing and formal verification. Initialization errors are mitigated by upgrade procedures that include mandatory test runs on forked networks.

A fourth emerging pattern deserves mention: governance attacks. An attacker who accumulates enough governance tokens to control a bridge’s upgrade mechanism can modify the bridge contract to drain funds. This attack is slower and more visible than the others, but it targets bridges whose governance is concentrated or whose time-lock on upgrades is too short. Bridge teams increasingly use multi-day time-locks (48 to 72 hours) on contract upgrades to give users time to withdraw before a malicious change takes effect.

The intent-based alternative to traditional bridges

A newer approach sidesteps bridge contracts entirely by using intent-based cross-chain transfers. Across Protocol and UniswapX’s cross-chain mode let users express a bridging intent: “I have 1,000 USDC on Ethereum and want 1,000 USDC on Arbitrum.” A solver (called a relayer) immediately sends tokens from their own inventory on the destination chain, then later claims reimbursement.

This model reduces the trust surface. The user never deposits tokens into a bridge contract that holds pooled funds. The solver takes on the reimbursement risk, and the settlement contract enforces that the user received the promised output. There is no large pool of locked assets for an attacker to target.

The tradeoff is solver dependency: if no solver is willing to fill the intent at an acceptable price, the transfer does not execute. For high-traffic routes (Ethereum to Arbitrum, Ethereum to Base), solver competition is strong. For low-volume routes, solvers may not be active.

Light client bridges and zero-knowledge verification

The exploits above share a common weakness: they rely on external validators or multisigs to attest that something happened on another chain. If those attestors are compromised, the bridge fails.

Light client bridges take a different approach. Instead of trusting a validator set, the destination chain runs a light client that verifies the source chain’s consensus directly.

A light client bridge to Ethereum, for example, would track Ethereum’s validator set and verify block headers and state proofs on-chain. When a user claims to have deposited tokens on Ethereum, the bridge contract verifies the Merkle proof against the Ethereum block header it has already validated.

This approach is trust-minimized: the bridge trusts the source chain’s consensus, not an external committee. But it is expensive. Verifying Ethereum’s consensus on another chain requires significant computation, which translates to high gas costs.

Zero-knowledge proofs offer a solution to the cost problem. Instead of verifying every validator signature on-chain, a ZK proof can compress the verification into a single succinct proof. The destination chain verifies one proof instead of hundreds of signatures.

Projects like Succinct Labs, Polymer, and Lagrange are building ZK-verified bridges. These are still maturing, but they represent the strongest security model for cross-chain communication: trust the math, not the committee. Early implementations show verification costs dropping as ZK proving systems become more efficient, with some bridges already operating on mainnet with proving times under 30 seconds.

What this does not cover

This guide explains bridge mechanics and the largest exploits. It does not cover:

• Token-specific bridging strategies or which bridge to use for a given asset
• Detailed comparison of bridge aggregators (Li.Fi, Socket, Bungee)
• The economics of liquidity provision for bridge pools
• Cross-chain messaging protocols beyond their bridging function (LayerZero, Axelar, Chainlink CCIP as general messaging layers)

Practical checks before using a bridge

Check the verification mechanism. Multisig bridges are the weakest model. Light client and ZK-verified bridges are the strongest. Optimistic bridges fall in between. Know what you are trusting.

Look at the validator or guardian set. For multisig bridges, check how many signers exist, who operates them, and whether they are genuinely independent. If the majority of signers belong to the same organization or geographic jurisdiction, the multisig provides limited security.

Review audit history. Bridge contracts are high-value targets. Look for multiple independent audits from reputable firms. A bridge that has not been audited, or has been audited only once, warrants extra caution. Pay attention to the scope of audits: an audit of the token contract does not cover the verification logic.

Consider total value locked versus security budget. A bridge holding $500 million with a five-of-nine multisig presents a very different risk profile than a bridge holding $5 million. Attackers target bridges where the potential payout justifies the effort. The rational attacker calculates whether the cost of compromising enough keys is less than the value that can be extracted.

Test with small amounts first. Before bridging significant value, send a small test transaction. Verify that the receiving address, token, and amount are correct. Bridge transactions are typically irreversible.

Prefer native bridges for rollups. For Ethereum L2 rollups (Arbitrum, Optimism, Base), the canonical bridge inherits security directly from Ethereum’s consensus. Third-party bridges may be faster but introduce additional trust assumptions. Use canonical bridges for large transfers where security matters more than speed.

Ripple has announced two strategic investments aimed at expanding how regulated tokenized financial assets move across its XRP Ledger (XRPL). The company says the deals are intended to improve “collateral mobility” for tokenized funds—an issue that has become increasingly relevant as institutions look for more efficient ways to use on-chain assets within existing financial workflows.

In a Monday announcement, Ripple said it invested in Zilo, a global transfer agency asset solutions provider for wealth managers, and in Licuido, a tokenization solutions company regulated by the UK Financial Conduct Authority. Financial terms were not disclosed.

Key takeaways

• Ripple’s new investments target the infrastructure around tokenized asset lifecycle events—transfer agency, issuance, and collateral usage—on XRPL.
• Zilo is a UK-based transfer agency solutions provider for wealth managers; Licuido is a UK tokenization firm regulated by the FCA.
• Ripple did not disclose investment amounts, leaving investors to assess impact based on the strategic integration of these partners into XRPL-based services.
• The announcement arrives amid rising tokenized real-world assets activity, including new XRPL-based launches approved by regulators.

Why transfer agency and tokenization infrastructure matter

Tokenized real-world assets (RWAs) depend on more than issuance and settlement technology. For institutional participation, the operational stack must also support regulated lifecycle components such as transfer agency, issuance processes, and how assets (or their representations) can be pledged or reused as collateral.

Ripple’s stated goal is to bring “regulated transfer agency, issuance, and collateral mobility” into XRPL infrastructure. According to the company, the combination of the two investments is designed to address friction related to idle collateral by enabling tokenized funds to be used as collateral from the point of issuance.

While stablecoins and on-chain settlement get much of the attention, this kind of infrastructure push speaks to a broader theme in RWAs: institutions often need familiar controls, governance, and operational guarantees that mirror traditional market plumbing—only faster, more programmable, and easier to interoperate across counterparties.

Zilo and Licuido: what Ripple says it is buying into

The Zilo investment focuses on transfer agency capabilities for wealth managers. Ripple described Zilo as providing global transfer agency asset solutions, a function that can include administrative and compliance-heavy tasks tied to holding, transferring, and servicing investment products.

For market participants, transfer agency is especially significant because it determines how ownership records are managed, how subscriptions or redemptions are handled, and how compliance and reporting obligations are met. Bringing that layer closer to tokenized issuance and ongoing asset movement can reduce operational handoffs—often one of the major barriers for scaling tokenized offerings.

Licuido, by contrast, is positioned as a tokenization solutions provider that operates in a regulated environment. Ripple highlighted that Licuido is regulated by the UK Financial Conduct Authority, which could be relevant for firms aiming to structure tokenized products with compliance expectations baked into the system rather than added after the fact.

Neither investment’s size was disclosed by Ripple. However, the article notes that UK-based Zilo has raised $58.7 million in total equity funding, based on data compiled by Traxcn.

Momentum across XRPL as tokenized funds expand

Ripple’s move comes shortly after institutional activity on XRPL. Earlier, London-based asset manager Aviva Investors launched a tokenized share class of its US Dollar Liquidity Fund on XRPL, after receiving approval from the Central Bank of Ireland, according to earlier coverage. That development underscored that XRPL-based tokenization is not just a technical experiment—it is reaching regulated asset structures with supervisory sign-off.

The investments also follow Ripple’s own product push on the stablecoin side. Last month, Ripple launched Ripple Mint, a platform that gives institutions new ways to access, mint, redeem, and manage Ripple USD (RLUSD), its US dollar-pegged stablecoin. Together, these efforts indicate a two-pronged strategy: improve tokenized asset tooling around issuance and collateral use, while also expanding institutional access mechanisms for the stablecoin that often anchors value transfer.

At the network level, XRPL is part of a broader acceleration in tokenized RWAs. According to data from RWA.xyz referenced in the source, XRPL is the 11th-largest blockchain network by tokenized real-world assets, with $368 million in tokenized RWAs. Ethereum leads at $17.1 billion, per the same dataset.

Over the past 30 days, total RWA holders increased by 50% to 1.57 million, while total tokenized asset value rose by 1.5% to $37.3 billion. For investors, these figures suggest continued expansion, even as most networks compete on how efficiently they can support regulated asset workflows—not merely on-chain performance.

What to watch next for XRPL-based RWAs

Ripple’s latest announcements point to a practical focus: moving beyond token issuance to the operational lifecycle that institutions require, particularly where collateral reuse and collateral lock-ups can slow capital efficiency. The next question is how quickly these partner integrations translate into deployments—such as new tokenized funds, more standardized custody/transfer agency processes, or demonstrable reductions in collateral idling.

For market participants, attention should also be on whether future XRPL launches continue to follow regulator-approved paths and whether the tokenization stack expands toward wider categories of tokenized products—especially those that require complex transfer and compliance operations.

Strategy sold 1,638 Bitcoin between July 27 and Sunday, according to an 8-K filing released Monday with the U.S. Securities and Exchange Commission. The sale, carried out at an average price of $63,957 per BTC, generated about $104.7 million—making it the company’s second-largest Bitcoin selloff of the year.

Strategy said the proceeds were split between its preferred-stock dividend program and its STRC share repurchase activity. Following the transaction, the company reported holding 842,138 Bitcoin, purchased at an aggregate cost of $63.5 billion.

Key takeaways

• Strategy’s latest disclosed Bitcoin sale totaled 1,638 BTC at an average of $63,957, raising roughly $104.7 million.
• About $52.4 million of the proceeds was used for dividends on STRC preferred stock, with $52.3 million directed to STRC repurchases.
• Strategy also reported increasing its US dollar reserve to $4 billion as of Sunday, funded in part by MSTR share sales.
• STRC traded below its $100 target value in Monday pre-market trading, a condition that can affect Strategy’s financing flexibility.
• The filing comes amid renewed commentary from industry observers urging Strategy to prioritize cash reserve replenishment over additional BTC buys.

Bitcoin sales fund dividends and STRC buybacks

In the Monday SEC filing, Strategy detailed the July 27–Sunday sale of 1,638 BTC and the resulting proceeds. The company reported using $52.4 million to cover dividend payments on its STRC preferred stock and $52.3 million to repurchase STRC shares.

While this latest selloff follows earlier activity, it is not Strategy’s first major Bitcoin sale this year. The company previously disclosed selling 3,588 BTC for about $216 million on July 6, as covered earlier. It also reported selling 32 BTC in early June, which it described as its first reported BTC sale since a 2022 tax-loss transaction, according to earlier coverage referenced in the filing materials.

The decision matters for investors watching how Strategy balances its core goal—maintaining Bitcoin exposure—with the practical need to support dividend obligations and preferred-share economics. When BTC is sold to meet shareholder payouts, investors often scrutinize whether the company’s capital framework preserves the intended pace of future Bitcoin accumulation.

US dollar reserve rises to $4 billion after equity-related funding

Beyond the Bitcoin sale, Strategy reported raising $290.6 million through MSTR share sales during the same period. According to the filing, $250 million of those proceeds was earmarked to increase its US dollar reserve, which stood at $4 billion as of Sunday. The company also allocated $28.9 million for STRC repurchases and $11.7 million to its cash balance.

In a Monday post on X, Strategy founder and chairman Michael Saylor said the company repurchased $81.2 million worth of STRC stock and extended its US dollar runway by 57 days to 2.3 years. The runway estimate is important because it reflects how long Strategy can continue executing its stated capital approach—particularly dividend-related payments—without being forced to accelerate either Bitcoin sales or external funding.

STRC below target value raises questions about financing conditions

Strategy’s STRC perpetual preferred stock functions as one of the company’s tools for financing Bitcoin purchases. However, in Monday pre-market trading, Yahoo Finance data showed STRC at $89.40, or 10.6% below its $100 target value. Strategy’s common stock, MSTR, was also down slightly in pre-market trading, declining 0.9%.

Trading below the intended par can influence Strategy’s ability to raise funds through STRC sales. It may also affect the company’s incentive to adjust dividend levels to make STRC more attractive to prospective buyers and help stabilize the preferred-stock market price.

This is not a purely theoretical concern. Investors have previously focused on dividend coverage and cash planning as part of Strategy’s broader capital strategy. In a June 24 X post, CryptoQuant CEO Ki Young Ju argued that Strategy should pause further Bitcoin purchases and rebuild cash reserves, after the company’s dividend coverage fell to 14 months from seven years, based on the reporting tied to that commentary. Ju said the company should adopt a systematic framework for purchase timing.

Earlier, Strategy had also laid out a capital framework in an 8-K filing dated June 29. That disclosure included an approach in which Bitcoin sales can fund dividends, an increase of STRC’s annual dividend rate to 12%, and a report that the US dollar reserve had grown to $2.55 billion.

What to watch next

With Strategy reporting both a sizable Bitcoin sale and a significant rise in its US dollar reserve to $4 billion, the near-term question for investors is how sustainably the company can fund dividends and preferred-share repurchases while maintaining its desired Bitcoin exposure. Traders should watch STRC’s trading price relative to its $100 target and monitor whether Strategy’s stated runway and purchase timing adjustments continue to evolve in future filings.

You can audit smart contracts. You can’t audit yourself. And AI just made human manipulation infinitely more convincing.

The Security Problem Nobody Wants To Admit

The crypto industry has spent billions on smart contract audits, multi-signature wallets, hardware security modules, penetration testing, and bug bounties.

All of it assumes the attack vector is technical.

It’s not.

The Solana Foundation’s new CISO Michael Coates said it publicly this week: crypto’s biggest security threats in 2026 are increasingly coming from AI-powered social engineering and compromised credentials. Not smart contract exploits. Not protocol vulnerabilities.

People.

The attackers shifted targets. They’re not trying to break the code anymore. They’re trying to break you.

And AI just gave them tools to do it better than ever.

What Social Engineering Actually Means

Social engineering is the art of manipulating humans into doing things that compromise security.

It’s not new. Con artists have always existed. Phishing emails have been around for decades. Fake customer support calls are as old as telephones.

But here’s what changed in 2026:

AI made social engineering indistinguishable from reality.

Before AI: A phishing email had grammatical errors, strange formatting, a slightly off email address. Trained eyes could catch it.

After AI: A phishing email is grammatically perfect, emotionally calibrated to your specific psychology, sent from a domain that looks exactly right, at a time when you’re most likely to be distracted, referencing real details from your public profiles.

Before AI: A fake customer support call had an accent, a script, tell-tale signs of inauthenticity.

After AI: A deepfake voice replicates your exchange’s actual support team. The conversation flows naturally. It knows your account details because it scraped your public information. It knows how to build rapport before asking for anything.

Before AI: A fake emergency message from a colleague was detectable because it didn’t sound like them.

After AI: It sounds exactly like them because AI trained on their communication style, their LinkedIn posts, and their email patterns.

The human brain evolved to detect threats from other humans. It didn’t evolve to detect threats from AI systems trained specifically to exploit human psychology.

Why Crypto Is The Perfect Target

Every industry faces social engineering. But crypto has properties that make it uniquely vulnerable.

Irreversibility. When someone tricks a bank customer into a wire transfer, there’s a chance, small but real, of reversal. When someone tricks a crypto user into sending funds, it’s gone—permanently. No chargeback. No fraud department. No appeal.

Pseudonymity. Attackers are harder to trace. The accountability that discourages fraud in traditional finance is weaker in crypto.

High Stakes In Individual Wallets. A single compromised wallet can contain life-changing sums. The ROI on targeting a crypto user versus a traditional bank customer is significantly higher.

Community Of Sophisticated Users Who Think They’re Immune. This is the most dangerous property. Crypto users tend to be technically sophisticated. They know about phishing. They know about scams. They think they’re too smart to fall for it.

That confidence is the vulnerability.

The most effective social engineering targets people who think they can’t be manipulated because they’ve stopped being vigilant.

The Attack Pattern That’s Working Right Now

Coates described the shift clearly: attackers are targeting people, not protocols.

Here’s what that looks like in practice in 2026:

The Fake Emergency: You receive a message, voice, text, or email that appears to be from your exchange’s security team. There’s been suspicious activity on your account. You need to verify immediately or face suspension. The urgency is real. The consequences feel immediate. You act without thinking carefully.

The message was AI-generated. The voice was deepfaked. The urgency was engineered.

The Compromised Colleague: Someone in your organization receives what appears to be a message from a trusted colleague—perhaps your CFO, your CTO, your CEO—asking for a wallet transfer. The tone is right. The context makes sense. The request is urgent because there’s a deal closing.

The colleague never sent it. Their communication style was scraped and replicated.

The Too-Good-To-Be-True Opportunity: You’re approached on LinkedIn, Discord, or Telegram by someone who seems genuinely informed about your project, your portfolio, your interests. They have an opportunity—an early investment, an exclusive access, a partnership. The conversation feels real over days or weeks.

It’s AI maintaining a relationship at scale, designed to eventually extract something.

The Recovery Scam: You posted publicly about a crypto problem. Someone, AI or AI-assisted, found it immediately and reached out offering help. They’re helpful, knowledgeable, and patient. They walk you through “recovery steps” that actually compromise your wallet.

All of these work on smart people. Because intelligence doesn’t protect against emotional manipulation. It often makes it worse—smart people are better at rationalizing why the exception is real this time.

The Quantum Problem In The Background

While social engineering is the immediate threat, Coates also flagged what’s coming: quantum computing.

Post-quantum cryptography is no longer a theoretical concern. Anthropic’s AI recently broke a post-quantum cryptography candidate, raising serious questions about the security assumptions underlying current encryption.

Solana is evaluating post-quantum cryptography. Other chains are doing the same.

This is a technical problem that technical solutions can address. Unlike social engineering, which targets humans, quantum threats target mathematics. Mathematics can be upgraded.

But here’s the uncomfortable overlap: the transition to post-quantum cryptography will itself become a social engineering attack surface.

Users will receive communications claiming they need to “upgrade their wallet security” or “migrate their funds to quantum-resistant addresses.” Some of those communications will be legitimate. Some will be AI-generated attacks designed to look legitimate during the transition.

The technical threat and the human threat converge.

Why “Just Be Careful” Isn’t A Solution

The standard advice: be careful. Verify before you act. Don’t click suspicious links. Check email addresses carefully. Never share your seed phrase.

This advice was adequate when social engineering was low-fi, when attacks were detectable by someone paying attention.

It’s not adequate anymore.

Coates said something important: crypto must “meet users where they are” instead of expecting them to act as security experts.

That’s an acknowledgment that the current model—educate users, hope they stay vigilant—is failing.

Because AI-powered social engineering doesn’t require users to make obvious mistakes. It requires them to make very small lapses in judgment at carefully engineered moments.

You’ve been careful a thousand times. The attack only needs to work once.

What Actually Protects You

If human vigilance is insufficient, what works?

Systems That Don’t Require Perfect Human Judgment.

Multi-signature requirements that mean no single person can authorize a large transfer alone. Time delays on large transactions that create a window for human review. Anomaly detection that flags behavior inconsistent with your patterns.

These aren’t exciting. They’re friction. But friction is the point.

The best security doesn’t make you smarter. It makes the attack harder even when you’re not being smart.

Verification Protocols That Don’t Rely on Communication Channels.

If a “colleague” sends an urgent transfer request, the verification doesn’t happen over the same channel. It happens via a pre-established out-of-band protocol—a specific phone number, an in-person confirmation, a code word.

AI can replicate communication channels. It can’t replicate physical presence or pre-established secrets.

Institutional Humility.

The most dangerous users are the ones who’ve never been fooled because they believe they never will be. The most secure users are the ones who assume they’re vulnerable and design their behavior accordingly.

Security isn’t about being smarter than the attacker. It’s about designing systems that work even when you’re not at your best.

The Industry’s Uncomfortable Admission

Coates’ statement represents something significant: a major blockchain foundation publicly admitting that the threat model has shifted.

For years, the crypto security conversation was dominated by smart contract audits, protocol security, code review. The implicit assumption: the humans are fine, the code needs protecting.

Now the CISO of a major blockchain foundation is saying: the humans are the vulnerability. The code is (relatively) fine.

That’s a meaningful shift, and it has implications for how the entire industry thinks about security.

You can’t audit your way out of this one. You can’t write a bug bounty for human psychology. You can’t patch the vulnerability that makes people respond to urgency.

The security stack has to include the human layer, not just user education, which is clearly insufficient. System design that compensates for human fallibility under pressure.

What This Means For Everyone In Crypto

If you’re a user: your biggest risk isn’t a smart contract exploit. It’s a well-timed, well-crafted message that catches you in a moment of stress, urgency, or distraction. Design your security protocols assuming that moment will happen. Remove single points of human failure.

If you’re building: user education is necessary but not sufficient. Build friction into high-stakes actions. Design for the distracted, pressured, temporarily-fooled user, not the ideal vigilant one.

If you’re in security: the threat model has to include AI-powered social engineering as a primary attack vector, not an edge case. Red team exercises need to include sophisticated AI-assisted social engineering simulations.

If you’re an investor: ask every project you invest in: what’s your human security layer? Not just your smart contract audit. What protects against AI-powered attacks on your team members?

The Real Arms Race

Everyone talks about crypto’s AI arms race as a trading problem. AI trading against AI. Faster algorithms, better predictions.

The real arms race is in security. Attackers using AI to exploit human psychology at scale. Defenders using AI to detect anomalous behavior and flag suspicious communications.

One side is attacking a fixed vulnerability: human cognitive limitations under pressure.

The other side is defending a moving target: human behavior across thousands of employees, users, and community members.

The attackers have a structural advantage. They only need to succeed once.

The defenders need to succeed every time.

That asymmetry is the actual security crisis in crypto. Not the code. The people.

Bitwise has disclosed NRR as the ticker for its proposed spot NEAR ETF in an amended filing with the US Securities and Exchange Commission.

Bitwise NEAR ETF discloses NRR ticker

Bitwise submitted the third amendment to its Form S-1 registration statement on July 31, advancing its plan to offer a US-listed investment product backed by NEAR.

The latest filing identifies NRR as the proposed ticker. Bitwise intends to list the shares on NYSE Arca, although the product cannot begin trading until the necessary registration and exchange approvals are completed.

Bitwise Asset Management, the sponsor’s parent company, also provided $200 in seed capital. The investment covered eight shares priced at $25 each, according to the filing.

The amendment does not disclose the fund’s management fee or any introductory fee waiver. Those details may be added in a later filing as Bitwise prepares the product for a potential launch.

Bitwise originally filed the registration statement for the NEAR product in May 2025. The proposed fund is legally structured as an exchange-traded product rather than a conventional investment company ETF.

Staking could generate additional income

NRR would primarily seek to track the value of NEAR held by the trust, minus its operating costs and other liabilities.

Bitwise has also added staking as a secondary objective. The trust intends to stake up to 100% of its NEAR holdings, allowing it to earn protocol rewards that could increase the amount of NEAR backing each share.

Staking would distinguish the proposed fund from products designed only to track spot cryptocurrency prices. However, the arrangement introduces additional risks related to validator performance, liquidity, custody and the time required to unstake tokens.

The filing does not guarantee that all assets will remain staked at all times. The trust may need to retain liquid NEAR to process redemptions, cover expenses or respond to changing market conditions.

The Bank of New York Mellon would serve as the fund’s cash custodian, administrator and transfer agent. Coinbase Custody Trust Company would safeguard its NEAR holdings.

Bitwise is not alone in pursuing the asset. Grayscale has also amended its filing for a proposed NEAR investment product, reflecting a broader push by US asset managers to expand beyond Bitcoin and Ethereum.

US crypto products move beyond Bitcoin

The Bitwise filing comes as Wall Street firms broaden their digital asset offerings. Morgan Stanley Investment Management launched exchange-traded products tracking Ethereum and Solana in late July.

The Morgan Stanley Ethereum Trust and Morgan Stanley Solana Trust trade on NYSE Arca under the MSSE and MSOL tickers. Both charge an annual management fee of 0.14%.

These launches show that US brokerage investors are gaining access to a wider range of cryptocurrencies without managing digital wallets or private keys. An approved NEAR product would extend that expansion to another proof-of-stake network.

Still, securing approval does not ensure commercial success. Hashdex plans to close and liquidate its US-listed Bitcoin ETF, DEFI, after the fund struggled to attract sufficient assets and trading activity.

DEFI managed about $14.7 million as of July 30 and will stop trading after the market closes on Aug. 17. Its closure shows that fees, liquidity and investor demand remain critical even for funds tracking Bitcoin, the largest cryptocurrency.

NEAR price rises as derivatives demand grows

NEAR traded around $1.73 after gaining approximately 4%, with an intraday range between $1.69 and $1.73. The move followed the amended ETF filing and the rollout of the Nearcore 2.13 network upgrade.

Spot trading volume fell about 10% over the previous 24 hours, suggesting the price recovery had not yet attracted broad market participation.

Derivatives positioning was stronger. CoinGlass data showed NEAR futures open interest rising nearly 6% to $365.17 million, indicating that traders increased their leveraged exposure.

The ETF remains subject to the SEC process, and Bitwise has not announced a launch date. Future amendments could disclose the management fee, fee waivers, and final operating terms.

Expectations for the US Digital Asset Market Clarity Act (CLARITY) are fading as the Senate prepares to begin its summer recess at the end of this week, according to wealth manager Bernstein. With lawmakers stepping away from the calendar, Bernstein warns that the bill’s stalled progress could weigh on crypto valuations again—even as it may also open the door to more active regulator-led rulemaking.

In a Monday report shared with Cointelegraph, Bernstein framed the near-term risk as a possible “industry knee-jerk reaction” if Congress fails to advance CLARITY. At the same time, the firm argued that a legislative setback might prompt the US Commodity Futures Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC) to intensify policy work under their existing authorities through Project Crypto.

Key takeaways

• Bernstein says odds for CLARITY passage appear to be declining as the Senate heads toward summer recess, increasing near-term downside risk for crypto.
• The firm expects a market bottom and improving momentum toward late Q3 or early Q4, but only if conditions evolve as anticipated after the recess.
• Even without congressional progress, Bernstein expects Project Crypto activity—such as interpretive releases and DeFi-related guidance—to accelerate.
• Prediction market activity on Polymarket currently implies only a 31% chance that CLARITY is signed into law by the end of 2026.
• Banking industry pushback remains a key factor behind legislative friction, particularly around stablecoin yield provisions.

Why summer recess could hurt crypto sentiment

Bernstein’s analysis centers on congressional timing. The firm notes that the Senate’s scheduled move into summer recess could reduce the likelihood of CLARITY being passed before lawmakers pause their work. If that happens, Bernstein expects an immediate negative reaction from the industry—an event-driven sentiment hit that could translate into further declines for Bitcoin and the broader market.

However, Bernstein also provided a tactical view of the trade-offs. The analysts suggested that, despite a potential near-term drop, the crypto market could stabilize and start regaining momentum toward late Q3 and early Q4 ahead of the mid-term cycle.

Regulators may move faster under Project Crypto

While Bernstein warned about the consequences of legislative inaction, it also argued that regulatory outcomes could shift in parallel. In the firm’s view, Senate failure on CLARITY may lead the SEC and CFTC to adopt a more proactive stance, accelerating rulemaking and guidance initiatives under Project Crypto.

Project Crypto was first announced by SEC Chairman Paul Atkins in July 2025, and later expanded into a joint staff effort between the SEC and CFTC in September 2025, according to the SEC’s announcement and the CFTC filing describing the initiative. The objective is to create an operational regulatory structure for digital assets using existing agency authority while Congress finalizes broader market legislation under the CLARITY Act.

Bernstein said the two agencies could publish more interpretive materials tied to token taxonomy, develop clearer rules relevant to decentralized finance (DeFi), and speed up an “innovation exemption” for token issuers seeking temporary relief from securities classification during a finite period.

Prediction markets price in lower CLARITY odds

External market signals appear to be aligning with Bernstein’s caution. Polymarket data, cited by the firm, shows odds of the CLARITY Act being signed into law before the end of 2026 at 31%. That represents a drop of 7 percentage points over the past week and 9 percentage points over the past month, with roughly $3.7 million wagered on the outcome, according to Polymarket’s event page: Clarity Act signed into law in 2026.

This is not the first time odds have been revised downward. Earlier coverage from Cointelegraph noted that Galaxy Digital cut its 2026 CLARITY odds to 50% on June 26, warning that the Senate was running out of time to pass the market structure bill before its August recess.

Ethics and banking opposition add to the legislative drag

Beyond scheduling risk, the politics around CLARITY may be influenced by other developments. White House officials are reportedly weighing a bipartisan ethics counterproposal received on Thursday following negotiations between Republican Senator Thom Tillis and Arizona Democrat Ruben Gallego. The proposal would reportedly allow state attorneys general to sue the Department of Justice if it fails to enforce ethics laws against federal officials, according to sources cited by crypto journalist Eleanor Terrett in reporting at Crypto in America.

Separately, the bill continues to face industry pushback—particularly from banking groups. The CLARITY Act is intended to create the first US regulatory framework for digital assets, but banking-sector concerns have focused on how stablecoin yields would be treated. Critics argued that the draft could allow crypto firms to offer yields on stablecoins without being subject to the same requirements as traditional financial institutions.

Cointelegraph previously reported that banking and related groups pushed back on stablecoin yield provisions, including in an article that can be found here: ABA, state banking groups push back on CLARITY Act stablecoin yield provisions.

For investors and builders, the near-term question is whether CLARITY becomes another casualty of legislative timing—or whether regulatory agencies can partially offset congressional delay through Project Crypto releases that clarify token categories and reduce uncertainty for DeFi and token issuance. Over the next few weeks, market participants will likely watch what, if anything, the Senate manages to advance before recess, and whether the SEC and CFTC accelerate guidance in response to a stalled vote count.