Blockchain technology is claimed to be according to blockchain proponents to be one of the most impactfull discoveries in the recent history. It is promised to have a massive potential to change how we handle online transactions. Despite some skeptics, the majority of experts agree that blockchain has the potential to disrupt the banking and financial industry, and many other ones! To put it simply, blockchain enables decentralized transactions across a P2P network. There are applications where those propertied can be very useful, but there are many cases where blockchain migh not be the best solution even though it is hyped to be solution for very many application (remember to ask Do you need a blockchain? often).
This 16 Blockchain Disruptions (Infographic) by bitfortune.net tries to help you understand how the blockchain technology can and will improve 16 different industries, from music to government.
Infographic by bitfortune.net
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Tomi Engdahl says:
Sequoia Capital marks its FTX investment down to zero dollars
Connie Loizos
@cookie / 4:13 AM GMT+2•November 10, 2022
https://techcrunch.com/2022/11/09/sequoia-capital-marks-its-ftx-investment-down-to-zero-dollars/?tpcc=tcplusfacebook
Sequoia Capital just marked down to zero the value of its stake in the cryptocurrency exchange FTX — a stake that, as of last week, likely represented among the most sizable unrealized gains in the venture firm’s 50-year history.
No doubt those backers are collectively still processing the events of this week. They’re accustomed to startup failures; this is outright calamity.
When Sequoia invested in the Series B round of FTX in July 2021, the high-flying, Bahamas-based outfit was valued at $18 billion. Two months later, the company was valued by investors at $25 billion. In January of this year, FTX raised a $400 million in Series C round that brought its total funding to $2 billion and its valuation to a breathtaking $32 billion.
Now, following a series of missteps — that’s the best-case scenario — FTX didn’t just lose its rich valuation. According to the WSJ, FTX founder and CEO Sam Bankman-Fried told investors today that he needed emergency funding to cover a shortfall of up to $8 billion due to withdrawal requests received in recent days. Reportedly, he has been seeking a mixture of debt and equity.
It’s not surprising that Sequoia decided instead to write off its roughly $210 million investment. Presumably, others of FTX’s investors — including BlackRock, Tiger Global, Insight Partners, and Paradigm — are shooting out their own communications to limited partners about making the same decision.
More uncharacteristic was Sequoia’s decision to tweet out the letter tonight after sending it directly to its investors. It’s hard to interpret the move as anything other than a clear signal that Sequoia wants to distance itself as far from FTX as it can, just as details of FTX’s abrupt unspooling continue to surface.
What is known already: Binance, an early investor in FTX turned into a fierce rival, announced on Sunday it was selling off its FTT holdings, the native token of FTX exchange, worth $529 million at the time, due to “recent revelations that came to light.”
Alameda Research, a trading house also owned by Bankman-Fried, had fully one-third of its assets in FTX’s own FTT token, raising questions about possible market manipulation as well as making it apparent that the two outfits were dangerously intertwined and thus vulnerable.
Binance promptly went for the jugular, tweeting about those “revelations” and dumping its FTT holdings
Except that the story is still unfolding, as it turns out. After conducting some due diligence, Binance said it was backing away from FTX. Specifically, it said in a statement: “In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.” (Ouch.) Bankman-Fried has since been searching for funds elsewhere.
The question is what happens in the very likely scenario that none of FTX’s backers want to throw FTX a lifeline, and why would they? On top of everything else, the SEC is now investigating whether FTX “mishandled customer funds, and they’re looking into the firm’s relationships with other parts”
Tomi Engdahl says:
Reuters:
Sources detail FTX’s rise and fall: CZ’s ~$100M investment in 2019, deteriorating relationship with Binance, significant losses at Alameda in 2022, and more
Exclusive: Behind FTX’s fall, battling billionaires and a failed bid to save crypto
https://www.reuters.com/technology/exclusive-behind-ftxs-fall-battling-billionaires-failed-bid-save-crypto-2022-11-10/
On Tuesday morning, Sam Bankman-Fried, owner of cryptocurrency exchange FTX, caught his employees off-guard with a somber message.
“I’m sorry,” he told them. “I fucked up.”
The reason for the mea culpa: His announcement half an hour earlier that FTX’s arch-rival, Binance, planned to mount a shock takeover of its main trading platform to save it from a “liquidity crunch.” Binance founder Changpeng “CZ” Zhao, whom the billionaire had accused of sabotage, would now be his White Knight.
The seeds of FTX’s downfall were sown months earlier, stemming from mistakes Bankman-Fried made after he stepped in to save other crypto firms as the crypto market collapsed amid rising interest rates
Some of those deals involving Bankman-Fried’s trading firm, Alameda Research, led to a series of losses that eventually became his undoing
The interviews and messages also shine new light on the bitter rivalry between the two billionaires, who in recent months competed for market share and publicly accused each other of seeking to hurt the one another’s businesses. It culminated on Wednesday, with Binance pulling out of its deal and throwing FTX’s future into uncertainty.
Binance earlier said it decided to pull out of the deal as a result of its due diligence on FTX and news reports about U.S. investigations into the company.
By ditching the deal, Binance had also avoided the regulatory scrutiny that would likely have accompanied the takeover
Financial regulators around the world have issued warnings about Binance for operating without a license or violating money laundering laws. The U.S. Justice Department is investigating Binance for possible money laundering and criminal sanctions violations.
WITHDRAWAL SURGE
In his message to staff this week, Bankman-Fried said the firm saw a “giant withdrawal surge” as users rushed to withdraw $6 billion in crypto tokens from FTX in just 72 hours. Daily withdrawals normally totaled tens of millions of dollars, Bankman-Fried told his employees.
Tomi Engdahl says:
Gillian Tan / Bloomberg:
Source: Sam Bankman-Fried told investors that FTX needs a cash injection or the company would need to file for bankruptcy due to a shortfall of up to $8B — Sam Bankman-Fried told FTX.com investors on Wednesday that without a cash injection the company would need to file for bankruptcy …
FTX Warns of Bankruptcy Without Rescue for $8 Billion Shortfall
https://www.bloomberg.com/news/articles/2022-11-09/ftx-investors-told-that-without-more-capital-bankruptcy-likely#xj4y7vzkg
Bankman-Fried said his firm faced up to $8 billion shortfall
Binance bailed on FTX takeover, citing finances and probes
Joshua Oliver / Financial Times:
Memo: Binance CEO Changpeng Zhao says FTX’s near collapse “severely” shook confidence in the crypto industry, shares some FTX deal details, and halts FTT sales
Binance chief says near collapse of FTX ‘severely’ eroded confidence in crypto industry
Changpeng Zhao tells employees that the bailout of its chief rival is ‘not a win’
https://www.ft.com/content/4982c7e9-5dd7-4e99-9430-eface0db4a8c
The near collapse of FTX has “severely shaken” confidence in the crypto industry and will trigger tougher scrutiny by regulators, Binance chief executive Changpeng Zhao said a day after orchestrating a rescue of the exchange’s rival.
Zhao said in a note to employees seen by the Financial Times that the bailout, which consolidated Binance’s position as the world’s biggest crypto trading venue, was not “a win”.
“Regulators will scrutinise exchanges even more. Licenses around the globe will be harder to get,” Zhao wrote to staff early on Wednesday.
The two men shocked the crypto industry when they announced on Tuesday that Binance had agreed to rescue FTX after a surge in customer withdrawals sparked a liquidity crisis.
Zhao said he had ordered Binance to stop sales of FTT, a token issued by FTX, after a call with Bankman-Fried on Tuesday.
Zhao said due diligence on the deal with FTX was ongoing, and has publicly stated he could still walk away from the deal.
“Never use a token you created as collateral . . . Don’t borrow if you run a crypto business. Don’t use capital ‘efficiently’. Have a large reserve,” Zhao tweeted.
In the aftermath of FTX’s near failure Binance and other larger exchanges have pledged to publish more proof that they hold their customers’ funds in secure reserves that are readily available to meet withdrawals.
“We must significantly increase our transparency, proof-of-reserves, insurance funds, etc. A lot more to come in this area. We have a lot of tough work ahead of us. Not to mention prices swinging wildly,” he wrote to staff.
Tomi Engdahl says:
Bailey Lipschultz / Bloomberg:
Coinbase’s stock closed down 9.54%, Robinhood closed down 13.76%, MicroStrategy closed down 19.58%, and Galaxy Digital closed down 15.7%, amid the crypto mayhem
Coinbase, Robinhood Lead $10 Billion Rout in Crypto Mayhem
https://www.bloomberg.com/news/articles/2022-11-09/coinbase-robinhood-lead-10-billion-stock-rout-on-crypto-mayhem
Robinhood Markets Inc. and Coinbase Global Inc. took another beating Wednesday as Binance Holdings Ltd.’s bailed on its deal to buy FTX.com, sending another shock through the rattled crypto industry.
The selloff in crypto-linked equities erased at least $10 billion in value, according to data compiled by Bloomberg.
Binance walked away from a deal to takeover FTX which both companies had announced Tuesday — a deal that was meant to “help cover the liquidity crunch” at Sam Bankman-Fried’s troubled crypto exchange. “The issues are beyond our control or ability to help,” Binance said in a statement.
Other cryptocurrency-linked stocks extended losses Wednesday as Bitcoin fell 14% to a roughly two-year low amid investor jitters. MicroStrategy Inc. sank 20% to the lowest in four months and Riot Blockchain Inc. lost 8.1%, while Silvergate Capital Corp. tumbled 12%. Galaxy Digital Holdings Ltd. disclosed a $76.8 million exposure to the collapsed exchange FTX.com and tumbled 16% to the lowest since October 2020.
Tomi Engdahl says:
Muyao Shen / Bloomberg:
DeFi Llama: the total value locked in DeFi has dropped by 12%+ in the past day, after hovering around $50B to $60B since June 2022 and $180B+ in December 2021
FTX’s Collapse Spurs $10 Billion Drop in Decentralized Finance
https://www.bloomberg.com/news/articles/2022-11-09/ftx-s-collapse-spurs-10-billion-drop-in-decentralized-finance
Solana, which is associated with FTX, saw biggest fall
Some investors, project founders are still optimistic
Decentralized finance is feeling the pain of Binance’s proposed takeover of FTX.com, with investors yanking cash from projects as uncertainty lingers about the future of one of the largest crypto exchanges.
The total value of cash locked in DeFi dropped by more than 12% in the past day, after hovering around $50 billion to $60 billion since June, according to data tracker DeFi Llama. That number stood at more than $180 billion last December.
The drop comes merely months after algorithmic stablecoin TerraUSD fell apart in early May, wiping out billions of dollars from DeFi projects. At the center of latest plunge in DeFi is the Solana blockchain, which has become a casualty of Binance’s potential takeover of its rival FTX. The total value of all cryptocurrencies on Solana blockchain and projects built on Solana plummeted by more than 47% in the past 24 hours. And its native token, SOL, tumbled nearly 40% on Wednesday.
But some investors and project founders are still optimistic about DeFi over the long-term
“I think we’ve re-learned a few valuable lessons…this is the result of opaque financial relationships and hidden leverage in the system,” said Marc Weinstein, partner at venture fund Mechanism Capital. “They’ll say crypto is dead, but these types of collapses highlight the need for transparent financial infrastructure where users custody their own assets.”
In the past, DeFi had also suffered billions of dollars worth of hacks, as the scammers have been quick to take advantage of the open-source code of some prominent projects.
Tomi Engdahl says:
JPMorgan Team Says Crypto Markets Face ‘Cascade’ of Margin Calls
https://www.bloomberg.com/news/articles/2022-11-10/jpmorgan-strategists-warn-of-cascading-crypto-margin-calls-due-to-ftx-crisis?fromMostRead=true#xj4y7vzkg
JPM strategists say crypto deleveraging set to take few weeks
Their analysis sees potential Bitcoin floor of around $13,000
Crypto markets face weeks of deleveraging in the fallout from the crisis at digital-asset exchange FTX.com, a period of upheaval that could push Bitcoin down to $13,000, according to JPMorgan Chase & Co. strategists.
A “cascade of margin calls” is likely underway given the interplay between the exchange, its sister trading house Alameda Research and the rest of the crypto ecosystem, a team led by Nikolaos Panigirtzoglou wrote in a note.
Tomi Engdahl says:
Cameron Thompson / CoinDesk:
OpenSea plans to continue to enforce NFT royalties on its platform, after X2Y2, Magic Eden, and LooksRare altered their NFT royalty structures
OpenSea Makes Waves: Says Creator Royalties Will Be Enforced
“The world is otherwise burning, but we decided this couldn’t wait,” a representative from OpenSea told CoinDesk.
https://www.coindesk.com/web3/2022/11/09/opensea-makes-waves-says-creator-royalties-will-be-enforced/
Leading non-fungible token (NFT) marketplace OpenSea said Wednesday it is standing by creators and continuing to enforce royalties on the platform.
The platform shared a Twitter thread explaining its stance to continue supporting creators through mandating royalties. It shared that since October 12th, the average percentage of fees received by the top 20 NFT collections dropped from 77% to 56%.
“Unless something changes soon, this space is trending toward significantly fewer fees paid to creators,” said OpenSea in a tweet.
As the leading NFT marketplace in terms of trading volume, according to data from Dappradar, there’s been speculation around OpenSea’s decision: Will they continue to support creators in earning royalties on their work or nix these payment requirements? Since August, NFT marketplaces X2Y2, Magic Eden and LooksRare have altered their royalty structures, no longer obligating buyers to pay royalties or contribute to creators.
There’s also been active community pushback, urging OpenSea to clarify its stance.
“Royalties were the reason the art community flocked to NFTs in the first place,” said Langlois. “[Removing royalties] is backward progress for artists and the community at large.”
Tomi Engdahl says:
Dan Primack / Axios:
Sequoia tells investors the firm marked down its FTX investment of $213.5M across two funds to $0, saying it “ran a rigorous diligence process” before investing — – Its $150 million of exposure to both FTX and FTX.US in its third global growth fund represents less than 3% of that fund’s total capital commitment.
https://www.axios.com/2022/11/10/sequoia-capital-investors-ftx
Tomi Engdahl says:
Bloomberg:
Sources: the SEC and the CFTC are investigating whether FTX.com mishandled customer funds and FTX’s relationship with other parts of Sam Bankman-Fried’s empire — US financial regulators are investigating whether beleaguered crypto-exchange FTX.com properly handled customer funds …
Sam Bankman-Fried’s FTX Empire Faces US Probe Into Client Funds, Lending
https://www.bloomberg.com/news/articles/2022-11-09/us-probes-ftx-empire-over-handling-of-client-funds-and-lending#xj4y7vzkg
SEC, CFTC scrutinize relationship between FTX.com and FTX US
SEC investigation predates Binance move to buy FTX.com
FTX Hurtles Toward Bankruptcy With $8 Billion Hole, US Probe
FTX Hurtles Toward Bankruptcy With $8 Billion Hole, US Probe
https://www.bloomberg.com/news/articles/2022-11-10/sam-bankman-fried-s-ftx-faces-8-billion-shortfall-possible-bankruptcy?srnd=premium-europe#xj4y7vzkg
Bankman-Fried said his firm faced up to $8 billion shortfall
Binance bailed on FTX takeover, citing finances and probes
Tomi Engdahl says:
A record-breaking loss of money.
Crypto Billionaire Sets Record By Losing 94 Percent Of His Wealth In A Day
This is a record-breaking loss of money.
https://www.iflscience.com/crypto-billionaire-sets-record-by-losing-94-percent-of-his-wealth-in-a-day-66147
A crypto billionaire has seen his wealth drop an impressive 94 percent, setting a record for the most amount of money lost in a single day, according to Bloomberg.
Earlier this week, Sam Bankman-Fried, founder and CEO of cryptocurrency exchange FTX, was worth around $17 billion. After what could be described as a particularly rough few days, he was left with “only” $1 billion by the time Tuesday came around. The fall in his wealth was due to a potential sale of the company he had managed since 2019.
On Tuesday, Bankman-Fried announced that FTX would be sold to a rival cryptocurrency exchange Binance. FTX had been suffering from a severe “liquidity crunch”,
after Binance’s chief executive Changpeng “CZ” Zhao cited “the discretion to pull out from the deal at any time”
Following the announcement, the BBC reports that FTT lost almost 80 percent of its value compared to last week.
Tomi Engdahl says:
Crypto VC David Pakman on FTX: an “entirely avoidable tragedy”
https://techcrunch.com/2022/11/11/crypto-vc-david-pakman-on-ftx-an-entirely-avoidable-tragedy/?tpcc=tcplusfacebook
If you want to better understand exactly how big a deal it is that the cryptocurrency exchange FTX just imploded, you could do worse than talk with David Pakman, an entrepreneur turned venture capitalist.
His timing was either very good or very bad, depending on your view of the market. Indeed, in part because CoinFund was an early investor in the collapsing cryptocurrency exchange FTX
TC: The last time we talked, almost two years ago, the NFT wave was just getting underway. Now, we’re talking on a day where one of the biggest cryptocurrency exchanges in the world just declared bankruptcy. Actually, it’s declaring bankruptcy for 130 additional affiliated companies. What do you make of this development?
DP: I think it’s absolutely terrible on a bunch of levels. First, it was an entirely avoidable tragedy. This failure of the company was brought on by a bunch of flawed human decision-making, not by a failing business.
The core business is doing great. In fact, it’s highly profitable and growing, even in a bear market. It’s not like it was running out of capital or a victim of the macro environment. But its leadership, with almost no oversight apparently, made a bunch of terrible decisions and did things really wrong. So the tragedy is how avoidable it was, and how many victims there are, including employees and shareholders and the hundreds or even thousands of customers who will be affected [by this bankruptcy].
There’s also the reputational harm to the entire crypto industry, which already suffers from questions like, ‘Isn’t this a scammy place with scammy people?’ This sort of Enron-esque meltdown of one of the most highly valued and arguably most successful companies in the space is just really bad, and it will take a long time to dig out of it. But there are also positives.
Positives?
Well, what’s positive is the technology did not fail; the blockchains did not fail. The smart contracts were not hacked. Everything we know about the tech behind crypto continues to work brilliantly.
The long-term promise of the software and the technology architecture about crypto is intact. It’s the people who keep making mistakes. We’ve had two or three pretty big human-generated mistakes this year.
And it sounds like FTX took FTT, which is their token that was held in great amounts by Alameda, and they pledged it as collateral and took big loans in fiat against that. So they took a highly volatile asset, and they pledged as collateral.
One could imagine if a board of corporate executives or investors knew about that, someone would say, ‘Hang on. What happens if FTT goes down by 50%? It happens in crypto with high frequency, right? So, like, why are we pledging this super highly volatile asset? And by the way, half a billion dollars’ worth of the asset is held by our biggest rival [Binance]. What happens if they dump it in the market?’
So just the act of borrowing against it was ill-advised. And then it sounds like they also took the proceeds of that borrowing, and they invested that in highly illiquid assets, like maybe to rescue BlockFi
But FTX was very useful for providing a launching pad for tokens to become liquid, and then either making a market for those tokens or at least providing a place for them to trade and providing liquidity. A big part of crypto today is not just raising equity capital but creating tokens and using tokens as an incentive mechanism, and that requires at some point for these tokens to become liquid and trade on exchanges, and FTX was one of the largest places where those tokens traded. And now you lose that.
A more immediate impact is on startup valuations. Valuing startups is an imperfect process done by investors in non-liquid markets, and one way it’s done is to look at comparables. And one of the brightest star comps that just about everyone in crypto pointed to was FTX. If FTX is worth $40 billion, we’re worth X. So you take the most highly valued venture-backed crypto company, and it goes from $40 billion to zero, then who is the new ceiling of crypto value? It immediately impacts late-stage valuations.
Tomi Engdahl says:
Sam Reynolds / CoinDesk:
Binance announces a recovery fund to help “otherwise strong” projects facing a liquidity crisis; Justin Sun says Tron, Huobi, and Poloniex will support Binance — Tron founder Justin Sun said that Tron, Huobi Global and Poloniex will support Binance in its initiative.
Binance Starts Recovery Fund for Crypto Projects Facing Liquidity Crisis
Tron founder Justin Sun said that Tron, Huobi Global and Poloniex will support Binance in its initiative.
https://www.coindesk.com/business/2022/11/14/binance-starts-recovery-fund-for-crypto-projects-facing-liquidity-crisis/
Tomi Engdahl says:
Molly White / Web3 is going just great:
Crypto.com CEO Kris Marszalek admits the company accidentally sent 320K ETH (~$416M) meant for cold storage to crypto exchange Gate.io, which returned the funds — A Twitter user posted Etherscan screenshots showing a massive flow of crypto from the Crypto.com cryptocurrency exchange to another exchange, Gate.io.
November 12, 2022
Tweet link
Crypto.com CEO admits company accidentally sent 320,000 ETH ($416 million) to another crypto exchange a few weeks prior
https://web3isgoinggreat.com/single/cryptocom-ceo-admits-company-accidentally-sent-320000-eth-416-million-to-another-crypto-exchange-a-few-weeks-ago
A Twitter user posted Etherscan screenshots showing a massive flow of crypto from the Crypto.com cryptocurrency exchange to another exchange, Gate.io. “Anyone know why Crypto.com would send 320k ETH (82% of their ETH today) to Gate.io on October 21?”, they wrote. “And why Gate.io would send back to Crypto.com 285K ETH 5-7 days later?”
Crypto.com’s CEO, Kris Marszalek, replied: “It was supposed to be a move to a new cold storage address, but was sent to a whitelisted external exchange address. We worked with Gate team and the funds were subsequently returned to our cold storage.” He later clarified that all of the funds were returned.
Tomi Engdahl says:
Sidhartha Shukla / Bloomberg:
A wallet linked to the suspected FTX hacker swapped ~$49M of stablecoins for ether, taking its haul to 228,523 ETH and becoming the 35th largest ETH holder — The hacker who raided Sam Bankman-Fried’s collapsed crypto exchange FTX is now one of the world’s biggest holders of the token Ether.
FTX Hacker Emerges as 35th Largest Holder of Token Ether
https://www.bloomberg.com/news/articles/2022-11-16/ftx-hacker-emerges-with-a-288-million-stash-of-the-token-ether-eth#xj4y7vzkg
Wallet linked to hack converted another $49 million to Ether
Analysts estimate $477 million was stolen in the FTX attack
The hacker who raided Sam Bankman-Fried’s collapsed crypto exchange FTX is now one of the world’s biggest holders of the token Ether.
Tomi Engdahl says:
Milky Eggs:
Everything we know about FTX’s collapse: losses are likely >$15B, trades became increasingly risky, SBF was erratic, rash, and relied on stimulants, and more — If you want to read a poorly researched fluff piece about Sam Bankman-Fried, feel free to go to the New York Times (PDF).
What happened at Alameda Research
https://milkyeggs.com/?p=175
If you want to read a poorly researched fluff piece about Sam Bankman-Fried, feel free to go to the New York Times (PDF). If you want to understand what happened at Alameda Research and how Sam Bankman-Fried (SBF), Sam Trabucco, and Caroline Ellison incinerated over $20 billion dollars of fund profits and FTX user deposits, read this article. (And follow me on Twitter at @0xfbifemboy!)
To be clear, we still don’t have a perfect understanding of what exactly happened at Alameda Research and FTX. However, at this point, I feel that we have enough information to get a grasp on the broad strokes.
Tomi Engdahl says:
Oliver Knight / CoinDesk:
An independent audit shows the Luna Foundation Guard spent $2.8B in crypto and Terraform Labs spent $613M trying to defend the UST stablecoin in May 2022
Luna Foundation Guard Spent $2.8B Defending UST Peg, Third-Party Audit Finds
Terraform Labs founder Do Kwon dismissed similarities with the collapse of FTX.
https://www.coindesk.com/business/2022/11/16/luna-foundation-guard-spent-28b-defending-ust-peg-third-party-audit-finds/
Luna Foundation Guard (LFG), the entity behind the collapsed Terra ecosystem, spent $2.8 billion of crypto trying to defend the peg of algorithmic stablecoin TerraUSD (UST) in May, according to a third-party audit by JS Held, a Jericho, N.Y.-based consultancy firm.
The audit also suggests that Terraform Labs (TFL), the developer of the Terra blockchain, spent $613 million trying to defend the peg. A stablecoin is an asset that is designed to mirror the value of another asset, commonly fiat currencies. UST was an algorithmic stablecoin, designed to maintain its peg through market forces.
The efforts of LFG and TFL ultimately failed, with the value of UST falling to zero as the $60 billion ecosystem met its demise. The collapse led to widespread contagion across the crypto industry, with numerous lenders, brokers and exchanges filing for bankruptcy protection due to exposure to the ecosystem.
Tomi Engdahl says:
CNBC:
Despite repeated assurances from Crypto.com CEO Kris Marszalek, customers worry over the exchange’s solvency; Crypto.com’s CRO token drops ~40% in the past week — – Crypto.com CEO Kris Marszalek has taken to Twitter, YouTube and the airwaves to try to reassure customers that their deposits …
Crypto.com customers worry it could follow FTX, as CEO tries to reassure them everything’s fine
https://www.cnbc.com/2022/11/15/cryptocom-customers-worry-it-could-follow-ftx-ceo-reassures-them.html
Crypto.com CEO Kris Marszalek has taken to Twitter, YouTube and the airwaves to try to reassure customers that their deposits are safe and the company is on solid footing.
In the last few months, the company has reportedly cut over one-quarter of its staff, and concern has mounted since FTX’s collapse last week.
“I understand that right now in the market, you’ve got a situation where everyone is done taking peoples’ word for anything,” Marszalek told CNBC on Tuesday.’
As the crypto universe reckons with the fallout of FTX’s rapid collapse last week and tries to figure out where the contagion may head next, questions have been swirling around Crypto.com, a rival exchange that’s taken a similarly flashy approach to marketing and celebrity endorsements.
Like FTX, which filed for bankruptcy protection Friday, Crypto.com is privately held, based outside the U.S. and offers a range of products for buying, selling, trading and storing crypto. The company is headquartered in Singapore, and CEO Kris Marszalek is based in Hong Kong.
Crypto.com is smaller than FTX but still ranks among the top 15 global exchanges, according to CoinGecko.
Twitter lit up over the weekend with speculation that Crypto.com was facing problems, and crypto experts held Twitter Spaces sessions to discuss the matter. Meanwhile, revelations landed Sunday that, in October, Crypto.com mistakenly sent more than 80% of its ether holdings, or about $400 million worth of the cryptocurrency, to Gate.io, another crypto exchange. It was only after the transaction was exposed through public blockchain data that Marszalek acknowledged the mishap.
Changpeng Zhao, CEO of rival exchange Binance, fanned the flames of speculation, tweeting Sunday that an exchange suddenly moving large amounts of crypto like that “is a clear sign of problems.” He added, “Stay away.”
Confidence is clearly shaken. Crypto.com’s native cronos token (CRO) has dropped nearly 40% in the last week. The crumbling of FTX’s FTT token was one sign of the crisis that company faced.
“I would just get your money out of Crypto.com now,” said Adam Cochran, an investor in blockchain projects and founder of Cinneamhain Ventures, in a tweet Saturday. “If they are full reserves they shouldn’t care if you sit on the sidelines for a week, but their handling of this hasn’t met the bar.”
Marszalek has spent the early part of the week trying to reassure users and regulators that the business is fine. On Monday, he said on YouTube that the company had a “tremendously strong balance sheet” and that it’s “business as usual” with deposits, withdrawals and trading activity.
He said in the interview that the company has engaged with more than 10 regulators about the “shocking events” surrounding FTX and how to keep them from happening again.
“I understand that right now in the market, you’ve got a situation where everyone is done taking people’s word for anything,” Marszalek said.
Marszalek acknowledged that Crypto.com, like other exchanges, has faced increased withdrawals since the FTX news broke, but he said his platform has since stabilized.
A familiar refrain
The skeptics can point to recent history.
FTX CEO Sam Bankman-Fried said his company’s assets were “fine” two days before he was desperate for a rescue because of a liquidity crunch. It’s a familiar tactic. Alex Mashinsky, CEO of the now-bankrupt crypto lending platform Celsius, reassured customers of solvency days before halting withdrawals and ultimately filing for bankruptcy.
There are other similarities, too.
Just as FTX signed a massive deal last year with the NBA’s Miami Heat for naming rights to the team’s arena, Crypto.com agreed to pay $700 million last November to put its name and logo on the arena that hosts the Los Angeles Lakers, among other LA teams. FTX had Tom Brady and Steph Curry promoting its products. Crypto.com reeled in Matt Damon as a pitchman. Both companies bought Super Bowl ads and partnered with Formula One.
Marszalek has personal issues from his past that may also be concerning. The Daily Beast reported in November 2021 that Marszalek departed his last job, as CEO of an Australian company, “amid accusations from customers and business partners that they had been ripped off.” The company was called Ensogo, and it offered online coupons. It abruptly shut down in 2016.
One startling revelation: Crypto.com had 20% of its assets in wallets in shiba inu, a so-called “meme token” that exists purely for speculation, building off the shiba inu dog image of the similarly popular joke token dogecoin.
Marszalek said Monday that this was just a reflection of the assets Crypto.com customers were buying. He said in a tweet that it was a popular purchase in 2021, along with dogecoin.
When asked by CNBC on Tuesday if Crypto.com holds tokens on its balance sheet, Marszalek said it’s a “very conservatively run business” that holds “mostly fiat and stablecoins as our source of capital.”
The company has already been hammered during the crypto winter, which has pushed bitcoin and ether down by two-thirds this year. In recent months, Crypto.com reportedly slashed more than one-quarter of its workforce. Daily trading volume in CRO is down to about $365 million, according to data from Nomics. Last year, that figure was above $4 billion.
arszalek’s main goal now is evident: avoid an FTX-type run that could see the company lose a boatload of customers.
Tomi Engdahl says:
Adam Cochran / @adamscochran:
[Thread] A detailed timeline of FTX’s meltdown, starting in September: SBF’s jab at CZ, CoinDesk’s article, CZ sells FTT, “FTX is fine”, Alameda woes, and more
https://twitter.com/adamscochran/status/1593020859156865026
Jack Schickler / CoinDesk:
Bankruptcy filings: FTX CEO John J. Ray III, who oversaw Enron, condemns SBF’s “unprecedented” management, describing a “complete failure of corporate controls” — Sam Bankman-Fried’s unconventional style is under the spotlight as bankruptcy professionals pore over the FTX collapse.
New FTX Boss Condemns Management of the Crypto Exchange During Sam Bankman-Fried’s Tenure
https://www.coindesk.com/business/2022/11/17/new-ftx-boss-condemns-management-of-the-crypto-exchange-during-sam-bankman-frieds-tenure/
The former FTX CEO’s unconventional style is under the spotlight as bankruptcy professionals pore over the exchange’s collapse.
New FTX CEO John J. Ray III issued a scathing assessment of “unprecedented” poor management practices by his predecessor, Sam Bankman-Fried, in a series of filings in a Delaware court.
Ray, who has previously supervised financial scandals such as Enron, criticized poor record-keeping and a lack of experience among senior managers, as well as the use of company funds to purchase of real estate in the Bahamas.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said in a court document filed on Thursday. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
Tomi Engdahl says:
Kelsey Piper / Vox:
A chat via DM with SBF on why regulators “make everything worse”, FTX and Alameda’s “messy accounting”, why he regrets filing for bankruptcy, ethics, and more — The fallen crypto CEO on what went wrong, why he did what he did, and what lies he told along the way.
Sam Bankman-Fried tries to explain himself
https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy
The fallen crypto CEO on what went wrong, why he did what he did, and what lies he told along the way.
Tomi Engdahl says:
Tony Romm / Washington Post:
Congress, slow to move on regulating crypto, becomes transfixed by FTX’s collapse, as lawmakers wonder if the crisis could have been prevented
https://www.washingtonpost.com/us-policy/2022/11/17/congress-crypto-ftx-regulations-law/
Tomi Engdahl says:
Colin Wilhelm / The Block:
The US House Financial Services Committee plans to hold a hearing in December on FTX’s collapse and invites Sam Bankman-Fried, Alameda, Binance, and others
U.S. House committee to hold hearing on FTX collapse and crypto fall out
https://www.theblock.co/post/187617/u-s-house-committee-to-hold-hearing-on-ftx-collapse-and-crypto-fall-out
Quick Take
The House Financial Services Committee will hold a hearing on FTX in December.
In a joint statement announcing the hearing, current Chair Maxine Waters, D-Calif., and likely incoming chair Rep. Patrick McHenry, R-N.C., said they expect participation from companies and individuals involved, including Sam Bankman-Fried, Alameda Research, and Binance.
The House Financial Services Committee will hold a hearing next month on FTX’s collapse and the broader implications for the digital asset industry.
The committee says it expects to hear from “the companies and individuals involved, the companies and individuals involved, including Sam Bankman-Fried, Alameda Research, Binance, FTX, and related entities, among others,” for a hearing to take place in December.
“Oversight is one of Congress’ most critical functions and we must get to the bottom of this for FTX’s customers and the American people,” said Rep. Patrick McHenry, R-N.C., the top committee Republican, in a statement. “It’s essential that we hold bad actors accountable so responsible players can harness technology to build a more inclusive financial system.”
Tomi Engdahl says:
Reuters:
Sources reveal FTX and Alameda’s dubious financial practices, like showing investors some of the same assets on their books despite claiming separate operations
Special Report: FTX’s Bankman-Fried begged for a rescue even as he revealed huge holes in firm’s books
https://www.reuters.com/technology/ftxs-bankman-fried-begged-rescue-even-he-revealed-huge-holes-firms-books-2022-11-16/
FTX founder sought to raise $7 billion from investors including Sequoia, Apollo, TPG, three sources say
FTX also turned to Nomura and Saudi wealth fund – sources
FTX and trading affiliate Alameda, nominally independent, both listed same assets on their books – investor presentations
Records seen by Reuters show FTX diverted large share of fee income to Alameda, posted big loss earlier this year
Nov 16 (Reuters) – As customers withdrew billions of dollars from crypto exchange FTX one frantic Sunday this month, founder Sam Bankman-Fried worked the phones in a futile bid to raise $7 billion in emergency funds.
Hunkered in his Bahamas apartment, Bankman-Fried toiled through the night, calling some of the world’s biggest investors, including Sequoia Capital, Apollo Global Management Inc (APO.N) and TPG Inc (TPG.O), according to three people with knowledge of the matter.
Sequoia was among investors that lined up only months before to pump money into Bankman-Fried’s empire. But not now. Sequoia was shocked at the amount of money Bankman-Fried needed to save FTX, according to the sources, while Apollo first asked for more information, only to later decline. Both firms and TPG declined to comment for this article.
In the end, the calls came to naught and FTX filed for bankruptcy on Nov. 11, leaving an estimated 1 million customers and other investors facing total losses in the billions of dollars. The collapse reverberated across the crypto world and sent bitcoin and other digital assets plummeting.
Some details of what happened at FTX have already emerged: Reuters reported Bankman-Fried secretly used $10 billion in customer funds to prop up his trading business, for instance, and that at least $1 billion of those deposits had vanished.
Now, a review of dozens of company documents and interviews with current and former executives and investors provide the most comprehensive picture so far of how Bankman-Fried, the 30-year-old son of Stanford University professors, became one of the richest men in the world in just a couple of years, then came crashing down.
The documents, reported here for the first time, include financial statements, business updates, company messages and letters to investors.
Tomi Engdahl says:
https://simplecryptoguide.com/fi/mika-on-hajautettu-porssi-dex/
Tomi Engdahl says:
Alameda Research CEO Caroline Ellison is a math whiz who loves Harry Potter and taking big risks. She is also one of the supporting players in Sam Bankman-Fried’s FTX catastrophe — and a new darling of the alt-right. http://on.forbes.com/6182MFQJ2
Tomi Engdahl says:
A week after the dramatic collapse of Sam Bankman-Fried’s tangled web of crypto companies, countless unanswered questions remain. One of the biggest: How did his trading firm, Alameda Research, apparently lose billions of dollars?
How Did Sam Bankman-Fried’s Alameda Research Lose So Much Money?
https://www.forbes.com/sites/jeffkauflin/2022/11/19/how-did-sam-bankman-frieds-alameda-research-lose-so-much-money/?sh=60c33eee44c9&utm_campaign=socialflowForbesMainFB&utm_source=ForbesMainFacebook&utm_medium=social
A week after the dramatic collapse of Sam Bankman-Fried’s tangled web of crypto companies, countless unanswered questions remain. One of the biggest: How did his trading firm, Alameda Research, apparently lose billions of dollars? Those losses appear to have prompted someone in Bankman-Fried’s operation to improperly transfer customer funds from trading platform FTX to Alameda, a decision that left FTX vulnerable to a withdrawal run that precipitated the sudden bankruptcy.
Many details remain unknown, but a blurry picture is forming of the possible causes behind Alameda’s steep losses. We spoke with a half-dozen crypto traders and investors familiar with Alameda to understand the leading theories. A spokesperson for Sam Bankman-Fried and Alameda’s former co-CEOs Caroline Ellison and Sam Trabucco didn’t respond to Forbes’ requests for comment. We sent Bankman-Fried questions on messaging app Signal, but he hasn’t yet answered them.
Moving From Arbitrage to High-Risk Bets
The first theory is that the young traders at Alameda, which was once one of the largest crypto trading firms in the world, weren’t as sophisticated as their reputation suggested.
Bankman-Fried was regarded as an excellent trader when he started Alameda in 2018, and he focused on arbitraging price differences in cryptocurrencies in different markets. But the next year, he shifted his primary focus to launching his trading platform FTX.
After bitcoin started to rise sharply in the fall of 2020, Alameda moved away from its initial focus on making high-speed, market-neutral bets that didn’t depend on predicting if cryptocurrencies would rise or fall. Some traders believe Alameda changed its strategy because it lost its competitive edge as more experienced firms like Jump Capital ramped up their crypto trading business.
In March 2021, then 26-year-old Caroline Ellison, one of Alameda’s co-CEOs, seemed to acknowledge this pivot
Investing Borrowed Money in Other Crypto Players
Another capital drain was venture investments. According to PitchBook, Alameda made more than 150 investments across the crypto industry, including in bitcoin miner Genesis Digital Mining and now-bankrupt crypto broker Voyager Digital. Alameda apparently took out loans to fund those bets. As the crypto market crashed, lenders reportedly attempted to recall those funds that were tied up in these illiquid investments. FTX’s and Alameda’s executives then took the questionable step of trying to pay back some of those Alameda loans using FTX customer funds, the Wall Street Journal has reported.
But according to bankruptcy court filings, FTX executives also took out billions of dollars in loans from Alameda to fund everything from political contributions to Bankman-Fried’s purchase for $650 million of a 7.6% stake in Robinhood. It’s unclear how these loans may have also added to Alameda’s losses on top of everything else. Alameda itself has outstanding liabilities of $5.1 billion according to a filing Thursday in the Chapter 11 bankruptcy case in Delaware.
Shoddy Record-Keeping and Accounting Controls
A final–and perhaps substantial–contributor to Alameda’s losses: Bankman-Fried’s companies had terrible record-keeping and accounting systems. FTX customer deposits were not tracked, according to a bankruptcy filing, leaving it unclear in the bankruptcy proceedings what’s owed to customers. An example of this confusion: the leaked FTX balance sheet shows $8.8 billion in liabilities, while the Thursday filing in the Delaware bankruptcy case shows only $6.4 billion. It’s not clear what accounts for the discrepancy, but regardless, the numbers are still in flux.
Bankman-Fried’s careless accounting habits appear to date back to the earliest days of Alameda. When crypto venture capitalist Alex Pack was considering investing in Alameda in early 2019 and conducting due diligence, he saw they had lost $10 million in a single month–a hefty sum for such a small firm. When Pack asked about it, Bankman-Fried said it was due to “trade errors,’’ Pack recalls.
Pack says he kept probing, but he could never figure out what happened. “At one point, they just said, ‘Sorry, we didn’t have great record keeping back then. We can’t answer all these questions.’” Pack passed on the deal. He thought they seemed like smart traders but walked away due to what he saw as “significant recklessness around risk taking and extremely poor infrastructure and accounting.”
Today, Pack says tracking positions in crypto can be particularly hard because you have to build your own trading systems, and the task gets “exponentially more difficult” as your book of business grows. And if Alameda started with bad accounting systems, Pack says it’s “not inconceivable” that they could have ended up with much more debt than they realized, as Bankman-Fried has claimed.
Tomi Engdahl says:
Caroline Ellison is a math whiz, trader, and the shadow figure behind FTX’s collapse — here’s how a devout Harry Potter fan came to take part in crypto’s biggest implosion
https://www.businessinsider.com/caroline-ellison-ftx-alameda-research-ceo-collapse-2022-11?r=US&IR=T
Caroline Ellison was the CEO of Alameda Research, a trading firm launched by Sam Bankman-Fried.
She oversaw many of the risky bets Alameda took with FTX customers’ crypto tokens.
Here is her background story.
Over the past few weeks, a mushroom of secrets about the inner workings of Sam Bankman-Fried’s crypto exchange, FTX, have come to light.
From that, the once shadowy figure of Caroline Ellison has emerged as an important character behind FTX’s seeming success and surprising downfall.
Ellison was the head of Alameda Research — the trading firm through which Bankman-Fried moved crypto tokens in tandem with running FTX. Amidst the revelation that FTX borrowed money from customer accounts to fund bets via Alameda, Ellison has become a subject of online speculation.
Tomi Engdahl says:
Sunil Jagtiani / Bloomberg:
Crypto prices sink, with bitcoin dropping ~4% and ether ~7%, dragged down by the ongoing FTX saga, potential contagion, and the FTX hacker offloading ether — Cryptocurrency prices struggled Monday in the ongoing crisis sparked by the downfall of Sam Bankman-Fried’s once powerful FTX empire.
Crypto Markets Sag as Funds Drained From FTX Switch Out of Ether
https://www.bloomberg.com/news/articles/2022-11-21/crypto-market-sags-as-funds-drained-from-ftx-switch-out-of-ether
Analysts see some proceeds drained from FTX switch to Bitcoin
Concern about further digital-asset bankruptcies also hit mood
Cryptocurrency prices struggled Monday in the ongoing crisis sparked by the downfall of Sam Bankman-Fried’s once powerful FTX empire.
Stephanie Murray / The Block:
DCG’s Grayscale refuses to share proof of reserves, citing “security concerns”, as Grayscale Bitcoin Trust reaches new lows and DCG’s Genesis halts withdrawals — Grayscale will not show proof of reserves due to “security concerns,” after its bitcoin and ether products fell to all-time lows this week.
Grayscale won’t share proof of reserves, citing ‘security concerns’
https://www.theblock.co/post/188606/grayscale-wont-share-proof-of-reserves-citing-security-concerns
uick Take
Grayscale will not show proof of reserves due to “security concerns,” after its bitcoin and ether products fell to all-time lows this week.
Crypto firms are under pressure to share information about the health of their reserves after FTX filed for bankruptcy protection.
“Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure,” Grayscale said Friday afternoon on Twitter.
The firm acknowledged its decision to keep its reserve information private would be a “disappointment” to some investors. Crypto firms are being pressed to show more information about their reserves after crypto behemoth FTX filed for bankruptcy protection earlier this month.
“But panic sparked by others is not a good enough reason to circumvent complex security arrangements that have kept our investors’ assets safe for years,” Grayscale said.
Grayscale Bitcoin Trust (GBTC) hit a record low on Thursday, as did its ETHE product. The firm’s parent company, Digital Currenc
Tomi Engdahl says:
https://techcrunch.com/2022/11/21/crypto-firm-genesis-says-it-has-no-plans-to-file-bankruptcy-imminently/?tpcc=tcplusfacebook
Tomi Engdahl says:
Bloomberg:
Sources: Genesis struggles to raise $1B+ funding for its lending unit and warns potential investors that it may need to file for bankruptcy if its efforts fail — Digital-asset brokerage Genesis is struggling to raise fresh cash for its lending unit, and it’s warning potential investors …
Crypto Brokerage Genesis Is Said to Warn of Bankruptcy Without Funding
https://www.bloomberg.com/news/articles/2022-11-21/crypto-firm-genesis-warns-of-possible-bankruptcy-without-funding
Genesis executives spent weekend seeking to line up financing
Genesis lending unit suspended withdrawals after FTX collapse
Digital-asset brokerage Genesis is struggling to raise fresh cash for its lending unit, and it’s warning potential investors that it may need to file for bankruptcy if its efforts fail, according to people with knowledge of the matter.
Stephanie Murray / The Block:
DCG’s Grayscale refuses to share proof of reserves, citing “security concerns”, as Grayscale Bitcoin Trust reaches new lows and DCG’s Genesis halts withdrawals
https://www.theblock.co/post/188606/grayscale-wont-share-proof-of-reserves-citing-security-concerns
Tomi Engdahl says:
Cheyenne Ligon / CoinDesk:
US DOJ says two Estonians were arrested for a $575M cryptocurrency fraud and money laundering scheme that allegedly defrauded hundreds of thousands of investors — According to the Department of Justice, the two men used shell companies to launder the proceeds of their fraudulent schemes and buy luxury cars and real estate in Estonia
Two Estonian Citizens Charged With Running a Series of Crypto Scams Totaling $575M
https://www.coindesk.com/policy/2022/11/21/two-estonians-charged-with-running-a-series-of-crypto-scams-totalling-575m/
According to the Department of Justice, the two men used shell companies to launder the proceeds of their fraudulent schemes and buy luxury cars and real estate in Estonia.
Tomi Engdahl says:
https://vitalik.ca/general/2022/11/19/proof_of_solvency.html
Tomi Engdahl says:
Non-Fungible Token Bubble Lasted 10 Months
https://blog.dshr.org/2022/10/non-fungible-token-bubble-lasted-10.html?m=1
Although the first Non-Fungible Token was minted in 2014, it wasn’t until Cryptokitties bought the Ethereum blockchain to its knees in December 2017 that NFTs attracted attention. But then they were swiftly hailed as the revolutionary technology that would usher in Web 3, the Holy Grail of VCs, speculators and the major content industries because it would be a completely financialized Web. Approaching 5 years later, it is time to ask “how’s it going?”
Below the fold I look at the details, but the TL;DR is “not so great”; NFTs as the basis for a financialized Web have six main problems:
Technical: the technology doesn’t actually do what people think it does.
Legal: there is no legal basis for the “rights” NFTs claim to represent.
Regulatory: much of the business of creating and selling NFTs appears to violate securities law.
Marketing: the ordinary consumers who would pay for a financialized Web absolutely hate the idea.
Financial: like cryptocurrencies, the fundamental attraction of NFTs is “number go up”. And much of the trading in NTFs was Making Sure “Number Go Up”. But, alas “number go down”, at least partly because of problem #4.
Criminal: vulnerabilities in the NFT ecosystem provide a bonanza for thieves.
“Technical: the technology doesn’t actually do what people think it does.
Legal: there is no legal basis for the “rights” NFTs claim to represent.
Regulatory: much of the business of creating and selling NFTs appears to violate securities law.
Marketing: the ordinary consumers who would pay for a financialized Web absolutely hate the idea.
Financial: like cryptocurrencies, the fundamental attraction of NFTs is “number go up”. And much of the trading in NTFs was Making Sure “Number Go Up”. But, alas “number go down”, at least partly because of problem #4.
Criminal: vulnerabilities in the NFT ecosystem provide a bonanza for thieves.”
Ownership of a non-fungible real-world object, say a house, confers the right to control access to it. So it was natural that NFT owners would expect the same right. They were disappointed, which led to loud complaints about “right-clicker mentality among the uninitiated:
what is the “right-clicker mentality”? Quite literally, it is referring to one’s ability to right-click on any image they see online to bring up a menu and select the “save” option in order to save a copy of the image to their device. In this term we have a microcosm of the entire philosophical debate surrounding NFTs.
Legal
I wrote in NFTs and Web Archiving:
There is no guarantee that the creator of the NFT had any copyright in, or other rights to, the content to which either of the links resolves at any particular time
Tomi Engdahl says:
Ryan Weeks / The Block:
Binance’s $1B recovery fund is a lifeline, but questions remain, including on decision making and why funds came from a cold wallet that holds customer funds — – The billion-dollar fund could be a crucial lifeline for the industry, as companies tussle with the aftershocks of FTX’s collapse.
Binance’s bailout fund is a welcome backstop for crypto — but questions remain
https://www.theblock.co/post/190177/binances-bailout-fund-backstop-crypto-questions
he billion-dollar fund could be a crucial lifeline for the industry, as companies tussle with the aftershocks of FTX’s collapse.
But the fund also raises questions about Binance’s influence and potential antitrust issues, according to legal experts.
Last week, the world’s largest crypto exchange Binance formally unveiled a $1 billion “industry recovery fund” to help contain the damage dealt to the industry by the spectacular implosion of FTX. A few weeks earlier, Binance’s CEO Changpeng Zhao had played a pivotal role in the events that led to that collapse.
Zhao said in a tweet on Nov. 6 that Binance would start selling off its holdings in FTT, FTX’s token, triggering a liquidity crisis that showed the business run by Sam Bankman-Fried to be nothing but a house of cards.
Though Zhao has since dismissed “conspiracy theories” that he had orchestrated FTX’s demise and that of its sister trading firm Alameda Research, the irony of Binance playing both doomsayer and redeemer in the same month has not been lost on observers. “You sort of giveth with one hand and taketh away with the other,” said Hagen Rooke, a partner at the law firm Reed Smith.
Tomi Engdahl says:
Hukkuminen, helikopterionnettomuus, kuolema nukkuessa – kolme kryptomiljonääriä on kuollut epäilyttävissä olosuhteissa https://www.is.fi/taloussanomat/art-2000009234869.html
Kolmella kuolleella kryptomiljonäärillä oli merkittävä rooli edustamiensa yhtiöiden toiminnassa.
KOLME kryptovaluutoilla rikastunutta henkilöä on kuollut kuukauden sisällä epäilyttävissä olosuhteissa. Torstaina 25. marraskuuta venäläinen kryptomiljardööri Vyacheslav Taran, 53, kuoli Monacossa, kun häntä kuljettanut helikopteri syöksyi maahan.
Taran oli yksi Libertex-kryptovaluutta-alustan perustajista ja yhtiön hallituksen puheenjohtaja.
VAIN kaksi päivää ennen Taranin kuolemaa Tiantian Kullander, 30, kuoli kotonaan. Miehen perustama Amber Group -niminen kryptovaluutta-alusta kertoi Tiantianin kuolemasta sunnuntaina.
LOKAKUUN 28. päivänä yhdysvaltalainen Nikolai Mushegian, 29, löytyi hukkuneena rantavedestä Puerto Ricossa.
muutama tunti ennen kuolemaansa Mushegian twiittasi, että Yhdysvaltain keskustiedustelupalvelu CIA ja Israelin tiedustelupalvelu Mossad haluavat tappaa hänet.
Tomi Engdahl says:
Christiana Loureiro / The Block:
IBM and Maersk’s blockchain-enabled supply chain offering TradeLens, launched in 2018, will shut down in Q1 2023; Maersk blames a lack of industry collaboration — – The companies made a viable platform but couldn’t get a global collaboration going. — Danish shipping company Maersk …
Maersk, IBM shutting down blockchain-enabled supply chain project
https://www.theblock.co/post/190782/maersk-ibm-shutting-down-blockchain-enabled-supply-chain-project
The companies made a viable platform but couldn’t get a global collaboration going.
Danish shipping company Maersk and IBM are withdrawing their blockchain-enabled supply chain offering, TradeLens, and discontinuing the platform.
TradeLens was founded on the “bold vision to make a leap in global supply chain digitization as an open and neutral industry platform,” said Rotem Hershko, head of business platforms at Maersk.
Unfortunately, thought the platform was viable, the need for full global industry collaboration failed. As a result, TradeLens has not reached the level of commercial viability necessary to continue work and meet the financial expectations as an independent business, Hershko said.
Tomi Engdahl says:
David Yaffe-Bellany / New York Times:
Internal FTX documents detail SBF’s desperate attempts to cling to power, convinced he could save FTX; SBF claims “numerous parties” were willing to invest
https://www.nytimes.com/2022/11/29/technology/sam-bankman-fried-ftx-bankruptcy.html
Tomi Engdahl says:
Manish Singh / TechCrunch:
The European Central Bank says that bitcoin is “rarely used for legal transactions” and is on the “road to irrelevance”, without citing any strong data points — European Central Bank officials alleged on Wednesday that bitcoin is “rarely used for legal transactions …
Bitcoin ‘rarely’ used for legal transactions, on ‘road to irrelevance’, say European Central Bank officials
Manish Singh@refsrc / 2:42 PM GMT+2•November 30, 2022
https://techcrunch.com/2022/11/30/bitcoin-rarely-used-for-legal-transactions-on-road-to-irrelevance-say-european-central-bank-officials/
European Central Bank officials alleged on Wednesday that bitcoin is “rarely used for legal transactions,” is fuelled by speculation and the recent erosion in its value indicates that it is on the “road to irrelevance,” in a series of stringent criticism (bereft of strong data points) of the cryptocurrency industry as they urged regulators to not lend legitimacy to digital tokens in the name of innovation.
The value of bitcoin recently finding stability at around $20,000 was “an artificially induced last gasp before the road to irrelevance – and this was already foreseeable before FTX went bust and sent the bitcoin price to well down below $16,000,” wrote Ulrich Bindseil and Jürgen Schaaf on ECB’s blog.
The central bankers argue that bitcoin’s conceptual design and “technological shortcomings” make it “questionable” as a means of payment. “Real bitcoin transactions are cumbersome, slow and expensive. Bitcoin has never been used to any significant extent for legal real-world transactions,” they wrote.
Bitcoin also “does not generate cash flow (like real estate) or dividends (like equities), cannot be used productively (like commodities) or provide social benefits (like gold). The market valuation of bitcoin is therefore based purely on speculation,” they wrote.
Portions of the bankers’ arguments lack strong data points and appear fuelled by irrational and emotionally-driven bias. Naturally, it has drawn criticism from several tech-savvy enthusiasts.
Tomi Engdahl says:
Crypto CEOs’ and Founders’ ‘Sudden Deaths’—What We Do Know, What We Don’t
https://www.newsweek.com/crypto-ceos-founders-sudden-deathswhat-we-do-know-what-we-dont-1763586?utm_medium=Social&utm_source=Facebook#Echobox=1669933754
News of the deaths of two major cryptocurrency CEOs in one week has fueled a spate of conspiratorial claims and narratives, purporting sinister links between their passing and that of other billionaires and multi-millionaires from the industry over the years.
Tomi Engdahl says:
Kraken, one of the world’s largest crypto exchanges, announced it was laying off 1,100 workers, or 30% of its headcount.
Crypto exchange Kraken lays off 1,100 employees
https://www.cnbc.com/2022/11/30/crypto-exchange-kraken-lays-off-1100-employees.html?utm_content=Main&utm_medium=Social&utm_source=Facebook#Echobox=1669828753
Kraken, the world’s third-largest crypto exchange by volume, is laying off about 30% of employees, its CEO said.
The company pointed to slowing macroeconomic and geopolitical factors as driving the weakening in crypto markets.
It comes on the same day that DoorDash announced 1,250 job cuts and amid massive turmoil in the crypto space.
Tomi Engdahl says:
Matt Levine / Bloomberg:
Unpacking the 2022 crypto credit crisis and its parallels with the 2008 financial crisis by analyzing Three Arrows Capital’s collapse, FTX’s implosion, and more — The crypto financial crisis of 2022 — Apparently the way it works is that if you blow up a big crypto firm …
Crypto Had a Credit Bubble
Three Arrows, FTX/Alameda, bribes and bonuses.
https://www.bloomberg.com/opinion/articles/2022-12-05/crypto-had-a-credit-bubble
Tomi Engdahl says:
Gretchen Morgenson / NBC News:
A look at Silvergate, one of the few US banks that let customers move dollars onto crypto exchanges, now drawing congressional scrutiny following FTX’s collapse
https://www.nbcnews.com/tech/crypto/elizabeth-warren-ftx-silvergate-bank-crypto-rcna60147
US bank Silvergate defends ties to Sam Bankman-Fried’s crypto groups
Federal Reserve-regulated company says it performed ‘significant due diligence’ on FTX and Alameda Research
https://www.ft.com/content/38ac9101-4642-4acf-92ba-3f7580987deb
Tomi Engdahl says:
FTX and Alameda’s massive investments will take a long time to unwind from crypto industry
https://techcrunch.com/2022/12/06/ftx-and-alamedas-massive-investments-will-take-a-long-time-to-unwind-from-crypto-industry/?tpcc=ecfb2020
Reading the spreadsheet detailing the investment portfolio of Alameda Research, the investment arm of fallen crypto exchange FTX, you wonder how they had time to do anything other than invest given the sheer number of deals recorded. Perhaps that was part of the problem.
FTX and its sister company (or parent company, depending on how you look at it) Alameda had their hands in a bunch of different startups. The depth of its roster wasn’t very transparent until now.
Tomi Engdahl says:
Starbucks opens up its web3 loyalty program and NFT community to first beta testers
https://techcrunch.com/2022/12/08/starbucks-opens-up-its-blockchain-based-loyalty-program-and-nft-community-to-first-beta-testers/?tpcc=tcplusfacebook
Starbucks today is launching its blockchain-based loyalty program and NFT community, Starbucks Odyssey, to its first group of U.S. beta testers. The new initiative, which includes coffee-themed NFTs that translate to real-world experiences, is an extension of Starbucks’ existing loyalty program, Starbucks Rewards, but leverages web3 technology like the polygon blockchain and NFTs.
Tomi Engdahl says:
FTX-hosted NFTs break after website is redirected to a restructuring page
https://web3isgoinggreat.com/?id=ftx-hosted-nfts-break-after-website-is-redirected-to-a-restructuring-page
After FTX declared bankruptcy, the entire FTX.us domain was redirected to a page providing information on the bankruptcy proceedings.
However, NFTs that had been minted on the FTX platform relied on metadata from an API at that domain, meaning that the NFTs are now pointing to broken links. Owners of these NFTs can still see that the NFT exists, but images no longer work—even when viewing the NFTs in their own wallets, or when listing them for sale on other platforms.
Other projects that rely on the FTX NFT platform’s API, such as the Coachella NFT project, also broke: the Coachella NFT platform shows 0 NFTs in existence. Those NFTs still show up where they are listed on external NFT platforms, although the images and metadata are broken.
Tomi Engdahl says:
Emily Nicolle / Bloomberg:
As US prosecutors reportedly investigate FTX and Alameda’s role in orchestrating LUNA and UST’s collapse, a look at the timeline of events and evidence
Mystery of Terra Collapse Deepens With Possible FTX Role Raised
https://www.bloomberg.com/news/articles/2022-12-08/mystery-of-terra-ust-collapse-deepens-with-possible-ftx-role-raised
US looks to see if Alameda spurred drop, New York Times says
Terra founder says what’s done in darkness will come to light
Tomi Engdahl says:
Hannah Miller / Bloomberg:
Singapore-based Amber Group, one of Asia’s largest crypto exchanges, cuts 40% of its staff, scraps retail operations, and terminates its Chelsea FC sponsorship
Crypto’s Amber to End Chelsea Sponsorship, Axe Over 40% of Jobs in FTX Fallout
https://www.bloomberg.com/news/articles/2022-12-09/crypto-s-amber-to-end-chelsea-sponsorship-axe-over-40-of-jobs-in-ftx-fallout?leadSource=uverify%20wall
Darling of former crypto boom will also scrap retail operation
Digital-asset outlook withering after collapse of FTX exchange
Tomi Engdahl says:
Chelsey Cox / CNBC:
The SEC asks US public companies to disclose their exposure and risks related to crypto assets after “recent bankruptcies and financial distress” — – The SEC is advising companies to disclose their involvement with digital commodities firms, according to guidance released Thursday.
SEC issues new guidance requiring companies to disclose cryptocurrency risks
https://www.cnbc.com/2022/12/08/sec-issues-new-guidance-requiring-companies-to-disclose-digital-currency-risks.html
The SEC is advising companies to disclose their involvement with digital commodities firms, according to guidance released Thursday.
The guidance comes a day after SEC Chair Gary Gensler defended the agency from claims that it failed to prevent crypto firms from misusing customer funds.
Companies are advised to describe any risks or material exposures related to crypto assets.
The Securities and Exchange Commission released new guidance Thursday, requiring companies that issue securities to disclose to investors their exposure and risk to the cryptocurrency market.
The guidance comes about a month after FTX, one of the world’s largest cryptocurrency exchanges, filed for bankruptcy after loan customer funds to a risky trading company that was founded by FTX’s former CEO Sam Bankman-Fried. Over 100,000 customers were affected by the exchange’s failure.
On Wednesday, SEC Chair Gary Gensler fended off accusations that the agency has failed to prevent crypto firms from misusing customer funds. Gensler also said the SEC would take more enforcement actions if the firms fail to comply with existing rules.
Under the new guidance, companies will have to include crypto asset holdings as well as their risk exposure to the FTX bankruptcy and other market developments in their public filings. The company’s bankruptcy filings indicate the company has over 1 million creditors.
A suggested item within the letter asks the issuer to describe how company bankruptcies and subsequent effects “have impacted or may impact your business, financial condition, customers, and counterparties, either directly or indirectly.” Another asks for a description of “any material risk to you, either direct or indirect, due to excessive redemptions, withdrawals, or a suspension of redemptions or withdrawals, of crypto assets. Identify any material concentrations of risk and quantify any material exposures.”
The SEC’s corporate finance division encouraged companies to adopt these recommendations as they prepare documents “that may not typically be subject to review by the Division before their use.”
Tomi Engdahl says:
Ezra Reguerra / Cointelegraph:
Some NFTs minted on FTX now show blank images instead of the original art as the metadata points to an FTX.US domain used for a bankruptcy restructuring website
NFTs minted on FTX break, highlighting Web2 hosting flaws
https://cointelegraph.com/news/nfts-minted-on-ftx-break-highlighting-web2-hosting-flaws
NFTs hosted on FTX platform were affected by the firm’s collapse, showing blank images instead of the original art.
The FTX collapse highlighted many flaws in the crypto industry. Now, the effects of the FTX debacle have broken into the nonfungible token (NFT) space with users unable to view their FTX-hosted NFTs.
In a tweet, Solana engineer jac0xb.sol pointed out how the metadata of FTX-hosted NFTs now points to a restructuring website that gives out information about bankruptcy proceedings. According to jac0xb.sol, the NFTs minted on FTX were hosted using a Web2 application programming interface (API), resulting in images not showing.
After the FTX exchange filed for bankruptcy, the FTX.US domain was entirely redirected to the bankruptcy proceeding page. Because of this, NFT owners are still able to see that their NFTs exist. However, images cannot be seen anymore, even when viewing them within wallets or listing them on NFT trading platforms.
With this, jac0xb.sol also called out to collections that are still hosting metadata on Amazon Web Services, suggesting that there is a “lesson to be learned” with how FTX hosted their NFTs using a Web2 API service. In addition, some users even commented that this highlights problems with Web3 companies relying on centralized services like AWS or the Google Cloud Platform.
On Aug. 5, NFT executives brought up the topic of NFTs not living on the blockchain. In a Cointelegraph interview, Jonathan Victor, the Web3 storage lead at Protocol Labs, and Alex Salnikov, the co-founder of Rarible, explained that technically, the tokens are stored somewhere else. The duo highlighted that main chains often are very limited in size and that it costs more to store data on the blockchain.
Despite the troubles brought about by the FTX collapse, the NFT industry remains confident in the future of the space. On Nov. 22, various players within the NFT space spoke with Cointelegraph and expressed their confidence that the space will eventually recover. The executives highlighted that it’s important for the NFT community to focus on bringing more utility to their collections.
Tomi Engdahl says:
Crypto.com CEO has history of red flags including bankruptcy and quick exits
https://www.cnbc.com/2022/12/09/cryptocom-kris-marszalek-involved-bankruptcy-offshore-holdings-client-money-monaco.html
Before founding Crypto.com, Kris Marszalek was involved in multiple ventures that ended in collapse, including one where suppliers claimed they were unable to access their earnings.
Over a decade ago, Marszalek and his business partner were paid millions of dollars by their manufacturing company, months before it entered bankruptcy.
In a tweet thread published ahead of this story, Marszalek wrote “startups are hard,” and “you will fail over and over again.”
Kris Marszalek wants everyone to know that his company, Crypto.com, is safe and in good hands. His TV appearances and tweets make that clear.
It’s an understandable approach. The crypto markets have been in freefall for much of the year, with high-profile names spiraling into bankruptcy. When FTX failed last month just after founder Sam Bankman-Fried said the crypto exchange’s assets were fine, trust across the industry evaporated.
Marszalek, who has operated out of Asia for over a decade, subsequently assured clients that their funds belong to them and are readily available, in contrast to FTX, which used client money for all sorts of risky and allegedly fraudulent activities, according to court filings and legal experts.
Bankman-Fried has denied knowing about any fraud. Regardless, FTX clients are now out billions of dollars with bankruptcy proceedings underway.
Crypto.com, one of the world’s largest cryptocurrency exchanges, may well be in fine health. After the FTX collapse, the company published its unaudited, partial proof of reserves. The release revealed that nearly 20% of customer funds were in a meme token called shiba inu, an amount eclipsed only by its bitcoin allocation. That percentage has dropped since the initial release to about 15%, according to Nansen Analytics.
On Friday, Crypto.com published an audited proof of reserves, attesting that customer assets were held on a one-to-one basis, meaning that all deposits are 100% backed by Crypto.com’s reserves. The audit was performed by the Mazars Group, the former accountant for the Trump Organization.
While no evidence has emerged of wrongdoing at Crypto.com, Marszalek’s business history is replete with red flags.
Court records, public filings and offshore database leaks reveal a businessman who moved from industry to industry, rebooting quickly when a venture would fail. He started in manufacturing, producing data storage products for white label sale, then moved into e-commerce, and finally into crypto.
Tomi Engdahl says:
Krisztian Sandor / CoinDesk:
A look at what went wrong at decentralized lending protocol Maple Finance, as $54M in loans, or 66% of its lending pools, turn bad and what could happen next
Maple Finance’s $54M of Sour Debt Shows Risks of Crypto Lending Without Collateral
https://www.coindesk.com/markets/2022/12/12/maple-finances-54m-of-sour-debt-shows-risks-of-crypto-lending-without-collateral/
Maple Finance, the largest unsecured crypto lending platform, is grappling with a debt crisis while gearing up for a major system upgrade. The project’s MPL token has plunged, and depositors are likely to stomach big losses. Here’s how it happened, and what comes next.
The blockchain-based lending protocol Maple Finance started in May 2021 with a bold concept: Build a decentralized credit marketplace for cryptocurrencies, where lenders and borrowers could come together.
Unlike many other decentralized finance (DeFi) lending platforms that have cropped up in recent years in the nascent digital-asset industry, Maple’s model would not require extra cryptocurrencies to be deposited as collateral that could be seized or quickly liquidated in the event of a default. Instead, underwriters of various lending “pools” would make the decision on whether to grant loans – essentially evaluating the borrower’s ability to pay based on their creditworthiness alone.
But this year’s trauma in crypto markets has provided a brutal stress test that now has Maple facing the biggest crisis of its 18-month history.
In just the past two weeks, some $36 million of loans have defaulted with another $18 million distressed. The soured debt represents 66% of the total outstanding in Maple’s four active lending pools, with some of the biggest borrowers acknowledging they were devastated by the spectacular collapse of Sam Bankman-Fried’s FTX crypto exchange. Maple’s native token, MPL, has tumbled 50% over the period to an all-time low.
Now analysts and participants in the Maple project are grappling with what went wrong and how the rules and procedures might be tweaked to make the platform more sustainable. Since Maple merely serves as the operator of the project, and not as a lender to the various pools, it’s not facing its own credit crisis. But with depositors to Maple’s lending pools scarred by the recent losses, a key question is whether participants will stick around.
A major focus of analysts is on what appears to be the Achilles heel of the business model of uncollateralized crypto lending. Poor protocol design choices combined with dubious human-made decisions left depositors unprotected and facing up to 80% losses.
Crypto credit crunch
Maple rode the wave of the crypto lending boom, growing its loan book to $900 million in a year. The protocol was initially popular among crypto trading firms and market makers hungry for liquidity to borrow. Depositors include average retail investors and institutional players who seek yield. In Maple’s decentralized model, the depositors are actually the lenders.
Maple’s loan process is governed by computer-coded smart contracts. However, the protocol has centralized elements.
Every credit pool has a delegate, a financial firm, that underwrites the loans and supposedly makes sure the pool’s money is lent to entities who can pay the loans back.
The credit pool manager role is crucial on Maple and its rivals, since loans are undercollateralized. It means that borrowers post less assets in value, often nothing at all, to secure a loan. So there’s not much to be seized if the loans go bad; it’s a like a mortgage without a lien on the home.
Earlier this year, after the Terra blockchain’s collapse triggered a wave of cascading losses and a crypto credit crunch, deposits and loans on Maple shrank quickly. FTX’s swift unraveling in November dealt another blow. Outstanding loans fell to $82 million, according to data by Token Terminal.
Two former credit pool managers, crypto lender Celsius Network and FTX sister trading firm Alameda Research, are now in bankruptcy and getting tarred in court and in the media over allegedly unsavory business practices.
A third credit pool manager, Orthogonal Trading, allegedly misrepresented its financials to hide losses from FTX and was booted from Maple on Dec. 5.
One of the two remaining pool managers, M11 Credit, a subsidiary of investment firm Maven 11, has come under fire recently for allowing bad debt to pile up in its three lending pools.
“If arbitrary extensions are given, what is the point of using blockchain tech other than to watch the goal post move?” one user complained on Maple’s Discord channel.
When asked about the extension, M11 Credit told CoinDesk in an email that it decided to refinance the loans “only after receiving very strong assurances” and “extensive conversations with stakeholders.”
Faulty design
Seasoned bankers know that defaults are inevitable in the lending business; that’s why there are built-in safety checks for when it eventually happens. In Maple’s case, there may not have been enough precautions taken.
Every credit pool on the platform has a separate fund called “pool cover” that acts like insurance to cover the first losses – or at least a part of it – in the event of a default. To make sure that the pool’s manager acts responsibly and does their best to prevent any defaults, they must lock up assets in the pool cover.
Angry users now question whether the underwriters had enough skin in the game.
M11 Credit has assets worth less than $1.2 million altogether in the pool covers while being responsible for three pools of $74 million of loans and collecting fees for managing.
Any investor can add to this insurance fund by depositing USDC and Maple’s own token, MPL, and earn rewards for taking the risk of first loss.
Still, savvy investors sniffing trouble may move fast to withdraw from the pool cover before a default, depleting the fund to compensate creditors.
At press time, all three M11-managed pools’ pool cover have mostly been depleted, covering only a few percent of the bad debts.
“Faulty design,” as Fundstrat’s Walter Teng described it.
MPL dropped 35% last week, which may have contributed to depleting funds to compensate creditors.
What happens now with Maple Finance
The full picture isn’t yet clear, but potential losses amount to tens of millions of dollars.
Based on major creditor Sherlock’s prediction, assets lent to Orthogonal Trading are likely gone for good or could end up in a lengthy litigation.
M11 struck a hopeful tone about restructuring the loans to Auros and salvaging lenders’ money.
Still, this leaves creditors who were unable to flee in time likely to stomach most of the losses.
Because of its design, Maple doesn’t stand to lose materially on the defaults. However, the reputational damage and loss of trust may hurt in the long run.
“Maple, the protocol, will likely be fine,” Dustin Teander, analyst at Messari, said. “The key thing that could be done to prevent this is to make credit decisions directly tied to open cash flows and assets instead of general trust.”
What Is DeFi?
Decentralized finance (DeFi) applications aim to cut out the middlemen of our everyday finances.
https://www.coindesk.com/learn/what-is-defi/