A top FTX Group executive reportedly tipped off Bahamian police that FTX customer funds were commingled and being abused by sister trading firm Alameda Research as early as Nov. 9, according to a court document. This comes as Bahamian authorities are pushing back against allegations the country’s securities regulator colluded with FTX. Meanwhile, U.S. Senator Elizabeth Warren (D-Mass.) is using the FTX calamity to push forward a bill cracking down on “unhosted” crypto wallets – though legislatures are far from in agreement on how to move crypto regulation forward.
So Ethereal
PayPal will integrate its buy, sell and hold crypto services with MetaMask as the company looks to broaden users’ options to transfer digital assets out of its platform. ConsenSys representatives said this will enable ETH buys directly in the popular Ethereum-based wallets. Meanwhile, after a debt crisis on the decentralized lender Maple, developers have decided to rewrite its loan protection mechanism and move the app off Solana onto Ethereum.
State Mining
One of BTC miner Core Scientific’s top lenders, investment bank B Riley, offered a $72 million financing plan to help the company avoid bankruptcy. Separately, Microsoft banned mining on its “online platform” without prior written permission, following similar moves from Google and Amazon’s cloud divisions. In a bit of good news, Tokyo Electric Power Grid (the utility behind the Fukushima disaster) is working with a local mining rig manufacturer to “make effective use of surplus power” by mining crypto and powering AIs.
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“The administration believes that the digital asset space is unregulated and thinks that they can get away with anything. They are eager to plant a flag and send a message.”
– Former federal prosecutor for the Department of Justice Securities and Commodities Fraud Unit Renato Mariott, on CoinDesk TV’s “First Mover”
The Takeaway: CZ on Self-Custody
(Photo by Antonio Masiello/Getty Images)
In the aftermath of the collapse of FTX, many are justifiably concerned about the solvency of crypto exchanges. Sam Bankman-Fried’s fraudulent bucket shop may have been an outlier – court documents filed earlier this week by U.S. authorities allege that some $8 billion in FTX customer deposits were transferred to and lost by SBF’s “hedge fund” Alameda Research.
But, following a decline in crypto prices, a drawdown of debt between highly-interconnected firms and several bankruptcy filings that have locked up billions worth of assets in legal proceedings – it’s reasonable to wonder if there is as much money held on centralized, largely-unaudited crypto exchanges as there should be.
This is part of the reason why users are taking possession of their own coins in recent weeks. Binance, the industry leading crypto exchange, in particular has seen a significant drawdown. Large clients like Jump Trading have taken coins out, and the exchange moved to temporarily halt USDC withdrawals (potentially to execute a token swap to its own stablecoin).
Earlier this week, Binance CEO Changpeng Zhao referred to this trend as “business as usual.” But also told employees to brace for a few “bumpy” months ahead. The exchange had published a so-called “proof-of-reserves” report done by auditing firm Mazars showing, depending on which figures you include, it was either over or undercollateralized in its bitcoin holdings. Centralized crypto exchanges reintroduce an element of trust that trustless protocols like Bitcoin and Ethereum remove from finance. Users take on the risks, even if rare, of hacks, frozen withdrawals and other business failures, Casa’s Nick Neuman said recently. And so, amid a period of uncertainty, Zhao’s primary responsibility is to reestablish confidence in his exchange.
Yesterday, Zhao took to Twitter Spaces to criticize self-custodying crypto, alleging that “99% of people…will end up losing” their funds if they have to be responsible for their own keys. These fears are entirely unjustified and seem to contradict Zhao’s comments just last month calling self-custody a “fundamental human right.”
This is no doubt a challenging time for Zhao. On Monday, Reuters reported the U.S. Department of Justice was nearly the end of a multi-year investigation into Binance – one of several ongoing probes into the firm from global law enforcement agencies. Federal prosecutors are reportedly weighing whether to charge Binance executives, including CZ, with money-laundering violations, no doubt accelerating withdrawals.
Rebuilding trust in Binance, stymying outflows, should not come at the expense of crypto’s principle innovation – enabling people to “be their own bank.” To take an old line from Zhao, “some things are better left unsaid. Recommend no more news like these, for the sake of the people, our industry (and your business).”
The growth and maturing of the DeFi space over the past few years has been astonishing. Enabled in part by grants from a range of far-sighted blockchain communities, devs across the world have set up some astonishingly clever and intuitive tools and platforms to bring a rich portfolio of financial services to the crypto world.
All that said, there is still plenty more work to do if DeFi is going to fulfill its vast potential. In spite of all the innovation and development that’s been going on, DeFi users still encounter the same problems that TradFI users need to deal with, especially when it comes to managing their collateral efficiently. Continue here.
*This is sponsored content from Mero.
Off-Chain Signals
The Digital Asset Anti-Money Laundering Act is an opportunistic, unconstitutional assault on cryptocurrency self custody, developers, and node operators (Coin Center)
An On-Chain Look Into The ApeCoin Staking Launch (The Defiant)
Explained: Binance’s beef with crypto trader CoinMamba (Protos)
