Digital Currency Group, the crypto conglomerate that owns CoinDesk, will be suspending dividends amid ongoing liquidity concerns and a public spat with crypto exchange Gemini and other creditors of DCG subsidiary Genesis. “In response to the current market environment, DCG has been focused on strengthening our balance sheet by reducing operating expenses and preserving liquidity,” DCG said in a letter to shareholders sent on Tuesday. Meanwhile, Coinbase shares, COIN, ticked down after the exchange said it is halting operations in Japan. Fiat deposits will be halted on Friday and customers have until Feb. 16 to withdraw their fiat and crypto holdings.
DAOing It
The European Union should consider legislation to recognize decentralized autonomous organizations, or DAOs, that govern Web3 applications, Finland’s communications minister said on a World Economic Forum panel in Davos, Switzerland. Timo Harakka, the speaker, later told CoinDesk that “thinking on a multinational level” is needed to avoid “harmful regulatory competition” among the EU trading bloc’s 27 members. Separately, Thailand’s Securities and Exchange Commission, which recently banned staking and lending blockchain services, has issued regulations for crypto custodians. The rules establish guidelines to protect customers’ wallets and keys and took effect Monday. Finally, after five-years in the making, EY said it is entering the final phase of production of the enterprise-geared, privacy-preserving blockchain system called Nightfall. The system is built on Polygon and offers regulated institutions a way to tap the resources of the public, decentralized Ethereum network.
On Chain
The Optimism network logged over 800,000 transactions in a single day last week, as it surpassed trading activity on rival Ethereum layer 2 Arbitrum. Both are viewed by traders as potential bear market growth areas – though Optimum’s total value locked (TVL) sits under $600 million. Elsewhere on Ethereum, ahead of the network’s Shanghai upgrade, Frax Finance’s ETH pools and novel “liquid staking derivatives” (LSD) are gaining traction. The system is built around an algorithmic stablecoin called FRAX. Meanwhile, a BNB Chain liquidity layer and decentralized exchange that offers staking yields called Thena has seen a massive TVL uptick to $90 million from $5 million since its launch last week. And finally, Nansen found that $1.1 billion in SHIB has traded hands between Jan. 17 and Jan. 18, as meme-inspired “dog tokens” rally.
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As we witness the collateral damage caused by FTX unfold and the federal criminal charges against the crypto exchange’s founder Sam Bankman-Fried stack up, many are asking how so many people fell for this Ponzi-like scam. As with any “successful” financial scheme, FTX was a confidence game – and the game only works if the “players” are duped into thinking things are safe. Enter FTX’s promoters and pumpers.
Celebrities including centi-millionaire financier Kevin O’Leary, football star Tom Brady and basketball stars Steph Curry and Shaquille O’Neal all attached their images to FTX. Larry David played a crypto-skeptical curmudgeon in a much applauded FTX Super Bowl ad last year. Many of these well-known names are now facing a class-action lawsuit.
However, there is another group of people who need pointing out: social media influencers. In an age of bifurcated attention, where people are more likely to be watching YouTube than network television, micro-celebrities can have an outsized influence on their audience. That’s part of the reason FTX sponsored so many so-called creators, especially on YouTube.
Sam Bankman-Fried is known now for making deals seemingly on whim, based on the shaky math of “expected value.” The one-time billionaire was seen as a shrewd businessman with a heart of gold, who valued inflating that public persona. Last year, FTX signed a $130 million deal to put its name and logo on the Miami-Dade County sports arena. What’s a couple million to pay dozens of YouTube creators, if they might also bring in millions of viewers to be converted into potential customers?
Financial schemes only work if people are confident in the hustle, and dozens of social media stars helped create an illusion of safety and spread FOMO. The psychological phenomenon of the “mere exposure effect,” where people are more likely to believe things are true if repeated, might be heightened by the para-social relationships that form on social media.
Over the past year I made several videos calling out FTX promoters, and warning people that assets on these exchanges were unsafe. Contracts for YouTubers to push FTX ranged from $50K per month upwards to hundreds of thousand per month and/or around $2.500 a video. These prices were quite high for a 30-second mid-roll ad read. Several creators even made videos saying FTX and its stateside subsidiary FTX US were fine – as they were going up in flames.
Three creators – Minority Mindset, Graham Stephan and Tom Nash – even made apology videos within hours of FTX’s bankruptcy announcement and seemed to be reading from the same script. Not a good look. Saying “everyone else was doing it” or “I’m bad at business” is hardly a defense. Many of these people pose as financial gurus, yet they promoted what could be the largest Ponzi in history. Either they’re not the geniuses with money they claim to be or they were just plain greedy.
Obviously, no one should look to YouTube as a bastion of morality. Tom Nash has admitted to using fake names and lying about his credentials, while Meet Kevin drinks on camera when talking about investing. Andrei Jikh sells his “Zero to a Million” course. These creators, just a fraction of the total, took money that was likely stolen from FTX customers to promote a Ponzi scheme to their audience. Many of their viewers will lose everything, or have to wait years to get pennies back on the dollar.
A lot of good could be done if FTX’s advertisers apologize in a way that recognizes the harm they may have caused others. Forget clearly scripted and grossly insincere apology videos. If these people truly care they should take all the money they received from FTX and either return it to the bankruptcy estate or donate it all to charity.
Why Serbia makes sense for crypto fugitive Do Kwon (Protos)
Game maker Zebedee is offering “play-to-earn” BTC rewards on a new chess game (Decrypt)
A team of 13 was behind Polygon’s hard fork (Decrypt)
The Giving Block cuts about 12% of its workforce (The Block)
Blockchain’s presence at Davos is felt (WaPo – paywall)
“They’re boiling the frog:” SEC’s new crypto crackdown roils industry (Politico). Relatedly, a report by Cornerstone details the recent history of SEC enforcement actions (.pdf)
