The takeaway: Binance will temporarily suspend USD banking transfers. What do?
Paying Debts
Digital Currency Group (DCG), the distressed crypto conglomerate that owns Genesis, Grayscale and CoinDesk, has started selling assets held in investment vehicles run by Grayscale at a steep discount, according to U.S. securities filings. The company has reportedly sold a quarter of its Grayscale Ethereum Trust stock to raise as much as $22 million. On Monday, DCG and Genesis reached an agreement with a key group of creditors owed an estimated $2.4 billion, where DCG would sell its subsidiary Genesis’ trading and lending arms. DCG is also working to refinance a $500 million loan borrowed from and “equitize” a $1 billion promissory note made to Genesis. Meanwhile, DebtDAO, the entity behind the FTX User Debt (FUD) token has destroyed the majority of the controversial token’s supply and announced plans to airdrop tokens when FTX confirms its total debt to traders. The Tron-based project allegedly offers users the ability to monetize their FTX debts, though has no official relationship to the bankrupt crypto exchange.
Stronger Together?
Bitcoin mining firms Hut 8 Mining (HUT) and U.S. Bitcoin Corp. (USBTC) agreed to merge, forming a company with access to about 825 megawatts (MW) of energy capacity. The two firms will be wholly owned subsidiaries of the newly formed Hut 8 Corp, which hopes to better weather the crypto mining market downturn. Digital file-sharing service WeTransfer is partnering with the mobile-focused layer 1 chain Minima to launch NFTs. Still in pilot, the platform is expected to launch in 180 countries. Finally, crypto custody infrastructure company Metaco has hired a former-IBM digital asset specialist amid a period of strategic growth that includes the launch of a new R&D lab.
Get Licensed
Signature Bank faces a putative class-action suit from algorithmic trading firm Statistica Capital, which claims the bank “had actual knowledge of and substantially facilitated the now-infamous FTX fraud,” according to a New York court filing on Monday. Statistica, at one time a Signature client, alleged the bank had full knowledge customer funds were being abused by FTX and its sister company Alameda Research in part due to its blockchain-based payment rail SigNet used by many crypto exchanges. This comes as Bored Ape Yacht Club parent Yuga Labs notched its first win in a series of trademark disputes related to artist Ryder Ripps. The web dev who built smart contracts for Ripp’s copycat project “RR/BAYC” has settled with the firm, and apologized for “disparaging statements” made against BAYC and its founders. Yuga Labs is involved in an ongoing suit with Ryder Ripps over his project. Last, Dubai’s Virtual Assets Regulatory Authority has laid out new licensing requirements for crypto firms.
Layer-2 networks and scaling solutions have been getting a lot of attention from crypto enthusiasts and analysts of late, but what about the much-needed innovation in decentralized application (dapp) functionality?
The total size of the application-based industry is approaching $500 billion in market capitalization (with DeFi comprising a $48 billion TVL), but its growth has been limited by factors such as UI/UX and, fundamentally, the lack of utility for most people. To grow further, blockchain needs more applications that are more relevant for more people. Continue reading.
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Sound Bites
“The question is were they [consumers of Hermès’ Birkin bag] really going to be confused by the NFTs, the MetaBirkins.”
– Leichtman Law managing partner David Leichtman, discussing the ongoing Hermès v. MetaBirkins case, on CoinDesk TV’s “First Mover”
The Takeaway: Binance Banks
Binance, the world’s largest crypto exchange, confirmed with CoinDesk’s Helene Braun that U.S. dollar bank transfers will be temporarily suspended beginning Wednesday, Feb. 8. While the beleaguered exchange claims only a fraction of a fraction of its “monthly active users” use such direct bank transfers, the move could be seen as a significant blow. Users withdrew millions of dollars worth of crypto after it announced the suspension, Arkham Intelligence found.
It’s unknown right now why Binance made its decision. The situation is made all the more strange by the fact that Binance’s U.S. division, Binance US, will still be processing bank transfers, according to a Twitter post. There’s no public timeline yet for when banking services will be restarted.
Last month, one of Binance’s banking partners, Signature Bank, increased its U.S. dollar transaction minimum for all Binance users to $100,000, as the bank looks to unwind its exposure to the crypto industry. The exchange also published a blog post noting it will not be able to process USD transfers in a long list of countries, following a SWIFT update.
At the moment, Binance is far from being totally cut off from the fiat-based economy. The recent suspension may make it slightly more annoying for Binance users to exit the crypto economy, but money can still be swapped into dollar denominated stablecoins like tether and USDC, which can be transferred anywhere, or withdrawn from banks in euros or through fintech options like Google or Apple Pay. Though the situation does raise the prospect of a world where crypto is forced to go bankless.
It’s not a total fantasy: The Federal Deposit Insurance Corporation (FDIC) last month warned banks about the significant safety and soundness risks of companies exposed to the crypto industry. The stern statement, co-signed by the Federal Reserve and Office of the Comptroller of the Currency, did not prohibit – or even expressly discourage – banks from working with crypto clients, but many still read it as the beginning of the end for crypto banking.
British economics writer France Coppola told CoinDesk, “I think all the banks will exit unless crypto companies submit themselves to much more intrusive regulation and supervision.” Putting aside crypto’s volatility, she also said the industry comes with severe “exorbitant reputational risk.” “They really can’t be seen to be facilitating scams, frauds and money laundering,” she said.
Binance will likely be able to weather the recent spike of withdrawals, as it weathered the fears of a possible U.S. Department of Justice indictment and the public backlash against its “proof-of-reserves” statement. The exchange owns some $42.2 billion worth of crypto assets, Arkham said, making an outflow of even a couple hundred million dollars worth of assets seem like a blip.
Still, the reputational risks are harder to manage. Users go to exchanges that are reliable and convenient, and the loss of banking services will certainly affect that. Crypto was supposed to usher in a world without intermediaries, but perhaps has only shown us how valuable – if risky – they remain.
Top South Korean officials follow fugitive Do Kwon to Serbia (Protos)
Ethereum Staking Platform Lido Finance Rolls Out Details of Next Upgrade (Decrypt)
Coinbase insider trading case ends with guilty plea (Protos)
Arbitrum Stablecoin Exploit Has Happy Ending: Funds Returned (Blockworks)
Genesis Bankruptcy Deal Is a Sign of Warming in Crypto Winter (Barron’s – paywalled)
Crypto Brands Reposition Themselves in Wake of FTX and Market Tumble (WSJ)
Washington DC’s reaction could have been worse (Axios)
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