Welcome to The Node. This is Daniel Kuhn and Prachi Vashisht, here to take you through the latest in crypto news and why it matters. In today’s newsletter:
Former FTX Director of Engineering Nishad Singh pleaded guilty to six criminal charges in a New York Court on Tuesday. Singh, who was formerly looking for a plea deal, was also charged by the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission with fraud allegations. Meanwhile, new court documents in Voyager Digital’s bankruptcy case show the crypto lender failed to properly vet Three Arrows Capital before loaning the now-bankrupt hedge fund an estimated $654 million worth of crypto. Additional documents show that Voyager has consistently lost money nearly every month since its inception. The firm’s high-yield rewards program lost some $58 million in 2022, which some executives reportedly saw as a marketing expense.
New Tools
Bitcoin developer James O’ Bierne has proposed a vault feature that alerts bitcoin users about thefts, moving funds to a more-secure wallet. The proposed safety feature would require a soft fork to be implemented. Elsewhere, on Tuesday, leading game developer Unity released a “decentralization” category on its online store. The company will add support for 13 different blockchain-based software developer kits, including Algorand, Immutable X and Solana. Speaking of, despite Solana’s efforts to combat spam transactions, the network continues to waste the majority of its compute on failed trades, noted Jito Labs in an analysis. As per the report, the network’s infrastructure gives priority to transactions first in line, giving arbitrage bots an opportunity to eat up precious blockspace with duplicate transactions.
Global Spotlight
On Tuesday, the National Assembly in France voted to create tougher registration rules for crypto firms, setting extra requirements on internal controls, cybersecurity and conflict of interest. The plan, now set to become a law, was introduced in the wake of the FTX collapse and was voted 109-71 in the assembly. Meanwhile, The Ohio Division of Securities announced on Tuesday joining a $22.5 million multistate settlement against crypto lender Nexo. Nexo allegedly failed to comply with state securities registration requirements and deprived investors of the important information related to its Nexo’s Earn Interest Product (EIP). Finally, U.S. payment giant Visa affirmed its commitment to investments in the crypto sector, despite the recent turmoil in the industry. This comes after a Reuters report stating the company is “slamming the brakes” on new crypto partnerships.
Flipping Ticketing
CoinDesk, which organizes Consensus, the largest event in crypto, wants to be on the right side of the revolution in the events-ticketing model, as it shifts away from maximizing revenues from loyal users and moves towards rewarding the loyalty of users. In an effort to experiment with new ticketing options, CoinDesk began exploring how Web3 tooling could deepen the relationship with readers and specifically those who come to Consensus. DESK, a participation token was released in 2021 and continues to evolve – and with the addition of Microcosms, a multi-year ticket and reward layer, web3 is fully entrenched in the conference. Unlike many other NFT events, CoinDesk still offers traditional ticketing options, but with Microcosms, CoinDesk added a new option for those who may want to engage in this new ticketing model, and to potentially be rewarded by doing so.
Sound Bites
“I’m quite optimistic about the cryptocurrency developments in either Hong Kong and China.”
— Tron founder Justin Sun, on CoinDesk TV’s “First Mover.”
The Takeaway: B-USDC Abused?
A new and detailed investigation by Forbes has raised significant questions about the management and custody of customer assets and stablecoin collateral by Binance. There are many possible explanations for the nature and intent of certain on-chain transactions highlighted by Forbes, and they could be entirely innocuous. But Binance’s so far confused and sometimes contradictory responses to the findings do not inspire confidence, particularly in a post-FTX era of rightfully widespread suspicion of centralized custodians with off-chain balance sheets.
Forbes reported this week that on a single day, Aug. 17, 2022, $1.78 billion worth of collateral moved out of Binance wallets intended to back stablecoins, particularly b-USDC, a wrapped version of Circle’s USDC. According to Forbes’ on-chain analysis, the facts of which Binance has not disputed, $1.2 billion of this was sent to trading firm Cumberland DRW, with other amounts going to now-collapsed hedge fund Alameda Research, Tron founder Justin Sun and crypto infrastructure and services firm Amber Group.
Crucially, according to Forbes, this outflow was not accompanied by a corresponding reduction in the circulating supply of b-USDC tokens.
Binance’s various attempts to offer an innocent explanation of Forbes’ findings have not provided a unified and consistent – much less entirely compelling – justification for what could, in the worst case, indicate the misuse of customer funds. Before publishing a more focused and detailed account Wednesday morning, Binance officials offered a number of differing, even contradictory explanations. Equally galling, Binance’s response has continued the petulant and defensive tone of many of its previous dismissals of close investigative scrutiny.
Forbes’ investigation was motivated by mounting evidence of problems with Binance’s asset management practices. Binance has admitted to Bloomberg that, for certain periods of time in the past, it failed to maintain clear 1:1 backing of its wrapped b-assets in a segregated and transparent manner. In this context, the exchange’s attempt to paint an act of journalistic scrutiny as “conspiracy theories,” while suggesting the investigation was motivated by nothing but “collecting a lot of views and clicks,” is beneath the dignity of an organization hoping to maintain a leadership position in a high-risk, fraud-riddled industry.
Binance CEO Changpeng Zhao even retreated to the oldest refuge of scrutinized crypto organizations, declaring the Forbes reporting nothing more than “FUD,” or fear, uncertainty and doubt. But this lazy, knee-jerk dismissal, now as ever, ignores a simple reality: Unclear or incomplete answers from the people most obligated to have them are far more serious sources of confusion and anxiety than accepted facts and reasonable questions surfaced by journalists.
The least charitable interpretation of the Forbes findings, articulated as a hypothetical by Lumida CEO and co-founder Ram Ahluwalia on CoinDesk’s “First Mover” program Tuesday, is that Binance was engaged in some form of rehypothecation. That is, that the funds backing b-USDC were loaned to counterparties or otherwise put at risk. Based on this possibility, Forbes has compared its findings to the bad practices that led to the collapse of FTX.
Voyager Clients Vote 97% in Favor of $1B Restructuring Plan (Decrypt)
Over the past few months, CoinDesk has been developing a reward system fo Consensus 2023 attendees to bring long-term value. We’ve partnered with Art Blocks Engine, TokenProof and Passage Protocol to launch the Consensus Multi-Year, Multi-Tiered NFT Ticket, coming on March 2. Learn more.
Never Again
Kudos for making it this far! On occasion, we’ll give our loyal Node readers the opportunity to claim DESK, our social token, which is a mechanism for returning the value of engagement directly to the users who create it.
