Genesis Global Capital, the institutional crypto brokerage whose lending unit halted customer withdrawals, is reportedly considering bankruptcy options. The company, according to The Block and Bloomberg sources, is in talks with creditors to either raise capital or lay out a prepackaged bankruptcy plan (which would create a restructuring agreement that would be finalized in bankruptcy court). Genesis is owned by Digital Currency Group, which also owns CoinDesk. Additionally, the Wall Street Journal reported that CoinDesk is entertaining buyout offers. Elsewhere, in the world of decentralized finance, the DAO governing the Ethereum Name Service protocol is weighing a plan to liquidate 10,000 ETH held in its treasury to cover operating costs. The DAO holds 40,746 ETH and 2.46 million USDC, and will vote on the transaction.
Exchanges Live
A few days after Sam Bankman-Fried published a crude spreadsheet allegedly showing that FTX.US was still solvent, new FTX CEO John J. Ray III said the bankrupt global exchange FTX could be restarted. “Everything is on the table,” Ray told the WSJ, adding it depends on if customers could recover more of their lost assets by reviving the exchange rather than liquidating part of the business. The FTT exchange token jumped 33% on the news. Separately, OKX published a proof-of-reserves showing it has $7.5 billion in “clean assets” – primarily BTC, ETH and USDT – while the Avalanche-based decentralized exchange Trader Joe is looking to expand to Ethereum layer 2 Arbitrum and Binance’s BNB Chain. The DEX also plans to offer staking rewards on its JOE token. In other AVA-related news, there is now more BTC on Avalanche than the Lightning Network.
In Davos
In Davos, Switzerland, European Commissioner Mairead McGuinness said recent crypto market turmoil had given extra ammunition to those pushing for a global rulebook, but warned additional rules would be pointless unless the rest of the world follows suit. “If we fail to do that global approach, we’re going to find that there’s more and more problems,” McGuinness, who is the European Commissioner for financial services, told CoinDesk. “The technology is borderless.” Meanwhile, a new research report from Circle and Uniswap Labs suggests that blockchain could find a place in the $2 trillion foreign exchange market. “On-chain FX can offer faster and more affordable transaction processes, as well as greater liquidity and stability,” the authors write in the 20-page paper to be released in Davos for an event hosted by Circle on Thursday in conjunction with the World Economic Forum.
Flare is an EVM-based Layer 1 blockchain designed to allow developers to build applications that are interoperable with blockchains and the internet. By providing decentralized access to high-integrity data, Flare enables new use cases and monetisation models.
TheState Connectorprotocols enable information, both from other blockchains and the internet to be used securely, scalably and trustlessly with smart contracts on Flare.
TheFlare Time Series Oracledelivers highly decentralized price and data feeds to dapps on Flare, without relying on centralized providers.
Risk is minimized by building this decentralized data infrastructure natively into the blockchain, powered by a large number of independent data providers.
Build on Flare with more data than ever before, or build with Flare to serve multiple ecosystems.
“[Stablecoins] are becoming significant in size and business and deserve that kind of federal action.”
– Circle CEO Jeremy Allaire, discussing his regulatory outlook, on CoinDesk TV’s “First Mover”
The Takeaway: Bitzlato & Binance
Yesterday, in a much-hyped press conference, federal authorities said it has seized a little-known, Hong Kong-based crypto exchange Bitzlato and it’s founderthe Russian national Anatoly Legkodymov (who also goes by “Gandalf”). The indictment claimed the exchange processed about $4.5 billion worth of crypto currency transactions since its founding in 2018, of which $700 million is known to have flowed to or from the prominent “darknet marketplace” Hydra. Further, a “meaningful” volume allegedly came from U.S. customers – meaning it would be subject to “U.S. regulatory safeguards.”
Legkodymov allegedly was aware that his exchange was used by what he called “crooks” and even advertised it as such. If convicted of operating an illegal money transmitting business, Legkodymov faces a maximum sentence of five years. But at its height, the exchange only held $6 million in funds – a remarkably minuscule amount. Likewise, Similar Web searches show how little traffic the so-called crime hub had.
All of this grandstanding over essentially nothing, might be intended to send a message to a different subject of a criminal investigation. In fact, it might send shivers down Binance CEO Changpeng Zhao’s spine. In the words of Deputy Attorney General Monaco, “Today’s actions send the clear message: Whether you break our laws from China or Europe – or abuse our financial system from a tropical island – you can expect to answer for your crimes inside a United States courtroom.”
Industry news site Protos suggested that the Bitzlato investigation was likely kick-started, or accelerated, by the seizure of documents from the Hydra marketplace last year. If that were true, it means the DOJ, which is reportedly already investigating Binance, would have similar data on flows between Binance and Hydra. According to research done by NBER’s Igor Makarov and Antoinette Schoar in 2021, Bitzlato was the second-largest source of Hydra’s volumes after Binance (and above the peer-to-peer network LocalBitcoins). What’s more Bitzlato’s top counterparty was Binance.
This isn’t to paint a target on Binance – critically, the exchange has boosted its KYC procedures and relationships with regulators over the years. But it’s clear from CoinDesk reporting that the Securities and Exchange Commission is interested taking a look under the hood at the industry’s biggest exchanges, and Binance is still reportedly staring down a money laundering complaint. If and when that comes no one should be surprised if Hydra is named.
If anything, yesterday’s indictment only proved that regulators and police have the tools necessary at their disposal to investigate and indict alleged crypto criminals. That’s worth mentioning in the wake of FTX, and other high-profile blockchain embarrassments last year, now that lawmakers are calling for stricter rules and oversight of the industry.
According to the Washington Post, the Bitzlato enforcement was the first action led by the Justice Department’s crypto-focused “NCET” team started in 2021. It was also an opportunity for the U.S. Treasury Dept.’s Financial Crimes Enforcement Network to debut more powers granted by a 2021 defense authorization law to combat Russian-related financial crimes, including bypassing slower procedures to administer punishments by fiat.
There’s an argument to be made that oversight of monetary transfers is already overly broad – it penalizes everyone by starting from the premise that surveillance for the sake of safety is normal. But ever since the seizure of the Silk Road, it has been evident that fully public, transparent and immutable blockchains are horrible systems to do illicit business on – and yet people choose to do so. The crimes are there, the laws are on the books.
That’s part of what made yesterday’s presser so cringey. In particular, Monaco’s allusion to the “tropical” Bahamas-based FTX exchange – when discussing the broad authority for U.S. agencies to pursue crimes – only goes to show how often regulators fail to preempt anything. Bitzlato may have been an exception, but it pales by comparison.
Four Crypto-Friendly Banks Are Being Bailed Out with Billions from a Federal Housing Program (Wall Street on Parade)
The Ethereum infrastructure provider Flashbots is raising $50 million at a billion-dollar valuation (The Block)
Compass Mining, a reseller of and hosting service for Bitcoin mining machines, faces $2 million for allegedly not returning customer’s miners (Decrypt)
“Neobank” Revolut said it could launch its native token this year (Decrypt)
A North Carolina town is fighting against a bitcoin mining company (CNN)
Euler Finance is accepting cbETH, a staking instrument offered by Coinbase, as a collateral asset. Some $26 million was deposited in a day (The Defiant)
