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:
The Federal Deposit Insurance Corp. (FDIC) has asked crypto customers stranded by the recently collapsed Signature Bank to transfer funds out of the bank by the end of next week. Earlier this month, the FDIC brokered a rescue deal between Signature and New York Community Bancorp, which did not include Signature’s $4 billion in crypto-related deposits or real-time transactions platforms Signet. Meanwhile, in Canada, the government has asked federally regulated pension funds to disclose their crypto assets to the Office of the Superintendent of Financial Institutions, under the nation’s 2023 budget plan. Finally, the U.K. finance ministry has dropped plans for the Royal Mint to create an official non-fungible token (NFT), citing lack of demand.
Exchanging Places
Despite facing a lawsuit by the U.S. Commodity Futures Trading Commission (CFTC), Binance, the world’s largest crypto exchange by trading volume, continues to have a high on-chain balance, data from blockchain analytics firm Nansen shows. Presently, the firm’s portfolio stands at $64 billion with USDT, BTC, ETH, BUSD and BNB being its largest holdings. Meanwhile, a federal bankruptcy judge in Delaware has approved FTX’s $45 million sale of assets to Abu Dhabi’s investment arm, per Tuesday’s court filing. The assets were held in a fund at venture capital firm Sequoia Capital.
Global Reach
Lido, the popular decentralized staking service, will end its functionality on the Polkadot and Kusama blockchains on Aug. 1. Pseudonymous Lido developer MixBytes said adoption and growth had not met the “business case expectations to sustain investment.” In other news, bitcoin payment firm Zebedee has debuted a feature that uses Bitcoin’s Lightning Network to instantly send any amount of money for little to no cost. The feature is currently available to five jurisdictions, including the U.S., U.K., EU, Brazil and the Philippines, and there are plans for expansion in other parts of the world.
Sound Bites
“The CFTC has undertaken a great effort to understand what’s been happening with Binance and to take action where it sees an issue.”
– Coinbase Chief Legal Officer Paul Grewal, on the CFTC’s lawsuit against Binance, on CoinDesk TV’s “First Mover”
The Takeaway: Don’t, Kwon!
Perhaps the biggest challenge of writing about cryptocurrency is that everything is happening all the time and it’s all some mix of important, fascinating and dramatic. Case in point: The past two weeks have been so dominated by the ongoing banking crisis and crypto crackdown that I haven’t had time to luxuriate in some of the best news in recent memory – the arrest of Terra blockchain co-founder and alleged fraudster Do Kwon in Montenegro last week.
The collapse of Do Kwon’s Terra blockchain in May, remember, was the proximate catalyst for 2022’s crypto rout, helping destabilize crypto lender Celsius Network and hedge fund Three Arrows Capital in particular. If you want an entertaining recap of the story so far, check out our podcast series “Lunacy: The Rise and Fall of Do Kwon.”
Do Kwon’s arrest caps off a six-week frenzy of activity that has revealed much more about Do and his alleged crimes, starting with February civil fraud allegations from the U.S. Securities and Exchange Commission (SEC). Those charges, far more than usual, contained major revelations about Kwon’s activities. With his arrest, we are, I hope, on the way to learning even more.
There are still a few questions about Do Kwon that are badly in need of answers.
Why was Do Kwon in Serbia?
This is currently the most intriguing element of Do Kwon’s arrest. South Korean police reported in December they believed Kwon had fled to Serbia; he was ultimately arrested in next-door Montenegro. These are achingly beautiful countries, both high on my personal wish-list of vacation destinations – but it’s safe to assume Do Kwon had deeper motives.
In part, the choice may have been driven by simple geography. Do and Terraform Labs Chief Financial Officer Han Chang-Joon were reportedly arrested while trying to board a private jet that would have taken them to Dubai. Dubai is a popular hideout for wealthy fugitives, and the Balkans are more or less on the way there from Singapore.
But there is another hypothetical factor. The SEC alleged in its February civil charges that Do Kwon was able to sell roughly $100 million worth of bitcoin allegedly stolen from the wreckage of his project by using a Swiss bank. Do Kwon may have turned to organized crime figures for help with that effort or for protection from law enforcement, and the Balkans are a hotbed for Mafia-linked crypto fraud. That could be another explanation for his flight to Serbia.
Who gets to prosecute him?
Literally hours after Kwon was arrested in Montenegro, U.S. prosecutors filed criminal charges against him. That implies these had been in the works, but officials rushed to get them on the record so they could seek Do Kwon’s extradition to the U.S.
As former SEC enforcement officer Lisa Brancaga recently explained on CoinDesk TV, the U.S. has a claim to jurisdiction because Do Kwon targeted U.S. investors. Meanwhile, he has also been charged with fraud in his native South Korea.
That means the two nations will have to negotiate, or perhaps compete, to see who gets first crack at him. (Though both will likely have to wait until he and his compatriot are tried in Montenegro for trying to use fake passports.) Speaking in strictly moral terms, it seems right to let South Korea go after its (alleged) homegrown con man first. For one thing, while Terraform Labs targeted Americans, it seems that a far higher proportion of South Koreans were harmed by the scheme.
There is also much more potential for a thorough prosecution there, given Do Kwon’s apparent connection to elite networks in South Korea via his Terra co-founder Daniel Shin, a local tech “serial entrepreneur.” However, U.S. prosecutors might use that very factor to argue for their own claim: Do Kwon’s elite connections in South Korea might mean he has friends who can interfere with his trial.
What happens to Terra? What about Terra 2.0?
Everything Do Kwon has ever touched is fundamentally worthless. I strongly recommend getting out of any financial or professional entanglements with these projects.
Do Kwon faces ‘grim’ year in Montenegro jail, lawyer says (Protos)
Coinbase pitches “inflation-proof” flatcoins against struggling USDC (Protos)
New Texas Senate Bill Seeks to Slash Bitcoin Mining Incentives (Decrypt)
Analysts say Binance’s $2.2 billion outflows don’t suggest a bank run yet (The Block)
Consensus 2023 is officially less than one month away! This is your chance to join us in Austin in April and save $800 on walk-up pricing for the Two-Day pass and $1,150 on the Pro pass. Don’t wait! This sale ends on Thursday at 12 p.m. ET. Use code FLASH25 at checkout.
Productivity 101
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.
