The Senate Banking Committee and House Financial Services Committee both requested FTX’s ex-CEO Sam Bankman-Fried to testify at next week’s hearings to discuss the collapse of his exchange. They will subpoena him if he does not appear voluntarily, Maxine Waters (D-Calif.) clarified Wednesday night. Last week, the U.S. Department of Justice requested an independent probe of the case.
EU Struggles
The European Commission is struggling to find out how to deal with foreign crypto services providers as it sets out to increase reporting obligations for European crypto companies. This is independent of the forthcoming omnibus bill called Markets in Crypto Assets Regulation (MiCA). Separately, payments company PayPal said it will expand its crypto service to Luxembourg “in coming days,” following the initial rollout of the crypto service in the U.S. in 2020 and an expansion to the U.K. last year.
Celsius Return
A U.S. judge ordered the bankrupt crypto lender Celsius Network to return $50 million in crypto to custody account users on Thursday. This represents a tiny fraction of the billions of dollars of coins owed to Celsius users. A filing shows that the crypto lender has about 58,300 users who collectively custodied over $210 million. Meanwhile, in some lighter news, ConstitutionDAO2 is setting out to bid on a copy of the U.S. Constitution at auction and has raised $34,000.
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“The U.S. is really the key country that’s bringing enforcement actions.”
– Former Director of Cybersecurity and Secure Digital Innovation for the White House Carole House, on CoinDesk TV’s “First Mover”
The Takeaway
(Danny Nelson/CoinDesk)
Despite the focus on FTX following its catastrophic collapse, it’s remarkable how little we know about how the crypto exchange and its in-house trading firm Alameda Research actually operated. New CEO John Jay Ray III has called Sam Bankman-Fried’s crypto trading empire the “greatest failure of corporate controls” he’s seen.
Wednesday, Coffeezilla, a YouTuber with a rising star who has made a career of shining a light on sketchy projects in and out of crypto, pressed Bankman-Fried for information related to how different customer accounts were treated at the exchange. It turns out, there wasn’t much differentiation – at the very least during the final days the exchange was in business, Bankman-Fried admitted.
“At the time, we wanted to treat customers equally,” SBF said during a Twitter Spaces event. “That effectively meant that there was, you know, if you want to put it this way, like fungibility created” between the exchange’s spot and derivatives business lines. For Coffeezilla, this looks like a smoking gun that fraud was committed.
At the very least, this is a contradiction of what Bankman-Fried had said just minutes before when first asked about the exchange’s terms of service (ToS). “I do think we’re treating them differently,” Bankman-Fried said, referring to customer assets used for “margin versus staking versus spot versus futures collateral.” All of those services come with different levels of risk, different promises made to customers and different responsibilities for the exchange.
According to FTX’s ToS, everyday users just looking to buy or store their cryptocurrencies on the centralized exchange could trust they were doing just that, buying and storing cryptographically unique digital assets. But now, thanks to skillful questioning by Coffeezilla, we know there were instead “omnibus” wallets and that spot and derivatives traders were essentially assuming the same level of risk.
We can also assume this was a longstanding practice at FTX. Bankman-Fried noted that during the “run on the exchange” (pardon the language), when people were attempting to get their assets off before withdrawals were shut down, FTX allowed “generalized withdrawals” from these omnibus wallets. But he also deflected, saying what, you wanted us to code up an entirely new process during a liquidity crisis?
