Casey Wagner

<div id="highlights-block_627c344490076" class="highlights">
 <ul>
 <li>Coinbase stock fell 26% Wednesday after missing on earnings Tuesday</li>
 <li>A shelf registration allows a company to register a new issue of securities in the form of primary or secondary offerings</li>
 </ul>
 
</div>





Coinbase <a href="https://www.sec.gov/Archives/edgar/data/1679788/000110465922058331/tm2210357d3_fwp.htm" target="_blank" rel="noreferrer noopener">filed</a> a shelf registration statement with the SEC, setting itself up for a potential capital raise or debt issuance as the crypto exchange’s stock continues to freefall, erasing billions of dollars in shareholder value.&nbsp;



A shelf registration allows a company to register a new issuance of securities in the form of primary or secondary offerings. Because Coinbase chose a direct listing rather than an IPO, it did not raise additional outside capital when it went public in 2021. 



“While we have no immediate plans to offer securities at this time, by filing the shelf registration statement now, we will be able to offer and sell securities in the future should we choose to do so,” Coinbase wrote in a <a href="https://blog.coinbase.com/coinbase-files-shelf-registration-statement-with-the-sec-f9f4005a183c" target="_blank" rel="noreferrer noopener">blog post</a> Tuesday.&nbsp;&nbsp;



The filing’s mandate is quite broad, according to Michael Miller, an equity analyst at Morningstar Research, as it covers common stock and preferred shares, as well as debt issuance, leaving Coinbase with several options to raise capital relatively quickly if executives pull that lever.&nbsp;



Coinbase reported $1.17 billion in revenue during the first quarter, missing analyst estimates. Shares plummeted 26% Wednesday.&nbsp;



First quarter total trading volume was $309 billion, a 44% decrease from the fourth quarter, which the exchange attributed to market conditions.&nbsp;



Coinbase does have $6 billion in cash on hand and an additional $1.3 billion of crypto holdings on its balance sheet as a buffer in a down market, Miller said, but the filing positions Coinbase to access capital markets quickly if its core business lines continue to face such strong headwinds.&nbsp;



The exchange, like its competitors, has been working to diversify its revenue streams away from its bread and butter trading fees — which have fallen as new exchanges launch — and into other cash-generating endeavors. The results so far have been mixed.&nbsp;



“Given Coinbase’s slide out of profitability, they may struggle to issue debt at an attractive rate without a recovery in cryptocurrency markets,” Miller said. “This does make additional equity issuance, common stock or preferred, more likely than new debt in my opinion. At the moment, it’s unclear if they will do either, though.”&nbsp;



Coinbase’s first quarter earnings report also includes a new disclosure that clarified that, should the exchange go under, customers’ assets are not safeguarded for reimbursement. The exchange currently custodies $256 billion in fiat currencies and digital assets.



“In the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors,” Coinbase wrote in its first quarter <a href="https://s27.q4cdn.com/397450999/files/doc_financials/2022/q1/Coinbase-Q122-Shareholder-Letter.pdf" target="_blank" rel="noreferrer noopener">earnings report</a> Tuesday.



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As Coinbase Stock Drops, Crypto Exchange Preps Insurance Capital Raise

Inflation is far from over, Federal Reserve Chair Jerome Powell said Wednesday, but a rate-hike slowdown is still on the table for December. Regardless, according to the central bank head, rates will keep rising and remain high “for some time.”&nbsp;



&#8220;It will take substantially more evidence to give comfort that inflation is actually declining,” Powell said during an appearance at the Brookings Institute in Washington. “By any standard, inflation remains much too high.&#8221;



Markets immediately rallied on the news. The S&amp;P 500 and Nasdaq Composite indexes both gained about 1% and 1.5% in the moments following Powell’s speech, respectively. Crypto also jumped into the green, with bitcoin and ether rising 3% and 5.3%, respectively.&nbsp;



“We need to raise interest rates to a level that is sufficiently restrictive to return inflation to 2%,” Powell <a href="https://www.brookings.edu/events/federal-reserve-chair-jerome-powell-the-economic-outlook-and-the-labor-market/" target="_blank" rel="noreferrer noopener">said</a>. “There&#8217;s considerable uncertainty about what rate will be sufficient.”



Stable prices can only be achieved through supply and demand management, Powell said — adding that reaching the central bank’s inflation target is likely going to require more-tempered growth. Waning of pandemic-era easy monetary policy, raising housing prices and global unrest have also contributed to the economy’s sluggish pace, Powell added.&nbsp;



The speech comes weeks after the Fed’s last rate-setting meeting on <a href="https://blockworks.co/news/cryptos-stocks-rally-on-fourth-straight-0-75-interest-rate-increase" target="_blank" rel="noreferrer noopener">Nov. 2</a> when the central bank opted to raise interest rates by 0.75% for the fourth straight time. The US central bank cited slowing consumer spending and production levels.



In June, when the central bank opted to raise rates 75 basis points for the first time this cycle, Powell called the move “<a href="https://blockworks.co/powell-calls-feds-0-75-rate-increase-unusually-large-warns-of-slowing-economy/" target="_blank" rel="noreferrer noopener">unusually large</a>.”  But if current conditions persist, higher increases could become the norm, he later warned.



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Powell Slightly Hawkish Ahead of December Meeting

Bessie Liu

Binance has acquired a highly regulated crypto exchange in Sakura Exchange BitCoin (SEBC) for an undisclosed amount as it, once again, makes moves to enter the Japanese market.



Japan’s financial regulators have previously <a href="https://www.fsa.go.jp/policy/virtual_currency02/Binance2_keikokushilyo.pdf" target="_blank" rel="noreferrer noopener">warned consumers</a> that Binance is not registered to do business in the country, stating that the exchange has been conducting unauthorized transactions locally.



In a blog post <a href="https://www.binance.com/en/blog/ecosystem/binance-acquires-jfsa-registered-sakura-exchange-bitcoin-committed-to-enter-japan-under-regulatory-compliance-1479109563632749072" target="_blank" rel="noreferrer noopener">announcing</a> the acquisition, the top exchange by global trade volume said, “by offering Japanese-regulated services through SEBC, Binance aims to support a responsible global environment for cryptocurrencies.”



SEBC’s website shows trade for only 11 cryptocurrencies including bitcoin, ether and ripple against the yen. Binance Japan’s General Manager Takeshi Chino said the company will be “actively work[ing] with regulators to develop our combined exchange in a compliant way for local users.”



“Japan is a big market for digital assets, and it’s pretty clear that Binance sees this as an opportunity to tap into this market,” Brent Xu, CEO and co-founder of Umee, a Web3 bond-market platform, told Blockworks.



Although, this isn’t the only reason for Binance to move into the Japanese market, Xu said. Its acquisition of SEBC comes at a time where regulators worldwide have been wary of cryptocurrency exchanges following the collapse of Binance’s rival FTX.&nbsp;



“FTX had recently acquired the Japanese exchange Liquid, and Liquid has since experienced serious issues because of FTX’s collapse,” Xu said.&nbsp;



Binance CEO Changpeng Zhao is credited with spurring FTX’s unraveling by pledging to offload more than half a billion dollars in the platform’s native token, before offering to acquire FTX only to pull out.



Liquid halted withdrawals to <a href="https://twitter.com/Liquid_Global/status/1594313077700591620" target="_blank" rel="noreferrer noopener">comply</a> with FTX’s <a href="https://blockworks.co/news/ftx-contagions-next-victim-a-japanese-exchange" target="_blank" rel="noreferrer noopener">Chapter 11 bankruptcy</a> proceedings initiated in Delaware earlier this month — leaving room for Binance to swoop in.



According to recent <a href="https://www.bloomberg.com/news/articles/2022-11-30/ftx-s-japan-unit-drafts-plan-to-return-client-funds" target="_blank" rel="noreferrer noopener">reports</a> from Bloomberg, Liquid has been working on a yet-to-be-finalized plan that will allow its customers to get their money back, a rarity for bankrupt firms worldwide. The plan is set to be executed in January.



“So, again, Binance smells opportunity here, and this play makes business sense,” Xu said. “On a global level, I should note, this is a broader strategic play by Binance to reinforce its status as the dominant digital asset exchange.”



<h3>Binance ‘trying to capitalize on the moment’</h3>



Japan is not the only country that Binance has been making moves in. It has also secured regulatory approvals and authorizations in France, Italy, Spain, Bahrain, the United Arab Emirates, New Zealand, Kazakhstan, Poland, Lithuania and Cyprus amid a push for nods seen across the crypto ecosystem.



This does not come as a surprise to Calanthia Mei, co-founder of Masa Finance, a soulbound identity protocol.



“Binance is well positioned financially, and they are preparing to expand their presence globally,” she said.



“People in Japan are very tech-focused, and this [acquisition] likely means they are open to frontier technologies like digital assets. So Binance sees demand for its services there and is trying to capitalize on the moment,” she added.



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Binance Seizes FTX Bankruptcy To Expand Into Japan — Again

Jon Rice

Kraken CEO Jesse Powell has announced that around 30% of the company’s staff will be laid off as a direct result of the ongoing crypto winter, a bear market that has claimed major companies and thousands of jobs across the globe.



Powell noted in a Kraken blog post that “This reduction takes our team size back to where it was only 12 months ago” and described the move as necessary because “negative influences on the financial markets have continued and we have exhausted preferable options for bringing costs in line with demand.”



CoinGecko lists Kraken as the fifth-largest crypto exchange by volume, with a 24-hour volume of over half a billion dollars.



The 11-year old crypto exchange <a href="https://blog.kraken.com/post/16442/business-update/" target="_blank" rel="noreferrer noopener">offered</a> 16 weeks of pay to staff who were laid off, as well as an extension of a window to exercise vested stock options and immigration support for those who need it.



Powell, the co-founder of Kraken who <a href="https://blockworks.co/news/kraken-ceo-jesse-powell-steps-down" target="_blank" rel="noreferrer noopener">recently announced</a> that he would be leaving the role of CEO, gained a reputation within the crypto industry as a pugnacious but caring employer who believed strongly in the original philosophical tenets of cryptocurrency.



“I’m confident the steps we are taking today will ensure we can continue to deliver on our mission which the world needs now more than ever before,” he said.



Kraken <a href="https://blog.kraken.com/post/14372/kraken-announces-global-hiring-push-and-commitment-to-crypto-first-culture/" target="_blank" rel="noreferrer noopener">previously announced</a> in June 2022 that &#8220;We have not adjusted our hiring plan, and we do not intend to make any layoffs.&#8221; In a passionate Twitter thread on November 10, following the FTX meltdown, Powell said &#8220;I pray that we don&#8217;t lose our people, like we did in the wake of Gox.&#8221;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">14/ I pray for everyone who got caught up in this mess. I hope it doesn&#39;t turn you off of crypto. I hope you take care of yourself and continue to be a part of this community. These are growing pains. Money can be made again. Stay with me. I remain your humble servant, Jesse&mdash; Jesse Powell (@jespow) <a href="https://twitter.com/jespow/status/1590635245912887298?ref_src=twsrc%5Etfw">November 10, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Blockworks has reached out to Kraken for comment.



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Kraken Lays Off Over 1,000 People as Crypto Winter Wears On

As the crypto industry continues to reel from FTX’s collapse, total assets under management for digital asset investment products is at its lowest level in almost two years, according to data from CryptoCompare.&nbsp;



Digital asset management firms saw their AUM decline by an average of 14.5% in November, the lowest monthly figure recorded since December 2020, researchers noted.&nbsp;



Trust products specifically, such as Grayscale’s Bitcoin Trust (GBTC), saw a 13.6% decline in AUM, bringing total value held down to $15.3 billion. Trust products as a whole make up close to 80% of total crypto investment product AUM.&nbsp;



“AUM represented by ETFs also saw a significant fall of 23.9% to $1.68bn in November, representing 8.64% of the total market share,” CryptoCompare analysts wrote in the <a href="https://www.cryptocompare.com/media/43936180/damr_november.pdf" target="_blank" rel="noreferrer noopener">report</a>. “As of November, the market share of ETFs has fallen 24.9% since its 2022 peak in June.”&nbsp;



As investor interest in crypto ETFs shows signs of waning, Grayscale is holding out hope the SEC will greenlight its plans to <a href="https://blockworks.co/news/sec-grayscale-exploring-bitcoin-trust-options" target="_blank" rel="noreferrer noopener">convert GBTC to an ETF</a>.&nbsp;



“The SEC will use the FTX situation to argue that their position is correct — that GBTC shouldn’t be converted to an ETF,” said Jeffrey Blockinger, Quadrata’s general counsel. “The delay in pushing regulation forward on Capitol Hill could in turn be used by the SEC to reinforce its stance towards the GBTC application to become an ETF.”&nbsp;&nbsp;



The topic has come under further scrutiny in recent weeks as concerns about Grayscale’s parent company, Digital Currency Group, and its solvency mount. <a href="https://blockworks.co/news/the-grayscale-dilemma-a-record-discount-and-a-golden-goose" target="_blank" rel="noreferrer noopener">Analysts and bankruptcy</a> experts, however, remain confident that GBTC assets would remain protected in the event of a bankruptcy filing, which DCG has maintained it is determined to avoid.&nbsp;



Crypto investment products on the whole have experienced a significant decline in inflows since signs of trouble at FTX first started to surface in early November. In the week of Oct. 31, digital asset investment vehicle providers had about $27.4 billion in AUM, according to <a href="https://blog.coinshares.com/volume-104-digital-asset-fund-flows-weekly-report-4f7e017fed86" target="_blank" rel="noreferrer noopener">data</a> from CoinShares. By the week of Nov. 21, that number had dropped to around $22.2 billion, CoinShares <a href="https://blog.coinshares.com/volume-107-digital-asset-fund-flows-weekly-report-8c4942fcc525" target="_blank" rel="noreferrer noopener">reported</a>.&nbsp;



Inflows to short-bias funds by contrast <a href="https://blockworks.co/news/what-fud-coinshares-reports-largest-inflows-in-months" target="_blank" rel="noreferrer noopener">have been rising</a>. The week of Nov. 21 was marked by “deeply negative sentiment with the largest inflows into short-investments on record,” James Butterfill, head of research at CoinShares, said.&nbsp;



“Short investment product inflows represented 75% of the total inflows, suggesting on aggregate sentiment was deeply negative for the asset class, while total AuM is now at the lowest point in 2 years at $22 billion,” Butterfill added.



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Crypto Investment Product AUM Drops to Lowest Level Since 2020

Shalini Nagarajan

Sam Bankman-Fried, disgraced boss of collapsed crypto exchange FTX, has claimed an extra $4 billion appeared minutes after filing for bankruptcy — money he says could’ve made out-of-pocket users whole.



“Eight…minutes after I filed for bankruptcy, $4 billion more [of liquidity] came in,” he said, without elaborating on where or who it came from. When asked whether that amount could be used for customer recovery, Bankman-Fried said he was working on it.&nbsp;



The bankruptcy process means current trustees are seeking alternatives to maximize value for creditors, according to the former crypto billionaire, who says he’s been locked out of the proceedings in lieu of restructuring lawyers.



Lawyers reckon FTX owes funds to up to one million users. “I honest to God believe that if I hadn’t filed for bankruptcy, all users would be whole and withdrawals would be on…and not just [FTX] US, international as well,” he said in a 23-minute <a href="https://www.youtube.com/watch?v=6DezodR9hNI&amp;t=8s" target="_blank" rel="noreferrer noopener">interview</a> conducted on Nov. 16, about a <a href="https://blockworks.co/news/ftx-bankrupt-hacked-investigated-a-timeline-of-events" target="_blank" rel="noreferrer noopener">week after</a> the exchange and its subsidiaries declared bankruptcy.&nbsp;



As fellow YouTuber Coffeezilla <a href="https://www.youtube.com/watch?v=0rL35_WV3lE" target="_blank" rel="noreferrer noopener">pointed out in a video</a> breaking down both interviews with crypto vlogger Tiffany Fong, it’s difficult to take Bankman-Fried’s claims seriously.



Allegations of misappropriating user funds aside, he repeatedly reassured FTX users that the exchange remained solvent throughout a crippling $6 billion bankrun.&nbsp;



FTX was in fact insolvent. FTX, FTS US and adjacent trading unit Alamada Research are now under the oversight of veteran restructurer John J. Ray III, who replaced Bankman-Fried after his resignation.



With this in mind, skepticism is warranted when it comes to Bankman-Fried’s version of events going forward.&nbsp;



<h3>Sam Bankman-Fried: ‘I could barely use the system’</h3>



Bankman-Fried admitted that customer wire transfers directed to FTX went to Alameda by default, because FTX didn’t have its own bank account when it started. This led to accounting problems that got out of hand, Bankman-Fried said.



FTX’s native token FTT was central to FTX and Alameda’s intertwined accounting. FTT featured prominently on both Alameda and FTX’s balance sheets, while Bankman-Fried firms owned a majority of the tokens in existence — creating a precarious position worsened by weakened token prices.



The value proposition for FTT, like many other crypto exchange tokens, mostly relies on two things: discounts on trading fees and buy-and-burn schemes, the latter of which consists of the exchange itself buying up its own token and destroying the haul. Often exchanges will use revenue from trading fees as part of that system.&nbsp;



“I think FTT was basically more legit than most tokens in some ways. I think its value is more economically underpinned than the average token was,” Bankman-Fried told Fong in defense of using the token so prominently in his accounting.



Separately in the interview, Bankman-Fried downplayed allegations that he’d built a backdoor to siphon funds from FTX to Alameda without alerting auditors or internal systems.&nbsp;



He claimed he wouldn’t have been able to create such a system as he didn’t actually know how to code or how to use FTX’s backend. “I could barely use the system. I used this system from a user interface perspective. But I literally never opened the code for FTX,” he said.



Coffeezilla later pointed out that the Reuters <a href="https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/" target="_blank" rel="noreferrer noopener">report</a> containing the initial allegations actually claimed FTX Chief Technology Officer Gary Wang built the backdoor — not Bankman-Fried — leaving the matter unaddressed.



<h3>Bankman-Fried says he gave dark money to Republicans</h3>



In the <a href="https://www.youtube.com/watch?v=xP54LZB3WRw" target="_blank" rel="noreferrer noopener">second interview</a> with Fong on Nov. 20, Bankman-Fried sounded more reflective and deliberate. He acknowledged that any apologies now ring hollow.



A key problem for the exchange, according to him, was that no individual was solely in charge of monitoring the risk of monetary positions.&nbsp;



He also added that FTX’s situation would be a “lot more stable” had Binance CEO Changpeng Zhao not expressed concerns about its balance sheet before pledging to dump more than half a billion dollars in FTT.



Bankman-Fried’s political donations also came up, as he was among the <a href="https://www.wsj.com/articles/crypto-firms-executives-step-up-campaign-donations-lobbying-ahead-of-midterms-11667612593?mod=article_inline" target="_blank" rel="noreferrer noopener">biggest donors</a> in US politics ahead of this year’s midterm elections. As Blockworks previously reported, Bankman-Fried personally donated <a href="https://blockworks.co/news/ftx-donations-campaign-finance" target="_blank" rel="noreferrer noopener">$40 million</a> to Democratic candidates and political action committees, the latter of which contributed to campaigns on both sides of the aisle.&nbsp;



He was also <a href="https://nymag.com/intelligencer/2021/02/sam-bankman-fried-biden-donor.html" target="_blank" rel="noreferrer noopener">famously</a> the second-highest contributor to Joe Biden’s 2020 campaign behind media mogul Mike Bloomberg, giving $5.2 million to Bloomberg’s $56 million. The splurge left many to consider Bankman-Fried a staunch Democrat.



Bankman-Fried however told Fong that he actually donated about the same to both parties. His Republican donations were dark and therefore didn’t require disclosure.



According to <a href="https://campaignlegal.org/update/what-dark-money" target="_blank" rel="noreferrer noopener">Campaign Legal</a>, “wealthy special interests can easily hide their political spending from the public and avoid accountability for trying to rig the system and influence our votes and our government…by giving to super PACs through non-profits.”



Bankman-Fried said he opted to make his donations to Democrats public as journalists “freak the f— out” when figures backed Republican causes.



David Canellis contributed reporting.



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Sam Bankman-Fried: FTX Would Be More Stable if CZ Stayed Silent

The BlockFi bankruptcy last week marked the latest instance of crypto’s collapse starting to resemble TradFi’s 2008 crisis. More high-flying firms are running out of financial runway, if they have yet to shut their doors entirely.&nbsp;



Attorneys for BlockFi — once one of the largest crypto lenders — appeared before a bankruptcy court in New Jersey, where the company is headquartered, on Monday. Industry participants, closely following the proceedings, told Blockworks what BlockFi’s insolvency means for the industry more broadly.&nbsp;



Crypto companies, if the entities haven’t done so already, ought to take a serious look at their accounting practice and ensure compliance with <a href="https://blockworks.co/news/crypto-industry-must-report-bad-actors" target="_blank" rel="noreferrer noopener">fast-moving</a> regulatory requirements, according to Aaron Jacob, head of accounting solutions at TaxBit.



“After a chaotic crypto winter, regulatory clarity, transparency, and better accounting will let spring finally emerge again,” Jacob said.



BlockFi’s next court appearance is tentatively set for Jan. 9, 2023. Below is a rundown of what&#8217;s happened so far:



<h3>BlockFi sues Sam Bankman-Fried for Robinhood shares</h3>



Soon after filing for Chapter 11 bankruptcy, BlockFi <a href="https://pacer-documents.s3.amazonaws.com/109/1094078/118164201903.pdf" target="_blank" rel="noreferrer noopener">sued</a> embattled FTX founder Sam Bankman-Fried for outstanding Robinhood shares.&nbsp;



BlockFi alleged it entered a Nov. 9 agreement to specific payment obligations from an unnamed borrower, later identified as Bankman-Fried’s Alameda Research, by pledging unidentified “common stock” as collateral.&nbsp;



Bankman-Fried previously acquired a <a href="https://blockworks.co/news/ftx-denies-claims-to-acquire-robinhood" target="_blank" rel="noreferrer noopener">7.6%</a> stake in Robinhood, leading to speculation the former FTX chief executive could purchase the brokerage firm outright, though the company <a href="https://blockworks.co/news/ftx-denies-claims-to-acquire-robinhood" target="_blank" rel="noreferrer noopener">later denied</a> a potential acquisition being on the table.



BlockFi is now looking to cash in on the collateral as the likelihood of Alameda repaying its loan is very slim.&nbsp;



<h3>Two-thirds of staff will be laid off</h3>



Following the demise of Three Arrows Capital, BlockFi had already cut its staff by <a href="https://blockworks.co/news/cryptocurrency-lender-blockfi-set-to-cut-staff-by-a-fifth" target="_blank" rel="noreferrer noopener">one-fifth</a>.



BlockFi now has 292 employees and 82 contractors, according to Joshua Sussberg, a partner at law firm Kirkland &amp; Ellis.



After selling roughly <a href="https://www.docdroid.net/dvgRC8u/x3tecaphkcg84s9obt8s0jmcg84-pdf#page=31" target="_blank" rel="noreferrer noopener">$238 million</a> worth of its cryptoassets to try to remain above water, the company said additional two-thirds of its remaining employees would need to be laid off to save $34 million annually.



The laid-off employees will be paid through the notice period.



<h3>$355 million in cryptoassets are frozen on FTX</h3>



Court filings revealed BlockFi had “substantial exposure to FTX.” That &#8220;substantial&#8221; turned out to be $355 million worth of frozen cryptocurrencies now in limbo on the insolvent centralized exchange, Sussberg said in bankruptcy court.



The $355 million is on top of an existing $671 million loan to Alameda — which has already defaulted.



<h3>SEC among BlockFi bankruptcy creditors</h3>



BlockFi has roughly 100,000 creditors and $1 billion to $10 billion in liabilities and assets, the latest bankruptcy filings show. Among them is the SEC, which the troubled lender is said to owe roughly $30 million.



The lender previously reached a $100 million settlement with the SEC after the regulator said BlockFi failed to register yield-bearing products as securities earlier this year. The settlement, in an industry first, included a provision for the firm to stop offering such accounts to US clients.&nbsp;



As its largest creditor, per filings, Ankura Trust owes BlockFi $729 million.



<h3>Emphasis on transparency</h3>



Meanwhile, FTX’s new CEO John Jay Ray III dubbed internal mismanagement of the exchange “a complete failure.”



“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said in a statement.&nbsp;



Opaqueness didn’t apply to BlockFi’s own bankruptcy, according to filings.



“BlockFi was forthright about what it would and would not do with funds on its platform — in stark contrast to others reported to have done the opposite,” the filings said.



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5 Highlights From BlockFi Bankruptcy Proceedings

Almost half a year after Uniswap Labs <a href="https://blockworks.co/news/uniswap-labs-pushes-further-into-nfts-with-genie-acquisition" target="_blank" rel="noreferrer noopener">acquired NFT marketplace aggregator</a> Genie, the largest decentralized exchange revealed today that NFT trading will now be made available to all users on its platform.



Users will be able to trade NFTs across eight major marketplaces on Ethereum, making Uniswap one of the largest single on-chain marketplace for digital assets across tokens and NFTs, Scott Gray, the head of NFT product at Uniswap Labs, said.



<blockquote class="wp-block-quote">“Staying intact with Uniswap’s brand, the interface is open source, trustless, and users have self custody over their NFTs,” Gray said.</blockquote>



Its new platform will enable users to explore trending NFTs and collections across different marketplaces. The tool will also include a “sweep” feature where users can purchase an entire collection of NFTs through once purchase.



The existing 15,928 Genie users will receive an initial airdrop of $5 million USDC, and gas rebates will be awarded to the first 22,000 NFT users. The gas rebates, capped at 0.01 ETH per user, will begin today and end on Dec.15 and can be claimed for 12 months between Jan.16, 2023 and Jan.15, 2024 through the Uniswap app.



<h3>Uniswap NFTs: The road to revenue</h3>



Uniswap Labs has been actively looking into new ways to generate revenue since its <a href="https://blockworks.co/news/uniswap-labs-valued-at-1-6b-after-165m-funding-round" target="_blank" rel="noreferrer noopener">$1.6 billion fundraise</a> in October.



Although Uniswap Labs received an equity valuation of $1.66 billion, a spokesperson from the company told Blockworks that in its current state, “Uniswap Labs is a pre-revenue company.”



Its latest NFT platform is not looking at immediate revenue. The company is actively looking at ways to iterate its platform “to become the best aggregator for placing offers across all these marketplaces and being able to manage inventory across all these marketplaces,” Gray said.



“A lot of capital inefficiencies in the NFT market still exist, and we have a few more months of work to solve them and move onto the next set of problems in the NFT space.”



The NFT marketplace is just one of many initiatives launched by the company. Uniswap governance has also been experimenting with implementing a <a href="https://blockworks.co/news/uniswap-fee-switch-pilot-likely-to-go-ahead" target="_blank" rel="noreferrer noopener">fee switch</a>, where the protocol would receive a tenth of select liquidity pool fees — cutting into liquidity provider revenue.&nbsp;



The latest establishment of Uniswap Foundation, a separate entity to Uniswap Labs, is also looking at ways to provide grants to community projects that will grow the ecosystem over the next few years.



“As we consider future revenue models, we want to empower users and earn their business,” a Uniswap spokesperson said.



Updated on Nov. 30 at 9:45 am ET: Uniswap governance may implement a fee switch, not Uniswap Labs.



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Uniswap Taps Into NFTs as It Looks To Be Financially Sustainable

Brazil lawmakers have formally approved a regulatory framework set to govern the country’s crypto sector.



The bill <a href="https://blockworks.co/news/historic-brazilian-bill-regulating-crypto-heads-to-senate-vote" target="_blank" rel="noreferrer noopener">drew attention</a> earlier this year after a previous version passed through the Senate in April. It had since since been stuck in the Chamber of Deputies, the government&#8217;s lower house.



Local media <a href="https://www.infomoney.com.br/mercados/camara-aprova-marco-regulatorio-dos-criptoativos-no-brasil/" target="_blank" rel="noreferrer noopener">reported</a> that the text, written by federal deputy Aureo Ribeiro, includes a new crime: digital asset embezzlement, which appears targeted at exchange operators. 



Penalties include prison time between two to six years along with fines, which can also be handed out to entities which operate in Brazil without a physical presence. 



There&#8217;s also a rule requiring crypto companies such as exchanges and other intermediaries to hold a virtual service provider license, similar to rules set in place across the US and Europe.&nbsp;



The country’s efforts to regulate local crypto players comes amid turmoil in the wider digital asset space. Strife was most recently prompted by the collapse of FTX, which has left up to one million users out of pocket including regular investors, crypto projects and hedge funds. 



Former FTX CEO Sam Bankman-Fried allegedly siphoned user funds to make risky bets across crypto markets via sister trading unit Alameda Research, leading to a multibillion-dollar black hole in its balance sheet and a crippling liquidity crisis.



Brazil lawmakers however disagreed over whether to demand crypto exchanges ensure client funds are segregated from operational cash. This would hypothetically protect customers from corporate malfeasance and other crippling events such as exchange bankruptcy.



But Ribeiro effectively opposed this proposed change, saying it would stifle the crypto market. Currently on hold, the asset segregation issue will be debated at a later date.



<h3>Crypto is big in Brazil</h3>



Government-appointed bodies will reportedly decide which digital assets can be listed for trade, and relevant companies will have an 180-day grace period to comply with the incoming rules.



Brazil, which has suffered from high inflation for decades, is one of the most active crypto markets in the world, according to recent <a href="https://blog.chainalysis.com/reports/2022-global-crypto-adoption-index/" target="_blank" rel="noreferrer noopener">Chainalysis data</a>. <a href="https://thepaypers.com/thought-leader-insights/the-crypto-landscape-in-brazil--1258289" target="_blank" rel="noreferrer noopener">About 5%</a> of its population actively invests in crypto, and more than 900 Brazil-based companies currently accept crypto as payment. 



One silver lining could be that the domino-style tumbling of unregulated crypto firms over the past year may usher in regulated institutions with stronger compliance frameworks and robust risk systems. At least, that&#8217;s what Brazil&#8217;s incoming crypto regulations could inspire.



Brazil’s bill is already approved, but it will now head for a signature from outgoing president Jair Bolsonaro before his term ends on Dec. 31. Luiz Inácio Lula da Silva is expected to take up office on Jan. 1.



Some lawmakers reportedly preferred the bill be approved during Bolsonaro&#8217;s term, over fears Silva may not be as enthusiastic about cryptocurrency.



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Brazil Crypto Laws Demand up to 6 Years Prison for Embezzlement

Sebastian Sinclair

IBM and Danish shipping giant Maersk are scuttling a four-year-old enterprise blockchain project designed to track global trade — another hint that distributed ledger solutions may not yet be viable in the wild.



TradeLens is a blockchain-based logistics platform aimed at digitizing supply chains. It was launched in 2018, a time when multiple economic sectors, including global shipping, sought to revamp various processes with centralized blockchain solutions — most of the time without associated cryptocurrencies.



Hundreds of major companies had signed on to TradeLens at its height. Those included intermodal carriers such as BNSF Logistics and major port operator MSC — the second largest shipping company after Maersk.



TradeLens will be ending by the close of Q1, 2023, the companies said in a Tuesday <a href="https://www.maersk.com/news/articles/2022/11/29/maersk-and-ibm-to-discontinue-tradelens" target="_blank" rel="noreferrer noopener">statement</a>.



“Unfortunately, while we successfully developed a viable platform, the need for full global industry collaboration has not been achieved,” Rotem Hershko, Maersk’s head of business platforms, said.



As such, TradeLens has been unable to attain the level of commercial viability required to continue operating. The project ultimately fell short of financial expectations, undermining its future as a standalone business.



TradeLens was built on IBM proprietary blockchain software which leveraged Hyperledger Fabric, an open-source framework from the Linux Foundation. 



Enterprise blockchain networks such as TradeLens are far more centralized than major protocols such as Bitcoin and Ethereum. They&#8217;re usually entirely permissioned (private), maintained and controlled by a small group of entities (and often just one), rather than hundreds or thousands of unrelated network participants all working together to maintain consensus.



Jointly built by IBM and GTD Solution — a division of Maersk — TradeLens&#8217; intention was to promote efficiency and secure global trade.



Maersk said it would continue efforts to digitize the supply chain and further industry efficiency using other solutions, without mentioning specifics. Blockworks has reached out for comment.



“We will leverage the work of TradeLens as a stepping stone to further push our digitization agenda and look forward to harnessing the energy and ability of our technology talent in new ways,” Hershko said.



TradeLens joins a number of other enterprise blockchain projects hitting a brick wall. Earlier this month, the <a href="https://blockworks.co/news/blockchain-not-bitcoin-is-dead-australian-bourse-cans-dlt-shift" target="_blank" rel="noreferrer noopener">Australian Securities Exchange</a> nixed a blockchain-powered system designed to replace its aging settlement layer after nearly three years of development, having spent around $170 million on the cause.



That followed Microsoft ending its <a href="https://azure.microsoft.com/en-us/solutions/blockchain/#overview" target="_blank" rel="noreferrer noopener">Azure blockchain service</a> last year. The platform was launched in 2015 to help companies to deploy their own permissioned blockchain networks.



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IBM, Maersk Snuff Blockchain Project Due to Lack of Interest

Privacy-focused protocol Secret Network — intended to be anonymous and confidential — has disclosed a security vulnerability that threatened to reveal user transaction histories.



The bug, discovered by researchers from the University of Illinois Urbana-Champaign in October, allowed extraction of a so-called “consensus seed,” effectively a master decryption key for Secret Network.



“Exposure of the consensus seed would enable the complete retroactive disclosure of all Secret-4 private transactions since the chain began,” the team said. SCRT Labs, the group behind the blockchain’s development, patched the vulnerability earlier this month.



The attack vector involved exploiting flaws in Intel&#8217;s Software Guard Extension (SGX). SGX is a set of security-related instruction codes built into some Intel central processing units (CPUs), including their latest 10th, 11th and 12th-generation chips.&nbsp;



The SGX bugs first became public knowledge in early August, and the researchers say they also discovered related flaws in video software PowerDVD.&nbsp;



Secret Network, <a href="https://blockworks.co/news/secret-network-announces-400m-ecosystem-funding-reveals-big-name-investors" target="_blank" rel="noreferrer noopener">backed</a> by scandal-ridden firms Alameda Research and Terraform Labs, runs on delegated proof-of-stake consensus, a method first utilized by EOS. The protocol is considered somewhat of a competitor to other privacy-centric networks such as Monero and Zcash, albeit with a much smaller market capitalization around $150 million (compared to $2.5 billion and $550 million).



Unlike Bitcoin and Ethereum, which allow anyone with the right equipment (and in the latter’s case, enough ether) to join the network, Secret Network token holders select 50 trusted third parties to maintain specialized validating nodes that keep the blockchain flowing.



But the researchers didn’t have to become fully-fledged network validators to exploit the bug. They were able to extract their Secret Network master key by running a full node (which anyone can do) with a machine powered by the vulnerable processors.&nbsp;



Full nodes download a complete copy of the blockchain onto the related machine, and in Secret Network’s case, a “sealed consensus seed” along with it.



Secret Network node software uses what’s known as a trusted execution environment (TEE). These are secure regions of a main processor that only certain trusted devices, codes, or applications can access. The researchers were able to exploit this part of Secret Network’s stack, alongside Intel’s SGX, to decrypt the sealed consensus seed and thus reveal all private transactions on the protocol’s ledger.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">We were able to get onto the network with compromised nodes, which actually would have been very hard for Secret to prevent (IAS said our devices were trusted). The problem is that in doing so, we were able to deanonymize all the transactions since the chain began&mdash; Tom Yurek (@tom_yurek) <a href="https://twitter.com/tom_yurek/status/1597658913587232768?ref_src=twsrc%5Etfw">November 29, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>Tom Yurek, part of the discovering team, discusses the bug on Twitter</figcaption></figure>



<h3>Secret Network users urged to reconsider their operational security</h3>



SCRT Labs has assured users that to the best of its knowledge, no malicious actor had exploited the vulnerability in the wild prior to it being patched. 



The researchers, however, have stated there’s no way to know for certain whether the attack had been executed previously.



SCRT said it held off releasing details of the bug due to a mutual agreement between itself, Intel and the researchers to mitigate potential for the vulnerability to be exploited, a common move in software development.



In any case, the team that discovered the flaw have urged “privacy-conscious” users to reassess their online footprints, considering that their past “secret” transactions may be exposed.



“SCRT Labs &#8216;fixed&#8217; it now, but all past transactions are compromised,” the team said. Secret Network’s native token has remained relatively steady since the disclosure, only dropping around 2%, although it’s already collapsed 85% in the year to date alongside swathes of other crypto projects.



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="284" src="https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-1024x284.png" alt="" class="wp-image-40559" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-1024x284.png 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-300x83.png 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-768x213.png 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-1536x426.png 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-2048x568.png 2048w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-428x119.png 428w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-470x130.png 470w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-389x108.png 389w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-80x22.png 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-50x14.png 50w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>The researchers break down the attack into two phases: Prepare and Exploit | Source: <a href="https://sgx.fail/" target="_blank" rel="noreferrer noopener">SGX.fail</a></figcaption></figure>



New Secret Network nodes are currently limited to “server-class” hardware while SCRT has vowed to ratchet security-focused features for the network. The stewards also said they would strengthen their communications with Intel to ensure users receive early warning of future undisclosed vulnerabilities.



Funds on Secret Network are considered safe (only the confidentiality of the network has been compromised, not user private keys). The researchers noted the most concerning application of the attack is bulk surveillance of Secret users’ personal finances.



There was still opportunity to front-run DeFi applications and breach private metadata tied to NFTs deployed on the network. “Any digital assets that rely on private metadata, such as NFTs exchanging secret authentication keys, would be at risk of theft,” they wrote.



David Canellis contributed reporting.



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Secret Network Crypto Transactions Not So Secret After All

Crypto volatility has been a major feature of the asset class that has made or ruined many investors over the years. This has left the curious wondering what typically affects volatility.



Cryptocurrencies are tradeable, meaning that they’re similar to stocks, commodities and securities. The price at which they trade depends on the demand and supply in the market, and the relationship between the two typically determines any change.



Consider financial markets. They are influenced by macro factors such as interest rates, inflation, and other monetary policies. Additionally, industry-related developments and national or global events also have an impact. The same principle applies to crypto.&nbsp;



According to Jacob Sansbury, CEO at trading platform Pluto, markets can expect to see rather pronounced volatility in digital asset markets for some time.&nbsp;



Consider the stock prices of the big Web2 giants, including Amazon. They experienced&nbsp; pronounced price surges and drawdowns in their early years. Multiple times over the last couple of decades, they ran up in price and then crashed as much as 90%.



That can be ascribed to the fact that any novel technology is likely to experience exponential rates of adoption. The same can be about Bitcoin, Ethereum, Solana and a number of other blockchain networks.



“A difference with digital assets, though, is that their rate of adoption is even higher than that of most traditional technology companies,” Sansbury told Blockworks. “According to some estimates, the rate at which digital assets are growing has been double that of the internet itself.”



“This accelerated user growth feeds into the boom-bust cycles, and so too does that fact that digital assets have very much been driven by retail users from around the world.”



Long term, he expects this volatility to become less pronounced, especially when it comes to the big networks such as Bitcoin and Ethereum. Eventually, the rate of adoption is likely to slow as more people get exposure to these networks and, in turn, get more comfortable using them.&nbsp;



“This will take years to play out. And until then, we should expect surprising swings in both directions,” Sansbury said.



When discussing volatility, consider various asset classes in terms of their respective risk and exposure to external factors. In ranking assets in the investing world from “most risky” to “least risky,” we would typically sort them as: 1. crypto 2. private equity 3. public equity 4. bond markets.



Central bank action is a major influence affecting overall liquidity across all these markets, according to Simon Schaber, Spool DAO’s chief business development officer.



“If liquidity is rising, as we saw under heavy quantitative easing in the recent past, then it lifts asset classes up like the incoming tide lifts a ship in a harbor. The most exposed asset classes get lifted the highest and the fastest,” he told Blockworks.



That’s why investors saw a massive rally in crypto, venture capital and meme stocks while more conservative assets rose only slowly and real bond yields even turned negative, he explained.



“If we consider this high level of correlation to the global liquidity situation in combination with the large influence that [venture capital] firms like a16z, Sequoia, Alameda, Jump, etc. have over crypto markets, then it is easy to understand that high volatility commonly happens in times of rapid and seismic macroeconomic shifts,” Schaber added.



But as this market matures&nbsp;— bringing with it less uncertainty — we should start seeing less volatility.



Varun Kumar, CEO at DeFi trading platform Hashflow, shared when he expects crypto to see lower volatility.



“When it is clear how exactly crypto can be integrated into the current financial system and traditional financial institutions are ready to implement it, we will see widespread adoption, giving digital assets more trust and, thus, stability,” he told Blockworks.



For cryptocurrencies to overcome volatility, he believes institutions need to find a solution for integration, regulators need to recognize their role and the general public must see crypto as more than a trading opportunity.&nbsp;



Crypto prices have also fallen after negative regulatory or geopolitical developments, such as <a href="https://blockworks.co/bitcoin-breaks-below-30000-on-china-concerns/" target="_blank" rel="noreferrer noopener">China intensifying its crackdown</a> on the asset class and <a href="https://blockworks.co/bitcoin-slides-below-35k-amid-putins-call-for-full-scale-invasion-of-ukraine/" target="_blank" rel="noreferrer noopener">Russia’s invasion of Ukraine</a>. They’ve also tended to mirror the fluctuations in the stock market, highlighting a link between crypto and more traditional assets.



Aside from these factors, prices of new digital assets with a relatively small market cap can also be easily tilted with a significant amount of cash, Chris Esparza, CEO and founder of Vault Finance, told Blockworks.



“With many traders poised to profit from these price swings, many compensate by injecting cash. However, as market capitalization rises, volatility tends to decrease,” he said.



He used bitcoin as an example, pointing out that it is generally less volatile than ether and the price offset is nearly impossible due to the larger market cap.&nbsp;



“With more funds flowing into the crypto ecosystem from retail and institutional investors, there will be more balance and less volatility over time,” he said, adding that although the time frame is difficult to predict, we can expect a less volatile crypto ecosystem in about five years.



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Crypto Is Volatile — But Why?

In the slow burn leading up to FTX’s swift collapse — which conveniently coincided with the 2022 midterm election cycle — founder Sam Bankman-Fried and a slew of executives broke out their checkbooks, doling out bipartisan dollars to Capitol Hill hopefuls.



Bankman-Fried has become entangled in a range of political donations. He personally gave $40 million to various Political Action Committees (PACs) and individual candidates, according to <a href="https://www.fec.gov/data/receipts/individual-contributions/?contributor_name=Sam+Bankman-Fried" target="_blank" rel="noreferrer noopener">data</a> from the Federal Election Commission (FEC). Most supported Democratic causes, but he also donated to Republicans, both personally and via donations from his companies.&nbsp;



Other FTX-affiliated donors include Ryan Salame, Bankman-Fried’s former co-CEO, and Nishad Singh, former director of engineering at FTX. Salame gave nearly $23 million almost exclusively to Republicans and related PACs, while Singh coughed up $8 million.&nbsp;



Bankman-Fried donated under at least three separate entities: Alameda Research, FTX US (the Bahamas-based company’s American subsidiary) and FTX. The FEC collects and publishes self-reported data on donors’ employers.&nbsp;



FTX US donated a collective $500,947.30 between December 2021 and September 2022, according to FEC <a href="https://www.fec.gov/data/receipts/individual-contributions/?contributor_name=FTX" target="_blank" rel="noreferrer noopener">records</a> — the majority to <a href="https://blockworks.co/news/poll-us-voters-who-own-crypto-are-on-the-rise-just-in-time-for-midterms" target="_blank" rel="noreferrer noopener">GMI PAC</a>, a crypto-focused group which primarily supported the Crypto Innovation PAC during the 2022 midterms.



Crypto Innovation PAC backed Republicans Michelle Bond — who lost the New York Republican primary for the House of Representatives in 2022 — and Rep. Markwayne Mullin of Oklahoma. The group also donated to Rep. Patrick McHenry, R-N.C., Sen. Ted Budd, R-N.C., and Sen. John Boozman, R-Ark., all of whom have been <a href="https://blockworks.co/news/bipartisan-stablecoin-regulation-has-a-slim-chance-of-passing-this-year" target="_blank" rel="noreferrer noopener">vocal</a> crypto supporters.&nbsp;



The offices of Rep. McHenry and Sens. Budd and Boozman did not respond to requests for comment.&nbsp;



In 2020, Alameda Research gave $5.2 million to Future Forward PAC, a Democratic-leaning organization that had been primarily focused on electing President Biden in 2020, according to the FEC. Future Forward is still accepting donations for other liberal candidates.&nbsp;



Some candidates have come forward and said they will <a href="https://blockworks.co/news/us-politicians-donate-bankman-fried-cash-to-charity" target="_blank" rel="noreferrer noopener">donate</a> funds linked to Bankman-Fried, including Sen. Dick Durbin, D-Ill., and Rep. Jesús “Chuy” García, D-Ill. Both received $2,900.&nbsp;



Former Texas gubernatorial candidate Beto O’Rourke “returned” a $1 million donation from Bankman-Fried four days before election day, his campaign told <a href="https://www.texastribune.org/2022/11/29/beto-orourke-sam-bankman-fried-ftx/" target="_blank" rel="noreferrer noopener">The Texas Tribune</a>. The refund was unrelated to any potential fraud from FTX or Bankman-Fried, his campaign added.&nbsp;



Blockworks contacted the offices of the following legislators who received funds linked to Bankman-Fried and FTX: Tom Emmer, R-Ind., Josh Gottheimer, D-N.J., Jake Auchincloss, D-N.J., Ritchie Torres, D-N.Y., John Boozman, R-Ark., Nancy Pelosi, D-Calif., and Kevin McCarthy, R-Calif., and Sens. Lisa Murkowski, R-Ark., Mitt Romney, R-Utah, Susan Collins, R-Maine, John Thune, R-S.D., Chuck Schumer, D-N.Y., and Mitch McConnell, R-Ky.



None responded.



Updated Nov. 29, 2022 at 4:35 pm ET: Ritchie Torres&#8217; office responded after publishing. Torres donated his contribution from Bankman-Fried to &#8220;a local charity to assist with holiday food distribution to families in need,&#8221; according to Rep. Torres&#8217; team. 



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List of Democrats, Republicans Staying Silent On FTX Donations Grows

Michael Bodley

A private equity professional, helming a new crypto <a href="https://blockworks.co/news/sovereign-wealth-fund-vet-eyes-150m-for-crypto-fund-of-funds" target="_blank" rel="noreferrer noopener">fund of funds</a>, appears to be gaining fundraising traction as investors hunt for opportunistic strategies primed for uncommonly volatile markets, according to three sources familiar with the matter.



Managing Partner Joshua Manasseh previously spent more than six years at private equity firm Ardian. Manasseh’s London-based Arbury Advisors plans to launch in the first quarter of 2023.



It’s unclear how much capital Arbury intends to raise, but sources said the fund of funds has landed the family office of an unidentified major private equity player as an anchor investor.&nbsp;



Manasseh tapped crypto veteran Joseph Cox as head of research. The New York-based Cox, formerly chief operating officer of a $100 million-plus asset manager, is tasked with bridging the US and Europe and assisting in capital deployment, as well as due diligence.&nbsp;



Following <a href="https://blockworks.co/news/the-last-10-days-in-the-ftx-saga-a-timeline" target="_blank" rel="noreferrer noopener">FTX’s blowup</a>, scores of blue-chip traders lost billions of dollars in days. The downturn, though, has triggered an impetus among limited partners to back opportunistic-minded investors — including long-biased, long-only and distressed strategies — in a bid to “buy the dip at scale,” one source said.&nbsp;



Contrary to the industry line, sources said it may be a good time to launch. One said it’s “refreshing” for Arbury to not have to buy into the bull market. Even so, it’s no simple task to ink commitments from investors who actually have dry powder left and have not been dissuaded from the market’s plunge.&nbsp;



Due diligence and risk are now paramount.



“Alpha is not that hard to come by when markets pick up, but it’s really the operational and risk [due diligence] that makes the difference,” one source said.



Manasseh declined to comment. Sources were granted anonymity to discuss sensitive business dealings.&nbsp;



But raising capital is continuing apace — with one source saying things seem to be “falling into place” after Arbury secured its private equity anchor. In the swiftly-changing asset class, limited partners who are less savvy on crypto due diligence take cues from more grizzled peers.&nbsp;



<h3>The Arbury pitch</h3>



The company is slated to deploy to 10 to 15 funds, both illiquid venture — including buyers of early stage, private token sales and debt, as well as pure-play equity — and liquid hedge structures, such as market-neutral.



The private equity-style, close-ended vehicle plans to deploy capital over a two-year period. Manasseh plans to write larger checks to established traders under the aim of allocating about 25% of his book every six months.



There’s an optional fund extension at the discretion of its backers. And performance fees only come into play after investors receive a 1.5x multiple and an 8% net internal rate of return, or hurdle.&nbsp;



Manasseh previously worked on the investment team at Ardian — which now has more than $140 billion in assets under management — and played a role in more than $8 billion of secondary fund of funds transactions. Cox is also an adviser to GoQuant.&nbsp;



There’s an emphasis on risk and diversification, including writing smaller checks to emerging traders, while reserving capacity to ramp up over time, as proven by performance.



The startup has also been working to negotiate discounted fees from the vehicles it’s considering backing. Lowered fees are “especially attractive” to would-be investors given market conditions and uncertainty, one source said.



On the due diligence front, Arbury has tapped Quentin Thom and James Newman’s perfORM. That operation, also based in London, has been capturing a <a href="https://blockworks.co/news/crypto-due-diligence-startup-vying-to-bring-transparency-to-opaque-industry" target="_blank" rel="noreferrer noopener">growing slice</a> of the market for deep dives on both digital asset investment firms and their service providers.&nbsp;&nbsp;



Manasseh has already deployed proprietary capital to at least one unidentified manager, which could be backed, in turn, by the fund of funds. And Thom and Newman are now assisting with due diligence on an up-and-coming pipeline of potential managers. The firm plans to predominantly employ a traditional <a href="https://blockworks.co/news/sources-fidelity-vet-launching-crypto-fund-of-funds" target="_blank" rel="noreferrer noopener">fund of funds model</a>, though Manasseh and Cox would selectively consider separately managed accounts.



Arbury has also inked a partnership with <a href="https://blockworks.co/news/ex-wall-street-execs-secure-funding-for-young-crypto-firm" target="_blank" rel="noreferrer noopener">Cloudwall </a>— a risk management startup founded by one-time Morgan Stanley executives — which facilitates “stress-tests” of portfolios against live and historical blockchain data.



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New Crypto Fund of Funds May ‘Buy the Dip at Scale,’ Sources Say

Crypto lender BlockFi has sued a Sam Bankman-Fried holding company over his Robinhood stock, just hours after the crypto lender filed for bankruptcy.



Bankman-Fried pledged the <a href="https://restructuring.ra.kroll.com/blockfi/Home-DownloadPDF?id1=MTM1MjU3OQ==&amp;id2=-1" target="_blank" rel="noreferrer noopener">shares</a> to BlockFi as collateral on Nov. 9 — intended to back Alameda Research&#8217;s payment obligations on $680 million in loans — the same day Binance walked back plans to rescue FTX.



Bankman-Fried’s tangled web of companies would declare bankruptcy two days later, with BlockFi now following suit. BlockFi opted to suspend withdrawals after Alameda (an FTX-linked trading unit) defaulted on the loans, per court documents, indicating BlockFi really needed that money.



BlockFi’s lawsuit is directed at Bankman-Fried’s Emergent Fidelity Technologies, which the former crypto billionaire used to take a <a href="https://blockworks.co/news/ftxs-sam-bankman-fried-spots-opportunity-in-troubled-markets" target="_blank" rel="noreferrer noopener">7.6% stake</a> in the discount brokerage in May, equal to more than 56 million shares now worth about $521 million.



ED&amp;F Man Capital Markets (EDFM) is listed as Emergent’s broker in the suit. BlockFi claims the London-based firm declined to transfer the collateral to BlockFi and thus failed to satisfy its obligations.



BlockFi lawyers wrote: “As the holder of the first priority security interest in the collateral, which is property of the BlockFi bankruptcy estates, BlockFi is entitled to have all such collateral immediately surrendered to it and/or liquidated in whatever manner necessary to preserve as much value as possible with the proceeds from any and all such sales transferred to BlockFi.”



Bankman-Fried, who reportedly shopped his Robinhood stake even as he provided it for collateral to BlockFi, is not directly named as a defendant in the suit. Blockworks has reached out for comment.&nbsp;



<h3>With no Robinhood stock, BlockFi sold $239 million in crypto</h3>



BlockFi’s suit over the Robinhood stock swiftly followed BlockFi lodgement <a href="https://blockworks.co/news/blockfi-files-for-bankruptcy" target="_blank" rel="noreferrer noopener">for Chapter 11 bankruptcy</a>, which stated the <a href="https://blockworks.co/news/how-blockfi-went-from-tech-unicorn-to-crypto-burnout" target="_blank" rel="noreferrer noopener">former tech unicorn</a> faced a “severe liquidity crunch” throughout the collapse of FTX and its subsidiaries.&nbsp;



FTX was meant to be BlockFi’s white knight. Bankman-Fried struck a deal to potentially acquire the lender for up to <a href="https://blockworks.co/news/ftx-reaches-deal-to-acquire-blockfi-for-up-to-240m">$240 million</a> amid the first industry-wide downturn earlier this year.



In early November, BlockFi made a borrowing request under an FTX loan agreement part of the acquisition deal. FTX did not honor the request, court documents show.



BlockFi’s own demise naturally means the FTX bailout deal is now invalid.



A <a href="https://restructuring.ra.kroll.com/blockfi/Home-DownloadPDF?id1=MTM1MjM3NQ==&amp;id2=-1" target="_blank" rel="noreferrer noopener">declaration</a> filed by BlockFi legal counsel on Monday showed the lender sold almost $239 million in crypto to bolster cash for administrative costs. The firm believes this amount will be enough to fund its bankruptcy, so it is not seeking debtor-in-possession financing at the moment.&nbsp;



Questions remain as to whether that meant BlockFi dumped customer-deposited funds to cover legal costs. BlockFi didn’t return Blockworks’ request for comment by press time.&nbsp;



Before the lender filed for bankruptcy, some two-thirds of BlockFi’s remaining 300 employees were warned of impending job cuts, company adviser Mark Renzi said in a declaration.



FTX&#8217;s troubles has left the company with “no choice” but to seek court protection, he added. BlockFi now wants to organize a standalone reorganization in court rather than sell itself, but is open to alternatives that maximize value for its some 100,000 creditors.



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Bankrupt BlockFi Wants Bankman-Fried’s $520M Robinhood Stake

Crypto bank Silvergate says its exposure to BlockFi amounts to less than $20 million in customer deposits — a move to quell concerns over exposure to the now-bankrupt lender.



Those funds would represent less than 2% of all crypto customer deposits maintained by Silvergate, which <a href="https://ir.silvergate.com/news/news-details/2022/Silvergate-Provides-Statement-on-FTX-Exposure/default.aspx" target="_blank" rel="noreferrer noopener">totaled</a> $11.9 billion at the end of September (including FTX-related funds).



In a Monday statement, Silvergate also emphasized that BlockFi was not a custodian for its bitcoin-collateralized loans, nor did it hold any investments in the company.



Silvergate’s SEN Leverage loans allow customers to open US dollar credit lines backed by bitcoin held at crypto exchanges in the bank&#8217;s network.



Silvergate issued one such <a href="https://www.microstrategy.com/en/investor-relations/press/silvergate-bank-issues-205-m-loan-to-macrostrategy-collateralized-by-bitcoin_03-29-2022" target="_blank" rel="noreferrer noopener">loan</a> worth $205 million to business intelligence firm MicroStrategy in March, then led by bitcoin bull Michael Saylor, who pledged to use the cash to buy more BTC. To date, all loans continue to perform as expected with zero losses and no forced liquidations, Silvergate said.&nbsp;



Silvergate acts as a custodian for major players across the crypto space, many of which utilize its Silvergate Exchange Network (SEN) payment rails. SEN allows partner companies, including Kraken and Circle, to wire fiat money quickly around the clock, even at times when the US’ Automated Clearing House is offline.&nbsp;



Silvergate also serviced <a href="https://www.bloomberg.com/news/articles/2022-11-28/ftx-received-some-customer-deposits-via-bank-accounts-held-by-alameda" target="_blank" rel="noreferrer noopener">accounts</a> for Alameda in FTX’s stead right up until its demise, a move which has since drawn criticism.



Further mitigating <a href="https://blockworks.co/news/how-blockfi-went-from-tech-unicorn-to-crypto-burnout" target="_blank" rel="noreferrer noopener">BlockFi</a> exposure, Silvergate <a href="https://ir.silvergate.com/news/news-details/2022/Silvergate-Provides-Statement-on-Minimal-Exposure-to-BlockFi/default.aspx" target="_blank" rel="noreferrer noopener">said</a> it maintains a first-priority lien and security interest in a $10 million cash collateral account. The money was meant to assure ACH settlement with BlockFi, and it now gives the bank breathing room should its $20 million exposure solidify.



BlockFi — which had relied on a $400 million rescue deal from FTX earlier this year — filed Chapter 11 <a href="https://blockworks.co/news/blockfi-files-for-bankruptcy" target="_blank" rel="noreferrer noopener">bankruptcy protection</a> on Monday, two weeks after <a href="https://blockworks.co/news/blockfi-eyes-bankruptcy-as-ftx-fallout-continues-report" target="_blank" rel="noreferrer noopener">suspending withdrawals</a> in light of FTX’s collapse.&nbsp;



BlockFi had kept customer funds on the exchange as it went dark, exacerbating a liquidity crisis already strained by bad loans to FTX sister unit Alameda Research.&nbsp;



The Jersey City firm will focus on <a href="https://blockworks.co/news/blockfi-files-for-bankruptcy">recovering all obligations</a> it’s owed, Blockworks was told on Monday. BlockFi has around 100,000 creditors.



<h3>Silvergate stock bit by bear long before BlockFi bankruptcy</h3>



Silvergate previously disclosed maintaining up to $1.19 billion in deposits belonging to crypto exchange FTX as it went dark, money now apparently tied up in bankruptcy proceedings.&nbsp;



FTX&#8217;s funds represented about 10% of Silvergate&#8217;s total deposits. As such, Silvergate has since been working to downplay its exposure to embattled crypto counterparties while assuring its reserves are liquid enough to process sudden withdrawals — hence its statement about BlockFi.&nbsp;



Blockworks has reached out to Silvergate to clarify the status of its $20 million deposits tied to BlockFi.



Institutional trading platform FalconX <a href="https://blockworks.co/news/falconx-drops-bank-silvergate" target="_blank" rel="noreferrer noopener">paused settlement</a> via Silvergate out of an abundance of caution earlier this month. FalconX reinstated the functionality a few days later.



&#8220;As the digital asset industry continues to transform, I want to reiterate that Silvergate’s platform was purpose-built to manage stress and volatility,” said Alan Lane, CEO at Silvergate, in a statement. 



“The SEN continues to operate as designed, and our support teams are available 24 hours a day, 7 days a week to help our customers during this period of adversity.”



Silvergate stock, which has halved in the past month, is down about 85% year to date, from $148 to just over $25, tracking other major crypto stocks including crypto exchange <a href="https://blockworks.co/news/coinbase-microstategy-bonds-hammered" target="_blank" rel="noreferrer noopener">Coinbase</a> and bitcoin miners Marathon, Riot Blockchain and <a href="https://blockworks.co/news/hut-8-halts-bitcoin-mining-facility-amid-energy-dispute" target="_blank" rel="noreferrer noopener">Hut 8</a>.



David Canellis contributed reporting.



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Crypto Bank Silvergate Says BlockFi Exposure Limited to $20M

Bitcoin miner Hut 8 is seeking mediation with a third-party energy supplier after relations broke down over a shared power purchase agreement — bringing some of its operations to a halt.



The Canadian firm was forced to stop mining bitcoin out of its North Bay, Ontario facility after provider Validus suspended delivery of energy to the site. The mining firm operates two other mining sites in Southern Alberta.



The provider claims Hut 8 has failed to make regular payments. Hut 8 is categorically denying those allegations, according to a <a href="https://hut8mining.com/2022/11/28/hut-8-provides-update-on-north-bay-facility/" target="_blank" rel="noreferrer noopener">statement</a> on Monday. A spokesperson for Validus did not immediately return a request for comment.



<a href="https://hut8mining.com/2022/11/28/hut-8-provides-update-on-north-bay-facility/" target="_blank" rel="noreferrer noopener">Earlier this month</a>, Hut 8 said it had handed Validus a notice claiming the energy provider neared default on obligations of the two firms’ power purchase agreement, and blamed Validus for failing to hit certain operational milestones by key dates laid out in the terms.



Hut 8 also noted ongoing discussions with Validus, meant to mitigate related operational and commercial impacts, which have so far been unsuccessful. The Ontario site had about 5,800 miners installed as of June, consuming 20 MW of power and <a href="https://hut8mining.com/2022/08/11/hut-8-reports-operating-and-financial-results-for-q2-2022/" target="_blank" rel="noreferrer noopener">contributing</a> about 20% of Hut 8&#8217;s overall hashrate.



A spokesperson for Hut 8 confirmed the company was seeking mediation via a third-party and was hopeful it would reach a resolution with Validus outside of court. They declined to comment further on the operational milestones it claimed Validus had missed.



<h3>Bitcoin miner Hut 8 could do without the interruption</h3>



Most miners are struggling to navigate <a href="https://blockworks.co/news/bitcoin-price-drop-tests-miners-diamond-hands" target="_blank" rel="noreferrer noopener">significant headwinds</a> following a major drop in bitcoin’s price, which has shed 66% of its value year-to-date.



Indeed, high electricity costs, low bitcoin prices and soaring mining difficulty have taken a bite out of profits. As a result, Hut 8 saw a 36% decline in third-quarter revenue when compared to the same period a year ago, dropping from $50.3 million to $31.7 million, recent <a href="https://hut8mining.com/investors/" target="_blank" rel="noreferrer noopener">financial statements</a> show.&nbsp;



Mining profits over the same period stood at $9.3 million compared to $33.5 million in Q3 2021, a 72% decline. Bitcoin hovered around $60,000 this time last year, while it now trades for $16,500.



Hut 8 has publicly pledged to hold onto all its bitcoin despite the tough market conditions. It <a href="https://www.prnewswire.com/news-releases/hut-8-mining-production-and-operations-update-for-august-2022-301617489.html" target="_blank" rel="noreferrer noopener">maintained</a> 8,111 BTC ($133.6 million) as of Aug. 30, mining around 12.1 BTC ($200,000) per day.



The firm&#8217;s stock, which commands a market value around $220 million, has also suffered, dropping more than 85% year to date alongside most of its rivals — which makes getting its miners back online as soon as possible even more critical.



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Hut 8 Halts Bitcoin Mining Facility Amid Energy Dispute

Dan Smith

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Permissionless is the brainchild of Blockworks and Bankless. Over 5,500 people attended the inaugural event in 2022, making Permissionless the world’s largest DeFi conference.&nbsp;



What sets Permissionless apart? It’s a crypto native’s paradise, crafted specifically for both builders and investors who are dedicated to scaling the industry.&nbsp;



Permissionless is headed to Austin in 2023, and you know what they say… Everything is bigger in Texas.&nbsp;



Permissionless 2023 will feature the biggest names in Web3, a gargantuan exposition hall filled with the top brands in the space, an awe-inspiring NFT Gallery, inclusive, community-focused parties and events, metaverse experiences, and so much more.



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