Michael Bodley

<div id="highlights-block_63375450e054d" class="highlights">
 <ul>
 <li>The anticipated $3 billion fundraise comes after the venture capitalist’s firm, Social Capital, has been largely closed to outside investors for about four years</li>
 <li>Up to 70% of the new vehicle’s capital has been earmarked for its top 10 positions</li>
 </ul>
 
</div>



In an unexpected move to once again start accepting outside capital, Chamath Palihapitiya is angling to raise at least $3 billion for his latest, top-heavy venture capital fund, according to two sources familiar with the matter.&nbsp;



But this time around, the longtime crypto bull doesn’t plan to give digital assets much play. Palihapitiya’s firm Social Capital has effectively functioned as a quasi-proprietary trading firm for the last several years, having pulled the plug on a number of longtime investors to focus on investing largely founder capital.&nbsp;



If Palihapitiya pulls it off, the ambitious multi-billion dollar fundraise would go down as his most ambitious achievement to date and perhaps ease the sting of his <a href="https://www.bloomberg.com/news/articles/2022-08-16/spac-king-palihapitiya-goes-silent-with-his-empire-shriveling?leadSource=uverify%20wall" target="_blank" rel="noreferrer noopener">latest SPAC woes</a>.&nbsp;



The vehicle would be Social Capital’s fifth to date. Past funds, to various degrees, have taken substantial crypto exposures, including beginning to <a href="https://www.coindesk.com/markets/2014/03/26/chamath-palihapitiya-bitcoin-is-moving-past-amateur-hour/" target="_blank" rel="noreferrer noopener">buy into bitcoin</a> as a firm in 2013. The venture firm has also backed the likes of <a href="https://www.coindesk.com/business/2021/03/30/cuban-palihapitiya-back-nft-marketplace-superrares-9m-series-a/" target="_blank" rel="noreferrer noopener">NFT marketplace SuperRare</a> and Solana’s <a href="https://cms.blockworks.co/funding-news-fireblocks-eco-and-saber-labs-all-raise-millions/" target="_blank" rel="noreferrer noopener">Saber Labs</a>.



While digital asset-oriented startups — especially emerging play-to-earn gaming and Web3 companies, plus fintech firms trying to bridge crypto and TradFi — ought to remain one area of focus, crypto collectively appears to be overshadowed by other portfolio priorities.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings. The firm declined to comment. Axios <a href="https://www.axios.com/2022/09/30/chamath-palihapitiya-reopens-social-capital" target="_blank" rel="noreferrer noopener">first reported</a> Social re-opening to external capital.&nbsp;



The main priorities for Fund V: backing promising startups looking to solve real-world issues across climate, deep technology (including machine learning and artificial intelligence) and cloud computing. While Palihapitiya and his team have at times played up their crypto track record in conversations with potential institutional limited partners, digital assets appear to be taking a backseat, here.



Though TradFi players have been keeping a close eye on crypto’s recent turmoil in the pursuit of vulture-style venture plays and distressed debt opportunities, indications are few asset managers have actually pulled the trigger.&nbsp;



That is true, as it is in Social’s case, because of an uncertainty in calling the bottom for spot cryptoassets — which all but uniformly impact valuations in the private sector — and a reluctance of top would-be investors, such as conservative sovereign wealth funds, to put sizable capital to work in the space.&nbsp;



In other words, the risk-reward profile is not yet there, in the eyes of some.&nbsp;



Fund V kicked off fundraising in recent weeks, with the plan being to launch sometime in the first quarter of 2023, at the earliest — contingent on fundraising. The fund is being marketed as having a 10% general partner commitment, or $300 million, an unusually high allocation in venture capital, where limited partners often gripe that portfolio managers don’t have enough personal skin in the game.



The vehicle is designed to split its capital into three main, equally-weighted buckets: $1 billion for early-stage companies receiving checks of between $10 million to $20 million; $1 billion for late stage companies, with checks averaging $100 million to $200 million; $1 billion for massive checks of $250 million to $450 million for opportunistic stakes in companies at various stages of development.&nbsp;



Fund V’s top 10 positions are earmarked to account for a whopping 70% of its entire portfolio. The term is for 10-years, plus an optional two-year extension, along with an investment period of five years. Social’s management cut is 2% and plans to take 30% of carried interest.



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Chamath Palihapitiya Earmarks $3B for New Fund That’s Scant on Crypto

Casey Wagner

Investors drawn to double-digit yields in the convertible bond market should be prepared to raise their risk tolerance, analysts say.



Coinbase and MicroStrategy, two crypto-related companies, saw their convertible bond yields surge as prices plummeted this month amid ongoing fallout from <a href="https://blockworks.co/news/the-last-10-days-in-the-ftx-saga-a-timeline" target="_blank" rel="noreferrer noopener">FTX’s bankruptcy</a>. 



Coinbase’s <a href="https://blockworks.co/news/coinbase-wants-to-raise-1-5b-via-debt-offering" target="_blank" rel="noreferrer noopener">bond — maturing in 2026</a> — dipped to an all-time low of 53 cents on the dollar last week, a level typically associated with distressed debt, Kaiko analysts said in a note Monday. The bond later recovered slightly to 59 cents on the dollar on Monday, trading <a href="https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C1040076&amp;symbol=COIN5424425" target="_blank" rel="noreferrer noopener">data</a> shows. Bond price and yield move in opposite directions. 



“Coinbase bonds look cheap to their stock,” trader Greg Foss said. “I would short Coinbase equity versus long the bonds.”&nbsp;



Coinbase shares are down more than 40% over the past month, to around $42 as of Monday.&nbsp;



MicroStrategy <a href="https://blockworks.co/news/microstrategy-is-selling-debt-to-buy-more-bitcoin-heres-what-that-means" target="_blank" rel="noreferrer noopener">bonds</a>, set to mature in 2028, also slumped on Monday to 78 cents on the dollar. The software company’s 2027 bonds trade at around 33 cents on the dollar and come with a 28% yield. 



If MicroStrategy and Coinbase survive until their respective bonds’ maturity dates and pay the debt in full, investors will pocket a gain.&nbsp;



At the end of the third quarter of 2022, Coinbase reported about $3.4 billion in long-term debt, according to <a href="https://s27.q4cdn.com/397450999/files/doc_financials/2022/q3/a2c76620-9756-4268-9d08-4c7856f25a14.pdf" target="_blank" rel="noreferrer noopener">company filings</a>. The exchange also posted a net revenue of around $576 million for the quarter. 



“We ended Q3 with $5.6 billion in total $USD resources, in addition to $483 million in crypto assets, which we believe puts us in a strong position to manage through the crypto winter,” Coinbase executives wrote in their third quarter <a href="https://s27.q4cdn.com/397450999/files/doc_financials/2022/q3/Q32022-Shareholder-Letter.pdf" target="_blank" rel="noreferrer noopener">shareholder letter</a>.



MicroStrategy reported about $2.4 billion in long-term debt at the end of the third quarter in 2022, according to <a href="https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/microstrategy-announces-third-quarter-2022-financial-results_11-01-2022.pdf" target="_blank" rel="noreferrer noopener">filings</a>. The company had about $2.5 billion in assets, including bitcoin holdings worth around $2 billion at the time, MicroStrategy said.



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Coinbase, MicroStategy Bonds Hammered by Industry Turmoil

In its latest move to fend off exploits, the DAO governing DeFi lender Aave has voted to freeze credit pools with low liquidity. The change comes in response to <a href="https://blockworks.co/news/aave-curve-bad-debt" target="_blank" rel="noreferrer noopener">a weakness uncovered in the protocol’s lending parameters</a>, exploited by the same trader who saddled Solana-based <a href="https://blockworks.co/news/mango-dao-readies-42m-to-make-users-whole" target="_blank" rel="noreferrer noopener">Mango Markets</a> with bad debt.



Liquidity has taken a hit in decentralized credit markets <a href="https://blockworks.co/news/the-last-10-days-in-the-ftx-saga-a-timeline" target="_blank" rel="noreferrer noopener">post-FTX bankruptcy</a>. But, in this instance, the temporary pause in withdrawals and deposits to certain Aave pools appears to be strictly related to security concerns.&nbsp;



The move stems from a recent <a href="https://app.aave.com/governance/proposal/?proposalId=121" target="_blank" rel="noreferrer noopener">proposal</a> on Aave’s <a href="https://app.aave.com/governance/" target="_blank" rel="noreferrer noopener">governance forums</a>. The proposal dubbed “the market situation of [certain assets as] currently volatile” — and lobbied for the freeze out of an “abundance of caution.”&nbsp;



About a dozen and a half assets that trade on the protocol have been, at least in part, shut down for the time being, including MANA, 1INCH and xSUSHI.



In last week’s incident, the protocol lent out tens of millions of dollars in CRV tokens against USD Coin collateral, but when the price of CRV spiked, arbitragers were unable to fully liquidate the collateral to repay the trader’s debt. The outcome, ultimately, was more of a flesh wound: Aave <a href="https://blockworks.co/news/aave-curve-bad-debt" target="_blank" rel="noreferrer noopener">wrote down</a> $1.7 million of bad debt. But that was enough to briefly cause its native token AAVE to plummet on the news.



In a crisis, AAVE stakers are on the hook to cover protocol debts, although, at the time, protocol representatives said the shortfall was small enough to be covered via the protocol’s treasury instead.



The salve — or the latest proposal — which went into effect this week with overwhelming community support, is not the only liquidity-driven halt to Aave’s credit pools in the works.&nbsp;



Aave participants Llama and Chaos Labs recently put forward their <a href="https://app.aave.com/governance/proposal/?proposalId=125" target="_blank" rel="noreferrer noopener">own suggestions</a>, which would stop trading on a number of separate cryptoassets. Voters were more than 99% in favor as of publication. The mechanism, if passed as expected, would freeze new lending, but continue to facilitate deposits.



“In response to recent market events and the continued contraction of liquidity across markets, this proposal seeks to reduce the risk profile across many higher volatile assets,” the proposal said.



And yet another <a href="https://app.aave.com/governance/proposal/?proposalId=124" target="_blank" rel="noreferrer noopener">proposal</a> — also carrying overwhelming approval at publication time — recommends halting much of Polygon’s Aave integration, while waiting for a pending protocol upgrade to improve “risk controls.” The move would affect six digital assets, including LINK, SUSHI and CURVE.



“This isn’t about FTX, for once,” one institutional trading source said. “But it does appear to demonstrate how volatility throughout the market is slamming credit now, as well.”



The source was granted anonymity because they are not authorized to speak to the media. Aave representatives did not immediately return a request for comment.&nbsp;&nbsp;



The crypto lender has been closely watched in institutional crypto circles after it earlier this year <a href="https://blockworks.co/news/aave-arc-to-provide-30-financial-institutions-access-to-private-pools-of-defi-liquidity" target="_blank" rel="noreferrer noopener">struck deals</a> with a number of high-profile TradFi asset managers who agreed to tap its liquidity pools via a permissioned offering.



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Crypto Lender Aave Moves To Tighten Risk Controls

Macauley Peterson

Crypto pros like to have a laugh, sometimes at neophytes’ expense. But when the joke is obscure enough — in this case wrapped ether memes — it can have real consequences.



Over the weekend, crypto Twitter was alight with riffs on the <a href="https://blockworks.co/tag/bankruptcy" target="_blank" rel="noreferrer noopener">wave of insolvencies</a> that have plagued the industry, by pretending that wrapped ether (WETH) was somehow a risk to Ethereum. Spoiler: It’s not.



But when enough otherwise serious people pile on to a meme, it can metastasize into market-moving “news.” For instance, Gnosis co-founder Martin Koeppelmann joined in the fun on Sunday.



<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">As ETH gets constantly burned wrapped ETH (WETH) is no longer fully backed by it. We might see a bank run on redeeming WETH soon.&mdash; Martin Köppelmann 🇺🇦 (@koeppelmann) <a href="https://twitter.com/koeppelmann/status/1596862942750085127?ref_src=twsrc%5Etfw">November 27, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



For crypto natives with an understanding of WETH and how ether is burned <a href="https://blockworks.co/tag/eip-1559" target="_blank" rel="noreferrer noopener">post-EIP-1559</a>, the joke is fairly obvious.



To review: WETH is an ERC-20 version of ether that can be used in smart contracts like Uniswap. It <a href="https://blog.0xproject.com/canonical-weth-a9aa7d0279dd" target="_blank" rel="noreferrer noopener">dates back to 2017</a> and is not in any way like a custodial version of ether. For all intents and purposes, it is ether. As such, there’s no connection between WETH and fluctuations in the ETH burn rate due to transaction fees. Ether used as WETH is not being burned and cannot depeg.



But the joke got out of hand. Even quality crypto sources like Bloomberg were taken in. Bloomberg reported that “crypto watchers also pointed to worries about wrapped Ether, which is meant to have the same value as Ether while allowing access to more applications,” with the caveat merely that “some reports suggested the concerns stemmed from joke Twitter posts.”



In fact, there were no actual worries. It was 100 percent a joke from the start.



Dankrad Feist, a researcher at the Ethereum Foundation — the upcoming EIP-4844, also known as “<a href="https://notes.ethereum.org/@vbuterin/proto_danksharding_faq" target="_blank" rel="noreferrer noopener">Proto-Danksharding</a>,” is partially named after him — found the Bloomberg fracas <a href="https://twitter.com/dankrad/status/1597252241962209280" target="_blank" rel="noreferrer noopener">a bit off-putting</a>.



<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">A lot of people making jokes about WETH. Please be aware it may not be obvious to outsiders that it&#39;s completely different from bridged assets and there is literally almost zero risk. I think it would be better to mark these more clearly as jokes.&mdash; Dankrad Feist (@dankrad) <a href="https://twitter.com/dankrad/status/1596864596421189632?ref_src=twsrc%5Etfw">November 27, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Koeppelmann <a href="https://twitter.com/koeppelmann/status/1597203104273166337" target="_blank" rel="noreferrer noopener">also came clean</a>, explaining the joke and why it made no literal sense in the first place.



To be abundantly clear: WETH is <a href="https://twitter.com/iamDCinvestor/status/1597184547875016705" target="_blank" rel="noreferrer noopener">unruggable</a>. It’s <a href="https://twitter.com/TimBeiko/status/1597263129695879170" target="_blank" rel="noreferrer noopener">not like wBTC</a> — wrapped bitcoin on Ethereum, which relies on <a href="https://wbtc.network/dashboard/audit" target="_blank" rel="noreferrer noopener">a central custodian, BitGo</a>, although there are plenty of <a href="https://twitter.com/mikebelshe/status/1596208748187353088" target="_blank" rel="noreferrer noopener">misconceptions</a> around the safety of wBTC as well. WETH can always be unwrapped to ETH on a one-to-one basis, as sure as the Ethereum network itself — it&#8217;s baked into the immutable code and there is no counterparty.



<h3>Staked ether withdrawals are the top priority</h3>



This one was less of a meme and more of a misunderstanding, but also one propagated by <a href="https://twitter.com/CryptoCrystal_B/status/1592678358718255104" target="_blank" rel="noreferrer noopener">random folks on Twitter</a>. The “concern” was that somehow the withdrawal of staked ether planned in the next major Ethereum upgrade, known as Shanghai, has been delayed.



That was news to Ethereum developers, such as Prysmatic Labs’ Terence Tsao, developer of the leading Ethereum proof-of-stake consensus implementation, Prysm, who <a href="https://twitter.com/terencechain/status/1595822304822530051" target="_blank" rel="noreferrer noopener">tweeted</a> that “withdrawal remains the highest priority for Prysm.”



“As core devs, our biggest responsibility today is to enable stakers to withdraw their funds as fast and as securely as possible,” he said.



The Shanghai upgrade is expected to take place roughly six months after the Merge, or around the second quarter of 2023. Some pointed to a change in the Ethereum Foundation website regarding the timeline, but the Ethereum Foundation isn’t in the business of specifying dates because they don’t control Ethereum — its development is decentralized.



The best way to keep tabs on what’s actually happening with Shanghai is to follow <a href="https://github.com/ethereum/pm/issues/450" target="_blank" rel="noreferrer noopener">its progress on GitHub</a> or tune into <a href="https://github.com/ethereum/pm#previous-meetings" target="_blank" rel="noreferrer noopener">Ethereum core developer calls</a> — the latest was on Nov. 24, and was <a href="https://twitter.com/TimBeiko/status/1595860968298672128" target="_blank" rel="noreferrer noopener">summarized by Tim Beiko</a>.



Once again, beware the memes — some observers took the opportunity to turn the entire concept of staked ether into a joke.



<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">hearing rumors that ethereum is insolvent, withdrawals are disabled for all staked eth&mdash; foobar (@0xfoobar) <a href="https://twitter.com/0xfoobar/status/1592403855572025344?ref_src=twsrc%5Etfw">November 15, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Withdrawals are disabled by design until the Shanghai upgrade — this is neither new nor remotely alarming.



The moral of the story: <a href="https://twitter.com/Fullbeerbottle/status/1597068972653805568" target="_blank" rel="noreferrer noopener">Crypto memes happen fast</a>. If you don’t stop to look around once in a while — or, say, are celebrating Thanksgiving weekend with your family — <a href="https://youtu.be/vsYBtfQ3QDo?t=9" target="_blank" rel="noreferrer noopener">you could miss it</a>.



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WETH FUD Is All a Joke, ETH Withdrawals Still a Priority

Bessie Liu

Troubled lender BlockFi has filed for Chapter 11 bankruptcy protection, making it the next victim of FTX’s fallout.



Once one of the biggest and most rapidly growing startups in the cryptocurrency space, BlockFi has been <a href="https://blockworks.co/news/how-blockfi-went-from-tech-unicorn-to-crypto-burnout" target="_blank" rel="noreferrer noopener">struggling to keep afloat since</a> the collapse of Three Arrows Capital and other crypto companies in May.



In July, competitor crypto lender Nexo offered to acquire BlockFi for an estimated $850 million. But that offer was turned down by the company <a href="https://blockworks.co/news/blockfi-eyes-bankruptcy-as-ftx-fallout-continues-report" target="_blank" rel="noreferrer noopener">in favor of a $400 million revolving credit offer</a> from FTX US. 



Now, with FTX in shambles — facing <a href="https://blockworks.co/news/the-last-10-days-in-the-ftx-saga-a-timeline" target="_blank" rel="noreferrer noopener">legal and financial troubles</a> of its own — BlockFi is once again left to fend for itself.



“As part of its restructuring efforts, the Company will focus on recovering all obligations owed to BlockFi by its counterparties,” the company said in a <a href="https://www.businesswire.com/news/home/20221128005451/en/BlockFi-Commences-Restructuring-Proceeding-to-Stabilize-Business-and-Maximize-Value-for-all-Clients-and-Stakeholders" target="_blank" rel="noreferrer noopener">statement</a>, adding, “the Company expects that recoveries from FTX will be delayed.”



A representative of BlockFi declined to comment further.



<h3>No surprise</h3>



BlockFi filing for bankruptcy should not come as a surprise, a source who has closely worked with BlockFi told Blockworks.



“[It] was obvious once FTX went bust, because they had a Fugazi bailout,” the source said.



This sentiment is shared by many in the crypto community.&nbsp;



“There have been a lot [of] totally unexpected things that have happened in the crypto space over the past 2 months. BlockFi filing for bankruptcy is not one of those things,” Guy Turner from Coin Bureau <a href="https://twitter.com/coinbureau/status/1597250360154132485" target="_blank" rel="noreferrer noopener">tweeted</a>.



Early signs of the crypto lender’s insolvency were apparent after it <a href="https://blockworks.co/news/blockfi-eyes-bankruptcy-as-ftx-fallout-continues-report" target="_blank" rel="noreferrer noopener">suspended withdrawals</a> earlier this month amid FTX developments.



Its latest <a href="https://pacer-documents.s3.amazonaws.com/109/1094078/118164199368.pdf" target="_blank" rel="noreferrer noopener">bankruptcy filings</a> reveal that BlockFi has roughly 100,000 creditors with $1 billion to $10 billion in liabilities and assets. 



Among them is the Securities and Exchange Commission, which the now-bankrupt company is said to owe roughly $30 million.



In February, BlockFi reached a $100 million settlement with the SEC after it failed to register as a securities company and made misleading statements about its risk estimates on loan portfolios.&nbsp;



Although BlockFi’s next steps are undetermined, activity on its platform has all been halted for the time being and its remaining $256.9 million at hand will be used to support its restructuring process.



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BlockFi’s ‘Fugazi Bailout’ Condemns Crypto Lender to Bankruptcy

Shalini Nagarajan

Andre Cronje, a long-serving figure in the DeFi space, says the Fantom blockchain project he advises is cash-flow positive, earning more than $10 million in annual revenue.



Cronje shared a blog post on Monday that claims the Fantom team maintains more than $300 million in assets without specifying how much is considered liquid. “We are still scaling up,” Cronje said.



Fantom&#8217;s <a href="https://andrecronje.medium.com/fantom-an-inside-financial-peak-at-being-a-crypto-company-323d29fb5e81" target="_blank" rel="noreferrer noopener">reported</a> treasury, as yet unproven on-chain, is made up of around 450 million FTM ($85.7 million). There’s also $100 million in stablecoins and $100 million in undisclosed cryptocurrencies, as well as $50 million in non-crypto assets, per Cronje’s post.



Fantom is a Layer-1 blockchain compatible with Ethereum Virtual Machine (and Ethereum dapps). The network competes with the likes of Solana, Avalanche and Polygon for Ethereum’s market dominance.



Cronje&#8217;s blog works to reassure investors the Fantom Foundation&#8217;s solvency while detailing its financial history. The non-profit firm, which currently employs over <a href="https://rocketreach.co/fantom-foundation-profile_b457b6c7fca4bc38" target="_blank" rel="noreferrer noopener">40 staff</a> according to RocketReach, has an annual salary burn rate of $7 million. Cronje expects Fantom’s coffers to last for another 30 years without touching its FTM stash.&nbsp;



DeFi strategies are currently bringing in $6 million per year for the Foundation, said Cronje, revenue it uses to buy its own FTM tokens. Yield farming on Compound and Synthetix were cited as previous plays.



Transaction fees alongside validator and delegate earnings brings Fantom&#8217;s total yearly revenue beyond the $10 million mark, although that figure excludes capital gains tax and appears based on FTM&#8217;s current valuation.



<h3>Cronje returns to Fantom as it struggles to maintain growth</h3>



Cronje’s re-emergence comes as Fantom’s native asset flounders along with much of the crypto space. FTM is down more than 90% year to date, dropping from $2.25 to less than $0.20. FTM&#8217;s market cap is now less than $500 million, ranked 73rd by <a href="https://www.coingecko.com/en/coins/fantom/historical_data#panel" target="_blank" rel="noreferrer noopener">CoinGecko</a>.



Cronje is a prolific DeFi developer, credited with creating projects such as Yearn Finance, SushiSwap and Cream V2. He deactivated his Twitter account after declaring <a href="https://blockworks.co/news/defi-star-developer-andre-cronje-calls-it-quits" target="_blank" rel="noreferrer noopener">departure</a> from the crypto space in March — about two months after the pseudonymous CFO for DeFi collective Frog Nation, Sifu, was <a href="https://curve.substack.com/p/january-27-2022-sifu-not-safu-" target="_blank" rel="noreferrer noopener">outed</a> as <a href="https://www.vanityfair.com/news/2019/11/the-strange-tale-of-quadriga-gerald-cotten" target="_blank" rel="noreferrer noopener">QuadrigaCX</a> co-founder Michael Patryn. 



Cronje, while heralded for his commitment to the core tenets of decentralized finance, has faced <a href="https://thedefiant.io/andre-cronje-yearn-finance-quits-defi-fantom" target="_blank" rel="noreferrer noopener">criticism</a> for launching crypto projects only to leave them abruptly. On <a href="https://www.linkedin.com/in/andre-cronje/" target="_blank" rel="noreferrer noopener">LinkedIn</a>, the South African-native has been listed as an “architect” at Fantom Foundation for the past month, having made his unofficial comeback in late October. Blockworks has reached out for comment.



But Fantom&#8217;s total value locked is suffering even more than its token price — just $424 million is staked inside Fantom DeFi protocols, down from more than $8 billion in March, a 95% reduction, per <a href="https://defillama.com/" target="_blank" rel="noreferrer noopener">DeFiLlama</a>.



For scale, there’s $23.5 billion locked in Ethereum&#8217;s DeFi apps and more than $5.25 billion in BNB Chain&#8217;s, with the former losing about 70% of its TVL since March.



Fantom initially raised $40 million in a June 2018 token sale, Cronje said, which mostly brought in ether worth between $450 and $700 at the time (now valued at close to $1,200).&nbsp;The project was left with just $5 million in operational capital, however, having sold its ether for US dollars at significantly less than its raise value.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" src="https://flo.uri.sh/visualisation/11978459/embed#?secret=uDOdxD37Lc" data-secret="uDOdxD37Lc" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption>Fantom and Solana&#8217;s native tokens have practically tracked each other over the past three years (toggle linear and logarithmic scale at the top of the chart)</figcaption></figure>



Cronje said the Fantom Foundation was earning more than $1 million per week by February 2021. The crypto market was roaring back then: DeFi tokens were surging, bitcoin was approaching $60,000 for the first time and yield farming was still lucrative.



In the same month, the project sold 81.5 million FTM to Sam Bankman-Fried’s now-bankrupt trading unit Alameda Research for nearly $35 million ($0.428831 per token), as well as an additional 10.4 million FTM to Blocktower for $5 million.&nbsp;FTM is now worth less than half of that price.



Cronje said Alameda sought further participation but Fantom opted against it. He also said the team declined to pay $300 million to an unnamed exchange for a listing and $100 million to an NFT marketplace for integration.



<h3>Fantom prefers to buy FTM over selling it</h3>



Fantom now opts to buy its own token rather than exchange it for partnerships, integrations or crypto exchange listings, according to Cronje. 



He claimed that unlike most of Fantom’s competitors, its foundation owns a relatively small amount of FTM’s supply — at launch less than 3%. 



On the other hand, Messari <a href="https://messari.io/asset/fantom/profile/launch-and-initial-token-distribution" target="_blank" rel="noreferrer noopener">indicates</a> Fantom&#8217;s founders, team and advisors collectively garnered roughly 20% of the token supply, more-or-less in line with <a href="https://messari.io/asset/avalanche/profile/launch-and-initial-token-distribution" target="_blank" rel="noreferrer noopener">Avalanche</a> and <a href="https://messari.io/asset/solana/profile/launch-and-initial-token-distribution" target="_blank" rel="noreferrer noopener">Solana</a>. Polygon&#8217;s team however <a href="https://messari.io/asset/polygon/profile/launch-and-initial-token-distribution" target="_blank" rel="noreferrer noopener">kept</a> almost 42% of the initial supply, per Messari.



In any case, based on Cronje’s blog post, Fantom’s FTM stash now equals around 18% of the circulating supply.&nbsp;And despite recording $50 million in losses throughout the Terra-inspired market chaos in May, Cronje appears confident the project can weather the bear market.



“If your entire revenue model is selling your token, you are doing a disservice to yourself, your blockchain, and your supporters,” Cronje said. “If [DeFi] didn’t exist, we would likely not be operational today. I believe the same is true for many companies out there.”



“Crypto is dead. Long live crypto.”



David Canellis contributed reporting.



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Cronje Says DeFi Saved Fantom: ‘We Are Cash Flow Positive’

FTX <a href="https://blockworks.co/news/the-last-10-days-in-the-ftx-saga-a-timeline" target="_blank" rel="noreferrer noopener">failed</a>, in part, because it was too centralized, according to DeFi adherents — with decentralized advocates now saying the debacle has unexpectedly given DAOs an opening.&nbsp;&nbsp;



There was little to no&nbsp;transparency of where the crypto exchange custodied customer cryptocurrencies, industry participants told Blockworks. A purported lack of transparency in crypto —&nbsp;ironically, long considered the first open, traceable financial system — is nothing new, from <a href="https://blockworks.co/news/alleged-bitcoin-launderers-lawyer-seeks-prisoner-swap-russia" target="_blank" rel="noreferrer noopener">Mount Gox</a> onward.&nbsp;



Decentralized autonomous organizations (DAOs), on the other hand, have mostly managed to stay out of trouble. And they argue an inherent openness to where their funds are kept and how they move is a key reason as to why.&nbsp;



While decentralized protocols are still nascent — with infrastructure models and tokenomics setups still in their relative infancy — supporters argue there are lessons to be learned from DAOs in an effort to head off future digital asset blowups on the centralized side.&nbsp;



DAOs have held their own in the latest market downturn. The stalwart performance, coupled with structural maturations, ought to lead to a “large exit out of centralized institutions into decentralized ones,” according to Nick Almond of FactoryDao, who goes by <a href="https://twitter.com/DrNickA" target="_blank" rel="noreferrer noopener">drnick</a> on Twitter.



“Then, it begins to influence centralized governance,” Almond told Blockworks.&nbsp;



<h2>Technology at the center</h2>



The rise of DAO governance functions — with parallels to activism in equities markets — have especially bolstered the legitimacy of such collectives, according to a DAO governance consultant who goes by the pseudonym <a href="https://twitter.com/emjicy" target="_blank" rel="noreferrer noopener">mel.eth</a>.



The outcome, so far: DAOs have made it possible to legitimize how decisions are made in a public, trackable manner via on-chain governance tokens, mel.eth told Blockworks.&nbsp;



“DAO technology at the middle, people at the fringes — [this] is a good mental model for how a DAO is different to a company which tends to be more like a republic than a true person to person democracy,” mel.eth said.



The purpose of DAOs is to diffuse power among geographically distant people, but there is no cookie-cutter solution. Centralized exchanges, meanwhile, likewise diffuse trading and transaction power around the world. But key decisions are not in the hands of customers or other stakeholders.&nbsp;



“In my mind, the best way to build a DAO is — the good, the bad, the ugly — you bake it into the process and you learn from it and you hopefully grow the technology,” he said. “If you think of atoms, very simple bacteria cells, mitochondria — it’s all just code. We are massively complex mechanisms, and DAOs are almost an extension of our desire to multiply and propagate and take our initiatives out of our bodies.”



Blockchain technology is now limited to enabling general financial transactions, according to mel.eth. The majority of powerhouse DAOS use the blockchain to enable token-swapping, lending and aggregating — similar to centralized exchanges. But what’s next for DAOs ought to become a real differentiator, he said.&nbsp;



<h2>How do DAOs scale?</h2>



MakerDAO and dYdX recently proposed to switch up to governance by moving into a <a href="https://blockworks.co/news/are-subdaos-the-future-of-dao-governance" target="_blank" rel="noreferrer noopener">subDAO structure</a>.



Unlike hierarchical organizations that require management structures and require coordination costs, the model shift totally eliminates the need for layers of management to function.&nbsp;



“If you allow anyone to create a substructure about anything and integrate a funding mechanism in it, then anyone could build anything — that becomes a fractal organization structure,” Almond said.&nbsp;



So, what’s stopped DAOS from implementing fractal systems, so far? A lack of clarity around how to track what everyone is working on, according to Almond. His proposition solution: impose a meta governance structure on top of individual subDAOs, tracking the organization’s progress as a whole via a consensus-driven sum of its disparate parts.&nbsp;



“At the moment, DAOs are stuck in an 100% direct democracy which is entirely plutocratic…but by creating different structures, it allows you to find out the bits that people are actually good at and can contribute to — the game is about decentralizing that power down the long tails of participants,” Almond said.



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DAOs: FTX Demise Is Win For Decentralization 

Sebastian Sinclair

David Canellis

The US Securities and Exchange Commission (SEC) has long been a thorn in the side of the crypto ecosystem — and chairman Gary Gensler represents the very tip.



Securities regulations and the token economy don’t exactly mix. SEC watchdogs still map digital assets to the 76-year-old Howey Test with varying success: small-time operators are often stung while major cases tend to end in settlement.



The SEC issued <a href="https://www.sec.gov/files/dlt-framework.pdf" target="_blank" rel="noreferrer noopener">guidance</a> on how it squares digital assets with Howey back in 2019. Gensler has previously stated that most tokens on the market could be securities or investment contracts, bar bitcoin and potentially ether — toeing the line etched by his predecessor Jay Clayton.



&#8220;Nothing about the crypto markets is incompatible with the securities laws,&#8221; says Gensler. But until the SEC builds a clear and novel framework in which to operate, tailored specifically for the crypto space, startups and their legal teams must read between the lines before launching in US jurisdictions.



Many firms nix the US altogether (and New York especially so) to avoid sudden SEC strikes. Crypto exchanges too are also unsure which tokens are indeed securities. This leads to fewer listings on US platforms compared to offshore counterparts operating in comparatively lax jurisdictions.&nbsp;



Clear regulations have rarely felt so important, now, some three weeks after the FTX calamity. But what does Gensler’s SEC career thus far reveal about what’s in store for the digital asset space?



<h3>2021: Gensler pushes for broader SEC powers to police crypto</h3>



President Joe Biden first nominated Gensler to the role of SEC chair in Feb. 2021, a move ratified by the Senate two months later. Years earlier, Gensler was <a href="https://www.youtube.com/watch?v=EH6vE97qIP4" target="_blank" rel="noreferrer noopener">teaching</a> blockchain and crypto topics at the Massachusetts Institute of Technology, with his lectures still available online.



“I would be surprised if 10 years from now [blockchain] isn’t somewhere in the financial system in a meaningful way,” Gensler <a href="https://www.nytimes.com/2018/04/22/technology/gensler-mit-blockchain.html" target="_blank" rel="noreferrer noopener">said</a> in 2018. Gensler previously served as chairman of the Commodity Futures Trading Commission (CFTC) for nearly five years, between 2009 and 2014. 



His resume, combined with a working understanding of blockchains and cryptocurrencies, had some hopeful of a more nuanced SEC.



<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">If crypto is going to be widely adopted, it needs some rules of the road &amp; a cop on the beat to enforce them. To be clear, I am technology-neutral. What I&#39;m not neutral about: Investor protection. <a href="https://t.co/e6GsSAyXhB">pic.twitter.com/e6GsSAyXhB</a>&mdash; Gary Gensler (@GaryGensler) <a href="https://twitter.com/GaryGensler/status/1422607603708870663?ref_src=twsrc%5Etfw">August 3, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>SEC chair Gary Gensler appeared in a number of short clips detailing the SEC&#8217;s view on crypto last year.</figcaption></figure>



But the veteran regulator still inherited the Ripple Labs case, arguably the most significant SEC action since <a href="https://www.sec.gov/news/press-release/2019-202" target="_blank" rel="noreferrer noopener">Block dot one</a> back in 2019. The matter, which declares XRP a security, was pushed by former chair Clayton some 16 months prior to Gensler’s appointment.



The Ripple case could be headed for summary judgment after nearly two years of legal squabbling, with the outcome set to impact the crypto industry more than the Block dot one settlement.



In fact, there were only a handful of crypto-related SEC actions under Gensler in 2021, including charging promoters of <a href="https://www.sec.gov/news/press-release/2021-172" target="_blank" rel="noreferrer noopener">BitConnect</a>, a fraudulent crypto scheme from 2018, and <a href="https://www.sec.gov/news/press-release/2021-237" target="_blank" rel="noreferrer noopener">operators</a> of a phony investment firm promising outsized returns through digital asset trading.



Gensler’s first year at the SEC is more appropriately surmised as a push for a wider purview. The SEC had historically focused on token-related cases involving fraud or harm to investors, but Gensler made his case to Senator Elizabeth Warren last August for Congressional authority to police crypto exchanges, DeFi protocols and centralized lenders, claiming that many deal in unregistered securities.&nbsp;



Patrick McHenry, top Republican on the House Financial Services Committee, quickly labeled the move a “<a href="https://republicans-financialservices.house.gov/news/documentsingle.aspx?DocumentID=408074">blatant power grab</a>.”



One month later, top US crypto exchange Coinbase announced it would cancel plans to launch a crypto lending product after the SEC threatened legal action.&nbsp;



<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">7/ Look….we&#39;re committed to following the law. Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that (it&#39;s nice if you actually enforce it evenly across the industry equally btw).&mdash; Brian Armstrong (@brian_armstrong) <a href="https://twitter.com/brian_armstrong/status/1435439676429537281?ref_src=twsrc%5Etfw">September 8, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>Coinbase CEO Brian Armstrong remained defiant in the face of SEC&#8217;s legal threats</figcaption></figure>



Coinbase Lend accounts would’ve offered users up to 4% interest on USDC deposits, but Gensler’s SEC deemed the products securities, a view emphatically denied by Coinbase.&nbsp;



The SEC’s action against Coinbase over Lend only ever amounted to a Well’s Notice — basically written intention to sue if the product was launched — with no case actually filed.



<h3>2022: Coinbase case a Trojan horse for securities suits</h3>



Gensler’s SEC has been more prolific in its crypto cases this year. In January, Gensler <a href="https://www.bloomberg.com/news/articles/2022-01-19/crypto-exchanges-will-face-more-scrutiny-from-sec-gensler-says" target="_blank" rel="noreferrer noopener">directed</a> staff to figure out how to get “these platforms inside the investor protection remit,” amid emerging hints of probes into crypto lending products offered by Celsius, Voyager and Gemini.



One month later, the agency fined crypto lender <a href="https://blockworks.co/news/how-blockfi-went-from-tech-unicorn-to-crypto-burnout" target="_blank" rel="noreferrer noopener">BlockFi</a> $100 million for <a href="https://www.sec.gov/news/press-release/2022-26" target="_blank" rel="noreferrer noopener">failing to register</a> its own retail crypto lending product as a security. The case marks the first of its kind against crypto lenders, fulfilling in part Gensler’s intent outlined in his letter to Warren. 



Gensler again pushed the idea of greater crypto exchange oversight in Apr. 2022. He raised compelling trading platforms to register with the regulator while requiring segregation of asset custody to minimize risk of losses.



“There’s no reason to treat the crypto market differently just because different technology is used,” Gensler said at the <a href="https://www.sec.gov/news/speech/gensler-remarks-crypto-markets-040422" target="_blank" rel="noreferrer noopener">Penn Law Capital Markets Association’s annual conference</a> at the time. “These crypto platforms play roles similar to those of traditional regulated exchanges. Thus, investors should be protected in the same way.”



Of the 1,300 people working at the agency, roughly 30 were dedicated full-time to crypto enforcement. The SEC in May <a href="https://www.sec.gov/news/press-release/2022-78" target="_blank" rel="noreferrer noopener">pledged</a> to bolster its crypto headcount to 50, while Gensler criticized crypto exchanges for offering multiple services — custody, trading and market making — which is frowned upon in traditional markets. 



Reports have indicated that the SEC is investigating failed projects including Terra and the bankrupt crypto lenders, but the agency is yet to disclose enforcement actions against any of them.



<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">The SEC claims to be a &quot;cop on the beat&quot; for crypto. It should be! But unfortunately, as Jim Chanos puts it, they&#39;re more archaeologists than detectives: they wait until things go wrong &amp; then show up to dig for details. Case in point: ignoring Celsius, but going after BlockFi.&mdash; Jake Chervinsky (@jchervinsky) <a href="https://twitter.com/jchervinsky/status/1562788909238480896?ref_src=twsrc%5Etfw">August 25, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>SEC cases against big name failed projects could be on the horizon</figcaption></figure>



Instead, the SEC has brought seven cases related to cryptocurrency in 2022, aside from BlockFi. Some are on brand for the SEC and cover overt fraud, such as a $300 million <a href="https://www.sec.gov/news/press-release/2022-134" target="_blank" rel="noreferrer noopener">pyramid scheme</a> and a dodgy profit-sharing <a href="https://www.sec.gov/news/press-release/2022-37" target="_blank" rel="noreferrer noopener">scam</a> that reaped investments worth $124 million.



There’s also the charges against apex influencer <a href="https://www.sec.gov/news/press-release/2022-183" target="_blank" rel="noreferrer noopener">Kim Kardashian</a> for touting SafeMoon clone EthereumMax to her Instagram followers, echoing cases against Steven Seagal, Floyd Mayweather and DJ Khalid in years past. Both case genres are worthy pursuits.



The SEC’s action against a former Coinbase product manager over <a href="https://blockworks.co/news/ex-coinbase-employee-accused-of-insider-trading-pleads-not-guilty" target="_blank" rel="noreferrer noopener">alleged insider trading</a> appears more significant. For one, it’s a crypto exchange matter, which Gensler flagged intent to police. But the case could ultimately deem a string of tokens as securities, providing a springboard for future SEC enforcement — especially if the Ripple Labs case ends in anticlimactic settlement.



It’s this kind of regulation by enforcement that has much of the crypto industry at arms with Gensler’s SEC, with neither side appearing eager to meet in the middle any time soon.



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SEC Under Gensler: Crypto Power Grab or Effective Protection?

Ben Turtel

When most people think of NFTs, they think of overpriced art, digital collectibles and very expensive pictures of cartoon monkeys.



But NFTs can enable all sorts of practical applications, from securing loans to AI-powered interior design.&nbsp;They do this by revolutionizing how people — not Big Tech — benefit from their data. Here’s why:



<ul><li>Everything you care about is non-fungible.</li><li>Digital representations of non-fungible things are useful (and common).</li><li>Decentralizing these representations makes them vastly more useful to the end user.</li></ul>



<h3>Everything you care about is non-fungible</h3>



Something is fungible if it is interchangeable with and indistinguishable from other items of the same type. A fungible item can be replaced by another identical item without any loss of value, like trading a dollar for another dollar.&nbsp;&nbsp;



Fungible assets, like money or gasoline, while valuable, are typically only important to the extent they help us acquire something non-fungible (belongings, experiences).&nbsp;



Something non-fungible, on the other hand, is unique.



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="501" src="https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-1024x501.png" alt="" class="wp-image-39975" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-1024x501.png 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-300x147.png 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-768x376.png 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-1536x751.png 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-2048x1002.png 2048w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-428x209.png 428w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-470x230.png 470w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-389x190.png 389w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-80x39.png 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-25-at-14.58.35-50x24.png 50w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Bored Apes are cryptographically unique (source: OpenSea)</figcaption></figure>



This includes your belongings, such as your home, your car, and even your cup of coffee. It includes your relationships, your body, and your preferences. Experiences, credentials, memories, and reputation are all non-fungible. Each is unique and cannot be replaced by an identical equivalent.



Even things that start out as fungible can become non-fungible. Cars of the same make, model, and year might seem fungible when they’re brand new, but if you’re buying a used car, you definitely want to evaluate the specific vehicle’s condition. You might not care which cup of coffee the barista hands you out of the same pot, but you probably don’t want to trade after the first sip.



<h3>Digital representations of non-fungible things are useful (and common)</h3>



Retailers keep records of their customers and what they buy. This helps them support buyers when something breaks, or determine what warranties are applicable. Interior designers and architects use blueprints to propose solutions within the limitations of a space. Doctors and dentists use health records to treat patients.&nbsp;



Many tech-enabled businesses are built on digital representations of non-fungible things. Spotify, YouTube, Netflix, and GoodReads model users’ tastes to recommend content. 



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="570" src="https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-1024x570.jpg" alt="" class="wp-image-39985" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-1024x570.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-300x167.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-768x428.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-1536x855.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-428x238.jpg 428w, https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-470x261.jpg 470w, https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-389x217.jpg 389w, https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-80x45.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft-50x28.jpg 50w, https://cms.blockworks.co/wp-content/uploads/2022/11/platformsnft.jpg 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>



Zillow and AirBnB use real estate data to help buyers find homes and approximate prices. Facebook and Twitter map relationships to populate feeds. TicketMaster and StubHub digitally represent specific seats for unique experiences.



These digital representations allow platforms to provide services based on user data, but they don&#8217;t allow the user to leverage that data directly. This optimizes value for the platform, not the end user. 



For example, I can’t use my GoodReads or YouTube history to automatically follow all my favorite creators on Twitter. I can’t use my Spotify taste model to find local events on TicketMaster. I can’t use blueprints from my home to find fitting furniture on Wayfair.



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="625" src="https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-1024x625.jpg" alt="" class="wp-image-39986" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-1024x625.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-300x183.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-768x469.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-1536x938.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-421x257.jpg 421w, https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-427x261.jpg 427w, https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-359x219.jpg 359w, https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-80x49.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft-50x31.jpg 50w, https://cms.blockworks.co/wp-content/uploads/2022/11/wallsnft.jpg 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Illustration by <a href="https://twitter.com/TheGhostDesignr" target="_blank" rel="noreferrer noopener">@TheGhostDesignr</a></figcaption></figure>



Even if users could access this data directly, it wouldn’t be very useful, because these representations aren’t standardized or portable — they’re different from provider to provider, and incompatible with other services. In most cases, the end user has no control over who or what has access.



For these digital representations to achieve their full potential, users need ownership and interoperability.&nbsp;&nbsp;



<h3>Decentralizing representations makes them vastly more useful to end users</h3>



Decentralization gives users control over their data, which creates ownership. It removes barriers to data access imposed by centralized platforms, which allows for interoperability. These properties unlock new services and capabilities for end users, upgrade the utility of the underlying non-fungible item, and enable entire ecosystems of data-driven businesses.&nbsp;



NFTs, or non-fungible tokens, are uniquely identifiable blockchain assets used to certify ownership and authenticity. NFTs can denote off-chain assets, like artwork, memberships, or actual land deeds. 



Stored on decentralized blockchains instead of centralized databases, no one controls an NFT except its owner. Although most NFTs today are publicly visible, technologies such as <a href="https://scrt.network/about/secret-nfts" target="_blank" rel="noreferrer noopener">secret NFTs</a> and <a href="https://ethereum.org/en/zero-knowledge-proofs/" target="_blank" rel="noreferrer noopener">Zero-Knowledge Proofs</a> are quickly giving owners more control over who can access their data.



Portability and ownership enable many new use cases. For example, a single NFT representing my home could contain its blueprint, location, purchase history, up-to-date photos, and other metadata. That data could be plugged into a variety of applications. I could use it to find furniture that fits in each room, to calculate property taxes, to rent my home on marketplaces, or to secure a loan.



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="630" src="https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-1024x630.jpg" alt="" class="wp-image-39987" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-1024x630.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-300x185.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-768x472.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-1536x945.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-418x257.jpg 418w, https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-424x261.jpg 424w, https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-356x219.jpg 356w, https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-80x49.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/housenft-50x31.jpg 50w, https://cms.blockworks.co/wp-content/uploads/2022/11/housenft.jpg 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Illustration by <a href="https://twitter.com/TheGhostDesignr" target="_blank" rel="noreferrer noopener">@TheGhostDesignr</a></figcaption></figure>



NFTs can also be combined to enable use cases that are impossible when data is siloed. Representations of our style and physical form can personalize shopping experiences. NFTs of our calendars, tastes, locations, and relationships can be combined to auto-plan personalized events for every group, or schedule dates. 



Data about belongings can be used to surface qualified services and add-ons, like insurance or integrations. Credentials, schedules, and interests can be used to identify professional or educational opportunities across platforms.



User-owned data also unlocks new applications of AI. AI needs to process user data to generate user-specific solutions. For example, <a href="https://portrait.vana.com/" target="_blank" rel="noreferrer noopener">Vana</a> requires a user to upload multiple photos of their face to generate a gallery of artistic portraits &#8211; without access to that data, it can’t generate relevant portraits.



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="256" src="https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-1024x256.jpg" alt="" class="wp-image-39988" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-1024x256.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-300x75.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-768x192.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-1536x384.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-428x107.jpg 428w, https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-470x118.jpg 470w, https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-389x97.jpg 389w, https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-80x20.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft-50x13.jpg 50w, https://cms.blockworks.co/wp-content/uploads/2022/11/aifacesnft.jpg 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Op-ed author Ben Turtel goes through Vana AI</figcaption></figure>



As AI becomes more powerful, it will require standardized user data to generate unique solutions to unique problems. Decentralizing this data incentivizes AI-enabled startups to build highly-tailored solutions. There are many potential use cases:



<ul><li>Interior design proposals based on the blueprint of your home, taste, and budget (including highly-custom AI-generated art!).</li><li>Educational content tailored to your knowledge, goals, and learning style.</li><li>Personalized recipes based on your health, tastes, and goals.</li><li>Wardrobe suggestions tailored to your size and style.</li><li>Personal AI assistants who know everything about you, your schedule, your relationships, and have full access to all of your data, but share none of it with anyone.</li></ul>



Startups are already building the foundations for many of these use cases:



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="570" src="https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-1024x570.jpg" alt="" class="wp-image-39989" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-1024x570.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-300x167.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-768x428.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-1536x855.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-428x238.jpg 428w, https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-470x261.jpg 470w, https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-389x217.jpg 389w, https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-80x45.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft-50x28.jpg 50w, https://cms.blockworks.co/wp-content/uploads/2022/11/protocolnft.jpg 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>



Much of this will be incredibly positive, although there may be drawbacks — we’ve already seen the echo chambers that can result from highly personalized content feeds. Advances in both technology and regulatory frameworks will be needed to ensure data isn’t accessed and copied without the NFT owner’s permission. 



However, it’s worth keeping in mind that all of this data is already out there — it’s just currently controlled by platforms and service providers, instead of end users.



<h3>We&#8217;re just getting started</h3>



Everything you care about is non-fungible. Companies have been using digital representations of your non-fungible assets for years to pad their bottom lines. These centralized players lack both the incentives and the coordination to open up these representations to other data-driven systems.



Decentralization makes data vastly more useful to the end user. NFTs put data back in the hands of individuals, and incentivize the development of all kinds of new capabilities, by making digital representations more portable and accessible.



JPEGs are a proof of concept. The best is yet to come.



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Why NFTs Will Upgrade Everything

The latest crypto crisis, in many ways the biggest yet, has lined up perfectly with this year’s Thanksgiving holiday, setting investors and industry members up for the inevitable “I told you so” from friends and relatives.&nbsp;



Dinner guests who had never heard of FTX or its disgraced quirky founder Sam Bankman-Fried before last week will be at the table with questions — and likely a few criticisms. 



Before you stuff your face, stuff your brain with this quick news breakdown to keep you on point.



What is FTX?&nbsp;



Founded in 2019 in Hong Kong and moved to the Bahamas in 2021, crypto exchange FTX was run by Bankman-Fried, one of crypto&#8217;s richest billionaires when things were good now boasts two commas at most. 



Bankman-Fried is the son of two compliance attorneys and — before losing billions in user funds — was largely adored for his down-to-earth, idiosyncratic ways. He quickly won the hearts and minds of investors, politicians, athletes and celebrities. (He slept on a beanbag! How fun and relatable!)



Why did it fail?&nbsp;



It all came crashing down earlier this month when a leaked balance sheet revealed that another one of Bankman-Fried’s ventures, hedge fund Alameda Research, held a lot of FTT, FTX’s own native digital currency. If FTT were to fall, which — spoiler alert — it quickly did, Alameda would be in trouble.



Soon after, rival exchange leader Changpeng “CZ’’ Zhao of Binance <a href="https://blockworks.co/news/binance-ceo-goes-full-fud-in-attempt-to-bury-ftx" target="_blank" rel="noreferrer noopener">said his firm was selling</a> its FTT. Bankman-Fried responded, essentially, by saying “bring it on.”&nbsp;



FTX customers became worried and <a href="https://blockworks.co/news/ftx-native-token-ftt-plunges-following-takeover-news" target="_blank" rel="noreferrer noopener">started to pull their funds off FTX</a>, which was a problem, since the money wasn’t there. The exchange halted withdrawals on Nov. 8 and <a href="https://blockworks.co/news/cryptos-erase-gains-ftx-token-slips-further-on-bankruptcy-news" target="_blank" rel="noreferrer noopener">filed for bankruptcy</a>, along with more than 130 of its subsidiaries, on Nov. 11.&nbsp;



Bankman-Fried later <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy" target="_blank" rel="noreferrer noopener">confirmed</a> FTX needed $8 billion to satisfy creditors. He also said reports that <a href="https://blockworks.co/news/worse-than-enron-sbfs-ftx-has-a-complete-absence-of-trustworthy-information" target="_blank" rel="noreferrer noopener">FTX funds had been used to fund trades at Alameda</a> — a big no-no — were, in fact, true.&nbsp;



Oh, and then, to make matters worse, <a href="https://blockworks.co/news/what-happened-ftx-hack" target="_blank" rel="noreferrer noopener">a hacker made off with $477 million</a> still remaining on FTX. You can’t make this stuff up.&nbsp;



How is Genesis involved?&nbsp;



Crypto brokerage Genesis is collateral damage, and it’s probably going to cause more.&nbsp;



Genesis, owned by Digital Currency Group (also the company behind Grayscale), initially said it would not be impacted by FTX’s woes.&nbsp;



Then, on Nov. 9, the company said it had lost $7 million. By Nov. 10, the firm said it actually had $175 million tied up on FTX. On Nov. 16, the company shut down its lending service and halted withdrawals. 



The next day, Genesis said it was seeking $1 billion in funding. On Monday, the firm confirmed that without the capital raise, it would be forced into bankruptcy.&nbsp;



Is crypto over?&nbsp;



Odds are, at least some of your Thanksgiving companions will say this is the beginning of the end for crypto. Here’s some tips on how to deal with naysayers, in case you find yourself on the defense.&nbsp;



When the cousin you convinced last year to buy bitcoin asks about the price… 



There is no denying crypto is a volatile asset class, and the higher it goes, the further it can fall. It’s important to remember the technology thesis hasn’t changed, plus stocks are down, too.



When your uncle says the whole thing is a Ponzi scheme… 



Clearly, there are bad actors in the space, and traditional finance is no different.&nbsp;



When your parents say the tokens have no value… 



Some of them certainly don’t. But, cryptocurrency has become the foundation for an entire financial system built from scratch, and it’s probably not done finding new and better ways of doing things the traditional financial world has been doing for centuries.&nbsp;



When someone brings up all those hacks… 



Hacks are at an all time high, sure. But financial theft is nothing new, and all the more reason to brush up on your cold-storage options.&nbsp;



These responses should cover the more annoying crypto questions from non-coin folk this year — enjoy your Thanksgiving! 



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A Field Guide to Thanksgiving Crypto Banter in 2022

Crypto wallet maker Ledger is rolling out its crypto debit card across the UK and Europe, as a string of scandals in the ecosystem spurs interest in self-custody solutions.



Ledger’s Crypto Life (CL) card allows users to move crypto between Ledger hardware wallets and card accounts via companion app Ledger Live.



While the card supports the French firm&#8217;s cold crypto wallets — which promote self-custody — CL is developed by London-based fintech Baanx, which states that “it’s not a bank” on its website.



Similar to other crypto cards already on offer, customers can earn 1% crypto rewards in bitcoin or USDT, or 2% in Baanx’s native token BXX, when funds are spent. Users can also receive paychecks denominated in bitcoin, ether or other stablecoins.



Lithuanian banking-as-a-service provider Contis Financial handles custody of all funds kept on the card. Baanx’s website states that Contis Financial is authorized by the Lithuanian central bank, however card funds will not be covered by the country’s Financial Services Compensation Scheme or Deposit Insurance System.



“No other compensation scheme exists to cover losses claimed in connection with the account and associated card,” Baanx says in an FAQ. “We will however ensure that any funds received by you are held in a segregated account so that should we become insolvent your funds will be protected against claims made by our creditors.”



Like Mastercard, Visa supports crypto cards issued by several companies including Coinbase and Binance. Binance’s branded <a href="https://www.binance.com/en/support/faq/how-does-binance-card-cashback-work-c93fe535bcf4431aa32623ae0a49d4f2" target="_blank" rel="noreferrer noopener">card</a> is similar to Ledger’s — in fact it’s also managed by Contis — but the rewards are in BNB and held on the exchange.&nbsp;



Ledger card promotes self-custody, until it&#8217;s time to spend crypto



Ledger says it received over 400,000 waitlist signups for CL, after first announcing the program at the Ledger Op3n conference in Dec. 2021.&nbsp;



Customers can use their cards at some 90 million merchants and online stores accepting Mastercard across the UK and Europe. “We now have an easy and secure solution to pay with crypto that also allows you to self-custody until you want to top up,&#8221; said JF Rochet, vice president of international development at Ledger.



Ledger partner Baanx no doubt hopes adoption of the product might boost the price of its BXX token. The startup first sold BXX at $0.12 in an initial coin offering in 2019, with 56% of the supply designated for the public.



BXX now trades for about $0.012 — down 90% from its initial sale price and 97% below its $0.40 record last October. The token boasts a meagre market value of $430,000 after jumping about 25% Thursday morning, a few hours ahead of the press release embargo.



Crypto-compatible cards were also popular with ill-fated lending platforms Celsius, Voyager and BlockFi, with those products all directly threatened by their respective liquidity crises.



Ledger’s card differs slightly in that Ledger users can directly transfer crypto from cold storage for spending and back again — rather than from centralized entity to card. The firm <a href="https://blockworks.co/news/celsius-woes-spark-boom-in-ledger-sales" target="_blank" rel="noreferrer noopener">has claimed</a> that 20% of all digital assets are held on Ledger devices.



Sales for Ledger devices actually spiked following Celsius&#8217; collapse as crypto investors rethought who they trust with their assets. In an email to Blockworks, a Ledger spokesperson said: &#8220;We warn customers every time they top up that the funds are no longer self-custodied on their Ledger, so ideally they would top up what they need to use, when they need to use it.&#8221;



US-based Ledger users eager for a debit card will still have to wait a few months. A US rollout was earlier pegged for Q2 this year, however a spokesperson said it would arrive “in the coming months.” The US card will use Visa instead of Mastercard.



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Ledger Rolls Out ‘Crypto Life’ Debit Card Across UK and Europe

ConsenSys, the Ethereum studio behind popular crypto infrastructure such as MetaMask and Infura, is now formally collecting IP and Ethereum wallet addresses of users.



The firm revised its <a href="https://consensys.net/privacy-policy/" target="_blank" rel="noreferrer noopener">privacy policy</a> on Nov. 23 to notify MetaMask users that it would hoover up the data when using Infura as default Remote Procedure Call (RPC) provider.&nbsp;



Alongside IP and wallet addresses, ConsenSys says it collects usernames, passwords and gender information, as well as financial data such as asset holdings, bank account numbers and bank routing numbers (MetaMask <a href="https://metamask.io/buy-crypto/" target="_blank" rel="noreferrer noopener">supports</a> Visa and Mastercard purchases for crypto).



But in cases where a user utilizes their own Ethereum node or a third-party RPC provider, then neither Infura nor MetaMask will collect IP and wallet addresses, ConsenSys said.



Infura is a primary node backbones of the Ethereum ecosystem, allowing Web3 developers to connect their apps to the Ethereum network via APIs and other tools. Its popularity has been a <a href="https://www.coindesk.com/markets/2018/12/05/the-race-is-on-to-replace-ethereums-most-centralized-layer/" target="_blank" rel="noreferrer noopener">sticking point</a> for decentralization purists for years.&nbsp;



ConsenSys formally <a href="https://blog.infura.io/post/infura-has-officially-been-acquired-by-consensys-e6ac5d27afa" target="_blank" rel="noreferrer noopener">acquired</a> all of the rights to Infura in late 2019. MetaMask is one Web3 app that relies on Infura by default — it’s a self-custody crypto wallet allowing over <a href="https://earthweb.com/metamask-statistics/" target="_blank" rel="noreferrer noopener">21 million</a> monthly active users to interact with decentralized applications (dapps) on the Ethereum blockchain via their web browser.&nbsp;



ConsenSys&#8217; update follows a similar move by decentralized exchange Uniswap, which <a href="https://web.archive.org/web/20221121121528/https://uniswap.org/blog/commitment-to-privacy" target="_blank" rel="noreferrer noopener">recently said</a> it collects some on-chain data to improve user experience.



Still, the decision to overtly declare data collection has attracted the ire of privacy-minded crypto folk, and has many wondering whether Web3 is any different from Web2&#8217;s data dragnet. 



Privacy advocates suggest <a href="https://coveryourtracks.eff.org/learn" target="_blank" rel="noreferrer noopener">minimizing online footprints</a> and massively reducing the amount of sensitive data shared with internet service providers. 



ConsenSys’ didn’t initially state why it made the move, but some speculated that regulatory restrictions may be the reason. Infura <a href="https://blockworks.co/news/tornado-cash-sanctions-expose-potential-defi-achilles-heel" target="_blank" rel="noreferrer noopener">dropped</a> Tornado Cash as a client in the wake of US sanctions on the crypto mixer back in August.



Daniele Servadei, CEO of merchant tooling startup Sellix, reasoned that Consensys is required to keep the data due to the European Union’s General Data Protection Regulation (GDPR), or it’ll receive a huge fine.



“This news just shows how important it is to have a personal node for the crypto you want to use and why centralized services are bad,” Servadei told Blockworks. ConsenSys didn’t return Blockworks’ request for comment by press time.



ConsenSys later addressed the controversy in a <a href="https://consensys.net/blog/news/privacy-policy-update/" target="_blank" rel="noreferrer noopener">blog post</a>. &#8220;The updates to the policy do not result in more intrusive data collection or data processing, and were not made in response to any regulatory changes or inquiries,&#8221; the firm said. 



IP address and wallet collection is not Infura-specific and consistent with how web architecture works, ConsenSys said, &#8220;though we continue to pursue technical solutions to minimize this exposure, including anonymization techniques.&#8221;



Decentralized Infura alternatives gain sudden interest



Other industry participants shared concern over whether ConsenSys could responsibly safeguard the data it collects. Rashid Ali, CEO of metaverse firm Exarta, asked: “Looking at the breaches happening every year, is data ever really safe with a centralized organization?”&nbsp;



With this in mind, there are Infura alternatives which, at this stage, don’t appear to collect sensitive user information.



Decentralized infrastructure provider Ankr saw its token jump as much as 23% after Consensys’ update. Another option is Alchemy, which doesn’t have a token. MetaMask has been expected to release one but hasn’t as yet.



In any case, this isn’t the first time ConsenSys and MetaMask have come under fire for deprioritizing user privacy.&nbsp;



In March 2019, MetaMask developers drew flak for opting to keep its “privacy mode” turned off by default. When the setting was inactive, MetaMask broadcasted Ethereum wallet addresses to <a href="https://thenextweb.com/news/metamask-ethereum-privacy-address" target="_blank" rel="noreferrer noopener">every website users visited</a> alongside all third party trackers. 



Turning it on by default would’ve broken older dapps, MetaMask said at the time. The team <a href="https://medium.com/metamask/privacy-mode-is-now-enabled-by-default-1c1c957f4d57" target="_blank" rel="noreferrer noopener">made</a> privacy mode standard about five months later.



Updated Nov. 25, 2022 at 3:04 am ET: Included ConsenSys&#8217; blog post addressing the matter.



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ConsenSys Wants Your IP Address, Crypto Wallet, Bank Account

Ornella Hernandez

More and more details of the now-insolvent crypto exchange FTX surface every day, and the spillover effects are ever more unfortunate.&nbsp;



The timeline below tracks major events <a href="https://blockworks.co/news/ftx-bankrupt-hacked-investigated-a-timeline-of-events" target="_blank" rel="noreferrer noopener">since</a> the Bahamian police began investigating FTX on Nov. 13 up to the revelations from the latest bankruptcy filings that Sam Bankman-Fried and other executives received personal loans totaling $1.5 billion.



<h3>Nov. 14 — Monday: Time out</h3>



The sports partnerships continued falling. The Golden State Warriors, the San Francisco-based NBA team, <a href="https://blockworks.co/news/golden-state-warriors-and-miami-heat-axe-ftx-deals" target="_blank" rel="noreferrer noopener">paused all FTX-related promotional deals</a>. Warriors point guard Stephen Curry was a global ambassador for FTX, and FTX US and its NFT marketplace were the Warriors’ official cryptocurrency platform. All these deals ceased to exist.&nbsp;



This move followed the Miami Heat NBA team ending its naming rights deal with FTX for its home stadium — FTX Arena. Additional partnerships with Major League Baseball to place the FTX logo on the uniforms of umpires and with the Mercedes-AMG Petronas F1 Team to add the FTX logo to the cars and uniforms of drivers were terminated.



<h3>Nov. 15 — Tuesday: Another FTX casualty&nbsp;</h3>



Bankman-Fried <a href="https://twitter.com/SBF_FTX/status/1592710177152995328?s=20&amp;t=afXyF7_qOhKdnJNbGdcKLA" target="_blank" rel="noreferrer noopener">tweeted</a> on this day that he was going to try “raise liquidity, make customers whole, and restart” as part of a days-long thread. Despite FTX’s Chapter 11 bankruptcy filing, he was reportedly in talks with <a href="https://blockworks.co/news/sbf-attempts-to-find-ftx-investors" target="_blank" rel="noreferrer noopener">investors who might help fund the $8 billion</a> that the company owes its traders and institutional clients — but the writing was on the wall.&nbsp;



Cryptocurrency lender, <a href="https://blockworks.co/news/blockfi-eyes-bankruptcy-as-ftx-fallout-continues-report" target="_blank" rel="noreferrer noopener">BlockFi announced it was likely to file for bankruptcy</a> on this day. The firm had earlier begun preventing withdrawals and it disclosed &#8220;significant exposure&#8221; to FTX the previous day. At one point in July, FTX had planned to acquire BlockFi outright for up to $240 million.



<h3>Nov. 16 — Wednesday: Class action lawsuit filed against SBF</h3>



The first <a href="https://blockworks.co/news/what-do-tom-brady-steph-curry-and-naomi-osaka-have-in-common-an-ftx-lawsuit" target="_blank" rel="noreferrer noopener">class action lawsuit against Bankman-Fried</a> was filed on this day, claiming that the insolvent crypto exchange violated Florida law and demanding $11 billion in damages on behalf of its customers. A number of its high-profile backers were named in the lawsuit, including Tom Brady, Gisele Bundchen, Stephen Curry, Shaquille O’Neal, David Ortiz, Naomi Osaka, Larry David and Kevin O’Leary, among others.



Using “the largest and most well-known marketers and celebrities was the only way that this massive fraud could have been successful,” one of the lawyers behind the case told Blockworks.



Also on Nov. 16, crypto lender Genesis, a subsidiary of Digital Currency Group, <a href="https://blockworks.co/news/genesis-halts-lending" target="_blank" rel="noreferrer noopener">halted withdrawals</a> to customer redemptions and new loan originations. This move caused the exchange, Gemini, to cease processing redemptions for clients using the Gemini Earn program in partnership with Genesis. Gemini said regular crypto withdrawals, however, are unaffected.



Additionally, Vox published an interview with Bankman-Fried, in which he blamed an ex-employee for malware on a device owned by an ex-employee for the hacking. He also <a href="https://blockworks.co/news/as-sbf-disses-regulators-ftx-disowns-sbf" target="_blank" rel="noreferrer noopener">criticized regulators and expressed regrets</a> about filing for bankruptcy.



FTX’s new CEO John J. Ray, III tweeted in response that, “Mr. Bankman-Fried has no ongoing role at [FTX], FTX US, or Alameda Research Ltd. and does not speak on their behalf.”&nbsp;



<h3>Nov. 17 — Thursday: ‘A complete failure of corporate controls’</h3>



Ray, who was brought in as a liquidator, stated in a sworn declaration submitted in bankruptcy court that according to FTX&#8217;s records, its subsidiary Alameda Research had made personal loans totaling $1 billion to Bankman-Fried and more than $500 million to FTX co-founder Nishad Singh.&nbsp;



Ray <a href="https://blockworks.co/news/worse-than-enron-sbfs-ftx-has-a-complete-absence-of-trustworthy-information" target="_blank" rel="noreferrer noopener">added</a> some harsh words. Despite having been involved in the bankruptcies of Enron: “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. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”



Additional insight into the case confirmed that <a href="https://blockworks.co/news/5-highlights-ftx-bankruptcy" target="_blank" rel="noreferrer noopener">FTX did not comply with security controls</a> with respect to digital assets, misused customer funds, had unaudited financials and almost nonexistent employee management.&nbsp;&nbsp;



FTX’s local Bahamas arm, <a href="https://blockworks.co/news/ftx-bahamas-unit-filed-bankruptcy" target="_blank" rel="noreferrer noopener">FTX Digital Markets, filed for bankruptcy</a> protection in New York on this day. It opted for Chapter 15 bankruptcy, while FTX and 134 affiliate companies opted for Chapter 11 protection.&nbsp;



Another Digital Currency Group subsidiary, Grayscale, saw the value of its publicly traded <a href="https://blockworks.co/news/sec-grayscale-exploring-bitcoin-trust-options" target="_blank" rel="noreferrer noopener">Grayscale Bitcoin Trust (GBTC) decline by 20%</a> on Nov. 17.&nbsp; (GBTC) has persistently traded at a wide discount to the price of the spot bitcoins it holds, with its net asset value (NAV) hovering around 40% below the value of its Bitcoin.



<h3>Nov. 18 — Friday: Bahamas regulators custody FTX assets</h3>



Securities regulators in the Bahamas confirmed that they’re holding some of FTX’s assets in a press statement released on Nov. 18. They acknowledged transferring assets from of FTX Digital Markets into their custody after an emergency filing from FTX’s U.S. attorneys accused them of having directed former CEO Sam Bankman-Fried to do so. They added that they did not believe that FTX’s Bahamas subsidiary was subject to the US’ Chapter 11 bankruptcy proceedings.



The value of the assets was not confirmed, and it was unclear just how much of the cryptoasset movements could be attributed to actions by Bahamian regulators.



<h3>Nov. 19, 20 — Saturday and Sunday: Following the hacking trail</h3>



Over this weekend, on-chain analysts observed the FTX hacker, dubbed “FTX Accounts Drainer,” dumping ether for bitcoin. This caused the price of the ether to start dipping.&nbsp;



The <a href="https://twitter.com/kamikaz_ETH/status/1594293500451106816?s=20&amp;t=katw78Z4qb1jshgVJT0DmQ" target="_blank" rel="noreferrer noopener">hacker moved ether in different lots</a> — $186 million were moved into crypto cold storage, while $477 million was transferred to ether and stablecoin DAI.&nbsp;



On Nov. 20, the attacker transferred 50,000 ETH to a separate wallet and then converted it to BTC via renBTC — the Ren protocol bridge.



As the crypto community was monitoring hacked FTX funds, FTX <a href="https://twitter.com/FTX_Official/status/1594354846370758657?s=20&amp;t=ESxOHHGQRNgWxkiZ8fbvwA" target="_blank" rel="noreferrer noopener">urged</a> exchanges to cooperate by halting funds and returning them to “the bankruptcy estate.”



<h3>Nov. 21 — Monday: Pls-help</h3>



Etherscan data showed that the attacker moved a total of 180,000 Ether ($199.3 million) on Nov. 21 across 12 wallets. Each newly created wallet received 15,000 ETH.&nbsp;



By subdividing the total amount into smaller amounts, a process known as “peel chaining,” it not only confuses investigators but suggests the attacker could use a mixing service at some point.



Meanwhile, one user registered as ftx-rekt200k-pls-help.eth, sent an encoded message via ether to the hacker, claiming to have lost money from the FTX collapse and asking for a reimbursement. They even <a href="https://etherscan.io/address/0xb937eb52cfed2edc08d9d26bd7d40b4aea9b61b4" target="_blank" rel="noreferrer noopener">sent</a> 20 transactions of 0.000001 ETH to the hacker’s address.



<h3>Nov. 22 — Tuesday: SBF apologizes again, court hears from bankruptcy lawyers</h3>



A letter that Bankman-Fried <a href="https://twitter.com/lizrhoffman/status/1595183732989779970?s=20&amp;t=afXyF7_qOhKdnJNbGdcKLA" target="_blank" rel="noreferrer noopener">shared</a> with FTX employees was made public on Nov. 22. His opening line states that he feels “deeply sorry about what happened.” Finance journalist Liz Hoffman <a href="https://twitter.com/lizrhoffman/status/1595183732989779970?s=20&amp;t=afXyF7_qOhKdnJNbGdcKLA" target="_blank" rel="noreferrer noopener">tweeted</a> screenshots of the letter.



Along with the apologies and a list of collateral and liabilities under the FTX, Bankman-Fried said that “maybe there still is a chance to save the company.”



He did not, however, address allegations that FTX diverted customer and corporate funds to Alameda Research or that he and other executives took personal loans.



“None of this changes the fact that this all sucks for you guys,” added Bankman-Fried. In <a href="https://blockworks.co/news/ftx-run-by-inexperienced-unsophisticated-traders-court-hears" target="_blank" rel="noreferrer noopener">the first bankruptcy hearing</a> for FTX and its affiliated entities, lawyers told the court that a “substantial amount of assets” held by FTX cannot be accounted for. FTX now has a cash balance of $1.24 billion in total, they said.



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The Last 10 Days in the FTX Saga: A Timeline

Bitcoin miners are facing a tough few weeks ahead as meager prices threaten to render the network service unfeasible for anyone but the largest operators.



After shedding a quarter of its value throughout the FTX saga, the price of bitcoin is hovering around $16,300, down 66% year to date. Electricity prices —- which directly impact bitcoin mining profitability — in the US have jumped by about 13% in that time.



Bitcoin fading as electricity rates spike is obviously bad for miners: It can turn bitcoin mining into a loser’s game. One calculator offered by <a href="https://insights.braiins.com/en/cost-to-mine" target="_blank" rel="noreferrer noopener">Braiins</a> shows the cost of producing 1 BTC with a top-of-the-line Bitmain Antminer S19j is currently $34,732 — more than double bitcoin’s price.&nbsp;



And that’s based on electricity prices at $0.06 per kilowatt hour; the US Bureau of Labor Statistics <a href="https://www.bls.gov/regions/midwest/data/averageenergyprices_selectedareas_table.htm" target="_blank" rel="noreferrer noopener">reported</a> a national average at $0.166 last month. Data visualization portal <a href="https://en.macromicro.me/charts/29435/bitcoin-production-total-cost" target="_blank" rel="noreferrer noopener">MacroMicro</a> shows a lower global average cost, around $22,300, still 37% above bitcoin’s current price.&nbsp;



Although, some large scale mining operations are vertically integrated. Firms like Greenidge control their own power sources, which makes the whole process significantly cheaper.&nbsp;



Still, margins are thin across the board; one indicator built by investment unit Capriole <a href="https://twitter.com/caprioleio/status/1594671729917714437" target="_blank" rel="noreferrer noopener">measures</a> the ratio of bitcoin sold from miner reserves to their overall balance — it has jumped 500% in the past month, now at its highest reading in years.



“Higher equals more selling. We also sum the miner output over 30 days and compare it to average miner reserves held over the last 30 days, we think it highlights high miner selling very well,” Charles Edwards, founder at Capriole, told Blockworks.



Bitcoin miners have indeed been selling regularly, but the total sum of their treasuries has more-or-less held steady this year. In fact, miners together hold 8,184 more bitcoins than at the start of 2022, per CryptoQuant.



<figure class="wp-block-image size-full"><img loading="lazy" width="988" height="546" src="https://cms.blockworks.co/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg" alt="" class="wp-image-39902" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant.jpg 988w, https://cms.blockworks.co/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant-300x166.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant-768x424.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant-428x237.jpg 428w, https://cms.blockworks.co/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant-470x261.jpg 470w, https://cms.blockworks.co/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant-389x215.jpg 389w, https://cms.blockworks.co/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant-80x44.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/bitcoin-miner-reserve-cryptoquant-50x28.jpg 50w" sizes="(max-width: 988px) 100vw, 988px" /><figcaption>Source: <a href="https://cryptoquant.com/" target="_blank" rel="noreferrer noopener">CryptoQuant</a></figcaption></figure>



Capriole’s indicator may be picking up a round of dumps, just as crypto reckoned with the impending collapse of FTX and its ensuing contagion. Bitcoin miners collectively sold 4,502 BTC between Nov. 7 and Nov. 8, according to CryptoQuant, a haul potentially worth up to $93 million.



Bitcoin’s price collapsed 24% around the same, dropping from $20,600 to under $15,800. Measuring miners’ direct impact on that move is difficult, but it’s clear that capital preservation is front-of-mind.



Bitcoin miners still hold more than 1.85 million BTC worth about $30.5 billion, representing almost 10% of the supply.&nbsp;



Loans backed by bitcoin miners to buy more bitcoin miners



Another spanner: A raft of major operators took out <a href="https://blockworks.co/news/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage" target="_blank" rel="noreferrer noopener">high-interest loans</a> — in many cases backed by mining rig inventories — at the peak of the bull market last year. Sky-high prices made it en vogue to acquire as many mining rigs as possible, as quickly as possible.&nbsp;



Those inventories have since been delivered and are now mining away in hopes of actually paying for them — giving us the unusual mix of record high hashrate and crumpled prices.&nbsp;



Indeed, Bitcoin’s current thunderous hashrate is fueled by a fiscal need to generate revenue as soon as possible to pay back decisions made more than one year ago. This has driven mining difficulty (which impacts the odds of successfully mining bitcoin) through the roof while vaporizing operational margins.



Bitcoin miners have faced the grim reality of paying back those loans in a bear market for months now. Core Scientific, one of the largest miners in the industry by hashrate, <a href="https://www.cnbc.com/2022/10/27/bitcoin-miner-core-scientific-warns-it-might-go-bankrupt-stock-plunges.html" target="_blank" rel="noreferrer noopener">warned the SEC</a> last month that it would not be able to meet its loan obligations and could go bankrupt.



Core Scientific is now selling more bitcoin than it creates to stay afloat, having cashed in most of its bitcoin stash over the past few months. The firm has reported $435 million lost in the year’s third quarter, bringing its year-to-date damage to $1.7 billion​​ and share prices losses to 98%.



Iris Energy, a smaller but sizable operation, <a href="https://www.sec.gov/Archives/edgar/data/1878848/000114036122042419/ny20005141x6_6k.htm" target="_blank" rel="noreferrer noopener">disclosed</a> default on loans worth $108 million this week. The firm has switched off mining rigs it used as collateral for expansion loans, similarly on the brink of bankruptcy.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" src="https://flo.uri.sh/visualisation/11930341/embed#?secret=42JEnL4ykK" data-secret="42JEnL4ykK" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption>Bitcoin’s hashrate often falls when the price does. Not this time.</figcaption></figure>



Even diamond-handed Marathon <a href="https://ir.marathondh.com/news-events/press-releases/detail/1288/marathon-digital-holdings-announces-bitcoin-production-and#:~:text=The%20Company%20has%20not%20sold,to%20fund%20monthly%20operating%20costs." target="_blank" rel="noreferrer noopener">warned</a> shareholders earlier this year that it might start selling its mighty bitcoin stash, having historically projected intentions to hold indefinitely. The firm has mostly financed itself on stock sales and other debt raises, <a href="https://markets.businessinsider.com/news/currencies/marathon-digital-stock-price-bitcoin-bond-sale-proceeds-sec-subpeona-2021-11" target="_blank" rel="noreferrer noopener">including</a> a $500 million bond sale last November, as bitcoin was retreating from all-time high.



Todd Esse, co-founder at mining investment firm HashWorks Digital Industries, expressed to Blockworks that the next 30 days will prove critical for bitcoin miners just holding on.



“I think we’re getting to a point where we’re going to start seeing a lot of rings dropping off over the next 30 days, if we stay down at this level or go even lower,” Esse said, adding that he sees room for only two large mining outfits to retain the bulk of their bitcoin.



Falling energy prices could offer bitcoin miners a glimmer of profitability, albeit distant. “The market is being very selective about who can fit in right now, and it’s very tight.”



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Bitcoin Price Drop Tests Miners’ Diamond Hands

Instagram has begun testing out its NFT marketplace by offering a select group of US creators on Instagram the opportunity to sell the digital collectibles directly via Meta’s social media platform.



Blockworks spoke to one of those creators, Refik Anadol, whose series of so-called artificial intelligence (AI) data paintings, or software-based artworks, sold out on Monday after only a few minutes.&nbsp;



His collection called Sense of Healing: AI Data Paintings — 20 editions of four collectibles — is one of the first non-fungible tokens to sell on Instagram. In total, the collection raised nearly $80,000 for the Alzheimer’s Foundation.



A Turkish-American Ethereum miner turned NFT artist, Anadol said that <a href="https://blockworks.co/news/meta-pins-web3-hopes-on-instagram-creators-minting-nfts" target="_blank" rel="noreferrer noopener">listing an NFT on Instagram</a> is “as easy as adding a post.”&nbsp;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Blockworks: Tell us about how the partnership with Meta started and about your new collection.&nbsp;



Refik: I coined the term data painting in 2008, and I’ve been working as an AI artist since 2016 trying to create a social impact as much as possible. When the Meta team and Instagram said, ‘hey, we are doing this new creator economy move,’ of course I said yes to the experiment.


<div class="wp-block-image">
<figure class="alignright size-full"><img loading="lazy" width="300" height="294" src="https://cms.blockworks.co/wp-content/uploads/2022/11/Instagram-nft-300.jpg" alt="" class="wp-image-39886" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/Instagram-nft-300.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/Instagram-nft-300-262x257.jpg 262w, https://cms.blockworks.co/wp-content/uploads/2022/11/Instagram-nft-300-266x261.jpg 266w, https://cms.blockworks.co/wp-content/uploads/2022/11/Instagram-nft-300-223x219.jpg 223w, https://cms.blockworks.co/wp-content/uploads/2022/11/Instagram-nft-300-80x78.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/Instagram-nft-300-50x50.jpg 50w" sizes="(max-width: 300px) 100vw, 300px" /><figcaption>Refik Anadol &#8220;data painting&#8221;</figcaption></figure></div>


We trained more than one hundred AI models for this project. We worked in collaboration with an amazing neuroscience company called MindMaze to create a dataset representing how the human mind heals. So these are very positive representations of how the human mind becomes better.



This summer, I took this data and created one piece, which was auctioned at UNICEF for 1.7 million euros. For Instagram, I took four still AI data paintings from this unique series using the same technology — <a href="https://en.wikipedia.org/wiki/Functional_magnetic_resonance_imaging" target="_blank" rel="noreferrer noopener">FMRI</a>, DTI and EEG data sets transformed into an AI data painting.



Blockworks: If your collection is resold on a secondary marketplace, 10% of the resale value will go to you. Are you choosing to collect royalties? And what is your take on marketplaces that have gone royalty-optional?



Refik: This drop is completely donated to the Alzheimer&#8217;s Foundation. So I&#8217;m not getting any personal benefit from this. It’s more about transforming this amazing moment to something more powerful than just personal income.



[Meta] allows a creator to select ​their royalties starting from the minimum five percent, which is amazing because the secondary market is another powerful economy. It’s very important for the creators because it&#8217;s where the wider economy shares more directly.&nbsp;



Why do we need this? Because in the last centuries, the entire art market was not based on royalties. The whole movement started because of this powerful chance of getting this income. So it&#8217;ll be very sad to go back to the last century.



Blockworks: Given the current market conditions, what kind of utility are people now expecting from NFT projects?



Refik: When the artist has a journey, his or her life is a utility. For example, when my works are collected by my collectors, I invite them to special openings and special previews — the utility is being special, being a part of the artist’s journey. I think that’s enough as a means of utility. Our idea is to bring more technology and innovation into the metaverse as an experiential world and let our collectors become a part of a new universe that they have invested in.



Blockworks: Do you think that Meta and Instagram are the right platforms to work with in order to accomplish that?



Refik: Meta has this clear vision that they fully believe in the metaverse and that they are creating the metaverse. So I think it&#8217;s a perfect partner for unfolding this narrative to a larger audience. Instagram is a public space. Instagram is truly accessible to the world. I think it&#8217;s a very great time to create these mainstream connections and make people aware of this new movement.&nbsp;



Blockworks: What is your opinion on the future of NFT technology and any benefits it adds to an artist?



Refik: It&#8217;s an incredible technology that will bring a lot of inclusive — hopefully — discussions. First of all, I think NFTs are just a technology, a tool. But I think what we do with that, what we create, instills the value of the art itself. But the technology is incredibly open and very welcoming for anyone, technically, in the world. And that openness, egalitarian side of things is incredibly exciting. There&#8217;s no door or a gate to push open — it&#8217;s just there.&nbsp;



Now it&#8217;s time to dive deep into the art context. It&#8217;s an intellectual time. The question now is —&nbsp;



What else can we do with [the technology]? I&#8217;ve very much been focusing on giving back to charities. We donated more than $5 million in the last two years to charities. But we also do public art free that is open to everyone.



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Q&A: Artist Refik Anadol on AI-based NFTs for Instagram

Sam Martin

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