Shalini Nagarajan

<div id="highlights-block_6357c7fccd73f" class="highlights">
 <ul>
 <li>Guochun He and Zheng Wang sought bitcoin wallet Wasabi to hide bribe payments, Elliptic said</li>
 <li>The pair allegedly hoped to gather confidential documents related to a federal investigation into Huawei</li>
 </ul>
 
</div>



Two Chinese officials tried to hide bitcoin bribes paid to a US double agent with crypto mixing technology, once again thrusting privacy-preserving protocols into public discourse.



In 2019, authorities say Guochun He and Zheng Wang directed a US government employee to steal information about an ongoing criminal investigation into a global telecom company based in the People’s Republic of China (PRC), <a href="https://www.justice.gov/usao-edny/pr/two-chinese-intelligence-officers-charged-obstruction-justice-scheme-bribe-us" target="_blank" rel="noreferrer noopener">according</a> to the Department of Justice (DOJ).&nbsp;



The DOJ doesn’t name the company, but the <a href="https://www.wsj.com/articles/u-s-says-chinese-tried-to-obstruct-huawei-prosecution-11666633408">Wall Street Journal</a> and <a href="https://www.cnbc.com/2022/10/24/chinese-intelligence-officers-charged-in-huawei-prosecution-obstruction.html">CNBC</a> both reported the firm as Huawei.&nbsp;



The officials, said to be conducting foreign intelligence operations in the interest of Huawei, believed the US government employee was recruited to work for Beijing. He was in fact working with the US Federal Bureau of Investigation (FBI), the complaint alleges.



In Sept. 2021, the Chinese officials assigned the double agent with detailing their meetings with prosecutors at the US Attorney’s office in Brooklyn. 



They were especially interested in understanding which Huawei employees had been interviewed by the government, seeking a description of the prosecutors’ evidence, witness list and trial strategy.



Guochun He, one of the Chinese officials who paid the bitcoin bribes, allegedly told the agent that the company in question was “obviously interested” in the information. He first handed over $41,000 in bitcoin in Oct. 2021 for stealing a document and another lot worth $20,000 in September.



Huawei didn’t return Blockworks’ request for comment by press time.



<h3>Analytics unit traced bitcoin bribes despite Wasabi Wallet</h3>



In private messages, He allegedly asked the agent to accept bitcoin as he believed it would be &#8220;private and safe&#8221; from the eyes of the government.



Crypto has long been considered a means of engaging in discrete transactions, but mostly the opposite is true. Blockchain data, at its core, is almost always public and transactions are traceable, albeit pseudonymous.&nbsp;



Crypto mixers were designed to provide privacy for this open financial system. There are many different kinds but they generally work by commingling funds with other users. 



Mixers have increasingly come under the spotlight after usage by North Korean hackers and other bad actors in laundering illicit crypto gathered from exploits across the crypto ecosystem alongside ransomware attacks.



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="243" src="https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-1024x243.png" alt="" class="wp-image-35480" srcset="https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-1024x243.png 1024w, https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-300x71.png 300w, https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-768x182.png 768w, https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-1536x364.png 1536w, https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-428x102.png 428w, https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-470x112.png 470w, https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-389x92.png 389w, https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-80x19.png 80w, https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26-50x12.png 50w, https://cms.blockworks.co/wp-content/uploads/2022/10/Screen-Shot-2022-10-25-at-14.01.26.png 1922w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Excerpt from DOJ <a href="https://www.justice.gov/usao-edny/press-release/file/1546456/download" target="_blank" rel="noreferrer noopener">indictment</a>.</figcaption></figure>



The US recently banned citizens from using Ethereum-powered crypto mixing service <a href="https://cms.blockworks.co/us-treasury-bans-citizens-from-using-mixing-service-tornado-cash/" target="_blank" rel="noreferrer noopener">Tornado Cash</a> for this reason.&nbsp;



Blockchain analytics firm Elliptic found that the two officials used bitcoin wallet Wasabi Wallet to conceal their transactions. Wasabi <a href="https://wasabiwallet.io/about.html" target="_blank" rel="noreferrer noopener">describes</a> itself as an open-source, non-custodial bitcoin wallet created to provide privacy by default. 



The wallet makes use of tech known as &#8220;<a href="https://en.bitcoin.it/wiki/CoinJoin" target="_blank" rel="noreferrer noopener">CoinJoin</a>,&#8221; which combines bitcoin of multiple transacting parties to render identifying fund provenance more difficult.



“All of the bribe payments can be traced back to Wasabi,” Elliptic <a href="https://hub.elliptic.co/analysis/chinese-spies-used-wasabi-wallet-mixer-to-pay-bitcoin-bribes-to-fbi-double-agent/" target="_blank" rel="noreferrer noopener">said in a statement</a>. Tom Robinson, co-founder and chief scientist at Elliptic, told Blockworks the firm was able to identify the bitcoin transactions based on details disclosed in the criminal complaint.



Elliptic was then able to use its blockchain analytics tools to trace the source of the payments and identify the use of Wasabi. Wasabi Wallet didn’t immediately return Blockworks’ request for comment.



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/dDI2mJS2Dapq0klRiFWfX3fDsGarHVV-zKFl41X-5H1RxxUR8hyss_-YvCNRBZf5lneYNs3BnVu1eUb_pS8PSNwOauW2iCGdOb4uiOkdzw-IPV7MM4M2-hoELWThQiK1pFR2J6_kd_CP_cj7k6KLG041yFKPZTQzhi8CeMv3s3EZsfGDE6uFJKbMFw" alt=""/><figcaption>Image source: Elliptic</figcaption></figure>



Both officials are charged with attempting to obstruct a criminal prosecution of Huawei in the federal district court in the Eastern District of New York. He is additionally charged with two counts of money laundering based on bribe payments.&nbsp;



They currently remain at large. If convicted, He faces up to 60 in prison and Wang faces up to 20 years.



In any case, the matter once more highlights the difficulty of hiding crypto activity — whether illicit or benign — even after funds are sent through crypto mixing technology such CoinJoin.&nbsp;



Elliptic’s Robinson told Blockworks the firm has “special techniques for identifying bitcoin addresses associated with Wasabi use.”



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Chinese Officials Hoped CoinJoin Would Hide Bitcoin Bribes

Sebastian Sinclair

Republican representative Madison Cawthorn of North Carolina has been directed to pay more than $14,000 for his involvement in a crypto pump-and-dump scheme earlier this year.



The House Ethics Committee approved a <a href="https://ethics.house.gov/sites/ethics.house.gov/files/documents/Committee%20Report_50.pdf" target="_blank" rel="noreferrer noopener">Dec. 1 report</a> by its investigative subcommittee (ISC) on Tuesday, which found Cawthorn had violated House rules by having a financial interest in a supposed crypto token known as LGB Coin without first disclosing it.



According to the report, Cawthorn bought 180 billion LGB coins for $150,000 on Dec. 21, 2021 before offloading them on three occasions over an 18-day period. Cawthorn was seen promoting the token online and in person multiple times, including after its price had tanked 80% in April.



Cawthorn will now pay $14,237 to an “appropriate charitable organization” by Dec. 31, 2022 and must pay $1,000 in late filing fees to the US Department of the Treasury by Dec. 20.



“Representative Cawthorn did not disclose either his purchase or sales of his LGB coin until after the Committee established the ISC,” members of the subcommittee said in their report.



The ISC failed to reach a consensus on whether Cawthorn intended to personally profit from his promotional activities. The total sum of the fine likely stems from the ISC being unable to find whether Cawthorn knowingly or willfully engaged in the scheme.



LGB coin touted itself as an ERC-20 meme token “inspiring positivity and patriotism.” The token represented the Let’s Go Brandon movement which was a stand-in, among <a href="https://apnews.com/article/lets-go-brandon-what-does-it-mean-republicans-joe-biden-ab13db212067928455a3dba07756a160" target="_blank" rel="noreferrer noopener">right-wing circles</a>, and a reference to US President Joe Biden. Its true meaning was “F— Joe Biden.”



A <a href="https://www.classaction.org/media/ford-v-koutoulas-et-al.pdf" target="_blank" rel="noreferrer noopener">class action lawsuit</a> naming several promoters of the LGB token project, including hedge fund manager James Koutoulas, is currently working its way through the courts.



Cawthorn had also been investigated over his alleged “improper relationship” with a congressional staffer, though the ISC said in its report it had found no evidence to support that claim.



The 26-year-old, who became one of Congress’ youngest members, <a href="https://www.nytimes.com/2022/05/17/us/politics/madison-cawthorn-concedes-nc-primary-gop.html" target="_blank" rel="noreferrer noopener">lost the party primary contest</a> in May in the Republican-held rural 11th district of North Carolina by a tight margin of around 1,500 votes.



Considered a political <a href="https://www.nytimes.com/2022/05/17/us/politics/madison-cawthorn-concedes-nc-primary-gop.html" target="_blank" rel="noreferrer noopener">firebrand</a> by many critics and proponents, Cawthorn was once tipped as a rising figure within the far-right faction of the Republican party, riding on the back of Trumpism when he was elected in 2020.



The young politician <a href="https://www.nbcnews.com/politics/congress/cawthorn-responds-gop-backlash-orgy-comments-blaming-democrats-remarks-rcna22667" target="_blank" rel="noreferrer noopener">fell out of favor</a> with his colleagues when he insinuated that some Republican members of Congress had invited him to a cocaine-fueled orgy.



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Republican Congressman Hit With Ethics Penalty for Crypto Pump and Dump

Ben Strack

FTX’s former global head of payments has resurfaced as an executive at payments technology company Nuvei weeks after the crash of his ex-employer.



<a href="https://www.linkedin.com/in/adamcolejacobs/" target="_blank" rel="noreferrer noopener">Adam Jacobs</a>, who began working at crypto exchange FTX in June 2021, began his role as a senior vice president of corporate development for the Montreal-based company this month, according to his LinkedIn page.&nbsp;



Nuvei is a public company that connects businesses to customers via 150 currencies and nearly 600 alternative payment methods. The company <a href="https://nuvei.com/company/press-releases/nuvei-to-acquire-simplex-a-payment-solution-provider-to-the-cryptocurrency-industry/" target="_blank" rel="noreferrer noopener">acquired</a> crypto payments company Simplex for $250 million last year.&nbsp;



Jacobs declined to comment about the move.&nbsp;



With crypto exchange FTX <a href="https://blockworks.co/news/whats-next-for-ftx-and-its-customers-after-bankruptcy-filing" target="_blank" rel="noreferrer noopener">filing for bankruptcy</a> last month and other large industry players dealing with ripple effects of the collapse, headhunters <a href="https://blockworks.co/news/ftx-employees-enter-tight-market" target="_blank" rel="noreferrer noopener">previously told Blockworks</a> that talented crypto employees are chasing a dwindling number of spots.



A number of former staffers from FTX have expressed an interest in remaining in the Web3 space, <a href="https://workincrypto.global/" target="_blank" rel="noreferrer noopener">WorkInCrypto.Global</a> founder Sam Wellalage said at the time.&nbsp;



While Jacobs was at FTX, the exchange partnered with Visa. The firm <a href="https://blockworks.co/news/ftx-seeks-to-roll-out-crypto-linked-visa-cards-globally" target="_blank" rel="noreferrer noopener">said in October</a> that it intended to launch Visa debit cards linked to users’ FTX accounts in 40 countries.&nbsp;



The payments giant <a href="https://blockworks.co/news/visa-monitoring-ftx-situation-after-nixing-deal-with-felled-exchange" target="_blank" rel="noreferrer noopener">terminated its agreements with FTX</a>, a Visa spokesperson told Blockworks after the exchange filed for bankruptcy.



Before joining FTX, Jacobs founded crypto payment provider Spend.com. The company <a href="https://blog.swipe.io/swipe-announces-acquisition-of-spend-com-aab264991d7b" target="_blank" rel="noreferrer noopener">was acquired</a> by cryptocurrency Visa card issuing platform Swipe — <a href="https://www.binance.com/en/support/announcement/binance-to-acquire-outstanding-shares-in-swipe-efa96d9a856f4620b2fa6e372edbe290" target="_blank" rel="noreferrer noopener">ultimately bought by Binance</a> — in March 2021.



Jacobs also was previously an adviser to an Ethereum co-founder from April 2017 to March 2021, his Linkedin profile indicates.



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Ex-FTX Exec Lands at Payments Tech Company Nuvei

Michael Bodley

Brevan Howard’s digital asset affiliate — which raised more than $1 billion earlier this year in the <a href="https://blockworks.co/news/brevan-howard-scores-largest-crypto-hedge-fund-launch-ever" target="_blank" rel="noreferrer noopener">largest crypto hedge fund launch</a> on record  — is parting ways with portfolio managers who haven’t been making the grade, according to two sources familiar with the matter. 



In December, that would be business as usual for TradFi multi-strategy fund operators. The likes of Brevan Howard proper —  as well as competitors Citadel, Millennium Management and Point72 Asset Management — traditionally fire their lowest-performing portfolio managers and hire fresh faces around year end. The methodology is also par for the course for investment banks such as <a href="https://blockworks.co/news/goldman-sachs-crypto-bargains" target="_blank" rel="noreferrer noopener">Goldman Sachs</a>.



But industry participants have been closely monitoring the waning days of Brevan Howard Digital’s first calendar year, digging for indicators of how the firm is weathering — or responding to — the onset of a <a href="https://blockworks.co/news/crypto-main-characters-drop-like-flies-as-bear-market-turns-one" target="_blank" rel="noreferrer noopener">bear market</a> that shows few signs of turning the tide anytime soon.



The identity of fired employees and their locations aren’t clear. The unit is on track to make about 10 additional hires in the first quarter, leaving its overall number of staffers roughly flat. A spokesperson declined to comment.



The former Brevan staffers ought to have little issue finding new jobs, according to Dan Eskow, founder of the <a href="https://blockworks.co/news/vet-recruiter-crypto-and-wall-street-dont-speak-the-same-language" target="_blank" rel="noreferrer noopener">crypto-focused recruiting firm</a> Up Top Search. 



Hiring for crypto-native asset managers has been on pause, Eskow told Blockworks — leaving a window of opportunity to snap up newly available talent when it comes to other TradFi players that have yet to start up their own digital asset trading teams.



Brevan’s Wall Street competitors would be “very keen to hire the [portfolio managers] and analysts coming out of [Brevan Howard Digital], since they were skilled enough to get picked up by Brevan, and have hands-on experience in the crypto markets,” Eskow said.&nbsp;



The division, which has remained an active participant in venture crypto deals, has kept its flagship trading strategies tightly under wraps. While Brevan’s exact performance couldn&#8217;t be learned, sources said the operation has booked an up-and-down year, in keeping with the bulk of its peers. Its traders had notched above-average performance earlier in 2022.



Brevan Howard Digital is not actively raising new capital at the moment, preferring instead to focus its investor relations efforts on existing limited-partners who have been parsing the market downturn. Its main vehicle is structured as an evergreen hedge fund and remains open to new subscriptions.



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Brevan Howard’s Crypto Unit Is Laying Off Underperformers

Bessie Liu

Many of Sam Bankman-Fried’s lies have unraveled over the past month. Through recent bankruptcy filings, many observers have noted that it is almost certain that the FTX collapse involved some manner of fraud, which could include blatantly stealing money from customers.



Both the US Securities and Exchange Commission and Department of Justice have been looking into the crimes allegedly committed by Bankman-Fried and his inner circle.



Bankman-Fried has hired former assistant United States attorney for the Eastern District of New York Mark S. Cohen as his new defense attorney after being ditched by Martin Flumenbaum for “incessant and disruptive tweeting.”



Cohen, who once defended convicted child sex trafficker Ghislaine Maxwell, may be up for the challenge, but what crimes could the now fallen crypto celebrity be guilty of?&nbsp;



<h3>Mishandling customer funds&nbsp;</h3>



The misappropriation of funds refers to the intentional use of another person’s property or money without receiving authorization.



Although Bankman-Fried has been <a href="https://blockworks.co/news/bankman-fried-underestimated-collapse" target="_blank" rel="noreferrer noopener">actively denying</a> his involvement in the mismanagement of customer funds in his recent media tour, telling The New York Times that he, “wasn’t trying to commingle funds,” recent bankruptcy filings <a href="https://pacer-documents.s3.amazonaws.com/33/188450/042020648197.pdf" target="_blank" rel="noreferrer noopener">alleged</a> the company used “software to conceal the misuse of customer funds.”



If there really was no intent behind using customer funds, it doesn’t quite make sense to have installed software to conceal footprints.



If Bankman-Fried were to be found guilty of this felony offense, he would face a minimum of one year in prison and fines of up to $10,000 for each count.&nbsp;



<h3>Wire fraud</h3>



Wire fraud involves deception involving the use of some form of internet or telecommunications. This includes sending false information to obtain money or property and threats.&nbsp;



This type of fraud is considered a federal crime in the United States, and jurisdiction can be claimed by the federal government, even when illegal activity is committed internationally.



Considering <a href="https://pacer-documents.s3.amazonaws.com/33/188450/042020648197.pdf" target="_blank" rel="noreferrer noopener">inaccurate financial statements</a> had been given by many of Bankman-Fried’s companies that facilitated the acquisition of competitors, it is entirely possible that these purchases involved deception and were fraudulent.&nbsp;



Wire fraud is a more serious offense, and as such, it brings with it up to 20 years in prison and a fine up to $250,000 for each count — a pittance, considering the billions of dollars in lost customer savings.&nbsp;



<h2>Criminal securities fraud</h2>



Securities fraud or stock and investment fraud is participating in illegal or unethical activities using the securities or asset markets to make a profit at the expense of others.&nbsp;



This type of fraud includes Ponzi schemes, providing false information, and insider trading — perpetrators can include organizations or individuals.&nbsp;



As FTX was offering yield-bearing products, it is possible that it was violating laws related to the sale of securities products.



Federal securities fraud conviction could punish perpetrators for up to 25 years in prison.



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What Sam Bankman-Fried’s New Attorney Is Getting Himself Into

A <a href="https://blockworks.co/news/oecd-releases-framework-to-unify-global-crypto-tax-reporting" target="_blank" rel="noreferrer noopener">crypto tax</a> startup is laying off staffers and planning to shutter at least one key hub — just in time for tax season.



Koinly recently cut 16 full-time employees, or 14% of the company, representatives said Tuesday. Former insiders pegged the figure significantly higher, counting laid-off contractors who played integral roles.



Leading up to the curiously-timed move: a recent Slack from CEO Robin Singh announcing a restructuring, including the pending closure of the London office.&nbsp;



The early-morning, wide-ranging culling — for the North America-based team — came as a surprise even to other Koinly executives, according to three sources familiar with the matter. One source described the maneuver as a “sudden and unilateral” undertaking by Singh.&nbsp;



Employees were told to ask their line manager for clarity as to how the Koinly “flattening” would affect them. But their managers, sources said, appeared just as surprised by the move as they were.



“A lot of people were left wondering as to how this affected them,” one source said.&nbsp;



In a statement, a spokesperson for Koinly said the closure of the London office was not related to the layoffs — attributing it, instead, to an internal poll that found that United Kingdom employees preferred working from home.



“Koinly is a remote-first company,” the spokesperson said.



Two of the sources pushed back against that characterization, saying staffers enjoyed being in the office.



Irrespective of the office closure, which the spokesperson said is scheduled for April 2023, the company’s direction has spurred much internal puzzlement. More specifically, current and former staffers said they don’t understand why this is happening now. The coming months, after all, should be some of the most lucrative of the year for a crypto tax specialist, considering the mammoth capital losses scores of traders are sure to book.&nbsp;



“No one actually knows why Koinly had a need to let people go,” a source said.&nbsp;



In a statement, Singh said crypto investors have a “lack of awareness” when it comes to “filing their crypto losses.” The “actual <a href="https://blockworks.co/news/crypto-main-characters-drop-like-flies-as-bear-market-turns-one" target="_blank" rel="noreferrer noopener">crypto downturn</a>,” according to Singh, has hurt the company by a smaller margin.



“We are seeing fewer people reporting crypto on their tax returns, mostly because there are a lot of losses this year,” Singh said. “However investors are generally unaware that filing losses on their tax returns benefits them in the long run, as losses can be used to offset gains in future years.”



Koinly representatives repeatedly deferred Blockworks’ multiple requests for comment ahead of a <a href="https://www.einnews.com/pr_news/605025390/cryptocurrency-startup-koinly-announces-layoffs-amid-crypto-freeze" target="_blank" rel="noreferrer noopener">press release</a> announcing the layoffs. Singh did not return a direct request for comment. 



Sources, who were granted anonymity to discuss sensitive business dealings, said the way the restructuring has been communicated is in line with how the company generally operates.&nbsp;



Former employees said they have yet to receive their final paycheck — adding they have no idea when that might happen.



“It is hard to know how many people have been let go over the past week/months as there has never been any communication either before or after,” one source said. “You only find out that someone has been fired when you go to message them and their [Slack] is no longer active or if someone else tells you.”



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Crypto Tax Startup Koinly Cuts Staffers Just in Time for Tax Season

Wall Street powerhouse investment bank Goldman Sachs has a strategic plan amid heavy damages caused to the crypto industry by FTX’s implosion on the back of Alameda Research’s insolvency.



A new breakdown of illiquid venture investments from the FTX-affiliated hedge fund, <a href="https://www.ft.com/content/aaa4a42c-efcc-4c60-9dc6-ba6cccb599e6" target="_blank" rel="noreferrer noopener">published</a> by the Financial Times, shows Alameda had hundreds of millions in tokens on its balance sheet, as well as extensive equity investments.



Arthur Cheong, founder of DeFiance Capital, expects “at least 50% discount for most of the assets on [Alameda’s] book,” he <a href="https://twitter.com/Arthur_0x/status/1600162137917181955" target="_blank" rel="noreferrer noopener">said on Twitter</a> Tuesday.



The combined investments of Three Arrows Capital and FTX/Alameda, Cheong says, cover “more than 70% of the top venture deals over [the] past 2 years,” and consequently, their sales in bankruptcy “will be the best reflection of the crypto venture market valuation post-FTX collapse.”



<a href="https://blockworks.co/tag/Goldman-Sachs" target="_blank" rel="noreferrer noopener">Goldman Sachs</a> wants to be the buyer or investor in distressed crypto companies whose valuations have been hit by an industry-wide downturn and the fall of FTX, <a href="https://www.reuters.com/technology/goldman-sachs-hunt-bargain-crypto-firms-after-ftx-fiasco-2022-12-06/" target="_blank" rel="noreferrer noopener">Reuters reported</a> on Tuesday.



Mathew McDermott, head of digital assets at Goldman, told Reuters that the collapse of one of the most prominent crypto exchanges strengthens the case for more reliable and regulatory crypto players — and banks see an opportunity to gain from it.&nbsp;



He didn’t mention which crypto firms are on the bank’s radar, but he said it’s currently conducting due diligence to evaluate the potential of various companies. According to McDermott, the targets are “priced much more sensibly.”



<h3>Bargain hunting</h3>



Waves from FTX’s bankruptcy are being felt across the crypto industry, leading to an extended series of layoffs that began earlier this year. The debacle has caused investors to rush and sell their positions, a sign of what experts believe signals a bottom.



McDermott acknowledged that the exchange’s overnight disintegration has set the market back, but the “underlying technology continues to perform.” Blockworks has reached out for comment.



Goldman Sachs has already funneled <a href="https://blockchainmagazine.net/top-5-investors-in-blockchain-firms-in-2022/" target="_blank" rel="noreferrer noopener">$690 million</a> in crypto and blockchain-based companies including CertiK, Coin Metrics, Blockdaemon, Elwood and <a href="https://blockworks.co/news/goldman-sachs-kkr-a16z-invest-350m-in-anchorage-digital" target="_blank" rel="noreferrer noopener">Anchorage Digital</a>. It also plans to build its own blockchain, McDermott said.&nbsp;



The investment bank <a href="https://blockworks.co/news/goldman-sachs-doubles-down-on-crypto-with-derivatives-trading-team" target="_blank" rel="noreferrer noopener">set up a crypto trading desk</a> in 2021 at a time when major institutions embraced adoption of digital assets. FTX’s rapid descent boosted Goldman’s trading volumes as investors looked for trustworthy counterparts, according to the executive.



It turns out that major companies are not put off by the industry’s woes and are, in fact, snapping up the chance to seize opportunities while investor sentiment is low.&nbsp;



BlackRock CEO Larry Fink recently <a href="https://www.bloomberg.com/news/articles/2022-11-30/fink-says-most-crypto-firms-will-die-off-following-ftx-implosion" target="_blank" rel="noreferrer noopener">said</a> he still sees the power of cryptocurrency’s underlying technology, despite the investment company losing millions from its investment in FTX.



Chao Cheng-Shorland, co-founder of blockchain software provider ShelterZoom, told Blockworks that Goldman’s move suggests it too sees enormous potential for financial profit and the expansion of its business.



“[Banks] can start a new era in both crypto and blockchain as a whole,” he said, adding, “It will no longer need to be an expensive undertaking and investors will have ample opportunity to find companies that are delivering a working product at more reasonable cost.”



Still, Cheng-Shorland said that banks owning crypto companies may undercut one of the major selling points for the space: decentralization.



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Goldman Sachs May Be Looking for Crypto Venture Bargains

Crypto platform Amber Group is reportedly laying off more people in a move that mirrors continued staff cuts across the space as the bear market trudges on.&nbsp;



The Singapore-based firm had cut between 5% and 10% of its headcount in 2022, <a href="https://www.bloomberg.com/news/articles/2022-09-09/crypto-trading-firm-amber-eliminated-as-much-as-10-of-its-staff?leadSource=uverify%20wall" target="_blank" rel="noreferrer noopener">Bloomberg reported</a> in September.&nbsp;



Now, the company has begun to lay off hundreds of people again this month, <a href="https://twitter.com/WuBlockchain/status/1600018582212988929" target="_blank" rel="noreferrer noopener">reporter Colin Wu tweeted late Monday</a>, citing former employees. Wu added that Amber Group has asked Chinese employees to work from home and clear their offices.



Amber Group reports having more than 1,000 institutional clients and $5 billion in assets on its platform. The firm <a href="https://twitter.com/ambergroup_io/status/1600101239294787584" target="_blank" rel="noreferrer noopener">said in a tweet</a> Tuesday that Amber Group and its <a href="https://www.whalefin.com/" target="_blank" rel="noreferrer noopener">WhaleFin app</a> were “business as usual,” but alluded to some changes amid tough market conditions.&nbsp;&nbsp;



“Weathering through market cycles, we have to constantly adjust and pivot our business strategies, product offerings, and, as a result, internal teams and functions,” Amber Group tweeted.



An Amber Group spokesperson did not immediately return a request for further comment.



Layoffs in the segment have persisted in the wake of crypto exchange <a href="https://blockworks.co/news/whats-next-for-ftx-and-its-customers-after-bankruptcy-filing" target="_blank" rel="noreferrer noopener">FTX filing for bankruptcy</a> last month. Bybit CEO Ben Zhou said in a series of Dec. 3 tweets that the company is set to downsize “across the board,” while Australian crypto exchange Swyftx revealed Monday that it cut 90 employees.



Amber Group said in <a href="https://twitter.com/ambergroup_io/status/1590382086514704390" target="_blank" rel="noreferrer noopener">a Nov. 9 tweet thread</a> — as the extent of FTX’s insolvency emerged — that the company had no exposure to Alameda Research, a firm also founded by former FTX CEO Sam Bankman-Fried, or FTX’s native token, FTT.&nbsp;



It did however note that it was an active trading participant on FTX and had withdrawals yet to be processed — accounting for less than 10% of Amber Group’s total trading capital.&nbsp;



“It does not pose a threat to our business operations or liquidity,” the company tweeted at the time.&nbsp;



The report comes after Amber Group co-founder Tiantian Kullander unexpectedly died in his sleep on Nov. 23, according to <a href="https://www.ambergroup.io/newsDetail?id=444&amp;source=In%20the%20News&amp;page=1" target="_blank" rel="noreferrer noopener">a company post</a>. He was 30.&nbsp;



Amber Group in February had <a href="https://blockworks.co/news/crypto-trading-platform-amber-group-eclipses-3b-valuation-with-latest-raise" target="_blank" rel="noreferrer noopener">raised an additional $200 million</a> as part of an extended Series B round led by Singaporean state holding company Temasek. The fundraise gave the company a valuation of about $3 billion.



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‘Business as Usual,’ Says Amber Group, Despite Reported Layoffs and Founder’s Death

Mark Chainlink Labs as the latest crypto company instituting layoffs and blaming the bear market — while lining up opportunistic new products.&nbsp;



The firm — which powers oracle solutions and related smart contracts tied into Chainlink’s blockchain ecosystem — laid off a “good chunk” of its sales staffers in recent weeks, according to a source familiar with the matter. A second source confirmed cuts took place, adding that the focus of the downsizing was around Chainlink Labs’ enterprise sales team, which predominantly deals with institutions.



Chainlink Labs’ unspecified number of cuts are the latest indicator of an emerging trend. It’s not new that digital asset-focused companies have been forced by the market to lay off staffers to preserve balance sheets. But such efforts have been increasingly concentrated on sales and marketing seats, including business development and investor relations roles.



The rationale: Potential institutional customers have been dropping like flies as formerly interested parties put their crypto dealings on pause in the <a href="https://blockworks.co/news/bankman-fried-puts-off-house-testimony-on-ftx" target="_blank" rel="noreferrer noopener">wake</a> of FTX’s bankruptcy. It’s hard to justify shelling out for an entire sales team, according to one source, when they “don’t really have anyone to call.”



A spokesperson for Chainlink Labs said the platform is still seeing “massive demand” for its core and emerging products — and largely declined to comment on the recent layoffs. Sources were granted anonymity to discuss sensitive business dealings.&nbsp;



“As we are constantly evaluating our business, we recently opted to shift some headcount investment from sales into product and engineering,” the spokesperson said. The startup is continuing to add to its overall headcount, the representative added. The company did make several <a href="https://blockworks.co/news/latest-in-crypto-hiring-chainlink-labs-binance-us-3iq-make-key-additions" target="_blank" rel="noreferrer noopener">key hires</a> earlier this year.&nbsp;



Indeed, Chainlink on Tuesday rolled out a <a href="https://chain.link/economics/staking" target="_blank" rel="noreferrer noopener">new staking mechanism</a> for holders of its token, LINK. The idea is to stake LINK tokens to power and execute on smart contracts that tie into Chainlink’s oracle solution. In digital assets, oracles strive, in part, to serve as a hub of sorts that connects different blockchains under the aim of guiding interoperability. 



Chainlink representatives dubbed the effort as ushering in a “new era of sustainable growth and security” for the protocol. The staking pool helps maintain Chainlink’s data-focused efforts between the dollar and ether, specifically —&nbsp;with staking participants being rewarded for monitoring lapses in the performance of the tool.



The staking pool, which is slated to be in beta testing for an unspecified period, is set to be initially capped at 25 million LINK token, good for 2.5% of the protocol’s circulating supply and about 5% of its total supply.



What exactly spurred the layoffs is not clear, but one source attributed the move to the downturn in broader cryptocurrency markets. And the cuts could have been even steeper. The source said there were internal, high-level conversations in recent weeks about parting ways with the entire institutional sales team.&nbsp;



That didn’t happen, the source said — and it appears a middle ground was found in terms of keeping higher-performing salespeople and parting ways with underperforming ones.&nbsp;



“If you have exposure to all of this, you have to cut somewhere,” the source said. “And, now, it’s always sales…They’re not essential [in a bear market].”



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Chainlink Adds Staking After Cutting Sales Staffers

Casey Wagner

ConsenSys has updated its privacy policy for two of its core products — MetaMask and Infura — in response to community pushback about <a href="https://blockworks.co/news/consensys-wants-your-ip-address-crypto-wallet-bank-account" target="_blank" rel="noreferrer noopener">how the company managed user data</a>. 



ConsenSys said that it will attempt to change its current system and only hold user wallet and IP addresses for one week. The company also noted that it currently does not store these two pieces of data together “or in a way that allows our systems to associate those two pieces of data.”&nbsp;



“We are working on narrowing retention to 7 days and we will append these retention policies to our privacy policy in an upcoming update,” ConsenSys wrote in a <a href="https://consensys.net/blog/news/consensys-data-retention-update/" target="_blank" rel="noreferrer noopener">blog post</a> Tuesday. “We have never and will never sell any user data we collect. We use data strictly in adherence with the use limitations described in our privacy policy.”



ConsenSys only collects wallet and IP addresses when users make a transaction, the company added.&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">We, as a community, have much work to do as we move towards fulfilling the promise of Web3: true ownership and privacy. We are committed to protecting the privacy of our users so that you will not, and ultimately, cannot, be exploited.&mdash; ConsenSys (@ConsenSys) <a href="https://twitter.com/ConsenSys/status/1600119550233956352?ref_src=twsrc%5Etfw">December 6, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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The update comes after users expressed concerns over ConsenSys’ last privacy update. In late November, the firm clarified to users that wallet and IP addresses were collected and stored, as is the standard for “how web architecture works generally,” ConsenSys wrote in the <a href="https://consensys.net/blog/news/privacy-policy-update/" target="_blank" rel="noreferrer noopener">update</a>.  



Users took to Twitter to <a href="https://twitter.com/heyOnuoha/status/1596874390893129729" target="_blank" rel="noreferrer noopener">express concerns</a> about data privacy and how the information was stored and used. 



“Policy has always stated that certain information is automatically collected about how users use our sites, and that this information may include IP addresses,&#8221; ConsenSys countered in its statement.&nbsp;



Other DeFi user interfaces also collect some user data. For instance, the developer of the largest decentralized exchange, Uniswap Labs, also <a href="https://uniswap.org/blog/commitment-to-privacy" target="_blank" rel="noreferrer noopener">revealed</a> in November that it collects information including device type, purchases and wallet transfers. Uniswap Labs noted in the update that it does not store “personal data, such as first name, last name, street address, date of birth, email address, or IP address,” however.



The difference is that the Uniswap protocol can be accessed directly <a href="https://uniswap.org/blog/ipfs-uniswap-interface" target="_blank" rel="noreferrer noopener">via other community-built interfaces</a>, whereas ConsenSys’ MetaMask team controls all updates to its wallet software and surrounding policies.



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ConsenSys Promises To Update Data Practices After Privacy Backlash

Smart contract insurance platforms Nexus Mutual and Sherlock will be taking losses in investments on DeFi credit pool Maple Finance.



Maple revealed earlier this week <a href="https://blockworks.co/news/orthogonal-hid-ftx-exposure" target="_blank" rel="noreferrer noopener">it is cutting ties to cryptocurrency trading firm Orthogonal Trading</a>, which misrepresented its financial position and exposure to FTX contagion and was unable to meet loan repayments to the platform’s M11 Credit USDC lending pool. 



M11 Credit also serves as pool delegate for a WETH lending pool with exposure to Orthogonal Trading, which includes ether supplied by the DeFi insurance protocol Nexus Mutual.



Nexus has initiated withdrawals from the M11 pool, but the company <a href="https://medium.com/nexus-mutual/update-on-nexus-mutuals-exposure-to-m11-credit-s-weth-lending-pool-on-maple-finance-2b7ca94af337" target="_blank" rel="noreferrer noopener">noted</a> in a blog post that the expected loss is estimated to be around 2,461 ETH or 1.5% to 2.6% of the protocol’s assets.



In August, the company deposited <a href="https://twitter.com/NexusMutual/status/1562092310162202627?s=20&amp;t=8JCkrAiPbhQXXh1e8PB34Q" target="_blank" rel="noreferrer noopener">15,348 ETH (around $19.4 millon)</a> into M11’s wETH pool after a <a href="https://app.nexusmutual.io/governance/view?proposalId=172" target="_blank" rel="noreferrer noopener">governance vote</a> which received 99% acceptance from community members, and some observers <a href="https://twitter.com/DeFiyst/status/1599814715919958017" target="_blank" rel="noreferrer noopener">speculate</a> the final loss may end up being worse.



Strangely, at the time, no snapshot vote was conducted, meaning the protocol went straight to “on-chain” votes before addressing community questions.



According to pseudonymous Twitter user <a href="https://twitter.com/DeFiyst/status/1599814715919958017">DeFi</a><a href="https://twitter.com/DeFiyst/status/1599814715919958017" target="_blank" rel="noreferrer noopener">y</a><a href="https://twitter.com/DeFiyst/status/1599814715919958017">st</a>, more than 69% of deposited ETH remains in the M11 wETH pool.



Orthogonal Trading makes up 17.6% of the M11 wETH pool’s loans and Auros, an algorithmic trading and market making firm <a href="https://twitter.com/Auros_global/status/1598346958934249474" target="_blank" rel="noreferrer noopener">which is also in trouble</a>, makes up 37.8% of the pool loans. 



Despite being given two loan repayment extensions, Auros has failed to cough up payments for a 2,400 wETH loan and a 6,000 wETH loan from the pool.&nbsp;



It is likely that the market making protocol has, too, been caught up in the FTX contagion.



<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">1/ Schrödinger&#39;s default. For close observers, one of DeFi&#39;s more active borrowers is in a precarious situation On <a href="https://twitter.com/ClearpoolFin?ref_src=twsrc%5Etfw">@ClearpoolFin</a> , <a href="https://twitter.com/Auros_global?ref_src=twsrc%5Etfw">@Auros_global</a> is 1) making only absolute min payments to avoid default 2) paying 22% to borrow 3) downgraded by <a href="https://twitter.com/CredoraPlatform?ref_src=twsrc%5Etfw">@CredoraPlatform</a> to a &quot;C&quot;. <a href="https://t.co/yTDEYDJ3fW">https://t.co/yTDEYDJ3fW</a>&mdash; 0xSuperTrooper (@0xSuperTrooper) <a href="https://twitter.com/0xSuperTrooper/status/1597389786712793089?ref_src=twsrc%5Etfw">November 29, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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If this is the case, the total M11 wETH pool loss amounts to an estimated 12,300 ETH, an implied loss of roughly $10 million for Nexus Mutual.



These losses, if realized, serve as a warning to ​​reputation-based lending moving forward, Blockworks Research analyst <a href="https://twitter.com/westiecapital/status/1599839185120075776" target="_blank" rel="noreferrer noopener">Ryan West</a> tweeted. 



“Loans need to be collateralized by assets or cash flow, and LTVs need to be calculated based on risk,” he said.



<h3>Sherlock staked funds to chase yield</h3>



Sherlock is a smart contract auditing platform with a twist: DeFi users interested in yield can stake USDC to insure protocols that the team has audited.



“Stakers take on the risk of payouts for protocols covered by Sherlock,” according to a Sherlock <a href="https://mirror.xyz/0xE400820f3D60d77a3EC8018d44366ed0d334f93C/eA5TBr5YzoIhNaviNZ3T8Mj4D7raHnY5gOl2IqdjDJA" target="_blank" rel="noreferrer noopener">blog post</a>. “Basically, protocol teams pay “premiums” to Sherlock in order to have the privilege to submit claims when a covered smart contract hack occurs in their protocol.”



Some of the estimated 10% APY yield, paid in USDC, was derived from Maple Finance “yield strategies.”



Among those strategies was exposure to the M11 Credit USDC pool and according to Sherlock co-founder Jack Sanford. Sherlock anticipates a loss of 4 million USDC as a result of the Orthogonal Trading default, representing about 35% of the staking pool, Sanford wrote on the project’s Discord Monday.



“I am truly sorry on behalf of Sherlock for the loss in the Maple pool,” Sanford wrote. “And I think Sherlock will need to take drastic action to create a better staking pool setup in the future, that doesn&#8217;t rely on competing with the highest APY of the day.”



Sherlock provides a <a href="https://app.sherlock.xyz/overview" target="_blank" rel="noreferrer noopener">dashboard</a> which shows the allocation of stakers USDC used to generate yield.



But some community members expressed frustration in the group’s Discord, arguing that the risks to their staked USDC were not made clear.



“Things were not clear to begin with, nor were any of the risks other than from being a staker in the smart contract insurance fund,” wrote one pseudonymous user in the group&#8217;s general channel.&nbsp;



Sanford noted, “Sherlock&#8217;s main focus is smart contract security risks.”



“Assessing the risks of CeFi institutions is not our strength. We trusted that M11 Credit was adept at this, but it was shown that they were not.”



Macauley Peterson contributed reporting.



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Nexus Mutual Loses Millions in Maple Finance Credit Pool

GameStop has let go of some employees — including staffers that built its first blockchain wallet — adding to sector-wide layoffs in recent weeks.



Several employees from the e-commerce product team and engineers were laid off, according to a <a href="https://www.linkedin.com/posts/daniel-williams-7b133b187_another-big-round-of-layoffs-from-gamestop-activity-7005557438238072833-ClAy/?utm_source=share&amp;utm_medium=member_desktop" target="_blank" rel="noreferrer noopener">LinkedIn post</a> by a lead software engineer at GameStop, Daniel Williams. The team building GameStop’s blockchain wallet was also impacted, <a href="https://www.axios.com/2022/12/05/gamestop-begins-layoff" target="_blank" rel="noreferrer noopener">Axios</a> reported. 



Brandon Jenniges, an iOS engineer working within the blockchain team, confirmed the development on Monday.



“Unfortunately I was impacted by layoffs at GameStop today,” Jenniges <a href="https://www.linkedin.com/in/bjenniges/recent-activity/" target="_blank" rel="noreferrer noopener">wrote</a> on LinkedIn.



“I had a great time getting a deep dive into Ethereum and learning about many new things in the crypto space.”



It isn’t clear how many lost their jobs overall, but at least six employees said on LinkedIn that they had been let go.&nbsp;



The most recent headcount reductions would mark the <a href="https://www.linkedin.com/posts/stephmm_work-at-customerio-activity-7005587400001282049-XAxs/?utm_source=share&amp;utm_medium=member_desktop" target="_blank" rel="noreferrer noopener">fourth round</a> of layoffs for the video game retailer in the last six months, according to a former GameStop employee.



CEO Matt Furlong reportedly notified staff about the layoffs via email, saying the company is “emerging from the rebuilding phase” of its transformation.&nbsp;



“We’ve recently completed several projects that were part of the initial phase of our transformation and enable the business to operate with increased efficiency,” Furlong wrote in the email, as reported by <a href="https://kotaku.com/gamestop-layoffs-meme-stock-crypto-blockchain-1849856122" target="_blank" rel="noreferrer noopener">Kotaku</a>. 



Furlong added that the company gained direction regarding the number of corporate staff required to achieve profitability and growth goals. The decision was made partly due to record-high inflation and “weakened consumer confidence” as a difficult job market weighs on sentiment.



“These two factors informed the decision that were taken across the organization,” he said. The email reportedly didn’t mention the degree of the job cuts. Blockworks has reached out for comment on the matter.



GameStop <a href="https://news.gamestop.com/news-releases/news-release-details/gamestop-launches-wallet-cryptocurrencies-and-nfts" target="_blank" rel="noreferrer noopener">launched</a> a self-custodial Ethereum digital wallet in May, allowing users to transact across decentralized apps and buy NFTs on its marketplace. The video game retailer had hired more than 20 people to run its NFT marketplace and set up crypto partnerships, according to the <a href="https://www.wsj.com/articles/gamestop-launches-digital-wallet-for-nfts-cryptocurrencies-11653313751" target="_blank" rel="noreferrer noopener">Wall Street Journal</a>.



GameStop’s share price is down about 32% so far this year, with shares priced at $25.44 at the time of publication. The company is set to report third quarter earnings on Dec. 7 after the close.



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GameStop’s Crypto Staff Axed in 4th Round of Layoffs

The Securities and Exchange Commission (SEC) and Ripple Labs exchanged their last legal barbs as they seek summary judgment in an ongoing case that could have wide-reaching ramifications over the definition of crypto as a security.



In their final briefs, both parties accused each other of misapplying US securities law. The case centers on allegations by the regulator that Ripple and its current and former executives conducted an illegal securities offering of XRP tokens almost a decade ago.



The SEC said in its <a href="https://www.scribd.com/document/612559871/SEC-Brief-Summary-Judgment" target="_blank" rel="noreferrer noopener">brief</a> Ripple did not dispute a number of facts including that the crypto firm’s offerings are considered “investment contracts” — a vehicle the SEC alleges Ripple used to raise $2 billion for itself. 



The agency has argued since 2020 that Ripple’s sale of XRP in 2013 was in direct violation of the Securities Act of 1933 and the Supreme Court’s ruling in SEC v. W.J. Howey Co — a longstanding court decision used to define what constitutes a security.



It also said that Ripple does not dispute claims it was an “enterprise” and that it did not separately manage the funds it had raised from investors but instead pooled those investments with a promise of a return — another major point in the interpretation of Howey.



“Defendants made an avalanche of public statements representing that they would take steps to ‘increase XRP’s value,’” the regulator said. “Partly because of Ripple’s ‘giant pile’ of XRP, potential and actual investors understood that Ripple was financially compelled to do just that.”



<h3>Ripple says none of the essential ingredients of Howey present</h3>



Ripple pushed back in its own <a href="https://www.scribd.com/document/612561228/Ripple-Brief-Summary-Judgment" target="_blank" rel="noreferrer noopener">brief</a> arguing the SEC cannot adequately demonstrate XRP was an offer or sale of an investment contract from 2013 until the time the SEC brought its case against the firm two years ago.



“This case turns on statutory interpretation: specifically, whether the SEC can misapply the statutory phrase ‘investment contract’ to cover transactions that have none of the essential ingredients,” Ripple said.



The firm said that in every case following the Howey ruling more than 75 years ago, the definition of a security involved one or more contracts imposing “post-sale rights” and obligations on the parties.



The regulator claims to have found certain cases where the “essential ingredients” of an investment contract discussed in Howey were not present, but the claims do not hold up to scrutiny, Ripple said.



The Howey test is defined as 1. An investment of money; 2. In a common enterprise; 3. A reasonable expectation of profit; 4. Derived from the efforts of others.



“Ultimately, the SEC cannot point to a single case finding an investment contract without the ‘essential ingredients’ identified in Howey, Ripple argued. “And it is undisputed that this case has none of them.”



<h3>The proof is in the pudding</h3>



In a response to the regulator’s filing on Friday, Delphi Lab’s general counsel Gabriel Shapiro said the SEC’s take on Howey case law would likely “win the day” because investment contracts under the law “are not, and do not” require the presence of legal contracts beginning with the issuer or promoter and the buyer.



<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 only we had courts stacked with originalist judges, Ripple&#39;s pre-1933-Act blue-sky-based case law arguments would be incredibly potent in the world we actually live in, I don&#39;t think they&#39;re going to carry the day&mdash; _gabrielShapir0 (@lex_node) <a href="https://twitter.com/lex_node/status/1599911399861411840?ref_src=twsrc%5Etfw">December 5, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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“If only we had courts stacked with originalist judges, Ripple&#8217;s pre-1933-Act blue-sky-based case law arguments would be incredibly potent,” Shapiro said.



Gabriel Shapiro is arguing the court is likely to agree with the SEC’s arguments, which have an “activist view” of the law.



Under this political framing, judges try to mold the existing text into today’s circumstances, Ian Corp, commercial litigator and crypto advisor at law firm Agentis told Blockworks in an email. Originalist judges, meanwhile, look at the plain text and apply the law as it is written.



When Howey was formed in the 1940s, investment contracts were done by hand. Today, the analysis has shifted more toward whether there is a relationship — not necessarily evidenced by a written contract — between a token issuer and an investor that meets the Howey test, Corp said.



“If the circumstances show that such a relationship exists under the Howey test then the token issuer is required to register with the SEC.”



If Ripple were to lose, XRP will be deemed a security which would set the precedent that tokens issued in a similar fashion are required to register with the SEC as well.



That would be a “considerably expensive cost to bear,” for future crypto firms Corp said.



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Ripple, SEC Final Briefs Provide Case Summary

Digital asset prices jumped to life Monday as bellwether crypto bitcoin found reprieve above $17,000, an area of contention that saw mild volatility oscillating around a key support line.



Bitcoin jumped to its highest point in more than 20 days above $17,400 dragging most crypto higher on intra-day trading before conceding all of its gains and finishing down 0.8% on the day.



The initial charge in crypto, egged on by Federal Reserve chair <a href="https://blockworks.co/news/powell-leans-hawkish-ahead-of-december" target="_blank" rel="noreferrer noopener">Jerome Powell’s</a> hint last week of slowing interest rate hikes this month, also did little to quiet concerns over traditional equities, which slid further on the day.



An initial rally that began to pick up steam towards the end of last month has been short-lived where major stock indices posted a peak around Nov. 30 and Dec. 1 before giving up most gains on the back of the Fed’s interest rate flag.



The Dow Jones Industrial Average shed 1.4%, to 33947 while the Nasdaq Composite also dropped 1.9%, closing at 11239, Tradingview data shows. The S&amp;P500 also fell 1.8% to 3998.



Most digital assets over a 24-hour period traded in the red Monday down between 1% and 3%, a mild showing by comparison. Axie Inifinity’s native crypto, AXS, saw the largest gains among projects with a market capitalization above $1 billion — climbing 29% on the day.



It would appear, at least in the short term, the decoupling of crypto assets&#8217; correlation to tech stocks is waning as volatility in the market begins to slow following FTX’s collapse.



Bitcoin’s 30-day correlation coefficient to the tech-heavy ETF known as the Qs fell to its lowest level in more than <a href="https://blockworks.co/news/bitcoin-qqq-correlation-dips-to-new-low" target="_blank" rel="noreferrer noopener">three years</a> — hinting at a further divergence in the relationship between traditional equities and crypto.



Still, Zhong Yang Chan, CoinGecko’s Head of Research told Blockworks via Telegram the challenging macroeconomic environment of high inflation, lower consumer spending and a risk-off attitude generally meant future volatility couldn’t be ruled out.



“Bitcoin seems to have found a support level post-FTX collapse at around $16,000,” Chan said. “The Fed’s latest announcement on potentially moderating interest rate hikes has provided some respite, but may also be a precursor to holding interest rates high for a longer period of time.”



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Bitcoin Price Holds $17k as Tech Stock Index Slips

Ornella Hernandez

Miami Art Week and its cornerstone art fair Art Basel have been gathering art lovers and collectors to Miami for two decades, but 2022 is the second year that the tech and crypto community took over the city during the first week of December.&nbsp;


<div class="wp-block-image">
<figure class="alignright size-medium"><img loading="lazy" width="300" height="225" src="https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-300x225.jpg" alt="" class="wp-image-41242" srcset="https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-300x225.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-1024x768.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-768x576.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-1536x1152.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-2048x1536.jpg 2048w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-343x257.jpg 343w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-348x261.jpg 348w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-292x219.jpg 292w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-80x60.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8209-50x38.jpg 50w" sizes="(max-width: 300px) 100vw, 300px" /><figcaption>Blue-chip NFT project Doodles built a nine-hole mini-putt course | Photo by Ornella Hernandez</figcaption></figure></div>


Blue-chip NFT project Doodles built a nine-hole mini-putt course and Yuga Labs donated CryptoPunk #305 to the Institute of Contemporary Art Miami to display in the museum through the end of the year. 



Here is a look at some of the top events that occurred last week in Miami, with a focus on those connected to Web3 and the growth of digital art inside the art sector.&nbsp;



<h3>The argument for large conferences</h3>



Programming was anchored by various crypto conferences such as DCENTRAL and the WEB3 Summit during the day and brand sponsored social events in the evening.



However, overall attendance at speaker panels and fireside chats that were simultaneously scheduled across town meant smaller audiences with lots of empty seats. People can only make it to so many events in one given day amid Miami traffic.



This begs the question — what is the value of large scale crypto conferences, if any, at a time when the crypto industry is dealing with fallout after fallout? 



Blockworks spoke with Jason Hartgrave, head of marketing at DCentral Conferences, on site. He admitted that DCentral had a much larger footprint last year — approximately 5,000 showed up — compared to this year’s 3,000 attendees.



This year was particularly “pivotal,” Hartgrave said because more people have already learned about NFTs and blockchain technology, so there are more artists and builders. Now it&#8217;s about “separating the wheat from the chaff — who is still really building?”


<div class="wp-block-image">
<figure class="alignright size-medium"><img loading="lazy" width="300" height="225" src="https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-300x225.jpg" alt="" class="wp-image-41244" srcset="https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-300x225.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-1024x768.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-768x576.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-1536x1152.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-2048x1536.jpg 2048w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-343x257.jpg 343w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-348x261.jpg 348w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-292x219.jpg 292w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-80x60.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/12/IMG_8143-50x38.jpg 50w" sizes="(max-width: 300px) 100vw, 300px" /><figcaption>Miami Art Week event featuring NFTs | Photo by Ornella Hernandez</figcaption></figure></div>


According to Hartgrave, conferences can act as “melting pots of crypto culture” and have the potential to create an “industry mastermind effect” by getting hardcore builders and business leaders together – whether to make connections or form strategic partnerships.



He also admitted that “a lot of budgets are very tight right now,” so “if you see somebody in a sponsor booth, it&#8217;s because they really believe in the long-term value of the community.”&nbsp;



“You want to see who is here when the chips are down,” Hartgrave added.



While there was no lack of big events and DJ parties, John Kraski, the director of strategic partnerships at LandVault, believes that smaller, targeted events by major brands were the winners of Basel.



“This was where most of the big deals were getting done,” Kraski said. Alo Yoga, the athleisure wear brand, for example, had an installation where executives from the biggest Web2 and Web3 were getting deals done over facials, massages and B12 shots.



He added that he felt a more “professional and polished” tone to Web3 and NFT related events compared to Art Week last year.&nbsp;



“The so-called degen superheroes of 2021 who built their fame and fortune on selling and buying overpriced NFT cartoons were not as prevalent,” Kraski said.&nbsp;



<h3>Generative art takes center stage</h3>



Art Basel fair visitors at the Miami Beach Convention Center not only got their fill of contemporary art but they also could learn about generative art — digital works made by algorithms that randomly generate content.&nbsp;



Proof-of-stake blockchain Tezos held an NFT exhibit titled “Performance in Code: Deciphering Value in Generative Art Exhibition” at Art Basel. It featured collections by three different artists, and attendees could mint a generative art NTF in real time from one of those collections via the Tezos-backed fxhash NFT marketplace and Kukai wallet.



Tezos, which also had a booth at Art Basel in 2021, went from having to define an NFT to visitors last year to introducing generative art as the “art form of the era,” according to Baptiste Crespy, founder of fxhash.



<blockquote class="wp-block-quote">“All the big art movements are tied to the technology at the time. The current era is embodied by humans interacting with computers,” Crespy said.</blockquote>



The purpose of the exhibit is to make tools, such as crypto wallets, available to everyone and to act as a pipeline between non-blockchain native audiences,” he added.



Generative art NFTs may not necessarily have utility or a roadmap for its holders, and rarity is subjective to a particular community.&nbsp;&nbsp;



“We’re here for the art,” Paul Schmidt, a member of the core fxhash team, said.



While generative art has been around since the fifties, not many people may be familiar with it because “the only way you learn about it is in an old science textbook where it&#8217;s completely static and you don&#8217;t actually engage with the technology,” according to Valerie Whitacre, the head of art at TriliTech, the research and development arm of Tezos.&nbsp;&nbsp;



Whitacre believes that the blockchain can be used by artists not just for making new work, but to preserve or archive artwork over time.&nbsp;



“There&#8217;s a dialogue between the artists and the collector, and we used the live mint as an anchor of the exhibit so everyone can walk away with a piece,” she added.



<h3>Support for NFT artists</h3>



Miami provided a unique backdrop to the Art Week festivities — from pastel-colored art deco venues lining the shores of Miami Beach to humidity and unannounced rain showers to crowds decked in eye-catching, vibrantly colored fashion looks.



The city also acted as a setting for the crypto and Web3 community “to just come together and celebrate the best of what we&#8217;re building,” Maya Draisin, chief brand officer at TIME magazine, told Blockworks.&nbsp;



“I think it was really needed for the community at this moment in time,” Draisin said, referring to a post-FTX world that continues to deal with the consequences.&nbsp;



On the same day that <a href="https://blockworks.co/news/sbf-new-york-times" target="_blank" rel="noreferrer noopener">Sam Bankman-Fried was interviewed at The New York Times DealBook Summit</a>, TIME <a href="https://twitter.com/TIMEPieces/status/1599855919273103361?s=20&amp;t=GqfejAg3Joxsx4MkE6c48w" target="_blank" rel="noreferrer noopener">hosted</a> a dinner for its TIMEPieces NFT artist community.&nbsp;&nbsp;&nbsp;



“When there&#8217;s so much going on, we just want real connection and to bring people together to build, grow, highlight and support them,” Draisin added.&nbsp;



TIMEPieces also set up an exhibit at a local gallery to physically showcase the work of some of the artists they support.



Earlier this year, <a href="https://blockworks.co/news/miami-collabs-with-time-mastercard-salesforce-to-sell-5k-nfts" target="_blank" rel="noreferrer noopener">TIMEPieces partnered with the city of Miami</a>, Mastercard and Salesforce to create a collection of 5,000 NFTs designed by 56 local artists.



Draisin will succeed Keith Grossman as the president of TIME magazine effective Dec. 31. Grossman announced last week that he will move to crypto payment provider MoonPay to <a href="https://blockworks.co/news/latest-in-crypto-moonpay-hire" target="_blank" rel="noreferrer noopener">lead its enterprise business</a>.



While the crypto market may be down, Miami Art Week served to demonstrate the staying power of digital art, NFTs and the blockchain community.



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Web3 Watch: Miami Art Week, but Make It Crypto

As Circle <a href="https://blockworks.co/news/circle-kills-spac-plans" target="_blank" rel="noreferrer noopener">reevaluates its plans to go public</a>, USD Coin has been quietly losing stablecoin market share to competitors Tether and Binance USD over the past six months. 



Circle currently holds about 31% of the total market share for stablecoins, down from 37% six months ago, according to data compiled by <a href="https://www.blockworksresearch.com/data?category=stablecoins&amp;chart=stablecoin-market-share" target="_blank" rel="noreferrer noopener">Blockworks Research</a>. 



Tether currently holds around 47% of stablecoin market share, while Binance has about 16%. Both Tether and Binance have taken over more of the market share in the past six months, with Binance USD gaining around 4.5% and Tether increasing its market share by around 1%.&nbsp;



“That may be one reason why Circle had been in a rush to go public, if underlying trends below the surface — market share loss vs. overall stablecoin market share as a percent of crypto has been steadily rising — are less positive,” Rich Falk-Wallace, CEO of Arcana Analytics, said.&nbsp;



The switch-up in market share is in part due to issuer location and how they interact with the broader market, Falk-Wallace said.&nbsp;



“It&#8217;s related to offshore versus onshore market share in that Binance and other offshore centralized exchanges are taking share versus DeFi, which is where USDC has relatively greater exposure,” he added.&nbsp;



Based on Uniswap trading volumes, which can give a general look into total DeFi activity, DeFi trading volumes are down around 30% more than CeFi trading volumes over the past six months, Falk-Wallace said.&nbsp;



“Centralized exchanges don&#8217;t have huge USDC volumes, [but] some CeFi exchanges have very large Tether volumes,” Falk-Wallace said. “USDC&#8217;s low use in centralized exchanges may be because it is owned by a JV with Coinbase, so there&#8217;s a competitive angle to Binance, for example, not using USDC, versus Binance&#8217;s very large BTC-USDT and BTC-BUSD markets, which trade around $2 billion to $4 billion per day.”&nbsp;



Binance recently transitioned stablecoin balances held on the exchange to <a href="https://blockworks.co/news/binance-to-rename-all-stablecoin-holdings-to-busd" target="_blank" rel="noreferrer noopener">BUSD as a default</a> and allows withdrawals of various stablecoins across multiple blockchain networks.



USDC is <a href="https://blockworks.co/news/usdc-is-coming-to-cosmos-in-2023" target="_blank" rel="noreferrer noopener">expanding to more networks</a> but for now remains concentrated on Ethereum, where about 77% of the circulating supply is held compared to 40% of the USDT supply. Around 46% of USDT is held on the layer-1 chain Tron, Falk-Wallace said, with the network serving as a low-cost conduit to sling tether back and forth between exchanges.



“Ethereum total value locked has declined meaningfully, while Tron total value locked has actually done well,” he added. Total value locked (TVL) on Ethereum has declined by roughly 75% over the past year, although still six times larger than Tron’s TVL which has remained range bound between about $4 billion and $6 billion <a href="https://defillama.com/chain/Tron" target="_blank" rel="noreferrer noopener">according to DeFi Llama</a>. 



On a backdrop of declining market share, Circle, which announced it was <a href="https://blockworks.co/news/circle-kills-spac-plans" target="_blank" rel="noreferrer noopener">killing its SPAC plans</a> on Monday, said it is still determined to become a publicly traded company in the future. The third quarter of 2022 marked the company’s first profitable quarter, the issuer also said. 



“We are disappointed the proposed transaction timed out, however, becoming a public company remains part of Circle’s core strategy to enhance trust and transparency, which has never been more important,” Circle CEO Jeremy Allaire said in a <a href="https://www.prnewswire.com/news-releases/circle-and-concord-acquisition-corp-mutually-agree-to-terminate-proposed-business-combination-301694560.html?tc=eml_cleartime" target="_blank" rel="noreferrer noopener">statement</a>.



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Circle To Stay Private for Now as Rivals Gain Market Share

Silvergate’s customer deposits are safe, according to the cryptocurrency bank, which added that the company has “a resilient balance sheet and ample liquidity.”



In a letter addressed to shareholders, CEO Alan Lane said Monday that Silvergate’s “entire investment securities portfolio” can be used as collateral for additional lines of credit, if needed — and could “ultimately be sold should we need to generate liquidity to satisfy customer withdrawal request.”



<a href="https://www.linkedin.com/pulse/our-commitment-risk-management-compliance-silvergate-bank/?trackingId=OeqWKqJPQN%2B1oOqfZH73YA%3D%3D" target="_blank" rel="noreferrer noopener">The letter</a> came as Silvergate’s stock sank about 8.5% Monday after Morgan Stanley downgraded its shares to “underweight” from equal weight, according to a <a href="https://www.coindesk.com/business/2022/12/05/crypto-bank-silvergate-cut-to-underweight-at-morgan-stanley-following-ftx-collapse/" target="_blank" rel="noreferrer noopener">CoinDesk report</a>.



Morgan Stanley analysts estimated Silvergate digital deposits are down 60% so far in the fourth quarter versus the quarter prior. The bank faces pressure on net interest margins and net interest income, analysts, as it needs to fund outflows via securities sales and wholesale borrowing.



A Morgan Stanley spokesperson did not immediately return a request for comment, and a Silvergate spokesperson declined to comment beyond the chief executive’s letter.&nbsp;



California-based Silvergate is a federally regulated bank that has been working with institutional investors in digital assets since 2013. Its real-time payments platform — the Silvergate Exchange Network (SEN) — handled $112.6 billion in US dollar transfers <a href="https://blockworks.co/news/silvergate-shares-crash-more-than-20-on-earnings-miss-stablecoin-launch-delay" target="_blank" rel="noreferrer noopener">during the third quarter</a> — a 41% decrease from the prior quarter.



The stock, down about 53% in the past month, has been heavily weighed upon — along with its peers — following the collapse of crypto exchange FTX.&nbsp;



Lane said in the letter that speculation and misinformation abounded as the FTX saga unraveled, adding that Silvergate did extensive due diligence on FTX and Alameda Research.&nbsp;



“When Silvergate received payments directed to Alameda Research and credited it to the account of the same name, this was consistent with the instructions from the sender of the wire and industry practice,” Lane said.&nbsp;



If the bank detects unexpected or concerning activity, he added, it is investigated and a suspicious activity report may be filed.



<h3>Other analysts more bullish on Silvergate&nbsp;</h3>



BTIG analyst Mark Palmer told Blockworks via an email Monday that he remains bullish on Silvergate.&nbsp;



“While we expect [fourth quarter] deposits to decline sequentially in the aftermath of the FTX episode, we continue to believe the Silvergate Exchange Network offers a unique value proposition to its crypto-focused clients by enhancing their capital efficiency and we expect it to remain relevant going forward,” he said.&nbsp;



David Rochester, an analyst at Compass Point Research and Trading, reiterated the firm’s buy rating of Silvergate in a Dec. 1 research note, but lowered its price target from $50 to $40.



The stock’s price hovered around $24 as markets closed Monday.&nbsp;



“While we still view [Silvergate] as a buy over the next year, we acknowledge the greater likelihood of continued near-term stock price volatility as the extent of the current contagion from the FTX bankruptcy comes to light,” Rochester said. “But our expected base case remains that recent market disruption eventually subsides, and such stabilization could support stable digital deposit levels beyond the impact of the recent market turmoil, which should drive share price outperformance from current levels.”



<h3>A timeline of Silvergate’s status since the FTX chaos&nbsp;</h3>



Silvergate’s stock plunged 23% on Nov. 8 — the day Binance CEO Changpeng ‘CZ’ Zhao tweeted that the exchange was considering buying FTX “amid a liquidity crunch.”&nbsp;



Binance soon backed out of the potential deal, and FTX filed for bankruptcy on Nov. 11. That day, Silvergate CEO Alan Lane said in a statement that the company’s relationship with FTX was limited to deposits.



Silvergate’s total deposits from all digital asset customers totaled $11.9 billion, as of Sept. 30, and FTX represented less than 10% of those.



Lane added that week that the company uses its balance sheet to “provide liquidity for our clients while maintaining a strong capital position in excess of the well-capitalized status required by federal banking regulations.”



Palmer repeated his buy rating of Silvergate in a Nov. 15 research note, saying that the stock price’s decrease was driven in part by some assertions critical of the company on social media.&nbsp;&nbsp;



“Such statements demonstrated a lack of understanding of SI’s status as a regulated bank, the particulars of its balance sheet, and the mechanics of the Silvergate Exchange Network (SEN) and the SEN Leverage platform,” he said.



Around the same time, institutional crypto trading platform FalconX said <a href="https://blockworks.co/news/falconx-drops-bank-silvergate" target="_blank" rel="noreferrer noopener">it wouldn’t route transfers through Silvergate</a> out of an “abundance of caution.” A FalconX spokesperson later told Blockworks that Silvergate settlements were set to be reinstated.



In a Nov. 16 <a href="https://www.businesswire.com/news/home/20221116006033/en" target="_blank" rel="noreferrer noopener">press release</a>, Silvergate said its deposits stood at $9.8 billion, which excludes deposits by FTX and its affiliates. The company added its SEN network continues to operate and was processing $1.9 billion in daily volume quarter-to-date, compared to $1.2 billion in the prior quarter.



“Silvergate, and its entire banking platform, were purpose-built to withstand periods of market volatility,” a spokesperson told Blockworks at the time.



<a href="https://blockworks.co/news/crypto-bank-silvergate-says-blockfi-exposure-limited-to-20m" target="_blank" rel="noreferrer noopener">Silvergate said last week</a> its exposure to BlockFi, which <a href="https://blockworks.co/news/blockfi-files-for-bankruptcy" target="_blank" rel="noreferrer noopener">filed for bankruptcy</a>, amounted to less than $20 million in customer deposits, as of Nov. 28. The crypto bank added that it had no investments in BlockFi.



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Silvergate CEO: Crypto Bank Has ‘Ample Liquidity’

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