Shalini Nagarajan

<div id="highlights-block_62e0efdd5cd6d" class="highlights">
 <ul>
 <li>Terraform’s co-founder and former vice president have been issued travel ban notices</li>
 <li>Co-founder Shin Hyun-seung’s residence was raided by prosecutors last week</li>
 </ul>
 
</div>



Do Kwon, the now-infamous founder of the <a href="https://cms.blockworks.co/tag/terrausd/" target="_blank" rel="noreferrer noopener">TerraUSD</a> and Luna cryptocurrencies, along with his associates, are faced with escalating scrutiny from Korean prosecutors over their travel in and out of the country.



A crime investigation team looking into fraud allegations against Terraform Labs has requested the Ministry of Justice to mandate a “notification upon arrival” for Do Kwon’s entry into the country, local outlet <a href="https://www.donga.com/news/article/all/20220727/114671594/1" target="_blank" rel="noreferrer noopener">Dong-A Ilbo</a> reported Wednesday. Such a measure is taken to alert the investigative team to the entry of an individual.



Do Kwon is believed to be living in Singapore, but prosecutors haven’t publicly revealed details of their findings into his whereabouts.&nbsp;



The Seoul Southern District Prosecutor’s Joint Financial and Securities Crime Investigation Team also issued a travel ban notice against Terraform’s co-founder Shin Hyun-seong and former Vice President Kim Mo, the report said. Shin’s residence was <a href="https://www.donga.com/news/Society/article/all/20220721/114577223/1" target="_blank" rel="noreferrer noopener">reportedly</a> raided by prosecutors last week.



The move follows an <a href="https://cms.blockworks.co/7-south-korean-crypto-exchanges-raided-in-connection-with-terrausd-crash-report/" target="_blank" rel="noreferrer noopener">extensive investigation</a> into Terraform Labs, whose algorithmic stablecoin TerraUSD’s (UST) collapse wiped off $40 billion of investors’ wealth. The investigation began in May after UST dramatically <a href="https://cms.blockworks.co/podcast-how-did-ust-collapse-jordi-alexander-mika-honkasalo/" target="_blank" rel="noreferrer noopener">lost its peg</a> to the US dollar. UST and Luna’s prices plunged by 91% and 99.7% respectively between May 7 and May 12, and never recouped losses.



“There were no bugs in Terra Luna,” Kyle Downey, CEO of Cloudwall, said in a webinar on Tuesday.



<blockquote class="wp-block-quote">“This was an economic or an incentive design issue, rather than necessarily a technical issue.”</blockquote>



Last month, key Terraform developers were blocked from leaving the country in order to allow for an orderly investigation. More recently, <a href="https://cms.blockworks.co/7-south-korean-crypto-exchanges-raided-in-connection-with-terrausd-crash-report/" target="_blank" rel="noreferrer noopener">seven other crypto exchanges</a> in Korea were under investigation for alleged links to Terraform. Transaction records and other documents were seized from the offices of Upbit, Bithumb and Coinone on July 20.



Terraform, Do Kwon and a string of other firms including Three Arrows Capital are facing a <a href="https://cms.blockworks.co/class-action-suit-accuses-terraform-labs-of-deceiving-investors/" target="_blank" rel="noreferrer noopener">class-action lawsuit</a> in the US that accuses them of leading retail investors to purchase Terra tokens at “inflated” prices.



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Do Kwon Dogged by Fraud Allegations in South Korea

Ben Strack

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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<hr class="wp-block-separator">

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

Michael Bodley

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>
</div></figure>



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

Bessie Liu

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>
</div></figure>



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

Sebastian Sinclair

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>
</div></figure>



“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’

Jeff Garzik

The recent <a href="https://blockworks.co/news/ftx-bankrupt-hacked-investigated-a-timeline-of-events" target="_blank" rel="noreferrer noopener">revelations</a> surrounding cryptocurrency exchange FTX and its Siamese twin Alameda Research strongly indicated that CEO Sam Bankman-Fried and regulators had a common target in their sights — DeFi. 



I remain concerned that regulators and institutions will lump DeFi with its more centralized counterparts — the latter describing a category that includes exchanges like FTX, <a href="https://blockworks.co/news/7-critical-events-in-the-celsius-bankruptcy-case" target="_blank" rel="noreferrer noopener">crypto lender Celsius</a> and others that bring conventional organizational structures and familiar user interfaces to crypto. 



DeFi, on the other hand, greatly reduces the points of failure and has proven itself remarkably resilient. The differences matter. In the rush to “<a href="https://www.wsj.com/articles/regulate-crypto-or-itll-take-down-the-economy-fraud-reporting-know-your-customer-loophole-energy-disclosure-ftx-bankman-fried-ftx-11669123750" target="_blank" rel="noreferrer noopener">do something</a>,” careless conflation and inattention to nuance will most certainly leave everyone worse off — with bad policy, stunted innovation and a more fragile financial system. 



<h3>Making the rules</h3>



Most participants in crypto <a href="https://blockworks.co/news/sec-under-gensler-crypto-power-grab-effective-protection" target="_blank" rel="noreferrer noopener">aren’t anti-regulation so much as anti-arbitrariness</a>. They like their rules — and rulemaking — clear, open, narrow, reliable and consistent.



In contrast, SBF undertook <a href="https://www.bloomberg.com/opinion/articles/2022-11-09/ftx-s-unraveling-may-allow-defi-to-grow#xj4y7vzkg" target="_blank" rel="noreferrer noopener">no small amount of effort</a> to guide the government toward broad regulation that would have been hostile to DeFi. Exploiting the tendency to confuse visibility with leadership, SBF even earned <a href="https://www.foxbusiness.com/markets/sec-chairman-gary-gensler-met-with-head-ftx-months-before-collapse" target="_blank" rel="noreferrer noopener">a much-coveted meeting</a> with SEC Chair Gary Gensler where, it is alleged, discussion of an SEC-approved centralized crypto trading platform took place. 



As FTX was founded just over three years ago, it’s difficult to remember any other company that reached for — let alone so firmly grasped — the lever of regulatory capture quite so early in its history. With powerful, centralizing forces in the public and private sectors operating in closed-door environments, a near-perfect inversion of DeFi’s values took place.&nbsp;



<h3>DeFi means transparency and reliability&nbsp;</h3>



With crypto’s basic technologies, we are able to publish indelible transaction data and unstoppable software. The data is publicly available on consensus-managed general ledger that is highly tamper-resistant, with its records becoming more secure over time as the blockchain grows.



The smart contracts run unerringly as designed once published, with the code free to inspect. That’s why a heavy investment in <a href="https://twitter.com/VesperFi/status/1577711800807821312" target="_blank" rel="noreferrer noopener">independent audits</a> is vital. 



Now, consider these benefits apart from their controversial, misunderstood category — cryptocurrency writ large, and DeFi in particular. When done soberly, it’s hard to imagine why any regulator or auditor would actively work to discourage examination and adoption of such technologies.



<h3>All bugs, technical and financial, are shallow&nbsp;</h3>



They say that with enough eyeballs, all bugs are shallow — that is, easy to bring to light and remedy. This is true of both software code and financial fraud. For those reasons, it would be far more difficult to execute an FTX-like fraud within a DeFi environment. At the very least, it would be caught by humans or code well before an eleven-figure crater formed. 



That’s because smart contracts do not bend or break rules. You cannot spoof balances. Reserves are viewable and provable. All activity is 100% transparent. Any type of lending or otherwise collateralized position can and will be liquidated if it becomes unhealthy. Further, if any DeFi project wants to engage in <a href="https://www.nansen.ai/research/blockchain-analysis-the-collapse-of-alameda-and-ftx" target="_blank" rel="noreferrer noopener">rampant self-dealing</a> in an FTX/Alameda-like scenario, its code would have to be 100% transparent about this intention. 



Notably, Alameda and FTX did partake in some DeFi activity…and those loans were repaid, in full, precisely because the code saw FTX as just another user. No handshakes. No special deals. Just code.



While DeFi’s critics may often point to high-profile “rug pulls,” these events speak to the relatively small, freewheeling “degen” culture and a brand-new market’s predictable level of bad behavior than it does DeFi itself. <a href="https://blockworks.co/news/what-comes-next-for-terra-ecosystem" target="_blank" rel="noreferrer noopener">Last May’s high-profile case of Terra/LUNA</a>, a failure often laid at the feet of “DeFi,” involved a project that lacked transparency and possessed financial controls only slightly worse than FTX. Still more “DeFi hacks” can be attributed to improper code audits or <a href="https://blockworks.co/news/cross-chain-bridge-thefts-top-1b-in-2022" target="_blank" rel="noreferrer noopener">flaws in bridges</a>, or connective infrastructure between projects. All things being equal, if we evaluate the best of DeFi with the best in conventional finance and centralized crypto services such as FTX, DeFi wins on the basis of transparency and reliability. 



<h3>DeFi’s way forward</h3>



“Only a crisis — actual or perceived — produces real change,” wrote economist Milton Friedman in an introduction to Capitalism &amp; Freedom. “When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” Friedman was talking about political ideas and, frankly, that’s <a href="https://www.wsj.com/articles/regulate-crypto-or-itll-take-down-the-economy-fraud-reporting-know-your-customer-loophole-energy-disclosure-ftx-bankman-fried-ftx-11669123750" target="_blank" rel="noreferrer noopener">the very last place we should look for solutions</a>.



Conversely, politicians and regulators should look to the best of DeFi for its promising technologies, highly mature projects, thriving proofs-of-concept, and provable early success.&nbsp;



We are working toward a future where it is impossible for humans to corrupt finance. Setting aside passions and prejudice, we welcome a discussion with lawmakers and institutions on the way to a better and more transparent future. 



Jeff Garzik is the CEO and co-founder of <a href="https://bloq.com/" target="_blank" rel="noreferrer noopener">Bloq</a> and the co-founder of DeFi platform <a href="https://vesper.finance/" target="_blank" rel="noreferrer noopener">Vesper Finance</a>. He was one of the earliest volunteer developers for Bitcoin.



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DeFi Should Transcend Power, Promotion and Politics

Maple Finance has cut ties with Orthogonal Trading after it said the company was “operating while effectively insolvent” and accrued liabilities of more than $30 million.&nbsp;



Orthogonal Trading had mischaracterized its financial position to M11 Credit&#8217;s pool over the last four weeks before saying on Saturday that it was unable to meet loan repayments, according to M11 Credit and Maple Finance. 



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<blockquote class="twitter-tweet" data-width="550" data-dnt="true">We believe that Orthogonal Trading purposefully misstated their exposure and has therefore severely breached contractual agreements. 2/3&mdash; M11 Credit (@M11Credit) <a href="https://twitter.com/M11Credit/status/1599765439831162880?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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A Maple spokesperson told Blockworks that there were no signs of the insolvency, noting that financials in recent weeks were “misrepresented” and principal payments gave the appearance of solvency.



“Misrepresentation like this is in violation of Maple’s agreements and all appropriate legal avenues to recover funds will be pursued including arbitration or litigation as necessary,” Maple said in a statement Monday.&nbsp;



Pool delegates on Maple’s platform are responsible for managing due diligence on borrowers and are consistently exploring ways in which assets can be further verified, a spokesperson added.



An Orthogonal Trading spokesperson did not immediately return a request for comment.&nbsp;



Orthogonal Trading&#8217;s current liabilities are $31 million across four loans in the M11 Credit USDC pool. M11 Credit has restructured the loan book and closed many loans early, according to Maple.



Orthogonal Credit, which operates separately from Orthogonal Trading, said in a <a href="https://medium.com/@orthogonal_trading/statement-from-the-orthogonal-credit-team-december-5th-2022-1b0ba93335ab" target="_blank" rel="noreferrer noopener">blog post</a> it had no knowledge of the latter entity misrepresenting its exposure to FTX and its inability to repay an outstanding loan in the pool that matured on Sunday.&nbsp;



“Orthogonal Credit has no insight to or influence over the market making and trading activities undertaken by the trading business,” the firm wrote. “In light of this development, the credit team is actively seeking strategic solutions to continue to provide credit-as-a-service across self-custodial decentralized finance protocols.”



Maple <a href="https://www.maple.finance/" target="_blank" rel="noreferrer noopener">aggregates</a> capital on behalf of large borrowers. Founded in May 2021, Maple <a href="https://blockworks.co/news/maple-finance-originates-1b-of-loans-in-10-months" target="_blank" rel="noreferrer noopener">hit $1 billion in loans in its first 10 months</a> and has now issued more than $1.9 billion in loans, according to its website. Total deposits are now roughly $125 million.&nbsp;



The several lending pools managed by distinct pool delegates are siloed to prevent activities in one pool from impacting others, a spokesperson told Blockworks.



Crypto investment firm M11 Credit <a href="https://blockworks.co/news/maple-finance-launches-40m-lending-pool" target="_blank" rel="noreferrer noopener">revealed the launch of a $40 million institutional lending pool</a> on Maple in August — its third on the platform.



Orthogonal Credit maintains a separate “Orthogonal Trading — USDC01” pool, which, despite its name, does not contain loans to the Orthogonal trading arm.



Orthogonal Credit wrote in its Monday blog post that assets in the USDC01 pool are protected by Maple’s smart contract infrastructure and separate from Orthogonal Trading. The pool’s three active loans are to Portofino Technologies AG, a financial infrastructure technology company incorporated in Switzerland, Wintermute Trading Limited, a major market maker, and Reliz Ltd., a Maltese marketing agency.



“We do not anticipate any impact to lenders in the pool as all loans remain active with no current signs of distress,” according to Orthogonal Credit. “Loan repayments will be made over the coming months with all available cash being used to facilitate withdrawal requests from the pool.”



Orthogonal Credit did not immediately return a request for further comment.&nbsp;



<h3>A product of FTX contagion</h3>



The news comes as the crash of crypto exchange FTX continues to send ripple effects through the crypto ecosystem.&nbsp;



Maple said in <a href="https://maple.finance/news/update-from-maple-and-delegates-regarding-alameda-and-ftx/" target="_blank" rel="noreferrer noopener">a statement on Nov. 9</a> — two days before <a href="https://blockworks.co/news/whats-next-for-ftx-and-its-customers-after-bankruptcy-filing" target="_blank" rel="noreferrer noopener">FTX filed for bankruptcy</a> — that borrower exposure to FTX and its native token, FTT, was limited.



A week later, Maple reported that while the past six months had “stress-tested” borrowers on the platform, many remained well-capitalized and able to withstand shocks.&nbsp;&nbsp;



“Maple and delegates anticipate that borrowers will service their loans as expected,” the company said at the time.&nbsp;



Still, pool delegates de-risked to avoid “second-order” impacts of the FTX collapse, Maple added. A total of 37 loans to 12 borrowers totaling $227 million from the week prior had been reduced to 24 loans to 10 borrowers, totalling $129 million.



While many risk mitigations are built into the Maple platform, the contagion in this instance was difficult to avoid, Maple said.&nbsp;



Any fees generated in this pool ahead of its expected closure in the first quarter of 2023 are set to go toward recovering funds for lenders in the M11 Credit pool.



Maple’s MPL token was down about 24% in the past 24 hours, as of 12:15 pm ET Monday.



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Maple Finance Says Orthogonal Hid FTX Exposure

Jon Rice

Nexo, a digital assets platform which offers lending services and an exchange, said it will gradually phase out US operations as a direct result of a “dead end” in its attempts to gain clarity from US regulators.



In a statement, Nexo claimed it had engaged in “more than 18 months of good-faith dialogue with US state and federal regulators” — but, despite “rhetoric to the contrary,” it could not reassure customers that “regulators are focused on their best interests.”



Starting Tuesday, the company added, its flagship interest-bearing investment products will no longer be available to existing clients in eight more states: Indiana, Kentucky, Maryland, Oklahoma, South Carolina, Wisconsin, California and Washington. The yield-bearing offering had already ceased operations in New York and Vermont.



Lending platforms in the US have been under scrutiny by state regulators, especially following the collapse of <a href="https://blockworks.co/news/7-critical-events-in-the-celsius-bankruptcy-case" target="_blank" rel="noreferrer noopener">Celsius</a> and <a href="https://blockworks.co/news/qa-restructuring-expert-talks-voyager-bankruptcy" target="_blank" rel="noreferrer noopener">Voyager</a>. When Coinbase attempted to launch a lending program in 2021, the SEC issued a Wells notice — which informs the recipient that it intends to sue in court. Coinbase subsequently abandoned the Lend effort, with a terse note explaining the SEC decision: &#8220;We don’t know why.&#8221;



Nexo noted in its update that it took a variety of actions over the last couple of years to attempt to stay in compliance with US regulations, including registering its token sale with the SEC, exiting New York markets, and refusing new funds from US customers into its Earn Interest product when BlockFi — another crypto lender that recently <a href="https://blockworks.co/news/blockfi-bankruptcy-highlights" target="_blank" rel="noreferrer noopener">sought bankruptcy protection</a> — was ordered to undertake similar action, in February 2022.



Multiple crypto companies and mainstream finance stalwarts have expressed their frustration that US regulations remain unclear. At Money20/20 in October 2022 , May Zabaneh — the VP of PayPal&#8217;s blockchain and cryptocurrency division — said that &#8220;There has to be some clarity that comes out, some standards, some ideas of the dos and the don&#8217;ts and some structure around it&#8230; otherwise that mainstream adoption will really be inhibited.&#8221; 



Brad Garlinghouse of Ripple <a href="https://www.cnbc.com/2021/04/30/ripple-ceo-says-the-us-lacks-regulatory-clarity-on-cryptocurrency.html" target="_blank" rel="noreferrer noopener">told</a> CNBC last year that although in &#8220;markets like Singapore and even parts of Korea where there really has been a thoughtful government-led effort to define and have clear regulatory frameworks around cryptocurrencies&#8230; Ironically, here in the United States they have not provided that same clarity.&#8221;



Paul Grewal, the Chief Legal Officer at Coinbase, explained in a <a href="https://www.coinbase.com/blog/the-sec-has-told-us-it-wants-to-sue-us-over-lend-we-have-no-idea-why" target="_blank" rel="noreferrer noopener">blog</a> post referencing their doomed Lend product that &#8220;After our initial meeting, we answered all of the SEC’s questions in writing and then again in person. But we didn’t get much of a response. The SEC told us they consider Lend to involve a security, but wouldn’t say why or how they’d reached that conclusion.&#8221;



Blockworks has reached out to Nexo for comment.



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Nexo Crypto Lending Platform To Cease US Operations

November’s combined NFT sales volume across the five top marketplaces clocked roughly $394 million, the lowest recorded this year.&nbsp;



Data provided by DappRadar and compiled by NFT gaming platform Balthazar DAO show volume across OpenSea, Magic Eden, X2Y2, LooksRare and Solanart dipped more than 20% collectively compared to the previous month of October.&nbsp;



November <a href="https://bltzr.gg/balthazar-nft-marketplace-update/" target="_blank" rel="noreferrer noopener">extended</a> the declining trend as the demise of major exchange FTX shook faith in digital assets at the beginning of the month, which also rocked spot market prices.



Marketplaces were chosen based on the highest all-time volume recorded, Balthazar said. Representatives for all five marketplaces did not immediately respond to requests for comment.



Magic Eden, the only outlier of the five recorded platforms and Solana’s largest marketplace, managed to ride out the turmoil with a 60.9% increase in sales volume month over month.



“Blue-chip Solana-based NFT projects, including DeGods and y00ts, have seen positive price appreciation for the year, spotlighting the faith that traders and investors have in this sector of the NFT market,” an analyst at Zerocap told Blockworks.



Interestingly, the less popular Solana-based NFT marketplace, Solanart, was the worst affected among the top five — declining 93% from $6.25 million in October to just <a href="https://dappradar.com/solana/marketplaces/solanart" target="_blank" rel="noreferrer noopener">$410,000</a> by November.



While sales overall have been on the decline, John Stefanidis, Balthazar’s CEO and co-founder, remains upbeat on the nascent technology, which took off in earnest toward the end of last year.



“What we&#8217;ve seen is obviously a decline in sales largely for…images and art, but what we’re starting to see is really cool and different applications of NFTs,” he said in a statement.



Macroeconomic factors including rising interest rates, contracting disposable incomes and market volatility were affecting people’s decisions to wait for future NFT use cases, which ultimately translated into fewer sales, Stefanidis added.



The shift in market sentiment since a historic rise in late 2021 and early 2022 — where the value of the entire NFT sector sat around <a href="https://blog.chainalysis.com/reports/chainalysis-web3-report-preview-nfts/" target="_blank" rel="noreferrer noopener">$40 billion</a> — has also impacted the market share of some of its biggest players.



<h2>Who’s who in the NFT zoo</h2>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img loading="lazy" width="570" height="300" src="https://cms.blockworks.co/wp-content/uploads/2022/12/NFT-November-2022-Sales-Volume.jpg" alt="" class="wp-image-41166" srcset="https://cms.blockworks.co/wp-content/uploads/2022/12/NFT-November-2022-Sales-Volume.jpg 570w, https://cms.blockworks.co/wp-content/uploads/2022/12/NFT-November-2022-Sales-Volume-300x158.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/12/NFT-November-2022-Sales-Volume-428x225.jpg 428w, https://cms.blockworks.co/wp-content/uploads/2022/12/NFT-November-2022-Sales-Volume-470x247.jpg 470w, https://cms.blockworks.co/wp-content/uploads/2022/12/NFT-November-2022-Sales-Volume-389x205.jpg 389w, https://cms.blockworks.co/wp-content/uploads/2022/12/NFT-November-2022-Sales-Volume-80x42.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/12/NFT-November-2022-Sales-Volume-50x26.jpg 50w" sizes="(max-width: 570px) 100vw, 570px" /><figcaption>Source: Balthazar, DappRadar</figcaption></figure></div>


Marketplace OpenSea, which had thrived on the success of its early mover advantage, witnessed a 1.6 percentage point decline in its market share for November when compared to the prior month. It still commands a dominant lead at 44%, DappRadar and Balthazar data shows.



Magic Eden and LooksRare, meanwhile, snatched up 12.1 and 2.5 percentage points respectively to increase their share of November’s sales volume.



To kick off December, unique active wallets engaging with all five platforms have also dipped considerably. OpenSea has witnessed a 47% decline in user activity while Magic Eden is down about 12.5% in the first days of the month.&nbsp;



Solanart’s UAW has dipped 25% in the previous four days, while LooksRare and X2Y2 have dropped 41% and 64% respectively, representing a slow start to the last month of the year.



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NFT Sales Volume Drops 20% in November

Liquidators appointed to oversee Three Arrows Capital’s bankruptcy said the crypto hedge fund’s co-founders Su Zhu and Kyle Davies are still not cooperating for information, forcing them to investigate and recreate records on their own.



They’re instead providing extensive interviews to media outlets, said liquidator Russell Crumpler. He highlighted conversations with <a href="https://www.bloomberg.com/news/articles/2022-07-22/three-arrows-founders-en-route-to-dubai-describe-ltcm-moment" target="_blank" rel="noreferrer noopener">Bloomberg</a> and <a href="https://www.cnbc.com/video/2022/11/16/three-arrows-capitals-kyle-davies-blasts-ftx-over-the-collapse-of-the-crypto-hedge-fund.html" target="_blank" rel="noreferrer noopener">CNBC</a> in a <a href="https://pacer-documents.s3.amazonaws.com/115/312810/126022478737.pdf" target="_blank" rel="noreferrer noopener">presentation</a> to the bankruptcy court on Friday.



The presentation also included screenshots of tweets posted by Zhu and Davies, made in reference to FTX’s collapse. These were used to indicate both are open to talking publicly, but not to court-appointed liquidators.



Davies appears to have a different version of the story, saying in a <a href="https://twitter.com/KyleLDavies/status/1598964000556953600" target="_blank" rel="noreferrer noopener">tweet</a> on Saturday that the firm’s liquidators refused to engage them “constructively.”



“We invite the liquidators to engage us positively, constructively, and without threats. That would be in the best interest of creditors,” he added.



Liquidators have so far taken over assets worth $35 million in fiat currencies and seized some $2.7 million from forced investment redemptions. They have also taken control of several exchange accounts, over 60 types of digital tokens. The recovered tokens are being held in a custody account under the liquidators’ control.



A more tangible item in liquidators’ crosshairs is the $30 million from the sale of <a href="https://twitter.com/jenwieczner/status/1559185722405711872" target="_blank" rel="noreferrer noopener">the “Much Wow” super yacht</a>, which was allegedly purchased using borrowed funds from 3AC.



Accounts identified by the liquidators showed multiple transfers were made from the fund to pay for the super yacht. But the shipbuilder ultimately terminated the contract because the final amounts owed weren’t paid, and it was resold. Proceeds from the sale are with the shipbuilder but will be redistributed to the Cayman Islands entity, also called “Much Wow,” to which it was registered.&nbsp;



Zhu and Davies have so far communicated with liquidators only twice via teleconference, according to the presentation.&nbsp;



“Founders’ limited cooperation has led to only cursory disclosures of assets and certain agreements,” they said, adding that there has been no complete transfer of records despite a protocol being agreed upon.



Counsel from the law firm representing 3AC’s co-founders didn’t return Blockworks request for comment by press time.



At the time 3AC filed for bankruptcy, the location of either co-founder wasn’t known. It still remains that way, but liquidators alleged in the presentation that they may either be in Bali or the United Arab Emirates — two areas where it’s difficult to impose foreign court orders.&nbsp;



A Singapore high court has ordered the co-founders to cooperate and provide all books, papers or other records in their possession within a week.



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3AC Liquidators File $30M Claim for ‘Much Wow’ Super Yacht

In a “mutual decision,” Circle and its planned special purpose acquisition company (SPAC) partner Concord have pulled the plug on plans to go public, the companies said Monday.&nbsp;



The SEC had not granted Circle and Concord approval to move forward. The approval process, while lengthy, is essential, according to Circle CEO Jeremy Allaire. Concord tapped its SPAC division, Concord Acquisition Corp., for the deal.&nbsp;



“From my perspective, I believe that the SEC has been rigorous and thorough in understanding our business and many novel aspects of this industry,” Allaire wrote in a <a href="https://twitter.com/jerallaire/status/1599755838566338560?s=20&amp;t=FPRkU_goqGA8VH5lz3a5Ag" target="_blank" rel="noreferrer noopener">tweet</a> Monday. “This kind of review is necessary to ultimately provide trust, transparency and accountability for major companies in crypto.”



Circle, which first revealed its SPAC ambitions in July 2021, delayed its plans twice — before canceling them all together. The most recent deferral came just last month, when the stablecoin issuer said the deal would be pushed to January 2023, according to an <a href="https://www.sec.gov/Archives/edgar/data/1824301/000121390022066194/ea167444-pre14a_concord.htm" target="_blank" rel="noreferrer noopener">SEC filing</a>.&nbsp;



“We are disappointed the proposed transaction timed out, however, becoming a public company remains part of Circle&#8217;s core strategy to enhance trust and transparency, which has never been more important,&#8221; 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>.



Circle is now profitable, closing the third quarter of 2023 with a net income of $43 million — the “best financial position” the company has ever been in, Allaire said.&nbsp;



The delay comes as stablecoins continue to <a href="https://blockworks.co/news/stablecoin-regulation-ramps-up-across-the-globe-with-new-bis-guidance" target="_blank" rel="noreferrer noopener">attract interest</a> from regulators, although the recent blow-up of <a href="https://blockworks.co/news/bankman-fried-puts-off-house-testimony-on-ftx" target="_blank" rel="noreferrer noopener">offshore exchange FTX</a> has dominated the conversation around crypto rules in recent weeks.&nbsp;



“The recent market disruptions, while costly for many, were not systemic events,” Jon Cunliffe, chair of the CPMI and deputy governor for financial stability at the Bank of England, said in a July <a href="https://www.bis.org/press/p220713.htm" target="_blank" rel="noreferrer noopener">statement</a>, presumably referring to the depegging of algorithmic stablecoin UST in May.



“Such events could become systemic in the future, especially given the strong growth in these markets and the increasing linkages between crypto assets and with traditional finance,” Cunliffe added.



Showing proof of reserves — likely to be a key component of any stablecoin legislation that is passed in the US — is a transparency move Circle has leaned into. The issuer released its first monthly report for USDC reserve assets in 2018. 



Learn more: <a href="https://blockworks.co/news/what-are-proof-of-reserves-and-can-they-build-back-trust" target="_blank" rel="noreferrer noopener">What Is Proof of Reserves and Can It Build Back Trust?</a>



“As policy and regulatory requirements evolve and as better reporting opportunities arise, we intend to adjust our approach and continue to enhance transparency into our operations to give the market even more confidence,” the company <a href="https://www.circle.com/blog/new-levels-of-detail-in-the-monthly-usdc-attestation" target="_blank" rel="noreferrer noopener">said</a> at the time.



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In Post-FTX World, Circle Kills SPAC Plans

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DeFi

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