Casey Wagner

<div id="highlights-block_61f05d508f12d" class="highlights">
 <ul>
 <li>IMF executive directors are uncertain about El Salvador’s future </li>
 <li>Bitcoin presents risks to financial stability and security, the IMF said </li>
 </ul>
 
</div>



The International Monetary Fund (IMF) is urging El Salvador to remove bitcoin’s status as legal tender, just four months after the Central American country <a href="https://cms.blockworks.co/el-salvador-buys-550-bitcoins-officially-adopts-the-crypto-as-legal-tender/" target="_blank" rel="noreferrer noopener">adopted</a> the cryptocurrency.&nbsp;



Bitcoin poses significant risks to financial stability and consumer protection, IMF executive directors said in their <a href="https://www.imf.org/en/News/Articles/2022/01/25/pr2213-el-salvador-imf-executive-board-concludes-2021-article-iv-consultation" target="_blank" rel="noreferrer noopener">concluding statement</a> on El Salvador’s Article IV consultation.&nbsp;



“[Directors] stressed that there are large risks associated with the use of bitcoin,” the statement read. “They urged the authorities to narrow the scope of the bitcoin law by removing bitcoin’s legal tender status.”&nbsp;



There also needs to be greater regulatory oversight of Chivo, El Salvador’s bitcoin wallet designed to be used for transactions in the digital currency, the IMF said.&nbsp;



<blockquote class="wp-block-quote">“The statement on bitcoin and Chivo shows this is too close to de-dollarization for comfort,” said Nathalie Marshik, head of emerging markets sovereign research at Stifel Financial Corp. “The tone of the statement is quite negative.”&nbsp;</blockquote>



Reviews of El Salvador’s bitcoin experiment are mixed, <a href="https://cms.blockworks.co/fraud-funding-woes-and-a-president-who-wont-quit-el-salvadors-bitcoin-experiment/" target="_blank" rel="noreferrer noopener">Blockworks previously reported</a>, with some observers viewing the move as a progressive step toward financial inclusion and others claiming it’s an irresponsible gamble.



The IMF projects that El Salvador’s fiscal deficit will reach 5.75% of gross domestic product (GDP) in 2021 and about 5% of GDP in 2022, according to the statement. Public debt is also anticipated to rise to about 96% of GDP in 2026. Given the circumstances, El Salvador is on an “unsustainable path,” the IMF said. 



“The IMF forecasts a primary balance for 2022 yet says the debt is unsustainable under current policies,” said Marshik. “El Salvador needs a 3% of GDP adjustment to get the debt to a sustainable level.”



Primary balance, the fiscal balance adjusted for net interest payment on public debt, is a key indicator for determining a government’s ability to meet obligations without taking on additional loans. The IMF predicts a 0.0 primary balance for 2022, up from its 2021 balance of -1.1.&nbsp;&nbsp;



El Salvador has an $800 million Eurobond, a debt instrument issued in an external currency, maturing in January 2023. Marshik predicts that the country will be fine, financially, through the first half of 2022, but after that it will be up in the air.&nbsp;



Based on statements from El Salvador President Nayib Bukele, who regularly <a href="https://twitter.com/nayibbukele/status/1484651539587289091?s=20" target="_blank" rel="noreferrer noopener">Tweets</a> when he makes bitcoin purchases on behalf of the country, El Salvador holds at least 1,801 bitcoins. Given the recent market sell-off, it is likely the country has lost money on its bitcoin investment, assuming that none of its holdings have been sold.&nbsp;



Article IV consultations are annual assessments conducted by the IMF on all members. During the evaluation, IMF officials visit the country to assess economic developments and discuss policy with the country’s central bank.

IMF Asks El Salvador to Remove Bitcoin’s Legal-Tender Status

Macauley Peterson

Decentralized Web3 infrastructure provider Ankr sought to reassure its community Friday with an initial response to the <a href="https://blockworks.co/news/binance-chain-apps-5m-hack" target="_blank" rel="noreferrer noopener">theft of at least $5.5 million</a> from BNB Chain liquidity pools and money markets. 



The team confirmed that Ankr’s other products — including validators, RPC nodes, and AppChain services — were not affected. That will come as a relief to holders of Ankr’s other larger staking derivatives, notably aETHc — Ankr staked ether — which carries a market cap of about $68 million.



<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">Update on our aBNB Token Exploit: We are grateful to our community of DEXs, exchanges, and protocols that all helped us end the exploit quickly. We will use reserves to compensate liquidity providers for the aBNBc pools.<a href="https://t.co/B2yNWBAQdX">https://t.co/B2yNWBAQdX</a>&mdash; Ankr (@ankr) <a href="https://twitter.com/ankr/status/1598768146088742912?ref_src=twsrc%5Etfw">December 2, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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The attacker minted a total of 60 trillion aBNBc across 6 different transactions. The thief then used the minted, but unbacked tokens to drain liquidity from decentralized exchanges on the BNB Chain. After turning around and buying the depressed aBNBc the attacker was able to raid borrowing and lending protocol Helio by withdrawing $16 million in HAY, the protocol’s custom stablecoin and swapping it for $15.5 million BUSD, the Binance stablecoin issued by Paxos.



Prior to the exploit, Helio had $90 million in Total Value Locked, <a href="https://defillama.com/protocol/helio-protocol" target="_blank" rel="noreferrer noopener">according to DeFiLlama</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">1/ The team at Helio Protocol is aware of the situation and we are closely working with <a href="https://twitter.com/ankr?ref_src=twsrc%5Etfw">@Ankr</a> to manage the situation and to support our community during this difficult time.&mdash; Helio Protocol ($HAY) 🔶 (@Helio_Money) <a href="https://twitter.com/Helio_Money/status/1598710451285598208?ref_src=twsrc%5Etfw">December 2, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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“Hacks and exploits from bad actors like this are an unfortunate possibility in Web3, even with every attention to detail in security processes — but we were well prepared,” Co-Founder &amp; CEO Chandler Song, said in <a href="https://www.ankr.com/blog/the-abnbc-token-report/" target="_blank" rel="noreferrer noopener">a statement</a>.



A recommended “action plan” explained how users of aBNBc can be compensated through a new ankrBNB token that will be minted and airdropped based on a pre-exploit snapshot of on-chain data.



While the attack apparently stems from malicious use of the private key for the aBNBc smart contract deployer, it&#8217;s unclear exactly how the key was compromised. Industry <a href="https://blog.openzeppelin.com/protect-your-users-with-smart-contract-timelocks/" target="_blank" rel="noreferrer noopener">best practices call for</a> multisignature wallets and timelocks on upgradeable smart contracts, to prevent this type of attack.



Representatives from Ankr did not respond to Blockworks request for comment.



Other providers of liquid staked BNB such as pSTAKE <a href="https://twitter.com/pSTAKE_stkBNB/status/1598540733044359168" target="_blank" rel="noreferrer noopener">use multisigs</a> to protect sensitive contracts, and restrict access to token minting functions, while fully decentralized dapps such as Uniswap on Ethereum are not upgradeable at all.



The full extent of the collateral damage is not yet clear, but the Ankr <a href="https://twitter.com/ankr/status/1598803911443468289" target="_blank" rel="noreferrer noopener">expressed the intent</a> to resolve losses incurred by customers of related DeFi dapps.



For example, Ankr will cover bad debt incurred by Helio Protocol, pending the outcome of ongoing discussions, <a href="https://twitter.com/Helio_Money/status/1598710457711198208" target="_blank" rel="noreferrer noopener">according to</a> the latter’s official Twitter account.



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Ankr Exploit Causes Collateral Damage

Michael Bodley

As if a prolonged bankruptcy wasn’t enough, court documents show the story of defunct crypto lender Celsius has a new wrinkle: scammers impersonating lawyers involved in its Chapter 11 proceedings.



The attempted scams are the latest headache for Celsius, which halted withdrawals and related customer activities in July, <a href="https://celsiusnetwork.medium.com/a-memo-to-the-celsius-community-59532a06ecc6" target="_blank" rel="noreferrer noopener">citing</a> “extreme market conditions.”&nbsp;



“Our ultimate objective is stabilizing liquidity and restoring withdrawals, [swaps], and transfers between accounts as quickly as possible,” the company wrote in a blog post at the time. “There is a lot of work ahead as we consider various options, this process will take time, and there may be delays.”



In its latest setback, attorneys for Celsius said in court filings earlier this week that a number of unidentified would-be nefarious actors have been reaching out to its creditors, posing as Kirkland &amp; Ellis attorneys. The attempts, largely carried out over email, seem to have been intended to persuade customers — whose accounts have been frozen for months — to hand over sensitive information in a bid to gain access to their accounts.&nbsp;&nbsp;



The emails included links to shared spreadsheets, where recipients were told to share their personal information. The industry publication Law360 first <a href="https://www.law360.com/articles/1554186" target="_blank" rel="noreferrer noopener">reported</a> the news of the attempted scams. It’s not clear if any of those efforts were successful, at least in the eyes of the hackers.



<h3>Prime Trust settlement moves ahead — with a twist</h3>



But it’s not all doom and gloom for Celsius. A proposed settlement with Prime Trust — the crypto custodian that agreed to give back to the bankrupt company about $17 million of its assets — is moving along.&nbsp;



That was just a start, according to court records reviewed by Blockworks. An amended settlement proposal found that Prime Trust also owes Celsius 7.4 bitcoins, 1,145.5 CEL tokens, 248.5 ether and about $364,000 of the stablecoin USDC.



The assets, which should be incoming if both parties agree to the settlement along with the bankruptcy court, would not fill the role Celsius is in — hundreds of millions of dollars deep. But every bit moves the needle incrementally in terms of recouping funds for customers-turned-creditors — whom Celsius has always maintained are its top priority.&nbsp;



A spokesperson for Celsius did not return a request for comment, and a spokesperson for Prime Trust declined to comment, citing the unsettled litigation.



In the meantime, visitors to Celsius’ website receive a pop-up informing them of the pending bankruptcy — and pointing out the obvious: It’s no longer business as usual — with a link to another site set up specifically to disseminate information about the proceedings.&nbsp;



The defunct digital asset lenders’ <a href="https://celsius.network/careers" target="_blank" rel="noreferrer noopener">careers page</a>, however, still says Celsius has “open positions in every department” and is “growing rapidly.”



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Celsius Gets Cash Infusion From Prime Trust as Scammers Target Customers

Rocky crypto markets have not deterred Point72 Asset Management’s push into the sector.&nbsp;



The multi-strategy hedge and venture fund firm has added two senior professionals to its maturing crypto team, according to two sources familiar with the matter.



Michael Ashby, formerly chief operating officer of outsourced trading firm Meraki Advisors, joined Point72 this week. Ashby, based in New York, holds the title of head of digital assets strategic implementation. 



And Terence Schofield — who last spent time at digital asset-focused investment manager Pantera Capital as chief operating officer — started as Point72’s head of digital assets technology at the end of September.&nbsp;



Ashby, a longtime traditional finance pro, takes on a senior role that includes operations, especially working to build out the needed crypto trading infrastructure with input from a number of existing divisions.&nbsp;



Ashby reports directly to the firm’s chief financial officer, while Schofield reports directly to Point72’s chief technology officer — one indicator of the value Point72 has placed on its developing digital asset foray.



<h3>Pointing the way</h3>



Ashby’s post involves coordinating non-investment efforts, including between middle- and back-office teams that handle administrative and infrastructure functions for traders. He would also play a role in any hiring efforts. Part of his mandate is to tap into the existing rails that guide the multi-strategy fund operator’s existing processes.&nbsp;



The thinking is to avoid having to start entirely from scratch when it comes to digital assets and to conserve the capital costs of setting up a system for investing in cryptoassets — which is typically quite costly and time consuming.



For his part, Schofield has been tasked with overseeing the creation and development of the crypto division’s computer-driven models for digital assets, as well as playing a role in how trades are executed. It’s a position that additionally requires working with counterparties outside the firm, such as exchanges and related market-makers.



In addition to Pantera, Schofield’s resume includes stints at Cargill and Lake Hill Capital in c-suite technology roles. Like Ashby — who led the charge to build out the crypto dealings of his former employer, Meraki — Schofield’s longtime traditional finance expertise appears to have been attractive to his new firm.&nbsp;



Ashby, who also has experience in business development, has also worked for Thunderbird Partners and Ziff Brothers Investment.&nbsp;



The source categorized both hires as “not a stretch” or a gamble for the firm, but ones that seem to make strategic sense, adding that the operation could have turned to more crypto-native professionals — but didn’t.



<blockquote class="wp-block-quote">“Look at who they’re hiring,” the source said. “It adds up. This is a safe play. They know TradFi. And they know crypto.”</blockquote>



Point72, run by founder Steve Cohen, has so far traded only fairly vanilla crypto trust products, such as Grayscale’s GBTC, and related derivatives — its traders have yet to dabble in spot cryptocurrencies or more exotic products.&nbsp;



That said, <a href="https://blockworks.co/news/point72-asset-management-in-early-innings-of-big-crypto-push" target="_blank" rel="noreferrer noopener">Blockworks reported in July</a> that the firm was in the “early innings” of a “big crypto push,” according to a source familiar with the matter, including a search for two senior digital asset professionals — now revealed to be Ashby and Schofield.



Cohen has personally given input on his firm’s push into crypto, according to a second source, which started with Point72’s venture capital arm snapping up a series of stakes in startups in the sector. The hedge fund billionaire is also in the process of <a href="https://blockworks.co/news/steve-cohen-building-out-crypto-investment-firm" target="_blank" rel="noreferrer noopener">setting up</a> a separate entity — one not involving Ashby and Schofield — to exclusively trade digital assets.&nbsp;



The Point72 chief — who also maintains exposures to the asset class via his multibillion-dollar family office — tapped a reformed hacker with deep crypto ties, known as <a href="https://blockworks.co/news/steve-cohen-taps-hacker-acidphreak-as-first-trader-for-crypto-startup" target="_blank" rel="noreferrer noopener">Acidphreak</a>, as the new company’s first trader.



A spokesperson for Point72 and Cohen declined to comment.



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It’s a Bear Market, but Point72 Is Still Hiring Crypto Pros

Bessie Liu

Uniswap community governance is going to be voting on whether it will pilot a “fee switch” on select pools in its decentralized cryptocurrency exchange.



An <a href="https://blockworks.co/news/uniswaps-proposed-fee-switch-would-cut-into-liquidity-provider-payouts" target="_blank" rel="noreferrer noopener">initial proposal</a> was put forward in July this year, which wanted to begin collecting fees on a small set of Uniswap liquidity pools. Follow-up votes the DAO refers to as “temperature check” and “consensus check” were soon held and the proposal passed, but many Uniswap community members voiced a preference for more time to research and understand the proposal before the final vote. 



Now, almost six months after the idea was first introduced, the Uniswap community will <a href="https://gov.uniswap.org/t/fee-switch-pilot-update-vote/19514" target="_blank" rel="noreferrer noopener">finally hold a binding vote</a> on whether they move ahead with implementation of the fee switch.



The <a href="https://gov.uniswap.org/t/fee-switch-pilot-update-vote/19514" target="_blank" rel="noreferrer noopener">proposal</a> which community members will be voting on presents an opportunity for Uniswap to test the parameters in selected liquidity pools, this includes 0.05% of DAI-ETH, 0.3% of ETH-USDT and 1% of USDC-ETH.



A 10% fee would be applied to that percentage of the selected pools, the minimum value permitted by the code — Uniswap’s underlying smart contracts were immutable the moment they were deployed.



It is important to note that turning on the fee switch will not affect users using the protocol to swap directly, but rather will retain a small amount of what is currently being paid out to liquidity providers. It’s possible the modestly lower fees to those who supply liquidity will serve as a disincentive — precisely what the DAO aims to test.



The pilot will be considered a success if trading volume and market depth for the select pools are not diminished after the fee switch is executed.



Voting will go live in the next 14 day after technical due diligence of proposal is reviewed by its authors. UNI token holders <a href="https://boardroom.io/uniswap/overview" target="_blank" rel="noreferrer noopener">will then have 7 days</a> to cast their vote, followed — if passed — by a 2-day time lock before automatic execution.



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Uniswap ‘Fee Switch’ Finally Gets an On-chain Vote

Shalini Nagarajan

Sam Bankman-Fried, who turned from crypto billionaire to villain nearly overnight, sat for back-to-back interviews this week with appearances at the New York Times DealBook symposium and on Good Morning America.



Observers have drawn comparisons with Bernie Madoff, the Wall Street financier turned Ponzi scheme kingpin, who pleaded guilty to 11 federal crimes. And wewly-appointed FTX CEO John Ray III says FTX’s disintegration is <a href="https://blockworks.co/news/ftx-bankruptcy-like-enron">worse than Enron</a>, the energy company that went down as the largest accounting scandal in recent history. 



Crypto Twitter has dragged mainstream media for massaging Bankman-Fried&#8217;s image instead of asking truly tough questions, although Andrew Sorkin was widely thought to have given him a harder time than most. So, here’s a choice selection of Bankman-Fried corkers to get your blood boiling.



<ol><li>‘Got a little cocky’</li></ol>



Bankman-Fried has echoed several of his comments across interviews, but he was smug enough to admit that he may have been overconfident about the potential of his business.



“I think I got a little cocky — I mean, more than a little bit,” he told <a href="https://edition.cnn.com/2022/12/01/business/sbf-interview-gma/index.html">ABC’s George Stephanopoulous</a> on Good Morning America.



<ol start="2"><li>‘Close to nothing’</li></ol>



<a href="https://www.nytimes.com/2022/12/01/business/sam-bankman-fried-interview-sbf-ftx.html">Speaking virtually to Andrew Sorkin</a> of the New York Times, he claimed that he’s lost most of his money and that he didn’t stash away any of it.&nbsp;



He added that he’s disclosing everything he has, and that he has no hidden funds. He’s allegedly down to $100,000 “or something like that” and just has one working credit card.



<ol start="3"><li>Vacation home was not intended to be parents’ ‘long-term property’</li></ol>



The exchange spent millions on at least 19 properties worth $121 million in the Bahamas, according to <a href="https://www.reuters.com/technology/exclusive-bankman-frieds-ftx-parents-bought-bahamas-property-worth-121-mln-2022-11-22/">Reuters</a>. These included at least seven condominiums worth $72 million and a vacation property in which Bankman-Fried’s parents were listed as signatories.&nbsp;



“I think they may have stayed there while working, you know, with the company sometime over the last year. When you look at the rest of it, there were a lot of property purchases in the Bahamas,” Bankman-Fried told Sorkin.



<ol start="4"><li>Mixed messages</li></ol>



Bankman-Fried made some statements that appeared ill-thought-out when asked whether customer funds were used inappropriately. “I didn&#8217;t knowingly commingle funds,” he said. 



“I wasn’t trying to commingle funds,” he added later.



<ol start="5"><li>Ignorance of FTX/Alameda’s balance sheet</li></ol>



Bankman-Fried admitted to not knowing much about the finances of his companies, saying he was “frankly surprised” by how big Alameda’s position was in FTX’s native token FTT.&nbsp;



He also claimed he was not worried about customer losses or potential insolvency until Nov. 2, when CoinDesk published Alameda&#8217;s partial balance sheet.



<ol start="6"><li>Alleged dark money donations to Republicans</li></ol>



Bankman-Fried claimed he donated millions of “about the same amount” to both Democrats ahead of the 2022 midterm elections. Only his donations to Democrats were <a href="https://www.businessinsider.in/investment/news/ftx-founder-sam-bankman-fried-donated-40-million-to-political-campaigns-leading-into-the-midterms-leaving-some-concerned-about-cryptos-place-in-washington-report-says/articleshow/95646968.cms">publicly known</a> and well-documented, prior to his recent admission. But he kept the Republican donations quiet.&nbsp;



“All my Republican donations were dark,” he said. “The reason was not for regulatory reasons, it’s because reporters freak the f— out if you donate to Republicans. They’re all super liberal, and I didn’t want to have that fight.”



He has denied making any donations to politicians in the Bahamas.



<ol start="7"><li>Spot money and margin money are totally the same</li></ol>



During a Twitter Spaces appearance on Thursday, Bankman-Fried was asked whether funds for spot and margin accounts were commingled behind the scenes.



“Yes that’s right, in general, balances were generally treated as effectively fungible with each other.”



FTX International offered 20x leverage while FTX US offered 10x with a minimum required balance of $100,000.



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Have your own favorite Sam Bankman-Fried media quote or tweet from over the years? Let us know in the thread below!



<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">When asked if his lawyers thought his interviews were a good idea, Bankman-Fried said “They very much do not.” And reading this, you’ll see why… Add your own favorite SBF quotes below!<a href="https://t.co/WatJn8ylfY">https://t.co/WatJn8ylfY</a>&mdash; Blockworks (@Blockworks_) <a href="https://twitter.com/Blockworks_/status/1598770698679242753?ref_src=twsrc%5Etfw">December 2, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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7 Revealing Quotes From SBF’s Absurd Media Tour

Bitcoin has decoupled from Investo’s QQQ Trust, suggesting the cryptocurrency’s days of trading virtually in tandem with Big Tech stocks may be in the past — at least for now.&nbsp;



Bitcoin’s 30-day correlation coefficient to QQQ, the tech-heavy ETF known as the Qs, dipped below -0.77 to more three-year lows set on Thursday, per <a href="https://www.tradingview.com" target="_blank" rel="noreferrer noopener">TradingView</a> data. A correlation coefficient of -1 would mean the assets are moving in complete opposite directions. 



BTC’s 60-day coefficient is also negative but not as extreme, sitting at -0.2, its lowest point since last July. Blue-chip, growth technology stocks are expected to continue underperforming, according to Tom Essaye, founder of Sevens Report Research.&nbsp;



“Tech and growth stocks have recovered some ground on value recently, but we continue to believe that progress in the economic recovery and subsequently higher interest rates will be a headwind for tech, and a rotation from growth to value can be utilized to reduce tech overweights, but not abandon super-cap tech holdings altogether,” Essaye said.&nbsp;


<div class="wp-block-image">
<figure class="alignleft size-large"><img loading="lazy" width="1024" height="626" src="https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-1024x626.png" alt="" class="wp-image-40997" srcset="https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-1024x626.png 1024w, https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-300x183.png 300w, https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-768x470.png 768w, https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-1536x939.png 1536w, https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-2048x1252.png 2048w, https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-420x257.png 420w, https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-427x261.png 427w, https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-358x219.png 358w, https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-80x49.png 80w, https://cms.blockworks.co/wp-content/uploads/2022/12/Screen-Shot-2022-12-02-at-19.27.53-50x31.png 50w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>QQQ is up 90% over the past five years, double bitcoin&#8217;s returns | Chart by David Canellis</figcaption></figure></div>


The divergence comes as equities have dipped, following a stronger-than-anticipated jobs report, which showed nonfarm payrolls increasing by 263,000 in November. Analysts expected a 200,000 raise. Average hourly earnings also increased 0.6% between November and October and are up more than 5% year over year, suggesting the Fed’s efforts to curb inflation may not yet be sufficient.&nbsp;



The S&amp;P 500 and Nasdaq Composite indexes were each trading about 0.5% lower halfway through Friday’s session. Bitcoin was largely flat, while ether rallied 0.4%. QQQ lost close to 1%.



Still, risk-off sentiment is likely to persist in the long run, analysts say.&nbsp;



“Crypto traders need to remember that a key reason why crypto has fallen so much over the past year is that inflation was out of control and central banks were motivated to send rates higher which ultimately was bad news for all risky assets,” Edward Moya, senior market analyst at Oanda, said in a note Friday.



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Bitcoin, QQQ Correlation Dips to Lowest Level in More Than 3 Years

Ben Strack

MoonPay is set to add Time executive Keith Grossman to lead its enterprise business, as he is set to join the crypto payments infrastructure company on Jan. 2.  



Grossman has spent the last three-plus years as president of publishing powerhouse Time. While there, <a href="https://time.com/6121132/time-and-galaxy-digital-partner-to-demystify-the-next-immersive-digital-frontier-the-metaverse-through-a-first-of-its-kind-partnership/" target="_blank" rel="noreferrer noopener">Time teamed up with Galaxy Digital</a> to offer metaverse education, and the publisher’s television and film production division <a href="https://time.com/6123080/time-studios-tap-nft-space-for-animated-franchises/" target="_blank" rel="noreferrer noopener">partnered with NFT creators</a> to develop animated franchises. 



“In 2020, I noticed a trend too big to ignore: a shift enabling the evolution from online ‘rentership’ to ‘ownership’ that also accommodated a much-needed shift in consumer privacy,” Grossman wrote in <a href="https://www.linkedin.com/pulse/after-35-years-time-i-wanted-inform-you-have-accepted-grossman/?trackingId=7LxA7hV0TM%2B8FfdraGylJA%3D%3D" target="_blank" rel="noreferrer noopener">a blog post</a>. “At that point, I knew it was only a matter of time before I ultimately needed to move from the comforts of being an ‘observer’ to that of a ‘participant’ in the adoption of web3.”



In addition to working at Time, Grossman has held leadership roles at Bloomberg and tech publisher Wired.



The upcoming addition of Grossman comes after MoonPay in July <a href="https://blockworks.co/news/latest-in-crypto-hiring-moonpay-adds-range-of-senior-execs" target="_blank" rel="noreferrer noopener">filled several executive roles</a>, including the addition of Jim Esposito as chief operating officer and Akash Garg as chief technology officer. 



MoonPay, which reports having 5 million customers and supports more than 80 assets, <a href="https://blockworks.co/news/moonpay-marshals-555m-in-series-a-funding-round" target="_blank" rel="noreferrer noopener">raised $555 million last year</a> in a Series A round that gave the company a $3.4 billion valuation. 



Blockchain Founders Fund promoted <a href="https://www.linkedin.com/in/tobias-man-bauer/details/experience/" target="_blank" rel="noreferrer noopener">Tobias Bauer</a> as a partner of the Web3 venture capital fund.     



Bauer has worked at the fund for the last three years, holding roles including head of partnerships and principal. He formerly was a venture partner at Republic, a financial technology company specializing in investment-related services in the private markets.



<a href="https://www.linkedin.com/in/suvratjoshi/" target="_blank" rel="noreferrer noopener">Suvrat Joshi</a> joined identity verification provider Veriff as a senior vice president of product. 



Joshi was most recently chief product officer at FarEye and previously worked in roles at Dropbox, Facebook, Microsoft and Amazon.&nbsp;



“Excited to share that I joined Veriff to bring the digital and physical worlds closer through the identity lens,” Joshi said in a LinkedIn post. “It&#8217;s early days, and Veriff is at the leading edge of this shift.”



Veriff, which <a href="https://www.veriff.com/case-studies/blockchain-veriff-making-crypto-safe-and-accessible" target="_blank" rel="noreferrer noopener">partnered with Blockchain.com</a> in 2018, offers various <a href="https://www.veriff.com/industry/crypto" target="_blank" rel="noreferrer noopener">verification and fraud prevention services for crypto users</a>. 



It is unclear how much Joshi will be working on Veriff’s crypto products in the new role. He did not immediately return a request for comment.



<h3>Firms hiring and firing</h3>



Kraken co-founder Jesse Powell said in <a href="https://blog.kraken.com/post/16442/business-update/" target="_blank" rel="noreferrer noopener">a blog post</a> Wednesday that about <a href="https://blockworks.co/news/kraken-layoffs-30-percent" target="_blank" rel="noreferrer noopener">30% of the company’s staff would be laid off</a> as a direct result of the ongoing crypto winter.



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



The cuts amount to more than 1,000 people — roughly the same amount Coinbase laid off as part of <a href="https://blockworks.co/news/coinbase-cut-workforce-ceo-wary-of-potential-recession" target="_blank" rel="noreferrer noopener">cutbacks announced in June</a>. 



Not all crypto companies are downsizing.&nbsp;



Digital asset market maker Keyrock said Wednesday it is looking to double its headcount — currently more than 100 — in 2023, despite the bear market. The Brussels-based firm is seeking to expand to Switzerland and Singapore early next year.&nbsp;



Keyrock has already doubled the size of its workforce this year, the company said. The latest hiring plans come after it raised $72 million from investors including Ripple, SIX Fintech Ventures and Middlegame Ventures.



Lantern Ventures, a crypto-focused trading firm led by former Alameda Research co-founder  <a href="https://www.linkedin.com/in/tarajmacaulay/" target="_blank" rel="noreferrer noopener">Tara Mac Aulay</a>, is hiring an infrastructure lead. Mac Aulay started Alameda Research with Sam Bankman-Fried in 2017 and left the firm the following year.



The infrastructure engineer would be tasked with carving out a new infrastructure team as the company seeks to manage its virtual private network and developer productivity resources.



“We need to secure all these resources against both accidental loss and deliberate compromise, facing the unusually sharp threats and high stakes that are a systemic feature of crypto finance,” the job post states. 



Crypto exchange Bitget has reiterated its intention to increase its number of employees to 1,200 by the first quarter of 2023 — about a 50% increase from its current level.



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Latest in Crypto Hiring: MoonPay Recruits Time President for 2023

Ankr, a decentralized finance (DeFi) protocol on the BNB chain, has been hit with a $5 million exploit.



The hack occurred earlier Friday morning after the attacker took advantage of an <a href="https://twitter.com/peckshield/status/1598508401755144196" target="_blank" rel="noreferrer noopener">unlimited mint bug</a> in the aBNBc token smart contract, a bug that the attacker reportedly engineered.



A total of 10 trillion aBNBc was minted and later swapped by the attacker for 4,050,500 USDC and 5,000 BNB tokens. All USDC was then moved from the Binance Smart Chain onto Ethereum and funneled through <a href="https://blockworks.co/crypto-mixers-and-privacy-coins-can-they-resist-censorship/" target="_blank" rel="noreferrer noopener">crypto mixer Tornado Cash</a>.&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">Ankr got hacked! 1.🧵 A short thread about what Ankr Exploiter did.&mdash; Lookonchain (@lookonchain) <a href="https://twitter.com/lookonchain/status/1598520872716804101?ref_src=twsrc%5Etfw">December 2, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Binance CEO Changpeng Zhao said his exchange would be freezing withdrawals related to the recent hack.



&#8220;Initial analysis is developer private key was hacked, and the hacker updated the smart contract to a more malicious one,&#8221; Zhao <a href="https://twitter.com/cz_binance/status/1598575867311132673?cxt=HHwWgsC82YOSpK8sAAAA" target="_blank" rel="noreferrer noopener">tweeted</a>. &#8220;Binance paused withdrawals a few hours ago. Also froze about $3m that hackers move to our CEX.&#8221;



Liquidity pools of aBNBc on PancakeSwap and ApeSwap have almost been completely drained by the hack, and as a result, the price of aBNBc has dipped by <a href="https://www.coingecko.com/en/coins/ankr-reward-bearing-stake-bnb" target="_blank" rel="noreferrer noopener">99.5%</a> over the past 24 hours — the price of Ankr’s native cryptocurrency, ANKR, has also been affected, dropping by <a href="https://www.coingecko.com/en/coins/ankr-network" target="_blank" rel="noreferrer noopener">2.5%</a> in the past day.



Ankr’s team is actively looking at resolving its smart contract issues and will be reimbursing users affected by the hack.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The team at Ankr has assessed the damage and it is max 5M USD worth of BNB from the liquidity pools. We are currently working hard to resolve this issue efficiently and we would like to propose the following to address the current situation:&mdash; Ankr (@ankr) <a href="https://twitter.com/ankr/status/1598624443642703872?ref_src=twsrc%5Etfw">December 2, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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“Ankr will purchase 5m worth of BNB and use this to compensate in totality the liquidity providers that have been affected by the exploit due to the drainage of the liquidity pool,” the company <a href="https://twitter.com/ankr/status/1598624447203770369" target="_blank" rel="noreferrer noopener">tweeted</a>.&nbsp;



Adding, “the ankrBNB token will continue to be redeemable, while aBNBc and aBNBb will no longer be redeemable.”



The Ankr team <a href="https://blockworks.co/news/ankr-exploit-causes-collateral-damage" target="_blank" rel="noreferrer noopener">put out a damage assessment</a> Friday afternoon ET, detailing the next steps for holders of the affected tokens.



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Hackers Stole More Than $5M From 2 Binance Chain Apps

Galaxy Digital is planning to buy GK8 from Celsius Network, which <a href="https://blockworks.co/news/celsius-to-file-for-bankruptcy-imminently-report" target="_blank" rel="noreferrer noopener">filed for bankruptcy</a> in July after the crash of Terra’s algorithmic stablecoin.&nbsp;



GK8 is an institutional digital asset self-custody platform. Galaxy looks to use the firm’s custody solution as it develops GalaxyOne — an offering that seeks to provide trading, lending, cross-portfolio margining, and derivatives to institutional investors.



&#8220;The acquisition of GK8 is a crucial cornerstone in our effort to create a truly full-service financial platform for digital assets, ensuring our clients will have the option to store their digital assets at or separate from Galaxy without compromising versatility and functionality,&#8221; Galaxy CEO Mike Novogratz said in a statement.



Celsius <a href="http://www.gk8.io/gk8-joins-forces-with-celsius-to-supercharge-its-growth-while-retaining-independence/" target="_blank" rel="noreferrer noopener">signed an agreement</a> to acquire GK8 in November 2021 for $115 million. GK8 was to continue functioning as an independent business after the deal.



Galaxy was selected as the winning bidder for GK8 in connection with Celsius’s Chapter 11 bankruptcy, the firm said Friday. The sale is subject to court approvals.



Exact terms of the deal were not disclosed, though a Galaxy spokesperson told Blockworks: “The purchase price is materially less than what GK8 was previously purchased for.”&nbsp;



The representative added that Galaxy will update its clients on the progress of GalaxyOne in future quarters.&nbsp;



The reported planned acquisition comes several months after Galaxy <a href="https://blockworks.co/news/galaxy-digital-ends-agreement-to-buy-bitgo" target="_blank" rel="noreferrer noopener">terminated its deal to buy Palo Alto custodian BitGo</a>. Novogratz had revealed at the time the company’s intention to offer “a prime solution that truly makes Galaxy a one-stop shop for institutions.”&nbsp;&nbsp;&nbsp;



Galaxy Digital said during its <a href="https://blockworks.co/news/galaxy-digital-ceo-michael-novogratz-angry-about-ftx" target="_blank" rel="noreferrer noopener">third quarter earnings call last month</a> that despite having about $77 million of exposure to crashed crypto exchange FTX, it had $1.5 billion in liquidity, including $1 billion in cash.



Galaxy, which recently laid off 14% of its staff, is set to add a team of about 40 people as a result of the intended acquisition. GK8 founders CEO Lior Lamesh and Chief Technology Officer Shahar Shamai will lead Galaxy&#8217;s new custodial technologies business.



“With the backing of Galaxy, we aim to introduce new and exciting offerings to the industry that showcase a combination of Galaxy&#8217;s best-in-class services and GK8&#8217;s cryptography, security, and unparalleled R&amp;D skills,&#8221; Lamesh said in a statement.



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Galaxy To Buy Custody Platform From Bankrupt Celsius

Sebastian Sinclair

Bankless, known best for its flagship podcast, is branching out beyond media.&nbsp;



The self-branded digital assets education outlet said Friday it is acquiring a tool designed to hook users up with software that automatically scans for unclaimed <a href="https://blockworks.co/news/ethpow-token-surges-and-plummets-before-its-launch" target="_blank" rel="noreferrer noopener">airdrops</a> of digital assets.&nbsp;



Earnifi, picked up by the outlet for an undisclosed sum, will sit within a newly created vertical, dubbed Bankless Labs, which aims to bolster DeFi tools for its customers.&nbsp;



Terms of the deal were not disclosed, but it involves exclusively <a href="https://opencorporates.com/companies/us_wa/604553008" target="_blank" rel="noreferrer noopener">Bankless, LLC</a> — the company started by Ryan Sean Adams and David Hoffman — and not the <a href="https://medium.com/bankless-dao/announcing-bankless-dao-133220f5efd8" target="_blank" rel="noreferrer noopener">Bankless DAO</a>, Bankless&#8217; chief operations officer Rachel Cusack told Blockworks via email.



The purchase is part of Bankless’ ambitions to scale its educational programs next year, the outlet said in a <a href="https://newsletter.banklesshq.com/p/df715592-2209-4bcd-be8e-ef9426c00dfe" target="_blank" rel="noreferrer noopener">statement</a>. Its podcast has surpassed 30 million downloads, reinforced by a daily newsletter that now has more than 250,000 subscribers. 



Seeking to leverage that growth, Bankless is hoping to scale into fresh markets with its Earnifi purchase. The startup said it has reclaimed a cumulative $150 million of lost assets.



Earnifi scans wallet data on chains compatible with the Ethereum virtual machine (EVM), such as Ethereum and Binance Smart Chain (BNB), to locate unclaimed airdropped tokens or NFTs. Users are notified via email of outstanding assets.



Co-founder Ryan Sean Adams said his company decided to acquire Earnifi after conducting a prolonged due diligence, including a number of conversations with its founder, Dawson Botsfor — following his fellow Bankless co-founder, David Hoffman, stumbling across the tool on Twitter early this year.



“EarniFi let him quickly check all of his Ethereum addresses, for all of the opportunities he had missed,&#8221; Adams said in a statement. 



Added Adams: &#8220;A few minutes later, he was finding airdrops on wallets he didn’t even know he had.”



As part of the deal, Botsford is set to join Bankless as its first chief technology officer, where he will lead the Bankless Labs vertical.



Bankless, via its DAO, in true crypto fashion, issued a governance token, BANK, in May 2021. native governance BANK tokens to premium subscribers, with part of the token supply initial airdropped to premium newsletter subscribers. 



The BANK token is a smart contract that runs on the Ethereum blockchain intended to be distributed directly from Bankless’ treasury. Holders can unlock certain perks, per its crowdsourced draft <a href="https://forum.bankless.community/t/banklessdao-white-paper/3130" target="_blank" rel="noreferrer noopener">whitepaper</a>. 



As of publication, BANK was up about 13% in the last 24 hours, as denominated in bitcoin, to $0.0088 — propelled by an upswing on the news. 



Disclosure: Bankless is a co-host of Blockworks&#8217; Permissionless conference, a separate business line from editorial.



This story was updated on Dec. 2 at 2:03 pm ET with additional details.



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Bankless Is Now More Than a Media Company

Crypto companies in New York could find themselves regularly paying to be regulated under the BitLicense scheme — just like banking and insurance firms do.



The New York State Department of Financial Services (DFS) is welcoming feedback on a proposal that would demand BitLicense holders consistently pony up to regulators, with bills due five times a year scaled to the size of the company.



Under the new rules, DFS would conduct four quarterly assessments before a final assessment, each with their own fees. Back in April, the New York State Senate’s budget granted DFS the <a href="https://www.protocol.com/bulletins/new-york-dfs-bitlicense-cost" target="_blank" rel="noreferrer noopener">authority to charge crypto companies</a> for supervisory costs.



DFS Superintendent Adrienne Harris, at the head of the proposal, said the regulation provides for transparent and timely rules to ensure consumer protection and root out financial crimes in the space.



“The ability to collect supervisory costs will help the department continue protecting consumers and ensuring the safety and soundness of this industry,” she said in a <a href="https://www.dfs.ny.gov/reports_and_publications/press_releases/pr20221211" target="_blank" rel="noreferrer noopener">statement</a>. 



Harris added that the supervisory costs will allow the department to “continue adding top talent” to its virtual currency regulatory team.



No benchmarks were given for amounts BitLicense holders would have to pay, but the department’s total operating expenses on oversight would ultimately dictate fees owed. Firms face penalties such as late fees, suspension or license termination if bills aren’t paid within 30 days.



The proposal will now be subject to a 10-day comment period, followed by a 60-day waiting period upon publication in the state government’s official register.



<h3>BitLicense saved New York from SBF and FTX</h3>



New York’s DFS is looking to align its crypto regulation with the finance and investment sectors, as there was no provision for consistent payments when BitLicenses were first adopted in 2015.



BitLicense was the first US state framework for crypto. Any digital asset company operating in New York or managing investments from New Yorkers, such as in a fund, must obtain a BitLicense.



Costs associated with a successful application, such as compliance and legal fees, have been <a href="https://www.capitalfundlaw.com/blog/newyorkbitlicense" target="_blank" rel="noreferrer noopener">pegged to cost</a> more than $100,000, per Capital Fund Law Group. A state superintendent inspects companies for multiple factors such as total assets and liabilities, liquidity positions and amounts of leverage employed.



BitLicense costs are often labeled prohibitive, with many crypto firms simply opting to stay out of New York altogether. While the number of crypto startups worldwide range in the thousands, just 25 companies had <a href="https://www.coindesk.com/policy/2020/06/24/bitlicense-recipients/" target="_blank" rel="noreferrer noopener">received</a> a BitLicense as of 2020, including Circle, Coinbase, Ripple and Square, as well as struggling crypto brokerage unit <a href="https://blockworks.co/news/genesis-halts-lending" target="_blank" rel="noreferrer noopener">Genesis</a>.



Only a handful of firms have received one since. FTX US, the local arm of Sam Bankman-Fried’s crumpled crypto empire, notably never received a BitLicense, instead opting to <a href="https://www.coindesk.com/business/2022/05/11/ftx-us-reveals-new-york-trust-charter-application/" target="_blank" rel="noreferrer noopener">apply</a> for a trust charter earlier this year, a move which appeared to have gotten nowhere.



This meant New Yorkers were restricted from (legally) accessing FTX US and its native token FTT. Up to a million FTX users around the world are believed to have lost funds with the defunct exchange.&nbsp;



In many states, companies that process cash or bitcoin and other crypto payments are required to show they have sufficient money to protect consumers if things get faulty.&nbsp;



But Wyoming and Texas are regarded as far more crypto-friendly than New York. According to <a href="https://slate.com/technology/2021/06/wyoming-cryptocurrency-laws.html" target="_blank" rel="noreferrer noopener">Slate</a>, at least 24 related laws have passed in Wyoming, with some aimed at encouraging bitcoin mining firms with cheap energy prices.&nbsp;



One <a href="https://www.natlawreview.com/article/wyoming-moving-to-exempt-virtual-currency-its-money-transmitter-law" target="_blank" rel="noreferrer noopener">Wyoming law</a> makes crypto transactions exempt from money transmitter regulations. Others ensure crypto transactions are <a href="https://media.consensys.net/what-wyomings-13-new-crypto-laws-mean-for-blockchain-in-the-us-1bcf8b7a39d4" target="_blank" rel="noreferrer noopener">free of state tax</a>, including sales and property tax. Texas, Nevada and North Dakota have passed similar bills.



As for New York, it’s already common practice for the DFS to charge other licensed financial institutions for oversight in the state, so its proposal is not unusual.



Although, the prospect of hitting up crypto firms for cash every few months — in the midst of a brutal bear market — has to sting.



David Canellis contributed reporting.



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NY Wants Crypto Startups To Pay 5 Times Per Year for BitLicense

Global payments processing company Stripe is launching its own fiat-to-crypto on-ramp, allowing customers to exchange dollars for cryptocurrencies.



Stripe’s new transactions solution is billed as a customizable widget, which can be directly embedded within different DeFi platforms.&nbsp;



The most common way to on-ramp fiat-to-crypto today is to purchase cryptocurrencies through a centralized exchange — including the likes of Coinbase, Binance, Kraken and the recently deceased FTX. To partake in DeFi, one then transfers the cryptocurrency to a third-party wallet.



As a major payments processor for prominent Web2 companies, such as Apple and Walmart, Stripe’s decision to step further into the crypto world during a time when centralized exchanges are under heightened scrutiny can help DeFi become more accessible to mainstream consumers.&nbsp;



“It’s extremely difficult to get end users ‘on chain’— that is, to fund their wallets with the crypto required to interface with Web3 applications,” Jennifer Lee, product manager at Stripe, wrote in a <a href="https://stripe.com/blog/crypto-onramp" target="_blank" rel="noreferrer noopener">blog post</a>.&nbsp;



Lee added: “Developers have to wrestle with rampant fraud; navigate complex KYC requirements; and somehow still offer a seamless, high-conversion payments experience so that their users can actually use their Web3 applications.”



Stripe says it will handle tasks related to KYC requirements, payments, fraud and compliance.



Companies that <a href="https://support.link.co/questions/which-websites-support-purchasing-crypto-with-link" target="_blank" rel="noreferrer noopener">already partner</a> with Stripe for fiat-to-crypto on-ramp services include NFT marketplace Magic Eden, social NFT platform Nifty&#8217;s, and decentralized exchange Orca.



There are very limited ways to use DeFi services without a centralized mediator. Stripe’s latest fiat-to-crypto onramp will compete with non-custodial exchanges, such as <a href="https://blockworks.co/news/kado-brings-fiat-on-off-ramp-to-cosmos" target="_blank" rel="noreferrer noopener">Kado</a>, which recently moved to bring its on- and off-ramp services to Ethereum, Solana, Avalanche, Cosmos and Axelar.



Kado welcomes the new competition.



&#8220;It&#8217;s great to see more established payment companies coming into the space, which has been part of our thesis all along,&#8221; CEO Emery Andrew told Blockworks via e-mail, adding &#8220;Payments innovation has always been one of the no brainer use cases for blockchain and cryptocurrency.&#8221;



Once part of the old Terra ecosystem, Kado initially launched a Terra UST native on-ramp, allowing transfers from bank accounts directly to wallets in fewer than five minutes. 



For now, Stripe’s new products are slated to only be available to US customers, with availability to other countries in the works.



This story was updated on Dec. 2 at 1:44 pm ET with a comment from Kado.



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Stripe Enables Fiat-to-crypto On-ramp

The moat has been breached, and the sky is all but falling.



Even blue-chip crypto traders running serious institutional money have booked eye-popping losses in just weeks. For their investors, the full extent of the damage is still anyone’s guess&nbsp; — a seeming eternity after FTX’s <a href="https://blockworks.co/news/bankman-fried-underestimated-collapse" target="_blank" rel="noreferrer noopener">abrupt bankruptcy</a> — as investor relations professionals hide behind pending mark-to-market valuations for startup stakes and early-stage tokens.&nbsp;



And that’s not to mention the scores of asset managers who have battened down the hatches as they’ve tried to trade their way out of historic holes, before their monthly performance updates are due, any day now, to their limited partners, industry participants told Blockworks.



One institutional crypto fund allocator, who has written checks to more than a dozen such operations, said the abrupt radio silence has been all but “maddening” — drawing a direct parallel to TradFi traders running for any kind of cover during the 2008 financial crisis.



“We’re all in the dark,” the source said. “I gave you my money. Why are you not answering my calls?”&nbsp;



Not that they’ve all beat feet to desert islands with no cell service. Case in point: Multicoin Capital.&nbsp;



The veteran cryptoasset manager’s flagship liquid hedge fund <a href="https://blockworks.co/news/multicoin-lost-more-than-half-its-crypto-funds-capital-this-month-sources" target="_blank" rel="noreferrer noopener">plummeted 55% in approximately two weeks</a> in November. The firm’s investors, of course, were not pleased.&nbsp;



But three sources close to the firm told Blockworks they took some solace in the fact that Multicoin executives didn’t hem and haw on a recent call explaining what happened — and at least tried to walk them through why.



One of the sources provided a detailed account of the call, which was open exclusively to limited partners. A Multicoin spokesperson declined to comment.



“The market is down a lot this year,” an executive said on the call. “And we&#8217;re down more than that. There&#8217;s no sugarcoating that. Making matters worse, we got hit while [we were] down. We strongly and publicly endorsed [FTX Founder] Sam Bankman-Fried and FTX. And they turned out to be frauds.”



Indeed, Managing Partner Kyle Samani led the charge to back FTX US with an unspecified amount in January 2022, when he <a href="https://www.coindesk.com/business/2022/01/26/ftx-us-attains-8b-valuation-in-400m-fundraise-including-softbank-temasek-report/" target="_blank" rel="noreferrer noopener">told Coindesk</a> that the affiliate of FTX proper was “laying the groundwork to become the dominant trading platform in the United States for all things crypto.”&nbsp;



FTX US had raised $400 million at a valuation of $8 billion. Bankman-Fried, ironically, has <a href="https://blockworks.co/news/ftx-run-by-inexperienced-unsophisticated-traders-court-hears" target="_blank" rel="noreferrer noopener">recently scrambled</a> to come up with $8 billion to bail out his flailing businesses. Samani’s fund has also gone in alongside Bankman-Fried in <a href="https://blockworks.co/news/multicoin-capital-leads-60m-round-in-data-dao-delphia" target="_blank" rel="noreferrer noopener">backing</a> a number of startups, an indicator of the venture business more broadly, wherein portfolio managers typically rely on one another for deal flow and due diligence.&nbsp;



Multicoin execs — pointing out internal capital accounts for, collectively, the largest chunk of the flagship — said they had no intention of shuttering the vehicle or, worse, the firm. Nor would they entertain converting to a proprietary trading shop, an increasingly <a href="https://www.ai-cio.com/news/bluecrest-to-return-8b-become-family-office/" target="_blank" rel="noreferrer noopener">enticing route</a> for those with the stomach to place riskier wagers in a bid to print big profits from staggering market dislocations, especially arbitrage opportunities.&nbsp;



<a href="https://www.axios.com/2022/11/21/multicoin-lps-frustrated-solana-ftx-performance-tax" target="_blank" rel="noreferrer noopener">Axios</a>, <a href="https://www.theblock.co/post/184766/multicoin-capital-hit-by-ftx-collapse-with-10-of-its-funds-aum-stuck-on-the-exchange" target="_blank" rel="noreferrer noopener">The Block</a>, <a href="https://www.cnbc.com/2022/11/17/crypto-firm-multicoin-says-contagion-fallout-from-ftx-will-continue.html" target="_blank" rel="noreferrer noopener">CNBC</a> and <a href="https://fortune.com/2022/11/15/multicoin-capital-ftx-bankruptcy/" target="_blank" rel="noreferrer noopener">Fortune</a> have reported aspects of Multicoin’s recent dealings. This story contains unreported details and provides the first account of the firm’s investor call.&nbsp;



<h3>Due diligence can avert a disaster&nbsp;</h3>



Scheduling an impromptu mid-month call is easy when you’re crushing your benchmark and want to put uneasy, information-starved investors at ease. But precious few digital assets-focused hedge and venture capital firms have been in that fortunate position lately.&nbsp;



They’re facing, instead, the onerous, come-to-Jesus undertaking of owning up to many, many errors: disproportionately relying on FTX custody, employing far too much leverage and doubling down on bets — that would turn out to be disastrous — in round after round.&nbsp;



It doesn’t have to be this way, though.



It doesn’t, that is, if asset managers do their homework. If they establish ironclad due diligence standards, put in place appropriate risk parameters and stay in near-constant communication with their investors all the while, a due diligence professional told Blockworks.&nbsp;&nbsp;



And it needs to be communicated in writing, according to James Newman, co-founder of London-based perfORM Due Diligence.&nbsp;



The startup <a href="https://blockworks.co/news/crypto-due-diligence-startup-vying-to-bring-transparency-to-opaque-industry" target="_blank" rel="noreferrer noopener">specializes in deep dives</a> on digital asset buy-side players and their service providers. Newman declined to specifically discuss Multicoin, or perfORM customers, citing client confidentiality.



“So, it’s one thing, verbalizing it,” Newman said. “The next step is actually to write that down in a policy that is then made available to investors. So, that’s part of assuring investors that there is an actual procedure and policy in place.”&nbsp;



Simply putting all that in place to begin with isn’t enough, Newman said. There needs to be a real commitment to a schedule of conducting due diligence check-ins with counterparties, as well as communicating the results, and, especially, any material changes, to investors.&nbsp;



Multicoin competitor Arca, for one, has likewise recorded choppy performance in its flagship liquid hedge fund this year, despite not having significant FTX exposure. The firm, led by CEO Rayne Steinberg, has rejigged a number of internal guidelines since.&nbsp;



The market’s turn for the worse has forced Steinberg’s hand in <a href="https://blockworks.co/news/dodging-worst-of-ftx-arca-wont-stay-stagnant" target="_blank" rel="noreferrer noopener">shifting the capital-raising strategy</a> for the firm’s ongoing Series B raise — with capital already earmarked, in part, to bolster regulatory and compliance safeguards.&nbsp;



<h3>Are third-party crypto custodians still a necessary evil?</h3>



In Multicoin’s case, “what happened?” has been the question de jour.&nbsp;



The short version: Outstanding financial instruments under FTX custody and related derivatives, as well as a position in the startup Serum and a bullish thesis on SOL, were to blame. Both Serum and SOL, Solana’s native token, have lost immense value, partially because of their longtime ties to Bankman-Fried. The former has been placed in a side-pocket since the 2020 investment.&nbsp;



Traders are required to keep collateral with market-markers before open derivatives are settled.&nbsp;



On the custody front, Multicoin entrusted FTX with unspecified cash and FTT, the exchange’s native token that is also now underwater&nbsp; — plus relatively small sums of tokens only FTX US would custody, including Solana-based Mango (MNGO). Multicoin also has an equity stake in FTX, one which it will, presumably, have to write down, too — to zero.



The firm, as of mid-November, had successfully withdrawn about a quarter of its locked assets — resulting in a total fund exposure of about 10% — and had been planning to whip up a side-pocket to protect potential incoming limited partners.



Multicoin had one other main trading counterparty: the <a href="https://blockworks.co/news/binance-could-acquire-genesis-loan-book" target="_blank" rel="noreferrer noopener">now-defunct Genesis</a>. But its team “closed out that exposure immediately” after FTX stopped withdrawals. The firm also has exposure to Coinbase&#8217;s custodial solutions. It it, however, moving certain outstanding assets to non-custodial, multi-signature solutions.



With centralized custodians, as keepers of clients’ private keys, there’s always an element of risk, according to Nick Neuman, chief executive of Casa, which helps individuals and entities set up their own <a href="https://blockworks.co/news/jameson-lopp-doesnt-want-to-be-found" target="_blank" rel="noreferrer noopener">cold storage solutions</a>. Neuman declined to specifically discuss Multicoin or any Casa clients.&nbsp;



Complicating matters: It’s tricky for active crypto traders to rely much on cold storage, Neuman told Blockworks, because of the time and logistics involved in transferring assets in an alpha-driven game where mere milliseconds matter.



Relying on third-party custodians — however reputable — “inherently requires trust” in potential bad actors, Neuman told Blockworks, the “exact type of thing our industry is trying to eliminate.”&nbsp;



The Casa head said the problem calls for a “mix of solutions.”



“One thing I know is that we have seen repeatedly [&#8230;] in our industry, problems with bad actors — since the beginning, with Mount Gox [being the] earliest and largest,” he said.&nbsp;



<h3>Multicoin: What to do, what to do?</h3>



Multicoin is in the process of onboarding Anchorage as an additional custodian in an effort to reduce its counterparty exposures, one of the sources said. A spokesperson for Anchorage declined to comment.



Multicoin has one big, quick fix. The firm — in addition to conducting due diligence on a number of other potential custodians, as well as other types of service providers — said it has already moved to keep its assets on any exchange for no more than 48 hours at a time. A number of other high-profile competitors have historically entrusted tokens to counterparties on a near-indefinite basis.&nbsp;



Its traders are also in the process of reducing collateral it pledges to market-makers. The upside is that the move reduces the tail risk of another liquidity crunch. The downside is that it significantly increases the risk of margin calls. 



The “more tightly knit” the collateral, the firm said, the “greater the risk” of abrupt liquidation, adding that new mitigating risk controls are in the works. Some of those incoming, tightened controls have been about four months in the making. Multicoin is also implementing fresh restrictions on staking, aiming to minimize exposures of locked-up tokens “in order to maintain flexibility and optionality during times of crisis.”



At least one thing is clear: the toll nefarious actors have taken — and, by all appearances, are continuing to take — on all of crypto, is mounting. And it has real-world consequences for the investors who entrust their capital to the traders who increasingly encounter them.&nbsp;



The firm told limited-partners it was not yet “sure” how its administrators and auditors would value frozen assets under GAAP accounting standards.&nbsp;



“But in our view, they should be marked to zero,” an executive said. “There is some chance of a partial recovery. And, you know, it&#8217;s maybe a smaller, much smaller chance of a larger recovery. But we believe that the conservative thing to do is to value them at zero for the time being.&#8221;



Multicoin had $8.9 billion of gross assets under management as of year end 2021, the latest data available.&nbsp;



How much is left?



Updated Dec. 2, 2022 at 2:53 pm ET: Clarifies the process and rationale behind Multicoin&#8217;s move to reduce the collateral it posts with market-makers. 



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OK, You Blew Up Your Crypto Fund. What Do You Tell Your LPs?

A number of US representatives are concerned a government-funded central bank digital currency project will be sold to commercial banks.&nbsp;



Reps. Tom Emmer, R-Minn., and Patrick McHenry, R-N.C., drafted a letter to Susan Collins, head of the Federal Reserve Bank of Boston, Thursday to express concerns over the New York Fed’s Project Hamilton and related privacy issues.



“It has come to Congress’s attention that some firms participating in Project Hamilton intend to use government resources from the project to design a CBDC with the intent to then sell those products to commercial banks,” a Thursday <a href="https://emmer.house.gov/2022/12/emmer-leads-inquiry-into-boston-fed-led-cbdc-effort" target="_blank" rel="noreferrer noopener">statement</a> from Emmer’s team said.



Project Hamilton, a joint venture between the Boston Fed and MIT, is primarily focused on developing a retail digital dollar and corresponding payment channels. The team completed the <a href="https://blockworks.co/news/mit-and-boston-fed-conclude-first-phase-of-cbdc-research-project" target="_blank" rel="noreferrer noopener">first phase</a> of the project in February, when researchers said the concept is scalable and the technology feasible. 



Project Hamilton is giving certain private sector players an unfair advantage — as they would have exclusive access to government-funded research and initiatives — the representatives <a href="https://twitter.com/RepTomEmmer/status/1598412817396293643?s=20&amp;t=OXEWLUEV8BrxwmKN413iPQ" target="_blank" rel="noreferrer noopener">argued</a>. Emmer and McHenry are requesting more information about the involvement of private sector partners.



“The letter also asks how the Fed plans to address concerns that many have regarding the dangers a CBDC could pose to financial privacy and financial freedom, which were the subject of over 65% of the letters in response to the Fed’s January 2022 report on CBDCs,” Emmer representatives said.&nbsp;



CBDC projects in the US have shown signs of progress in recent months. The New York Fed and the New York Innovation Center (NYIC) have partnered on a separate CBDC-related project, known as <a href="https://blockworks.co/news/project-cedar-ny-fed-closer-to-wholesale-central-bank-digital-currency" target="_blank" rel="noreferrer noopener">Project Cedar</a>, which researches what a CBDC might look like in the US and what potential use cases it may have. 



Project Cedar’s phase one results, released in November, show that blockchain and distributed ledger technology allowed for foreign exchange spot settlements to complete in under ten seconds, the NYIC said, showing potentially revolutionary real-world use cases for CBDCs.&nbsp;



“Currently, cross-border transactions function well, but there are opportunities for improvement,” the NYIC said in its report. “In general, it takes around two days for a [foreign exchange] spot transaction to settle.”



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CBDC Will Give Private Players Unfair Advantage, US Reps Warn

In a string of virtual media <a href="https://blockworks.co/news/bankman-fried-underestimated-collapse" target="_blank" rel="noreferrer noopener">appearances</a> this week from an undisclosed location, Sam Bankman-Fried appeared genuinely incredulous at the very idea that he willingly committed fraud and may face legal consequences.&nbsp;



Bankman-Fried, the founder of now-bankrupt FTX, spent over an hour during a virtual appearance at The New York Times DealBook Summit on Wednesday putting on the same display he has long used to charm the world: self-deprecating humor and his embellished, nerdy mannerisms.&nbsp;



The 30-year-old former billionaire, who appeared on screen in his signature black T-shirt, said he did not have his first sip of alcohol until after his 21st birthday. The packed live audience in New York laughed.&nbsp;



He also didn’t intend to do anything wrong, Bankman-Fried said, although he stopped short of outright denying that fraud occurred on his watch.&nbsp;



“I didn’t knowingly commingle funds,” Bankman-Fried said. “I wasn’t trying to commingle funds,” he added moments later.&nbsp;



The publicity circus continued Thursday, when Bankman-Fried took his well-worn act to the morning news circuit for a <a href="https://www.goodmorningamerica.com/Business/story/ftxs-sam-bankman-fried-denies-improper-customer-funds-94233125" target="_blank" rel="noreferrer noopener">16-minute chat</a> with Good Morning America.&nbsp;



&#8220;It was delusional,” Galaxy Digital’s Mike Novogratz said of Bankman-Fried’s interview Thursday on CNBC. “Let&#8217;s be really clear: Sam was delusional about what happened and his culpability in it. He needs to be prosecuted. He will spend time in jail. And it wasn&#8217;t just Sam. You don&#8217;t pull this off with one person.&#8221;



Blockworks compiled a list of questions Bankman-Fried has yet to answer, for the New York Times or otherwise. Many have not been asked:&nbsp;



Where did the money come from for your bid to acquire BlockFi? Did you pledge Robinhood equity and if so, where did the funds to acquire Robinhood shares come from?



Why did you move BlockFi customers’ assets on to FTX?



Was the $1 billion personal loan to you from Alameda funded with FTX deposits?



Do you have a stake in Twitter? Was it bought with customer funds?&nbsp;



How much did Alameda lose between December 2021 and June 2022? And how?



SRM was the largest position on the FTX balance sheet, valued at $2.2 billion. How did FTX get those tokens? And why were they valued like that, given Serum&#8217;s market cap is now less than $88 million?



Did you <a href="https://twitter.com/ercwl/status/1598276784130519041" target="_blank" rel="noreferrer noopener">allow Alameda to collateralize</a> a major fraction of the entire FTX margin system with FTT and SRM?



Who authorized the SRM mints on Feb 19 (50M SRM) and May 25 (50M SRM), which <a href="https://twitter.com/LucasNuzzi/status/1591595908239888384" target="_blank" rel="noreferrer noopener">increased Serum&#8217;s total supply by 60%</a>?



Was FTX the &#8220;owner&#8221; of the SRM ERC-20 contract, which has the authority to mint new SRM tokens? If not, who is?



Did FTX keep &#8220;locked SRM&#8221; awarded to market makers for staking FTT on its balance sheet as an asset?



Why did you use <a href="https://threadreaderapp.com/thread/1593469254518640640.html" target="_blank" rel="noreferrer noopener">wire transfers sent to Alameda</a> to onboard funds into FTX accounts until at least 2022?



Did any funds pledged to altruistic campaigns or political donations come from FTX customer deposits?



You <a href="https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy" target="_blank" rel="noreferrer noopener">told Vox</a> that talking about ethics is “what reputations are made of” and that you “feel bad for those who get f—ed by it — by this dumb game we woke westerners play where we say all the right shibboleths and so everyone likes us.”



Given that, why should we believe anything you say?



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Everything SBF Didn’t Tell The New York Times

Brent Dornier

I landed in Houston on Nov. 28, 2001. I switched on my cell and was bombarded with voicemails from co-workers. Each was the same: Our employer, Enron, was all but dead.&nbsp;



Then-competitor Dynegy terminated its agreement to acquire Enron. The energy giant would be forced to file for bankruptcy four days later in what would become the largest US corporate bankruptcy ever.



Fast-forward 21 years, and I’m feeling deja vu. Another conglomerate was set to be acquired — and was subsequently scorned — by a hated rival once the scope of blatant fraud came to light. And the similarities between Enron and FTX don’t stop there.



In 1999, Enron dragged energy traders into the 21st century when it launched an online exchange, which quickly became the dominant platform for the sector.&nbsp;



FTX, too, was revolutionary. The exchange was considered a source of stability in a volatile industry. It was widely viewed as the poster child for crypto’s credibility.



Until both fell apart.



Both FTX and Enron ran into trouble after attempting to use their own “tokens” as collateral.



Enron’s core energy trading operation was solid, but many of its other business lines failed miserably. Enron raised money for such ventures through a series of special-purpose vehicles (SPVs) designed to keep debt off its balance sheet. To make matters worse, Enron used its own stock as collateral. Sound familiar?



The bear market sparked by the burst of the dot-com bubble led to increased calls for collateral that exposed the insurmountable hole in Enron’s finances. Sound familiar now?



<h3>Widespread contagion as industry darlings become villains</h3>



Lenders, traders, venture capitalists, exchanges and even tokens have all been whipsawed by FTX’s rapid unraveling.&nbsp;



Enron was no different. Countless companies had collateral locked on its platform. While some were able to ride out the storm, major players closed up shopped after their funds and hedges went poof.&nbsp;



Like FTX, Enron had its own charismatic CEO. Before his company went bust, Jeff Skilling hit the front page of all the big business magazines. He took credit for the first true wholesale markets for natural gas and electricity. And, yes, he worked with regulators in Washington to liberalize markets.



Like Sam Bankman-Fried, the revelation of his Skilling’s balance sheet marked his downfall.&nbsp; We know the rest of the story.&nbsp;



And who led Enron through Chapter 11? The same guy now leading FTX – John Jay Ray III.&nbsp;



<h3>Takeaways</h3>



<ol><li>Sometimes you win by surviving. At Enron’s peak, a competing market maker launched, Intercontinental Exchange (ICE). Its volumes were a distant second, but it was well-positioned to fill the ensuing void. ICE today has a market capitalization of more than $50 billion.</li><li>Scared money doesn’t make money. Consider Ken Griffin of Citadel, who saw an opportunity to profit from a market dislocation when most of his peers de-risked. In a short order, he added a energy trading division — which is still minting money for the multi-strategy firm today.&nbsp;</li><li>This will not last forever. The bear market contributing to Enron’s collapse broke less than a year later, bottoming out on Oct. 9, 2002. A five-year bull market began. Markets turn once weak hands are flushed out. Once the dust settles on FTX, those left standing will reap the benefits.</li></ol>



Brent Dornier is the Vice President of Trading at Strix Leviathan. In this role, he oversees the firm’s electronic trade execution function. In addition to trade execution, Brent also helps oversee valuations and is responsible for monitoring risk limits and exposure levels across all of the firm’s funds and business lines. Brent joined Strix Leviathan as a senior quantitative trader and engineer in 2021. Previously, he helped build and run trading desks at cryptocurrency trading platform ShapeShift and power generation company Calpine Corporation. Earlier in his career, he served on Citadel Investment Group’s Financial Engineering Technology desk and as an analyst for leading energy trading firms Saracen Energy and Enron.



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FTX’s Bankruptcy Is Strikingly Similar to Enron’s. Have We Learned Nothing Since?

Westie

Kwenta: Perpetuals Powered by Synthetix

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