Brianna Beckford

In the latest episode of Blockworks’ podcast “<a href="https://youtu.be/O5Ge-JkCUJQ">Empire</a>,” Jason Yanowitz, co-founder of Blockworks, is joined by Marty Bent of Great American Mining and Harry Sudock of GRIID. Both are focused on using stranded or otherwise wasted energy to mine Bitcoin, reducing flaring, methane and carbon emissions whilst doing so.



Marty &amp; Harry discuss the multi billion dollar opportunity in Bitcoin mining, the energy arbitrage opportunity, how the energy grid actually operates, the energy consumption debate and the Lightning Network.



They also discuss: 



<ul><li>The Chinese Bitcoin mining exodus</li><li>Henry Ford&#8217;s hypothesized energy currency</li></ul>



Check out what they had to say in the video below. 👇



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</div></figure>



On &#8220;Empire,&#8221; once a week, Jason interviews individuals that have built the crypto industry to talk about their struggles, bold moves and tough decisions. For any NPR or Guy Raz fans out there, you can think of &#8220;Empire&#8221; like a “How I Built This” for the bitcoin and crypto industry.



Episodes are released every Thursday morning.&nbsp;



Subscribe to Empire today on <a href="https://apple.co/389JSpL" target="_blank" rel="noreferrer noopener">Apple</a> or <a href="https://spoti.fi/3uVnxpC" target="_blank" rel="noreferrer noopener">Spotify</a>. Watch episodes on <a href="https://www.youtube.com/playlist?list=PLvER9nHSRN3wPkrDGTT5_8VC4Hjcq0f9U" target="_blank" rel="noreferrer noopener">YouTube</a>.



Are you a UK or EU reader that can&#8217;t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a> in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket. <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.

Podcast: Cleaning up the energy grid with Bitcoin mining

Casey Wagner

A member of the House Committee on Financial Services is calling for the Government Accountability Office, known as Congress’ investigation arm, to look into the SEC and its “failure to protect the investing public” from FTX.&nbsp;



Rep. Ritchie Torres, D-N.Y., drafted the <a href="https://emmer.house.gov/_cache/files/0/c/0c7fc863-7916-4b19-bc44-52bef772287e/9B0B9D1CA9B3C215DDC762DF5B0F6864.3.16.22.emmer.sec.letter.pdf" target="_blank" rel="noreferrer noopener">letter</a>, dated Tuesday. 



<blockquote class="wp-block-quote">“When it comes to government failure, the public official singularly responsible for failing to expose the FTX fraud is SEC Chair Gary Gensler,” Rep. Torres told Blockworks via email. “Chair Gensler took the position that the SEC had clear authority to investigate crypto exchanges.” </blockquote>



Rep. Torres also referred to the SEC’s handling of FTX as “egregious mismanagement.”&nbsp;



“If he had clear authority to do so, why did he fail to uncover the largest crypto Ponzi scheme in history?” Rep. Torres added. “It is on Congress to pass laws, but it is on the regulators to apply those laws to conduct investigations, and in the case of Gary Gensler, the regulators failed catastrophically. Chair Gensler has some explaining to do.”



Rep. Torres’ call for investigation comes months after he, along with Reps. Tom Emmer, R-Ind., Josh Gottheimer, D-N.J., Jake Auchincloss, D-N.J., Ted Budd, R-N.C., Warren Davidson, R-Ohio, Byron Donalds, R-Fl., and Darren Soto, D-Fl., drafted a <a href="https://emmer.house.gov/_cache/files/0/c/0c7fc863-7916-4b19-bc44-52bef772287e/9B0B9D1CA9B3C215DDC762DF5B0F6864.3.16.22.emmer.sec.letter.pdf" target="_blank" rel="noreferrer noopener">letter</a> to Gensler asking about the SEC’s jurisdiction over non-SEC regulated entities. 



“The SEC’s regulatory functions, while broad, are limited to the extent of its statutorily mandated jurisdiction,” the letter, published in March 2022, read. “It appears there has been a recent trend towards employing the Enforcement Division’s investigative functions to gather information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for initiating investigations.”&nbsp;



The letter does not mention any specific cryptocurrency companies representatives were concerned the SEC was investigating, FTX or otherwise. 



Rep. Torres did receive campaign donations linked to FTX founder Sam-Bankman-Fried, according to Federal Election Commission filings, but the Congressman elected to donate his contribution, his office <a href="https://blockworks.co/news/ftx-donations-campaign-finance" target="_blank" rel="noreferrer noopener">told Blockworks</a> last month.



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Gensler ‘Singularly Responsible’ for Failing To Expose FTX Fraud, Rep. Says

Ben Strack

One of the world’s largest asset managers is exploring the use cases for NFTs despite a turbulent crypto market environment, noting such tokens’ relevance beyond just digital art.



The company minted its first NFTs — issuing them to attendees of its first Innovation Forum held in September to offer clients a way to explore the digital assets ecosystem — and now seeks to move further into the space.



“We see NFTs in their literal sense and more generally than just for their application with artwork or collectibles,” <a href="https://www.linkedin.com/in/mikemuir/" target="_blank" rel="noreferrer noopener">Mike Muir</a>, Franklin Templeton’s head of digital assets technology, told Blockworks. “[An NFT] is an applicable construct for any unique asset for which only one exists.”



For example, Muir added, loans and property titles are unique assets that are not fungible.&nbsp;



Franklin Templeton allowed attendees of its Innovation Forum the ability to download the NFT through the firm’s Benji Investments app. It acted as “a badge” and was non-transferrable, the company said, and clients could use the token to access research from the Franklin Templeton digital assets team.



US clients across asset management and financial services have shown interest in interacting with digital assets such as NFTs, according to the company.



“Firsthand practical experiences like this create understanding and foster contemplation and thought as to what else may be possible,” Muir said. “In the long term, we are considering generalizing our issuance of NFTs for a variety of purposes and are devoted to uncovering new applications for these assets.”



Dmitriy Berenzon, a research partner at early-stage venture fund 1kx, said that exploring the issuance of on-chain assets is the right way to go for institutions. He added that Franklin Templeton is correctly using this tool to drive more engagement with their community.



<blockquote class="wp-block-quote">“It is not about permissioned blockchains that try to improve the efficiency of walled gardens, but rather about permissionless, crypto networks that drive human coordination at scale through the use of tokens,” Berenzon told Blockworks. </blockquote>



For other large financial services companies, NFTs can offer additional avenues for interacting with on-chain assets and liquidity, such as liquidity pools gated by know-your-customer (KYC) requirements, the 1kx research partner added.



“That said, they likely need more regulatory clarity prior to committing any significant amount of balance sheet,” Berenzon said.&nbsp;



<h3>An evolution for fund managers</h3>



Franklin Templeton, which had roughly $1.3 trillion in assets under management as of Oct. 31, has been moving deeper into the crypto space in recent months.



The company launched the <a href="https://www.franklintempleton.com/investments/options/money-market-funds/products/29386/SINGLCLASS/franklin-on-chain-u-s-government-money-fund/FOBXX" target="_blank" rel="noreferrer noopener">Franklin OnChain U.S. Government Money Fund</a> — a mutual fund using blockchain to process transactions and record share ownership — in April 2021.



The fund manager unveiled <a href="https://blockworks.co/news/franklin-templeton-preps-first-institutional-crypto-accounts" target="_blank" rel="noreferrer noopener">its first crypto-focused separately managed accounts</a> (SMAs) for investment professionals in September.



<a href="https://www.linkedin.com/in/roger-bayston-46256517a/" target="_blank" rel="noreferrer noopener">Roger Bayston</a>, the company’s segment lead, called digital assets “frontier risk alternatives” in <a href="https://blockworks.co/news/franklin-templeton-exec-digital-assets-are-frontier-risk-alternatives" target="_blank" rel="noreferrer noopener">an October interview with Blockworks</a>. He added that Franklin Templeton was looking into bringing additional digital asset investment strategies to market.



The fund giant’s move into NFTs comes after asset manager <a href="https://blockworks.co/news/vaneck-exec-use-cases-of-nfts-approaching-unlimited" target="_blank" rel="noreferrer noopener">VanEck launched an NFT collection</a> in May designed to ​​”build an active community of crypto-focused investors,” the firm said.



Though ProChain Capital President David Tawil said at the time VanEck’s launch was “a bit of a gimmicky way” to draw people into NFTs, he added that the effort could bridge gaps between the collectibles aspect of NFTs and their broader use cases.



VanEck’s NFT community started off with nearly 50,000 sign-ups, and the firm connected its members at in-person and virtual events, according to Matthew Bartlett, who leads VanEck’s NFT community and Web3 efforts.&nbsp;



Bartlett told Blockworks that the firm is encouraged to see another global asset manager using NFTs to foster client engagement and community building.&nbsp;



“We strongly believe that NFTs and related blockchain applications will become integral parts of the client engagement experience across a range of industries, from finance to social media to consumer technology,” he said.



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$1.3T Asset Manager Exploring Use Cases for NFTs

Sebastian Sinclair

The Central Bank of Nigeria is attempting to drum up the use of its central bank digital currency, or CBDC, by enforcing limits on the amount of cash citizens can withdraw from their local banks.



Nigeria’s central bank asked deposit banks and financial institutions to cap over-the-counter maximum cash withdrawals for individuals to $224 a week, in a <a href="https://www.cbn.gov.ng/Out/2022/CCD/RevisedCashWithdrawal.pdf" target="_blank" rel="noreferrer noopener">directive</a> issued on Tuesday, 



Corporate organizations&#8217; free withdrawals will also be limited to $1,154 per week, the bank said. Withdrawals above those limits will attract processing fees of 5% and 10% respectively. 



“Customers should be encouraged to use alternative channels…to conduct their banking transactions,” the bank said. Those include internet banking, mobile banking apps, debit cards and the country&#8217;s CBDC, the eNaira, among other means.



Central Bank Governor Godwin Emefiele conceded in October that his institution couldn’t account for the use of 85% of Nigeria’s cash in circulation, <a href="https://www.bloomberg.com/news/articles/2022-10-27/cash-clampdown-in-nigeria-seeks-to-curb-currency-hoarding-kidnappings" target="_blank" rel="noreferrer noopener">Bloomberg reported</a>. That, in effect, was jeopardizing monetary policy across the cash-hungry nation of Africa’s largest economy, he said at the time.



The West African nation has also struggled to deal with individuals hoarding cash as it attempts to counter illegal activity, including theft and kidnappings.



Under the directive, a $44 per day limit would apply to those individuals seeking to withdraw from ATMs while over-the-counter third-party checks exceeding $112 would not be accepted.



In rare circumstances, where individuals or organizations require cash for “legitimate” purposes, a limit of $11,226 and $22,452 will apply respectively.&nbsp;



Those will also be limited to one withdrawal per month and subject to rigorous identification and document requests including presenting a driver&#8217;s license and approval by the bank authorizing the withdrawal, among other things.



Nigeria became the first African nation to launch a retail central bank digital currency <a href="https://www.imf.org/en/News/Articles/2021/11/15/na111621-five-observations-on-nigerias-central-bank-digital-currency" target="_blank" rel="noreferrer noopener">in October 2021</a>, with a design aimed at complementing physical cash but not replacing it entirely.



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Nigeria Limits Cash Withdrawals in CBDC Push

Shalini Nagarajan

Nefarious actors have been increasingly turning to Telegram, according to Microsoft — as well as one of the tech gian’s own products — in attempts to infiltrate crypto companies.



The tech giant categorized the pervasiveness of such hacks, typically driven by malware, as a barrier to widespread adoption of cryptocurrencies. More concerning, still, in Microsoft’s estimation: Hackers are becoming quite adept at their brands of trickery.



“We are also seeing more complex attacks wherein the threat actor shows great knowledge and preparation, taking steps to gain their target’s trust before deploying payloads,” Microsoft wrote in a <a href="https://www.microsoft.com/en-us/security/blog/2022/12/06/dev-0139-launches-targeted-attacks-against-the-cryptocurrency-industry/" target="_blank" rel="noreferrer noopener">blog </a>Tuesday.



Microsoft detailed its own investigation of a would-be bad actor, “DEV-0139,” which the company said infiltrated Telegram chats between an unidentified crypto exchanges and their “VIP” clients, as well as the company’s other counterparties. The company said the hacker, or hacking collective, employed Excel files in bids to acquire valuable and private information.&nbsp;



While pretending to represent a separate crypto company — with apparently passable knowledge of the operations and communications of both firms — Microsoft said they invited the target to a different chat, where DEV-0139 attempted solicited feedback on the fee structure used by the crypto exchanges.



Upon gaining the trust of the target, the malicious actor sent an Excel file called “OKX Binance &amp; Huobi VIP fee comparison.xls” in an alleged bid to project credibility.



Opening the Excel file itself triggered a series of mishaps. A set of automatic actions contained in the file were used to obtain the user’s data, executed in invisible mode. This malicious “backdoor” allowed the bad actor to remotely access the infected system.&nbsp;



Microsoft also found another older file using the same technique, suggesting the incident wasn’t isolated — and that the actor may be executing similar campaigns with other targets.&nbsp;



It isn’t unusual for crypto scammers to use bots on Telegram to hoodwink users and lead them to malicious links. A 2021 report by digital threat detection firm <a href="https://q6cyber.com/blog/otp_bots_are_a_growing_threat/" target="_blank" rel="noreferrer noopener">Q6 Cyber</a> found that bot services, which can be purchased for around $300, can also be used to target investors.



2022 has already gone down as a year full of <a href="https://blockworks.co/news/the-nine-largest-crypto-hacks-in-2022" target="_blank" rel="noreferrer noopener">high-profile thefts</a> in the sector, including $600 million from FTX, $182 million from Beanstalk and $325 million from Wormhole. Interest in self-custody of assets has accordingly increased dramatically — boosted even more by user concerns of keeping crypto assets on centralized exchanges in light of FTX’s <a href="https://blockworks.co/news/1-binance-ftx-deal-is-off-unless-ftx-us-is-part-of-the-package-source" target="_blank" rel="noreferrer noopener">implosion</a>.



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Microsoft IDs Excel, Telegram Threat Targeting Crypto Startups

A group of US politicians — led by Sen. Elizabeth Warren, D-Mass. — have asked cryptocurrency bank Silvergate to release full records of its financial ties with FTX for a closer look into its potential role in the loss of billions of customer funds.&nbsp;



Silvergate CEO Alan Lane was asked in a <a href="https://www.warren.senate.gov/imo/media/doc/2022.12.05%20Letter%20to%20Silvergate%20Bank%20re%20FTX.pdf" target="_blank" rel="noreferrer noopener">letter on Tuesday</a> whether the bank was aware of FTX’s arrangement to wire money to Alameda Research, whether it flagged such transactions as suspicious and about its anti-money laundering compliance program.



“Your bank’s involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activity carried out by its clients,” Sens. Warren, John Kennedy and Roger Marshall wrote.&nbsp;



“The public is owed a full accounting of the financial activities that may have led to the loss of billions in customer assets, and any role that Silvergate may have played in these losses.”



Believed to be FTX’s primary banker, Silvergate is one of few regulated US banks that allow customers to move dollars onto crypto exchanges. FTX was a customer and prominent backer of the bank, with former CEO Sam Bankman-Fried once saying “it’s hard to overstate how much [Silvergate] revolutionized banking for blockchain companies.”



The collapsed crypto exchange and its subsidiaries had 20 Silvergate accounts, according to <a href="https://www.nbcnews.com/tech/crypto/elizabeth-warren-ftx-silvergate-bank-crypto-rcna60147" target="_blank" rel="noreferrer noopener">NBC News</a>. Blockworks has reached out for comment.



In their letter, the Senators also said they were concerned Bankman-Fried may have transferred&nbsp; $10 billion of customer funds to Alameda to fund “risky bets,” in violation of US securities laws.&nbsp;



Bankman-Fried has personally admitted to poor management practices, telling YouTuber Tiffany Fong that <a href="https://blockworks.co/news/sam-bankman-fried-ftx-cz-silent" target="_blank" rel="noreferrer noopener">FTX didn’t have its own bank account</a> when it started. Customers were directed to send money to Alameda’s account with Silvergate in exchange for holding assets on FTX, leading to accounting problems that eventually went out of hand.



“Silvergate provided banking services to both Alameda and FTX, raising questions about the bank’s role in facilitating the improper transfer of FTX customer funds to Alameda,” the senators said.



They also highlighted that two of Silvergate’s clients have declared bankruptcy in the span of one month — FTX and crypto lender BlockFi.&nbsp;



“Needless to say, Silvergate is now experiencing heightened stress, raising questions about its safety and soundness,” the letter said.



The bank has access to taxpayer-funded debt reserves through the Federal Reserve Bank of San Francisco and the Federal Home Loan Bank of San Francisco, so it’s only fair for the public to know whether the bank will be able to navigate even more crypto market volatility, they added.



Silvergate’s alleged failure to take adequate notice of the FTX-Alameda scheme suggests neglect in the implementation or maintenance of an effective anti-money laundering program required under the Bank Secrecy Act, the letter stated.



Silvergate has been asked to provide the senators with relevant records by Dec. 19.



<h3>Silvergate reassures customers with ‘ample liquidity’ message</h3>



On Tuesday, Silvergate <a href="https://blockworks.co/news/silvergate-has-ample-liquidity" target="_blank" rel="noreferrer noopener">issued a statement</a> describing its extensive due diligence process on FTX and Alameda.&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;



The bank investigates unexpected or concerning activity and files a suspicious activity report in such cases, it said.



Lane said Silvergate’s customer deposits are safe — adding that the company has a resilient balance sheet with “ample liquidity.”



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Crypto Bank Silvergate Asked To Detail Records of Purported FTX Ties 

Troubled Southeast Asia crypto exchange Zipmex is reportedly expected to be acquired by a venture capital firm for about $100 million.



Pending regulatory approval and coming to an agreement on terms, V Ventures has offered to pay $30 million in cash and the remainder in unspecified digital assets, <a href="https://www.bloomberg.com/news/articles/2022-12-02/zipmex-crypto-exchange-to-get-100-million-buyout-from-v-ventures-fund?leadSource=uverify%20wall" target="_blank" rel="noreferrer noopener">Bloomberg reported</a> Wednesday, citing sources familiar with the matter.



The likely acquisition comes as there’s been an uptick in mergers and acquisitions interest, while companies in the region try to fend off declining spot cryptocurrency prices and dwindling big-money interest.&nbsp;



Several crypto firms throughout Asia have also reduced <a href="https://blockworks.co/news/bybit-to-slash-staff-citing-turbulent-markets">employee numbers</a>. Representatives for the exchange and V Ventures did not immediately return requests for comment on the terms of the deal.



A <a href="https://www.youtube.com/watch?v=fpLkoS2vu0Q" target="_blank" rel="noreferrer noopener">video</a> of a Dec. 2 Singapore court proceeding on the matter provided an overview of the offer, without mentioning the potential buyer or detailing specific terms.&nbsp;



The fund, a subsidiary of investment holding company Thoresen Thai Agencies, would retain a 90% stake in Zipmex, whose customers&#8217; funds remain locked on its platform after it filed for bankruptcy earlier this year. The Jump Capital-backed firm was forced to <a href="https://blockworks.co/news/jump-capital-backed-crypto-exchange-suspends-withdrawals" target="_blank" rel="noreferrer noopener">halt withdrawals</a> in July under the strain of a liquidity crunch that has gripped the industry.



In August, the crypto exchange tapped restructuring and financial consulting firm KordaMentha in a bid to oversee its bankruptcy process.&nbsp;



The firm sought <a href="https://www.bloomberg.com/news/articles/2022-07-25/zipmex-aims-to-raise-at-least-50-million-to-mend-balance-sheet?sref=IIP4JEyu" target="_blank" rel="noreferrer noopener">$50 million</a> in rescue funding from outside parties, attempting to patch a shortfall in purported unpaid loans from lenders Babel Finance and Celsius.



At peak, the firm had roughly 250 employees across Australia, Indonesia, Singapore and Thailand.



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Troubled Crypto Exchange Zipmex to be Acquired for $100M: Report

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



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



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



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



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



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



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



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



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



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



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



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



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Republican Congressman Hit With Ethics Penalty for Crypto Pump and Dump

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



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



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



Jacobs declined to comment about the move.&nbsp;



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



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



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



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



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



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



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Ex-FTX Exec Lands at Payments Tech Company Nuvei

Michael Bodley

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



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



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



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



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



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



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



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



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



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Brevan Howard’s Crypto Unit Is Laying Off Underperformers

Bessie Liu

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



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



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



Jack Sharman, a white-collar defense lawyer and former special counsel to the US House Financial Services Committee for the Whitewater investigation involving former President Bill Clinton, told Blockworks that &#8220;a white-collar target’s desire to explain or blame is powerful, but public and repeated statements about potential criminal conduct never help and usually hurt. Client management, however, can be challenging in such circumstances.”



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



“The publicly-reported allegations about Mr. Bankman-Fried could be the basis for charges of securities fraud, mail-and-wire fraud, bank fraud, and conspiracy to commit those offenses,” Sharman said. &#8220;In addition, regulators such as the SEC and the CFTC could bring parallel civil enforcement actions.”



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



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



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



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



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



<h3>Wire fraud</h3>



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



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



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



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



<h2>Criminal securities fraud</h2>



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



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



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



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



Updated Dec. 7, 2022 at 9:11 am ET: Comments from defense attorney Jack Sharman have been added.



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

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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

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



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



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



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



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



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



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



<h3>Bargain hunting</h3>



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



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



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



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



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



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



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



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



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



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Goldman Sachs May Be Looking for Crypto Venture Bargains

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



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



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



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



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



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



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



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



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



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



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



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



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

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



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



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



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



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



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



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



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



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



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



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



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



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Chainlink Adds Staking After Cutting Sales Staffers

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

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.&nbsp;



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.



No Snapshot vote was conducted, meaning the protocol went straight to “on-chain” votes after addressing community questions on the groups&#8217; <a href="https://forum.nexusmutual.io/t/proposal-allocate-capital-to-maple-finance/835" target="_blank" rel="noreferrer noopener">governance forum</a>.



A spokesperson for Nexus Mutual told Blockworks that while proposals related to the DAO treasury make use of Snapshot governance, changes to the protocol or capital pool investment allocations require an on-chain vote.



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.&nbsp;



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.&nbsp;



“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.



Correction, Dec. 7 2021, 12:20 p.m. ET: Nexus Mutual&#8217;s capital pool investment allocations do not use Snapshot governance for community feedback because they require an on-chain vote.



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Nexus Mutual Loses Millions in Maple Finance Credit Pool

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