Brianna Beckford

On this episode of &#8220;<a href="https://youtu.be/ZP-8UcAkjUA" target="_blank" rel="noreferrer noopener">On the Margin</a>,&#8221; Blockworks Co-founder Mike Ippolito is joined by returning guest and former hedge fund manager Russell Clark of Russell Clark Investment Management. After spending over a decade as an investment manager, Russell joins &#8220;On The Margin&#8221; to discuss the period of change we find ourselves in. 



From trends in inflation to the evolution of market structure and reliance on clearing houses, Russell provides a big picture macro framework for thinking about markets and the world more broadly. 



Russell also shares his thoughts on the connection between real wages and food prices and what the conflict in Ukraine means for food.



They also cover: 



<ul><li>Russell&#8217;s market outlook</li><li>the unwinding of the petrodollar system</li><li>Russian debt default and market volatility</li><li>recent price action in commodities</li><li>and so much more</li></ul>



Watch the full episode below! 👇



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&#8220;On the Margin&#8221; is a two-part show.&nbsp;Once a week, Mike interviews industry experts. At the end of the week, he is joined by a co-host where they break down the top crypto and macro stories. Episodes go live every Wednesday and Saturday morning.



Subscribe to &#8220;On the Margin&#8221; today on <a href="https://podcasts.apple.com/us/podcast/on-the-margin/id1558223079" target="_blank" rel="noreferrer noopener">Apple</a> or <a href="https://open.spotify.com/show/2yFL2nSsQucf1rzdEKbFZY" target="_blank" rel="noreferrer noopener">Spotify</a>, or watch episodes on <a href="https://youtube.com/playlist?list=PLvER9nHSRN3xVs_p-dl7L7K_ZgL6lSudu" target="_blank" rel="noreferrer noopener">YouTube</a>.



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Podcast: Food Inflation Is Starting To Bite | Russell Clark

Sebastian Sinclair

David Canellis

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



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



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



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



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



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



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



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



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



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



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">If crypto is going to be widely adopted, it needs some rules of the road &amp; a cop on the beat to enforce them. To be clear, I am technology-neutral. What I&#39;m not neutral about: Investor protection. <a href="https://t.co/e6GsSAyXhB">pic.twitter.com/e6GsSAyXhB</a>&mdash; Gary Gensler (@GaryGensler) <a href="https://twitter.com/GaryGensler/status/1422607603708870663?ref_src=twsrc%5Etfw">August 3, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>SEC chair Gary Gensler appeared in a number of short clips detailing the SEC&#8217;s view on crypto last year.</figcaption></figure>



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



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



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



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



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



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



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">7/ Look….we&#39;re committed to following the law. Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that (it&#39;s nice if you actually enforce it evenly across the industry equally btw).&mdash; Brian Armstrong (@brian_armstrong) <a href="https://twitter.com/brian_armstrong/status/1435439676429537281?ref_src=twsrc%5Etfw">September 8, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>Coinbase CEO Brian Armstrong remained defiant in the face of SEC&#8217;s legal threats</figcaption></figure>



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



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



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



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



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



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



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



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



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



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The SEC claims to be a &quot;cop on the beat&quot; for crypto. It should be! But unfortunately, as Jim Chanos puts it, they&#39;re more archaeologists than detectives: they wait until things go wrong &amp; then show up to dig for details. Case in point: ignoring Celsius, but going after BlockFi.&mdash; Jake Chervinsky (@jchervinsky) <a href="https://twitter.com/jchervinsky/status/1562788909238480896?ref_src=twsrc%5Etfw">August 25, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>SEC cases against big name failed projects could be on the horizon</figcaption></figure>



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



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



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



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



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SEC Under Gensler: Crypto Power Grab or Effective Protection?

Ben Turtel

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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Why NFTs Will Upgrade Everything

Casey Wagner

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



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



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



What is FTX?&nbsp;



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



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



Why did it fail?&nbsp;



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



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



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



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



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



How is Genesis involved?&nbsp;



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



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



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



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



Is crypto over?&nbsp;



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



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



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



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



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



When your parents say the tokens have no value… 



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



When someone brings up all those hacks… 



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



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



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A Field Guide to Thanksgiving Crypto Banter in 2022

Shalini Nagarajan

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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

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



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



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



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



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



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



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



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



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



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



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



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



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



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



Decentralized Infura alternatives gain sudden interest



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



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



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



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



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



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



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



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ConsenSys Wants Your IP Address, Crypto Wallet, Bank Account

Ornella Hernandez

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



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



Nov. 14 — Monday: Time out



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



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



Nov. 15 — Tuesday: Another FTX casualty&nbsp;



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



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



Nov. 16 — Wednesday: Class action lawsuit filed against SBF



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



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



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



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



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



Nov. 17 — Thursday: ‘A complete failure of corporate controls’



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



Ray <a href="https://blockworks.co/news/worse-than-enron-sbfs-ftx-has-a-complete-absence-of-trustworthy-information" target="_blank" rel="noreferrer noopener">added</a> some harsh words. Despite having been involved in the bankruptcies of Enron: “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”



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



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



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



Nov. 18 — Friday: Bahamas regulators custody FTX assets



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



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



Nov. 19, 20 — Saturday and Sunday: Following the hacking trail



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



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



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



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



Nov. 21 — Monday: Pls-help



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



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



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



Nov. 22 — Tuesday: SBF apologizes again, court hears from bankruptcy lawyers



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



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



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



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



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The Last 10 Days in the FTX Saga: A Timeline

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



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



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



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



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



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



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



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



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



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



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



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



Loans backed by bitcoin miners to buy more bitcoin miners



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



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



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



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



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



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



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



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



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



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



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



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Bitcoin Price Drop Tests Miners’ Diamond Hands

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



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



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



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



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



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



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


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


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



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



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



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



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



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



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



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



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



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



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



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



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



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



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

Bessie Liu

The past month has been a rollercoaster ride in the crypto world, and one which may be coming to a theater or streaming service near you next.



Apple is in talks with author and financial journalist, Michael Lewis, to acquire his as-yet-unpublished book about FTX founder Sam Bankman-Fried.&nbsp;



Lewis is the author behind The Big Short, Moneyball and The Blind Side, and had been embedded with Bankman-Fried for the past six months before the dramatic collapse of FTX.



The tech giant is “near to a deal” with Lewis, <a href="https://deadline.com/2022/11/apple-deal-michael-lewis-book-crypto-king-sam-bankman-fried-ftx-1235180511/">according to</a> Deadline, which first reported the news, citing unnamed sources.



Previously a crypto celebrity whose net worth was estimated to be around $36 billion, Bankman-Fried was <a href="https://blockworks.co/news/sam-bankman-fried-proposes-respect-for-ofac-in-crypto-regulatory-framework">chummy</a> with regulators in Washington D.C and often made appearances at keynote events.



At the time, it seemed impossible that the self proclaimed <a href="https://blockworks.co/news/effective-altruism-tainted-by-sbf">philanthropist and altruist</a> would actually be using FTX customer funds in shady deals.



In fact, the inner works of FTX were so bad, that its new CEO John Jay Ray III, who oversaw restructuring efforts at historic corporate failures such as Enron, <a href="https://blockworks.co/news/worse-than-enron-sbfs-ftx-has-a-complete-absence-of-trustworthy-information">said in its bankruptcy filing </a>that he had never in his career seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”



Lewis’s book will attempt to cover the details behind FTX’s closed curtain, and the contagion its downfall wrought on the entire crypto industry.



Even before Apple scored the rights to Lewis’s book, crypto Twitter was awash with armchair casting agents.



<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">these two are going to make the greatest finance movie ever made <a href="https://twitter.com/hashtag/SamBankmanFried?src=hash&amp;ref_src=twsrc%5Etfw">#SamBankmanFried</a> <a href="https://twitter.com/hashtag/CarolineEllison?src=hash&amp;ref_src=twsrc%5Etfw">#CarolineEllison</a> <a href="https://twitter.com/hashtag/FTX?src=hash&amp;ref_src=twsrc%5Etfw">#FTX</a> <a href="https://twitter.com/hashtag/FTXbankruptcy?src=hash&amp;ref_src=twsrc%5Etfw">#FTXbankruptcy</a> <a href="https://twitter.com/hashtag/cryptocurrency?src=hash&amp;ref_src=twsrc%5Etfw">#cryptocurrency</a> <a href="https://twitter.com/hashtag/GiseleBundchen?src=hash&amp;ref_src=twsrc%5Etfw">#GiseleBundchen</a> <a href="https://t.co/kzrBXsrxVx">pic.twitter.com/kzrBXsrxVx</a>&mdash; Ahsan (@ahsanmeister) <a href="https://twitter.com/ahsanmeister/status/1592214023067832320?ref_src=twsrc%5Etfw">November 14, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><a href="https://twitter.com/hashtag/FTX?src=hash&amp;ref_src=twsrc%5Etfw">#FTX</a> THE MOVIE 👀 🎥 <a href="https://twitter.com/SBF_FTX?ref_src=twsrc%5Etfw">@SBF_FTX</a> <a href="https://twitter.com/cz_binance?ref_src=twsrc%5Etfw">@cz_binance</a> 🍿 <a href="https://t.co/DWorL6G7An">pic.twitter.com/DWorL6G7An</a>&mdash; EvilEyes 🪬 (@SolanaEyes) <a href="https://twitter.com/SolanaEyes/status/1591149893418381313?ref_src=twsrc%5Etfw">November 11, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Mainstream coverage of Bankman-Fried&#8217;s epic failure has been oddly fawning. Let&#8217;s hope Lewis and whoever makes a movie on the subject can bring this dramatic story to the world with alacrity.



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Apple Seeks Film Rights to Bankman-Fried Story: Report

Michael Bodley

In a yo-yo of a year for digital asset investment managers, Arca has largely held its ground.&nbsp;&nbsp;



The hedge and venture fund firm, in fact, is in the middle of finalizing a Series B round, according to two sources familiar with the matter. Arca CEO Rayne Steinberg confirmed the fresh capital-raise in an interview with Blockworks, saying it ought to be finalized in the coming months.&nbsp;



That’s not to say it’s been a painless year for the Los Angeles-headquartered operation. There have been a number of headaches, from choppy returns to operational and fundraising pivots.&nbsp;



Case in point: Arca first started outreach for the Series B about a year ago — near the height of the bull market, long before digital assets <a href="https://www.coingecko.com/en/global-charts" target="_blank" rel="noreferrer noopener">lost</a> 70% of their collective market capitalization. 



The firm also booked significant losses in its flagship strategy earlier in 2022, when the top-heavy market’s bottom fell right out on the Terra ecosystem — following the de-pegging of Terra’s stablecoin, UST — as well as the rapid collapse of over-levered crypto lenders, including Celsius and Voyager.&nbsp;



Sources said Arca was hit with fairly minor redemptions. Its liquid products offer monthly subscriptions and redemptions. But savvy repositioning and open lines of communication to limited-partners appear to have prevented a more dire outcome. And, crucially, Arca’s <a href="https://blockworks.co/news/arca-and-deso-foundation-kick-off-new-defi-funds" target="_blank" rel="noreferrer noopener">funds</a> had minimal exposure to FTX, Steinberg said, though he declined to specify an exact figure.&nbsp;



“Our investment mandate is broad, and our buckets are also broad, so those changed in an environment where [assets have become] super-correlated to macro,” Steinberg said.&nbsp;



The Arca head, tasked with heading business development for the Series B, decided to wait it out. The new plan: rejigger classification of the capital— settling on compliance, infrastructure and staffing, in both the parent company and its affiliate startup innovation and advisory division, Arca Labs.



“The environment really changed with Luna and upended it and really changed the makeup of who was going to be in it,” Steinberg said.



Following its seed round, Arca <a href="https://www.prweb.com/releases/digital_asset_management_firm_arca_raises_10_million_in_series_a_funding/prweb17656592.htm" target="_blank" rel="noreferrer noopener">closed</a> a $10-million Series A in January 2021 led by RRE Ventures. The firm likewise then-declined to detail its valuation.



Navigating regulation&nbsp;&nbsp;



Regulators, the <a href="https://blockworks.co/news/sec-grayscale-exploring-bitcoin-trust-options" target="_blank" rel="noreferrer noopener">SEC</a> and the CFTC in <a href="https://blockworks.co/news/cftc-commissioner-ftx-crisis" target="_blank" rel="noreferrer noopener">particular</a>, have scrambled to get a handle on the swiftly changing developments, a push expected to intensify on the <a href="https://blockworks.co/news/new-crypto-friendly-politicians-are-headed-to-washington" target="_blank" rel="noreferrer noopener">outcome</a> of the US’ midterms.&nbsp;



Steinberg welcomes the <a href="https://blockworks.co/news/crypto-industry-must-report-bad-actors" target="_blank" rel="noreferrer noopener">scrutiny</a>. Amping up the financial watchdogs’ powers, while perhaps overdue, ought to weed out an assortment of digital asset bad actors, including fraudsters. New regulation, as well as the potential for <a href="https://blockworks.co/news/crypto-policy-proposals-ok-rep-says" target="_blank" rel="noreferrer noopener">congressional legislation</a>, would give a leg-up to asset managers — including Arca — with robust compliance structures and featuring executives who cut their teeth on Wall Street.&nbsp;



The institutional investment manager&nbsp; — whose limited-partners are predominantly the likes of endowments and pension plans — has historically sourced potential investors from what Steinberg dubbed “the gateway [to] traditional finance.” It’s also important for the startup’s partners to maintain their own distribution channels.



Despite a number of indicators that deep-pocketed TradFi investors are sitting out crypto’s latest volatile session — and some prominent figures, according to industry participants, are pulling out entirely — Steinberg said the vast majority of the Series B’s likely backers have not had much exposure to recent market conditions.&nbsp;



Fending off the bear market



The chief executive declined to disclose the specific investors with Series B commitments, or entities now in the midst of due diligence. But there is some crossover between Arca’s existing limited-partner roster, according to Steinberg, formerly WisdomTree Asset Management’s co-founder.



The Arca co-founder also declined to comment on how much capital the firm is targeting for the venture round, citing the fundraise still being in the works — and would not disclose an approximate new valuation under the same rationale.&nbsp;



Arca’s exact year-to-date showing for its main fund isn’t known, but one source said they were “far outside the norm,” which typically has a “healthy respect for risk.” The team’s portfolio managers clawed back a “good chunk” of those losses in the coming months — and then dipped again as markets were rattled by FTX’s bankruptcy.&nbsp;The fund outperformed spot bitcoin and ether from the start of November through last Friday, however.



The asset manager’s flagship fund employs a global macro approach, utilizing a bottom-up, fundamental technique — pioneered by TradFi stock-pickers and adapted for crypto — to inform its trading. That vehicle, and additional investment products, are now quite overweight cash as market participants parse the likelihood of yet more counterparties having to close up shop before year end.&nbsp;



Steinberg and execs have undertaken a “deep dive” into Arca’s response mechanisms to contain sudden market plunges. The self evaluation has focused on risk, initial counterparty due diligence and regular followup check-ins.&nbsp;



“You can’t get everything right, and if you’re stagnant, you’re [in trouble],” Steinberg said. “What worked yesterday won’t work tomorrow. Even when things go wrong, you’ll have to evaluate them, too.”



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Dodging Worst of FTX, Arca Won’t Stay ‘Stagnant’

Lawyers managing the FTX bankruptcy likened the firm to a “personal fiefdom” of former CEO Sam Bankman-Fried in Delaware court on Tuesday.



In the first hearing of what’s set to be a sprawling case, lawyers James Bromley and Sullivan Cromwell ultimately described FTX — previously one of the world’s largest global crypto exchanges by trade volume — as a “different sort of animal.”&nbsp;



They told the court that a “substantial amount of assets” held by FTX have either been stolen or are otherwise missing. FTX in total has a cash balance of $1.24 billion, and its restructuring experts are now working with financial investigators to locate the remaining assets.&nbsp;



A <a href="https://cases.ra.kroll.com/FTX/Home-DownloadPDF?id1=MjMxNDUwMA==&amp;id2=-1" target="_blank" rel="noreferrer noopener">court document</a> from Saturday shows FTX owes $3.1 billion to its 50 largest creditors, and the biggest creditor alone is out-of-pocket for $226.2 million. Each claimant is listed as a customer, not as a company insider. Ten have claims of more than $100 million each. 



Bankman-Fried has reportedly sought up to $8 billion to cover the company&#8217;s shortfall.



“We realize that there are many people that are looking to get their money back immediately. And we sympathize with that… and we are working towards being able to do that,” Bromley said.



After initial disagreement, Bahamas-appointed lawyers for FTX Digital Markets agreed to move their <a href="https://blockworks.co/news/ftx-bahamas-unit-filed-bankruptcy" target="_blank" rel="noreferrer noopener">chapter 11</a> to Delaware, bringing all FTX petitions together in one case. 



Veteran restructuring expert John J. Ray III, who sorted out Enron following its own demise, is spearheading FTX efforts as the firm&#8217;s new CEO.



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="561" src="https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-1024x561.jpg" alt="" class="wp-image-39827" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-1024x561.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-300x164.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-768x421.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-1536x842.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-428x235.jpg 428w, https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-470x258.jpg 470w, https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-389x213.jpg 389w, https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-80x44.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos-50x27.jpg 50w, https://cms.blockworks.co/wp-content/uploads/2022/11/sbfsilos.jpg 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>FTX lawyers shared a map of Bankman-Fried&#8217;s business, with the former billionaire at the top (source: FTX counsel).</figcaption></figure>



Matters of alleged malfeasance are already apparent. Bromley detailed substantial purchases unrelated to the business. One of the US debtors purchased almost $300 million worth of real estate in the Bahamas, according to the attorney. 



Those houses were said to be mostly used as homes and vacation properties by senior FTX executives.



Bankman-Fried effectively controlled FTX ‘at all times,’ lawyer says



FTX’s <a href="https://blockworks.co/news/what-happened-ftx-hack" target="_blank" rel="noreferrer noopener">mysterious hack</a> shortly after it filed for bankruptcy was also covered. Around $477 million in various cryptocurrencies (valued at the time) was apparently drained from FTX hot wallets — including FTX US.&nbsp;



The Bahamas security regulator quickly moved to place some of FTX assets in cold storage via direct-custody startup Fireblocks. The decision, lawyers say, was directly actioned by Bankman-Fried and FTX chief technology officer Gary Wang.



The hacker recently swapped much of the siphoned ether for bitcoin via the RenBridge service — a platform Bankman-Fried’s Alameda Research acquired in 2021.



Bromley said FTX continues to suffer cyberattacks beyond that initial one. FTX’s new management has engaged “sophisticated expertise” to protect against incidents moving forward.&nbsp;



The team is now “working to bring order to disorder” by implementing controls, investigating core issues and providing transparency, Bromley said. Investigators are coordinating with debtors to collect all related business information.



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="549" src="https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-1024x549.jpg" alt="" class="wp-image-39828" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-1024x549.jpg 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-300x161.jpg 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-768x412.jpg 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-1536x824.jpg 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-428x230.jpg 428w, https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-470x252.jpg 470w, https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-389x209.jpg 389w, https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-80x43.jpg 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse-50x27.jpg 50w, https://cms.blockworks.co/wp-content/uploads/2022/11/ftxcollapse.jpg 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>The apparent hacking incident isn&#8217;t labelled here. It happened after FTX Group filed for chapter 11s (source: FTX counsel).</figcaption></figure>



As that plays out, Bankman-Fried’s exact role in FTX’s alleged mismanagement no doubt will be front-of-mind for its creditors. It&#8217;s estimated up to one million users lost money with FTX, ranging from regular investors to blockchain startups and funds.



Lawyers presented a timeline of Bankman-Fried’s business activity. His trading outfit Alameda was founded in Nov. 2017 at the University of California, Berkeley, with FTX’s launch following in 2019 in Hong Kong.



“In effect, the company during that period of time, wandered the world. Started in Berkeley and went to Hong Kong… it went to Chicago, to Miami, went to the Bahamas, but at all times it was effectively under the control of Mr. Bankman,” Bromley said.



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FTX Run by ‘Inexperienced, Unsophisticated’ Traders, Court Hears

Ben Strack

Spot cryptocurrency and derivatives exchange OKX is bolstering its efforts around transparency in a bid to reinforce trust from existing customers — and in a play to win over potential new traders — following the crash of rival FTX, which took the opposite approach.&nbsp;&nbsp;



The Seychelles company has rolled out a proof-of-reserves page on its website that shows its latest collateralization ratios, as well as a self-audit tool intended to verify assets are backed on a one-to-one basis, known as <a href="https://blockworks.co/news/what-are-proof-of-reserves-and-can-they-build-back-trust" target="_blank" rel="noreferrer noopener">proof of reserves</a>.



The concept, designed to act as a safeguard for client funds that becomes even more relevant in the event of another pronounced downturn and ensuing spate of withdrawals, is gaining traction. FTX’s <a href="https://blockworks.co/news/ftx-auditor-proof-of-reserves" target="_blank" rel="noreferrer noopener">auditor</a> and Binance have both pushed for the setup to become an industry standard.&nbsp;



OKX, meanwhile, is rolling out what it calls an independent custodial wallet designed to enable institutional clients to secure their assets separately from its reserves.&nbsp;



The wallet, set to launch in coming weeks, is designed as a real-time tracker for wallet balances and safeguard the private keys of customers in a custodial model.&nbsp;



Ripple effects have continued, largely unabated, following the liquidity crunch that essentially forced FTX <a href="https://blockworks.co/news/whats-next-for-ftx-and-its-customers-after-bankruptcy-filing/" target="_blank" rel="noreferrer noopener">to declare bankruptcy</a>. Lawyers for FTX and its affiliates said in a <a href="https://pacer-documents.s3.amazonaws.com/33/188450/042120644082.pdf" target="_blank" rel="noreferrer noopener">motion</a> that as many as <a href="https://blockworks.co/news/ftx-doom-draws-dozens-of-federal-state-international-agencies" target="_blank" rel="noreferrer noopener">one million creditors could be affected</a>.



Lennix Lai, OKX’s financial markets director, told Blockworks that while the crypto exchange had no direct exposure to FTX, customers are reeling and want to know what firms — especially exchanges and custodians — are doing about their unease.



“That’s why we’re in the process of a third-party audit to publish our <a href="https://www.investopedia.com/terms/m/merkle-tree.asp" target="_blank" rel="noreferrer noopener">Merkle Tree </a>proof-of-reserves, and we’ve shared 23 of our BTC addresses and 13 ERC20 addresses <a href="https://twitter.com/okx/status/1590812545346330624" target="_blank" rel="noreferrer noopener">publicly</a> to verify a portion of our reserves,” he said.&nbsp;



Added Lai: “Our new proof of reserves [and self-audit features] give users the ability to self-verify that their assets are 100% backed. But the third-party audit will provide additional reassurance.”



It is unclear just how effective so-called “<a href="https://blockworks.co/news/what-are-proof-of-reserves-and-can-they-build-back-trust" target="_blank" rel="noreferrer noopener">proof of reserves</a>” dashboards from OKX and others, like Crypto.com, will be in <a href="https://blockworks.co/news/crypto-exchange-proof-of-reserves-not-calming-investor-fears" target="_blank" rel="noreferrer noopener">calming investor fears</a>.&nbsp;



“As this crisis has made apparent, centralized intermediaries of financial transactions are opaque and often untrustworthy,” executives at crypto-focused asset managerPantera Capital wrote in a Nov. 11 letter to clients.. “Nothing could have made more obvious the need for decentralized, trustless protocols that allow users to trade, hold, and transfer their assets without relying on entities like FTX, Celsius or Voyager.”



Crypto storage wallet Arculus said it has seen a sales boost amid the recent heightened volatility, but declined to comment on specific sales. And digital assets access provider Wellfield Capital said last week it expects its revenue to rise, as the market shifts away from centralized exchanges — toward decentralized services and self-custody.



“Going forward, OKX will continue to do whatever we can to demonstrate our solvency and stability, while continuing to safeguard our users’ data,&#8221; Lai said.



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Crypto Exchange OKX Has A Plan to Assuage Traders’ Fears: Transparency

An unidentified trader, believed to be Mango Markets exploiter Avraham Eisenberg, accumulated a roughly 92 million token loan of CRV, the native token of Curve Finance, over a period of six days. But rather than pay back the loan, <a href="https://blockworks.co/news/curve-stablecoin-crv-loan" target="_blank" rel="noreferrer noopener">the trader allowed a total of about $63.6 million in USDC collateral to be liquidated</a>, Tuesday.



Assets on Aave each have a liquidation threshold — a percentage at which a loan will be considered undercollateralized if reached.&nbsp;



In this latest case, the liquidation threshold for USDC was <a href="https://docs.aave.com/risk/v/aave-v2/asset-risk/risk-parameters" target="_blank" rel="noreferrer noopener">88%</a>, which meant that once the value of the borrowed CRV rose above 88% of the USDC collateral supplied to Aave, liquidators stepped in to sell the USDC, buy back CRV and close the debt position.



But there was a problem: There wasn’t enough CRV liquidity to allow that to happen expeditiously. Instead, the position was closed over the course of 50 minutes through <a href="https://etherscan.io/tokentxns?a=0x57e04786e231af3343562c062e0d058f25dace9e&amp;ps=100&amp;p=1" target="_blank" rel="noreferrer noopener">385 individual</a> mini-liquidation transactions.



This left Aave with 2.64 million CRV, roughly $1.7 million, in bad debt — borrowed CRV that will never be repaid.&nbsp;



An Aave team member said that this deficit can be covered with the protocol’s treasury holdings.&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">First of all, the bad; of course leaving bad debt is never pleasant. It is a small amount and still a fraction of the tvl of the protocol. The governance has many means to cover it without incurring in any liquidity problem. But, it&#39;s a (relatively cheap) lesson 🔽&mdash; thΞ3d.lens.eth( 👻, 👻) (@The3D_) <a href="https://twitter.com/The3D_/status/1595122277854904325?ref_src=twsrc%5Etfw">November 22, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Aave’s native token (AAVE) dipped to roughly $50 as the protocol began to accrue bad debt, but has since fully recovered, trading at almost <a href="https://blockworks.co/prices" target="_blank" rel="noreferrer noopener">$56</a> at the time of writing, according to data compiled by Blockworks.



This latest exploit, however, poses a big question for Aave, Matt Fiebach, a Blockworks research analyst, said.



“The scary part about the situation is not that Aave took a hit for $1-$2 million in bad debt but rather the same design flaw is exploitable with other tokens,” Fiebach said.



Blockworks asked Eisenberg if, in his view, Aave was vulnerable to a similar attack, to which he responded, “I do not view this as an attack on either side.”



Eisenberg declined to comment further on his role in the trades, if any, except to note, “it’s a matter of public record that a founder of Curve had a nine-figure, leveraged-long CRV position on Aave.”



Last week, Eisenberg <a href="https://twitter.com/avi_eisen/status/1593078192033918977" target="_blank" rel="noreferrer noopener">called</a> Curve a “ponzi,” deriding its CRV-emitting liquidity incentive mechanism. Curve&#8217;s founder, Michael Egorov, is <a href="https://etherscan.io/address/0x7a16ff8270133f063aab6c9977183d9e72835428" target="_blank" rel="noreferrer noopener">known to have</a> a nine-figure CRV stash on deposit in Aave that could become vulnerable if the price of CRV fell sharply.



Although it is uncertain what the next steps for Aave are, the protocol <a href="https://twitter.com/AaveAave/status/1595168980993556480?t=xNRSVZ7Q_lX1RmoKNgrFmQ&amp;s=31" target="_blank" rel="noreferrer noopener">tweeted</a> that the community would be initiating discussion in response to this incident.&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">1/6 We want to address the cycle of liquidations that occurred in the CRV pool on the Aave Protocol today. The liquidations were successful (and worked as designed), but unfortunately, the size of the position left some excess debt within the protocol.&mdash; Aave (@AaveAave) <a href="https://twitter.com/AaveAave/status/1595168980993556480?ref_src=twsrc%5Etfw">November 22, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



It is possible that the protocol will make changes to its liquidation threshold — as <a href="https://governance.aave.com/t/discussion-reducing-long-tail-asset-risk/10748?u=monet-supply" target="_blank" rel="noreferrer noopener">proposed</a> by community contributor <a href="https://twitter.com/MonetSupply" target="_blank" rel="noreferrer noopener">monetsupply</a> — as a lower liquidation threshold correlates to less bad debt collected.&nbsp;



The community could also choose to implement limitations on the number of illiquid coins that can be borrowed on the platform.&nbsp;



Another option is to curtail rehypothecation.



Unlike some other lending markets such as Fraxlend or Silo, Aave rehypothecates collateral posted by its clients — meaning that it uses tokens posted on its platform and lends them out to others.&nbsp;



Although this increases capital efficiency — as more tokens can be borrowed — the protocol then faces the risk of not being able to liquidate collateral in the event of a price drop.



The Aave community <a href="https://governance.aave.com/t/discussion-reducing-long-tail-asset-risk/10748?u=monet-supply" target="_blank" rel="noreferrer noopener">will likely</a> be implementing short-term action to prevent further exploits.&nbsp;



“Speed is [essential] on this issue,” community member jarnMod <a href="https://governance.aave.com/t/discussion-reducing-long-tail-asset-risk/10748?u=monet-supply" target="_blank" rel="noreferrer noopener">wrote</a>. “Please consider quick and decisive reaction to the problem…If you can’t solve it [outright], at least mitigate this risk or communicate more.”



An Aave spokesperson declined to comment beyond the public tweets on the incident.



This story was updated on Nov. 22, 2022, at 6:15 pm ET.



Macauley Peterson contributed reporting.



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Feature or Flaw? Aave Left With $1.7M in Bad Debt

As global economic outlooks for 2023 continue to call for higher interest rates and slowdowns in economic growth, equities and crypto are heading toward the end of the year deep in the red. 



Bitcoin, which recovered from its sub-$16,000 level early Tuesday, is currently down more than 66% year to date. Ether, similarly, is approaching a 70% decline since January 2022. Equities are also likely to end the year <a href="https://blockworks.co/news/bitcoin-diverges-from-tech-stocks-as-ftx-fallout-continues" target="_blank" rel="noreferrer noopener">solidly lower</a>, with the S&amp;P 500 and Nasdaq Composite indexes currently 17% and 30% lower year to date, respectively.



“Bitcoin could continue to stabilize here if Wall Street rebounds, but that seems unlikely as this bear market for stocks has yet to bottom out,” Edward Moya, senior market analyst at Oanda, said in a note Tuesday. “Bitcoin has support ahead of the $15,500 level but if that does not hold, technical selling could send prices toward the $13,500 region.”&nbsp;



Two-year Treasurys now yield around 0.65% more than ten-year Treasurys, according to data from the St. Louis Federal Reserve. A negative spread has historically been a leading indicator of a recession, analysts note. Every recession from 1955 to 2018 has been preceded by a negative spread between six months and two years before the recession occurred, according to data from YCharts.&nbsp;



The current spread of -0.65% is the widest since 1981, DataTrek Research co-founder Nicolas Colas wrote in a note Tuesday.&nbsp;



“The intellectual underpinning of 10s minus 2s being a recession indicator is that it compares Fed monetary policy (2-years) with the market’s take on the neutral rate of interest (10-years),” Colas said. “A large gap, such as now, says policy is very restrictive and by a historically wide margin.”



Based on how equities are currently standing though, traders are either betting that the US economy will fare well in a deep recession, and/or businesses are prepared to weather the storm, Colas added.&nbsp;



Commercial banks are tightening their lending standards, making it more difficult for businesses and individuals to borrow money, according to an <a href="https://www.federalreserve.gov/data/sloos/sloos-202210.htm" target="_blank" rel="noreferrer noopener">October survey</a> from the Fed. Coupled with steep interest <a href="https://blockworks.co/news/cryptos-stocks-rally-on-fourth-straight-0-75-interest-rate-increase" target="_blank" rel="noreferrer noopener">rate hikes</a> from the central bank that show no sign of letting up, economists are calling for slower growth in the coming months.&nbsp;



The Richmond Fed’s <a href="https://www.richmondfed.org/research/regional_economy/surveys_of_business_conditions" target="_blank" rel="noreferrer noopener">regional surveys</a> of business activity, released Tuesday, showed manufacturing activity continued to slow in November. Meanwhile, the composite manufacturing index stayed negative, the data showed.&nbsp;



“The economy is clearly weakening here and inflation should continue to come down as wages and employment decline,” Moya said.



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Heightened Recession Fears Mean Uphill Battle for Equities, Crypto

Sam Martin

The Health of MicroStrategy's Bitcoin Bet

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