Shalini Nagarajan

<div id="highlights-block_62b049f934e81" class="highlights">
 <ul>
 <li>Voyager’s loans will be used only if it needs to protect customer assets, the firm said</li>
 <li>Alameda founder Sam Bankman-Fried suggested larger companies should lend a helping hand to struggling cryptocurrency firms</li>
 </ul>
 
</div>



Cryptocurrency broker Voyager Digital has secured sizable loans from quantitative trading firm Alameda Research to help see it through the current market turmoil.



Voyager’s line of credit is split into two parts. The first is a $200 million facility combining a mix of cash and Circle’s stablecoin USD Coin (USDC). The second is a revolving credit facility for 15,000 bitcoin (BTC), worth around $309 million as of Monday morning.&nbsp;



Each facility expires on Dec. 31, 2024, and carries an annual interest rate of 5% payable on the date of maturity.



“The company pursued this term sheet considering the current crypto market conditions,” Voyager announced in a <a href="https://www.prnewswire.com/news-releases/voyager-digital-signs-term-sheet-for-us200-million-and-15-000-btc-revolving-line-of-credit-with-alameda-research-301570656.html" target="_blank" rel="noreferrer noopener">statement</a> on Friday. It will be used to safeguard customer assets against current market volatility and only in the event it is required, the firm added.



On top of Alameda’s lines of credit, Voyager said its balance sheet is worth over $200 million.



The cryptocurrency market is under significant downward pressure, with bitcoin and ether down 15% and 9% in the last seven days, respectively, according to <a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">Blockworks Research</a>. Voyager Digital’s stock is down 91% so far this year and has declined 52% in the past month, according to <a href="https://www.tradingview.com/chart/?symbol=TSX%3AVOYG" target="_blank" rel="noreferrer noopener">data</a> from TradingView.&nbsp;&nbsp;



&#8220;Today&#8217;s actions give Voyager more flexibility to mitigate current market conditions and strengthen our relationship with one of the industry leaders,&#8221; Stephen Ehrlich, Voyager’s chief executive, said in a statement.&nbsp;



Companies in the industry including <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">Celsius</a>, <a href="https://cms.blockworks.co/crypto-fund-three-arrows-capital-facing-potential-insolvency-report/" target="_blank" rel="noreferrer noopener">Three Arrows Capital</a> and <a href="https://cms.blockworks.co/babel-finance-working-to-ease-unusual-liquidity-pressures/" target="_blank" rel="noreferrer noopener">Babel Finance</a> have all recently admitted to facing liquidity crises, but participants in the space believe the contagion isn’t limited to just these names. Voyager’s loan announcement came ahead of speculation that it might be another firm facing insolvency.&nbsp;



Alex Svanevik, chief executive of on-chain data hub Nansen, <a href="https://twitter.com/ASvanevik/status/1538230630026072064" target="_blank" rel="noreferrer noopener">called</a> on Voyager via Twitter to be transparent about its position, citing a speculative report suggesting Voyager is insolvent.



Voyager told Blockworks the speculation is “unequivocally false.” Alameda didn’t immediately respond to Blockworks’ request for comment.



Before Voyager secured its credit facility, Alameda founder Sam Bankman-Fried told <a href="https://www.npr.org/2022/06/19/1105853170/crypto-billionaire-says-fed-is-driving-current-downturn" target="_blank" rel="noreferrer noopener">National Public Radio</a> he felt a responsibility to step in and help players stem contagion — even if Alameda were at a loss itself.



“Even if we weren&#8217;t the ones who caused it, or weren&#8217;t involved in it. I think that&#8217;s what&#8217;s healthy for the ecosystem, and I want to do what can help it grow and thrive,” Bankman-Fried said. The crypto billionaire stepped down from his role as Alameda&#8217;s CEO last October.



Both firms are expected to complete documentation relating to the credit facility in the coming days.



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Voyager To Borrow $500M From Alameda Amid Industry Downturn

Bessie Liu

BlockFi’s bankruptcy last week marked the latest instance of crypto’s collapse starting to resemble TradFi’s 2008 crisis. More high-flying firms are running out of financial runway, if they have yet to shut their doors entirely.&nbsp;



Attorneys for BlockFi — once one of the largest crypto lenders — appeared before a bankruptcy court in New Jersey, where the company is headquartered, on Monday. Industry participants, closely following the proceedings, told Blockworks what BlockFi’s insolvency means for the industry more broadly.&nbsp;



Crypto companies, if the entities haven’t done so already, ought to take a serious look at their accounting practice and ensure compliance with <a href="https://blockworks.co/news/crypto-industry-must-report-bad-actors" target="_blank" rel="noreferrer noopener">fast-moving</a> regulatory requirements, according to Aaron Jacob, head of accounting solutions at TaxBit.



“After a chaotic crypto winter, regulatory clarity, transparency, and better accounting will let spring finally emerge again,” Jacob said.



BlockFi’s next court appearance is tentatively set for Jan. 9, 2023. Below is a rundown of what&#8217;s happened so far:



<h3>BlockFi sues Sam Bankman-Fried for Robinhood shares</h3>



Soon after filing for Chapter 11 bankruptcy, BlockFi <a href="https://pacer-documents.s3.amazonaws.com/109/1094078/118164201903.pdf" target="_blank" rel="noreferrer noopener">sued</a> embattled FTX founder Sam Bankman-Fried for outstanding Robinhood shares.&nbsp;



BlockFi alleged it entered a Nov. 9 agreement to specific payment obligations from an unnamed borrower, later identified as Bankman-Fried’s Alameda Research, by pledging unidentified “common stock” as collateral.&nbsp;



Bankman-Fried previously acquired a <a href="https://blockworks.co/news/ftx-denies-claims-to-acquire-robinhood" target="_blank" rel="noreferrer noopener">7.6%</a> stake in Robinhood, leading to speculation the former FTX chief executive could purchase the brokerage firm outright, though the company <a href="https://blockworks.co/news/ftx-denies-claims-to-acquire-robinhood" target="_blank" rel="noreferrer noopener">later denied</a> a potential acquisition being on the table.



BlockFi is now looking to cash in on the collateral as the likelihood of Alameda repaying its loan is very slim.&nbsp;



<h3>Two-thirds of staff will be laid off</h3>



Following the demise of Three Arrows Capital, BlockFi had already cut its staff by <a href="https://blockworks.co/news/cryptocurrency-lender-blockfi-set-to-cut-staff-by-a-fifth" target="_blank" rel="noreferrer noopener">one-fifth</a>.



BlockFi now has 292 employees and 82 contractors, according to Joshua Sussberg, a partner at law firm Kirkland &amp; Ellis.



After selling roughly <a href="https://www.docdroid.net/dvgRC8u/x3tecaphkcg84s9obt8s0jmcg84-pdf#page=31" target="_blank" rel="noreferrer noopener">$238 million</a> worth of its cryptoassets to try to remain above water, the company said additional two-thirds of its remaining employees would need to be laid off to save $34 million annually.



The laid-off employees will be paid through the notice period.



<h3>$355 million in cryptoassets are frozen on FTX</h3>



Court filings revealed BlockFi had “substantial exposure to FTX.” That &#8220;substantial&#8221; turned out to be $355 million worth of frozen cryptocurrencies now in limbo on the insolvent centralized exchange, Sussberg said in bankruptcy court.



The $355 million is on top of an existing $671 million loan to Alameda — which has already defaulted.



<h3>SEC among BlockFi bankruptcy creditors</h3>



BlockFi has roughly 100,000 creditors and $1 billion to $10 billion in liabilities and assets, the latest bankruptcy filings show. Among them is the SEC, which the troubled lender is said to owe roughly $30 million.



The lender previously reached a $100 million settlement with the SEC after the regulator said BlockFi failed to register yield-bearing products as securities earlier this year. The settlement, in an industry first, included a provision for the firm to stop offering such accounts to US clients.&nbsp;



As its largest creditor, per filings, Ankura Trust owes BlockFi $729 million.



<h3>Emphasis on transparency</h3>



Meanwhile, FTX’s new CEO John Jay Ray III dubbed internal mismanagement of the exchange “a complete failure.”



“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,” Ray said in a statement.&nbsp;



Opaqueness didn’t apply to BlockFi’s own bankruptcy, according to filings.



“BlockFi was forthright about what it would and would not do with funds on its platform — in stark contrast to others reported to have done the opposite,” the filings said.



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5 Highlights From BlockFi Bankruptcy Proceedings

Almost half a year after Uniswap Labs <a href="https://blockworks.co/news/uniswap-labs-pushes-further-into-nfts-with-genie-acquisition" target="_blank" rel="noreferrer noopener">acquired NFT marketplace aggregator</a> Genie, the largest decentralized exchange revealed today that NFT trading will now be made available to all users on its platform.



Users will be able to trade NFTs across eight major marketplaces on Ethereum, making Uniswap one of the largest single on-chain marketplace for digital assets across tokens and NFTs, Scott Gray, the head of NFT product at Uniswap Labs, said.



<blockquote class="wp-block-quote">“Staying intact with Uniswap’s brand, the interface is open source, trustless, and users have self custody over their NFTs,” Gray said.</blockquote>



Its new platform will enable users to explore trending NFTs and collections across different marketplaces. The tool will also include a “sweep” feature where users can purchase an entire collection of NFTs through once purchase.



The existing 15,928 Genie users will receive an initial airdrop of $5 million USDC, and gas rebates will be awarded to the first 22,000 NFT users. The gas rebates, capped at 0.01 ETH per user, will begin today and end on Dec.15 and can be claimed for 12 months between Jan.16, 2023 and Jan.15, 2024 through the Uniswap app.



<h3>The road to revenue</h3>



Uniswap Labs has been actively looking into new ways to generate revenue since its <a href="https://blockworks.co/news/uniswap-labs-valued-at-1-6b-after-165m-funding-round" target="_blank" rel="noreferrer noopener">$1.6 billion fundraise</a> in October.



Although Uniswap Labs received an equity valuation of $1.66 billion, a spokesperson from the company told Blockworks that in its current state, “Uniswap Labs is a pre-revenue company.”



Its latest NFT platform is not looking at immediate revenue. The company is actively looking at ways to iterate its platform “to become the best aggregator for placing offers across all these marketplaces and being able to manage inventory across all these marketplaces,” Gray said.



“A lot of capital inefficiencies in the NFT market still exist, and we have a few more months of work to solve them and move onto the next set of problems in the NFT space.”



The NFT marketplace is just one of many initiatives launched by the company. Uniswap governance has also been experimenting with implementing a <a href="https://blockworks.co/news/uniswap-fee-switch-pilot-likely-to-go-ahead" target="_blank" rel="noreferrer noopener">fee switch</a>, where the protocol would receive a tenth of select liquidity pool fees — cutting into liquidity provider revenue.&nbsp;



The latest establishment of Uniswap Foundation, a separate entity to Uniswap Labs, is also looking at ways to provide grants to community projects that will grow the ecosystem over the next few years.



“As we consider future revenue models, we want to empower users and earn their business,” a Uniswap spokesperson said.



Updated on Nov. 30 at 9:45 am ET: Uniswap governance may implement a fee switch, not Uniswap Labs.



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Uniswap Taps Into NFTs as It Looks To Be Financially Sustainable

Brazil lawmakers have formally approved a regulatory framework set to govern the country’s crypto sector.



The bill <a href="https://blockworks.co/news/historic-brazilian-bill-regulating-crypto-heads-to-senate-vote" target="_blank" rel="noreferrer noopener">drew attention</a> earlier this year after a previous version passed through the Senate in April. It had since since been stuck in the Chamber of Deputies, the government&#8217;s lower house.



Local media <a href="https://www.infomoney.com.br/mercados/camara-aprova-marco-regulatorio-dos-criptoativos-no-brasil/" target="_blank" rel="noreferrer noopener">reported</a> that the text, written by federal deputy Aureo Ribeiro, includes a new crime: digital asset embezzlement, which appears targeted at exchange operators. 



Penalties include between two to six years in prison along with fines, which can also be handed out to entities which operate in Brazil without a physical presence. 



There&#8217;s also a rule requiring crypto companies such as exchanges and other intermediaries to hold a virtual service provider license, similar to rules set in place across the US and Europe. 



The country’s efforts to regulate local crypto players comes amid turmoil in the wider digital asset space. Strife was most recently prompted by the collapse of FTX, which has left up to one million users out of pocket including regular investors, crypto projects and hedge funds. 



Former FTX CEO Sam Bankman-Fried allegedly siphoned user funds to make risky bets across crypto markets via sister trading unit Alameda Research, leading to a multi-billion black hole in its balance sheet and a crippling liquidity crisis.



Brazil lawmakers however disagreed over whether to demand crypto exchanges ensure client funds are segregated from operational cash. This would hypothetically protect customers from corporate malfeasance and other crippling events such as exchange bankruptcy.



But Ribeiro effectively opposed this proposed change, saying it would stifle the crypto market. Currently on hold, the asset segregation issue will be debated at a later date.



<h3>Crypto is big in Brazil</h3>



Government-appointed bodies will reportedly decide which digital assets can be listed for trade, and relevant companies will have an 180-day grace period to comply with the incoming rules.



Brazil, which has suffered from high inflation for decades, is one of the most active crypto markets in the world, according to recent <a href="https://blog.chainalysis.com/reports/2022-global-crypto-adoption-index/" target="_blank" rel="noreferrer noopener">Chainalysis data.</a> <a href="https://thepaypers.com/thought-leader-insights/the-crypto-landscape-in-brazil--1258289" target="_blank" rel="noreferrer noopener">About 5%</a> of its population actively invests in crypto and more than 900 Brazil-based companies currently accept crypto as payment. 



One silver lining could be that the domino-style tumbling of unregulated crypto firms over the past year may usher in regulated institutions with stronger compliance frameworks and robust risk systems. At least, that&#8217;s what Brazil&#8217;s incoming crypto regulations could inspire.



Brazil’s bill is already approved but it will now head for signature to outgoing president Jair Bolsonaro before his term ends on December 31. Luiz Inácio Lula da Silva is expected to take up office on Jan. 1.



Some lawmakers reportedly preferred the bill be approved during Bolsonaro&#8217;s term, over fears Silva may not be as enthusiastic about cryptocurrency.



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Brazil Crypto Laws Demand up to 6 Years Prison for Embezzlement

Sebastian Sinclair

IBM and Danish shipping giant Maersk are scuttling a four-year-old enterprise blockchain project designed to track global trade — another hint that distributed ledger solutions may not yet be viable in the wild.



TradeLens is a blockchain-based logistics platform aimed at digitizing supply chains. It was launched in 2018, a time when multiple economic sectors, including global shipping, sought to revamp various processes with centralized blockchain solutions — most of the time without associated cryptocurrencies.



Hundreds of major companies had signed on to TradeLens at its height. Those included intermodal carriers such as BNSF Logistics and major port operator MSC — the second largest shipping company after Maersk.



TradeLens will be ending by the close of Q1, 2023, the companies said in a Tuesday <a href="https://www.maersk.com/news/articles/2022/11/29/maersk-and-ibm-to-discontinue-tradelens" target="_blank" rel="noreferrer noopener">statement</a>.



“Unfortunately, while we successfully developed a viable platform, the need for full global industry collaboration has not been achieved,” Rotem Hershko, Maersk’s head of business platforms, said.



As such, TradeLens has been unable to attain the level of commercial viability required to continue operating. The project ultimately fell short of financial expectations, undermining its future as a standalone business.



TradeLens was built on IBM proprietary blockchain software which leveraged Hyperledger Fabric, an open-source framework from the Linux Foundation. 



Enterprise blockchain networks like TradeLens are far more centralized than major protocols such as Bitcoin and Ethereum. They&#8217;re usually entirely permissioned (private), maintained and controlled by a small group of entities (and often just one), rather than hundreds or thousands of unrelated network participants all working together to maintain consensus.



Jointly built by IBM and GTD Solution — a division of Maersk — its intention was to promote efficiency and secure global trade.



Maersk said it would continue efforts to digitize the supply chain and further industry efficiency using other solutions without mentioning what they were. Blockworks has reached out for comment.



“We will leverage the work of TradeLens as a stepping stone to further push our digitization agenda and look forward to harnessing the energy and ability of our technology talent in new ways,” Hershko said.



TradeLens joins a number of other enterprise blockchain projects hitting a brick wall. Earlier this month, <a href="https://blockworks.co/news/blockchain-not-bitcoin-is-dead-australian-bourse-cans-dlt-shift" target="_blank" rel="noreferrer noopener">the Australian Securities Exchange</a> nixed a blockchain-powered system designed to replace its aging settlement layer after nearly three years of development, having spent around $170 million on the cause.



That followed Microsoft ending its <a href="https://azure.microsoft.com/en-us/solutions/blockchain/#overview" target="_blank" rel="noreferrer noopener">Azure Blockchain Service</a> last year. The platform was launched in 2015 to help companies to deploy their own permissioned blockchain networks.



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IBM, Maersk Snuff Blockchain Project Due to Lack of Interest

Privacy-focused protocol Secret Network — intended to be anonymous and confidential — has disclosed a security vulnerability that threatened to reveal user transaction histories.



The bug, discovered by researchers from the University of Illinois Urbana-Champaign in October, allowed extraction of a so-called “consensus seed,” effectively a master decryption key for Secret Network.



“Exposure of the consensus seed would enable the complete retroactive disclosure of all Secret-4 private transactions since the chain began,” the team said. SCRT Labs, the group behind the blockchain’s development, patched the vulnerability earlier this month.



The attack vector involved exploiting flaws in Intel&#8217;s Software Guard Extension (SGX). SGX is a set of security-related instruction codes built into some Intel central processing units (CPUs), including their latest 10th, 11th and 12th-generation chips.&nbsp;



The SGX bugs first became public knowledge in early August, and the researchers say they also discovered related flaws in video software PowerDVD.&nbsp;



Secret Network, <a href="https://blockworks.co/news/secret-network-announces-400m-ecosystem-funding-reveals-big-name-investors">backed</a> by scandal-ridden firms Alameda Research and Terraform Labs, runs on delegated proof-of-stake consensus, a method first utilized by EOS. The protocol is considered somewhat of a competitor to other privacy-centric networks such as Monero and Zcash, albeit with a much smaller market capitalization around $150 million (compared to $2.5 billion and $550 million).



Unlike Bitcoin and Ethereum, which allow anyone with the right equipment (and in the latter’s case, enough ether) to join the network, Secret Network token holders select 50 trusted third parties to maintain specialized validating nodes that keep the blockchain flowing.



But the researchers didn’t have to become fully-fledged network validators to exploit the bug. They were able to extract their Secret Network master key by running a full node (which anyone can do) with a machine powered by the vulnerable processors.&nbsp;



Full nodes download a complete copy of the blockchain onto the related machine, and in Secret Network’s case, a “sealed consensus seed” along with it.



Secret Network node software uses what’s known as a trusted execution environment (TEE). These are secure regions of a main processor that only certain trusted devices, codes, or applications can access. The researchers were able to exploit this part of Secret Network’s stack, alongside Intel’s SGX, to decrypt the sealed consensus seed and thus reveal all private transactions on the protocol’s ledger.







<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">We were able to get onto the network with compromised nodes, which actually would have been very hard for Secret to prevent (IAS said our devices were trusted). The problem is that in doing so, we were able to deanonymize all the transactions since the chain began&mdash; Tom Yurek (@tom_yurek) <a href="https://twitter.com/tom_yurek/status/1597658913587232768?ref_src=twsrc%5Etfw">November 29, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>Tom Yurek, part of the discovering team, discusses the bug on Twitter</figcaption></figure>



<h3>Secret Network users urged to reconsider their operational security</h3>



SCRT Labs has assured users that to the best of its knowledge, no malicious actor had exploited the vulnerability in the wild prior to it being patched. 



The researchers, however, have stated there’s no way to know for certain whether the attack had been executed previously.



SCRT said it held off releasing details of the bug due to a mutual agreement between itself, Intel and the researchers to mitigate potential for the vulnerability to be exploited, a common move in software development.



In any case, the team who discovered the flaw have urged “privacy-conscious” users to reassess their online footprints considering their past “secret” transactions may be exposed.



“SCRT Labs &#8216;fixed&#8217; it now, but all past transactions are compromised,” they said. Secret Network’s native token has remained relatively steady since the disclosure, only dropping around 2%, although it’s already collapsed 85% in the year to date alongside swathes of other crypto projects.



<figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="284" src="https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-1024x284.png" alt="" class="wp-image-40559" srcset="https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-1024x284.png 1024w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-300x83.png 300w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-768x213.png 768w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-1536x426.png 1536w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-2048x568.png 2048w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-428x119.png 428w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-470x130.png 470w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-389x108.png 389w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-80x22.png 80w, https://cms.blockworks.co/wp-content/uploads/2022/11/Screen-Shot-2022-11-30-at-11.02.28-50x14.png 50w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>The researchers break down the attack into two phases: Prepare and Exploit (<a href="https://sgx.fail/" target="_blank" rel="noreferrer noopener">source</a>)</figcaption></figure>



New Secret Network nodes are currently limited to “server-class” hardware while SCRT has vowed to ratchet security-focused features for the network. The stewards also said they would strengthen their communications with Intel to ensure users receive early warning of future undisclosed vulnerabilities.



Funds on Secret Network are considered safe (only the confidentiality of the network has been compromised, not user private keys). The researchers noted the most concerning application of the attack is bulk surveillance of Secret users’ personal finances.



There was still opportunity to front-run DeFi applications and breach private metadata tied to NFTs deployed on the network. “Any digital assets that rely on private metadata, such as NFTs exchanging secret authentication keys, would be at risk of theft,” they wrote.



David Canellis contributed reporting.



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Secret Network Crypto Transactions Not So Secret After All

Crypto volatility has been a major feature of the asset class that has made or ruined many investors over the years. This has left the curious wondering what typically affects volatility.



Cryptocurrencies are tradeable, meaning that they’re similar to stocks, commodities and securities. The price at which they trade depends on the demand and supply in the market, and the relationship between the two typically determines any change.



Consider financial markets. They are influenced by macro factors such as interest rates, inflation, and other monetary policies. Additionally, industry-related developments and national or global events also have an impact. The same principle applies to crypto.&nbsp;



According to Jacob Sansbury, CEO at trading platform Pluto, markets can expect to see rather pronounced volatility in digital asset markets for some time.&nbsp;



Consider the stock prices of the big Web2 giants, including Amazon. They experienced&nbsp; pronounced price surges and drawdowns in their early years. Multiple times over the last couple of decades, they ran up in price and then crashed as much as 90%.



That can be ascribed to the fact that any novel technology is likely to experience exponential rates of adoption. The same can be about Bitcoin, Ethereum, Solana and a number of other blockchain networks.



“A difference with digital assets, though, is that their rate of adoption is even higher than that of most traditional technology companies,” Sansbury told Blockworks. “According to some estimates, the rate at which digital assets are growing has been double that of the internet itself.”



“This accelerated user growth feeds into the boom-bust cycles, and so too does that fact that digital assets have very much been driven by retail users from around the world.”



Long term, he expects this volatility to become less pronounced, especially when it comes to the big networks such as Bitcoin and Ethereum. Eventually, the rate of adoption is likely to slow as more people get exposure to these networks and, in turn, get more comfortable using them.&nbsp;



“This will take years to play out. And until then, we should expect surprising swings in both directions,” Sansbury said.



When discussing volatility, consider various asset classes in terms of their respective risk and exposure to external factors. In ranking assets in the investing world from “most risky” to “least risky,” we would typically sort them as: 1. crypto 2. private equity 3. public equity 4. bond markets.



Central bank action is a major influence affecting overall liquidity across all these markets, according to Simon Schaber, Spool DAO’s chief business development officer.



“If liquidity is rising, as we saw under heavy quantitative easing in the recent past, then it lifts asset classes up like the incoming tide lifts a ship in a harbor. The most exposed asset classes get lifted the highest and the fastest,” he told Blockworks.



That’s why investors saw a massive rally in crypto, venture capital and meme stocks while more conservative assets rose only slowly and real bond yields even turned negative, he explained.



“If we consider this high level of correlation to the global liquidity situation in combination with the large influence that [venture capital] firms like a16z, Sequoia, Alameda, Jump, etc. have over crypto markets, then it is easy to understand that high volatility commonly happens in times of rapid and seismic macroeconomic shifts,” Schaber added.



But as this market matures&nbsp;— bringing with it less uncertainty — we should start seeing less volatility.



Varun Kumar, CEO at DeFi trading platform Hashflow, shared when he expects crypto to see lower volatility.



“When it is clear how exactly crypto can be integrated into the current financial system and traditional financial institutions are ready to implement it, we will see widespread adoption, giving digital assets more trust and, thus, stability,” he told Blockworks.



For cryptocurrencies to overcome volatility, he believes institutions need to find a solution for integration, regulators need to recognize their role and the general public must see crypto as more than a trading opportunity.&nbsp;



Crypto prices have also fallen after negative regulatory or geopolitical developments, such as <a href="https://blockworks.co/bitcoin-breaks-below-30000-on-china-concerns/" target="_blank" rel="noreferrer noopener">China intensifying its crackdown</a> on the asset class and <a href="https://blockworks.co/bitcoin-slides-below-35k-amid-putins-call-for-full-scale-invasion-of-ukraine/" target="_blank" rel="noreferrer noopener">Russia’s invasion of Ukraine</a>. They’ve also tended to mirror the fluctuations in the stock market, highlighting a link between crypto and more traditional assets.



Aside from these factors, prices of new digital assets with a relatively small market cap can also be easily tilted with a significant amount of cash, Chris Esparza, CEO and founder of Vault Finance, told Blockworks.



“With many traders poised to profit from these price swings, many compensate by injecting cash. However, as market capitalization rises, volatility tends to decrease,” he said.



He used bitcoin as an example, pointing out that it is generally less volatile than ether and the price offset is nearly impossible due to the larger market cap.&nbsp;



“With more funds flowing into the crypto ecosystem from retail and institutional investors, there will be more balance and less volatility over time,” he said, adding that although the time frame is difficult to predict, we can expect a less volatile crypto ecosystem in about five years.



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Crypto Is Volatile — But Why?

Casey Wagner

In the slow burn leading up to FTX’s swift collapse — which conveniently coincided with the 2022 midterm election cycle — founder Sam Bankman-Fried and a slew of executives broke out their checkbooks, doling out bipartisan dollars to Capitol Hill hopefuls.



Bankman-Fried has become entangled in a range of political donations. He personally gave $40 million to various Political Action Committees (PACs) and individual candidates, according to <a href="https://www.fec.gov/data/receipts/individual-contributions/?contributor_name=Sam+Bankman-Fried" target="_blank" rel="noreferrer noopener">data</a> from the Federal Election Commission (FEC). Most supported Democratic causes, but he also donated to Republicans, both personally and via donations from his companies.&nbsp;



Other FTX-affiliated donors include Ryan Salame, Bankman-Fried’s former co-CEO, and Nishad Singh, former director of engineering at FTX. Salame gave nearly $23 million almost exclusively to Republicans and related PACs, while Singh coughed up $8 million.&nbsp;



Bankman-Fried donated under at least three separate entities: Alameda Research, FTX US (the Bahamas-based company’s American subsidiary) and FTX. The FEC collects and publishes self-reported data on donors’ employers.&nbsp;



FTX US donated a collective $500,947.30 between December 2021 and September 2022, according to FEC <a href="https://www.fec.gov/data/receipts/individual-contributions/?contributor_name=FTX" target="_blank" rel="noreferrer noopener">records</a> — the majority to <a href="https://blockworks.co/news/poll-us-voters-who-own-crypto-are-on-the-rise-just-in-time-for-midterms" target="_blank" rel="noreferrer noopener">GMI PAC</a>, a crypto-focused group which primarily supported the Crypto Innovation PAC during the 2022 midterms.



Crypto Innovation PAC backed Republicans Michelle Bond — who lost the New York Republican primary for the House of Representatives in 2022 — and Rep. Markwayne Mullin of Oklahoma. The group also donated to Rep. Patrick McHenry, R-N.C., Sen. Ted Budd, R-N.C., and Sen. John Boozman, R-Ark., all of whom have been <a href="https://blockworks.co/news/bipartisan-stablecoin-regulation-has-a-slim-chance-of-passing-this-year" target="_blank" rel="noreferrer noopener">vocal</a> crypto supporters.&nbsp;



The offices of Rep. McHenry and Sens. Budd and Boozman did not respond to requests for comment.&nbsp;



In 2020, Alameda Research gave $5.2 million to Future Forward PAC, a Democratic-leaning organization that had been primarily focused on electing President Biden in 2020, according to the FEC. Future Forward is still accepting donations for other liberal candidates.&nbsp;



Some candidates have come forward and said they will <a href="https://blockworks.co/news/us-politicians-donate-bankman-fried-cash-to-charity" target="_blank" rel="noreferrer noopener">donate</a> funds linked to Bankman-Fried, including Sen. Dick Durbin, D-Ill., and Rep. Jesús “Chuy” García, D-Ill. Both received $2,900.&nbsp;



Former Texas gubernatorial candidate Beto O’Rourke “returned” a $1 million donation from Bankman-Fried four days before election day, his campaign told <a href="https://www.texastribune.org/2022/11/29/beto-orourke-sam-bankman-fried-ftx/" target="_blank" rel="noreferrer noopener">The Texas Tribune</a>. The refund was unrelated to any potential fraud from FTX or Bankman-Fried, his campaign added.&nbsp;



Blockworks contacted the offices of the following legislators who received funds linked to Bankman-Fried and FTX: Tom Emmer, R-Ind., Josh Gottheimer, D-N.J., Jake Auchincloss, D-N.J., Ritchie Torres, D-N.Y., John Boozman, R-Ark., Nancy Pelosi, D-Calif., and Kevin McCarthy, R-Calif., and Sens. Lisa Murkowski, R-Ark., Mitt Romney, R-Utah, Susan Collins, R-Maine, John Thune, R-S.D., Chuck Schumer, D-N.Y., and Mitch McConnell, R-Ky.



None responded.



Updated Nov. 29, 2022 at 4:35 pm ET: Ritchie Torres&#8217; office responded after publishing. Torres donated his contribution from Bankman-Fried to &#8220;a local charity to assist with holiday food distribution to families in need,&#8221; according to Rep. Torres&#8217; team. 



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List of Democrats, Republicans Staying Silent On FTX Donations Grows

Michael Bodley

A private equity professional, helming a new crypto <a href="https://blockworks.co/news/sovereign-wealth-fund-vet-eyes-150m-for-crypto-fund-of-funds" target="_blank" rel="noreferrer noopener">fund of funds</a>, appears to be gaining fundraising traction as investors hunt for opportunistic strategies primed for uncommonly volatile markets, according to three sources familiar with the matter.



Managing Partner Joshua Manasseh previously spent more than six years at private equity firm Ardian. Manasseh’s London-based Arbury Advisors plans to launch in the first quarter of 2023.



It’s unclear how much capital Arbury intends to raise, but sources said the fund of funds has landed the family office of an unidentified major private equity player as an anchor investor.&nbsp;



Manasseh tapped crypto veteran Joseph Cox as head of research. The New York-based Cox, formerly chief operating officer of a $100 million-plus asset manager, is tasked with bridging the US and Europe and assisting in capital deployment, as well as due diligence.&nbsp;



Following <a href="https://blockworks.co/news/the-last-10-days-in-the-ftx-saga-a-timeline" target="_blank" rel="noreferrer noopener">FTX’s blowup</a>, scores of blue-chip traders lost billions of dollars in days. The downturn, though, has triggered an impetus among limited partners to back opportunistic-minded investors — including long-biased, long-only and distressed strategies — in a bid to “buy the dip at scale,” one source said.&nbsp;



Contrary to the industry line, sources said it may be a good time to launch. One said it’s “refreshing” for Arbury to not have to buy into the bull market. Even so, it’s no simple task to ink commitments from investors who actually have dry powder left and have not been dissuaded from the market’s plunge.&nbsp;



Due diligence and risk are now paramount.



“Alpha is not that hard to come by when markets pick up, but it’s really the operational and risk [due diligence] that makes the difference,” one source said.



Manasseh declined to comment. Sources were granted anonymity to discuss sensitive business dealings.&nbsp;



But raising capital is continuing apace — with one source saying things seem to be “falling into place” after Arbury secured its private equity anchor. In the swiftly-changing asset class, limited partners who are less savvy on crypto due diligence take cues from more grizzled peers.&nbsp;



<h3>The Arbury pitch</h3>



The company is slated to deploy to 10 to 15 funds, both illiquid venture — including buyers of early stage, private token sales and debt, as well as pure-play equity — and liquid hedge structures, such as market-neutral.



The private equity-style, close-ended vehicle plans to deploy capital over a two-year period. Manasseh plans to write larger checks to established traders under the aim of allocating about 25% of his book every six months.



There’s an optional fund extension at the discretion of its backers. And performance fees only come into play after investors receive a 1.5x multiple and an 8% net internal rate of return, or hurdle.&nbsp;



Manasseh previously worked on the investment team at Ardian — which now has more than $140 billion in assets under management — and played a role in more than $8 billion of secondary fund of funds transactions. Cox is also an adviser to GoQuant.&nbsp;



There’s an emphasis on risk and diversification, including writing smaller checks to emerging traders, while reserving capacity to ramp up over time, as proven by performance.



The startup has also been working to negotiate discounted fees from the vehicles it’s considering backing. Lowered fees are “especially attractive” to would-be investors given market conditions and uncertainty, one source said.



On the due diligence front, Arbury has tapped Quentin Thom and James Newman’s perfORM. That operation, also based in London, has been capturing a <a href="https://blockworks.co/news/crypto-due-diligence-startup-vying-to-bring-transparency-to-opaque-industry" target="_blank" rel="noreferrer noopener">growing slice</a> of the market for deep dives on both digital asset investment firms and their service providers.&nbsp;&nbsp;



Manasseh has already deployed proprietary capital to at least one unidentified manager, which could be backed, in turn, by the fund of funds. And Thom and Newman are now assisting with due diligence on an up-and-coming pipeline of potential managers. The firm plans to predominantly employ a traditional <a href="https://blockworks.co/news/sources-fidelity-vet-launching-crypto-fund-of-funds" target="_blank" rel="noreferrer noopener">fund of funds model</a>, though Manasseh and Cox would selectively consider separately managed accounts.



Arbury has also inked a partnership with <a href="https://blockworks.co/news/ex-wall-street-execs-secure-funding-for-young-crypto-firm" target="_blank" rel="noreferrer noopener">Cloudwall </a>— a risk management startup founded by one-time Morgan Stanley executives — which facilitates “stress-tests” of portfolios against live and historical blockchain data.



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New Crypto Fund of Funds May ‘Buy the Dip at Scale,’ Sources Say

Crypto lender BlockFi has sued a Sam Bankman-Fried holding company over his Robinhood stock, just hours after the crypto lender filed for bankruptcy.



Bankman-Fried pledged the <a href="https://restructuring.ra.kroll.com/blockfi/Home-DownloadPDF?id1=MTM1MjU3OQ==&amp;id2=-1" target="_blank" rel="noreferrer noopener">shares</a> to BlockFi as collateral on Nov. 9 — intended to back Alameda Research&#8217;s payment obligations on $680 million in loans — the same day Binance walked back plans to rescue FTX.



Bankman-Fried’s tangled web of companies would declare bankruptcy two days later, with BlockFi now following suit. BlockFi opted to suspend withdrawals after Alameda (an FTX-linked trading unit) defaulted on the loans, per court documents, indicating BlockFi really needed that money.



BlockFi’s lawsuit is directed at Bankman-Fried’s Emergent Fidelity Technologies, which the former crypto billionaire used to take a <a href="https://blockworks.co/news/ftxs-sam-bankman-fried-spots-opportunity-in-troubled-markets" target="_blank" rel="noreferrer noopener">7.6% stake</a> in the discount brokerage in May, equal to more than 56 million shares now worth about $521 million.



ED&amp;F Man Capital Markets (EDFM) is listed as Emergent’s broker in the suit. BlockFi claims the London-based firm declined to transfer the collateral to BlockFi and thus failed to satisfy its obligations.



BlockFi lawyers wrote: “As the holder of the first priority security interest in the collateral, which is property of the BlockFi bankruptcy estates, BlockFi is entitled to have all such collateral immediately surrendered to it and/or liquidated in whatever manner necessary to preserve as much value as possible with the proceeds from any and all such sales transferred to BlockFi.”



Bankman-Fried, who reportedly shopped his Robinhood stake even as he provided it for collateral to BlockFi, is not directly named as a defendant in the suit. Blockworks has reached out for comment.&nbsp;



<h3>With no Robinhood stock, BlockFi sold $239 million in crypto</h3>



BlockFi’s suit over the Robinhood stock swiftly followed BlockFi lodgement <a href="https://blockworks.co/news/blockfi-files-for-bankruptcy" target="_blank" rel="noreferrer noopener">for Chapter 11 bankruptcy</a>, which stated the <a href="https://blockworks.co/news/how-blockfi-went-from-tech-unicorn-to-crypto-burnout" target="_blank" rel="noreferrer noopener">former tech unicorn</a> faced a “severe liquidity crunch” throughout the collapse of FTX and its subsidiaries.&nbsp;



FTX was meant to be BlockFi’s white knight. Bankman-Fried struck a deal to potentially acquire the lender for up to <a href="https://blockworks.co/news/ftx-reaches-deal-to-acquire-blockfi-for-up-to-240m">$240 million</a> amid the first industry-wide downturn earlier this year.



In early November, BlockFi made a borrowing request under an FTX loan agreement part of the acquisition deal. FTX did not honor the request, court documents show.



BlockFi’s own demise naturally means the FTX bailout deal is now invalid.



A <a href="https://restructuring.ra.kroll.com/blockfi/Home-DownloadPDF?id1=MTM1MjM3NQ==&amp;id2=-1" target="_blank" rel="noreferrer noopener">declaration</a> filed by BlockFi legal counsel on Monday showed the lender sold almost $239 million in crypto to bolster cash for administrative costs. The firm believes this amount will be enough to fund its bankruptcy, so it is not seeking debtor-in-possession financing at the moment.&nbsp;



Questions remain as to whether that meant BlockFi dumped customer-deposited funds to cover legal costs. BlockFi didn’t return Blockworks’ request for comment by press time.&nbsp;



Before the lender filed for bankruptcy, some two-thirds of BlockFi’s remaining 300 employees were warned of impending job cuts, company adviser Mark Renzi said in a declaration.



FTX&#8217;s troubles has left the company with “no choice” but to seek court protection, he added. BlockFi now wants to organize a standalone reorganization in court rather than sell itself, but is open to alternatives that maximize value for its some 100,000 creditors.



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Bankrupt BlockFi Wants Bankman-Fried’s $520M Robinhood Stake

Crypto bank Silvergate says its exposure to BlockFi amounts to less than $20 million in customer deposits — a move to quell concerns over exposure to the now-bankrupt lender.



Those funds would represent less than 2% of all crypto customer deposits maintained by Silvergate, which <a href="https://ir.silvergate.com/news/news-details/2022/Silvergate-Provides-Statement-on-FTX-Exposure/default.aspx" target="_blank" rel="noreferrer noopener">totaled</a> $11.9 billion at the end of September (including FTX-related funds).



In a Monday statement, Silvergate also emphasized that BlockFi was not a custodian for its bitcoin-collateralized loans, nor did it hold any investments in the company.



Silvergate’s SEN Leverage loans allow customers to open US dollar credit lines backed by bitcoin held at crypto exchanges in the bank&#8217;s network.



Silvergate issued one such <a href="https://www.microstrategy.com/en/investor-relations/press/silvergate-bank-issues-205-m-loan-to-macrostrategy-collateralized-by-bitcoin_03-29-2022" target="_blank" rel="noreferrer noopener">loan</a> worth $205 million to business intelligence firm MicroStrategy in March, then led by bitcoin bull Michael Saylor, who pledged to use the cash to buy more BTC. To date, all loans continue to perform as expected with zero losses and no forced liquidations, Silvergate said.&nbsp;



Silvergate acts as a custodian for major players across the crypto space, many of which utilize its Silvergate Exchange Network (SEN) payment rails. SEN allows partner companies, including Kraken and Circle, to wire fiat money quickly around the clock, even at times when the US’ Automated Clearing House is offline.&nbsp;



Silvergate also serviced <a href="https://www.bloomberg.com/news/articles/2022-11-28/ftx-received-some-customer-deposits-via-bank-accounts-held-by-alameda" target="_blank" rel="noreferrer noopener">accounts</a> for Alameda in FTX’s stead right up until its demise, a move which has since drawn criticism.



Further mitigating <a href="https://blockworks.co/news/how-blockfi-went-from-tech-unicorn-to-crypto-burnout" target="_blank" rel="noreferrer noopener">BlockFi</a> exposure, Silvergate <a href="https://ir.silvergate.com/news/news-details/2022/Silvergate-Provides-Statement-on-Minimal-Exposure-to-BlockFi/default.aspx" target="_blank" rel="noreferrer noopener">said</a> it maintains a first-priority lien and security interest in a $10 million cash collateral account. The money was meant to assure ACH settlement with BlockFi, and it now gives the bank breathing room should its $20 million exposure solidify.



BlockFi — which had relied on a $400 million rescue deal from FTX earlier this year — filed Chapter 11 <a href="https://blockworks.co/news/blockfi-files-for-bankruptcy" target="_blank" rel="noreferrer noopener">bankruptcy protection</a> on Monday, two weeks after <a href="https://blockworks.co/news/blockfi-eyes-bankruptcy-as-ftx-fallout-continues-report" target="_blank" rel="noreferrer noopener">suspending withdrawals</a> in light of FTX’s collapse.&nbsp;



BlockFi had kept customer funds on the exchange as it went dark, exacerbating a liquidity crisis already strained by bad loans to FTX sister unit Alameda Research.&nbsp;



The Jersey City firm will focus on <a href="https://blockworks.co/news/blockfi-files-for-bankruptcy">recovering all obligations</a> it’s owed, Blockworks was told on Monday. BlockFi has around 100,000 creditors.



<h3>Silvergate stock bit by bear long before BlockFi bankruptcy</h3>



Silvergate previously disclosed maintaining up to $1.19 billion in deposits belonging to crypto exchange FTX as it went dark, money now apparently tied up in bankruptcy proceedings.&nbsp;



FTX&#8217;s funds represented about 10% of Silvergate&#8217;s total deposits. As such, Silvergate has since been working to downplay its exposure to embattled crypto counterparties while assuring its reserves are liquid enough to process sudden withdrawals — hence its statement about BlockFi.&nbsp;



Blockworks has reached out to Silvergate to clarify the status of its $20 million deposits tied to BlockFi.



Institutional trading platform FalconX <a href="https://blockworks.co/news/falconx-drops-bank-silvergate" target="_blank" rel="noreferrer noopener">paused settlement</a> via Silvergate out of an abundance of caution earlier this month. FalconX reinstated the functionality a few days later.



&#8220;As the digital asset industry continues to transform, I want to reiterate that Silvergate’s platform was purpose-built to manage stress and volatility,” said Alan Lane, CEO at Silvergate, in a statement. 



“The SEN continues to operate as designed, and our support teams are available 24 hours a day, 7 days a week to help our customers during this period of adversity.”



Silvergate stock, which has halved in the past month, is down about 85% year to date, from $148 to just over $25, tracking other major crypto stocks including crypto exchange <a href="https://blockworks.co/news/coinbase-microstategy-bonds-hammered" target="_blank" rel="noreferrer noopener">Coinbase</a> and bitcoin miners Marathon, Riot Blockchain and <a href="https://blockworks.co/news/hut-8-halts-bitcoin-mining-facility-amid-energy-dispute" target="_blank" rel="noreferrer noopener">Hut 8</a>.



David Canellis contributed reporting.



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Crypto Bank Silvergate Says BlockFi Exposure Limited to $20M

Bitcoin miner Hut 8 is seeking mediation with a third-party energy supplier after relations broke down over a shared power purchase agreement — bringing some of its operations to a halt.



The Canadian firm was forced to stop mining bitcoin out of its North Bay, Ontario facility after provider Validus suspended delivery of energy to the site. The mining firm operates two other mining sites in Southern Alberta.



The provider claims Hut 8 has failed to make regular payments. Hut 8 is categorically denying those allegations, according to a <a href="https://hut8mining.com/2022/11/28/hut-8-provides-update-on-north-bay-facility/" target="_blank" rel="noreferrer noopener">statement</a> on Monday. A spokesperson for Validus did not immediately return a request for comment.



<a href="https://hut8mining.com/2022/11/28/hut-8-provides-update-on-north-bay-facility/" target="_blank" rel="noreferrer noopener">Earlier this month</a>, Hut 8 said it had handed Validus a notice claiming the energy provider neared default on obligations of the two firms’ power purchase agreement, and blamed Validus for failing to hit certain operational milestones by key dates laid out in the terms.



Hut 8 also noted ongoing discussions with Validus, meant to mitigate related operational and commercial impacts, which have so far been unsuccessful. The Ontario site had about 5,800 miners installed as of June, consuming 20 MW of power and <a href="https://hut8mining.com/2022/08/11/hut-8-reports-operating-and-financial-results-for-q2-2022/" target="_blank" rel="noreferrer noopener">contributing</a> about 20% of Hut 8&#8217;s overall hashrate.



A spokesperson for Hut 8 confirmed the company was seeking mediation via a third-party and was hopeful it would reach a resolution with Validus outside of court. They declined to comment further on the operational milestones it claimed Validus had missed.



<h3>Bitcoin miner Hut 8 could do without the interruption</h3>



Most miners are struggling to navigate <a href="https://blockworks.co/news/bitcoin-price-drop-tests-miners-diamond-hands" target="_blank" rel="noreferrer noopener">significant headwinds</a> following a major drop in bitcoin’s price, which has shed 66% of its value year-to-date.



Indeed, high electricity costs, low bitcoin prices and soaring mining difficulty have taken a bite out of profits. As a result, Hut 8 saw a 36% decline in third-quarter revenue when compared to the same period a year ago, dropping from $50.3 million to $31.7 million, recent <a href="https://hut8mining.com/investors/" target="_blank" rel="noreferrer noopener">financial statements</a> show.&nbsp;



Mining profits over the same period stood at $9.3 million compared to $33.5 million in Q3 2021, a 72% decline. Bitcoin hovered around $60,000 this time last year, while it now trades for $16,500.



Hut 8 has publicly pledged to hold onto all its bitcoin despite the tough market conditions. It <a href="https://www.prnewswire.com/news-releases/hut-8-mining-production-and-operations-update-for-august-2022-301617489.html" target="_blank" rel="noreferrer noopener">maintained</a> 8,111 BTC ($133.6 million) as of Aug. 30, mining around 12.1 BTC ($200,000) per day.



The firm&#8217;s stock, which commands a market value around $220 million, has also suffered, dropping more than 85% year to date alongside most of its rivals — which makes getting its miners back online as soon as possible even more critical.



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Hut 8 Halts Bitcoin Mining Facility Amid Energy Dispute

Rival cryptocurrency exchanges Binance and Kraken — both once accused of violating US sanctions — are now backing a fraud detection and identity verification platform for digital assets.&nbsp;



The venture capital arms of the exchanges joined a number of existing investors in the $23 million AUD ($15.2 million) Series A+ of Australia-based API platform FrankieOne. The so-called A+ round is designed to continue fundraising — often to hit an internal target —while remaining at a similar valuation.



The venture divisions, Kraken Ventures and Binance Labs, join previous FrankieOne backers Apex Capital, Reinventure and Tidal Ventures. AirTree Ventures and Greycroft co-led the round. The startup did not disclose its new valuation. But it came in at a post-money valuation of $36.9 million in October, 2021, <a href="https://my.pitchbook.com/profile/432585-73/company/profile#comparisons" target="_blank" rel="noreferrer noopener">Pitchbook data show.</a>



The latest raise brings the platform&#8217;s total funding to date to $45 million AUD ($29 million), according to a statement Monday. New funding has been earmarked, predominantly, to scale operations across Asia Pacific and North America.



Both exchanges were previously accused of violating US sanctions, mainly by permitting customers in Iran to custody and trade cryptoassets on their respective platforms. And both companies initially denied the allegations.&nbsp;



Kraken agreed to pay about <a href="https://home.treasury.gov/system/files/126/20221128_kraken.pdf" target="_blank" rel="noreferrer noopener">$360,000</a> in a settlement with a division of the US Treasury on Monday after the financial regulator said the exchange was facing &#8220;potential civil liability&#8221; for &#8220;apparent violations&#8221; of broad sanctions the US had imposed on Iran.



Treasury officials said Kraken facilitated 826 transactions — totaling roughly $1.7 million — on the &#8220;behalf of individuals who appeared to be located in Iran&#8221; at the time. 



Though it had appropriate controls in place to prevent unauthorized customers from opening an account, Kraken failed to implement IP address blocking across its platform, the department said. It is unclear whether attempts to block an IP address could be skirted by a VPN.



After this story was published, Kraken Chief Legal Officer Marco Santori said the exchange &#8220;voluntarily self-reported&#8221; and &#8220;swiftly corrected&#8221; the oversight. 



“Even before entering into this resolution, Kraken had taken a series of steps to bolster our compliance measures,&#8221; Santori said in a statement. &#8220;This includes further strengthening control systems, expanding our compliance team and enhancing training and accountability.&#8221;



Binance, meanwhile, was accused of processing a much larger <a href="https://www.reuters.com/business/finance/exclusive-crypto-exchange-binance-helped-iranian-firms-trade-8-billion-despite-2022-11-04/" target="_blank" rel="noreferrer noopener">$8 billion</a> over four years, beginning in 2018, by allowing a regular flow of transactions between itself and local Iranian exchange Nobitex, Reuters reported. Nobitex reportedly offered guidance on how users could circumvent US sanctions.



Representatives for Binance and Kraken did not immediately return requests for comment.&nbsp;



“It&#8217;s incredibly difficult for companies to provide a world-class onboarding experience whilst mitigating fraud,” FrankieOne CEO Simon Costello said in the statement. “



The startup is in position to pull it off, though, according to Costello.



Frankie provides a single API to access identity and fraud prevention providers around the world by connecting banking, fintech, crypto and gaming companies to hundreds of data sources — across 48 markets.



The platform has grown considerably over the past 12 months, increasing its revenue four-fold, the company said. The startup has one of Australia’s “big four” banks, Westpac, as a customer, as well as Shopify and Afterpay, plus Pointsbet, a sports betting platform.



Updated Nov. 16, 11:19 am ET: Kraken agreed to an approximately $360,000 settlement with a division of the US Treasury on Monday for &#8220;potential&#8221; and &#8220;apparent violations&#8221; of US sanctions on Iran. Treasury officials said the exchange processed transactions on the &#8220;behalf of individuals who appeared to be located in Iran at the time.&#8221; Also, adds a statement from Kraken&#8217;s chief legal officer. 



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Binance, Kraken, Accused of Violating US Sanctions, Back Anti-Fraud Startup

Ornella Hernandez

The 2022 FIFA World Cup kicked off in Qatar, but whether various NFT projects score with the public is another matter. Lionel Messi’s non-fungible token drop with Ethernity and Cristiano Ronaldo’s collection with Binance took two of the world’s biggest stars <a href="https://blockworks.co/news/messi-ronaldo-world-cup-nfts">to the blockchain last week</a>.



Aside from World Cup fever, there’s plenty more going on in the world of Web3. Blockworks spoke to one of the artists behind an artificial intelligence-based NFT collection that sold out via <a href="https://blockworks.co/news/qa-artist-refik-anadol-on-ai-based-nfts-for-instagram">Instagram’s recently launched NFT marketplace</a>.



Here are some other notable stories that caught the eye of the Web3 Watch.&nbsp;



<h3>NFT royalties recap</h3>



While Instagram’s NFT marketplace requires creators to set 5% minimum royalty fee in case their NFTs are sold in the secondary marketplace, many other marketplaces have been <a href="https://blockworks.co/news/nft-royalties-sometimes-they-work-sometimes-they-dont">eliminating royalties or going royalty-optional</a>.&nbsp;



This has caused controversy within the NFT community because royalties or residuals were considered a cornerstone of NFT technology — a key (and to many, definitive) use case that enables artists to garner recurring income when their works are resold.&nbsp;&nbsp;



OpenSea, the largest NFT marketplace, almost made creator fees optional for traders on existing collections, while it also launched a tool that would let creators of new Ethereum NFT projects block marketplaces that don’t fully honor royalties.&nbsp;



Due to community pushback, OpenSea backtracked in a matter of days and <a href="https://twitter.com/opensea/status/1590466334814785537?s=20&amp;t=7Vd8x1xcmW6Dd0iV1fURsA">tweeted</a> that it would continue to enforce creator fees on all existing collections. They cited that the economic downturn was a major factor: “Those looking to sell their NFTs are trying to sell them for as much as they can. Moving their listings to marketplaces that don’t enforce fees is one way to do this.”



Marketplaces such as Magic Eden, the top Solana NFT market, gave customers the choice of whether to pay the creator&#8217;s fee when they buy an NFT. The theory behind this model is that it encourages collectors to keep using the site because of the lower fees. The worry is that it sets a bad precedent for creators.



LooksRare also eliminated creator royalties, but buyers can still opt-in to pay royalties at checkout if they wish. The marketplace will instead share 25% of the LooksRare protocol fee with creators and collection owners.



SuperRare, on the other hand, has a mechanism that gives collectors the same opportunity to receive royalties-based rewards as artists do. And X2Y2 recently announced that it would start enforcing creator royalties.



In reaction to OpenSea’s “part-solution,” Michael Powell, product marketing lead at layer-2 blockchain scaling solution Immutable, told Blockworks that “While this particular situation was resolved in favor of artists and communities, there are always risks of Web3 losing its vision and core principles, shifting it much closer to traditional centralized frameworks that are not so fair toward content creators and fans.”



He added that supporting creators will win out in the long run against “what can quickly become a race to the bottom to drive short-term user acquisition.”



Immutable’s response to the debate was to <a href="https://blockworks.co/news/immutable-alex-connolly-on-protecting-nft-creator-royalties">enforce royalty payouts</a> and guarantee that creators can always add royalties to their collections rather than letting traders decide.&nbsp;



<h3>ApeCoin DAO launches marketplace; geo-blocks US APE stakers</h3>



ApeCoin DAO, the decentralized autonomous organization made up of ApeCoin (APE) holders, launched its own NFT marketplace for Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), Bored Ape Kennel Club, Bored Ape Chemistry Club and Otherdeed for Otherside NFTs.



The marketplace, which is not officially associated with Yuga Labs, was built by NFT&nbsp; infrastructure company Snag Solutions. The company’s founder Zach Heerwagen <a href="https://twitter.com/ZHeerwagen/status/1595462170996711433?s=20&amp;t=hhL1iqfTZ4pJxCtAtYMk7Q">tweeted</a> that the platform includes “unique features built specifically for the BAYC and Otherside communities, including ApeCoin staking and NFT metadata integrations.”



He also added there is a reduced fee scheme for sellers: 0.5% fees on ETH sales, 0.25% fees on ApeCoin transactions, and the platform retains 0.25% of each sale in a multi-signature wallet to fund future DAO initiatives.



ApeCoin, BAYC’s Ethereum-based governance and utility token, launched in March but staking will go live on Dec. 5, the ApeCoin DAO confirmed on Nov. 24.



However, the US was added to a list of regions geo-blocked from using the APE staking service ApeStake. Canada, North Korea, Syria, Iran, Cuba, Russia and the Russian-controlled areas of Ukraine, Crimea, Donetsk and Luhansk are also on the block list.



The DAO claimed that due “today’s regulatory environment, we had no good alternative.”



<h3>Mattel Creations — another day, another marketplace </h3>



Mattel, the toy manufacturer behind brands like Barbie and Hot Wheels, has also released its own NFT marketplace. Mattel Creations is built on the Flow blockchain, which also powers the NBA Top Shot project and is backed by Dapper Labs. The direct-to-consumer platform will not require users to use cryptocurrency to buy the NFTs.&nbsp;



The first NFT collection to drop will be a new series of the Hot Wheels NFT Garage project on Dec. 15, <a href="https://corporate.mattel.com/news/mattel-creations-launches-digital-collectibles-marketplace">according</a> to the company. This includes digital collectibles of 60 popular cars from McLaren, Chevrolet, Honda, Aston Martin and other brands. Holders of the rarest NFTs will be able to redeem physical die-cast replicas.



Mattel claims it is the first toy company to launch NFTs. Previous NFT projects include Barbie’s collection of digital collectibles in collaboration with fashion house Balmain, as well as the Barbie collab with the Boss Beauties NFT community.



The goal of the marketplace is to “to translate iconic Mattel IP into digital art,” stated Ron Friedman, Vice President at Mattel Future Lab. Other Mattel intellectual property includes Fisher-Price, American Girl, Thomas &amp; Friends and UNO.

Web3 Watch: NFT Royalty Roundup, Ape Stakes, And Digital Hot Wheels

Jack Kubinec

Terra founder Do Kwon is still <a href="https://blockworks.co/tag/interpol" target="_blank" rel="noreferrer noopener">wanted by Interpol</a>, but the team behind the protocol’s stablecoin has launched a platform for building DAOs on its blockchain.



Terraform Labs built Enterprise, a “no-code” solution for DAOs looking to build on Terra. The new product illustrates that Terraform Labs believes Terra — irrespective of its missing-in-action founder — is worth building on, rather than rebranding or even sunsetting the project. But demand remains to be seen.



Enterprise <a href="https://blockworks.co/news/terra-looking-to-build-daos" target="_blank" rel="noreferrer noopener">was one of the first pieces of so-called Terra 2.0</a> — the blockchain’s attempted comeback after Terra’s native token LUNA death spiraled, torpedoing $30 billion in value in May.&nbsp;



Enterprise provides the raw digital material for DAO creation, allowing users to create multi-signature wallets, new tokens or NFT communities on Terra’s blockchain with a couple clicks.



A source close to the matter confirmed Kwon was involved with Enterprise’s creation in an advisory role.



Nick Almond, protocol lead at fellow DAO builder FactoryDAO, told Blockworks the setup, really, is not purely a DAO, but “DAOs 1.0 or 0.8.”&nbsp;



Though Terra flirted with catastrophe, largely due to technological shortcomings, Almond doesn&#8217;t see much to criticize when it comes to the new product’s backbone. 



“Investing in the whole application layer around DAOs — that&#8217;s what&#8217;s going to convince people to set up shop on their blockchain,” Almond said. “So, in a sense, [Terra is] somewhat ahead of a lot of the other [layer-1s].&nbsp;



But it’s unclear if a significant number of DAOs are ready to entrust their wallets, NFTs and tokens to Terra again.&nbsp;



“What blockchain you set your DAO upon is like what city you set your home upon. Why would you build it on Terra?” Almond said.



“Enterprise offers developers and our community value. They can trust what is being built because they can inspect the open-source code for the project themselves,” a spokesperson for Terra told Blockworks.&nbsp;



As of Monday afternoon in New York, Enterprise’s <a href="https://beta.enterprise.money/daos" target="_blank" rel="noreferrer noopener">beta version</a> housed seven DAOs and just a handful of users. The price of LUNA — the Terra 2.0 iteration launched in late May — actually fell somewhat on the news, finishing down 5% on Monday.&nbsp;



In crypto, attention often begets economic benefit, and Terra is nothing if not notable. Do Kwon still has more than a million Twitter followers. LUNA still has nearly $200 million in market cap. Almond said Terraform Labs may be hoping whatever is left of its once-formidable community will buy into whatever it does next.



Following FTX’s bankruptcy, Terraform Labs appears to be doing some brand rehabilitation. Earlier this month, Terra <a href="https://medium.com/terra-money/lfg-technical-audit-report-ddaf3f51e7d" target="_blank" rel="noreferrer noopener">posted</a> an audit report showing none of its funds were misallocated in the leadup to its May snafu. The post ends with a quote from Kwon, seemingly saying Terra’s fall from grace was more respectable than that of FTX, which misused customer funds.



FTX’s chances of operating an exchange in the near future appear slim to none. But Terra — which lost billions of dollars in a matter of days&nbsp; — is still building.



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Terra’s DAO Platform Is Open for Business

Most everyone in crypto is waiting for a regulatory <a href="https://blockworks.co/news/european-crypto-regulations-enter-final-phase" target="_blank" rel="noreferrer noopener">crackdown</a>. 



Financial regulators, especially in the US, namely the CFTC and SEC, were already playing a game with steep stakes — rule-making catch-up — before FTX <a href="https://blockworks.co/news/the-last-10-days-in-the-ftx-saga-a-timeline" target="_blank" rel="noreferrer noopener">cratered</a>. Its demise has given fresh ammunition to lawmakers who started calling for more stringent investor protection <a href="https://blockworks.co/news/americans-understand-crypto-risks-but-not-regulations-survey-finds" target="_blank" rel="noreferrer noopener">safeguards</a> earlier this year, when the <a href="https://blockworks.co/news/bipartisan-stablecoin-regulation-has-a-slim-chance-of-passing-this-year" target="_blank" rel="noreferrer noopener">stablecoin</a> UST depegged and digital asset lending lost its mooring.



The question now is not if, but when. And the outcome has massive implications for the industry — especially how the cryptoassets of <a href="https://blockworks.co/news/whats-next-for-ftx-and-its-customers-after-bankruptcy-filing" target="_blank" rel="noreferrer noopener">individual traders</a> and firms are accounted for come <a href="https://blockworks.co/news/the-bright-side-of-inflation-tax-breaks" target="_blank" rel="noreferrer noopener">tax season</a>. 



Blockworks sat down with Paul Brody, EY’s global blockchain leader, to discuss his roadmap for regulation in the coming months, as well as how the tax landscape is shifting, plus the evolving relationship of TradFi and digital assets — a relationship, in some ways, abruptly reset by recent events. 



Blockworks: First, give me your big-picture take on the last few weeks.&nbsp;



Brody: So, my general take on the last [few] weeks is that what we are seeing here is there&#8217;s no happy middle in this blockchain ecosystem.



There seem to be two extremes that work well. One extreme is you’re a fully on-chain, fully transparent, fully decentralized entity. So, those entities seem to have fared pretty well, and you will hear a lot of people say, “The key lesson from [recent] weeks is that DeFi works, and CeFi doesn&#8217;t.” And I will at least buy into the part that fully on-chain, fully transparent, fully visible DeFi has seemed to fare very well.&nbsp;



That doesn&#8217;t mean people didn&#8217;t lose lots of money, but it means that they didn&#8217;t lose their money to miss-allocation or a lack of business controls.&nbsp;



Of course, there&#8217;s another extreme, which is the fully traditional, fully regulated and intensively audited side. You&#8217;re a publicly traded entity. You&#8217;re regulated by the SEC; you&#8217;re audited by a big four firm; you&#8217;re subject to really, really big, very traditional financial services business controls — the kind that all banks and brokerages have been subject to for a very long time.



We know who those players are. They&#8217;ve also fared fairly well through this crisis, right? The people who have done poorly are the people in the middle. They&#8217;re not fully regulated, audited and rigorously inspected in a traditional model, nor are they fully transparent in the new model. They fall into this gray area. And that lack of supervision appears to be the gateway to temptation to fix problems without actually fixing problems, taking advantage of a lack of business controls — over and over, again.&nbsp;



Blockworks: So, two models. OK. Is overlap possible? And what do the twin models mean for auditing and oversight more broadly?



Brody: So, my problem is, you’re either one extreme or the other, but not a happy one in the middle. And I would go one step further.&nbsp;



I would say, ‘If you have to choose between the two, the fully regulated TradFi model is actually a lower risk model.’ And the reason it&#8217;s a low-risk model — and I feel like this is gonna’ make me somewhat unpopular with a lot of crypto purists — starts with thinking about some of the really excellent firms on the DeFi side. I admire what they&#8217;re doing greatly. And I&#8217;m very impressed.&nbsp;



However, they&#8217;re entering uncharted territory. We don&#8217;t have a couple of centuries of auditing and banking and checklists for a pure DeFi ecosystem. We have a couple centuries of supervision history to know how to make the checklist if you come to EY and say, ‘Hey, I would like to be audited by EY.’&nbsp;



We have a very lengthy checklist of all the things you need to do to prepare for an audit. That&#8217;s an excellent guide…There is no DeFi equivalent. So, how do we be the most rigorous possible on the DeFi ecosystem?&#8230;We know how to do that in TradFi. We’re [working on it] when it comes to DeFi.&nbsp;



Whereas, if you want to be an SEC-regulated audit client, you have this checklist, and if you follow the checklist, you&#8217;re going to implement a lot of good, basic business controls.



Blockworks: Are you seeing a slowdown when it comes to TradFi firms you deal with looking to do business in crypto? Given the last few months…



Brody: None of our clients are deterred from crypto. It’s a fact, because 100% of the family offices and 100% of the high net-worth individuals [we deal with] have some form of crypto. Nobody wants to be out of this business. They know, now, market goes up, market goes down. That’s probably here to stay.&nbsp;



But [there’s a difference] between what you do immediately versus what you plan to do in the near future.&nbsp;



There&#8217;s definitely some reticence, and the larger banks are much more careful and conservative. But mid-sized banks are a bit more adventurous. They are ready. They&#8217;re very close to going live with multiple products, especially things like stablecoins.&nbsp;



Yeah, they&#8217;re waiting for regulatory approval. And this is where [it boils down to the] unfortunate mess of the last six months. There are some people who say, ‘Great. We didn&#8217;t really allow crypto into the regulated model.’&nbsp;



I actually take a slightly different perspective, which is that the lack of rules has meant that some of the really top-quality firms that are highly regulated have stayed out. And it&#8217;s possible, therefore, that bad actors ended up with a larger share of the market than they would have otherwise — right in a period of high market uncertainty.&nbsp;



People tend to want to migrate. They feel there&#8217;s a flight to quality. They want to migrate to what they perceive as the lowest risk player. And, maybe, if there were some of the more blue-chip names in this business that offered services, they would have a bigger share.&nbsp;



And some of the less well-documented and regulated players would have a smaller share. And maybe the damage from some of these insolvencies would actually be smaller.



Brody, a principal at EY, heads the accounting firm’s blockchain business lines, encompassing consulting, audit and tax. He has about 20 years of professional experience, including spending more than 12 years at IBM in executive roles.



This interview has been edited for brevity and clarity. Brody declined to discuss specific EY clients, citing privacy concerns.



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‘Uncharted Territory’ for Crypto Come Tax Season: EY Blockchain Head

Investors drawn to double-digit yields in the convertible bond market should be prepared to raise their risk tolerance, analysts say.



Coinbase and MicroStrategy, two crypto-related companies, saw their convertible bond yields surge as prices plummeted this month amid ongoing fallout from <a href="https://blockworks.co/news/the-last-10-days-in-the-ftx-saga-a-timeline" target="_blank" rel="noreferrer noopener">FTX’s bankruptcy</a>.&nbsp;



Coinbase’s <a href="https://blockworks.co/news/coinbase-wants-to-raise-1-5b-via-debt-offering" target="_blank" rel="noreferrer noopener">bond — maturing in 2026</a> — dipped to an all-time low of 53 cents on the dollar last week, a level typically associated with distressed debt, Kaiko analysts said in a note Monday. The bond later recovered slightly to 59 cents on the dollar on Monday, trading <a href="https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C1040076&amp;symbol=COIN5424425" target="_blank" rel="noreferrer noopener">data</a> shows. Bond price and yield move in opposite directions.&nbsp;



“Coinbase bonds look cheap to their stock,” trader Greg Foss said. “I would short Coinbase equity versus long the bonds.”&nbsp;



Coinbase shares are down more than 40% over the past month, to around $42 as of Monday.&nbsp;



MicroStrategy <a href="https://blockworks.co/news/microstrategy-is-selling-debt-to-buy-more-bitcoin-heres-what-that-means" target="_blank" rel="noreferrer noopener">bonds</a>, set to mature in 2028, also slumped on Monday to 78 cents on the dollar. The software company’s 2027 bonds trade at around 33 cents on the dollar and come with a 28% yield.&nbsp;



If MicroStrategy and Coinbase survive until their respective bonds’ maturity dates and pay the debt in full, investors will pocket a gain.&nbsp;



At the end of the third quarter of 2022, Coinbase reported about $3.4 billion in long-term debt, according to <a href="https://s27.q4cdn.com/397450999/files/doc_financials/2022/q3/a2c76620-9756-4268-9d08-4c7856f25a14.pdf" target="_blank" rel="noreferrer noopener">company filings</a>. The exchange also posted a net revenue of around $576 million for the quarter.&nbsp;



“We ended Q3 with $5.6 billion in total $USD resources, in addition to $483 million in crypto assets, which we believe puts us in a strong position to manage through the crypto winter,” Coinbase executives wrote in their third quarter <a href="https://s27.q4cdn.com/397450999/files/doc_financials/2022/q3/Q32022-Shareholder-Letter.pdf" target="_blank" rel="noreferrer noopener">shareholder letter</a>.



MicroStrategy reported about $2.4 billion in long-term debt at the end of the third quarter in 2022, according to <a href="https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/microstrategy-announces-third-quarter-2022-financial-results_11-01-2022.pdf" target="_blank" rel="noreferrer noopener">filings</a>. The company had about $2.5 billion in assets, including bitcoin holdings worth around $2 billion at the time, MicroStrategy said.



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Coinbase, MicroStrategy Bonds Hammered by Industry Turmoil

Dan Smith

RUNE

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