Cola

Sebastian Sinclair

Meme stocks are once again drawing the attention of traders — coinciding with a 2023 jump in value in meme cryptocurrencies, including sector stalwarts Dogecoin and Shiba Inu.



The emerging sentiment— underscored by amped-up meme asset trading volumes — lingered into Tuesday’s session. The continuing investor interest appears to be bucking a downturn in meme equities late in Monday’s trading session in New York.



Longtime meme stock <a href="https://www.tradingview.com/chart/?symbol=NYSE%3AAMC">AMC</a> finished Monday’s trading session 12% higher at $6.80 — after rising to a peak of $7.26. Most of that double-digit pop was erased on Tuesday as the US movie theater chain’s equity dropped 8%. But the NYSE-listed asset was still posting a 57% gain on the year. 



Home retailer Bed Bath &amp; Beyond (<a href="https://www.tradingview.com/chart/Nm6c3U35/?symbol=NASDAQ%3ABBBY">BBBY</a>) climbed an eye-watering 92% to $5.85 to start the week — before giving 36% back to hover around $3.70 in Monday’s after-hours trading hours. The stock gave up another 48% on Tuesday.  



<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" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12680954/embed#?secret=SsQUxAtV7B" data-secret="SsQUxAtV7B" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">A number of meme equities and meme tokens are trouncing the S&amp;P 500 in 2023 so far. </figcaption></figure>



Daily gains were knee-capped in after-hours trade on Monday following an announcement by company executives over their intention to sell convertible shares in order to avoid loan default and <a href="https://www.bloomberg.com/news/articles/2023-02-06/bed-bath-beyond-plans-share-sale-in-effort-to-avoid-bankruptcy">prevent bankruptcy</a>. Still, BBBY is up more than 30% so far this year, marking a notable recovery from its 80% decline since last year’s $30 peak.&nbsp;



Traders also demonstrated a renewed interest in meme stock pioneer GameStop (<a href="https://www.tradingview.com/chart/Nm6c3U35/?symbol=NYSE%3AGME">GME</a>), albeit demonstrated by a relatively smaller pop to start the week. GME jumped 7% higher on Monday to $24.70. Like the others, GME declined 11% Tuesday as traders booked a profit. The equity is still up more than 20% in the new year.&nbsp;



The GameStop short squeeze of January 2021 brought to light stocks with heavy Wall Street short floats —&nbsp; and sparked a movement driven by Reddit traders to drive up similarly beleaguered equities in a show of retail force.



<h3>More (meme) bark than bite?</h3>



Meme stocks and coins have gained renewed attention recently as worries about inflation and the macro environment have started to ease, according to Rob Alcorn, Clearpool’s chief executive.&nbsp;



“Meme coins generally distract attention from the real innovation happening in the digital asset space,” Alcorn told Blockworks. “Whilst very speculative, this is an indicator that retail sentiment is turning positive once again following an extended period of selling.”



The recent meme stock surge has mirrored an upward trend in their crypto counterparts. On the year, <a href="https://www.blockworksresearch.com/assets/doge">dogecoin</a> has this week clawed back more than 31% of its losses — and <a href="https://www.blockworksresearch.com/assets/shib">shiba inu</a> has roared back to the tune of 2023 gains of as much as 75%.&nbsp;



For context, both bitcoin and ether have risen by approximately 36% over the same time period.



That’s good news for the majority of dogecoin holders, now in the money or profiting from their original purchase.&nbsp;&nbsp;



Data from crypto intelligence firm <a href="https://app.intotheblock.com/coin/DOGE/deep-dive?group=all&amp;chart=all" target="_blank" rel="noreferrer noopener">IntoTheBlock</a> show, of roughly four million wallet addresses holding the asset, around 62% are in the money. Just 35% of those addresses are posting losses.



A majority of those addresses booking gains bought in at an average price of $0.008. The asset was last seen changing hands for around $0.09, representing a 1020% increase for those who bought then.&nbsp;



IntoTheBlock’s Global In/Out of the Money categorizes addresses by their current profit or loss status relative to the current market price. Addresses are classified as &#8220;in the money&#8221; if they are making a profit, &#8220;at the money&#8221; if they are breaking even or &#8220;out of the money&#8221; if they are underwater.



It’s a little hairier for those holding shib, Shibu Inu’s native token. 



Of the 1.2 million addresses analyzed, roughly 44.5% are showing a profit.



An additional 54% have bitten off more than they can chew.



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Dogecoin Owners Back in Green YTD as Meme Stocks Rip

Ben Strack

US regulators have reiterated warnings on their perceived risks of adding cryptocurrencies to retirement accounts.&nbsp;



The SEC and the Financial Industry Regulatory Authority (FINRA) on Tuesday again cautioned investors allocating to alternative assets in self-directed individual retirement accounts (IRAs), highlighting crypto as a risk.



“Crypto assets may be securities that are offered without SEC registration or a valid exemption from registration, and may not be accompanied by complete or accurate information to aid investors in making informed decisions,” regulators <a href="https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/investor-14" target="_blank" rel="noreferrer noopener">wrote</a>.



In making their case against crypto, regulators additionally alluded to liquidity concerns centered around digital assets. 



Many crypto trading platforms brand their entities as “exchanges” — which could contribute to incorrect investor impressions that those market makers have registered with the SEC, the warning said.&nbsp;



Crypto exposures in retirement accounts has been a <a href="https://www.wsj.com/articles/investors-who-bet-on-bitcoin-fund-in-retirement-accounts-pay-the-price-11675049243" target="_blank" rel="noreferrer noopener">touchy</a> subject of late. That’s in part due to <a href="https://blockworks.co/news/asset-managers-potential-gbtc-takeover">the underperformance of Grayscale Bitcoin Trust (GBTC)</a>, as well as <a href="https://blockworks.co/news/ontario-teachers-fund-sank-95m-in-failed-ftx-empire">write-offs</a> by pension funds invested in failed crypto firms <a href="https://www.ft.com/content/67048159-82aa-4e96-bfb3-f1764f632375" target="_blank" rel="noreferrer noopener">Celsius</a> and FTX.



Read More: <a href="https://blockworks.co/news/asset-managers-potential-gbtc-takeover">Your recap on all things GBTC as takeover attempts mount</a>



Tuesday’s regulatory guidance focuses on self-directed IRAs, plans that allow investment in more assets than other types of IRAs — such as real estate, private placement securities, precious metals and other commodities. These differ from 401(k) plans, which are employer-sponsored retirement savings plans that give employees a choice of investment options, typically mutual funds.&nbsp;



But warnings about crypto investments have not been isolated to the self-directed retirement space.&nbsp;



The Department of Labor said in <a href="https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/compliance-assistance-releases/2022-01" target="_blank" rel="noreferrer noopener">March 2022 guidelines</a> that the Employee Benefits Security Administration (EBSA) expects to investigate 401(k) plans that offer participant investments in cryptocurrencies and related products. 



Those guidelines have “chilled interest” by plan sponsors and fiduciaries in direct crypto investments for the time being, Castle Funds Director Dan Hoover <a href="https://blockworks.co/news/castle-funds-insurance-crypto">told Blockworks</a> last week.&nbsp;



Still, <a href="https://blockworks.co/news/fidelity-delves-deeper-into-crypto-by-allowing-bitcoin-in-401ks">Fidelity said last April</a> that the bank would give employers the option to offer bitcoin exposure to employees in their core 401(k) investment lineup. A Fidelity previously said it was set to launch its first plan sponsor clients by the end of 2022. 



The company had $9.6 trillion in assets under administration, as of Sept. 30, and manages employee benefit programs for nearly 23,000 businesses. 



A Fidelity spokesperson did not immediately comment on the demand for crypto exposure in retirement portfolios in the wake of FTX’s crash in November, which shook the industry.



“We are proud of the Digital Assets Account as a responsible solution to meet the demands of mainstream interest,” a firm representative told Blockworks in October. “In fact, client interest has not only been strong, but also spans across a wide range of industries and company sizes.”



Senators, including Elizabeth Warren, D-Mass., have repeatedly urged Fidelity — <a href="https://blockworks.co/news/senators-fidelity-stop-offering-bitcoin-401ks">as recently as November</a> — to stop its 401(k) sponsor partners from offering bitcoin exposure.



Fidelity has said it engages in “ongoing dialogue with regulators and policymakers” to ensure consumer protections and educational guidance for plan sponsors.



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SEC, FINRA Double Down on Warning of Retirement Account Crypto Risk

Jon Rice

Crypto news site The Block cut 27 staffers on Friday, according to four sources with direct knowledge of the layoffs.



In confirming the layoffs, Bobby Moran, interim CEO at The Block, said that &#8220;Friday was a tough day for our company. We parted ways with 27 incredibly talented and hard-working colleagues each of whom contributed to The Block&#8217;s success. We are genuinely sad to see them go.&#8221;



The Block made headlines in December 2022 following reports that Sam Bankman-Fried secretly channeled millions of dollars in loans through his trading company, Alameda Research, to Michael McCaffrey, The Block’s former chief executive. Bankman-Fried, the founder of <a href="https://blockworks.co/tag/ftx">FTX</a> and <a href="https://blockworks.co/tag/alameda-research">Alameda</a>, is now awaiting trial on multiple counts of fraud and conspiracy.



McCaffrey did not divulge the source of the funds publicly and resigned from his CEO seat shortly after the revelations.



The layoffs were spread over multiple company functions, including editorial, research, engineering, sales, revenue, and corporate operations, with almost half coming from editorial and research, according to a source familiar with the matter.



The Block is not profitable, according to an Axios <a href="https://www.axios.com/2022/12/09/bankman-fried-funded-crypto-news-site-block" target="_blank" rel="noreferrer noopener">investigation</a>, which found that a buyout of the company’s investors in April 2021 led by McCaffrey was financed by loans extended by Bankman-Fried’s Alameda Research. Those lines of credit reportedly were funneled to an LLC, MJMCCAFFREY LLC.



McCaffrey was succeeded by Bobby Moran, formerly the company’s chief revenue officer.



“No one at The Block had any knowledge of this financial arrangement besides Mike,” Moran <a href="https://www.theblock.co/post/193753/the-block-ceo-resigns-after-failure-to-disclose-loans-from-bankman-frieds-alameda" target="_blank" rel="noreferrer noopener">said</a> at the time.&nbsp;



His account was confirmed by McCaffrey, who <a href="https://twitter.com/McCaffrMike/status/1601304758228164608?s=20&amp;t=OFOOquf77lQ96zuWFkiRAA" target="_blank" rel="noreferrer noopener">tweeted</a> that he “didn’t disclose the loan to anyone. Absolutely no one at The Block knew about the financial arrangement between my holding company and SBF, including the editorial and the research teams.”



A source at The Block who was granted anonymity to discuss the situation candidly told Blockworks that &#8220;There&#8217;s no way McCaffrey was the only person who knew what was happening. Or if he did, some other people were very, very, very bad at their jobs.&#8221;



Following publication of this article Moran noted that &#8220;With regard to the financial arrangement between Mike [McCaffrey] and SBF, what I said in December still holds true — as far as we know, no one at the company knew about Mike&#8217;s actions. We are focused on moving the company forward.&#8221;



<h2>FTX is attempting to recover funds elsewhere</h2>



It’s unclear if FTX will attempt to clawback the money extended to McCaffrey, although it is <a href="https://www.theguardian.com/business/2023/feb/06/ftx-exchange-sam-bankman-fried-donations" target="_blank" rel="noreferrer noopener">trying</a> to recover political donations made by FTX executives.



There is no suggestion that The Block’s journalists were tainted by McCaffrey’s failure to divulge the source of his funds, or that The Block’s editorial coverage was influenced by the loans. Journalists at the company expressed shock and dismay at the time.



<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) I&#39;m absolutely gutted by this news, which was briefed to the company this afternoon. Underpinning my shock are feelings of utter disgust and betrayal by Mike’s actions, greed, lack of disclosure. He&#39;s literal scum. He kept every single one of us in the dark. <a href="https://t.co/jIZCxtHrfc">https://t.co/jIZCxtHrfc</a>&mdash; Frank Chaparro (@fintechfrank) <a href="https://twitter.com/fintechfrank/status/1601295493102911488?ref_src=twsrc%5Etfw">December 9, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



It has been a tumultuous year for some crypto media companies, including CoinDesk, which has been repeatedly forced to report on the waning fortunes of its parent company, Digital Currency Group (DCG).



CoinDesk is one of the assets that may be <a href="https://www.wsj.com/articles/crypto-media-outlet-coindesk-taps-bankers-for-potential-sale-11674076000" target="_blank" rel="noreferrer noopener">sold off</a> as a result of the ongoing Genesis bankruptcy (another DCG portfolio company).



Although initial estimates for its price tag ranged as high as $300 million, some sources now believe the sale will be for significantly less than $100 million, with at least one estimate placing the final price south of $50 million. Updated Feb. 7th, 2023 at 7:36 pm ET: Added quotes from Bobby Moran.



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Crypto News Outlet The Block Lays Off 27 Staff

Bessie Liu

Prosecutors in the Southern District of New York (SDNY) have asked the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to postpone their cases against the disgraced founder of FTX, Sam Bankman-Fried.&nbsp;



Prior to <a href="https://blockworks.co/news/5-highlights-ftx-bankruptcy">filing for bankruptcy</a> on Nov. 11, FTX was one of the biggest cryptocurrency exchanges in the world. After being arrested in the Bahamas in December, Bankman-Fried was extradited to the United States, where he currently faces eight federal charges related to financial fraud.



Additionally, the SEC filed a civil lawsuit against Bankman-Fried on Dec. 12 last year for violating anti-fraud provisions. A day later, the CFTC filed a lawsuit against the founder for fraud and material misrepresentations.



Attorney Damian Williams of SDNY noted in a court filing that civil lawsuits could allow Bankman-Fried to “improperly obtain impeachment material regarding the Government’s witnesses, circumvent the criminal discovery rules, and improperly tailor his defense in the Criminal Case.”



Williams also noted that it Bankman-Fried’s attorneys could benefit from civil proceedings and use the opportunity to improve his defense in the federal case. As such, he requested to temporarily halt civil cases while federal investigations continue.



This is not the first time that US prosecutors have requested a halt in action from civil cases. In July 2018, the SEC <a href="https://financefeeds.com/us-govt-seeks-intervene-sec-case-ponzi-scammer-renwick-haddow/">paused its investigations</a> into crypto scammer Renwick Haddow after it was determined that both the civil and criminal cases were rooted in the same set of circumstances.



<h2>No contact allowed with the outside world</h2>



The former FTX founder pleaded <a href="https://blockworks.co/news/sam-bankman-fried-issues-not-guilty-plea">not guilty</a> to the charges against him in December last year. He is currently out on bail for <a href="https://blockworks.co/news/bankman-fried-bail-past-indictments">$250 million</a>.



Despite being under house arrest, many guests have been able to visit him in his family residence, including prominent financial journalist Michael Lewis — the author of Wolf of Wall Street.&nbsp;



It was also revealed that Bankman-Fried had been contacting past and present FTX and Alameda employees through messaging app Signal.&nbsp;



As the court believed that his messages were obstructive and could <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.590940/gov.uscourts.nysd.590940.50.0.pdf">influence witnesses</a>, judges decided to forbid the founder from using any communication tools to contact the outside world, other than his immediate family members.&nbsp;



Bankman-Fried’s lawyers filed a joint request on Monday to modify his bail conditions so that he could be allowed to use unencrypted text messaging services under the circumstances that his phone was monitored.



This was met with resistance from federal officials, who have since denied his request “without prejudice,” meaning Bankman-Fried is free to make the same or a similar request again in the future.



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SDNY Wants SEC, CFTC To Postpone Cases Against Bankman-Fried

Casey Wagner

After a mixed trading session Tuesday, Federal Reserve Chair Jerome Powell sent markets clearly into the green. In his first public remarks since his post-FOMC press conference earlier this month, Powell set markets at ease during an appearance at the Economic Club in Washington, D.C.&nbsp;



The Nasdaq Composite and S&amp;P 500 indexes rose as much as 1.4% and 1.1%, respectively, during Powell’s interview with Carlyle Group co-founder David Rubenstein, where he discussed the latest “extraordinarily strong” jobs report and potential rate increases moving forward.&nbsp;



“The disinflationary process, the process of getting inflation down, has begun,” Powell said.&nbsp;



In terms of expectations for future interest rate decisions, Powell was tight lipped, noting that upcoming economic data will be a major influencing factor.&nbsp;



“What we said at the <a href="https://blockworks.co/news/federal-reserve-raises-interest-rates-25-bps">[FOMC] meeting</a> was we anticipate that ongoing rate increases would be appropriate,” Powell said. “All of these numbers we are throwing around here are contingent on upcoming data.”&nbsp;



Tech stocks and crypto led Tuesday’s midday gains, with bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) and ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) rallying as much as 1.7% and 2.5%, respectively, before both paring gains slightly. Still, Powell tried to set market expectations in check, reinforcing the sentiment that future numbers are going to be important going forward. 



“The reality is we’re going to react to the data,” Powell said. “So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in.”



Rubenstein also asked about the debt ceiling, an ongoing crisis in Congress that Powell also mentioned during his latest press conference following this month’s FOMC decision.&nbsp;



“The debt limit is really something for the fiscal authorities to take care of,” he said, noting that Congress has only one way forward: Raise the debt ceiling.&nbsp;



Powell suggested that he would not be entertaining the possibility of <a href="https://blockworks.co/news/a-new-york-congressman-wants-the-treasury-to-mint-a-1-trillion-coin-to-pay-off-us-debt">minting a trillion dollar coin</a>.&nbsp;



“As I said, this ends in only one way,” he added.



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Fed Chair’s Comments Spawn Market Volatility

Digital Currency Group (DCG) has reportedly been selling shares of some of Grayscale Investments’ crypto trusts in an effort to raise capital following the bankruptcy filing of Genesis.&nbsp;



Founded by <a href="https://blockworks.co/tag/barry-silbert">Barry Silbert</a>, DCG is the parent company of crypto lending firm Genesis, asset manager Grayscale Investments and media company CoinDesk, among others.



A quarter of DCG&#8217;s stock in the Grayscale <a href="https://grayscale.com/products/grayscale-ethereum-trust/" target="_blank" rel="noreferrer noopener">Ethereum Trust</a> (ETHE) has been sold, raising as much as $22 million in several trades since Jan. 24, the Financial Times <a href="https://www.ft.com/content/abee7e2e-1d18-4a68-aac5-665869db250f" target="_blank" rel="noreferrer noopener">reported</a> late Monday, citing filings. 



ETHE, which launched in 2017, has $5 billion in assets. The trust was trading at a roughly 54% discount to its net asset value on Monday, according to <a href="https://ycharts.com/companies/ETHE/discount_or_premium_to_nav" target="_blank" rel="noreferrer noopener">YCharts.com</a>.



Dave Nadig, a financial futurist at data firm VettaFi, said the trust issuer’s reported sale at such a steep discount highlights the need for a redemption window. Redemptions of shares for ETHE are not currently authorized.&nbsp;



“It’s not a great look, obviously, but on the other hand, if a corporation needs to raise cash, selling assets is a pretty time-honored way of doing so,” he told Blockworks.&nbsp;&nbsp;



DCG has also moved to sell a smaller number of shares in Grayscale&#8217;s Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust and Digital Large Cap Fund. 



Those four trusts have combined assets under management of roughly $700 million.&nbsp;&nbsp;



Spokespeople for DCG and Grayscale did not immediately return a request for comment.&nbsp;



Genesis <a href="https://blockworks.co/news/the-next-bankruptcy-domino-may-be-genesis">filed for bankruptcy</a> last month after taking a major hit during last year’s market turmoil. The company on Monday <a href="https://blockworks.co/news/genesis-agreement-will-see-gemini-contribute-100m-to-compensate-earn-users">reached an agreement</a> in principle with Gemini and other creditors on a restructuring plan, <a href="https://blockworks.co/news/fraud-winklevoss-silbert-dcg">following a public feud</a> with Gemini’s Cameron Winklevoss.&nbsp;



DCG’s reported sale of various Grayscale trust shares comes after the Financial Times said last month DCG was <a href="https://blockworks.co/news/dcg-selling-venture-capital-portfolio">looking to sell</a> some of its venture capital holdings, citing people familiar with the matter.



Grayscale’s largest investment product is its Bitcoin Trust (GBTC), which launched in 2013 and has $14.5 billion in assets.&nbsp;



The cryptoasset manager has <a href="https://blockworks.co/news/grayscale-sec-illogical-denial-of-gbtc-conversion">sued the SEC</a> in an attempt to convert GBTC to an ETF, a process Grayscale executives said would help close the trust’s discount, which has exceeded <a href="https://ycharts.com/companies/GBTC/discount_or_premium_to_nav" target="_blank" rel="noreferrer noopener">40%</a> in recent months.&nbsp;



Grayscale CEO Michael Sonnenshein told investors in a December letter the firm would <a href="https://blockworks.co/news/no-gbtc-redemptions-but-considering-other-options">consider a tender offer for GBTC shareholders</a> if its bid to convert the trust to an ETF fails.



There is no concrete timeframe for a resolution to the legal wrangling, and <a href="https://blockworks.co/news/gbtc-takeover-attempts-explained">some GBTC shareholders</a> are growing impatient.



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DCG Dumps ETH Trust Shares Despite Steep Discount: Report

After a rocky 2022, bitcoin miners could be in for a lucrative year, at least if past market cycle patterns repeat.&nbsp;



The largest cryptocurrency posted a 64% loss last year, coupled with skyrocketing electricity costs around the world and a dramatic drop in mining profitability made 2022 a bust for most of the crypto mining industry. But a rebounding market and upcoming halving cycle could be the catalysts the industry needs for a turnaround.&nbsp;



The next bitcoin halving, expected in the second quarter of 2024, should create a positive imbalance between bitcoin’s supply and demand, <a href="https://medium.com/@cbendiksen?source=---two_column_layout_sidebar----------------------------------" target="_blank" rel="noreferrer noopener">Christopher Bendiksen</a>, bitcoin research lead at CoinShares, said in a <a href="https://blog.coinshares.com/end-in-sight-for-the-mining-capitulation-cycle-e33b9d2fc9b9" target="_blank" rel="noreferrer noopener">report</a> Monday. 



“Historically, there has been a recurring tendency for the halvings to be closely followed by bull markets, leading to the now famed four-year bull/bear cycles in bitcoin price,” Bendiksen said.&nbsp;



When market conditions are strong, miners restrict new supply by holding more bitcoin on their own treasuries, meaning the supply of newly mined bitcoin hitting the market is much smaller than the actual production amount, Bendiksen said. But when there are challenges in the market, miners are forced to liquidate their holdings.&nbsp;



“Because good times in mining tend to happen during bitcoin bull markets, and bad times tend to happen during bear markets, miner hoarding behavior happens right when demand is already overpowering supply, and vice versa,” Bendiksen said. “This adds further fuel to the volatility fire, both to the upside and the downside.”



Some bitcoin mining companies have already reported a stronger start to the year. Riot Platforms increased its production 62% year-over-year last month, the company said in an <a href="https://www.riotplatforms.com/investors/news-events/press-releases/detail/146/riot-announces-january-2023-production-and-operations" target="_blank" rel="noreferrer noopener">unaudited report</a> Monday. Riot reported selling 700 of its 740 mined bitcoin in January 2023, resulting in net proceeds of around $13.7 million, the company said. 



<a href="https://blockworks.co/tag/stronghold-digital-mining">Stronghold Digital Mining</a>, which has been publicly traded since October 2021, has paused all debt payments until July 2024, giving the firm runway for the next 18 months, the company said Tuesday. Holding off on debt payments means Stronghold can take advantage of the current distressed mining market, a spokesperson said. 



After <a href="https://blockworks.co/news/stronghold-loses-25-after-hours-as-q4-earnings-revenue-miss-mark">losing nearly 98% since its Nasdaq debut</a>, Stronghold has rallied more than 30% so far this year. Analysts surveyed by <a href="https://money.cnn.com/quote/forecast/forecast.html?symb=SDIG" target="_blank" rel="noreferrer noopener">CNN Business</a> give Stronghold a buy rating with a median price target of $2 per share, a roughly 257% increase from its current price of around $0.56. 



In yet another consolidation move spurred by the distressed market, mining companies <a href="https://blockworks.co/news/hut-8-halts-bitcoin-mining-facility-amid-energy-dispute">Hut 8</a> and US Bitcoin Corp announced merger plans Tuesday. The two companies will be wholly-owned subsidiaries of the new Hut 8 Corp. Hut 8’s shares will be consolidated five-to-one, per the <a href="https://www.prnewswire.com/news-releases/hut-8-and-us-bitcoin-announce-merger-of-equals-to-create-a-preeminent-digital-asset-mining-hosting-managed-infrastructure-operations-and-high-performance-computing-organization-301740489.html" target="_blank" rel="noreferrer noopener">press release</a>. 



“Once miners are better able to cover ongoing cash needs through mining revenue, the exacerbating effect from treasury liquidations on downside volatility is reduced, removing an ankle weight from the bitcoin price itself,” Bendiksen said. “This in turn has the potential to act as a virtuous cycle.



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Cutting Costs and Joining Forces, Bitcoin Miners Hoping for Rebound

Shalini Nagarajan

A yield-automating protocol on Arbitrum was exploited over the weekend in an incident that <a href="https://blockworks.co/news/arbitrum-stablecoin-exploiter-snagged-300k">boosted</a> the hacker’s balance of their US dollar stablecoin Sperax (USDS).&nbsp;



But in a plot twist, the team said Tuesday all funds had been returned — pointing to a $300,000 USDC <a href="https://arbiscan.io/tx/0x0846e67921aeb52301c826344a44720d1242e8e71e28a3c8b651cd6db4088df5" target="_blank" rel="noreferrer noopener">transaction</a> — and that Sperax would soon provide a timeline to resume SperaxUSD transfers.



The “hybrid” stablecoin, which first notified its users of the attack on Sunday, published a report late Monday detailing what went down.&nbsp;



Although in its report SperaxUSD calls the person an “attacker,” the team has said separately in a tweet that the person associated with the address is “<a href="https://twitter.com/SperaxUSD/status/1622681658775244806" target="_blank" rel="noreferrer noopener">not a hacker</a>,” and that it pledged not to&nbsp; take any action if the funds were returned.



The team said the exploiter took advantage of an internal bug in the USDS token contract to change the balance to 9.7 billion on a multi-sig wallet.&nbsp;



Before the team could block the contract, the attacker managed to exchange about $309,000 USDs to USDT, USDC and WETH.&nbsp;



SperaxUSD said that on Dec. 13, it had upgraded the token contract to remedy an issue in the calculation of balances, which caused incompatibilities with DEXes.&nbsp;



The exploit began with the attacker sending funds to a Gnosis Safe address, a multi-signature smart contract wallet, which triggered a bug in the USDs token contract. That’s how the balance jumped to 9.7 billion tokens.



The attacker then began to sell USDs on Arbitrum, likely 10,000 at a time. Some three hours after the attack, the SperaxUSD team was able to pause the action.



Holders of the USDs token have two types of tokens: rebasing (where supply is adjusted to control price) and non-rebasing. This means that a rebasing holder’s USDs balance increases automatically upon a rebase, which is triggered weekly.&nbsp;



“Even though all the contracts that we develop go through multiple rounds of reviews and thorough testing, we still missed this edge case. We feel the attacker was just experimenting with the contract since the upgraded code is not published, however he/she did uncover a novel bug, it could have been an even worse situation (if it were planned),” the team said.



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Arbitrum Stablecoin Exploit Has Happy Ending: Funds Returned

Former Coinbase product manager Ishan Wahi and his brother are looking to get the insider trading charges leveled against them dropped, as their lawyers argue they did not have the “culpable state of mind necessary to commit securities fraud.”



A <a href="https://storage.courtlistener.com/recap/gov.uscourts.wawd.312176/gov.uscourts.wawd.312176.33.0.pdf" target="_blank" rel="noreferrer noopener">court filing</a> released Tuesday showed lawyers arguing that the Securities and Exchange Commission (SEC) is trying to gain regulatory jurisdiction over the crypto industry via the enforcement action against the former Coinbase employee and his 26-year-old “kid brother.” 



The SEC’s <a href="https://www.sec.gov/news/press-release/2022-127" target="_blank" rel="noreferrer noopener">complaint</a> alleges that the Wahis illegally traded “securities” under the Exchange Act, but cryptoassets cannot be deemed securities as they are not “investment contracts,” the lawyers said. As per the <a href="https://www.investopedia.com/terms/h/howey-test.asp" target="_blank" rel="noreferrer noopener">Howey Test</a>, an asset can be classified as a security if it is determined to be an investment contract.



“But here there are no contracts, written or implied,” they wrote. “The developers who created the tokens at issue have no obligations whatsoever to purchasers who later bought those tokens on the secondary market. And with zero contractual relationship, there cannot be an “investment contract.”&nbsp;



The Coinbase insider trading case is expected to be a landmark one, as it could determine which cryptoassets can be termed as securities. Coinbase itself has <a href="https://blockworks.co/news/ex-coinbase-employee-accused-of-insider-trading-pleads-not-guilty">denied that the nine tokens</a> the brothers traded — AMP, DerivaDEX, DFX Finance, LCX, Kromatika, Powerledger, Rally, Rare Governance Token and XYO — are securities.



The Wahis’ counsel further stated that neither the SEC nor Coinbase’s legal team considered the tokens at issue to be securities before the allegations were put forth. And so, the SEC should arrive at that decision before consequences are imposed, they added.



“The SEC’s parade of one-off enforcement actions against the likes of Kim Kardashian, DJ Khaled, Floyd Mayweather Jr., and now Ishan and Nikhil Wahi is—by contrast—a process designed to produce more heat than light,” they said.



Both brothers, along with their friend Sameer Ramani, were <a href="https://blockworks.co/news/sec-charges-former-coinbase-product-manager-with-insider-trading">accused of trading at least 25 cryptoassets</a> based on confidential information between June 2021 and April 2022, bagging them profits worth over $1.1 million.



Notably, Ishan Wahi and Nikhil Wahi had both <a href="https://blockworks.co/news/ex-coinbase-employee-accused-of-insider-trading-pleads-not-guilty">initially pleaded “not guilty”</a> to wire fraud, but Nikhil Wahi <a href="https://blockworks.co/news/ex-coinbase-managers-brother-takes-a-plea-bargain-in-insider-trading-case">resorted to a plea bargain</a> in September.



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Ex-Coinbase Employee Moves To Dismiss Insider Trading Case

Ethereum-based protocol Cryptex Finance is launching JPEGz, an NFT market capitalization index token that will track ten different NFT collections. The token will be powered by Chainlink and Coinbase Cloud on Ethereum layer-2 solution Arbitrum.



JPEGz comprises 10 popular NFT projects: Azuki Official, Bored Ape Yacht Club, CloneX, Cool Cats, CrypToads, CryptoPunks, Doodles, Mutant Ape Yacht Club, Vee Friends and World of Women.



&#8220;For the first time, users can mint price exposure to track 10 popular NFT collections using ETH or DAI without the need to hold the underlying NFTs themselves,” Joe Sticco, co-founder of Cryptex Finance, said in a statement.



Read More: <a href="https://blockworks.co/news/your-guide-to-nft-platforms">Everything You Need To Know About Buying and Selling NFTs</a>



Over the past 30 days, the prices of popular NFTs have mostly been trending downward, with a few outliers.&nbsp;



Bored Ape Yacht Club has seen its price drop by about <a href="https://nftpricefloor.com/bored-ape-yacht-club" target="_blank" rel="noreferrer noopener">4%</a>, CryptoPunks has seen a <a href="https://nftpricefloor.com/?sort=ranking&amp;dir=asc" target="_blank" rel="noreferrer noopener">4.2%</a> fall, and Cool Cats and CloneX have depreciated by <a href="https://nftpricefloor.com/cool-cats" target="_blank" rel="noreferrer noopener">21.5%</a> and <a href="https://nftpricefloor.com/clonex" target="_blank" rel="noreferrer noopener">12.7%</a>, respectively. On the other hand, the price of Azuki has increased by <a href="https://nftpricefloor.com/?sort=ranking&amp;dir=asc" target="_blank" rel="noreferrer noopener">16.4%</a>, according to information from <a href="https://nftpricefloor.com/" target="_blank" rel="noreferrer noopener">NFT Price Floor</a>.



Index tokens, such as the one to be launched by Cryptex, diversify risks for investors by exposing them to a broader market of cryptoassets rather than one single asset. In this case, even if the price of one NFT collection drops, others may still remain profitable. This token type can be compared to an index fund in traditional finance.&nbsp;



Investors interested in NFTs but unwilling to take the risk of picking one over another can purchase fractional interest via JPEGz in any investment amount, or as a vehicle for dollar-cost averaging.&nbsp;



“Arbitrum’s collaborative NFT community has been growing rapidly, and now thanks to JPEGz, traders will have access to an indexing fund that directly tracks top NFT projects, allowing investors of all levels to have [a] stake in the largest NFTs projects globally,” Offchain Labs’ Chief Marketing Officer Andrew Saunders said in a press release.&nbsp;



The JPEGz token can be minted worldwide starting today on the Cryptex Finance dapp on Aributrum and can be swapped on Uniswap and Slingshot DEXes. The token will have a 1.5% minting and 1.5% burn fee — which will be applied to all transactions to fund Cryptex Finance DAO activities.



Because JPEGz is a synthetic index token, you can mint any amount of JPEGz in proportion to the collateral deposited, Sticco told Blockworks.



“Minting a fractional amount of tokens would have been difficult if JPEGz was a basket of tokens, but that&#8217;s not the case because JPEGz is a synthetic asset,” he said. “The same goes for burning. You can burn as many tokens as you like.”



“We are excited to see how JPEGz plans to accelerate with Arbitrum and drive scale over the coming months,” Saunders said.



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NFT Index Investing Has New Entrant With JPEGz Tokenized Basket

Ethereum liquid staking solution Lido revealed its latest upgrade, V2, which will focus on a new staking router that will allow anyone to develop on-ramps for new node operators. Staked ether holders will also be able to withdraw from Lido at a 1:1 ratio.



Lido was designed to combat centralized staking platforms and simplify the process of running individual staking nodes — its staked ether (<a href="https://blockworks.co/price/steth" target="_blank" rel="noreferrer noopener">stETH</a>) was the first liquid staking derivative to be adopted by the mainstream and <a href="https://www.blockworksresearch.com/research/eth-liquid-staking-derivatives" target="_blank" rel="noreferrer noopener">continues</a> to be one of the most popular staking protocols.&nbsp;



Around <a href="https://lido.fi/ethereum" target="_blank" rel="noreferrer noopener">5.05 million</a> ETH is currently staked with Lido. Staked ether cannot be withdrawn from the Beacon chain until the <a href="https://blockworks.co/news/liquid-staking-derivatives-shanghai-upgrade">Shanghai hard fork</a>, which is anticipated to be executed in April.



Lido believes the implementation of its V2 upgrades will significantly improve the decentralization of its network and improve withdrawal processes ahead of Shanghai, making stETH a valuable asset on the Ethereum network.&nbsp;



<h2>Staking router</h2>



The staking router is one of the major protocol upgrades on Lido.&nbsp;



Lido currently uses a singular NodeOperatorsRegistery — where a DAO selects node operators and incorporates them into a smart contract.&nbsp;



This update will upgrade the operator registry at Lido by moving it into an extensible protocol through a modular infrastructure — architecturally shifting Lido toward an aggregator strategy to incorporate a more diverse validator set.



Anyone will have the ability to create “plugins” in the form of modules that would attach to the staking router, Isidoros Passadis, the master of validators, and a protocol developer at Lido who goes by Kadmil, told Blockworks. 



“This means that a variety of different types of validator pools could be more easily accessed by the Lido protocol, including ones that solo and community stakers have a large participation in, which would not only drastically increase the total number of node operators who participate in the Lido protocol but also the diversity of the validator setups,” Passadis said.



The staking router is designed to become the nucleus of the Lido platform — the center of collaboration for stakers, developers and node operators.&nbsp;



Each module in the staking router would consist of various node operators, including community stakers, professional organizations, and DAOs, just to name a few. These node operators will also be given more than one module to participate in — diversifying the operator base. 



Aside from this, the new staking router will also enable users to store keys on an layer-2 solution or off-chain.&nbsp;



This is because “managing node operators and validators on-chain require transactions which scale with the number of operators — either in quantity or size, i.e. how much data is being recorded per transaction — being able to leverage [layer-2s] would drastically reduce the cost basis of node operator and validator management,” Passadis said.



<h2>Withdrawals</h2>



Withdrawals will be another important feature of Lido’s V2 upgrade. This feature will allow Lido users to unstake their stETH and receive ETH at a 1:1 ratio for ether.&nbsp;&nbsp;



The Ethereum network is designed differently from other <a href="http://blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/">proof-of-stake networks</a>, which have fixed withdrawal periods for stakers, <a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analyst Westie noted in a <a href="https://twitter.com/WestieCapital/status/1613645213792366595" target="_blank" rel="noreferrer noopener">tweet</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The Shanghai upgrade for Ethereum is currently targeted for this March. This will enable staking withdrawals for the first time since people began staking their ETH in 2020. However, most people don&#39;t yet know how the exit queue works. I&#39;ll walk you through it step by step 🧵👇&mdash; Westie 🟪 (@WestieCapital) <a href="https://twitter.com/WestieCapital/status/1613645213792366595?ref_src=twsrc%5Etfw">January 12, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



​​On Ethereum, validators must exit through two different stages — join a queue and then begin the withdrawal period. For this reason, Lido will process withdrawals in three separate steps: request, fulfillment and claim.



In the “request” part of the process, users will lock their stETH and propose a withdrawal request. Once the protocol sources the ether to fulfill the request, the process will move to the second stage, “fulfillment.” In this second stage, the protocol will lock the ether and burn the stETH and then notify the user that their ETH is ready to be claimed.



Users can “claim” their ether at any time — although fulfillment time is currently uncertain, Lido predicts the best-case scenario for claiming will be roughly around a few hours — with the majority of requests being ready for “claim” in under a week.&nbsp;



To prepare for all types of events, Lido has also designed withdrawals to be possible in two different modes.&nbsp;



The first mode, and the default mode, is named “Turbo.” This will be a fast way of fulfilling withdrawals and is designed to automate the process around the validator and minimize delays.&nbsp;



The second mode is dubbed “Bunker” and will be used to process withdrawals under catastrophic circumstances. This will prevent any nefarious actors from taking advantage of stakers. 



Bunker mode prevents sophisticated stakers from avoiding the penalties by passing the losses to unsophisticated ones, Kadmil told Blockworks. 



“Under current conditions and the proposed design, to switch to the bunker mode Lido should experience simultaneous slashing of 600+ Lido validators,” Kadmil said. “That’s 6 times more simultaneous slashings than Ethereum has experienced, and no Lido validator has been slashed ever.”



<h2>Launch details</h2>



Security audits for Lido V2 will begin at the start of February, with signal snapshot votes on the upgrade planned for the end of this month. If V2 updates are approved, the first version of the testament will be deployed on Ethereum’s Goerli testnet at the start of March. 



“We’re excited to share the plan for Lido V2,&#8221; Kadmil said. &#8220;This Lido on Ethereum protocol upgrade makes the protocol feature complete by allowing stETH to ether withdrawals, and opens a path for more experiments and collaboration with Staking Router architecture.&#8221;



Updated Feb. 7, 2023 at 9:49 am ET: Added comments from Isidoros Passadis, the master of validators, and a protocol developer at Lido who goes by Kadmil.



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Lido Moves Ahead With V2 Upgrade as Shanghai Edges Closer

Cryptocurrency exchange Binance is suspending US dollar transfers from Wednesday, but hasn’t given a reason for doing so.



“We are temporarily suspending USD bank transfers as of February 8th,” a spokesperson told Blockworks on Tuesday, adding that the exchange is upgrading its services. “Affected customers are being notified directly.”



Binance is working to restart services as soon as possible, but the spokesperson added, “only 0.01% of our monthly active users leverage USD bank transfers.” A current count of monthly active users was unavailable.



Meanwhile, all other methods of buying and selling crypto remain unaffected, the spokesperson said. This includes bank transfers using other fiat currencies supported by Binance (including euros), buying and selling crypto via credit and debit cards, Google Pay and Apple Pay and via Binance P2P marketplace.



Binance’s US arm said in a <a href="https://twitter.com/BinanceUShelp/status/1622653195225899025" target="_blank" rel="noreferrer noopener">tweet</a> that it’s not affected by the suspension, suggesting that only non-US customers who deposit or withdraw US dollars will be impacted.



The move comes after Binance said in January that its US banking partner Signature Bank would no longer handle SWIFT transactions <a href="https://blockworks.co/news/signature-bank-limit-on-swift-transactions-with-binance-affects-few-users">below $100,000</a> from Feb. 1. The lender’s move stemmed from wanting to decrease exposure to digital asset markets.&nbsp;



A Binance spokesperson said at the time that the exchange was working to find an alternative solution, and that less than 0.1% of its average monthly users were being serviced by the bank.



Binance CEO Changpeng Zhao acknowledge in a tweet that the move reflected “bad user experience” and hinted that some banks are moving away from supporting cryptocurrencies.



<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">While some banks withdrawing support for crypto, other banks are moving in. Some setbacks were expected from last year&#39;s incidents. Long term, keep building.&mdash; CZ 🔶 Binance (@cz_binance) <a href="https://twitter.com/cz_binance/status/1622703162850217984?ref_src=twsrc%5Etfw">February 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Binance saw a large spike in outflows after the announcement, with millions of dollar-pegged stablecoins including tether and USDC leaving to competitor platforms, <a href="https://www.cnbc.com/2023/02/06/binance-will-suspend-us-dollar-transfers.html" target="_blank" rel="noreferrer noopener">CNBC reported</a>, citing data from Arkham Intelligence.&nbsp;



Still, the amount of US dollar outflows represented just a tiny fraction for a company with $42.2 billion worth of cryptoassets, the report said.



Binance’s native token <a href="https://www.blockworksresearch.com/assets/bnb">BNB</a> didn’t appear to be impacted by the news, and last traded 0.7% higher late Monday.



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CZ Acknowledges Bad User Experience as Binance Suspends US Dollar Transfers

Bankrupt crypto lender Genesis has reached an agreement in principle with Gemini and other creditors on a restructuring plan about a month after Cameron Winklevoss <a href="https://blockworks.co/news/fraud-winklevoss-silbert-dcg">made their spat public</a>.&nbsp;



As part of the agreement, Gemini agreed to contribute $100 million in additional funds to users of the Earn product. The terms also include a sale of Genesis Global Trading.



In a <a href="https://twitter.com/cameron/status/1622717966260506624">tweet</a> late Monday, Winklevoss said the <a href="https://www.businesswire.com/news/home/20230206005640/en/Genesis-Reaches-Agreement-in-Principle-with-DCG-and-Key-Creditors-on-a-Global-Resolution-that-Optimizes-Outcome-for-Clients-and-Stakeholders">agreement</a> “provides a path for Earn users to recover their assets.”&nbsp;



Separately, Genesis’ parent Digital Currency Group will exchange its $1.1 billion note due 2032 for convertible preferred stock and refinance its existing 2023 term loans through a new secured term loan in two tranches made payable to creditors in the value of about $500 million.



All Genesis entities will be brought under the same holding company, Genesis Global Holdco.&nbsp;



Sean O’Neal, an attorney representing Genesis, <a href="https://www.reuters.com/technology/genesis-parent-dcg-reach-initial-deal-with-main-creditors-coindesk-2023-02-06/">reportedly</a> told a bankruptcy judge on Monday that the agreement would either result in a sale of Genesis or creditors would receive its equity.&nbsp;



“The agreement in principle remains subject to definitive documentation and necessary court approvals,” Genesis said in a press release.



<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/ Today, <a href="https://twitter.com/Gemini?ref_src=twsrc%5Etfw">@Gemini</a> reached an agreement in principle with Genesis Global Capital, LLC (Genesis), <a href="https://twitter.com/DCGco?ref_src=twsrc%5Etfw">@DCGco</a>, and other creditors on a plan that provides a path for Earn users to recover their assets. This agreement was announced in Bankruptcy Court today.&mdash; Cameron Winklevoss (@cameron) <a href="https://twitter.com/cameron/status/1622717966260506624?ref_src=twsrc%5Etfw">February 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Genesis <a href="https://blockworks.co/news/genesis-in-chapter-11-wont-insulate-silbert-winklevoss-says">filed for bankruptcy</a> on Jan. 19 after suspending redemptions and new loan originations on its platform. Both Gemini and Genesis were associated through an offering called the Earn product, which promised investors returns of up to 8% on their deposits.



Through this product, Gemini loaned client funds to Genesis, which the Securities and Exchange Commission has called an <a href="https://blockworks.co/news/genesis-gemini-charged-with-securities-violations-by-sec">improper lending arrangement</a>.&nbsp;



Gemini was one of its largest lending customers, having sent the firm $900 million worth of cryptoassets. And Winklevoss <a href="https://blockworks.co/news/gemini-takes-spat-with-dcg-public-in-open-letter">openly criticized</a> DCG and Barry Silbert, accusing them of not repaying the $900 million of deposits his clients had deposited with the firm.&nbsp;



“You continue to refuse to get into a room with us to hash out a resolution,” Winklevoss wrote. “You hide behind lawyers, investment bankers and process…your behavior is not only completely unacceptable, it is unconscionable.”



Bob Ras, co-founder of blockchain-powered network Sologenic, called the agreement a “decent resolution” and said it suggests the outcome won’t be as damaging to the industry as earlier predicted.



“Indeed, some had been making absolutely dire predictions for Genesis and its parent company, DGC. Of course, there could very well be more blowups in the offing that stem the FTX-Terra-Three Arrows daisy chain of bankruptcies, but today’s news makes me think that we might have seen the worst of it all,” Ras told Blockworks.



Genesis and Gemini didn’t return Blockworks’ request for comment by press time.



On Tuesday, Winklevoss said there’s still work to be done to complete the process, including due diligence of Genesis’ financials and judicial approval of the plan.



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Genesis Agreement Will See Gemini Contribute $100M to Compensate Earn Users

Blockchain infrastructure company Chorus One has released a white paper and an open-source prototype that can enable validators to capture maximum extractable value (MEV) on the Solana network.



Although characteristics of Chorus One’s prototype are similar to Ethereum&#8217;s Flashbots’ block-building marketplace, because of the technical differences between the two blockchains, the Solana solution does not require a public mempool, as it does not follow the marketplace model.



On Ethereum, MEV is the additional revenue made by rearranging the order of transactions in a block. Validators aggregate transactions into blocks and are looking at ways to build a block that is more profitable for them.&nbsp;



By contrast, on Solana, a block processor is known ahead of time, and nodes will deliver transactions to a sole validator who will be responsible for proposing a block in a slot — this also contributes to the faster block processing times on the network when compared to Ethereum.&nbsp;



As transactions go straight to a block and users don’t have a buffer period to reorder transactions, the marketplace model to capture MEV, which works on Ethereum, would have significant downsides if replicated on Solana.



The proposed solution by Chorus One, dubbed “the decentralized extraction by validators,” will introduce a modified Solana client that will handle MEV opportunities in the banking stage of the validator, Thalita Franklin, a research analyst at Chorus One, told Blockworks.&nbsp;



In this solution, validators will check after every batch of user transactions to see if it could have created an MEV and add transactions if it notices that there is an opportunity. This modification of the transaction process will not introduce new network requirements or protocol changes.


<div class="wp-block-image">
<figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="518" src="https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-1024x518.png" alt="" class="wp-image-46554" srcset="https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-1024x518.png 1024w, https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-300x152.png 300w, https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-768x388.png 768w, https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-1536x777.png 1536w, https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-2048x1036.png 2048w, https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-428x216.png 428w, https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-470x238.png 470w, https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-389x197.png 389w, https://cms.blockworks.co/wp-content/uploads/2023/02/Solana-MEV-client-explanation-80x40.png 80w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Source: <a href="https://chorus.one/" target="_blank" rel="noreferrer noopener">Chorus One</a></figcaption></figure></div>


“Because the solana-MEV client does not introduce any new central coordination point, it enables a diverse set of validators to flourish without creating new censorship risks,” the company said in its white paper.&nbsp;



<blockquote class="wp-block-quote">
Adding that, “Unlike the block building marketplace, the Solana MEV client would bring more transparency and democracy around MEV to Solana, without degrading performance, or thwarting Solana’s main networking innovations.”
</blockquote>



It is important to note that the Solana MEV prototype will be wholly open sourced — available under a free software license — and is not meant to be a competitor to other MEV solutions on the network. 



“Chorus One is not doing this commercially and we&#8217;re not releasing a full-fledged product,” Hari Iyer, marketing manager at Chorus One, told Blockworks. “We [have been] working on this for the last few months and now are releasing a prototype so that the community can test it out.”



Iyer notes that through this open-source solution, the Solana community can eventually evolve this white paper into “something more,” and that Chorus One itself is not looking to maintain the prototype in the future.



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Chorus One Releasing Prototype To Capture MEV on Solana

Interim judicial managers of distressed Singapore-based crypto lender Hodlnaut have begun fielding inquiries from prospective buyers and its claims against bankrupt exchange FTX.



The managers are reportedly negotiating non-disclosure agreements with the buyers, Bloomberg <a href="https://www.bloomberg.com/news/articles/2023-02-06/potential-buyers-circle-ailing-singapore-crypto-firm-hodlnaut-and-its-ftx-claims" target="_blank" rel="noreferrer noopener">reported</a> Monday, without naming who those buyers are.



It follows a little under three weeks since the rejection of a proposed restructuring plan was floated to creditors, who are instead pushing for the lender’s liquidation.



Hodlnaut, which also has operations in Hong Kong, owes roughly $160 million to various creditors representing 62% of its outstanding debt, per the report.&nbsp;



Around 72% of Hodlnaut’s digital assets deployed to centralized exchanges are held on FTX including 514 bitcoin, 1,395 ether, as well as about 1,000 FTT tokens and 280,000 USDC.&nbsp;



FTT, the native token of FTX, has shed roughly 94% of its value following the exchange’s collapse at the start of November. That means creditors are only able to claim pennies on the dollar of FTT’s original value.



Some of those creditors include the Algorand Foundation, Hodlnaut’s custodian Samtrade, S.A.M. Fintech and software engineer Jean-Marc Tremeaux. All four did not immediately respond to a request for comment.



The lender fell on hard times midway through last year, opting to freeze withdrawals, token swaps and deposits in what it viewed as <a href="https://blockworks.co/news/crypto-lender-hodlnaut-freezes-withdrawals-pulls-singapore-application">an attempt to stabilize liquidity</a> and preserve assets.



A week later, Hodlnaut <a href="https://blockworks.co/news/crypto-lender-hodlnaut-cuts-80-of-staff-amid-police-investigation">slashed its headcount by 80%</a>, or roughly 40 employees, attempting to lower expenses with those staying behind tasked with carrying out its key functions.



Its decision to reduce its workforce also came amid an investigation by Singapore police into the lender and its directors’ dealings with a “<a href="https://www.police.gov.sg/media-room/news/20221123_inv_into_hodlnaut_pte_ltd" target="_blank" rel="noreferrer noopener">certain digital token</a>” for potential cheating and fraud offenses.



At the time, Singapore police <a href="https://www.straitstimes.com/business/invest/crypto-lender-hodlnaut-fights-singapore-police-order-as-it-faces-opposition-to-judicial-manager-candidate" target="_blank" rel="noreferrer noopener">issued an order</a> for Hodlnaut to hand over its balance assets, which totaled $127 million worth of stablecoins USD Coin (USDC) and Tether (USDT).



A Hodlnaut spokesperson did not immediately respond to a request for comment.



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Hodlnaut Hunts for Buyer, Creditors Want Liquidation

Governance tokens of liquid staking derivatives continue to outpace other digital assets as anticipation for Ethereum’s upcoming Shanghai upgrade grows.



Shanghai, expected to launch sometime next month, is set to allow validators to withdraw staked ether from the Beacon Chain — some of which has been locked up for over three years.



Associated protocols and assets representing staked ETH are outgunning most other digital assets on the day, as well as on a year-to-date basis.



Liquid staking solution Lido DAO (<a href="https://blockworks.co/price/ldo">LDO</a>) clinched a near 9% gain as of 7 pm ET. Frax Share (<a href="https://blockworks.co/price/FXS" target="_blank" rel="noreferrer noopener">FXS</a>) — the governance token of the Frax ecosystem behind frxETH — and staking pool Rocket Pool (<a href="https://blockworks.co/price/RPL" target="_blank" rel="noreferrer noopener">RPL</a>) were up 20% and 6%, respectively.



In year-to-date terms, LDO, FXS and RPL are up between 100% and 190%. Bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) and ether (<a href="https://blockworks.co/price/eth">ETH</a>) were down roughly 1% on the day and are each up roughly 35% so far in 2023.



As a result of the upgrade, tokens representing staked ETH will have the ability to achieve better price parity with ETH, making people more likely to trust them and hold on to them, according to <a href="https://www.blockworksresearch.com/sign-up" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analyst <a href="https://twitter.com/WestieCapital">Ryan West</a>.



“We&#8217;ve seen the supply of [liquid staking derivatives] already grow 5% since the start of 2023, with some versions growing more than others, such as frxETH growing 74% and rETH (Rocketpool) growing 10%,” he said.



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/iBBpeRmPGiVSPzWaJbiCypJWtQxMFxP8IEgIoMZnvx_JCbpwqglSoYZnqsTYa0cRE9Z-014WgmGLMcrrtm8QjqNhRbzwgst1UZhyJ6P2T8KpUDIlBloxPfvyL_lAlyS946DqUWIUSkN8myASaSitI9M" alt=""/></figure>



Market expectations are punting on the basis that the supply of liquid staking derivatives will continue to grow after the upgrade as there is a greater trust in the tokens to stay in line with ETH&#8217;s price.



“The liquid staking protocols sit in a unique position, where they can give their users withdrawals much quicker than the Ethereum protocol processes validator withdrawals,” West said.



This is because the protocol typically has ETH that is constantly coming in through new deposits and from staking rewards that can satisfy withdrawals in the short term, he added.



Lido has revealed its plans for withdrawal processing, estimating a window of 28 to 48 hours for completion, unlike the Ethereum protocol which could take several weeks.&nbsp;



This is due to a steady influx of ETH from new deposits and staking rewards that enable Lido to fulfill short-term withdrawal requests, West said.



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