Gem Exchange and Trading

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

Bessie Liu

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>
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​​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

Sebastian Sinclair

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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Ethereum Upgrade Expectations Fuel Liquid Staking Token Growth

Ben Strack

The world’s largest crypto exchange, which has stepped in to offer Ukrainians relief in recent months, is set to airdrop its BNB token to help the victims of the earthquake in Turkey, while other firms have also pledged support.



Binance CEO Changpeng Zhao said in a Monday tweet that team members at the exchange had met several times over how to best help those affected by the earthquake felt in Turkey, Syria and elsewhere.&nbsp;&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">We are truly saddened by the earthquake in Turkey 🇹🇷. Our team has been working on a solution to help the people. There are quite a few details. I have had 4 meetings on it today. More details to come. Stay strong. 🙏&mdash; CZ 🔶 Binance (@cz_binance) <a href="https://twitter.com/cz_binance/status/1622632162418692097?ref_src=twsrc%5Etfw">February 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The exchange <a href="https://www.binance.com/en/blog/charity/binance-to-airdrop-$100-usd-1883-try-in-bnb-to-users-in-the-turkey-earthquake-region-8156736968497181390" target="_blank" rel="noreferrer noopener">revealed</a> Tuesday it would airdrop BNB worth $100, or 1,883 Turkish lira (TRY), to all Binance users in 10 cities impacted by the earthquake — identified by proof of address. Total donations are estimated to be roughly $5 million, or 94 million TRY.



The exchange’s charity arm also launched a public donation address, as donations to the <a href="https://www.binance.charity/projects/42/Turkey-Earthquake-Relief">Emergency Earthquake Appeal</a> will be accepted in BNB, bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>), Binance USD (<a href="https://blockworks.co/price/busd">BUSD</a>) and ripple (<a href="https://blockworks.co/price/xrp" target="_blank" rel="noreferrer noopener">XRP</a>).



A Binance spokesperson did not immediately return a request for further comment.



While details on upcoming crypto-centric relief efforts are sparse, such initiatives have taken multiple forms in the past.



Amid the ongoing Russian-instigated war, Binance <a href="https://blockworks.co/news/war-torn-ukraine-is-turning-to-crypto">partnered</a> with Ukrainian pharmaceutical company ANC last month to offer crypto payment services for Ukrainian citizens purchasing goods at ANC’s 1,000 stores across the country, through Binance Pay.



The crypto exchange has also <a href="https://www.binance.com/uk-UA/event/VARUSBinancePay">partnered</a> with Ukrainian supermarket chain VARUS to facilitate crypto payments in nine cities in the country and <a href="https://blockworks.co/news/binance-blocks-newly-sanctioned-russians-launches-card-for-ukrainian-refugees">launched a cryptocurrency card</a> for Ukrainian refugees last April.&nbsp;



The Ukrainian government <a href="https://blockworks.co/news/ukraine-fund-spends-54m-of-crypto-donations-on-military-gear">received assets worth up to $54 million</a> up until August 2022 through donations to the nonprofit “Aid For Ukraine,” which is operated by Ukraine’s Ministry of Digital Transformation. The funds for this particular initiative came in bitcoin, ether, USDT, solana, polkadot and other tokens — and were largely spent on military equipment.&nbsp;&nbsp;



Turkey <a href="https://blockworks.co/turkey-bans-crypto-as-form-of-payment-bitcoin-price-drops">banned crypto as a form of payment</a> in April 2021. In December of that year, Turkish President Recep Tayyip Erdoğan revealed that a <a href="https://blockworks.co/news/cryptocurrencies-stable-as-turkey-eyes-digital-asset-regulation">long-awaited bill regulating digital assets was ready</a>.&nbsp;



Crypto ownership or usage in Turkey, a country with the 7th highest <a href="https://www.visualcapitalist.com/mapped-which-countries-have-the-highest-inflation/">inflation rate</a>, increased from <a href="https://www.statista.com/statistics/1202468/global-cryptocurrency-ownership/">25% to 40%</a> of the population, according to the 2022 Statista Global Consumer Survey.



More recently, Turkey’s central bank said the first payment transactions on the Digital Turkish Lira Network were executed successfully, as pilots are set to continue throughout this year.&nbsp;



<h2>As Binance plans its next steps, others have pledged fiat funds</h2>



Bitfinex, Keet, Synonym and Tether pledged 5 million Turkish lira — worth about $270,000 — for relief and recovery efforts in Turkey. The companies “will seek ways to provide continued support towards helping [Turkey] rebuild for the future,” according to a <a href="https://blog.bitfinex.com/announcements/bitfinex-keet-synonym-and-tether-pledge-5-million-try-for-turkiye-earthquake-recovery/">blog post</a>.&nbsp;



Cryptocurrency exchange Bitget said Monday that it would send 1 million Turkish liras —&nbsp; roughly $50,000 —&nbsp; to similar causes.&nbsp;



Crypto exchange Gate.io has started to prepare aid packages for those impacted by the earthquakes, the company <a href="https://twitter.com/gate_io/status/1622509321555771392?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1622509321555771392%7Ctwgr%5Ed6bb663d22606c8ae2360637c690ae959940c71f%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fcdn.embedly.com%2Fwidgets%2Fmedia.html%3Ftype%3Dtext2Fhtmlkey%3Dcb7145f1731b4c328f8e4d2201854ceaschema%3Dtwitterurl%3Dhttps3A%2F%2Ftwitter.com%2Fgate_io%2Fstatus%2F1622509321555771392image%3Dhttps3A%2F%2Fabs.twimg.com%2Ferrors%2Flogo46x38.png">tweeted</a> Monday morning, noting it would “deliver them in coordination with the authorities.”&nbsp;



And crypto charity platform <a href="https://thegivingblock.com/">The Giving Block</a> noted several charities that accept donations in crypto, and that have pledged aid to the region.



<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 Giving Block is actively monitoring the situation in <a href="https://twitter.com/hashtag/Turkey?src=hash&amp;ref_src=twsrc%5Etfw">#Turkey</a> and <a href="https://twitter.com/hashtag/Syria?src=hash&amp;ref_src=twsrc%5Etfw">#Syria</a> after the recent 7.8 magnitude earthquake. We will be updating the following thread with nonprofits that accept crypto donations who are actively responding to this tragedy. 👇🧵&mdash; The Giving Block (@TheGivingBlock) <a href="https://twitter.com/TheGivingBlock/status/1622633804769763329?ref_src=twsrc%5Etfw">February 6, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Updated on Feb. 7, 2023 at 10:13 am ET: Added details about Binance&#8217;s airdrop plans.



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Crypto Firms Rush To Help Earthquake Victims

Raullen Chai

In the crypto and blockchain space, the “machine economy” will emerge this year as one of the most promising opportunities for consumers, businesses, and enterprises.



The metaverse is one of the four major machine economy use cases and the one with the most potential to unlock a multi-trillion-dollar economy for users, businesses, and smart device makers.&nbsp;&nbsp;



Out of the three metaverse sectors — <a href="https://www.weforum.org/reports/demystifying-the-consumer-metaverse/" target="_blank" rel="noreferrer noopener">consumer</a>, <a href="https://bernardmarr.com/the-enterprise-metaverse-what-it-means-for-businesses/" target="_blank" rel="noreferrer noopener">enterprise</a>, and <a href="https://new.siemens.com/global/en/company/insights/what-is-the-industrial-metaverse-and-why-should-i-care.html" target="_blank" rel="noreferrer noopener">industrial</a> — the latter has more potential.



The industrial metaverse, a hot topic during this year&#8217;s World Economic Forum (WEF) summit in Davos, is set to outgrow the rest by at least threefold due to its wider range of applications, such as advanced training, industrial simulations, medicine and surgery, among many others. It combines immersiveness, real-time data, and digital twins to create new business models and accelerate digitalization.



And while technologists try to figure out how the metaverse will impact businesses and consumers, the industrial metaverse has already transformed how we design, manufacture, and interact with physical entities across industries.



One of the industrial metaverse&#8217;s critical applications is digital twins, a virtual replica of a product or process used to predict how the physical entity will perform throughout its lifecycle.



BMW, for example, created a virtual twin of its production plant in Bavaria before building the physical facility. Boeing uses a digital twin development model to design its airplanes. The government of Singapore even created a digital representation of the Southeast Asian nation —&nbsp; Virtual Singapore — to support its policy decisions and test new technologies.



However, challenges remain. One of the puzzle pieces of the industrial metaverse is to connect edge devices and trusted data flow with the digital twins to create near real-time simulation and prediction for real-world situations.



That’s where Web3 comes in.



<h2>Machine economy, the next digital frontier</h2>



The metaverse showed tremendous growth in 2022 despite the global economic slowdown. Experts believe it will continue to grow significantly — the WEF, for instance, predicts the market will reach $800 billion in 2024.&nbsp;



According to Deloitte, the global metaverse market <a href="https://www2.deloitte.com/content/dam/Deloitte/sg/Documents/center-for-the-edge/sg-metaverse-in-asia-deloitte-center-for-the-edge-nov22.pdf" target="_blank" rel="noreferrer noopener">could grow</a> to $13 trillion in the next seven years. McKinsey <a href="https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/value-creation-in-the-metaverse" target="_blank" rel="noreferrer noopener">states</a> that metaverse is a massive business opportunity that companies should pay attention to because it has the potential to grow to $5 trillion by 2030.



The machine economy represents an era of automation driven by billions of intelligent, connected and economically independent machines interacting and transacting with each other on behalf of people and businesses, unlocking trillions of dollars in business value.



Vast amounts of user data — which today has become the most valuable commodity worldwide — are powering this thriving new Internet of Things (IoT) frontier which, according to PwC, will contribute to 70% of the global gross domestic product in the next seven years.



Within that frontier, the machine economy — which combines distributed ledger technology, such as blockchain, with artificial intelligence and machine learning — will transform the IoT industry, according to <a href="https://www.iiconsortium.org/journal-of-innovation/" target="_blank" rel="noreferrer noopener">research</a> conducted by two leading tech firms, IoTeX and Siemens, published by the Industrial IoT Consortium.



<h2>Benefits and challenges</h2>



While IoT is already a fast-growing sector, blockchain or Web3 democratizes the multitrillion-dollar machine economy, benefiting intelligent device security, scalability, transparency, efficiency, speed and automation.



A chief problem with current IoT systems is their security architecture, with a centralized model managed by a central authority, making it highly susceptible to a single point of failure. Blockchain addresses this problem by decentralizing the decision-making process into a consensus-based network of devices.



The most visible challenges are that Web3 may not be accessible to advanced gadgets, it needs to become more user-friendly, and — due to a lack of understanding and education — it is still difficult for authorities to regulate, potentially leading to an increase in cybercrime.



Other challenges are for countries and organizations with legacy systems, which are difficult and expensive to replace. And social and human labor concerns still loom over the potential for digital automation because it is clear that decision-making AI and machines will be the primary driver of economic growth in the coming years.



<h2>Paradigm shift</h2>



The machine economy will shake the status quo for intelligent device makers and users. The combination of Web2 businesses and their IoT market footprint, plus a vibrant, ultra-dynamic environment of Web3, creates the perfect ground for significant disruption. In this context, the speed of adoption will once again be the primary driver for success.



However, to embrace the machine economy successfully and build a reliable and sustainable position in the future, business owners should consider several factors, including business model fairness and transparency, as well as the effectiveness of customer engagement strategies.&nbsp;



Also, the robustness of token economy models is needed — critical for incentivizing all stakeholders in a machine economy ecosystem. With these factors in place, we can ensure long-term sustainability and steady growth of machine economy businesses.



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Industrial Metaverse Primed To 3x Consumer, Enterprise Applications

As tax season quickly approaches, it appears a majority of crypto investors will have to do more research.&nbsp;



Just 38% of crypto investors correctly identified that crypto-to-crypto trades are taxable, according to a CoinLedger-commissioned survey conducted by YouGov. Nearly two-thirds knew that selling crypto was a taxable event.



A quarter of those surveyed incorrectly thought transferring crypto between wallets, a non-taxable event, needed to be reported to the IRS, while about one in five respondents incorrectly identified holding crypto as taxable.



The <a href="https://coinledger.io/annual-crypto-tax-report" target="_blank" rel="noreferrer noopener">report</a> found that 31% of cryptoasset investors do not report necessary transactions on their taxes, with half of those attributing that to not making profits — a common misconception.



Those who report crypto losses can actually reduce taxes, according to CoinLedger.



By claiming a capital loss on cryptoassets, investors can offset capital gains and up to $3,000 of income for the year, the report states. Any net losses can be rolled forward into future tax years.



While other respondents blamed not reporting crypto taxes on not knowing they had to, or not properly understanding how, a minority were more frank about their intentions.



Seven percent of those surveyed said they don’t want to pay taxes, while 4% said the government doesn’t know about their crypto holdings.&nbsp;



&#8220;The level of non-compliance may be shocking to some, but it isn&#8217;t surprising given the lack of regulatory clarity and enforcement guardrails in the space,&#8221; CoinLedger CEO David Kemmerer said in a statement.&nbsp;



Many investors also say crypto exchanges need to do more.&nbsp;&nbsp;



Nearly 70% of crypto investors said they wish crypto exchanges shared more information to help them report their taxes, the study found.&nbsp;



Binance <a href="https://www.binance.com/en/blog/ecosystem/introducing-binance-tax-streamline-your-tax-season-experience-9208476713086961306?ref=AZTKZ9XS&amp;utm_source=BinanceTwitter&amp;utm_medium=GlobalSocial&amp;utm_campaign=GlobalSocial&amp;irclickid=UgwUiJWE6xyNUuTxlHT7a0mSUkA3A-QByQmzRE0&amp;irgwc=1&amp;ref=#idrichtexttextconfigcontentavailable-in-canada-and-francestyle" target="_blank" rel="noreferrer noopener">revealed</a> the launch of a crypto tax calculator Monday, available to users in France and Canada. The system supports up to 100,000 reportable transactions and shares tax information around spot trades, crypto donations and blockchain fork rewards.&nbsp;



Coinbase also has a <a href="https://help.coinbase.com/en/coinbase/taxes/general-information/tax-info" target="_blank" rel="noreferrer noopener">tool</a> to help users understand what activity on the platform is taxable and includes IRS forms users may need to file. The company <a href="https://twitter.com/coinbase/status/1620186525194670085" target="_blank" rel="noreferrer noopener">tweeted</a> on Jan. 30 about updates to its tax center, which it launched last year. 



<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">You can now easily see which tax docs you’re getting from us in the Documents section of your tax center. Don’t worry if you don’t see any IRS forms—the only IRS form Coinbase is required to provide is a 1099-MISC to customers who earned $600 or more in crypto income.&mdash; Coinbase (@coinbase) <a href="https://twitter.com/coinbase/status/1620186526880788482?ref_src=twsrc%5Etfw">January 30, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Non-US customers won’t receive any forms from Coinbase and must utilize their transaction history report to fulfill their local tax obligations, Coinbase’s website states.



The survey was conducted from Dec. 2 to Dec. 8 and included the responses of 305 US adults who own or invest in crypto.



Updated Feb. 6, 2023 at 1:43 pm ET: Added additional reporting about Coinbase&#8217;s tax tool.



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DYOR, Especially Crypto Investors Reporting Taxable Gains

Casey Wagner

Digital asset investment products clocked their fourth straight week of inflows last week, with $76 million pouring into the asset class, according to data from CoinShares.&nbsp;



Year-to-date inflows for crypto investment vehicles now total $230 million, “highlighting a decisive change in investor sentiment,” James Butterfill, head of research at CoinShares, wrote in a <a href="https://blog.coinshares.com/volume-117-digital-asset-fund-flows-weekly-report-f9cda81d18a4" target="_blank" rel="noreferrer noopener">report</a> released Monday. Total investment assets under management in the crypto space have increased nearly 40% since the start of the year, according to Butterfill. 



Bitcoin was the most popular asset, making up 90% of total flows for the week, as investors put $69 million into bitcoin products. Ether, by contrast, which is up more than 35% since the start of the year, saw $700,000 in inflows last week.&nbsp;



The moves come amid a busy week for macroeconomic news as traders took in US jobs data, the Federal Reserve interest rate decision and other central bank moves last week. The Fed’s decision to opt for a <a href="https://blockworks.co/news/federal-reserve-raises-interest-rates-25-bps">25 basis point increase</a> calmed markets initially, but more hawkish remarks from central bank head Chair Jerome Powell spooked investors.&nbsp;



“While there were some promising aspects of the jobs report — cooling wage growth and higher participation — it&#8217;s impossible to ignore the fact that the labor market remains red hot,” Craig Erlam, senior market analyst at Oanda, said. “For now, it&#8217;s hard to argue that the easier policy move for the Fed is to keep hiking in 25 basis point increments.”



Crypto was trading relatively flat Monday, with bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) down around 0.2% and ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) moving into the green with a 0.3% gain. Equities struggled to keep the momentum growing, with the S&amp;P 500 and Nasdaq Composite indexes posting 0.6% and 0.7% losses, respectively, as of 11 am ET. 



Overall, a shift into risk-off sentiment in the coming weeks ahead of the Fed’s next policy-setting meeting in March should not come as a surprise, analysts said.&nbsp;



“No doubt the Fed will worry about tipping the economy over into a recession that then spirals out of control, but no doubt it is also counting on being able to drop rates fast should unemployment start to move,” Noelle Acheson, editor of Crypto is Macro Now and former head of market insights at Genesis, wrote in a <a href="https://noelleacheson.substack.com/p/monday-feb-6-2023?utm_source=substack&amp;utm_medium=email" target="_blank" rel="noreferrer noopener">note</a> Monday.



“The market is counting on that, too, and indeed seems to have been pricing that in,” she said.



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Risk-off Sentiment Incoming, but Crypto Investment Products Aren’t Listening

SperaxUSD, a yield automator on Ethereum layer-2 rollup Arbitrum, announced a user was able to explode the balance of their stablecoin tokens over the weekend.&nbsp;



In a <a href="https://twitter.com/speraxusd/status/1622003045776195587" target="_blank" rel="noreferrer noopener">Twitter thread</a>, the team said an exploiter somehow obtained 9.7 billion <a href="https://www.coingecko.com/en/coins/stably">USDS</a> tokens for barely any collateral and managed to liquidate around $300,000 worth before being blocked by the Sperax and <a href="https://blockworks.co/tag/arbitrum">Arbitrum</a> teams.



The Sperax team has identified the account and is in the process of taking action in coordination with centralized exchanges. The liquidated amount will be recapitalized before the protocol’s relaunch, it said. The exploit did not impact the DeFi protocol’s governance token SPA.



<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">On February 4th, the SperaxUSD protocol on <a href="https://twitter.com/arbitrum?ref_src=twsrc%5Etfw">@Arbitrum</a> was exploited. The Core team is ready to share the known elements now, and the detailed report will follow on Monday, February 6th. 1/6&mdash; SperaxUSD: Stablecoin with organic Auto-Yield (@SperaxUSD) <a href="https://twitter.com/SperaxUSD/status/1622003045776195587?ref_src=twsrc%5Etfw">February 4, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



SperaxUSD didn’t return Blockworks’ request for comment on further details, but a detailed report was set to be published Monday.



“We have reached out to the exploiter to discuss options and we are hopeful for a peaceful resolution. The issue has been figured out and will be resolved with a smart contract upgrade. Recapitalization will be implemented early next week, then transactions will restart,” the team said.



<h2>Code bug?</h2>



A blockchain analyst who goes by the name “Spreek” on Twitter provided the likely attacker’s address in a <a href="https://twitter.com/spreekaway/status/1621737055112896512" target="_blank" rel="noreferrer noopener">tweet</a>, singling out its Ethereum Name Service as “kochironnosaif.eth.”



The attack was “puzzling” as there were no transfer logs of minting or transferring the infinite number of tokens, nor was there any malicious upgrade to the contract, the sleuth said.



“Therefore I would guess [the] likely cause is [a] bug in rebasing code,” they said.



Blockchain security firm PeckShield said the root cause of the hack was due to an “internal balance accounting discrepancy caused when migrating an account from non-rebasing to rebasing-based accounting.”



<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 root cause of the <a href="https://twitter.com/SperaxUSD?ref_src=twsrc%5Etfw">@SperaxUSD</a> hack is due to its internal balance accounting discrepancy caused when migrating an account from non-rebasing to rebasing-based accounting. And here is the triggering tx from a simple transfer: <a href="https://t.co/tkLORdWnmg">https://t.co/tkLORdWnmg</a> <a href="https://t.co/QpYJyhpsXK">https://t.co/QpYJyhpsXK</a> <a href="https://t.co/VYN2n8ZoHs">pic.twitter.com/VYN2n8ZoHs</a>&mdash; PeckShield Inc. (@peckshield) <a href="https://twitter.com/peckshield/status/1622004310816198657?ref_src=twsrc%5Etfw">February 4, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



SperaxUSD is a “hybrid” stablecoin whose design includes both collateral-backing and an algorithmic stabilization mechanism, according to its <a href="https://raw.githubusercontent.com/Sperax/USDs-Whitepaper/main/USDs_Whitepaper.pdf" target="_blank" rel="noreferrer noopener">white paper</a>.



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Arbitrum Stablecoin Exploiter Snagged $300K From 9.7B Token Boost

Capitual, a multicurrency digital bank that offers cryptocurrencies in Brazil, has partnered with Azimut to expand its services to various European countries and Mexico.



The Brazilian company that offers fiat on-ramp services is the point of entry into its country for many sizeable global cryptocurrency exchanges, including Kucoin, Huobi and Bitget, but this latest partnership will finally allow the company to offer its services internationally.



“We want to replicate the product we have in Brazil in other countries, serving our partners in other jurisdictions as well,” Guilherme Nunes, chief executive of Capitual, <a href="https://valor.globo.com/financas/criptomoedas/noticia/2023/02/03/capitual-recebe-aporte-da-azimut-para-expansao-externa.ghtml" target="_blank" rel="noreferrer noopener">told</a> Valor Econômico, a news company based in Brazil. “The idea is to become a center of blockchain technology in these markets,” he added.



Azimut will also invest 15 million euros ($16.1 million) into Capitual to assist with its expansion ambitions. This latest funding will bring Capitual’s valuation to 302 million euros, edging it closer to unicorn status in Brazil.



The asset management firm has always had an interest in cryptocurrencies. In September 2021, it launched a <a href="https://blockworks.co/news/sbi-sygnum-and-azimut-found-new-75m-fund">$75 million venture fund</a> with SBI Group and Sygnum to invest in early-stage startups working on decentralized finance DeFi, blockchain and distributed ledger technology (DLT) infrastructure projects.



Giorgio Medda, the CEO of Azimut, <a href="https://www.linkedin.com/feed/update/urn:li:activity:7027384652696809472/" target="_blank" rel="noreferrer noopener">noted</a> on LinkedIn that this latest partnership reflects the firm&#8217;s belief that blockchain technology will eventually change the financial services industry as we know it. 



“The partnership with Capitual focuses on the technology built to ensure protection and compliance in the infrastructure embedding the disruptive changes which are forming new business paradigms in our industry,” Medda said.



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Brazilian Crypto Company Moves Into European Markets With New Partnership

Venture capital firm <a href="https://blockworks.co/tag/a16z">a16z</a> voted against a governance proposal on Friday that, if passed, would deploy Uniswap V3 to Binance’s BNB Chain, connected to Ethereum via the cross-chain bridging solution Wormhole.



The vote is active for a total of one week, ending Feb. 10.



Wormhole, initially created by Certus One, is an interoperability protocol that allows users to bridge assets across blockchains.&nbsp;



The <a href="https://www.tally.xyz/gov/uniswap/proposal/31">proposal</a> will later seek to provide Uniswap V3 users the ability to partake in Uniswap DAO’s Ethereum-based governance on BNB Chain.



The bridge built atop the Wormhole protocol, previously lost <a href="https://blockworks.co/news/in-second-largest-defi-hack-ever-blockchain-bridge-loses-320m-ether">$325 million</a> in DeFi’s second-largest-ever exploit, at the beginning of last year, and <a href="https://wormholecrypto.medium.com/wormhole-protocol-vs-portal-bridge-whats-the-difference-a9ad98696e64">rebranded</a> to Portal.



Portal is a major competitor to LayerZero’s offering — an a16z-backed company whose solution the venture capital firm is hoping will handle the job instead. A16z, Sequoia Capital and FTX <a href="https://www.crunchbase.com/funding_round/layerzero-labs-series-a--7212c4e5">led</a> a $135 million investment round into LayerZero in March of last year with a valuation of $1 billion.



A16z’s 15 million votes cast against the measure has led some <a href="https://twitter.com/ChrisBlec/status/1622201701921964035" target="_blank" rel="noreferrer noopener">skeptics</a> to question the ability of Uniswap governance&#8217;s ability to act in the protocol&#8217;s best interest.



Typically, those holding more tokens have a greater share of voting power and are able to greatly affect the direction of a given proposal.



In a16z&#8217;s case, the firm owns roughly 64 million UNI, but many of those tokens are delegated to third parties. For instance, the venture fund <a href="https://twitter.com/UMichBlockchain/status/1402832670191669255" target="_blank" rel="noreferrer noopener">has delegated</a> to a blockchain group at the University of Michigan, which was one of the governance representatives voting in favor of the proposal.



The ‘for’ votes outnumber the ‘against’ by 62% to 38% as of Monday at 9:00 am ET, but a quorum threshold has not yet been reached.



Blockworks attempted to contact a16z, but did not receive a reply by press time.



<h2>Bridging Uniswap</h2>



After a prior debate and <a href="https://snapshot.org/#/uniswap/proposal/0x6b8df360fdf73085b21fdf5eef9f85916fbde95621a3d454cb20fbe545ffc852" target="_blank" rel="noreferrer noopener">Snapshot vote</a>, the community selected the Wormhole bridge for the Uniswap V3 deployment on the BNB Chain, receiving 28 million votes. The solution provided by the LayerZero team came in second at 17 million.



Uniswap’s aim is to capitalize on the growing interest in DeFi within the Binance ecosystem by allowing more capital to flow across various ecosystems, according to the proposal on Tally. Wormhole is designed to shore up the security involved in the bridging of digital assets, despite its exploit woes last year.



Total value locked on BNB Chain has ballooned roughly $1 billion this year to $5 billion, data at <a href="https://defillama.com/" target="_blank" rel="noreferrer noopener">DeFi Llama show</a>. That still pales in comparison to Ethereum’s $29 billion claim to the overall $48.5 billion locked across leading DeFi protocols. Still, authors of the proposal said Friday that Uniswap should be pursuing the more than 750,000 weekly users on BNB Chain.



BNB Chain has a large and growing user base, fast transaction speeds, low fees, staking, cross-chain support and an active community making it a suitable platform for Uniswap v3, they said.



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