Shalini Nagarajan

Some crypto companies seeking to go public in the US have been held back by complex assessments led by the Securities and Exchange Commission (SEC).



Recounting plights of crypto exchange Bullish, stablecoin issuer Circle and online brokerage eToro, the Wall Street Journal <a href="https://www.wsj.com/articles/sec-scrutiny-blocks-some-crypto-firms-from-going-public-11674527071" target="_blank" rel="noreferrer noopener">highlighted</a> on Tuesday that each firm was unable to gain the required SEC approval.



They’d sought to go public via special purpose acquisition companies (SPACs) — existing “blank check” companies that merge or acquire other companies interested in assuming their public status.&nbsp;



The number of SPAC deals in the US exploded over the past few years, with 613 recorded in 2021 compared to 59 in 2019, per <a href="https://www.statista.com/statistics/1178249/spac-ipo-usa/" target="_blank" rel="noreferrer noopener">Statistica</a>. Going public via SPACs is generally <a href="https://advisory.kpmg.us/articles/2021/why-choosing-spac-over-ipo.html#:~:text=The%20main%20advantages%20of%20going,usually%20takes%2012%E2%80%9318%20months." target="_blank" rel="noreferrer noopener">regarded</a> as a speedier alternative to traditional initial public offerings.



While it hadn’t sought a SPAC deal, Galaxy Digital was similarly blocked by the SEC from listing on the Nasdaq, WSJ noted. Last April, a source told Blockworks that the listing process was taking <a href="https://blockworks.co/news/awaiting-us-listing-galaxy-digital-delays-purchase-of-crypto-platform-bitgo" target="_blank" rel="noreferrer noopener">longer than expected</a> (Galaxy stock already trades on OTC Markets).



So, what’s the hold up? It’s reportedly the number of questions posed to crypto companies by SEC regulators, who have so far found responses wanting.



Coinbase — practically the only pure-play crypto firm to go public (not counting bitcoin miners) — was reportedly sent three letters containing questions leading up to its April 2021 direct listing.&nbsp;



But Block.one’s Bullish was sent 10 letters in a review process extending beyond a year, WSJ said. Galaxy reportedly received one letter with more than 90 questions while Circle faced more than 100 questions. 



In eToro&#8217;s case, the SEC was said to have focused on the firm&#8217;s methods for accounting digital assets held by its users. &#8220;We continue to view becoming a public company as part of eToro’s future and will wait for the right opportunity to take this next step,&#8221; a spokesperson told Blockworks.



SEC chair Gary Gensler has <a href="https://blockworks.co/news/sec-under-gensler-crypto-power-grab-effective-protection" target="_blank" rel="noreferrer noopener">previously echoed</a> the stance of his predecessor Jay Clayton: regulators should consider most cryptocurrencies to be securities, and thus under the SEC&#8217;s purview. 



FTX’s collapse in November also seems to have exacerbated scrutiny. The SEC issued <a href="https://www.sec.gov/corpfin/sample-letter-companies-regarding-crypto-asset-markets" target="_blank" rel="noreferrer noopener">new guidance</a> that asked already-public companies to detail their risk exposure to the crypto sector. Circle <a href="https://blockworks.co/news/circle-kills-spac-plans" target="_blank" rel="noreferrer noopener">canceled</a> its SPAC deal in December. 



The lengthy review process has ultimately dampened efforts to generate capital via public offerings in a tough bear market, and further solidified the SEC as a major thorn in the industry&#8217;s side.



Updated Jan. 25, 2022 at 9:07 am ET: Added spokesperson statement.



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Why Aren’t There More Public Crypto Companies? The SEC

Sebastian Sinclair

Block.one’s crypto exchange Bullish won’t be going public after all.&nbsp;



Its $9 billion merger with a SPAC has been terminated just four months after courts rejected its $27.5 million settlement in a class action lawsuit, which alleged its EOS initial coin offering constituted an unregistered securities sale.



Under a mutual agreement disclosed <a href="https://bullish.com/news/press-releases/far-peak-acquisition-corporation-and-bullish-announce-the-termination-of-proposed-business-combination/" target="_blank" rel="noreferrer noopener">Thursday</a>, Far Peak Acquisition Corp and Bullish said they’d be walking from the deal as the firm’s SEC Form-4 registration statement hadn’t yet been declared effective.



Form-4s are required to register securities issued by parties outside the US and are filed in support of mergers, tender offers and the like. Bullish is registered to the Cayman Islands, while Far Peak is in the US.



Far Peak and Bullish entered into a business combination agreement last year that would have taken the exchange public on the <a href="https://bullish.com/news/press-releases/bullish-announces-intent-to-go-public-on-new-york-stock-exchange/" target="_blank" rel="noreferrer noopener">New York Stock Exchange</a>.&nbsp;



Both parties had the right to step away if the deal hadn’t been formalized by the end of the year. The SPAC said it doesn’t intend to seek a new merger partner and would wind up operations by March 7 of next year — ending 18 months of deliberations between the pair.&nbsp;



Had Bullish gone public in the US, it would’ve been only the second pureplay crypto exchange to do so, following Coinbase’s direct listing last April.



“Our quest to become a public company is taking longer than expected, but we respect the SEC’s ongoing work to lay new digital asset frameworks and clarify industry-specific disclosure and accounting complexities,” said Brendan Blumer, CEO at both Bullish and EOS developer Block.one.



Bullish is <a href="https://bullish.com/news/press-releases/far-peak-acquisition-corporation-and-bullish-announce-the-termination-of-proposed-business-combination/" target="_blank" rel="noreferrer noopener">backed</a> by Peter Thiel’s Thiel Capital and Founders Fund, alongside Christian Angermayer and Alan Howard, among others.&nbsp;



<h3>Block.one SEC settlement lingers</h3>



Still, ending the deal comes after a US court threw out a <a href="https://www.forbes.com/sites/emilymason/2022/08/17/federal-court-rejects-275-million-settlement-in-blockone-ico-case-questions-reach-of-securities-law/?sh=c9e501e2bda6" target="_blank" rel="noreferrer noopener">proposed</a> $27.5 million class action settlement between Block.one and EOS investors in August.&nbsp;



The court raised concerns over how the proceeds were to be divided between global and US-based plaintiffs, considering the case focused on US securities law.



Block.one separately settled with the SEC for $24 million in 2019 over allegations its $4.1 billion EOS initial coin offering was an unregistered securities sale. Block.one paid up without admitting to or denying the charges.&nbsp;



The tossed settlement could have implications for how the SEC approaches securities cases moving forward, especially with regard to international investors.



In any case, the scuppering apparently couldn’t have come at a worse time for a crypto exchange seeking to go public in the US.



David Canellis contributed reporting.



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Block.one Cans $9B SPAC Merger 4 Months After Scrapped EOS Settlement

Cryptocurrency exchanges have evolved significantly from the days of Mt. Gox – once the world&#8217;s largest bitcoin exchange. Crypto exchanges in this age are highly sophisticated, with advanced security, trading functionalities, and even self-custodial access with decentralized exchanges.



However, these improvements across centralized and decentralized exchanges need to address significant liquidity bottlenecks. The closed nature of the various centralized trading venues leads to fragmented liquidity, while decentralized exchanges introduce unique constraints that adversely impact traders.



The challenges facing global crypto liquidity has inspired exchanges like <a href="https://be.bullish.com/blockworks" target="_blank" rel="noreferrer noopener">Bullish</a> to innovative trading technology that can offer tighter spreads and more reliable depth. 



<h3>The liquidity problem in crypto exchanges&nbsp;</h3>



Liquidity refers to the ease at which an investor can buy or sell an asset without moving the asset&#8217;s market price. This degree of ease is a direct result of the amount of buyer and seller activity on a trading venue.



In the cryptocurrency market, liquidity is fragmented between different platforms making global price discovery almost impossible. For example, the bitcoin spot price usually differs across exchanges at a given time. Thus, because these exchanges are not connected, the price discovery process takes place on individual platforms.&nbsp;



In traditional markets, true price discovery is possible because global liquidity is aggregated on a single trading venue, such as Nasdaq. In the crypto market, exchanges meet investors&#8217; liquidity demands through different mechanisms.&nbsp;



<h3>Centralized exchanges</h3>



Centralized exchanges utilize a model that relies on hiring market makers. Market makers quote bids and ask prices on an asset&#8217;s order book throughout the day. The objective is to encourage active trading and ensure tight spreads for traders. Yet, this heavy reliance on market makers poses a unique problem.&nbsp;



Only a handful of institutional-grade market makers are <a href="https://www.ft.com/content/b2ef8b06-bfeb-4f02-ac6d-a17676d01839" target="_blank" rel="noreferrer noopener">willing to undertake</a> the technical and volatility risks associated with crypto markets. Centralized exchanges must typically compete for limited liquidity from available market makers. This results in fractured liquidity and increased volatility, especially during peak trading demands.



Institutions dipping their toes into the crypto market must utilize several tools to search through multiple exchanges for the best prices. The rigorous process of accessing deep crypto liquidity is a major impediment to greater institutional adoption. Under the current approach, centralized crypto exchanges cannot reach the liquidity standards required to serve institutional trading desks trading hundreds of billions of dollars daily.



<h3>Decentralized exchanges&nbsp;</h3>



Decentralized exchanges take a unique approach to solving the liquidity problem. The automated market-making (AMM) model pioneered by DEXes replaces traditional market makers with liquidity providers (LPs). Liquidity providers receive a fraction of transaction fees on each trade and additional incentives from the protocol&#8217;s governance tokens.&nbsp;



However, the decentralized and permissionless model utilized by DEXes creates a unique set of problems. First, their on-chain architecture decreases throughput and is unsuitable for high-frequency trading. Next, there is a general lack of market depth compared to market-making on centralized platforms. Liquidity providers recognize the volatility and security issues associated with DeFi and deploy limited capital based on their respective risk profiles. Additionally, DEXes face a constant struggle to retain liquidity as most providers deploy mercenary capital and will <a href="https://thedefiant.io/uniswap-lps-prove-to-be-fickle-as-uni-holders-stick-around" target="_blank" rel="noreferrer noopener">immediately withdraw funds</a> to competitors that offer the highest short-term returns.



The general lack of market depth fundamentally encourages liquidity fragmentation, increased price slippage for traders, and wild fluctuations in available liquidity during periods of peak market volatility. These bottlenecks make it difficult for market participants to calculate the involvement risks, discouraging institutional investors.



A second challenge facing AMMs is the increased risk of front-running attacks, commonly known as miner extractable value (MEV). In this rare disadvantage for traders, blockchain transparency enables sophisticated developers to front-run a trader&#8217;s transaction by creating a similar one that increases the exchange value and generates profit for the developer.&nbsp;



The MEV loophole executed through bots results in increased slippage or traders paying higher fees to access on-chain liquidity. According to data from Flashbots Explorer, the total extracted MEV value currently sits at over $670 million in the past three years.



<figure class="wp-block-image is-resized"><img decoding="async" loading="lazy" src="https://lh3.googleusercontent.com/cSYde4bpCKFLTJVWkOQxJVDWlQd2s4C8TAVjIIdWsfIBXXURk_uQS-HVKbQr7gBemQMy_FtxqCkINtPLxcJ1dVwYj0ta-IDFRNRapzNQrHuCa08dUDHzPnHayQ1u64cyBqd6xjzJhee8UcCJFcOqC3e1xl9jR9Dgmzzrorrsb_zaNldrnmIef-Sq6oLECQ" alt="" width="840" height="298"/><figcaption>Cumulative extracted MEV | Source: <a href="https://explore.flashbots.net/">FlashBots Explorer</a></figcaption></figure>



AMMs tackle the lack of sufficient liquidity by innovating ways to attract more liquidity providers. One innovation by Curve Finance involves tying a protocol&#8217;s liquidity profile to its governance token and requiring other protocols to acquire as many tokens as possible to influence liquidity distribution and rewards. This model introduced the so-called &#8220;Curve Wars,&#8221; which brought more liquidity and mercenary capital.&nbsp;&nbsp;



Meanwhile, traders bear the brunt of these &#8216;wars&#8217; as they pay higher fees enforced by governance token holders and controlling protocols keen on getting the best possible yield. The reliance on perverse incentives to attract and sustain on-chain liquidity makes the approach unfavorable to traders and the institutional investor class, which the crypto market requires to reach mainstream adoption.



<h3>An new approach to tackling the crypto exchange liquidity problem</h3>



A fresh perspective is required to solve the current liquidity issues facing the cryptocurrency market. The ideal solution will enable exchanges to provide greater market depth and increased certainty while delivering the best exchange value to traders.



Bullish is amongst the first exchanges to implement AMM technology in a centralized order book, unlocking unparalleled liquidity without sacrificing performance. Bullish utilizes a novel solution called AMM instructions&nbsp; that provide greater order book depth and tighter spreads, making it one of the most efficient platforms to execute through .



The Bullish approach combines the performance and compliance of centralized exchanges with the liquidity profile of decentralized exchanges. The result is a radical improvement to global crypto liquidity and an institutional-grade platform set to accelerate the adoption of digital assets.



This content is sponsored by <a href="https://be.bullish.com/blockworks" target="_blank" rel="noreferrer noopener">Bullish</a>.



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Can We Solve the Crypto Exchange Liquidity Problem?

<div id="highlights-block_62c53fa4831b6" class="highlights">
 <ul>
 <li>Bullish delayed its plan to go public via a merger, pushing back the deal&#8217;s termination date to December</li>
 <li>Investors including Block.one, Peter Thiel and Alan Howard together injected $10 billion in funding the exchange last year</li>
 </ul>
 
</div>



Peter Thiel-backed cryptocurrency exchange Bullish is yet another firm dealing with pressure stemming from the crypto market liquidity drought.



The Gibraltar-registered company has laid off less than 30 employees, <a href="https://www.theblock.co/post/155859/bullish-com-cuts-jobs-crypto-exchange" target="_blank" rel="noreferrer noopener">The Block</a> reported on Tuesday, citing a source familiar with the matter. The exchange employs more than 395 people, according to its <a href="https://bullish.com/about-us/" target="_blank" rel="noreferrer noopener">website</a>, meaning that the layoffs represent a 7% cut to its workforce.



A company spokesperson confirmed the job cuts according to the report, adding that Bullish is still hiring for product, engineering and other strategic roles.



The downturn in cryptocurrency markets has led to a <a href="https://cms.blockworks.co/crypto-industry-layoffs-may-have-unintended-consequences/" target="_blank" rel="noreferrer noopener">series</a> of firms cutting back on expenses or letting go of employees, including <a href="https://cms.blockworks.co/coinbase-latest-crypto-firm-to-cut-costs-amid-market-downturn/" target="_blank" rel="noreferrer noopener">Coinbase</a>, <a href="https://cms.blockworks.co/cryptocurrency-lender-blockfi-set-to-cut-staff-by-a-fifth/" target="_blank" rel="noreferrer noopener">BlockFi</a>, <a href="https://cms.blockworks.co/crypto-com-cutting-5-of-workforce-amid-digital-asset-downturn/" target="_blank" rel="noreferrer noopener">Crypto.com</a>, <a href="https://cms.blockworks.co/coinbase-backed-vauld-cuts-workforce-by-30-seeks-to-halve-exec-pay/" target="_blank" rel="noreferrer noopener">Vauld</a>, <a href="https://cms.blockworks.co/gemini-joins-growing-list-of-crypto-exchanges-cutting-staff-amid-downturn/" target="_blank" rel="noreferrer noopener">Gemini</a> and <a href="https://cms.blockworks.co/cosmos-developer-ignite-sees-mass-exodus-and-layoffs-as-ceo-exits/" target="_blank" rel="noreferrer noopener">Ignite</a>. Some commentators expect market volatility and ensuing financial challenges to continue for the foreseeable future.



“I think there probably is some meaningful pain in the short term,” Noah Hamman, CEO of AdvisorShares, told Blockworks. “We think it will work itself out, but some companies won&#8217;t make it through. But then we feel it&#8217;s almost like a refresh…a little bit cleansing,” he added.



Bullish, a unit of blockchain software firm Block.one, has offices in Hong Kong, New York, Washington DC, Virginia, Singapore, Gibraltar and the Cayman Islands.&nbsp;



The exchange, launched in 2021 with <a href="https://bullish.com/news/press-releases/launch-of-new-cryptocurrency-exchange-bullish/" target="_blank" rel="noreferrer noopener">$10 billion</a> in funding, originally targeted only institutional investors. But it later expanded services, including automated market making, lending and portfolio management, to retail users. Among its backers are Peter Thiel’s Thiel Capital and Founders Fund, British hedge fund manager Alan Howard, Galaxy Digital and Japanese investment bank Nomura.



In July last year, Bullish said it planned to <a href="https://cms.blockworks.co/bullish-plans-to-go-public-through-spac-merger/" target="_blank" rel="noreferrer noopener">go public</a> via a merger with Far Peak Acquisition Corporation, a special-purpose acquisition company (SPAC). That deal hasn’t closed yet, and the termination date was recently <a href="https://bullish.com/news/press-releases/bullish-and-far-peak-acquisition-corp-announce-extension-of-outside-date-for-business-combination-june-2022/" target="_blank" rel="noreferrer noopener">extended</a> to Dec. 31, 2022. Bullish said it paid Far Peak an extension fee of $2.5 million and expects the deal to close in the third quarter this year.



If the deal goes through as intended, Bullish will become a publicly-listed company and will trade on the New York Stock Exchange.



Bullish didn’t immediately return Blockworks’ request for comment.



This story has been edited to correct the number of employees laid off.



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Bullish Joins Rival Crypto Exchanges in Cutting Workforce: Report

Ben Strack

<div id="highlights-block_60e89182c6c76" class="highlights">
 <ul>
 <li>Bullish preparing release of crypto exchange that will provide portfolio balancing tools, deep predictable liquidity</li>
 <li>CEO of Block.one, which gave Bullish initial capital injection in May, to serve as company’s chairman</li>
 </ul>
 
</div>



Digital assets firm Bullish announced plans on Friday to become a public company through a merger with Far Peak Acquisition Corporation, a SPAC led by former New York Stock Exchange president Thomas Farley.



Farley, who led NYSE as president from 2013 to 2018, will become the CEO of Bullish upon completion of the deal. Block.one CEO Brendan Blumer, will be appointed the company’s chairman.



The transaction, approved by the director boards of Bullish and Far Peak, is expected to close by the end of the year, and the combination’s equity value at signing is roughly $9 billion at $10 per share. Proceeds include $300 million in private investment in public equity, or PIPE, commitments from EFM Asset Management, as well as funds and accounts managed by BlackRock, Cryptology Asset Group and Galaxy Digital.



Donald Putnam, a managing partner at principal investing firm Grail Partners, told Blockworks that this is a situation tailor-made for a SPAC merger, adding that the PIPE participants provide important validation as well as funding.



“It’s a story stock, and the story is about the future, not the past,” Putnam explained. “At the moment, SPACs have a decided advantage when it comes to growth company funding – they compete brilliantly with private equity investors, at much lower cost and vastly better transparency.”



Bullish is preparing to launch a crypto exchange with portfolio balancing tools and deep predictable liquidity that will serve both retail and institutional investors, the firm said in a news release. Farley said in a statement that the increased interest from institutional players and sophisticated traders in crypto makes it critical to iterating on the existing exchange infrastructures.



In a survey by Arcane Research published last month, institutional market participants labeled reliability of technology, depth of liquidity and low latency, and certainty of execution as the three most important factors when selecting a cryptocurrency trading venue.



&#8220;We view the cryptocurrency market as a high growth market that is large, profitable, and filled with opportunities,” Farley told Blockworks. “In terms of the merits of the investment overall, the cryptocurrency market is just in the first or second inning.”



The company will run a private pilot program before its public launch during which participants will test the platform in a simulated market environment. Tools users will try include the Bullish Hybrid Order Book and the firm’s liquidity pools.



Block.one, developer of the EOSIO protocol, injected $100 million, 164,000 of bitcoin, and 20 million of EOS to launch Bullish in May. Other investors in the capital raise were Peter Thiel’s Thiel Capital and Founders Fund, Alan Howard, Louis Bacon, Richard Li, Christian Angermayer, Galaxy Digital, and global investment bank Nomura.



“Bullish&#8217;s entry into the public markets allows our customers to take part in the growth of Bullish by holding a piece of our company without any of the regulatory uncertainties or jurisdictional limitations of a profit-sharing token issuance,” Blumer said in an email.



Meltem DeMirors, chief strategy officer at Coinshares, said in June that excluding Bullish, there had been more than $7 billion in venture deals announced in 2021, noting that there is now more capital than ever looking to be allocated to various parts of the crypto ecosystem.



Bullish’s plans come a few months after crypto exchange <a href="https://www.coinbase.com">Coinbase</a> became a public company <a href="https://cms.blockworks.co/coinbase-direct-listing-shares-are-limited-demand-is-high/">through a direct listing</a>. Competing exchange <a href="https://cms.blockworks.co/kraken-could-ipo-by-end-of-2022/">Kraken is prepping to potentially go public</a> by the end of 2022, the company’s CEO, Jesse Powell, told Bloomberg TV last month.  



Powell has said that Kraken is likely too big to go public through a SPAC, and was considering an IPO, <a href="https://fortune.com/2021/06/10/crypto-exchange-kraken-rethinks-ipo-plans-after-coinbase-stock-listing/">Fortune reported</a> last month.