Crypto Roundup for February 17, 2023
By djKUPO | Blockchain in Paradise
SEC Sues Over TerraUSD Stablecoin That Rocked Crypto (Bloomberg)
"The US Securities and Exchange Commission accused crypto entrepreneur Do Kwon and the firm he co-founded of a fraud involving the failed TerraUSD stablecoin. The SEC alleged in federal court on Thursday that Terraform Labs and Kwon offered and sold unregistered securities, including the stablecoin, and carried out a scheme that wiped out at least $40 billion worth of market value. The case marks a significant escalation in the SEC’s crackdown on the crypto industry."
Crypto Giant Binance Moved $400 Million From U.S. Partner to Firm Managed by CEO Zhao (Reuters)
"Global cryptocurrency exchange Binance had secret access to a bank account belonging to its purportedly independent U.S. partner and transferred large sums of money from the account to a trading firm managed by Binance CEO Changpeng Zhao, banking records and company messages show. Over the first three months of 2021, more than $400 million flowed from the Binance.US account at California-based Silvergate Bank to this trading firm, Merit Peak Ltd, according to records for the quarter, which were reviewed by Reuters. The Binance.US account was registered under the name of BAM Trading, the U.S. exchange's operating company, according to the records. Company messages show the transfers to Merit Peak began in late 2020."
Mysten Labs CEO Evan Cheng Is Seeking to Raise Over $100 Million for a WEB3 Fund (The Block)
"Mysten Labs CEO and co-founder Evan Cheng is raising money for a venture capital fund focused on web3 investments, according to four people familiar with the matter. Cheng is in the early stages of pitching the fund to limited partners and is seeking to secure more than $100 million, said two of the people. A spokesperson for Cheng declined to comment. Sui, Mysten Labs' Layer 1 blockchain, has garnered significant interest from venture investors and raised a total of $336 million since late 2021, according to Crunchbase data. Yet it still hasn't launched and remains in a testnet phase."
Latest Round of Ethereum Shapella Testnet Development Reveals a Few Bugs (The Block)
"Testing on Ethereum's Zhejiang testnet ahead of the Shanghai-Capella update revealed some bugs, but nothing that will affect the timeline for the introduction of staking to the network. Developer Marius VanDerWijden documented a syncing bug encountered by other clients that developers are confident can be patched, according to a thread from the Ethereum Foundation's Tim Beiko. The bug won’t affect any established timelines for the proposed upgrade set for the Sepolia testnet scheduled for Feb. 28, he noted."
Tencent Teams Up With MultiversX to Expand Web3 Strategy (CoinDesk)
"MultiversX said Thursday it is partnering with Tencent Cloud to help the company expand its Web3 products. Tencent Cloud is the cloud component of the massive Chinese tech company’s portfolio, which also includes messaging app WeChat. MultiversX, previously known as Elrond, recently rebranded to focus on its metaverse initiatives. Tencent, which has previously worked in spaces such as gaming and audiovisual tech, will utilize the network to deploy a suite of blockchain-based products."
Banks Are Breaking Up With Crypto During Regulatory Crackdown (WSJ)
"Banks are backing away from crypto companies, spooked by a regulatory crackdown that threatens to sever digital currencies from the real-world financial system. Banking regulators are raising concerns about banks’ involvement with crypto clients following last year’s blowup of Sam Bankman-Fried’s FTX. The Securities and Exchange Commission is aggressively pursuing the industry’s bigger players in a crackdown that threatens to narrow their reach. That move has alarmed bankers who don’t want to do business with customers in the SEC’s crosshairs, people familiar with the matter said."
Crypto Giant Binance Expects to Pay Penalties to Resolve U.S. Investigations (WSJ)
"Binance, the world’s largest cryptocurrency exchange, expects to pay monetary penalties to settle existing U.S. regulatory and law-enforcement investigations of its business, the firm’s chief strategy officer said in an interview. Binance grew quickly and began as a business powered by software engineers unfamiliar with laws and rules written to address the risk of bribery and corruption, money laundering, and economic sanctions, Patrick Hillmann said. The company has been working to fill gaps in its early compliance efforts, he said, but still expects regulators will impose fines for past conduct."
These Are the Stanford Faculty Members Keeping Sam Bankman-Fried Out of Jail (Bloomberg)
"Two people who co-signed FTX co-founder Sam Bankman-Fried’s $250 million bail package have been publicly identified as the former dean of Stanford’s law school and a senior research scientist at the elite university. A New York federal judge on Wednesday unsealed the names of Larry Kramer, who served as Stanford Law School dean from 2004 to 2012, and computer scientist Andreas Paepcke."
Gensler Opens New Regulatory Front For Crypto Firms: Custody (The Block)
"SEC Chair Gary Gensler signaled an escalation to his post-FTX crackdown on the crypto industry on Wednesday, saying that digital asset firms are in broad violation of current custodial rules meant to safeguard customers. “The current model in the crypto field is a model that takes control, one would say ownership, of those funds, and commingles that with thousands, and often hundreds of thousands or even millions of other customer funds,” Gensler told reporters following a 4-1 commission vote to further tighten custodial rules."
Bankrupt Crypto Lender Celsius Proposes Sale Plan to Novawulf (The Block)
"Bankrupt crypto lender Celsius Network put forward plans for a sale to NovaWulf Digital Management. Smaller Celsius creditors with less than $5,000 in their lending accounts would receive the majority of their funds back, documents filed with the bankruptcy court on Wednesday said. Larger creditors will receive tokenized shares in a new company. The tokens will trade on Provenance Blockchain through a registered broker-dealer, and the new firm will also file public disclosure documents, the proposal said."
Tether's USDT Gains $1B as Paxos Burns Over $1.8B of Binance USD Stablecoins (CoinDesk)
"Tether’s USDT, the largest stablecoin by circulating supply, has gained some $1 billion in market capitalization as crypto investors flee rival Binance USD (BUSD), which came under regulatory scrutiny earlier this week. USDT’s market cap has grown to $69.5 billion from $68.5 billion since Monday, according to cryptocurrency price tracker CoinGecko. This is the highest since last June’s crypto market turmoil, when traders placed bets on Tether’s demise. Tether’s recent gains come as BUSD, which is issued by Paxos under the exchange giant Binance’s brand, has been rapidly shrinking."
SEC Proposes Rule That Could Squeeze Coinbase, Other Crypto Platforms (WSJ)
"Wall Street’s main regulator proposed heightened requirements for businesses that safeguard assets for fund managers, a move that could further squeeze crypto platforms such as Coinbase Global Inc. as the industry comes under pressure from regulators. The Securities and Exchange Commission voted 4-1 Wednesday to propose a rule that would expand the types of assets that investment advisers, such as hedge funds and pension funds, are required to hold using qualified custodians. It would also direct advisers to reach written agreements requiring, for example, that custodians receive annual evaluations from public accountants and provide account statements."
Binance’s CEO Says Algo Stablecoins May Reemerge (Bloomberg)
"Binance Chief Executive Officer Changpeng “CZ” Zhao said the cryptocurrency industry may move away from dollar-linked stablecoins and even revisit algorithmic equivalents in the wake of a US regulatory crackdown. “The amount of pressure put on stablecoins is quite significant. Multiple agencies are applying pressure there,” Zhao, who heads the world’s largest crypto exchange, said during a Twitter Spaces Q&A on Tuesday. “That’s going to shrink the USD stablecoin market, so the industry is exploring its options.”"
Warren Pledges to Reintroduce Crypto Anti-money Laundering Bill (The Block)
"Sen. Elizabeth Warren, D-Mass., said she plans to reintroduce legislation with Sen. Roger Marshall, R-Kan., that would extend anti-money laundering laws to a broad array of the cryptocurrency ecosystem. That would include digital asset wallet providers, miners, validators and other blockchain network participants. “Sen. Roger Marshall and I are reintroducing our anti-money laundering bill to clamp down on crypto crime and give regulators the tools they need to stop the flow of crypto to drug traffickers and places like North Korea,” Warren said during a Senate Banking Committee hearing on crypto guardrails on Tuesday. During the hearing Warren used her time to claim that anti-money laundering rules do not adequately apply to crypto companies."
Why Morgan Stanley Says You Should Be Paying Attention to Stablecoins (The Block)
"With U.S. regulators moving to limit stablecoin products, strategists at Morgan Stanley think the broader crypto economy should be paying attention. "Falling stablecoin market capitalization means falling crypto liquidity and leverage," Sheena Shah and Kinji Steimetz wrote in a note dated Feb. 13. "Stablecoins play a vital role in crypto trading and their products potentially compete with the fiat banking system." The New York Department of Financial Services earlier this week ordered Paxos to stop issuing the Binance USD stablecoin, and the Morgan Stanley strategists expect upcoming regulatory efforts in the U.S. Congress to focus on stablecoins."
Lido DAO Mulls Proposals to Sell or Stake $30 Million Worth of Ether (The Block)
"The Lido community is discussing a pair of governance proposals submitted by Steakhouse Financial, the financial unit of the Lido DAO, which call for the project to stake or sell the ether tokens held in its treasury. Lido DAO holds 20,304 ether worth $30 million as part of its $350 million treasury. The funds are held in the project’s Aragon contract, as is the rest of the treasury, and Lido has maintained the ether balance since completing a treasury diversification process in April 2022. Proposals under consideration include recommendations for a full or partial sale of the ether tokens which would see the DAO swap ETH for a stablecoin that could be used to extend the project’s runway. A partial sale could also see the remaining ether balance being staked."
Stablecoin Issuer Paxos Burns $700M Binance USD in 27 Hours Amid Regulatory Pressure (CoinDesk)
"Paxos, the issuer of the $16 billion Binance USD (BUSD) stablecoin, has burned more than $700 million of BUSD tokens since Monday. That was when Paxos announced it would stop issuing the cryptocurrency amid mounting regulatory pressure, blockchain data shows. Data from blockchain intelligence firm Nansen shows that a Paxos Treasury crypto wallet transferred $703 million worth of BUSD tokens to a burn address within 27 hours starting Monday morning, essentially removing the coins from circulation."
Crypto Firm Paxos Faces SEC Lawsuit Over Binance USD Token (WSJ)
"The Securities and Exchange Commission has told crypto firm Paxos Trust Co. that it plans to sue the company for violating investor protection laws, according to people familiar with the matter, the latest move in the agency’s escalating campaign in crypto enforcement. The SEC’s enforcement staff issued a letter to Paxos known as a Wells notice, which the agency uses to inform companies and individuals of a possible enforcement action, according to the people. The notice alleges that Binance USD, a digital asset that Paxos issues and lists, is an unregistered security, according to the people."
Coinbase CEO Visits Washington, D.C. In Push for Regulatory Clarity, Less Sugar (The Block)
"Coinbase CEO Brian Armstrong said he was in Washington, D.C. today in a push for clearer rules amid rising uncertainty in the sector following enforcement actions this month against Kraken and Paxos. He also said a Senate cafeteria needed more low sugar options. "’I'm in Washington D.C. and had a meeting canceled," he wrote on Twitter. “Will be at the Dirksen Senate Office building snack bar for the next hour or so, if anyone wants to come chat about crypto and how we get crypto legislation + regulatory clarity this year.”"
Stablecoin Issuer Circle Warned New York Regulator About Rival Binance’s Token (Bloomberg)
"Stablecoin giant Circle Internet Financial Ltd. issued a complaint to the New York State Department of Financial Services last year about rival crypto firm Binance’s mismanagement of reserves for its own tokens, months before the regulator told another stablecoin issuer to halt its partnership with the trading platform. Circle, which operates the USDC stablecoin and shares a regulator with Binance-branded stablecoin firm Paxos Trust Co., alerted the watchdog last autumn to issues its team had surfaced in blockchain data that showed Binance did not store enough crypto in reserve to support tokens it had issued, according to a person familiar with the matter who asked not to be named discussing private information."
Paxos ‘Categorically Disagrees’ With SEC That BUSD Is a Security, Says It Will Litigate if Needed (CoinDesk)
Stablecoin issuer Paxos acknowledged that it has received a Wells Notice from the U.S. Securities and Exchange Commission, indicating a possible enforcement action based on the charge that its Binance USD constitutes an unregistered security, according to a Monday press release. BUSD is a stablecoin branded by Binance that’s pegged to the U.S. dollar. But the firm said it “categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws.” It also claimed that Paxos is “always backed 1:1 with U.S. dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts,” and said the firm is “prepared to vigorously litigate if necessary.”
Bakkt Exits Consumer Business to Focus On B2B as Regulators Crack Down (The Block)
"Bakkt is nixing its consumer app to focus on its business-to-business technology solutions. Bakkt, which offers a platform for commerce to link to cryptocurrency, said it will continue its core focus of providing businesses with crypto and loyalty experiences for their customers through SaaS and API solutions on a secure and compliant platform. “The discontinuation of the app ensures we are supporting the relationship our partners and clients have with their customers,” said CEO Gavin Michael. “We are focusing our investment on our core solutions that have product-market fit and are positioned to scale quickly.” The move comes as cryptocurrency prices have slumped from their 2021 high and regulators crack down on crypto companies."
Three Arrows Founders Start Crypto Bankruptcy Claims Exchange (WSJ)
"The founders of failed hedge fund Three Arrows Capital Ltd. have resurfaced with a $25 million crypto-exchange venture that will let users trade bankruptcy claims from insolvent platforms and funds, including their own. Open Exchange, or OPNX, was created by Su Zhu and Kyle Davies—who set up Three Arrows together—and the two founders of crypto exchange CoinFLEX. The new platform is expected to launch by the end of this month, Mr. Zhu said. It has begun accepting applications from individuals who want to be among the first to trade their crypto claims; Mr. Zhu tweeted on Sunday that there were more than 3,600 sign-ups so far. U.S. residents are among those that aren’t eligible for the wait list, the company said."
Regulator Orders Crypto Firm Paxos to Stop Issuing Binance Stablecoin (WSJ)
"New York regulators directed a crypto company to stop issuing one of the largest dollar-pegged cryptocurrencies, as a government clampdown on the sector widens. The New York Department of Financial Services ordered Paxos Trust Co., which issues and lists Binance’s dollar-pegged cryptocurrency, to stop creating more of its BUSD token, Binance said in a statement. Paxos will continue to manage redemptions of the product, the crypto exchange added. BUSD, also known as Binance USD, is a stablecoin backed by U.S. dollars on a one-to-one basis. Binance and Paxos partnered to launch it in 2019 and said the stablecoin was approved by New York’s financial regulator."
Cantor Fitzgerald Helps Oversee Tether’s $39 Billion in Treasury Holdings (WSJ)
"Billions of dollars in Treasurys that back the world’s most traded cryptocurrency are being run on Wall Street. Tether Holdings Ltd., the secretive Hong Kong-based owner of stablecoin tether, is using Cantor Fitzgerald to help oversee its $39 billion bond portfolio, according to people familiar with the matter. Details of how Tether managed those assets haven’t been widely known."
PayPal Pauses Stablecoin Work Amid Regulatory Scrutiny of Crypto (Bloomberg)
"PayPal Holdings Inc. is pausing work on its stablecoin as regulators increase scrutiny of cryptocurrencies and a key partner in the project faces a probe by the New York State Department of Financial Services. PayPal had hoped to debut the stablecoin, which will be backed one for one by the US dollar, in the coming weeks, but will delay that work as it seeks to understand the changing regulatory landscape for such digital assets, according to a person with knowledge of the matter. New York regulators have been investigating Paxos Trust Co., a cryptocurrency firm PayPal was working with on its stablecoin effort, Bloomberg News reported this week."
Coinbase CEO Happy to Go to Court Over US Stance on Staking, ‘If Needed' (The Block)
"Coinbase CEO Brian Armstrong has stepped up what looks like a preemptive defense of his cryptocurrency exchange's staking services. “Coinbase's staking services are not securities. We will happily defend this in court if needed,” Armstrong posted to Twitter on Sunday. Armstrong’s weekend comments come after rival exchange Kraken settled a dispute with the U.S. Securities and Exchange Commission earlier in the week. Kraken agreed to pay a $30 million fine for failing to register the offer and sale of its “crypto asset staking-as-a-service program.” The Coinbase CEO has also said it would be a "terrible path" for the U.S. if it decided to restrict crypto staking."
G20 Exploring Cryptocurrency Regulation, India’s Finance Minister Says (Reuters)
"The Group of 20 (G20) big economies is exploring whether the group could collectively regulate cryptocurrencies, Finance Minister Nirmala Sitharaman said on Saturday. Given the sophisticated technologies involved with these virtual assets, countries must discuss whether a given regulation is needed, said Sitharaman, whose country is this year's G20 president. Prime Minister Narendra Modi's government has for several years debated drafting a law to regulate or even ban cryptocurrencies but has not made a final decision."
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