Crypto Roundup for January 13, 2023
By djKUPO | Blockchain in Paradise
Gemini and Genesis Sued by SEC Over Crypto ‘Earn’ Program (Bloomberg)
"US regulators sued crypto brokerages Genesis Global Capital and Gemini Trust Co. for breaking securities rules. The Securities and Exchange Commission said on Thursday that the firms illegally raised billions of dollars from hundreds of thousands of investors through the so-called Gemini Earn program. That product, which let customers loan out their assets in exchange for interest payments, amounted to the offering of unregistered securities, the SEC said."
Crypto.com Cuts 20% Workforce as Firms Brace for Crypto Winter (CoinDesk)
"Crypto.com said it is cutting its workforce by around 20% as the crypto industry continues to reel from the effects of the ongoing crypto winter. The firm cited the economic headwinds from the downturn in the crypto market and the FTX implosion as the reason behind the layoffs. "We grew ambitiously at the start of 2022, building on our incredible momentum and aligning with the trajectory of the broader industry. That trajectory changed rapidly with a confluence of negative economic developments," Kris Marszalek, co-founder and CEO, wrote in a post addressing the matter."
Japan Expects Local FTX Clients to Get Funds Back From February (Bloomberg)
"Japan’s financial watchdog expects the local unit of Sam Bankman-Fried’s failed crypto empire FTX will repay funds to customers starting next month, according to a senior official. 'We have been in close communication with FTX Japan,' said Mamoru Yanase, deputy director-general of the Financial Services Agency’s Strategy Development and Management Bureau. A mid-February timeline for withdrawals announced last month by the firm is likely a product of such communication so 'we are expecting that they will properly take steps based on that,' he said."
Crypto Lender Genesis Owes Creditors Over $3B: FT (CoinDesk)
"Troubled crypto lender Genesis owes its creditors over $3 billion prompting its parent company, Digital Currency Group, to look at asset sales to pay off the debt, the Financial Times reported on Thursday, citing sources. DCG is considering offloading some of its venture-capital portfolio, worth around $500 million, the report said. The sale is part of DCG's effort to raise fresh capital after Genesis stopped withdrawals late last year. DCG declined to comment."
Bulgaria Launches Probe of Crypto Lender Nexo, Raids Sites (Reuters)
"Bulgarian prosecutors have launched an investigation into alleged illegal activities conducted by cryptocurrency lender Nexo, they said on Thursday, raiding more than 15 sites in the capital Sofia. The announcement comes after Nexo said in December it would phase out its U.S. products and services over the coming months due to clashes with regulators. "In Sofia, active steps are being carried out as part of a pre-trial investigation aimed at neutralising an illegal criminal activity of crypto lender Nexo," Siyka Mileva, a spokeswoman for the prosecutors' office, told reporters."
FTX Has Recovered 'Over $5B' in Assets, Bankruptcy Attorney Says (CoinDesk)
"Crypto exchange FTX has recovered more than $5 billion in different assets, not including another $425 million in crypto held by the Securities Commission of the Bahamas, a bankruptcy attorney said during a hearing Wednesday. There's still a sum missing in what is owed to customers and the amount is still unclear, the attorney said. "We have located over $5 billion of cash, liquid cryptocurrency and liquid investment securities measured at petition date value. [It] just does not ascribe any value to holdings of dozens of illiquid cryptocurrency tokens, where our holdings are so large relative to the total supply that our positions cannot be sold without substantially affecting the market for the token," said Landis Rath & Cobb attorney Adam Landis on FTX's behalf."
UAE Investor Groups Launch Billion-Dollar WEB3 Fund (The Block)
"Abu-Dhabi based Venom Foundation and Iceberg Capital are partnering to invest $1 billion in a host of web3 applications. The “blockchain-agnostic” Venom Ventures Fund aims to invest in “innovative protocols and Web3 dApps … DeFi, banking services, and GameFi,” the two Middle Eastern investment groups said in a statement. The announcement to invest fresh capital into the crypto space comes at a tumultuous time, with the industry still reeling in the wake of the collapse of the FTX exchange amid a prolonged crypto winter that has seen market values plummet. But it appears many Middle Eastern investors remain confident in the future of web3, with some local leaders trying to position Abu Dhabi as a powerful hub."
Binance CEO Outlines Ambitions to Grow Headcount by up to 30% In 2023 (The Block)
"Binance CEO Changpeng Zhao said the crypto exchange giant will continue to scale in 2023, with headcount growth goals of between 15% and 30%. The exchange group grew from 3,000 to 8,000 people in 2022 he added, speaking at a conference in St. Moritz, Switzerland. Plans for the year ahead include improving technology and making the expansive crypto exchange-operator more efficient, as well as investing in customer support."
3AC’s Kyle Davies Claims Creditors ‘Frustrated’ With Bankruptcy Process (The Block)
"Three Arrows Capital's co-founder Kyle Davies claimed that the firm's creditors are "frustrated" with the ongoing bankruptcy process. They complained about high costs, delays due to inter-creditor disputes and how the estate is being valued during an hoc meeting Wednesday, Davies said on Twitter. "We believe the best way forward is to reduce the ongoing legal costs, pursue claims on a contingency basis against Luna consortium/FTX/Genesis, and organize better ways to deal with asset sales/distributions," he wrote."
Coinbase Junk Bonds Further Downgraded by S&P on Weak Profitability, Regulatory Risks (CoinDesk)
"S&P Global Ratings, the biggest rating agency globally, has downgraded its long-term credit rating and senior unsecured debt rating on Coinbase (COIN), citing weak profitability from lowered trading volumes and regulatory risks, the agency said Wednesday. Coinbase’s rating was lowered from BB, which indicates major ongoing uncertainties to adverse business, financial and economic conditions, to BB-, a further step away from investment grade. Both ratings are considered junk bonds. Coinbase is one of two crypto-related junk bond issuers, along with MicroStrategy (MSTR). Coinbase shares were flat in after-hours trading Wednesday."
Coinbase to cut 20% of staff in latest round of layoffs (The Block)
"Coinbase has implemented another round of layoffs, affecting 950 employees and reducing its operating expenses by 25%. After examining the firm's prospects for 2023, Coinbase CEO Brian Armstrong said, "It became clear that we would need to reduce expenses to increase our chances of doing well in every scenario." Armstrong added that, while the decision to cut staff was difficult, "there was no way to reduce our expenses significantly enough, without considering changes to headcount.""
Gemini Head Winklevoss Escalates DCG Spat, Demands Removal of Silbert (The Block)
"Gemini President Cameron Winklevoss demanded the removal of Digital Currency Group CEO Barry Silbert in an open letter, escalating an ongoing spat over the frozen funds of the exchange's Earn users. "I'm writing to let you know that Gemini and more than 340,000 Earn users have been defrauded by Genesis Global Capital LLC, together with its parent company Digital Currency Group," he wrote, alleging that Genesis had misled the company, Earn users and the public about the company's solvency and financial health."
Binance Acknowledges Past Flaws in Maintaining Stablecoin Backing (Bloomberg)
"Binance Holdings Ltd., the biggest cryptocurrency exchange, acknowledged past flaws in the management of its stablecoin’s reserves which at times led to more than $1 billion in missing collateral, according to one analysis. The token, Binance-peg BUSD, is meant have a constant $1 value backed by reserves of BUSD, another stablecoin that is branded by Binance but issued and managed by a separate company, Paxos Trust. Binance signaled that the ‘peg,’ referring to the amount of BUSD locked as collateral to support its own token, had frayed in the past but is now intact."
Judge Allows Binance US Bid to Buy Voyager Assets to Advance (CoinDesk)
"Bankrupt crypto lender Voyager Digital's proposed deal to sell some of its assets to Binance.US is a step closer to becoming reality. U.S. District Judge Michael Wiles, of the bankruptcy court for the Southern District of New York, during a hearing Tuesday afternoon approved disclosure statements explaining various aspects of the proposed plan to sell Voyager assets, but asked for attorneys working on the deal to revise the proposed order documents before he approves them. The deal, which will be the subject of another confirmation hearing in March, also needs approval from a majority of Voyager's creditors."
DCG's Barry Silbert Talks About Genesis in Letter to Shareholders (CoinDesk)
"Barry Silbert, the head of crypto conglomerate Digital Currency Group (DCG), gave his shareholders more details about his company's Genesis Capital lending division that was forced to halt customer withdrawals in the aftermath of FTX's November collapse. Writing in a letter to investors, Silbert (whose firm owns crypto trading firm Genesis, asset manager Grayscale, CoinDesk and other companies) said that "this past year has been the most difficult of my life – both personally and professionally. Bad actors and repeated blow-ups have wreaked havoc on our industry, with ripple effects extending far and wide.""
Third Bankman-Fried Associate Nishad Singh Met With Prosecutors (Bloomberg)
"Former FTX engineering chief Nishad Singh met with federal prosecutors in a bid to become the third member of Sam Bankman-Fried’s inner circle to seek a cooperation deal in the fraud case over the cryptocurrency exchange’s collapse. Singh, who has not been accused of wrongdoing, attended a so-called proffer session last week at the Southern District of New York US Attorney’s Office, according to people familiar with the matter. At such meetings, individuals are usually granted a limited immunity to share what they know with prosecutors."
CFTC Sues Trader Over Alleged $114 Million Mango Markets Crypto Swaps Scam (Bloomberg)
"The US Commodity Futures Trading Commission filed a lawsuit against crypto trader Avraham Eisenberg for allegedly manipulating the price of swaps contracts as part of a scam to steal $114 million. Eisenberg perpetrated a ‘a manipulative and deceptive scheme’ in October to inflate the price of swaps offered by decentralized digital-asset exchange Mango Markets, culminating in the misappropriation of the funds, the regulator said in a complaint Monday."
BlockFi Said CEO Cashed Out Nearly $10 Million as FTX Loan Stabilized Clients (The Block)
"Bankrupt crypto lender BlockFi said its CEO cashed out close to $10 million from the platform to pay taxes last year, the company said in a presentation outlining the progress, schedules and proposed agenda of its ongoing bankruptcy case. Zac Prince withdrew around $9.2 million from BlockFi in April 2022, according to the presentation. He then withdrew an additional $1.36 million at then-market prices in August. He used the funds to pay taxes, the company said."
FTX Businesses Including Ledgerx Draw Interest From Over 100 Potential Buyers (The Block)
"Roughly 117 parties are interested in buying entities of the FTX, according to a new legal filing in the troubled crypto exchange’s bankruptcy case. The crypto giant filed for bankruptcy protection in November after a run on its native utility token. FTX’s bankruptcy filing included more than 100 entities, and the firm could owe $3.1 billion to its top 50 creditors."
FTX Cofounders’ Robinhood Shares Worth Over $450 Million Seized (The Block)
"The U.S. Department of Justice seized more than $456 million in Robinhood shares owned by FTX co-founders Sam Bankman-Fried and Gary Wang. A court filing dated Jan. 6 says the shares were seized because they constitute property involved in money laundering or wire fraud violations. A lawyer for the Justice Department last week said that the it was seizing hundreds of millions of dollars in Robinhood shares linked to FTX. Bankman-Fried responded by filing a court action to block debtors from taking control of his stake in Robinhood."
Crypto Empire DCG Faces US Investigation Over Internal Transfers (Bloomberg)
"US authorities are digging into the internal financial dealings of Barry Silbert’s expansive crypto empire, according to people familiar with the matter. Federal prosecutors in Brooklyn are scrutinizing transfers between Digital Currency Group Inc. and an embattled subsidiary that offers crypto lending services, said the people, who asked not to be named because the probe hasn’t been made public. They’re also delving into what investors were told about those transactions."
U.S. Trustee Files Objection to FTX’s Planned Asset Sales (Reuters)
"A U.S. Trustee filed an objection on Saturday to plans by bankrupt crypto exchange FTX to sell its digital currency futures and clearinghouse LedgerX, as well as units in Japan and Europe, according to a court filing."
Ex-FTX US President Harrison to ‘Share in Time’ What He Knew About Firm (Bloomberg)
"Brett Harrison, the former president of collapsed crypto exchange FTX US, said on Twitter that he’ll provide more details in due course on what he knew about the firm. Responding to a question on what he was aware of and when, Harrison posted Sunday that ‘I’ll share in time.’ He didn’t respond to a follow-up query on whether he’s working with US regulators or prosecutors."
Solana Foundation RPC Endpoints Go Offline (The Block)
The Remote Procedure Call (RPC) endpoints run by the Solana Foundation are currently unavailable. The RPC endpoints — nodes which some apps can use to connect to the blockchain — went offline because of a bug in Solana Validator client's test release 1.14. "Mainnet beta Explorer and Solana Foundation Public RPC endpoints are currently offline as RPC node software is upgraded, following a bug in test release 1.14," a tweet from Solana Status said. The tweet clarified that the incident did not impact Solana’s ability to produce new blocks — unlike past outages that froze block production for hours.
Risk Management at Crypto Firms Is in Focus Following FTX Collapse (WSJ)
"Cryptocurrency companies are disclosing more information about their internal controls and risk management following the collapse of FTX, but a level of transparency in the industry that would make many investors feel comfortable remains far off. Without a federal regulatory regime for the nascent crypto industry in the U.S., risk-management measures vary by firm and it remains difficult for outside observers—including investors and customers—to determine how effective these controls are until things go bad, industry experts say."
Holy Cow. That's a lot of Gemini news.