#50 The Context: Bankman-Fried high-tails back to New York, but is he too late?
Former colleagues seal their own plea deals
Hi, Yuletide is upon us, but the grim winter is lightened a little by some beautiful NFTs from USA’s former president Trump, liberating crypto Twitter from its usual CEX deathwatch, and Elon Musk, whose mercurial management of Twitter confirms to some that the sooner the web gets decentralised the better. Oh, and SBF, CZ, and all that.
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/web3/NFT land and tries to provide unbiased context. It’s aimed at anyone who wants to keep an eye on the space. It’s put together by a team at YAP and doesn’t contain any promotion of our clients (if one is mentioned, we’ll flag that).
The team: founder Samantha Yap and Jeremy Wagstaff, formerly of the journalism parish, with Sam O’Donohoe, Becky Corbel, Delon Chan, Ewan Brewster and Tiffany Mac Sherry. Your feedback is as always welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
[tl;dr]
SBF is back in custody for Christmas, and Binance’s CEO is facing awkward questions and the disappearance of his auditors
NFTs: Trump sold out all his, suggesting we’re at peak Trump or peak NFT — or the cusp of mass NFT adoption?
Moves by Google, and Visa, suggest the mainstream has not abandoned web3, but are we reading the tea leaves right?
[Uneasy CZ, SBF’s uncertain BFFs]
SBF is now in U.S. custody while his two colleagues are a step ahead, having pled guilty and agreeing to cooperate. It won't be pretty. But neither is the continuing fallout of FTX's collapse. As we've flagged before, the spotlight has instead turned to other parts of the DeFi system, not just on companies, but also on those supposedly scrutinising the companies.
Inevitably, the question most often heard is: Is Binance The Next FTX? and Can CZ's Binance weather the storm? Of course, we don't yet know, but the stories coming out are likely making its CEO Changpeng Zhao a little uncomfortable. (Stories by Dan Ashmore of Forbes, and Aleksandar Gilbert of The Defiant)
A Reuters special report looked at its filings and concluded that Binance's books are a black box while CoinDesk went further, saying that with Binance, everything is not fine, pointing out that Binance may find itself having to pay back FTX $2.1 billion if the bankruptcy court deems the original transfer fraudulent. (Stories by Tom Wilson of Reuters, and Genevieve Roch-Decter of Grit Capital)
As worrying was the decision by French auditors Mazars to close down the microsite that was supposed to provide ‘Proof of Reserves' reports for Binance. Binance had made a big thing of its PoR, but that has only raised questions about, inter alia, whether it and other exchanges were falling short on such efforts. (Stories by Reuters and Ben Strack of Blockworks)
All this is leading a lot of auditors to leave the DeFi space entirely, not least because the U.S. stocks watchdog, the SEC, has said it is heightening its scrutiny of any crypto work they might do, leaving some to ask what will take their place? (Stories by Jean Eaglesham of The Wall Street Journal, and Casey Wagner of Blockworks)
[Trump’s Lucky Ducky dip]
Yes, I know we probably talk about NFTs more than we should, but that’s because they’re interesting. Really. Mainly as they always feel like a line or two of code away from being a seriously useful piece of kit.
Astronomical and sea-bottom valuations have concealed that fact, some argue. Such as OpenSea, the main NFT marketplace, whose CEO says he is focused not on prices but on "the NFT as kind of this digital building block for all sorts of different experiences,” according to an interview by The Information with CEO Devin Finzer (paywall). (Story by Aidan Ryan)
Not really helping are fan tokens, where prices are a lot more fickle than the hardcore fanbase you’d expect. Argentina won the World Cup, but its fan token had a hard landing. And former US President Donald Trump jumping aboard, selling out his tasteful and understated NFT trading cards, has attracted unhelpful comments from crypto Twitter as it pointed out the sloppy side of Trump’s collection (supposedly plagiarised artwork and shady wallet addresses.) (Stories by Hououin Kyouma of Bitcoinist.com, Annabelle Liang of the BBC, Cam Thompson of CoinDesk)
One gets the feeling that NFTs will keep going, despite the negativity. Next up: Family-friendly NFTs, which sound good, but might possibly include trying to induce kids to demand their parents, if they love them, to splash out on Lucky Ducky NFT characters for their Christmas stocking/wallet. (Story by Savannah Fortis of Cointelegraph)
Perhaps more encouraging, the Sandbox has sold $1.66M of virtual land in its metaverse, bought via NFTs that verify ownership, and giving the underlying $SLAND token a market cap of $641 million. So maybe that's where NFTs are headed. (Story of Dean Takahashi of VentureBeat)
[Onramps, opportunities and bridges burned]
We’ve banged on about it before, but the future success of DeFi and web3 is tightly bound with how well it interacts with the world outside. Crypto needs to break out of its narrow user base, for one thing. This means building infrastructure between DeFi and CeFi and the tech universe, but it also means working more closely with established tech and the finance world. So how is that all going?
Visa, the credit card folk, are getting serious about working with Ethereum developers to improve payments. Their proposal would in effect bring Ethereum users one step closer to being their own bank by facilitating automatic payments using an Ethereum Layer 2, even when away from internet access. This proposal, though interesting, is less important than the timing -- while the research was done pre-winter, the posting itself was made this week. (Stories by Michael del Castillo of Forbes, and Shaurya Malwa of CoinDesk)
We have to be careful though, not to read too much into such things. Big tech sometimes takes a long time to get something moving, and inertia may have more to do with it than anything more meaningful. Google has hired an ex-BlockFi executive Rishi Ramchandani to head their APAC web3 outreach, but this is for Google’s cloud business, an area that has little to do with the underlying tech, and more to do with hosting data and services. The space has proved lucrative for rivals like AWS, and one which Google has been keen to grab a bigger slice of. The position in question may have been open for a while: an opening for something very similar was posted back in July. (Story by Joanna Ossinger of Bloomberg)
More meaningful, I think, will be practical efforts to lay out the roads and rails that allow more users to hop aboard (and off.) Decentralised exchange Uniswap has struck a deal with DeFi payment processor MoonPay to allow its users to buy digital assets via a bank account or credit card. Payments company Stripe, too, has been working on building better interconnectivity, including an embeddable and customizable fiat-to-crypto onramp. It now lists 16 partners that allow users to buy crypto via Stripe. (Story by Michael Bodley of Blockworks)
It’s worth stopping to ponder how surprising this is. Blockchain, the technology that underlies these rails, points, bridges and shunting yards, is a labyrinth which can snare the unwary. It’s easy to forget how poor some projects still are, and the damage that can be done to an institution’s reputation if it dabbles without a decent map. We've written before about the ASX’s blighted flirtation with blockchain, but its failure may have caused deep damage to market trust of the Australian stock exchange, and of blockchain itself. (Story by Byron Kaye of Reuters)
[tidbits]
Axie says it has been approved to be listed on the Google Play store, claiming it’s the first ‘web3 game’ to do so.
Security: Aztec Network takes on encrypted blockchains with $100M round led by a16z | TechCrunch
Who moved my cheese? Bitcoin Addresses Tied to Defunct Canadian Crypto Exchange QuadrigaCX Wake Up
OneCoin's OneCon: Bogus 'Bitcoin killer' cryptocurrency founder pleads guilty | AP News
[Reading]
[Events]
World Crypto Conference | January 13th - 15th 2022 | Zurich, Switzerland
[DeFi Definitions]
An occasional segment exploring one particular aspect of DeFi.
This week “Slashing” by Mehar Singh
Slashing is a means of ensuring good behaviour during the validation process of PoS blockchains such as Ethereum. Slashing refers to the irreversible penalties that actors can face should they behave in a manner that is harmful to the network. It is one of the functionalities of PoS mechanisms that allows them to function effectively.
Slashing is fairly rare and only occurs when actors commit certain offences: proposers signing two different beacon blocks for the same slot; attesters signing an attestation that “surrounds” another one (this creates a contradiction to what a validator has already said was finalised in a previous attestation) and when an attester signs two different attestations with the same target. To identify these offenders, you need validators known as “whistleblowers” that monitor this kind of activity. It is important to note that although inactivity can result in penalties, it does not result in slashing.
Penalties include permanent eviction from the network and substantial losses in staked tokens. Staked tokens are gradually drained until the offender is evicted and labelled “slashed.” As eviction is permanent, one can only become a validator again by producing new validator keys and fresh stakes.