Hi, all, however many stones get overturned in the FTX investigation there always seem to be more; this time one uncovered a company just down the hall from SBF’s Bahamian lair which received some $400 million of his largesse. We also scour the heirs to DeFi’s throne of credibility and ponder the implications of SushiSwap’s move to restock its treasury.
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 consulting editor Jeremy Wagstaff, Sam O’Donohoe, Ewan Brewster, Tiffany Mac Sherry, Becky Corbel and Delon Chan. Your feedback is as always welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
[tl;dr]
The bankruptcy of Genesis ends an era for crypto’s ‘pseudo bank’ lenders
The battered reputations of DeFi leaders have left a void: enter, stage left, a former UK chancellor banging the crypto drum
Are decentralised exchanges really insulated from the crypto winter? SushiSwap’s recent shift suggests not
[Winter update]
A quick snapshot of where things stand:
Efforts to recover funds from FTX and Sam Bankman-Fried continue to throw up surprises. The Feds have so far seized nearly $700 million from SBF, but investigators continue to unearth investments, including some $400 million sent to “an obscure cryptocurrency trading firm called Modulo Capital” which operated out of the same Bahamian compound where SBF lived.
Genesis has declared bankruptcy, owing more than $3.6 billion. For the Wall Street Journal, its demise marks the end of an era for crypto's pseudo banks, after the falls of Celsius, Voyager and BlockFi.
Those that haven't shut down face regulatory hazard: Nexo Capital agreed to pay $45 million to settle claims it violated U.S. investor protection laws.
The woes of The Digital Currency Group, which owns Genesis, are impacting other units. London-based exchange Luno, acquired by DCG in 2020, is laying off 35% of its workforce.
Binance’s problems are smaller, but may still present challenges. It has admitted to keeping collateral for some of its tokens in the same wallets as exchange-customer funds. And data showed that it moved $346 million on behalf of Bitzlato, a crypto exchange whose founder was arrested last week.
US ‘crypto banks’ Silvergate and Signature are facing an uncertain future. Documents show that the former had been “the go-to-bank for more than a dozen crypto companies that ended up under investigation, shut down, fined or in bankruptcy.” The latter has pushed back against a WSJ report, arguing it was not rushing to stem a flood of customer withdrawals but reducing the size of relationships by managing deposits to a lower level.
While funding for startups has been declining, investors are sniffing around some bankruptcy bargains, including those from Three Arrows Capital’s portfolio, and some from FTX likely shortly thereafter. Loans from BlockFi are also attracting interest.
Stories by Dave Michaels, Eric Wallerstein and Alexander Osipovich of the WSJ, Dietrich Knauth of Reuters, Ryan Weeks of The Block, Ryan Browne of CNBC, Michelle Celarier of The Intelligencer, David Yaffe-Bellany, Matthew Goldstein and Royston Jones Jr. of The New York Times, Emily Nicolle of Bloomberg, Margaux Nijkerk of CoinDesk, Aidan Ryan from The Information.
Statement by Signature Bank here.
[A leader deficit]
The dethroning of Sam Bankman-Fried as a competent, articulate and well-intentioned prince of DeFi is only the most dramatic of several falls from grace; the crypto winter has fatally damaged the credibility of several DeFi demigods.
Gemini's Winklevoss twins have blamed ‘Bad Actors’ for their woes, part of a public slanging match with Barry Silbert, CEO of DCG. It's fair to say the spat hasn't buffed the credibility and standing of any of the participants.
PayPal co-founder and VC giant Peter Thiel, it turns out, is not quite the crypto believer he had adoring crowds of Bitcoin maximalists believe, having cashed in even as he sang the crypto Internationale.
Some companies are looking for new figureheads, untainted by the past crypto ups and downs. Ex-UK chancellor Philip Hammond, for example, has been appointed to chair the crypto firm Copper.
Even lower down the totem pole, the fate of über-trader Avraham Eisenberg, who made a mint on Mango tokens, may deter others from public discussion of their ‘trading strategies‘. He is facing several U.S. charges, while Mango Markets itself has sued him for the $47 million it says he still owes them. The Mango suit called him a “notorious online personality.”
Only the standing of Ethereum co-founder Vitalik Buterin remains unbesmirched. Most recently he has opined on the need for greater privacy in transactions and offered a solution.
Stories by Daniel Thomas of the FT, Sarah Wynn of The Block, Camomile Shumba of CoinDesk, Brayden Lindrea of Cointelegraph, and Vitalik Buterin’s blog post on privacy.
[tidbits]
Ethereum’s Shanghai upgrade is on track after developers created a copy of the blockchain — a ‘shadow fork’ - to provide a testing environment ahead of March’s ‘hard’ fork, which when complete will unlock staked Ether withdrawals. This is seen as a key step in making Ethereum appealing to institutional investors and the maturity of the platform.
Centralised exchanges have come in for a heavy pounding this winter, but DeFi has argued truly decentralised exchanges do not share the same weaknesses. That is true, but they are not entirely insulated against broader market turmoil. SushiSwap has lost $30 million over the past year on incentives for liquidity providers. It is now revamping its tokenomics model and will redirect all trading fees and some unclaimed tokens to bolster its depleted treasury.
Interest in central bank-issued digital currencies, or CBDCs, has not been dented by the crypto winter — indeed, some believe it has made their development more urgent. The UK Treasury is looking for a Head of CBDC as part of a government consultation on a digital pound, the Saudi central bank is working on domestic wholesale use cases, while Visa’s outgoing CEO says stablecoins and CBDCs could "play a meaningful role in the payments space.” We hope to dedicate a larger space in a forthcoming Context to explore what CBDCs are and what they mean for DeFi and money more broadly.
Stories:Margaux Nijkerk of CoinDesk, Zhiyuan Sun of CoinTelegraph, Mark Calvey of SF Business Times, Camomile Shumba, and Martin Young of Cointelegraph.
[Tweet of the Week]
[Events]
The Blockchain Event | February 14th - 17th 2023 | Fort Lauderdale, Florida, USA
[DeFi Definitions]
An occasional segment exploring one particular aspect of DeFi.
This week “Censorship Resistance” by Iris Au
With an increased lack of privacy and trust in the internet, people are turning to Web3 for its decentralised nature and high censorship resistance.
Censorship resistance refers to the concept that no individual or entity can stop others from using a protocol or carrying out an action. In blockchain technology, this idea specifically refers to the freedom to transact and freedom from asset confiscation. In other words, anyone can transact without the approval or intervention of third parties. Through censorship resistance, blockchain transactions will remain public, permanent, and unalterable, establishing transaction immutability that prevents political or social influences.
Back in 2017, the term was first introduced by Adam Ludwin, the ex-CEO of Chain, when describing the unique value proposition of cryptocurrency. Censorship resistance is especially important when building DeFi protocols as it effectively lowers the barriers to entry while eliminating the middleman or government institutions. Many see censorship resistance as a way towards achieving financial freedom.
Although it is very difficult to censor blockchains, it is not entirely impossible. A 51% attack could be used to temporarily censor transactions. However, this rarely occurs as it takes a lot of resources and capital to conduct such an attack.
This newsletter is prepared by YAP Global, an international PR Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.