Hi there, hope you’re having a good week. Six months after South Korea issued his arrest warrant, Do Kwon and resurfaced and been detained, all the way in Montenegro. The SEC continues its rampage on crypto, this time targeting Coinbase and Justin Sun respectively, in a bid to demarcate and control the securities market.
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).
[tl;dr]
Crypto's most wanted fugitive is detained in Montenegro
The SEC has a field day targeting Coinbase for violating U.S. Security Laws as well as “His Excellency,” Justin Sun and his Mean Girls and Boys accomplices
[Terra’s Do Kwon detained in Montenegro]
Do Kwon, who founded Terraform Labs and whose whereabouts has been unclear since late last year, has been detained in Montenegro.
Interpol issued a red notice for his arrest after his native South Korea charged him with fraud last September. The arrest was first announced by Filip Adzic, Montenegro interior minister.
The SEC last month issued a document alleging that Kwon and others “engaged in a scheme to deceive and mislead investors … in the U.S. and abroad.” Terraform Lab’s cryptocurrency project collapsed in May 2022 after the Terra stablecoin lost its US dollar peg.
South Korean journalists reported last month they had seen Do Kwon cashing out about $100,000 worth of Bitcoin in neighbouring Serbia. South Korean prosecutors visited Serbia in early February seeking local help in the investigation.
Do Kwon has denied all allegations, including that he was on the run. Legal experts in South Korea have said prosecutors may face problems with the case as crypto tokens are not adequately covered by local financial laws.
Sources: Twitter account of Filip Adzic; Danny Park of Forkast; David Z. Morris of CoinDesk
[SEC fires a salvo at Coinbase]
The SEC has warned crypto exchange Coinbase that it had identified potential violations of U.S. securities law. The Wells notice, the second to a crypto company this year, is typically one of the final steps the SEC takes before formally filing charges. Coinbase has reportedly been under a SEC probe since mid-2022.
Coinbase has said the Wells notice provided little information about possible violations, but said it was likely to relate to its spot market, staking service and wallet. SEC chair Gary Gensler has said crypto companies’ tokens and products are securities and trading platforms should register with his agency.
The crypto industry has been under fire since the beginning of the year, and has argued that while its tokens are not securities and comply with KYC and AML rules, regulators need to provide greater clarity. Kraken, another exchange, recently agreed to discontinue its staking program in the U.S.
Sources: Rohan Goswami and MacKenzie Sigalos of CNBC; Allyson Versprille, Yueqi Yang and Sonali Basak of Bloomberg; Siamak Masnavi of Cryptoglobe
[SEC goes after Justin Sun, celebrities]
The SEC has filed a lawsuit against Justin Sun, among others, alleging market manipulation and sales of unregistered securities. Sun is the Chinese-born founder of DAO Tron. The SEC says that Sun and his companies engaged in wash-trading of TRX and BTT tokens.
Lindsay Lohan and other celebrities have been charged with touting the tokens without disclosing they were compensated for doing so. With the exception of two, all have agreed to pay a total $400,000 to settle the charges, without admitting or denying the allegations.
The SEC’s Gensler said the case demonstrated “the high risk investors face when crypto asset securities are offered and sold without proper disclosure.” The events in question date back to 2018 and 2019.
Sources: SEC announcement, MacKenzie Sigalos and Rohan Goswami of CNBC; Robin Wigglesworth of the FT
[Tidbits]
Crypto is on another roll, with Bitcoin nearing US$29,000, and the number of options contracts hitting an all-time high. Turmoil in TradFi is definitely a factor “as investors realize that tokens are out of the reach of governments and are far removed from any of the issues occurring with different lenders,” according to Muyao Shen and Vildana Hajric of Bloomberg.
Transnational gangs in Latin America are transferring parts of their illicit profits into crypto to avoid detection and asset seizure. The groups usually deposit Bitcoin and then trade it for other cryptocurrencies, obscuring the source account. (Douglas Farah and Marianne Richardson of Georgetown Journal of International Affairs)
DefiLlama, a decentralised finance analytics dashboard, was this week riven by a dispute amongst its team, with some preparing to launch a token in the hope of making the company more profitable. Those against the idea threatened to fork DefiLlama under another name. Within a day the dispute was resolved. (DefiLlama; Tendeeno; Ana Paula Pereira of Cointelegraph)
Transactions of Nigeria’s central bank digital currency, or CBDC, surged 63% after cash in circulation had been cut to a third. The shift may not be sustainable, however, reports Ledger Insights, as the reduction of cash has hurt commercial banks and sparked protests by workers.
[reading/listening]
The final episode of the Bloomberg podcast series Foundering on John McAfee's mysterious death and complicated legacy is worth a listen.
Great piece by Gigi on Bitcoin's Meme Wars. “Someone whose star continues to rise once said that "Bitcoin isn't just memes." I disagree. It's all memes, all the way down. Let me explain."
Safe to say that the FT’s Jemima Kelly is not a fan: although her latest column, Beware the ‘sensible’ crypto crowd — they’re worse than the fanatics, took a break from poking fun at “crypto bros — with their silly memes, irritating acronyms, puerile jokes and frankly ridiculous ideas about the world.”
[Tweet of the Week]
[Events]
Wow Summit HK | March 29th - March 30th 2023 | Hong Kong, China
**EthCapeTown** | April 14th - 16th 2023 | Cape Town, SA
[TradFi Translations]
A new occasional segment exploring one particular aspect of TradFi.
This week "AT1 Bonds" by Ewan Brewster.
After the Swiss government facilitated UBS’ acquisition of banking rival Credit Suisse, the global banking system was shocked by the Swiss Financial Market Supervisory Authority’s (FINMA) decision for a “complete writedown” of Credit Suisse’s AT1 bonds. This begs the question, what are AT1 Bonds?
AT1 Bonds, which stands for Additional Tier 1 Bonds, are a type of debt instrument issued by banks to raise capital. For investors, they provide an opportunity to earn (higher) yields, albeit with higher risk profile compared to most other bonds.
After the 2008 financial crisis, regulations were put in place to mitigate the possibility of bank insolvency, including rules for minimum capital. AT1 instruments are designed to help financial institutions meet these regulatory requirements for capital adequacy. They can in some instances be converted into equity if levels of capital fall below regulatory requirements.
AT1 Bonds have unique features that distinguish them from other types of debt. For example, they have no fixed maturity date and for interest to be paid certain criteria have to be met. For example, a bank can choose not to pay interest due to poor financial performance.
If a bank collapses, creditors (bondholders) should take priority over shareholders when it comes to recovering losses. However, in the case of Credit Suisse, Swiss regulators have upended the creditor hierarchy as shareholders were partially compensated and AT1 investors received nothing. Naturally, this has led to strong discontent amongst bondholders and has shocked the global financial markets.
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.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.