In this week’s edition of The Context, SBF digs himself a hole, the UK crawls toward crypto legislation, and a major publication shifts its stance.
[SBF Digs a Hole 🕳️]
FTX founder Sam Bankman-Fried testified in his defence this week as he faces allegations that he misappropriated over $8 billion in customer deposits to his trading firm, Alameda Research. The case is set to go to the jury in the coming days.
What Journalists Said 🧑💻:
The overwhelming consensus with those covering SBF’s testimony was that: “It did not go well,” opined David Gura (NPR). 👎 SBF “just failed the most important exam of his life,” wrote David Z. Morris (Protos). The most descriptive account came from Laura Shin (Unchained): “If before lunch prosecutor Danielle Sassoon murdered SBF via cross examination, then after lunch she stabbed the dead body over and over again.”
Why so bad? “Bankman-Fried would often rely on his vast vocabulary of weasel phrases” under questioning, wrote Tracy Wang (Rolling Stone), whose reporting with Ian Allison helped kick off FTX’s downfall last year. He said some variation of “I don’t recall” a lot. 💭
There may have been no right answer. “Bankman-Fried’s prolific tweeting caught up with him,” surmised Nikhilesh De, Sam Kessler, Danny Nelson, and Elizabeth Napolitano (CoinDesk). After FTX flamed out but before he was arrested, SBF tweeted and talked to media, including making statements regarding Alameda’s trading privileges. Using the compiled evidence, “the prosecutor immediately demonstrated that what he was saying in public diverged from his private statements.”
Why It Matters ⁉️:
Everyone in crypto is eager to disown Bankman-Fried over his alleged mixing of customer funds with corporate assets. But the truth is there are likely other crypto companies that present themselves in public one way while acting against their customers’ interests. Crypto firms need to embrace the Web3 ethos of openness and leverage the transparency of blockchain and smart contracts so that users can be confident their public commitments match private actions.
[WSJ Stands Corrected 📰]
On October 27, The Wall Street Journal issued a partial correction of an October 10 article. That article used data from crypto research firm Elliptic to suggest that US-designated terrorist organizations linked to the October 7 Hamas attack on Israel had raised over $130 million in cryptocurrency since 2021. After Elliptic said its data had been misinterpreted, the Journal corrected the article to say Palestinian Islamic Jihad and Hezbollah “may have exchanged up to $12 million in crypto since 2021.” It added that it’s unclear how much of that $12 million involved terrorist groups “because some of the wallets belonged to crypto brokers that may have also served [other] clients.”
What Journalists Said🧑💻:
The day before the correction, Ben Schiller (CoinDesk) published an opinion piece excoriating the Journal. By then, the piece had become the basis of a letter from Sen. Elizabeth Warren to the White House. “The WSJ report has created a groundswell in Congress to crack down on crypto, even though the data behind its claims is clearly wrong.” This is “why crypto is sick of the mainstream media.” 🤮
Hold on a sec, said Ian Talley (WSJ), the co-author of the controversial piece. Elliptic’s original data came from a chart that read “Number and Value of Crypto Transactions Received by Palestinian Islamic Jihad.” He retweeted a side-by-side comparison showing that Elliptic’s original graph had been changed to “Number and Value of Crypto Transactions Received by Wallets Linked to Palestinian Islamic Jihad by the [National Bureau for Counter Terror Financing of Israel].” 📊
Even if Elliptic contributed to the error, wrote Jeff John Roberts (Fortune), “this is not how it’s done…It’s never fun to make a mistake in journalism since you have to acknowledge it to the entire world, but that’s what you do.” 🌎
PR Perspective 🔎:
Crypto advocates are sensitive to media narratives that imply Web3’s best use case is for illegal activity. While crypto-native outlets have mostly argued that blockchains’ transparency makes crypto an ineffective tool for terrorism (and, thus, that the amounts in question are small), traditional publications have been more likely to focus on illicit funding. There are exceptions—publications with crypto-specific units such as Fortune, and even more crypto-skeptical ones such as the Financial Times, have taken pains to be evenhanded when reporting links between Hamas and crypto.
[UK on the Reg 🇬🇧]
The UK Treasury published a report detailing its plans to implement new cryptocurrency regulations via legislation next year.
What Journalists Said 🧑💻:
This report has “dropped any previously adversarial approach to crypto regulation,” said Inbar Preiss and Joanna Wright (DL News). Gone is a proposal to approach crypto assets like gambling; art NFTs are art, not financial services; and stablecoins will be rolled into existing financial regulations.
The government is intentionally copying the European Union, explained Huw Jones (Reuters). The EU’s own rules framework, MiCA, which began going into effect in June, has been relatively well-received within the crypto industry.
That’s not a free pass, wrote Joe Mayes and Anna Irrera (Bloomberg). These rules are “stricter” than what’s currently in place, bringing crypto firms “under the same regime as traditional financial services.”
Why It Matters ⁉️:
Regulatory clarity is what many US-based firms are looking for. As Prime Minister Rishi Sunak tries to lure more crypto companies to the UK, the government's approach—indeed, even just the fact that it has one—is promising, especially as it seems to address industry concerns. Fostering open communication with crypto businesses will be vital for its success.
[Tweet Of The Week]
Credit: @Oncotastic
[DeFi Definitions]
A segment exploring one particular aspect of DeFi.
This week: “Smart Contracts (updated)” by Leila Stein.
Smart contracts are self-executing and self-enforcing digital contracts stored on a blockchain. They eliminate the need for intermediaries, as they automatically execute actions and release assets when predefined conditions are met.
Smart contracts rely on the security and transparency of a blockchain to ensure trust and immutability in their execution. They can be programmed to perform various functions, such as transferring assets, managing digital identities, and executing complex business logic, in a tamper-proof and irreversible manner.
Given their position as digital contracts that are activated through decentralized pieces of code, smart contracts regularly fall victim to hacks and exploits from malicious actors to gain unauthorized access to and steal assets from the contract. Curve’s $62 million exploit back in August 2023 was a result of a re-entrancy attack and created ripple effects throughout the DeFi sector (check out The Context #82 for more information).
As smart contracts act as a fundamental building block of blockchain-based applications, responsible projects put them through regular security audits.
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 Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Andrew Wickerson, 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.