A Black Swan in Ethereum? ⬛🦢
Weekly News Recap: ⚖️ Binance's SEC court battle, 🚫 CZ's travel denied, 📉 Ethereum ETF delays, 📤 FTX's GBTC impact, 🏦 Terraform's bankruptcy, and 😆 Su Zhu's prison tales!
You are reading the Unchained Weekly newsletter, where we cover all the major news in the crypto space, providing insights into the market's latest trends, regulatory shifts, and technological advancements. Stay informed. Your no-hype resource.
In the latest Unchained episode, Ethereum developer Lefteris Karapetsas offers a deep dive into a pressing issue facing Ethereum's network: the potential risks associated with a bug in a supermajority execution client.
Lefteris sheds light on the intricacies of Ethereum's consensus mechanism and explores the significant consequences of a bug in a dominant client. He explains, "If a bug happens in a super majority client, then we have a problem."
The episode delves into the ramifications of staking services such as Lido, examines the current incentive system's shortcomings in promoting client diversity, and speculates on possible solutions. Lefteris' insights provide a comprehensive understanding of what's at stake for Ethereum and its community.
Listen to the episode on Apple Podcasts, Spotify, Fountain, Overcast, Podcast Addict, Pocket Casts, Pandora, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Or watch it on YouTube.
Weekly News Recap
SEC vs. Binance in Court
In the ongoing case between the U.S. Securities and Exchange Commission (SEC) and Binance, the largest crypto exchange by trading volume, Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia questioned the SEC's vague definition of digital assets as securities. During the court hearing, Jackson expressed frustration, emphasizing the need for the SEC to express a clear differentiation between what constitutes a security and what does not.
The SEC's stance that Binance's BNB token is offered, sold, and traded as an investment contract remains a central point of contention. This case is among a series of recent and current legal challenges for the SEC, notably including its courtroom loss against Ripple last summer. In the courtroom, Jackson rigorously questioned lawyers for both Binance and the SEC, although she showed limited interest in Binance's defense regarding its initial coin offering (ICO).
In related news, a U.S. judge denied Changpeng Zhao's request to travel to the UAE, despite the Binance co-founder offering his $4.5 billion in Binance US equity as security. Zhao, who pleaded guilty to charges related to anti-money laundering failures at Binance and agreed to step down as CEO, faces 10 to 18 months in prison. He requested permission to attend an unnamed individual's hospitalization and surgery in Abu Dhabi. The judge cited Zhao's wealth and minimal U.S. ties as reasons for the travel restriction, viewing him as a flight risk.
Ethereum ETF Decision Postponed
The SEC has delayed its decision on BlackRock's application for a spot Ethereum exchange-traded fund (ETF). This postponement, announced in a filing by SEC Assistant Secretary Sherry Haywood, prolongs the wait for the conversion of BlackRock's iShares Ethereum Trust. The SEC extended its review process because it has received no public comments yet on the proposal.
This move conforms with the SEC's pattern of extending deadlines for similar crypto-related applications. A final decision on the Ethereum ETF is now anticipated in May. The recent approval of 11 spot Bitcoin ETFs had fueled optimism for an Ethereum equivalent, but SEC Chairman Gary Gensler emphasized that their decision on spot Bitcoin ETFs is limited to that specific asset and should not be extrapolated to Ethereum or other cryptocurrencies.
In a similar vein, the SEC has also postponed its decision on Grayscale's proposal for a spot Ethereum ETF. This additional delay was accompanied by an order to institute proceedings and seek public comment, particularly on issues related to Ethereum's proof of stake mechanism and the potential for fraud and manipulation.
FTX Estate Has Been Selling GBTC
A report has revealed that the FTX Estate of the now-defunct crypto exchange FTX, was responsible for approximately $1 billion of the outflows from the Grayscale Bitcoin Trust (GBTC), with many pointing to this as the reason why Bitcoin’s price has come down so much recently despite the highly anticipated launch of spot Bitcoin ETFs.
In a related matter, Alameda Research, the trading firm intricately linked with FTX, has voluntarily dismissed its lawsuit against Grayscale Investments. Initiated over allegations of high fees and a ban on redemptions, this lawsuit was a point of contention in the crypto community. The lawsuit’s end aligns with the unfolding of events surrounding FTX's bankruptcy proceedings and the liquidation of its GBTC holdings.
John Ray III, FTX’s CEO, has criticized Grayscale’s handling of the fund for aiming to "maximize recoveries for creditors."
U.S. Government Prepares to Liquidate Seized Silk Road Bitcoin
The United States government filed notice to dispose of over $117 million in Bitcoin, confiscated from Silk Road-related activities. This move involves the sale of about 2,900 Bitcoins linked to Ryan Farace and Shaun Bridges. Farace, who pleaded guilty to money laundering in Maryland, and Bridges, a former Secret Service agent who pleaded guilty to theft during the Silk Road investigation, were both ordered to forfeit their Bitcoin holdings. The sale, aimed at liquidating assets tied to these criminal cases, represents a significant action by the U.S. in managing assets obtained through legal forfeitures in the cryptocurrency domain.
Terraform Labs Files for Bankruptcy
Terraform Labs, the entity behind the Terra Luna ecosystem, has filed for Chapter 11 bankruptcy in the United States. This is a significant development given the size of the collapse and the company's notable legal challenges. CEO Chris Amani emphasized that the bankruptcy filing would enable Terraform Labs to maintain operational continuity while resolving pending legal issues. The documentation for the bankruptcy states that the company's assets and liabilities ranging from $100 million to $500 million, with fewer than 200 creditors involved.
This move is critical for Terraform Labs, particularly in light of the SEC's ongoing lawsuit, which accuses former CEO Do Kwon and the company of a $40 billion fraud. The Chapter 11 filing provides Terraform Labs a structured opportunity to reorganize and address its liabilities.
SEC Divulges Cause Behind the Recent Social Media SNAFU
This week, the SEC disclosed the cause of the social media prank that prematurely announced its approval of spot Bitcoin ETFs. The breach was the result of a “SIM swap” attack. In this cyberattack, the perpetrator hijacked the SEC's account by transferring the associated phone number to a new SIM card under their control. The SEC's investigation revealed that the account's multi-factor authentication had been disabled for six months due to access issues, a lapse that the agency has since rectified.
In related news, there were two other notable security breaches. A phishing scam involving a fake Cointelegraph and Wallet Connect airdrop led to a loss of nearly $580,000. Users were deceived into linking their wallets to a fraudulent website. And hardware wallet company Trezor reported a data breach affecting 66,000 users due to unauthorized access to a support ticketing portal, potentially exposing them to phishing risks. Fortunately, no funds were lost.
Crypto Community Rallies to Support Tornado Cash Developers Amid Legal Struggles
Tornado Cash developers Roman Storm and Alexey Pertsev have raised over $350,000 for their legal defense, with prominent backing from Edward Snowden. The Tornado Cash service, designed to provide anonymity in crypto transactions, is at the center of U.S. allegations of money laundering and sanctions violations. Storm is under house arrest in Washington state and Pertsev has been jailed in the Netherlands as they wait to face these charges. Pertsev's wife, Anna, spearheaded the fundraising campaign.
Snowden, the former U.S. National Security Agency whistleblower, has publicly supported their cause, emphasizing the importance of privacy and its distinction from criminality. This case highlights the ongoing tension between privacy in the digital age and regulatory compliance, drawing significant attention within the crypto community. As these developers confront legal challenges, the outcome may set a precedent for the treatment of privacy-focused technologies in the industry.
Avalanche Foundation Sets Standards for Meme Coin Investments
The Avalanche Foundation, steering the $100 million Culture Catalyst program, has defined its criteria for meme coin investments. This move follows their December 2023 announcement to support meme coins. The criteria encompass security, maturity, and popularity factors. Key standards include a fair token launch, resistance to snip bots, verified security, and certain market presence indicators like a minimum of 2,000 unique holders, over $200,000 in total liquidity, and a market capitalization above $1 million. Additionally, the top 100 holders should own less than 60% of the total supply.
🤣 Fun Bits: 3AC Founder Praises Prison Perks
Su Zhu, cofounder of the beleaguered Three Arrows Capital, has emerged from a four-month jail stint with some surprisingly upbeat reviews of prison life. In a podcast, Zhu extolled the virtues of his time behind bars in Singapore, declaring it "good for you" and even "enjoyable." His unusual endorsement of jail time included praise for the regimented sleep schedule, the joys of simple living, and the unexpected health benefits of sleeping on prison mats.
Zhu's lighthearted musings went further, noting how prison life offered a chance to connect with his ancestors and how doing push-ups became a newfound hobby. The internet reacted with a mix of bemusement and skepticism, with some humorously suggesting Zhu might appreciate an extended stay to further enjoy these benefits.