Did the SEC Lie About Binance.US? π
Weekly News Recap: π€ New podcast on the BTC ETF applications, π§ββοΈ Binance.US wrestles with SEC, β Do Kwon's sentence, and more β
In todayβs episode of Unchained, we delve deep into the TradFi giant BlackRock's application for a spot bitcoin ETF amid the SECβs crypto crackdown.
James Seyffart from Bloomberg Intelligence unravels the odds of BlackRock winning America's first spot Bitcoin ETF approval. Seyffart says that being a first mover could bring BlackRock substantial advantages, weighs in on the implications of BlackRock's partnership with Coinbase, and why the SEC's ongoing legal feud with the exchange might not impact this move.
Seyffart also sheds light on the potential outcome of the lawsuit between Grayscale and the SEC, if the BlackRock ETF gets approved.
βI think [Grayscale]'d be dead in the water if they have the ability to convert to an ETF and then they don't do it.β
Weekly News Recap
Binance.US Files Court Motion Accusing SEC of Unethical Conduct
Crypto exchange Binance.US has accused the U.S. Securities and Exchange Commission (SEC) of making misleading remarks regarding the crypto platform. Earlier this week, Binance.US entered a temporary agreement with the SEC to keep all customer assets onshore, a move that the SEC claimed was necessary to safeguard investor assets.Β
On Wednesday, Binance.US, its parent company Binance, and CEO Changpeng Zhao called for the court to restrain the SEC from making deceptive external comments.Β
According to Binance.US, the SEC's press release, which termed the consent order as βemergency relief,β conflicted with the evidence presented in court. The SECβs press release stated that the Consent Order was βessential to protecting investor assetsβ because β and here they refer to the US trading platform β βChangpeng Zhao and Binance have control of the [BAM] platformsβ customersβ assets and have been able to commingle customer assets or divert customer assets as they please.β However, the SECβs lawyers had previously admitted that there was no evidence of Binance.US customer assets being improperly commingled or diverted.Β
On Twitter, James Murphy, aka MetaLawMan, a crypto lawyer with expertise in securities law, said, βIt's noteworthy that these allegations of misconduct are signed by Bill McLucas and George Canellos--both of whom served as head of the SEC's Division of Enforcement. Accusations of unethical conduct coming from these lawyers will definitely reverberate in the halls at the SEC.β
Although the lawsuit initially sparked some outflows at Binance, recent on-chain data shows a significant turnaround in favor of Binance with a $1.8 billion inflow reported over the last week.
Alongside regulatory hurdles, the exchange experienced an abnormal surge in Bitcoin price, jumping to over $138,000 for a few seconds. While Binance.US has yet to address this price spike, speculation points to poor liquidity for BTC against USDT on the platform.Β
In related news, Binance (not the U.S. entity), began the process of running nodes on the Bitcoin Lightning Network, in an effort to incorporate the technology for its deposit and withdrawal services.
Do Kwon Is Convicted in Montenegro
Do Kwon, the former head of Terraform Labs, received a four-month sentence from a Montenegrin court. Kwon, along with Terraform's ex-CFO Han Chang-Joon, was found guilty of document forgery. Both were apprehended in late March in Montenegro, attempting to travel to Dubai on fraudulent passports. The sentences account for their 85-day detention period.
Terraform Labs was behind the TerraUSD stablecoin and its sister coin LUNA, which collapsed in May 2022 wiping out $40 billion in market capitalization, a troubling event that has drawn attention from authorities in the U.S. and South Korea.
Kwon is currently detained in an overcrowded prison in Montenegro alongside numerous organized crime figures. Kwon is isolated from other inmates at Spuz Prison and is permitted outside twice daily for fresh air.
The prison conditions are difficult, as described by Kwon's local lawyer, Goran Rodic, who asserts that Kwon and his associate Han are coping as best as they can under the circumstances. According to human rights NGO Civic Alliance, the prison is rife with gang violence, and authorities have increased surveillance measures to keep peace.
Earlier this week, Kwon had claimed in court that he was unaware of his Costa Rican passport's fraudulent nature. He said: βI traveled all over the world with a Costa Rican passport. If I had suspected it was a fake passport, I would not have traveled to many countries.β He obtained this passport through an agency in Singapore, the name of which he says he does not recall.Β
FTX Grapples With Staggering Legal Fees
The financial quagmire deepens for bankrupt crypto exchange FTX, with legal and advisory fees reaching an astonishing $121.8 million in just three months, according to data compiled by The Block. With Sullivan & Cromwell's fees accounting for 30.9% of the total at $37.6 million, the case is one of the most expensive relative to the value of claims. Ram Ahluwalia, CEO at Lumida Wealth, critiqued the high costs, claiming some procedures are "not worth turning over when you bill at [more than] $1,000 [per hour]."
The professional fees are already more than $200 million, as stated by Katherine Stadler, a court-appointed bankruptcy attorney. She described the proceedings as extraordinarily expensive, "equivalent to four solid person-years of work," citing costs amounting to 2% of estate assets and 10% of reported cash. Stadler noted the challenge of operating within an "unregulated financial system" and suggested a reduction of Sullivan & Cromwell's $42 million bill by $650,000 for overstaffing and excessive meetings.
3AC Ventures Launches in a Move Met With Skepticism
Three Arrows Capital (3AC) cofounders Su Zhu and Kyle Davies, in partnership with OPNX, have announced 3AC Ventures, aiming for "superior risk-adjusted returns without leverage."
The pair are known in the crypto community for entering liquidation in 2022 after their overleveraged trading strategies caused their firm to face unpayable margin calls, which cascaded across the industry, prompting other bankruptcies.Β
The announcement did not go unnoticed by the crypto community, which expressed uncertainty regarding the partnership between OPNX and 3AC Ventures. Both organizations bear a tarnished history, raising eyebrows within the industry. OPNX, an exchange for tokenized crypto bankruptcy claims, launched in April 2023. In addition to 3AC, it has ties with CoinFLEX, both companies having a troubled past.
Despite community reservations, the two companies aim to facilitate projects within the OPNX ecosystem and advance toward a decentralized future. Meanwhile, OPNX continues to advocate its Claims product as a solution for those affected by previous crypto crises.
Polygon Considers Upgrade
Ethereum Layer 2 scaling solution, Polygon, is contemplating a significant upgrade to its main Proof-of-Stake blockchain. Mihailo Bjelic, the network's cofounder, posted a proposal for transitioning the chain's architecture to a zero-knowledge-based Ethereum virtual machine (zkEVM) validium, a decentralized layer 2 secured by zero-knowledge proofs. If passed, the $2 billion worth of assets, thousands of apps, and millions of users on Polygon PoS would transition to this technology.Β
The upgrade aims to bolster network security and decentralization, obliterate chain reorgs, and augment scalability by deploying zero-knowledge (zk) technology to the main PoS chain. Unlike the previously launched zkEVM solution, the mainchain upgrade wouldn't be a "rollup" but a "validium" solution, storing transaction data off-chain, reducing on-chain footprints, decreasing transaction fees, and elevating scalability.Β
Brendan Farmer, cofounder of Polygon Zero, claimed this groundbreaking transition would lead to Polygon PoS integrating with the Polygon 2.0 ecosystem, benefiting from unlimited scalability and unified liquidity powered by zk technology. If accepted by protocol governance, the upgrade could be activated on the mainnet by early 2024.
If you are unfamiliar with zero-knowledge technology, I highly suggest you listen to the March Unchained episode with Dan Boneh and Ali Yahya.
In related news, Polygon launched Polygon Copilot, an AI interface powered by OpenAI's ChatGPT, to support developers in creating decentralized apps on the Polygon blockchain.
Ethereum Proposal Raises Concerns of Centralization
A proposed shift in Ethereum's maximum validator balance from 32 ETH to 2,048 ETH sparked a lively debate. The proposal, aimed at resolving the issue of larger operations having to spin up multiple nodes, could increase network efficiency and reduce wait times in the validator activation queue. However, it drew mixed reactions. Advocates believe it will help large-scale staking operators like Lido streamline their operations and achieve what's known as "single slot finality" faster.Β
Ethereum Foundation researcher Michael Neuder, who introduced the proposal, emphasized that it could alleviate the stress on Ethereum due to the burgeoning number of validators. Investor Eric Conner backed this sentiment, indicating it could simplify key management for those handling multiple validators.
Those opposed, however, cited risks of centralization and the potential for heightened penalties for unintentional double attestations, or "slashing." Crypto analyst AdrianoFeria on Twitter refuted claims that this move would lead to centralization, stating it would merely make staking large amounts less cumbersome. Meanwhile, Adam Cochran of Cinneamhain Ventures voiced concern that this might disproportionately benefit "wealthy staking services" while increasing slashing risks for users.Β
BitGo Abandons Acquisition Plans for Prime Trust
Cryptocurrency custody firm BitGo called off its planned acquisition of competitor Prime Trust, which is reportedly grappling with client and deposit losses amid growing business concerns. Following the announcement, crypto exchanges Stably and Coinmetro notified their users that Prime Trust had ceased all deposits and withdrawals as per the directive of the Nevada Financial Institution Division. According to BitGo, the decision to terminate the acquisition came after extensive efforts to work out a way forward with Prime Trust.
CertiK Detects Critical Bug in Sui Network Pre-Launch
The Sui Foundation awarded blockchain security firm CertiK $500,000 for discovering a potential critical threat to the Sui network. The risk, dubbed the 'HamsterWheel' attack, could have resulted in the entire network falling into a never-ending loop, effectively bringing it to a halt without processing any new transactions.
βDiffering from traditional attacks that shut down chains by crashing nodes, the HamsterWheel attack traps all nodes in a state of ceaseless operation,β CertiK stated. The issue was identified and addressed before Sui's mainnet launch, marking a significant win for both Sui and CertiK. Darius Goore, head of communications at Sui Foundation, stated, "We are extremely pleased that the program resulted in finding and fixing this bug well before Sui went live."
Crypto Sleuth ZachXBT Raises Over $1 Million
Renowned blockchain investigator ZachXBT was sued by tech entrepreneur Jeffrey Huang, aka MachiBigBrother, for an article published in June 2022. As the story goes, ZachXBT accused Huang of embezzling substantial sums from Formosa Financial, a now-defunct crypto treasury platform co-founded by Huang. ZachXBT wrote: βThe lawsuit is baseless and an attempt to chill free speech. I intend to fight back & defend free speech.β
This case has sparked widespread attention, leading the crypto community to donate over $1 million to support ZachXBT's legal defense. Notable backers include major crypto businesses and personalities such as Binance, CertiK, and Justin Sun. The mounting legal expenses are estimated to exceed $1 million, and ZachXBT's attorney, Stephen Palley, warned of the potential personal risks faced by his client due to the lawsuit's exposure, such as threats to blackmail.
FUN BITS π
Unchainedβs Ginny Hogan gives us her take on the Binance vs SEC legal tussle.Β
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