FTX Gives Creditors Good News; SBF Launches a Substack
Weekly News Recap: 💼 SEC files charges against Genesis and Gemini, 🕵️ bad news for Avi Eisenberg, ❌ massive layoffs, 💵 Voyager's preliminary approval, 🎶 a funny song, and more!
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DCG's Dilemma: Should It Sell Its GBTC Holdings to Repay Gemini?
The all-out flame war between Gemini and DCG reached a peak this week when Cameron Winklevoss flat-out called Genesis, DCG, and DCG CEO Barry Silbert frauds and called for Silbert to step down.
Though so far, all that’s happened between the Winklevii and Silbert are fighting words, it will likely soon escalate further.
“DCG's choices are really shrinking pretty quickly,” was the assessment of Karim Dandashy, portfolio manager at XBTO Group, in the latest episode of Unchained.
Dandashy walks through those few choices that DCG still has available: selling venture investments, and allowing redemptions of GBTC while also selling its own 11% stake in the investment trust.
Then again, things may be decided for Silbert rather than by him. Late Thursday afternoon, just after our interview, the SEC charged both Gemini and Genesis with offering unregistered securities. And the Eastern District of New York is said to be investigating the type of transaction between DCG and one of its subsidiaries — presumably Genesis.
Dandashy sums up what looks to be a bleak situation: “If I were to kind of interpret it my own way, I would look at it as [Silbert has] made a levered bet on his own product getting converted to an ETF. And it's unfortunate where we are right now, but I just doesn't look very good.”
Weekly News Recap
SEC Charges Genesis and Gemini With Offering Unregistered Securities
After wrapping the interview with Karim, news broke that the SEC charged both Genesis and Gemini with offering unregistered securities to Gemini Earn customers. The complaint alleges that the depositors in the Gemini Earn program lent their crypto to Genesis while Gemini acted as an agent facilitating the transaction and taking a fee as high as 4.29% from the returns Genesis paid. Meanwhile, the SEC says Genesis used its discretion to generate interest for Gemini Earn customers.
In the complaint, the SEC seeks permanent injunctive relief, disgorgement, pre-judgment interest and civil penalties against both Genesis and Gemini.
SBF Launches a Substack While Under House Arrest
Sam Bankman-Fried, the disgraced founder of crypto exchange FTX, published a blog post on his new Substack newsletter titled “FTX Pre-Mortem Overview,” in which he gave his perspective on the collapse of the company and sister trading firm Alameda Research.
He named three reasons for the collapse of FTX: the huge amount of illiquid assets on Alameda’s balance sheet, Alameda’s failure to hedge against the bear market (also known as poor risk management), and Alameda’s “targeted crash precipitated by the CEO of Binance” (Changpeng Zhao, or CZ).
As for how all these issues at Alameda caused FTX to go insolvent, he blamed “contagion” – “similarly to how Three Arrows etc. ultimately impacted Voyager, Genesis, Celsius, BlockFi, Gemini, and others.”
Keeping in line with his recent plea in court, SBF maintained his innocence. He said: “I didn’t steal funds, and I certainly didn’t stash billions away.”
He also called it “ridiculous” that FTX.US users haven’t recovered their funds yet since, as he claims, the American subsidiary was fully solvent when he left the company.
FTX Recovers $5 Billion in Assets
In a court hearing on Wednesday, the liquidators of FTX said they have been able to recover a substantial amount of assets, including cash, liquid cryptocurrencies, and liquid investment securities worth over $5 billion.
They added that this sum does not include an additional $425 million worth of crypto held by the Bahamas Securities Commission. Despite this significant recovery, there is still an undisclosed amount of missing assets that are owed to customers.
Moreover, this week the United States Department of Justice took possession of over $456 million worth of Robinhood shares that were owned by Sam Bankman-Fried and Gary Wang, the cofounders of FTX. The shares were confiscated because they are considered assets connected to illegal activities such as money laundering or violations of wire fraud.
In the ongoing bankruptcy case, Judge John Dorsey rejected a request from media organizations and the US government to disclose the list of creditors for FTX, which will remain sealed for another three months.
Still, bankruptcy court documents revealed that Tom Brady, New England Patriots’ owner Robert Kraft's companies, and crypto firms like Blackrock, Coinbase, Lightspeed, Pantera and Tezos Foundation are among the stockholders of FTX.
Judge Dorsey also received a letter from a group of four U.S. senators, who are requesting that an independent examiner be appointed in the bankruptcy case.
Additionally, the new management at FTX, led by John Ray III, is requesting the return of charitable funds that were previously donated by Sam Bankman-Fried. For example, Future Fund, FTX’s charitable arm, had pledged more than $160 million to over 110 nonprofits.
Even though FTX has gone bust, there are as many as 117 parties interested in acquiring some of the exchange's assets, as per a legal document filed in the case.
As the proceedings move ahead, more executives are talking to authorities. On Monday, Bloomberg reported that Nishad Singh, the former director of engineering at FTX, met with New York prosecutors to discuss a possible limited immunity deal, following allegations of his involvement in fraud at the exchange.
What’s more, former president of FTX.US Brett Harrison said he plans to disclose details about the operations of the crypto exchange “in time.”
The CFTC Charges Mango Markets Exploiter
In the latest development of the Mango Markets’ exploit saga, the US Commodity Futures Trading Commission (CFTC) filed charges against Avraham “Avi” Eisenberg for market manipulation.
Eisenberg was arrested in Puerto Rico on December 26 and is now in custody pending a trial.
As per the complaint, filed on Monday, the regulator alleges that Eisenberg engaged in a manipulative and deceptive scheme to artificially inflate the prices of swaps offered by Mango Markets, resulting in the misappropriation of more than $100 million from the platform.
The CFTC is seeking civil monetary penalties, as well as other forms of relief, such as trading bans, restitution, disgorgement, rescission, and pre- and post-judgment interest.
Eisenberg’s involvement in exploiting the Mango Markets protocol is reportedly also being investigated by the US Securities and Exchange Commission.
Voyager Digital Obtains Preliminary Approval for Binance’s $1B Deal
Bankrupt crypto lender Voyager Digital has been granted initial court approval for its $1 billion sale of assets to Binance.
U.S. Bankruptcy Judge Michael Wiles in New York gave Voyager permission to enter into an asset purchase agreement with the crypto exchange and to hold a vote among its creditors on the sale, as per the court filing.
If executed, Voyager customers, who have been unable to access their funds since July 2022 will get 51% of their capital back.
Voyager filed for bankruptcy in July due to the "crypto winter" and exposure to the now-collapsed Terra and Three Arrows Capital.
Binance.US emerged as the ultimate winner of the bid in December last year. However, the deal will not be final until a court hearing is held on March 2 or shortly after. The deal has also faced opposition from the SEC, and more recently, from Alameda Research. Voyager criticized Alameda and its affiliates for objecting to the acquisition, stating that it is an example of "hypocrisy at its finest."
On Tuesday, Binance, the world’s largest crypto exchange by volume, acknowledged flaws in its system, which left a significant amount of BUSD undercollateralized.
The stablecoin, which is designed to be backed one-to-one by the US dollar, was found to be undercollateralized by a minimum of $1 billion. The issue caused the value of BUSD to deviate from its expected value by a significant margin, an event that reportedly occurred at least three times, according to analysts.
Layoffs Again Hit the Industry
Coinbase, the largest exchange in the United States, announced in a blog post that it will be cutting about 25% of its operating expenses, which includes layoffs of about 950 employees, roughly 20% of its workforce.
The decision was made in response to the decline in the markets, the broader macroeconomic conditions, as well as the fallout from malpractices in the industry.
The CEO of Coinbase, Brian Armstrong, stated that the company is well-capitalized and the changes will ultimately benefit Coinbase in the long run. Coinbase is downsizing its workforce for the second time in less than a year, following the layoffs of 1,100 people in June 2022.
ConsenSys, one of the biggest players in the Ethereum ecosystem and the developer of popular web3 wallet MetaMask, followed Coinbase’s path and announced it was firing 100 employees.
Meanwhile, perhaps with the intention of showing more strength than its competitors, Binance CEO Changpeng Zhao said the company aims to hire up to 30% more employees in 2023.
BlockFi Executives Did Not Withdraw Any Crypto After October
Bankrupt crypto lender BlockFi has assured a court that its executives did not withdraw any of their own crypto held on the platform prior to filing for bankruptcy.
Lawyers representing BlockFi told the court that this is not a case of insider extraction of value as seen in the Celsius case, where management withdrew large amounts of money on the eve of filing for bankruptcy.
Joshua Sussberg, a partner at law firm Kirkland & Ellis which represents both BlockFi and Celsius in their bankruptcy proceedings, noted that $15 million worth of withdrawals made in August by five senior executives at BlockFi, were used to settle litigation.
Meanwhile, creditors in the bankruptcy proceedings sought to keep their personal information private, as they're worried about identity theft and hacking.
Speaking of bankrupt crypto lenders, Kyle Davies, cofounder of Three Arrows Capital, expressed disappointment among the firm's creditors regarding the ongoing bankruptcy process. According to Davies, the costs associated with the process have been high, causing delays due to disagreements among creditors, and there has been dissatisfaction with the way the assets of the estate are being valued.
Macalinao Brothers Are Under Investigation by the DOJ
The United States Department of Justice (DOJ) is currently investigating the business practices of the Macalinao brothers, Ian and Dylan, who are the founders of Solana-based stablecoin exchange, Saber Labs.
This investigation comes after a report from CoinDesk in August, which revealed that the brothers had used pseudonyms to create an interconnected system of financial products that artificially inflated the value of their crypto deposits. This manipulation of metrics helped boost the growth of their Solana-based stablecoin project in the midst of the 2021 crypto market peak.
The DOJ is now looking into the web of crypto projects associated with Saber, including the DeFi app Sunny Aggregator and the stablecoin project Cashio. The investigation remains ongoing, but Saber Labs continues to operate. Meanwhile, the Sunny and Cashio projects have been shuttered.
El Salvador Passes Bill to Pave the Way for Issuance of Bitcoin Bonds
El Salvador's legislative body has taken a crucial step forward in the issuance of the country's bitcoin bonds that were supposed to launch early last year. It passed a bill that will establish a legal framework for all digital assets that are not bitcoin and will open doors for President Nayib Bukele's bitcoin bonds.
The plan entails issuing $1 billion in bonds on Blockstream's Liquid Network and investing half of the funds in bitcoin and the other half in the infrastructure necessary to develop the bitcoin industry in El Salvador. The bonds would also offer a 6.5% yield and provide a quick path for investors to acquire citizenship in the country.
Withdrawals of Staked Ether Are Closer
After successfully implementing the Merge in September last year, the next move for Ethereum is to enable withdrawals of staked ether, which will occur in a hard fork called Shanghai. This week, developers said they plan to release a public test network for the Shanghai upgrade by the end of February.
The upcoming withdrawals caused a wave of optimism for the issuers of ether liquid staking derivates. The tokens of Lido and Rocket Pool have jumped 36% and 27% respectively in the last seven days.
FUN BITS
A Song A Day Mann Music Video!
Vertical Dream, which describes itself as an entertainment company “exploring the boundaries of creative content and immersive digital experiences,” made a music video for a song called “GM,” by Jonathan Mann or Song a Day Mann. In case you didn’t know, he’s been making a song a day for 13 years and now sells them daily as NFTs!
The video kicks off with someone moving out of their house because they were “rekt”, and shows a moving truck whose number is 1-800-RUGGED.
“Terra/LUNA brought us crashing to the ground and the FED raised rates and kicked us when we were down,” go the lyrics.
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