Is Binance the Next FTX? 😱
Weekly News Recap: 🎤 New show on the NFT landscape, 📉 the potential FTX 2.0, 📊 Celsius' assets acquisition, and more ❕
Ethereum L2s Are About to Be the Hot New Thing in NFTs
In today's episode of Unchained, Laura speaks with Luke Miles, the founder of mint.fun, the first-ever aggregator of NFT mints.
They discuss the shift from high-value luxury NFTs to more accessible, fun-oriented assets and the impact of high gas fees on Ethereum, driving the exploration of Layer 2 solutions and alternative blockchains.
“Layer 2s are potentially about to have a moment. High gas and expensive gas is very crushing to this wave of experimentation we're seeing in NFTs. Ultimately, I think it's important that people can have fun collecting crypto and NFTs,” he sad.
Luke offers candid observations about the trends in the NFT market, from PFP projects to open edition mints, and the potential role of Bitcoin Ordinals and Solana in this space.
Weekly News Recap
Binance Commingled Funds, Reuters Says
Binance is being accused by three insiders who allege that the firm commingled customer funds with company revenue in 2020 and 2021, Reuters reported this week. Though the article cited an insider who said the commingling ran into the billions and happened nearly daily, Reuters saw evidence only for a transaction in February 2021 of $20 million in a Binance corporate account being mixed with $15 million from an account that had also received customer money.
Binance spokesperson Brad Jaffe denied the allegations and said the funds were corporate and used for purchasing the BUSD stablecoin.
The SEC is reportedly investigating Binance CEO Changpeng Zhao's ties with trading firm Merit Peak, which had accounts at Silvergate and allegedly was the owner of the account where business and customer funds were commingled.
John Reed Stark, a former chief of the SEC’s enforcement team, voiced concern over the opacity of Binance's financial transactions, arguing that customers should not require a forensic accountant to trace their funds.
Meanwhile…
Could FTX Rise Again?
Time logs showing work being done on a potential revival of the bankrupt crypto exchange FTX have fueled optimism among investors and creditors. CEO John Ray III's court filings hint at plans for a '2.0 Reboot,' triggering a 15% surge in FTX's native token, FTT.
Tribe Capital's potential $250 million fundraising campaign to restart FTX adds to the hopeful speculation. However, concrete plans for FTX 2.0 are still preliminary, with Ray stating, "Everything is on the table."
The future role of FTT within the reformed FTX remains uncertain due to its classification as a security by the SEC.
Meanwhile, as part of the investigation into FTX founder Sam Bankman-Fried, federal prosecutors amassed more than six million pages of evidence, a record amount for a white-collar securities fraud case.
In related news, CoinDesk reports that Alex Grebnev, the CEO of SBF-backed crypto projects Maps.me and Oxygen, faces charges in a lawsuit brought by Gregory Fishman, reportedly a co-owner of crypto news site Cointelegraph.
Grebnev is accused of misusing funds and stealing ideas related to his uncompleted crypto projects. Fishman claims Grebnev dissolved their collaboration following financial backing from Bankman-Fried and later co-opted Fishman's proprietary ideas.
Ledger Pauses Recover Launch
Amid backlash and criticism, hardware wallet firm Ledger has opted to postpone the release of its controversial Recover service. The service initially received unfavorable responses from the community, including concerns over potential government access and seizure of user funds. Recover was originally conceived to allow users to restore their private keys via encrypted shards stored across three different custodians. Don’t miss last Friday’s Unchained for more insights on the topic.
In a public mea culpa, Ledger CEO Pascal Gauthier acknowledged the concerns and assured users of the company's commitment to security and transparency. He emphasized that most of Ledger's codebase was already open source and the decision to accelerate its open-source roadmap would include as much of the Ledger operating system as possible.
Acknowledging the complexities of self-custody, Gauthier added: “The main pain point for crypto self-custody adoption is precisely the problem of seed phrase recovery,” indicating that despite the controversy, the need for a service like Ledger Recover remains.
In a further escalation of Ledger's Recover service controversy, company cofounder and former CEO, Éric Larchevêque, conceded in a Reddit thread that it's theoretically possible for governments to subpoena third-party custodians and thereby access user funds. He recognized the rollout of the service as a "PR disaster," increasing concerns among Ledger's user base.
Coinbase Appeals for Regulatory Clarity
Crypto exchange Coinbase pursued further legal action this week demanding a response from the SEC regarding regulatory clarity for digital assets. The dispute deepened after Coinbase's new court action following an April petition seeking court intervention for the SEC's specific rulemaking for crypto assets.
The SEC had previously argued that it was not obligated to respond to Coinbase's petition, considering it an "extraordinary remedy." However, in its response, Coinbase Chief Legal Officer Paul Grewal vehemently counterargued, calling its mandamus petition the "tailor-made remedy for the extraordinary facts presented here" and highlighting the lack of a clear path to SEC registration.
BlockFi Hits a Snag
Adding a twist to the BlockFi saga, the U.S. Bankruptcy Court ordered the crypto lender to retract premature statements about its reorganization plan.
The Official Committee of Unsecured Creditors heavily criticized BlockFi's management for their actions, accusing them of undermining the bankruptcy process and recklessly handling customer assets, court documents showed.
Furthermore, the committee expressed concern over a hefty $22.5 million worth of customer funds that BlockFi used to purchase directors' and officers' liability insurance policy. In a backdrop of accumulating debts, BlockFi's alleged substantial loans to FTX's sister company, Alameda Research, also have raised eyebrows.
With the Official Committee of Unsecured Creditors opposing the unapproved reorganization plan, the discourse has veered toward the legal culpability of BlockFi's leadership. As creditors and other parties wait, the court scheduled a hearing on the reorganization plan for June 20.
DCG Misses $630 Million Payment
Digital Currency Group (DCG), embroiled in the bankruptcy proceedings of its subsidiary, Genesis, missed a $630 million payment last week, according to crypto exchange Gemini.
This debt obligation to the Genesis bankruptcy estate has raised fears of default and intensified deliberations among the stakeholders on granting DCG forbearance to avoid the fallout.
Gemini, Genesis, and creditors including the Unsecured Creditor Committee (UCC) and the Ad Hoc Group of Creditors (AHG), are evaluating the potential for a consensual deal with DCG. In a twist of events, should the parties fail to reach an agreement, Gemini intends to advance a new plan without DCG's consent. Gemini also plans to request the return of $1.1 billion to over 200,000 Earn users with active loans as of Jan. 19.
Do Kwon's Bail Bid Is Rejected
Terraform Labs cofounder Do Kwon's efforts to secure bail in Montenegro hit a roadblock as a high court overturned a lower court's decision for his release, Bloomberg reported Wednesday.
Kwon, along with Terra's former CFO Han Chong-joon, was looking at a possible release under a €400,000 ($430,500) bail. However, the prosecution's prompt appeal to the high court resulted in a reversal.
With both the United States and South Korea seeking Kwon's extradition over the collapse of Terraform Labs last year, the situation remains tense. It now falls upon the lower court to take into account the high court's ruling and make a subsequent decision, leaving the fate of the disgraced crypto mogul hanging in the balance.
Tornado Cash Goes Through Governance Turmoil
Tornado Cash, a decentralized crypto mixer, found itself in a tempest this week when an attacker took control of its governance by granting themselves 1.2 million governance votes, overshadowing the roughly 700,000 legitimate votes from other members. The sudden takeover allowed the attacker to potentially inflict massive damage, including the withdrawal of all locked votes and draining all tokens from the contract.
However, in a surprising turn of events, the attacker then proposed to restore governance control back to its original state. Community member Tornadosaurus-Hex stated that although the community has little choice but to comply with the attacker's proposal, there's a "good chance" it will be executed.
In related news, a Dutch court allowed Alexey Pertsev, the Tornado Cash developer who was arrested last year and is now facing money laundering charges, to question blockchain analytics firm Chainalysis to dispute evidence linking him to criminal activities.
Fahrenheit Wins Bid for Celsius' Assets
Crypto consortium Fahrenheit has outbid NovaWulf, winning the bankruptcy auction for the troubled crypto lending company Celsius Network. The consortium, backed by ventures such as Arrington Capital and US Bitcoin Corp., will acquire Celsius's institutional loan portfolio, staked crypto, and other alternative investments, with the transaction hinging on a $10 million deposit due within three days.
Celsius's new ownership will distribute a large amount of liquid cryptocurrency, and will construct various Bitcoin mining facilities, including a new 100 megawatt plant. Celsius also confirmed that its account holders will own 100% of the new company's equity, overseen by a board predominantly appointed by creditors.
Candidate DeSantis Advocates for Bitcoin
Florida Governor Ron DeSantis, who announced his presidential candidacy on Wednesday, voiced his support for Bitcoin and crypto. In a Twitter Spaces with Elon Musk and venture capitalist David Sacks, DeSantis claimed that the current administration poses a threat to Bitcoin. He said: “Bitcoin represents a threat to them, they're trying to regulate it out of existence… and if it continues for another four years, they’ll probably end up killing it.”
Bitfinex Had Systemic Failures: Report
Tech magazine Wired reported that the Organized Crime and Corruption Reporting Project (OCCRP) acquired a confidential report shedding light on the 2016 Bitfinex hack. This significant breach led to the theft of 119,754 bitcoins, then valued at $72 million.
The document, produced by Ledger Labs, pinpoints Bitfinex's “systematic failure to uphold operational, financial, and technological controls” proposed by its digital security partner Bitgo. The report said that Bitfinex stored two essential security keys on a single device, leading to the breach. The keys allowed the hacker to manipulate Bitfinex’s operating system and elevate transaction limits, permitting a swift drain of bitcoins, the report said. Despite Bitfinex challenging the accuracy and completeness of the report, it did not dispute its authenticity. Bitgo refrained from commenting.
Multichain Meets 'Force Majeure’
This week witnessed an upheaval in the cross-chain protocol Multichain, with rumors swirling around arrests of team members in China. Several crypto entities, including the Fantom Foundation and Tron founder Justin Sun, have withdrawn funds, triggering a plunge in Multichain's native token MULTI by almost 40% in the past 7 days.
The drama began with unanticipated delays on Multichain's platform, with some transactions held up for over 24 hours. Multichain cited “force majeure," a term usually reserved for external unforeseen events, as the cause for this disruption and paused activity on some cross-chain bridges. As a response, Binance, the world's largest exchange, also suspended deposits of several tokens linked to Multichain.
Despite the turmoil, Multichain has pledged to compensate affected users, tweeting that "pending transactions will be credited automatically."
FUN BITS 😁
Ginny from Unchained shares her thoughts on the potential increase in the debt ceiling.
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