Kraken Settles With the SEC; DCG and Genesis Agree on Path Forward
Weekly News Recap: 🎙️ New pod with Chris Blec, 🙅 Kraken's crypto staking service, 🕵️♀️ Regulators' actions, ❌ Judge's decision on the FTX case, and more!
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Chris Blec on Why He Believes a16z’s Uniswap Vote Exposes DeFi as a Farce
This past week, DeFi enthusiasts were buzzing about the controversial way the Uniswap governance vote was going down. Basically, Uniswap considered a proposal to deploy Uniswap v3 on the BNB chain. Under consideration was also which cross-chain bridge to use to deploy. Andreessen Horowitz (a16z) Crypto was not able to participate in an initial “temperature check” vote, in which 62% of the community voted to use Wormhole as the bridge.
A16z crypto let it be known that they would have used 15 million of its UNI tokens to vote for LayerZero, a cross-chain bridge that is also part of its portfolio. When the official vote went up, a16z crypto used those 15 million tokens to vote against the proposal.
DeFi researcher Chris Blec looks at the incident through the lens of his basic critiques of how DeFi works today. “The biggest mistake that I think people make when talking about this issue is assuming that a16z or any venture capital firm has any reason at all to be philanthropic,” he says. “They're not here to be charitable. They're not here to give you and I more rights in the world or to help us in any real way. They're here to make money.”
Listen to the full show for more on his thoughts on DAO governance and what role whales and VCs play in it.
Weekly News Recap
In SEC Settlement, Kraken Agrees to Shut Down Its Crypto Staking Services
On Thursday, the SEC announced that it had charged Kraken, one of the biggest crypto exchanges in the US (and, disclosure, a former sponsor of the show), with violating securities laws with its staking-as-a-service program. The exchange announced it was immediately shuttering its crypto-staking activities as part of the settlement, which also included a $30 million fine.
The implication is that such programs that do not register and offer the disclosures that are required of securities offerings are unregistered securities offerings. Coinbase, the largest and only publicly listed exchange in the US, offers a similar program.
As might be expected, SEC Commissioner Hester Peirce, aka Crypto Mom, published a dissent criticizing the SEC for going after staking-as-a-service programs via an enforcement action. She notes that since such programs are all structured differently, it’s not clear how this one-off action would apply to other exchanges. She wrote, “A paternalistic and lazy regulator settles on a solution like the one in this settlement: do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down.”
On Wednesday night, hours before news broke out about the Kraken settlement, Coinbase CEO Brian Armstrong expressed concern that the SEC may try to eliminate staking for retail customers in the US, calling it a "terrible path" for the country.
Crypto Regulation Roundup
Just after the news of the SEC settlement broke, the IRS filed a court document seeking permission to enforce a summons on Kraken for information on who may have tax liabilities for the years 2016 through 2020.
CoinDesk reported that the New York Department of Financial Services is investigating Paxos, which issues the Pax Dollar and Binance USD.
This week, the SEC listed cryptocurrencies and emerging technologies as one of its priorities for the year.
The SEC also issued a warning to investors to be cautious of cryptocurrencies in individual retirement accounts (IRA), stating that many crypto assets could be unregistered securities trading on unregistered exchanges.
The Commodity Futures Trading Commission (CFTC) is preparing for a big year of cryptocurrency enforcement actions, according to Chairman Rostin Behnam.
DCG and Genesis Reach Agreement
Digital Currency Group (DCG) and Genesis, the crypto lending platform that filed for bankruptcy last month, reached a preliminary agreement with the main creditors, including Gemini, which has agreed to contribute $100 million in additional funds to its Earn program users.
The creditors had claims totaling $2.4 billion against Genesis.
The agreement involves winding down the loan portfolio, selling off assets, and refinancing outstanding loans with $500 million in cash and $100 million worth of bitcoin from DCG.
It also involves a restructuring of the debt owed by DCG to Genesis and the issuance of a class of convertible preferred stock.
Moreover, the Financial Times reported that DCG has begun to dispose of its stake in various investment funds run by its subsidiary Grayscale at a significant discount.
Adam Cochran, partner at Cinneamhain Ventures, said: “DCG starting to dump $ETHE and $GBTC on their own bag holders to bailout their sketchy lending practice debt. Gross.”
The Last Hours at FTX Were Filled With Chaos and Confusion
According to a report by the Financial Times, the final hours at FTX were marked by chaos as customers withdrew their funds and employees fled the company's Bahamas offices.
As Bankman-Fried faced harried messages from Bahamian officials and panicked questions from staff, top leaders like Caroline Ellison, who ran Bankman-Fried's other company, the crypto hedge fund Alameda Research, scrambled to handle the logistics of the company's downfall. In the end, Ellison was reportedly "relieved" when the chaos came to an end, and admitted to feeling trapped by the company, a colleague said.
SBF Appeals to Keep Co-Signers' Names Confidential
Sam Bankman-Fried, former CEO of FTX, has contested the court's decision to make the names of co-signers of the $250 million bond public. He has submitted an appeal to keep the names confidential, as disclosure could lead to privacy and security concerns for the co-signers. The initial court decision was made after media outlets requested that the names be unsealed.
US Judge Has Concerns About SBF’s Communications
At a hearing in New York on Thursday, which Sam Bankman-Fried’s legal team intended to cancel, Judge Lewis Kaplan indicated that he had concerns about SBF's ability to potentially hide or delete his communications.
Judge Kaplan ordered his lawyers to submit a new proposal for modifying his bail conditions, which would include the installation of monitoring software on Bankman-Fried's phone to automatically record and archive all of his communications.
This would put an end to the ongoing disagreement between federal prosecutors and Bankman-Fried's lawyers over the conditions of his bail.
Earlier this week, the legal team for Bankman-Fried and prosecutors had reached a deal to modify the terms of the FTX’s founder’s bail regarding electronic communications, but Judge Kaplan rejected it.
New FTX-Related Token Sparks Controversy
On Sunday, Huobi, a cryptocurrency exchange, added a new token to its platform called FTX User Debt (FUD). This derivative token represents 2% of FTX's total debt and is issued by DebtDAO. It provides creditors with priority in asserting their claims on the debt owed by FTX. During the early bird issuance phase, the debt will be sold at a reduced price; the initial release has been set to 20 million FUD tokens. Despite this, there are some concerns about the listing. Wassielawyer, a bankruptcy expert, called it a violation of securities laws and pointed out that not all debt claims are equal and fungible.
However, only hours after the announcement, the FUD tokens experienced a lot of volatility, which resulted in a decision to destroy most of the token's supply permanently. 18 million FUD tokens will be burnt to bring its valuation in line with DebtDAO's fair value of under $1.
Politicians Should Return Donations, FTX Says
FTX is requesting the return of political donations linked to its former CEO and executives by end of this month, as part of its review of $93 million in political contributions made between March 2020 and November 2022.
If the money is not voluntarily returned, the FTX debtors have stated that they reserve the right to reclaim the funds in a bankruptcy court. A recent report from CoinDesk estimated that over one-third of the 535 members of Congress received money from FTX executives.
In other developments regarding the FTX case:
US prosecutors requested to postpone the civil fraud cases against Sam Bankman-Fried, until the completion of the criminal case against him.
A Delaware bankruptcy court judge decided to let lawyers negotiate a mutually agreed solution instead of ruling on an examiner's appointment in the bankruptcy case. An independent examiner would be more unbiased, but would also cost millions of dollars, potentially diminishing the return to creditors.
The Bankruptcy Costs of the FTX Case Are Piling Up
Even though FTX wants to save money on examiners, it is definitely spending a fair share of creditors’ money on other bankruptcy-related matters. According to court documents, the exchange and its related firms have incurred over $20 million in legal and consulting expenses in the initial stages of its bankruptcy proceedings.
Sullivan & Cromwell, a law firm, charged $9.5 million for their services and John J. Ray III, who was appointed as the replacement CEO, charged the exchange $690,000 for his first few weeks of work.
Robinhood to Pursue Repurchase of Seized Shares From SBF and Wang
Robinhood announced plans to buy 55 million shares previously owned by Emergent Fidelity Technologies, controlled by former FTX executives Sam Bankman-Fried and Gary Wang, that were seized by the US Department of Justice.
Robinhood CEO Vlad Tenev stated that the repurchase would be accretive for the company, though the timeline for the purchase is uncertain due to the ongoing fraud case against Bankman-Fried and disputes over ownership of the stock by various entities, including BlockFi and FTX.
3AC Cofounders Establish an Exchange
The co-founders of failed crypto fund Three Arrows Capital Zhu Su and Kyle Davies, along with the co-founders of CoinFlex, have created Open Exchange, a platform to trade crypto claims and derivatives.
The venture is proposed as a solution to the $20 billion market of claimants seeking resolution for money lost at bankrupt crypto firms such as FTX, Voyager, Celsius, Genesis, BlockFi, Mt. Gox, and 3AC.
Kyle Davies Disregards Court Mandate
Also this week, Kyle Davies did not comply with a court subpoena for the hedge fund's financial records. The current representatives of the bankrupt company, Russell Crumpler and Christopher Farmer, have lodged a complaint against Davies for obstructing the investigation and promoting new crypto ventures.
According to the complaint, Davies has only provided limited information and has been uncooperative in their efforts to gather the required records. A hearing has been scheduled for March 2 to determine if the court will enforce the subpoena and force Davies to comply.
Crypto Donations Pour Into Turkey and Syria After Devastating Earthquakes
In response to the deadly earthquake in Turkey and Syria, the crypto community has rallied together to provide aid and support to those affected by the disaster, raising as much as $3.5 million for Turkey, and still counting.
Crypto companies such as Binance, Tether, Bitfinex, OKX, and Kucoin pledged over $9 million in aid.
Crypto donations have become a well-established way of providing relief in times of crisis. After the initial invasion of Ukraine by Russia, crypto was widely used to donate funds and provide much-needed support to those affected by the conflict.
If you want to help, here are the addresses:
FUN BITS
An Extremely Bored Ape
The FBI seized a Bored Ape … which turns out to be an interesting story. Why don’t you hear it from Unchained’s social media manager Ginny Hogan.
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